Merge National Insurance with Income Tax?

 

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.

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141 Comments

  1. Mick Anderson
    Posted July 2, 2014 at 5:34 am | Permalink

    Merging the two would also allow those setting up as self-employed to offset expenses against the larger, combined tax. Less work for small accountancy firms in January too, and my accountant will be very glad of that!

    As observed, there would be winners and losers. However, any simplification is good just as long as the Treasury are not tempted to make things “more fair” by adding in loads of extra allowances and caveats. This would need to be the (start of the) opportunity to significantly slim down the Tax office by making less work for everybody in this field.

    Having the two combined would be the honest thing to do, which is exactly why it won’t be done.

  2. Lifelogic
    Posted July 2, 2014 at 6:00 am | Permalink

    There are three taxes on income (not two) employers NI 13.8%, employees NI 12% and income tax 20-45%. Recently increased further by the abolition of child benefit over £50K and all personal allowances between 100K-120K. The combined marginal taxes can come to over 60% at some income levels and even low earners can be paying 40%+ marginal rates.

    It acts as a very large incentive to DIY, rather than working and paying someone else to say mow your lawn or provide childcare. It make everything far less efficient, damages job availability and growth, discourages expansion and work.

    Whatever the government spends (or far more usually wastes) has to be obtained off the productive. The deficit is just deferred taxation (on top of all the taxes above). Rather than tinkering with the names of taxes they just need to stop pissing money down the drain. HS2, much of the overseas aid, the dysfunction NHS, the counter productive wars, the bloated incompetent state delivering so little, the EU, the IMF, electric cars, all the greencrap subsidies, CAP ……. it is endless.

    Leave more money with the productive, fire the unproductive and the economy will boom. This proposal is a distraction Osborne should first de-rat on his IHT promise and abolish employers NI allowing business to grow and take on staff. But cutting the endless waste and vanity projects should be the main aim.

    I see Libdem Cameron (with his consistently defective compass) is now backing the Libdem proposal on aid and wants to place in law the ongoing commitment to borrow £12Billion to spend of foreign aid. If people want to give to charity so be it, is not governments role to force them to and decide which charities. It is their money not Cameron’s to give away.

    http://www.telegraph.co.uk/news/politics/10938619/David-Cameron-facing-Tory-revolt-over-foreign-aid.html

    • Hope
      Posted July 2, 2014 at 3:27 pm | Permalink

      Absolutely. Good post.

      Cameron still has the gaul to say the Tories are a low tax party! What on earth is he talking about. Osborne is still borrowing billions each month, the debt is increasing each month, when the UK should be starting to see the structural deficit balanced. That is what these two posh boys promised. No significant spending cuts. The tax rises have paid for any reduction in the deficit. Clueless and deceitful. After his false chat about the EU earlier this week you wonder if Cameron is in a different universe to normal right minded thinking people.

    • Bazman
      Posted July 2, 2014 at 5:45 pm | Permalink

      Basically what you are saying is that you want cheaper labour to mow your lawn and look after your children subsidised by the state. Who is going to pay for the workers childcare and council flats do not have lawns in general.
      Much also rather depends upon who you define as ‘productive’ in the pointless rant. By your definition anyone directly employed by the state including doctors nurses, police, council workers etc. But not private companies carrying work out for the state. Or landlord merely collecting rent due to the inefficiency of the state to provide housing. Massively unproductive and parasitic by any measure and the ones most in need of firing after the bankers and loan sharks.
      I think also you will find cars due to their large V8, V12, and V16 engines with limited passenger and luggage space a very expensive and inefficient form of transport costing the country a fortune for the roads they require. Helicopters are much more sensible. The restriction on when and where large twin rotor ones are allowed to land is a affront to common sense no doubt put forward by Jealous BBC types living in central London.Landing on the roof of ones flat from Heathrow is just common sense causing less congestion leaving the streets free for ones children in their vulgar sports cars.

      • Bob
        Posted July 2, 2014 at 9:54 pm | Permalink

        @Baz, the government take tax from people who work full time to give it to people who do nothing in return.

        It would be better all round if the workshy were asked to do something in return for the money they receive from taxpayers.

        And please don’t start spouting off about the sick and disabled – they are not included in the term “workshy” although it has been known for workshy people to claim to be sick or disabled, we can leave that discussion for another day. In this instance – workshy means people who are fit and capable of work but prefer to sponge instead.

        As for HMRC, I agree with lifelogic, the waste inherent in the system of collecting is a loss to the country, so anything that can be done to slim them down and divert the savings to positive productive activity has to be a good thing.

        • Bazman
          Posted July 3, 2014 at 5:22 pm | Permalink

          The problem is of why they are shy of work bob? Most peole want to work and do. This idea that hordes of people are taking money in benefits from those working is your own deluded propaganda. Most benefit claimants work for low wages,are single mother or are pensioners.. A very tiny minority are large scale claimants and many of those that are are not able to find work in their areas. You cannot dismantle a system to give tax cuts to the rich because a fraction of a percentage abuse the system. Large profitable companies that pay low wages are the real scroungers, but does not fit your ideology.

          • Edward2
            Posted July 4, 2014 at 8:30 am | Permalink

            Having said all that Baz I assume you are still in favour of the free movement of EU citizens which is seeing half a million new arrivals each year coming here all looking for work in competition to those you mention.

          • Bazman
            Posted July 6, 2014 at 6:37 am | Permalink

            Helping to supply cheap labour, prenting wage inflation and making business viable to povide goods and services. Why cannot the British compete with these hard working Europeans who claim few benifits and add to Britain?

      • Livelogic
        Posted July 3, 2014 at 7:29 am | Permalink

        No what I am saying is if there were lower taxes people would be more likely to pay people to mow their lawns or look after their children. The taxes are so high it is usually better to DIY for most people.

        It make little sense economically for highly skilled workers to do simple DIY rather than their usual work, but the tax system forces this on them. With lower taxes they could pay the workers more and there would then be more jobs available.

        I have a twelve year old Volvo Estate and 10 year old Golf not really sports cars thanks.

        • Bazman
          Posted July 3, 2014 at 5:16 pm | Permalink

          They would have more money to pay those lower down, basically the trickle down effect. Maybe true up to a point, many just refuse to spend the money as they are so tight. Instead of paying a tradesman 10 quid an hour to do some decorating and spend the time with their children they would rather make an arse out of it themselves to save money as who cannot do decorating being their way of thinking as they are miserable like Scrooge.
          Cars in general use large inefficient engines such as v12′s You can ask any scientist of car mechanic.

          • S Matthews
            Posted July 4, 2014 at 2:38 pm | Permalink

            Cars use V12 engines? Well, yes, there are a tiny minority of very expensive cars which have V12 engines. But the total is so small as to be irrelevant. The vast bulk of cars on the road have fairly small, efficient, 4 cylinder engines.

