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By Elizabeth Piper, Kylie MacLellan and William James
LONDON (Reuters) -British Prime Minister Boris Johnson set out plans on Tuesday to raise taxes on workers, employers and some investors to try to fix a health and social care funding crisis, angering some in his governing party by breaking election promises.
After spending huge amounts of money to fight the COVID-19 pandemic, Johnson is returning to an election pledge to address Britain's creaking social care system, where costs are projected to double as the population ages over the next two decades.
He also moved to try to tackle a backlog in Britain's health system, which has seen millions waiting months for treatment from the state-run National Health Service, after resources were refocused to deal with COVID-19.
"It would be wrong for me to say that we can pay for this recovery without taking the difficult but responsible decisions about how we finance it," Johnson told parliament.
"It would be irresponsible to meet the costs from higher borrowing and higher debt," he said, outlining increases that broke a promise made in his Conservative Party's 2019 manifesto not to raise such levies to fund social care.
British politicians have tried for years to find a way to pay for social care, though successive Conservative and Labour prime ministers have ducked the issue because they feared it would anger voters and their own parties.
Ignoring disquiet in his party, Johnson outlined what he described as a new health and social care levy that will see the rate of National Insurance payroll taxes paid by both workers and employers rise by 1.25 percentage points, with the same increase also applied to the tax on shareholder dividends.
He said the increases would raise 36 billion pounds ($50 billion) over three years.
Finance minister Rishi Sunak later underlined there was no going back on the state's enlarged role in social care. "This is a permanent new role for the government, and as such we need a permanent new way to fund it," he told a news conference.
The pound fell against the euro and dollar after the announcement, which the Institute for Fiscal Studies said would increase Britain's tax burden to 35% of GDP - a peacetime record.
Johnson has tried to cool anger at the hikes within his own party, which for decades has positioned itself as a defender of low taxes. Some lawmakers fear the rises could lose them support at an election due in 2024.
Johnson later said he did not want any further tax rises, but declined to rule them out entirely when asked.
Johnson said long-term reform was needed to fix care for elderly and disabled Britons, who would no longer face crushing care costs that have forced many to sell their homes.
"You can't fix health and social care without long-term reform. The plan I'm setting out today will fix all of those problems together," he said, to jeers and laughter from opposition Labour Party lawmakers.
"I accept that this breaks a manifesto commitment which is not something I do lightly, but a global pandemic was in no one's manifesto."
His work and pensions minister, Therese Coffey, later said Britain would not raise state retirement pensions in line with earnings next year, breaking another election commitment.
Labour leader Keir Starmer was quick to pounce on Conservative fears.
"This is a tax rise that breaks a promise that the prime minister made at the last election ... Read my lips, the Tories can never again claim to be the party of low tax," Starmer said.
Some British businesses said the rise in national insurance would only compound damage done to firms by the pandemic.
"This rise will impact the wider economic recovery by landing significant costs on firms when they are already facing a raft of new cost pressures and dampen the entrepreneurial spirit needed to drive the recovery," said Suren Thiru, head of economics at the British Chambers of Commerce.
Like many Western leaders, Johnson is facing demands to spend more on welfare even though government borrowing has ballooned to 14.2% of economic output - a level last seen at the end of World War Two.
For Johnson, who helped win the 2016 Brexit vote and then as prime minister presided over Britain's exit from the European Union, fixing social care "once and for all" offers a possible way to broaden his domestic legacy.
But critics say he is expanding state spending again without clear reform of the way social care is administered, and that the rise in national insurance will disproportionately hit young people and lower paid workers.
($1 = 0.7261 pounds)
(Reporting by Elizabeth Piper, Kylie MacLellan, William James and Michael Holden; Additional reporting by David Milliken; Editing by Catherine Evans and Jon Boyle)