Boris Johnson’s tax rise reveals a lopsided union that stirs resentment

The UK’s unbalanced devolution settlement means even policies that should unite the country are driving it apart. Raising a national tax to fund the National Health Service (NHS) and social care costs should be the ultimate peacetime programme of national solidarity, yet prime minister Boris Johnson’s dramatic decision to do so this week is loaded with the fractious politics of the union and has been widely seen in those terms.

Finding the money through national insurance rather than income tax or a wealth tax is controversial because the burden falls regressively on young low-paid workers.

The UK government chose this route because the British public has a vague sense of “national insurance” as linked to a fund for pensions and benefits, creating further vague senses of national solidarity and personal responsibility. Polling showed this gave national insurance the edge in making tax rises more acceptable. The system was set up in 1911 partly to foster these feelings, much to the concern of Irish republicans at the time.

In reality there is no fund: national insurance is a supplementary income tax. But the accounting illusion behind it has a perverse effect on separatist sentiment, as seen in debates on Scottish independence and Irish unification.

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Many people believe they have paid into a fund that would require London to keep paying their pensions if the UK broke up. By indulging this illusion, Johnson is indulging a nationalist illusion.

That was very much not his aim. The basic problem the prime minister faced in formulating a national policy is that taxes are almost totally centralised in the UK while health is almost fully devolved. So Westminster has to tax everyone but can only spend the money on social care in England.

Extra grants

This imbalance is corrected via the infamous Barnett formula. Extra spending in England has to be matched by extra grants to the devolved regions, calculated by head of population. Because the rich pay more national insurance and proportionately more of them live in England, the devolved regions will be getting back 15 per cent above what their voters pay under the new tax.

Johnson proudly proclaimed this in the House of Commons as a “union dividend” and the sums are substantial: Northern Ireland’s extra grant is enough to cover its entire day-to-day health shortfall.

However, nobody except Johnson sounds happy. The SNP has absurdly claimed Scottish people are being taxed twice. The Daily Mail reported the 15 per cent figure with stern Middle England disapproval.

There needs to be more devolution of tax powers until who is choosing to pay for what becomes too clear to be resented

Devolutionary accounting, where the Treasury insists on holding the purse strings and the English have no parliament of their own, creates a perception of benefactor and recipient that stirs resentment on both sides, like a nationwide benefit trap psychology.

Johnson has aggravated this by “directing” that the extra grants be spent on health, an irregular and provocative override of devolution that is meaningless in practice: Belfast, Edinburgh and Cardiff could just cut their planned health spending by the same amount. Trying to hog all the glory for extra money the regions would probably have spent on health regardless stirs more resentment into the mix.

The punchline is that the SNP intends to spend its grant on a “National Social Care Service”, which it will then compare to the piecemeal council-run system in England and use as an argument for independence.

Unique arrangement

Northern Ireland is the only part of the UK where social care is not run by councils. The function was merged into the health service in 1973 – strictly speaking the North does not have “the NHS” but “the HSC” – Health and Social Care.

For unionists perhaps the most ominous aspect of the tax and care debate is the complete incuriosity around the rest of the UK about Northern Ireland’s unique arrangement.

Establishing something similar in Britain has been a live issue for decades. Johnson's predecessor, Theresa May, nearly lost the crucial 2017 general election over her social care funding plans. Yet the successful operation of a unified health and care system for almost half a century in one part of the UK is rarely mentioned outside expert circles.

One argument for devolution is that it should be a policy laboratory, with a healthy culture of innovation, be it co-operative or competitive. Instead devolution’s lopsided structure ensures sullenness with every distinction.

The SNP has already used social care as a constitutional wedge, branding it as “free” in Scotland, although this only amounts to means-tested grants comparable to those elsewhere and more expensive to administer.

Moving money around for applause will never fix a devolutionary settlement that is uneven and always destined to be so given England’s relative size. There needs to be more devolution of tax powers, or less devolution of other powers, until who is choosing to pay for what becomes too clear to be resented and misrepresented.

Until then the union dividend is just paying to demerge the company.