          • Bazman
            Posted July 5, 2014 at 7:39 am | Permalink

            Are you seriously telling that these are people who have to drive small cars with engines of four cylinders or less? This is third world. Without chauffeurs I can believe, but obviously they are driving for the pleasure and exhilaration of it. The next thing you will have us believe is that people mainly eat cheap food and not top quality imported wines and meats. Absurd propaganda put forward by PPE media types, no doubt driving around in some hair shirt expensive hybrid telling everyone how green they are like in the Good Life. For the vast majority life is not like this.

    • APL
      Posted July 3, 2014 at 6:53 am | Permalink

      Lifelogic: “and abolish employers NI allowing business to grow and take on staff.”

      Where do you get the idea the government wants business to grow?

      The goal of any bureaucracy is to feed its own desires.

      Redwood wants to grow the economy, so that he can continue to supply the welfare state. The Welfare state is concerned mainly with employing the minions of the Welfare state, its appetite is voracious and insatiable

      You rarely hear anything about cutting public spending and never hear anything about government departments that could be excised completely.

      He wants a different relationship with the EU, but he and the party he wants you to vote for – support the European Union.

      His party talked big about cutting QUANGOs but hasn’t cut one – they’ve renamed and merged a couple but nothing has been done to cut back one tentacle of the state.

      The New Tory party. The big brother party of big government.

      • Bazman
        Posted July 5, 2014 at 7:44 am | Permalink

        Where does big business paying below a living wage subsidised by the state fit into your delusion? Who is being subsidised the worker the company or both and why should they be subsidised. When you get an answer to this massive cost to the state via the benefits system get back to us. The state also employs million within private companies too such as massive defence contracts. Is this welfare?

        • APL
          Posted July 6, 2014 at 12:02 pm | Permalink

          Bazman: “Where does big business paying below a living wage subsidised by the state fit into your delusion?”

          Sorry Bazman, I have no idea the relevance of your post to mine. Perhaps you intended to comment on something someone else posted but pressed reply on the wrong comment.

  3. alexmews
    Posted July 2, 2014 at 6:11 am | Permalink

    i support simplification and transparency. Only when it is transparent what the tax rate is, and what it is for, can folks start addressing the tax take head on and trying to reduce it.

    separately, and off topic, i note today 400 jobs lost in steel in Port Talbot due to high energy costs and high taxes

    http://www.cityam.com/1404212347/tata-steelworks-cuts-400-jobs-due-uncompetitive-energy-costs

    • Lifelogic
      Posted July 2, 2014 at 12:53 pm | Permalink

      Indeed exporting jobs due to Cameron and Davies greencrap religion totally bonkers and probably even more CO2 produced but now overseas with the jobs and revenue.

      Perhaps the best indication of tax is how many minutes it takes someone on average wages to work in order to buy something with and without all taxes.

      So perhaps a litre of petrol 5 minutes with no tax or 20 minutes with taxes (all of them NI, fuel duty, income tax, vat etc. )

      Or a new washing machine 40 hours with tax and 23 without? You might call it the DIY fiscal incentive ratio. Should I do it myself or get someone in?

      This gives the degree of government enslavement involved. Even then you have to add on the extra work the tax system, admin and government in general demands off you on top (totally unpaid).

      • Lifelogic
        Posted July 2, 2014 at 1:01 pm | Permalink

        You also have to add on the cost of getting to and from work that are not tax allowable. (other than for MPs and MEPs of course sometimes).

        • Anonymous
          Posted July 3, 2014 at 8:42 am | Permalink

          I’ve never understood this car allowance issue.

          A businessman can claim back expenses because he uses a car to make his living – but a commuter can’t.

          Why so ?

          • libertarian
            Posted July 4, 2014 at 7:19 pm | Permalink

            Anonymous

            “A businessman can claim back expenses because he uses a car to make his living – but a commuter can’t.”

            Any employee businessman or not can claim mileage allowance for miles done on company business. Businessmen, company owners or anyone else cannot claim for mileage to get to and from their primary place of work ( commuting)

            Hope that clears that up for you

      • Lifelogic
        Posted July 2, 2014 at 4:41 pm | Permalink

        The complexity of the tax system has the further advantage, for the state sector, that they can fine you for getting it wrong, being late, not filling the right form or just not understanding the endless complexity.

        This is further exacerbated as so few at the revenue understand it either. Not that you can get hold of anyone at HMRC to answer the phone, without first having a thirty minute wait or so, if not just off the hook. Must do wonders for the efficiency of industry. Letter are usually ignored or replied to after several months and they usually avoid giving out email details.

        For the EU and Bureaucrats complexity is good, constant change is good too lots more pointless jobs and new fining opportunities all round.

  4. ian wragg
    Posted July 2, 2014 at 6:11 am | Permalink

    It’s about time these two taxes were amalgamated as that’s all they are. Taxes. Once people realise the actual tax rates they are paying we can expect repercussions. It will focus the minds of politicians when trying to get our vote. The ones who wish to lower the burden will get the vote.
    You say there will be a drop in revenue by exempting the lower paid, well this can only be good.
    It would be very straight forward to re code everyone to take into account the new circumstances and the O.A.P’s like me could pay a flat 205.
    Chancellors don’t bother how complicated kit is to collect a tax so why should they worry over the complexities of simplifying the system.
    What about Clogg trying to have aid payments legally binding. Aftyer vthe Euro elections he should keep his mouth shut. I see it’s being proposed by a Scotsman. Another example of the tail wagging the dog.

  5. ian wragg
    Posted July 2, 2014 at 6:12 am | Permalink

    Should read 20%.

  6. Robert K
    Posted July 2, 2014 at 6:12 am | Permalink

    It seems logical to merge them, because then there would be less fudging when it comes to increasing taxes. However, I am absolutely sure that it would be done in such a way to increase the total tax take. Also, if the system is under review, then it would be worth Parliament’s while to think closely about how our national insurance scheme, into which we are supposed to pay before we get something back, has become a pay-as-you-go scheme.

    • Lifelogic
      Posted July 2, 2014 at 12:54 pm | Permalink

      Any taxes they change will be an increase for most of that you can be sure from 299 tax increases and the IHT ratter and “morally repugnant” Osborne.

      • Bob
        Posted July 2, 2014 at 10:04 pm | Permalink

        UKIP’s policy includes the complete abolition of the death tax.
        I expect to see a reaction in this respect in the Tory manifesto.
        Even without MPs ukip are setting the agenda.

