Johnson, Sunak Vow to Go Ahead With National Insurance Hike

(Bloomberg) -- U.K. Prime Minister Boris Johnson and Chancellor Rishi Sunak said they'll press ahead with a 12 billion pound ($16 billion) payroll tax increase in April, defying pressure from rank-and-file Conservative MPs.

Some Tory lawmakers have demanded the 1.25 percentage point increase in national insurance contributions from April be scrapped given the nation's cost of living squeeze -- in particular a pending spike in household energy costs.

But Liz Truss, the U.K. foreign secretary, said the government had come to a “difficult decision” in the face of “extraordinary circumstances” created by fallout from the pandemic.

“We must go ahead with the health and social care levy. It is the right plan,” Johnson and Sunak wrote in a Sunday Times op-ed, while reiterating that they're “tax-cutting Conservatives.”

“We have always supported people through the pandemic and we will continue to look at the best way to support people through the recovery,” they wrote.

Johnson Digs In on U.K. April Tax Rise Amid Calls For Delay

The decision was consistent with guidance Friday from Johnson's spokesman, who knocked down speculation that the premier was planning to delay or scrap the plan. Johnson is fighting for his political life while facing a police investigation over alleged rule-breaking parties in Downing Street during the pandemic.

NHS Backlog

Sunak and Johnson were seeking to make good on commitments to help the National Health Service clear a years-long treatment backlog magnified by the coronavirus pandemic, and fix a crisis in care for the elderly “once and for all” without adding to Britain's huge debt load.

“We face a very difficult situation on the cost of living,” Truss said Sunday on Sky News.

She tied developments to the “backwash” of the massive borrowing program undertaken to get through the Covid crisis.

“I think the public appreciates that we've spent a lot of money during Covid, and we need to pay that back,” Truss said. Efforts to strengthen the economy and ultimately lower taxes again will “take time,” she added.

Johnson was reportedly “wobbling” on the measure as an increasing number of Conservative lawmakers revolt against a policy that puts the U.K. on track for the highest tax burden for over 70 years.

Adding fuel to speculation about a possible delay to the measure, government borrowing has undershot forecasts this year by 13 billion pounds, a windfall that Sunak could theoretically have used to respond to the cost of living squeeze.

Even so, borrowing this fiscal year is on track to be the second highest on record.

Johnson's commitment to the planned timetable was a “mistake,” Mel Stride, a former Tory Treasury minister who now chairs the House of Commons Treasury Select Committee, told Times Radio on Friday.

Stride said that with the U.K. economy growing faster than predicted at the time of the budget, Sunak had room to maneuver.

Still, others have said that delaying the tax increase would only mean more borrowing in 2023, and may have been seen as a purely political move as Johnson battles to keep his grip on power.

Tim Pitt, a partner at Flint Global and a former adviser to past chancellors Sajid Javid and Philip Hammond, said delaying the tax hike would mean more borrowing in 2023 when debt would be at its highest in 50 years, and would damage the Tories' reputation for being trusted on public finances.