I read in the papers that the Treasury is considering a merger of National Insurance and Income Tax. The logic would be that it could save money on collection to have a common system, and it would remind people that our tax rate on income is still quite high when you add the two together. The stories have been denied by Downing Street.
There are reasons why you cannot simply merge the two without other changes. The government would not wish to make pensioners pay national Insurance on top of their Income tax, as they do not currently have to pay NI. It would take time to exempt everyone on lower earnings below £10,000 a year from NI, as there will be a revenue loss, just as it has taken time to get everyone on less than £10,000 a year out of Income tax.
National Insurance is currently payable on earnings between £7956 and £41865 a year at the full rate, and at 2% above £41 865. Presumably the reform would not be a device for increasing top rates of tax further on a merged basis.
Some might object to the ending of a special tax called NI, as it removes the last vestige of the idea that you pay in to get back pensions and certain contributory benefits. As most will appreciate, the so called National Insurance scheme was never funded but was always a pay as you go scheme. Merging NI and Income Tax just makes it clearer that all of us who have paid NI over the years rest on future Parliaments continuing to pay us pensions, as has been the case through the State pension years.
I would be interested in your thoughts on this proposal.