  7. Richard1
    Posted July 2, 2014 at 6:15 am | Permalink

    Certainly they should be merged. Our tax system is far too complex, that’s one reason there’s so much avoidance. We should be moving towards a much simpler, much flatter tax system. Best of all would be a merger of the tax and benefits system, with negative rates of tax at the low end. That way work would always pay and there would be far less scope for gaming of the benefits system. Its a bit unclear where IDS has actually got to with this.

    • Lifelogic
      Posted July 2, 2014 at 12:57 pm | Permalink

      Anything that simplifies and get rid of parasites and parasitic jobs is welcome. But government are like turkeys and are unlikely vote for Christmas. Putting themselves out of work is not their aim.

      • Richard1
        Posted July 2, 2014 at 5:24 pm | Permalink

        Yes I remember a Treasury study a couple of years ago which concluded that a flat tax would not work in the UK. It was never clear why not. Certainly you would need far fewer HMRC types under such a system.

  8. Roy Grainger
    Posted July 2, 2014 at 6:20 am | Permalink

    It is a good idea. It will show people the true rate of income tax they pay and simplify the system. I suppose some transitional arrangements for pensioners will have to be put in place but in the long run I don’t see why they should not be removed so that everyone is subject to the same taxation rates.

    • Lifelogic
      Posted July 2, 2014 at 12:58 pm | Permalink

      The whole tax system is designed to hide what people pay as far (for virtually nothing of value in services) as far they can.

      • Bazman
        Posted July 2, 2014 at 6:28 pm | Permalink

        NHS, infrastructure, education, defence, police and transport, benefits for the rich and poor. I’m sure you can come with many more useless activities carried out by the state. Providing landlords with ever increasing rents for no other reason than a housing shortage caused by successive governments housing polices I’m sure you will agree is not parasitic and unproductive as like banking runs in a free market unhindered by the state except when it collapses and then need the state to interfere in a parasitic manner paying landlords and bankers for doing very little.

        • Bob
          Posted July 2, 2014 at 10:14 pm | Permalink

          @Baz

          “Providing landlords with ever increasing rents “

          Mass uncontrolled immigration coupled with an entitlement to housing funded by the taxpayer has led to a boom in rents and house prices. If the government withdrew the offer of such benefits, fewer immigrants would be attracted here and the housing market would slow down. It is usually the case that something offered for free will be in great demand, but when people have to use their own money demand drops off. Strange that (not).

          • Bazman
            Posted July 3, 2014 at 5:25 pm | Permalink

            Selling off all the social housing that are now in the hands of large scale landlords and not replacing it has not caused any problems. Just Immigrants and single mothers bob?

          • libertarian
            Posted July 4, 2014 at 7:28 pm | Permalink

            Bazman

            Here’s the numbers for you

            Owner occupied 18 million

            Private rentals including those provided as part of a job
            4.8 million

            Social Housing Assoc 3 million
            Local authority housing 2.2 million
            Other public housing 750,000

            So as you see the number of taxpayer funded houses is the second largest category after owners. This is the largest number of social housing that has existed in the UK

            Please provide any evidence of large scale social housing sales to private landlords

          • Bazman
            Posted July 6, 2014 at 6:55 am | Permalink

            Housing benifit of 23.8 billion or 30% of the benifits bill is the single biggest cost to the taxpayer. Now where do you suppose these people are housed mainly after the massive council house sell off? There was no sell off? Privatly owned by landlords or by state owned council houses? You could call them taxpayer funded houses in your deluded spin and you did….

          • APL
            Posted July 9, 2014 at 3:39 pm | Permalink

            Bazman: “Now where do you suppose these people are housed mainly after the massive council house sell off? ”

            Which is why we should remove all government subsidy and support from the housing market. Stop QE and allow interest rates to return to market rates.

            It’d bring houses back within the reach of the first time buyer. Rental prices would be forced down too, simply to compete with the new cost of a mortgage.

            Everyone would be happy, except those who jumped on the property bandwagon too late and MPs who would get routed at the next election, and loose their tax subsidised property portfolios too – or at least have to claim a more realistic rent off their tax funded expense accounts.

            Win win.

        • Lindsay McDougall
          Posted July 2, 2014 at 10:16 pm | Permalink

          The housing shortage has been created by the excessive immigration authorised by successive Governments and by subsidies that boost demand.

        • Hope
          Posted July 3, 2014 at 7:20 am | Permalink

          It is an immigration problem not a housing one. If you artificially increase the population and that population has more children on average than the indigenous population it is not hard to work out why there is not enough houses. Landlord rent increases are not as you describe country wide. It might be more acute in the south east.

          • David Price
            Posted July 3, 2014 at 11:20 am | Permalink

            It’s an immigration and a housing proiblem – why not build high rise apparments in London like they have in Manhattan?

          • Bazman
            Posted July 3, 2014 at 5:26 pm | Permalink

            Like in that slum Manhattan? LOL!

          • Bob
            Posted July 3, 2014 at 6:29 pm | Permalink

            @David Price
            They tried the high rise solution back in the sixties. It was a disaster. They were demolished after twenty years.

            It works okay for people who pay their own rent, but not for benefits tenants, they’d turn them into high rise slums in no time flat.

    • David Price
      Posted July 2, 2014 at 4:15 pm | Permalink

      But you would not end up with the same taxation rates – the pseudo NI tax element would be a new additional tax on savings interest, dividends and those drawing from non-occupational private pensions.

      My payslip always clearly showed what taxes and NI I paid, combining the elements would make no difference at all to clarifying the amount.

  9. Alex W
    Posted July 2, 2014 at 6:22 am | Permalink

    A first step would be to merge employers NI in to employees NI. At least then there would be a clear delineation between what an employer pays, what the government takes and what the employee receives.

    It should also be described much more clearly. Why does HMRC express NI as a weekly amount based on weekly income, and then describe income tax based on annual earnings (if not to confuse)? This practise would be treated as mis-selling if it was a financial product.

  10. Old Albion
    Posted July 2, 2014 at 6:22 am | Permalink

    You have asked the questions and answered them JR. On the face of it, it seems to make sense to merge NI with tax. But as i am retired (early) and live on my pension from my former employment. Clearly i wouldn’t want them merged as it would reduce my income. It would therefore necessitate two rates of income tax. One for those in employment and one for those retired.
    On the other hand, the link between payment of NI and future benefits is as tenuous as the link between car ‘road tax’ and money spent on the roads.
    People who come into the (dis)UK whether legally or not, become eligible for ‘benefits’ without ever having paid in a penny.

    • Denis Cooper
      Posted July 2, 2014 at 12:17 pm | Permalink

      “It would therefore necessitate two rates of income tax. One for those in employment and one for those retired.”

      There’s never been any logical reason why earned and unearned income should be aggregated for tax purposes, they should be subject to separate regimes.

  11. GregH
    Posted July 2, 2014 at 6:23 am | Permalink

    Long overdue…
    Let’s do the same for the employer part as well.

