Former Permanent Secretary to the Treasure Lord Macpherson Speaks to T&G on The Rise of NI

Lord Macpherson, who was Permanent Secretary to the Treasury between 2005 and 2016, has attacked the idea of using a rise in National Insurance contributions to fund social care reform.

Speaking to Tom Newton Dunn and Isabel Hardman for T&G on Sunday, from 10am, on Times Radio he said:

I'm slightly discouraged that the government has chosen what I would regard as the easy option of a National Insurance hike; partly because National Insurance is only paid by people who work and so this is effectively a tax on employment. It's a tax on jobs. And if you tax something more, generally, you'll get less of it. But there's also a distributional issue. National Insurance is paid only by people who are below pension age. It's paid by young people who have taken a pretty big hit in recent years; what with tuition fees and the general stagnation in wages.

Lord Macpherson has also said basing the plans on proposals put forward by Sir Andrew Dilnot ten years ago will no longer work as the "world has moved on":

I think it was a proposal of its time and it was a time when there was much more money available...It does seem reasonable to me that the asset-rich should contribute to their care. But equally there is a social insurance element. Most of us won't need long term care, but some of us do. So although I worry about the cost I can see the legitimate political concern. But the problem actually is bigger than this. The world has moved on. We've had a monumental eighteen months of coronavirus which has shown that our long term care sector is probably inadequate for a civilised, wealthy nation. And so regardless of what happens on Dilnot, I think there are going to be huge pressures to spend more on social care in the coming period.

And he suggested the Bank of England should consider raising interest rates to counter inflation:

The fact is the economy is now growing. I know there's still uncertainty out there but there is definite momentum. There are short term reasons why inflation is going to go up. I get that some of those will go away, that's to do with coming out of lockdown and so on. But I do see inflationary policies building up and if I was part of those discussions, I would be advocating a touch on the tiller.

TND: A touch on the tiller means a rise in rates?

LM: Yes. It doesn't have to be a lot but a little might just protect us against more pain down the track, now, or in the autumn.

Lord Macpherson also warned Prime Minister Boris Johnson against continued borrowing or risk getting into "Latin American-type territory":

That cannot go on indefinitely. Indeed, if it did go on indefinitely you do begin to get into Latin American type territory. I'm not saying that's going to happen anytime soon but it is incumbent on the government to maintain credibility by showing how it's got a plan to stabilise the public finances. Now, they say most countries are following the same policy. The critical thing I think, for the Treasury and indeed for the Prime Minister, is to ensure that Britain doesn't become an outlier. Because once you're seen as an outlier by the markets, that's when your currency comes under pressure. You end up getting more inflation. And you end up in a classic British crisis of the sort which happened in 1976.---

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