Boris Johnson said National Insurance rates will go up by 1.25 per cent from April 2022 to help fund “the biggest catch-up programme in NHS history”.
He said the new levy would raise almost £36bn over the next three years, with money “going directly to health and social care” across the whole UK.
From 2023, the tax will be applied to earned income, appearing on employees’ pay slips.
A 1.25 per cent rise in dividend tax will also be introduced.
Announcing the measures in the House of Commons, the prime minister said that from October 2023 lifetime care costs will be capped at £86,000 in England.
He also said no-one with assets of less than £20,000 will have to make any contribution from their savings or housing wealth – up from £14,000.
People with assets between £20,000 and £100,000 will be eligible for some means-tested support.
Scotland and Wales are devolved and work with a £50,000 housing wealth threshold, not £20,000 as stated in England.
Johnson said: “Today we are beginning the biggest catch-up programme in NHS history, tackling the Covid backlogs by increasing hospital capacity to 110 per cent, and enabling nine million more appointments, scans and operations.
“As a result, while waiting lists will get worse before they get better, the NHS will aim to be treating around 30 per cent more elective patients by 2024/25 than before Covid.
“And we will also fix the long-term problems of health and social care that have been so cruelly exposed by Covid.”
Johnson admitted that the increase to national insurance breaks a Tory manifesto pledge.
He said: “I accept this breaks a manifesto commitment, which is not something I do lightly.
“But a global pandemic was in no-one’s manifesto. I think the people in this country understand that in their bones and they can see the enormous debts this Government and the Treasury has taken.
“After all the extraordinary actions that have been taken to protect lives and livelihoods over the last eighteen months, this is the right, the reasonable and fair approach, enabling our amazing NHS to come back strongly from the crisis, tackling the Covid backlogs, funding our nurses, making sure people get the care and treatment they need, in the right place at the right time, and ending a chronic and unfair anxiety for millions of people and their families up and down this country.”
Matthew Connell, director of policy and public affairs at the Personal Finance Society, said: “This is far from a perfect care funding solution for all as the new cap on the cost of social care only reduces the risk that some people will have to sell their homes to pay for care.
“Today’s announcement focuses on funding but we also need to know what this cash will provide as there are issues with the availability and accessibility of different types of care.”