    The tax incidence of employer NI at nearly 14% falls wholly upon the employee.

    Over a quarter of the average employee’s remuneration disappears in NI.

    Let’s call it for what it is, thinly disguised surtax

  12. Peter Whale
    Posted July 2, 2014 at 6:36 am | Permalink

    Yes merge them and also include the employers contribution as well. You can always make the government pension non declarable for tax purposes, plus you can increase allowances for OAPs if needed. The tax system needs to be more transparent.

  13. Narrow Shoulders
    Posted July 2, 2014 at 6:46 am | Permalink

    Rather than a merger with income tax a reform of NI should aim to make receiving its cover contributory.

    The rate could be set (between the current thresholds, no need to milk higher rate earner more for cover that is limited and the same for all) to be equal to the expenditure on pensions, in and out of work benefits excluding disability allowances and health. The basic rate of income tax should be adjusted downward to reflect this change ensuring government does not use the reform to collect more tax.

    By doing this government could then mandate that only those who had contributed (or an immediate family member) for six months in the last two years could receive the benefits of cover otherwise their policy has lapsed. This may necessitate programmes of hole filling to ensure sufficient employment (or labouring on HS2 & HS3.

    This may lead to a negative basic rate of income tax (ie NI 35% basic rate tax -3%). This would reintroduce a benefit to couples living together (of all gender combinations including father and son which will please Mr Tebbit) without expending the political capital.

  14. David Cockburn
    Posted July 2, 2014 at 6:54 am | Permalink

    As I think you are, I am also sceptical of the proposal to merge these two taxes. The saving will probably not materialise and it would make pensions a ‘benefit’ rather than a right.
    I would prefer to see a proper sovereign wealth fund built up using NI money to pay benefits on a contributory basis. The rest of the welfare system could be funded from taxes but pensions and unemployment payments would be rights.
    There is a argument that NI should be increased to add funding to the NHS but this is just an argument for a tax increase in typical Labour style.

  15. Andyvan
    Posted July 2, 2014 at 6:58 am | Permalink

    Abolish a tax? No chance. No government wants to simplify or reduce the number of taxes it can levy, why would it? The more confusing and complex it is the less ordinary understand just how much is being stolen from them. If people had one lump sum to pay out of their bank account it would be obvious just how out of control, wasteful and unnecessary the state really is. We might even have a tax rebellion and then all those who get a good living from the parasitic monster might have to get proper jobs.

    • Robert Taggart
      Posted July 2, 2014 at 1:17 pm | Permalink

      Nigel Lawson – remember him ? – methinks he had a ‘golden rule’ for his Budgets.
      With each Budget he would abolish some existing tax – often a rather ‘esoteric’ one – while still maintaining the existing tax take. This would be done by a penny on this or more on that.
      Alas, he was to be succeeded by ‘The Grey Man’ of British politics – who was so dull as both Chancellor and Premier – a more colourful character decided to challenge him later on !

  16. Anonymous
    Posted July 2, 2014 at 7:12 am | Permalink

    “As most will appreciate, the so called National Insurance scheme was never funded but was always a pay as you go scheme.”

    We really did think it was a pensions plan with a pension pot waiting for us at the end of it. Some have made retirement plans around this bearing in mind that £42k doesn’t go very far in some parts of the UK and retirement plans have had to be given a lower priority than paying bills and mortgages.

  17. James Sutherland
    Posted July 2, 2014 at 7:13 am | Permalink

    I certainly agree with the principle: in reality, NI is just an additional income tax anyway, so why collect it separately? (In fact, from an employer perspective it really isn’t separate anyway: each month, we send HMRC a cheque for the combined sum of income tax, both components of NI and student loan repayments. It’s drawn from the same account and paid to the same government account anyway!)

    Converting the ’2% above £41865′ bit would be relatively easy, although it’s a shame that band for income tax starts at £31866. Equally, the starting point of £7956 rather than £10000 – but lowering the starting point for the combined tax slightly should offset that neatly.

    “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.”

    I disagree there: why should someone pay less tax on the same income simply for reaching a certain age? I think that was a missed opportunity, when compulsory retirement ages were abolished, this tax anomaly should have gone with it. Having said that, income tax already includes various age-specific allowances and limits, so preserving this would not be a huge change.

  18. Steve Stubbs
    Posted July 2, 2014 at 7:25 am | Permalink

    The Taxpayers Alliance published a good paper on this subject a short while ago which covered the areas you highlight and how they could be dealt with.

    If you haven’t read that, I suggest you do.

    • Mark
      Posted July 2, 2014 at 1:50 pm | Permalink

      I have read their paper. Unfortunately, it fails to provide an equitable treatment for future pensioners and those forced to take early retirement (perhaps on medical grounds). It is also unclear on the degree of exemption it would offer to existing pensioners.

  19. alan jutson,
    Posted July 2, 2014 at 7:54 am | Permalink

    This need not be complicated at all

    Should you merge the two taxes (that is what they are) then you simply adjust an individuals personal tax allowance should they be of pensionable age, so that the NI element is excluded.

    The real problem comes with income tax on savings and investments which would then include NI.

    Why not simply set the NI break points to mirror the tax rate bands break points.
    Then set them both at a level (personal tax allowance) where anyone earning up to the minimum wage pays nothing at all.

    Alternative why have different NI rate bands at all, just make it a flat rate to apply after the personal tax allowance.

    Given we do not have a contribution requirement for benefit claimants or NHS use, then it seems almost pointless to charge NI in the first place.
    Pension entitlement could be decided on employment record.

    We certainly need to simplify the system and to be honest about our tax rates.

    On the down side, I guess any change will result in an expensive computer system failure, as so many schemes seem to have failed before.
    Why is it that all Government procurement seems to cost a fortune and never seems to perform, yet private industry seems to have no such problem.

    • Narrow Shoulders
      Posted July 2, 2014 at 5:24 pm | Permalink

      BAA seems to be having a few problems with its baggage computers at present. They are Private sector.

      • alan jutson,
        Posted July 3, 2014 at 5:34 am | Permalink

        N S

        “BBA”

        True, but this was due to a breakdown Failure for a day, it had worked for the last 5 years without fault after initial set up problems, government systems never seem to work properly at all, indeed some are never completed after billions have been spent.

        Terminal 5 Heathrow has been voted best Airport terminal in the World in pasts years, although I think Singapore has been voted best airport..

        • Narrow Shoulders
          Posted July 3, 2014 at 5:53 pm | Permalink

          @AJ

          Noted on all points. Private sector is usually better than Public due to spending their own money and competition factors but is a panacea that can not also be improved.

  20. Julie Innis
    Posted July 2, 2014 at 8:04 am | Permalink

    “The Government would not wish to make pensioners pay national insurance on top of their income tax”

    Are you sure about that John? After the granny tax, nothing would surprise me about me about me about George Osborne who hasn’t got a clue what it’s like to live on a non-index linked private pension which has already been hammered in recent years by the incompetence of our politicians and bankers. Cameron bleats on about everyone paying £800 a year less in income tax but fails to mention that for pensioners ‘who’ve done the right thing’ the tax take has gone UP not down.

  21. Corin Vestey
    Posted July 2, 2014 at 8:14 am | Permalink

    The arguments in favour seem to be overwhelming. Removing NI and creating a combined income tax not only shows people a truer picture of the taxation of income in the UK but also removes the ability of cynical Chancellors to manipulate the NI rates while claiming not to increased income tax.

    • Lifelogic
      Posted July 2, 2014 at 4:43 pm | Permalink

      The last thing they want is people knowing how much they actually pay for so little delivered!

    • Narrow Shoulders
      Posted July 2, 2014 at 5:28 pm | Permalink

      Every year end P60 shows how much tax and NI ( including Employers) has been paid in the year. I suspect those who do not take sufficient interest to add these up do not take that much notice such would change if it was in one figure.

      NI should be kept and its benefits made contributory

  22. John E
    Posted July 2, 2014 at 8:15 am | Permalink

    If NI is charged on unearned income that will be another disincentive to save.
    Also these days many have phased retirements, drawing some pension and working part time. Are those pensions drawn before the state retirement age to be taxed with NI?
    I don’t trust any government to make this change without grabbing more tax wherever they can. It would be more honest to stick a penny on income tax.

    The NI fiction is an important one. If we are free citizens paying in to an insurance scheme that is very different to being serfs dependant on the state and subject to the political whims of the moment. It would be better to work on making the fiction reality.

    • waramess
      Posted July 2, 2014 at 5:27 pm | Permalink

      I agree and find it hard to believe that so many responses agree the two should be amalgamated.

      NHI is an INSURANCE premium and covers the cost of pensions and health. That it is unfunded is not the fault of the contributors but that of those in government foolish enough to have ever thought government was up to the job of insurance.

      Of course, now that it can be seen to be flawed they want to see it as a tax, particularly since they have spent all the contributions in this way for decades and, once they get away with this scam then we will all be seen to be on benefits and as such, state dependents.

      This is not about a convenience it is about a connivance to commit fraud and it should be opposed.

      If the government are not up to the job of insurance and still run an unfunded system after 65 years of opportunity to remedy the situation they should not now be allowed the easy way out: they should return the function to those who know what they are about.

      • Bob
        Posted July 2, 2014 at 10:34 pm | Permalink

        @waramess

        “This is not about a convenience it is about a connivance to commit fraud and it should be opposed.

        If the government are not up to the job of insurance and still run an unfunded system after 65 years of opportunity to remedy the situation they should not now be allowed the easy way out: they should return the function to those who know what they are about.”

        Correct.

  23. deepblue
    Posted July 2, 2014 at 8:15 am | Permalink

    “Presumably the reform would not be a device for increasing top rates of tax further on a merged basis.”

    I wonder what your presumption is based on?

    The unequivocal commitment by the Conservative leadership to lower taxes?
    The robust state of the nation’s finances?
    The honesty and transparency of successive governments in taxation policy?

  24. formula57
    Posted July 2, 2014 at 8:21 am | Permalink

    If the objective is educating taxpayers that there is a connection between the tax they pay and what the government spends, there are better and easier ways of achieving it. One would be to adopt the proposal of providing an annual statement breaking down each taxpayer’s bill to show how the government applied the suns taken.

    Nigel Lawson commented a while ago that in his time as Chancellor he looked in earnest at merging NI and income tax and soon found it was a bad idea. He did not explain his reasoning in detail (that I heard) but he warned clearly against such a step. As we have it on the highest authority that he was “my brilliant Chancellor”, some caution at going against his view is doubtless merited.

    • Mark
      Posted July 2, 2014 at 1:53 pm | Permalink

      I think it might be a good start to require that payslips and P60s and P45s show the employer NI contributions.

  25. Robert Taggart
    Posted July 2, 2014 at 8:36 am | Permalink

    BRILLIANT, but, will believe it when tha sees it !
    Honesty + Transparency – from our Political Class ? – WOW !
    Go for it.
    Signed, Professional Scrounger !

  26. Iain Gill
    Posted July 2, 2014 at 8:46 am | Permalink

    Well the first and most obvious thing to say to all the Conservative blogs is are you not missing the most obvious point and don’t you all see how delusional you all sound? Let me spell it out… UKIP won the European elections… the status quo on immigration and Europe is not tenable… talking tough but doing nothing is not viable… you all need to bang heads together and listen to the people… stop listening to the political journalistic bubble and see common sense… deary me is this the best our supposed leaders can do?
    As for national insurance, yes it should be rolled into tax, for a whole bunch of reasons
    - this should be part of a wider phased mass simplification of the tax and benefits system which if done properly could strip masses of costs out of the public sector which would be good for all of us
    - It would help if individuals could see in their pay packets exactly how much they are being taxed
    - it would help people who get work for part of the year, because currently many overpay in comparison to average, if you work part of the year you can get refunds of overpayments of tax (as PAYE assumes we all work 12 months) but no repayments of NI. This would be good for so called social justice.
    - I would hope at the same time the perks for using foreign nationals here on work visas would be stripped away, at the moment they get their first 12 months in the country free of both employers and employees NI… change the system so they are taxed at least as much as Brits. And no more tax free amounts for supposed expenses that Brits working away from home within the UK could not get. And pro rata their tax allowance to the amount of the tax year they are allowed to work here. Etc.
    - I would move towards giving all benefits as tax allowance changes which trigger payments incrementally through the year, put everyone on a PAYE system, and if they are not earning then trigger “tax” (equivalent to current benefits) repayments. Allows the benefits system to use simple payroll software. Removes masses of complexity. I would allow the payroll operators to be private sector, like umbrella companies running folks payroll, and let individuals choose provider as they like. The state should only be responsible for allocating the tax “allowance” (or rebate). That way again masses of complexity, and expense, is taken out of the state. And people get choice and competition for service provision. Much cheaper than the masses of admin the state currently spends.
    As for the remnants of a contributory benefits system, let’s be honest there isn’t much of this left. I would simplify all working age benefits to pay, say, 10% extra to anyone who has worked the majority of their adult life. Make it that simple. Puts the incentive back into the system for folk to work when they can. As for pensions we are already moving to a flat state provision with most taken up by private providers, biggest scandal is immigrants here late in life getting full pensions having never contributed here… make em payup backdated pension contributions before allowing them to come in would seem the fairest solution.
    Good luck

  27. Nick
    Posted July 2, 2014 at 8:59 am | Permalink

    Back to the unfunded schemes. Very simply. No assets. Even the NI fund is worthless. It’s the government lending the government money.

    So to see how valuable it is. Write on a piece of paper. I John Redwood owe John Redwood 1 billion pounds. Now sign it.

    Bingo. Now we tell HMRC that you’ve a 1 billion pound gain. You’ve an asset worth a billion. Just as the NI fund as 38 billion in it. Valuable? If you tell us it is, then pay the tax on the asset you’ve just gained. Its worthless.

    So assets zero. The state owns no assets that can pay for the pensions. It doesn’t own the population even though it runs a stud book on how the serfs are breeding.

    So there is then the question. How much does the state owe for pensions? We’re still waiting for you to make good on your campaign promise, and you haven’t got much time left. Let me help you. It’s 7,100 bn pounds going up at over 600 bn a year. 600 bn is total taxes. All of them.

    So why the merge? First, you have to ask, is there a simpler way of making it clear just how much tax you take.? Yes.

    All you do is insist that all pay slips and P60s include the percentage tax paid, preferably with the email, home address, and telephone number of your local MP. Very simple. Very cheap.

    So if its cheap to make people aware, why the move to merge? It can’t be about telling people how much tax they are paying.

    It’s about entitlements. Break the link with NI and entitlements, and things become optional. At the whim of parliament, it can be changed. Just like SERPS the other day. Why is the DWP shredding evidence of the guarantee and removing it from the parliamentary library? Answer its a fraud.


    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.

    If you can’t tell us how much is owed, how quickly its growing. What cuts or tax rises are needed to fund it going forward, then the conclusion is that its a con and a fraud. Section 2, 2006 fraud act applies to MPs as well as the plebs.

  28. Will
    Posted July 2, 2014 at 9:01 am | Permalink

    It’s all tax on my income. I think they should be combined so it’s clearer just how much the government takes. Everyone should be aware of their marginal tax rate but at the moment it’s shrouded by NI. There should also be some alignment with those who arrange their pay via a limited company and who in certain tax brackets enjoy less NI tax.

  29. DiscoveredJoys
    Posted July 2, 2014 at 9:08 am | Permalink

    I’m pretty certain that no Government is brave enough to drastically simplify the revenue raising system. People will complain that a simplified system would be unfair to special interests, which is how we have ended up with the complicated mess we now have.

    Perhaps the Government should issue an example Revised Revenue System as a shadow to the existing system so that people could evaluate it? Perhaps a progressive Earnings Tax, a differentiated Consumption Tax, and a progressive and differentiated Land Value Tax? It would still be a huge upheaval if implemented though.

  30. Max Dunbar
    Posted July 2, 2014 at 9:16 am | Permalink

    National Insurance has always struck me as a tax that harks back to a bygone era when old-style socialism was the dominant ethos and the country had homogeneity. These days are gone and it is questionable if this soviet-era relic is really appropriate now.
    The tax was also a tax on jobs as the employer contributions were higher than the employees. This was just another method to discourage and punish the creative sector by shifting social responsibility on to the shoulders of private citizens and companies much as the Rent Act did with ‘fair’ rents.

  31. oldtimer
    Posted July 2, 2014 at 9:18 am | Permalink

    Somehow I think that the grey beard vote would object to the addition of NI to their tax bill. Merging tax and NI for those in employment sounds extremely complicated if new anomalies are to be avoided. Tax simplification would surely be better achieved through the abolition of taxes that raise little revenue, either gross or net of the costs of their collection.

  32. Posted July 2, 2014 at 9:33 am | Permalink

    It is true that “The government would not wish to make pensioners pay national Insurance on top of their Income tax”. It is not clear, however, why workers should pay less tax than non-workers. The idea behind it was presumably that NI is the contribution for future benefits, and there is no reason to collect contributions when the benefits are being claimed. But as this link was long-ago broken, it’s just a tax cut for the elderly.

    Abolition of NI should be combined with a shift to a contributory pension and benefits system, at which point Income Tax should be fall equally on all.

  33. Jerry
    Posted July 2, 2014 at 9:34 am | Permalink

    “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.”

    I’m in two minds, it does make sense to merge the two into the one tax, but I do understand why some people might like to keep idea of a link to pensions and health services, even though it is not a pay as you go scheme it still allows people to say “Hang on, we have paid into that” [1] should a strong government (of what ever flavour) decide to make unilateral changes that were not contained within their election manifesto.

    It’s the same with the Vehicle Excise Duty (although that could. even should, be merged with road fuel duty…), the direct -ring fenced- link between road building & maintenance has been non existent since 1937 but motorists are still able to cite the VED when they feel that motorists are suffering from the lack of bypasses or the non repair of potholes etc. It is easier to make a specific complaint about government expenditure if there is a specific tax can be cited.

    [1] I assume it could still be itemised, like with Council Tax, within which there are several different charges that get listed in our statements, such as money for policing?

  34. Denis Cooper
    Posted July 2, 2014 at 9:44 am | Permalink

    Off-topic, soldiers from Eurocorps raise the EU flag to the strains of the EU anthem at the opening of the EU Parliament:

    http://www.breitbart.com/Breitbart-London/2014/07/01/Soldiers-of-the-Eurocorps-give-miliary-salute-to-EU-flag

    Not the first time; maybe eventually people will start to notice and ask questions.

  35. behindthefrogs
    Posted July 2, 2014 at 10:11 am | Permalink

    The sooner this happens the better. It will put the taxation of unearned income on the same basis as earned income. It should be priority anyway to remove the NI tax from our lower earners. The pensioner objection should be met by an increase in the old age pension which again would move the money where it is most needed.

    This move would create a much needed social balancing.

    Employers’ NI contributions should be decreased at the same time.

    • Denis Cooper
      Posted July 2, 2014 at 12:13 pm | Permalink

      I see no compelling reason why taxation of unearned income should be on the same basis as that for earned income, in fact exactly the opposite.

      • behindthefrogs
        Posted July 3, 2014 at 11:44 am | Permalink

        I agree but unearned income should be taxed at a higher not lower rate than earned income.

  36. Posted July 2, 2014 at 10:19 am | Permalink

    Another reason for not combining the two is thus. Governments need to make fiscal adjustments from time to time, e.g. the government cut VAT during the crisis and then raised it again. And I suspect it’s easier to adjust NI contributions than income tax.

    In the US, the adjusted their payroll tax, during the crisis, and that’s very similar to our “NI tax”.

    • APL
      Posted July 2, 2014 at 1:11 pm | Permalink

      Ralph Musgave: “And I suspect it’s easier to adjust NI contributions than income tax.”

      There is a massive bureaucracy dedicated to administering income tax or National Insurance at the prevailing rate. God forbid they might have to redo modify their spreadsheets, in between coffee breaks.

  37. Lindsay McDougall
    Posted July 2, 2014 at 10:23 am | Permalink

    We need a detailed statement from the Government Actuary as to what employee NI and Employer NI is actually spent on.

    I would like to see NI confined to fully funded schemes, which could then be privatised.

    The remainder of NI, which I suspect is the majority, could then be merged with income tax. Increase the lower limit of incomes that pay full NI to £10,500 in line with income tax. Abolish the upper limit on full employee NI contributions, at the same time lowering the top rate of income tax. Then integrate employee NI and income tax. For good measure, abolish the cap on incomes that qualify for child benefit but make child benefit taxable.

    Why do you propose special treatment for pensioners?

    As regards employer NI, why not integrate it with corporation tax? We don’t want to penalise employment, do we?

    • Nick
      Posted July 2, 2014 at 11:04 pm | Permalink

      Correct. For a median wage earner just retiring.

      Funded scheme from their NI.

      830K in a fund. 28K a year income leaving the fund alone. Share of the state borrowing 40K.

      For the current system

      Nowt in a fund. 5.7K in income. Share of the state debts, pensions included, 300K.

      Since John has a clear idea of what the state owes, he won’t point to the debt or the extremely bad value that NI offers even poor people. MPs are relying on more schmucks to keep the money flowing

    • behindthefrogs
      Posted July 3, 2014 at 11:48 am | Permalink

      I agree with incorporating employers NI into corporation tax. This would be of particular benefit to smaller companies as being paid later it would improve cash flow. The worry would be the ability of some companies to lose the tax offshore.

  38. libertarian
    Posted July 2, 2014 at 10:31 am | Permalink

    Hmmm Your government has despite repeatedly promising a massive reduction in red tape introduced Auto Enrollment yet ANOTHER state mandated pension scheme to be funded by employers on top of the already state mandated pension scheme funded by employers Employers National Insurance. Trouble is all of this vast amount of money collected from employers by the state is then added and wasted in the general tax spend and debts of the country. None of it is ring fenced and invested for you know er pension provision.

    I’m staggered that politicians can’t come clean that the AVERAGE working UK citizen pays nearly 60% of their earnings in tax is that its complicated. Well who made it complicated in the first place?

    All earnings up to £15k should be exempt and all income for the fully retired should be exempt from income tax. There then should be ONE income tax and ONE employer contribution to pensions.

    Oh and while on the subject of tax I’m also really angry that the government have now allowed the privatisation of business taxes. My City Canterbury is currently applying to be a Business Improvement District. This enables the PRIVATE company behind the scheme to levy a business rate surcharge , keep the money and have no public accountability for how its spent or indeed no mechanism of stopping the scheme should it fail to live up to expectations whatever they are.

    Like so many other outdated things in the political sector the whole tax system needs a major overhaul and massive simplification.

  39. A.Sedgwick
    Posted July 2, 2014 at 10:31 am | Permalink

    “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.”

    I do not think this is a valid reason, do we not use the NHS? This situation hides the inadequacies of still being income taxed and NIed at below the minimum wage. If say £12,500 income was free of tax then everyone should be treated the same and pay for the services. Council Tax is much more penal and unfair for many retirees, representing a significant %age of net, yes net i.e. tax on tax, income.

    The real reasons are smoke and mirror economics, which hide the true tax rate, social political i.e. serious public sector job losses, laziness and being frightened of where a real tax reform journey may end.

  40. a-tracy
    Posted July 2, 2014 at 10:52 am | Permalink

    National Insurance was a ponzi scheme cooked up by the political parties to con us all . Now you want to bring that into tax and re-introduce pension contributions called NEST to get more and more out of people. Then the existing pension promises can be reneged on and means tested or disappear completely and the false of hand will be completed and everyone will just walk into this thinking they’ll get a saving in National Insurance at the lower end so all part-time people don’t have to pay a penny towards their healthcare of their pension.

    If you keep expecting the people at the top of the pyramid to pay in more and more for everyone else to opt out altogether we will all crash and burn in thirty years time and your party will get the blame for it, let the Labour party who set the con trick up in the first place do the dirty deed the next time they’re in office!

    • Bob
      Posted July 2, 2014 at 10:51 pm | Permalink


      “Then the existing pension promises can be reneged on and means tested or disappear completely”

      Well well Mr Redwood, your contributors have rumbled the plan.

  41. a-tracy
    Posted July 2, 2014 at 11:09 am | Permalink

    What % of the population over the age of 18 earn under £10,000 pa and would then not be contributing in any way towards their healthcare? How is healthcare going to raise enough money?

  42. Lifelogic
    Posted July 2, 2014 at 11:17 am | Permalink

    Cameron seems to think (PM questions just now) that the “in three letters priority” N H S is the best health system in the World! Just how deluded can a leader become? I suppose he must be totally surrounded by people bringing him only good news & propaganda (or perhaps he is just lying for electoral purposes)? Perhaps he should visit a London A&E on a Saturday night for many hours, as most of the “customers” have to or seem the number waiting months for urgent operations.

    Time to charge everyone who can afford it £20 or more and get it to respond to finally “customers” rather than treating them as a nuisance.

    • JoeSoap
      Posted July 2, 2014 at 12:22 pm | Permalink

      Yes however much our host thinks he might be getting to grips with reality on the EU issue, this type of comment just shows him as being as deluded as ever.

    • Jerry
      Posted July 2, 2014 at 7:01 pm | Permalink

      @Lifelogic: “Time to charge everyone who can afford it £20 or more and get it to respond to finally “customers” rather than treating them as a nuisance.”

      I think you mean; ‘Time to charge everyone who can afford it £20 or more, again, after all most people who can afford it have already paid once, via the tax that is the subject of this very blog!

  43. David Price
    Posted July 2, 2014 at 11:27 am | Permalink

    Thank you for pointing out some of the pitfalls with a combined tax, in the past whenever it has been offered as a simplification of taxation propenents have usually ignored the impact on those who do not pay it currently.

    I would also point out there are other earnings which do not attract NI, such as savings and dividends for example so the simplification would have to be limited to an earnings tax rather than a broad income tax so.

  44. Aunty Estab
    Posted July 2, 2014 at 11:39 am | Permalink

    How much could N.I. Tax be reduced if the government stopped wasting 11 billion a year on foreign aid?

    • Nick
      Posted July 2, 2014 at 11:06 pm | Permalink

      Getting rid of Vince Cable’s entire department would eliminate lots of taxes. It’s your choice which ones go.

      You could get rid of employer’s NI. A tax on jobs. Works like a tax on cigarette smoking.

  45. Brigham
    Posted July 2, 2014 at 11:44 am | Permalink

    Any measure leading to simplification, is, in my opinion, to be taken. The difficulty of the OAP’s will make it harder to introduce. Once that problem is overcome, it looks quite easy to make the change.

  46. Posted July 2, 2014 at 11:44 am | Permalink

    I’m all for merging the taxes into one, people then begin to realise what they are paying and it puts pressure on the government to keep them down. You’ve highlighted the situation of pensioners like myself who don’t pay NI, which obviously I feel is an important issue. But overall, surely, it should save money not having two lots of people administering taxes on pay.
    I like the system in the US where sales tax is itemised separately, against our having VAT included in the price. It’s only when you pay for something big when it is shown separately, like with my recent car servicing, that you realise how much you are paying the government. And as for petrol, people would be horrified if it was sold at the basic price plus taxes!
    Of course, those politicians who believe that the government should tax and spend, like lots of different taxes, as it is not quite so obvious to most people how much they are taking; I’m surprised they haven’t re-introduced the window or hearth taxes, although these days, with central heating, it would probably have to be a radiator tax!

    • Jerry
      Posted July 2, 2014 at 7:20 pm | Permalink

      @English Pensioner: “I’m all for merging the taxes into one, people then begin to realise what they are paying and it puts pressure on the government to keep them down.”

      Most people are already aware of what they pay regarding NI as it is an itemised deduction on their PAYE wage slips or a specific tax demand from HMRC were one is not within the PAYE system, lumping NI in with income tax would actually do the exact opposite to what you suggest!

  47. Eddie Hill
    Posted July 2, 2014 at 12:09 pm | Permalink

    Our current tax system is punitive, overly-complex, unwieldy and completely unfit for purpose. As a result, many scoundrels prosper from the huge industry in tax avoidance and old and/ or poor people lose out.

    I probably don’t know all of the taxes I have to pay, but on the face of it, I appear to pay twelve while I’m alive and one after I’m dead. And a lot of this tax is spent by too many layers of government on too many “vanity” projects in addition to the things we actually need.

    A number of thoughts occur to me:

    1. We’ve all known for a long time that NI is not hypothecated and that state benefits are paid out of current tax income, so keeping NI separate is patently absurd. Lumping it in with income tax makes perfect sense.

    2. We seem to charge way too much tax all over the place, then pay back £billions in benefits to many of the same people. This is patently absurd and needs to change.

    3. Income tax should be massively simplified and be made progressive all the way up to £1 million and beyond, with a much higher starting threshold and lower starting rate. You mentioned the Laffer effect (on CGT) a few days ago – is anyone out there taking notice of this phenomenon?

    4. There should be tax relief at the standard rate on pension contributions and no tax on managed pensions fund incomes, which would be a massive incentive for people to fund their own pensions rather than fuel house price rises and the growth of tax shelters and avoidance schemes.

    5. Pensioners should not pay any tax on unearned income, only PAYE on earned income. Their pensions/ savings were accumulated from income and has already had the s**t taxed out of it. Enough is enough, if you want people to pay for their own retirement and long-term care, let them keep more of their money;

    6. IHT is an iniquitous scandal and prevents people passing on their wealth (which has had the s**t taxed out of it already) to their children or whomever else they want to leave it to. It should be scrapped forthwith;

    7. The fact that we have tax bands of £7,956 and £41,865 shows just how absurd our tax system is. What on earth would be wrong with rounder numbers; i.e. £7,900 or £8,000 and £41,800 or £49,000?

    8. You say: “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 wish! There is no doubt in my mind that state pensions will be means-tested in the near future, and I fully expect to lose mine when they are. Just as private pensions providers could write to me and say: “Sorry, no more pension- we’re all out of money” the state could too. I have no faith in any of it.

    • behindthefrogs
      Posted July 3, 2014 at 11:54 am | Permalink

      State pensions are already effectively means tested as they are subject to income tax.

  48. Richard
    Posted July 2, 2014 at 12:18 pm | Permalink

    No chance of this happening.

    Why have one tax when you can have two ?

    Just as no government would abolish vehicle excise duty and add it to fuel duty.

    For any government, two taxes are always better than one.

    • behindthefrogs
      Posted July 3, 2014 at 11:57 am | Permalink

      Merging fuel duty and VED is yet another missed opportunity. It would cut out overheads, make the green element automatic and help to ensure foreign vehicles pay their wack.

  49. JoeSoap
    Posted July 2, 2014 at 12:18 pm | Permalink

    It’s a good idea and one of course raised by another party which shall be nameless

    1 pension contributions enjoy NI relief at source so I don’t see an issue with increasing low end income tax on pension income to take account of that – just allow a greater contribution than £40K p.a. if it is losing you sleep.
    2 this would finally debunk any idea of this being an insurance scheme – it isn’t insurance and it isn’t national. The NHS and other benefits aren’t just for those who pay NI and those who pay NI don’t necessarily get any sort of decent service or benefits. There is no agreement, no promise, no contract, no policy.

    • David Price
      Posted July 2, 2014 at 4:03 pm | Permalink

      Private pension contributions do not enjoy NI relief at source. Savings interest and dividends do not currently attract NI contributions.

      The party you may be refering to also glossed over the proposed fleecing of pensioners, savers and investor and dissappeared the detail of their proposals.

    • Jerry
      Posted July 2, 2014 at 8:08 pm | Permalink

      @JoeSoap: “[NI] isn’t insurance and it isn’t national.”

      Oh yes it is, even today, the state benefits available to those who without the required NI contributions are less than those available to those with full (up to date) contributions. Although you are quite correct the law has not regressed back to that of the original 1911 Act were those who had not paid in, such as the unwaged, had to rely on other sources of support or non, fortunately socail civility is still alive and well amongst almost all people in the UK, most people accept the need for a national (socail) insurance scheme, other than a few of our own bread of “Tea Party” member…

      What NI is not, is the full premium, nor is it ring fenced, other than that it pays out like any insurance policy does.

  50. ian
    Posted July 2, 2014 at 12:31 pm | Permalink

    Bad idea john, people like paying tax”s they feel that they doing their duty and if you merge the two they will think that your trying to privatize the NHS or do away with their pensions. Not a vote winner also the bloke in the paper yesterday about not getting up early in the morning for work is right something should be done about it to max profits.

  51. Ale Bro
    Posted July 2, 2014 at 12:42 pm | Permalink

    National Insurance has always struck me as a particularly unfair form of insurance, as the insured benefit is the same to all who pay the premium, and some pay much higher premiums than others.

    In other jurisdictions, e.g. France or Germany, the benefit received is proportional to the premium paid, so that the insured will receive 60% (say) of their salary for one year in the case of unemployment. In the UK, there is no recognition of the higher premiums paid by some people.

    Restructuring unemployment benefit to be linked to previous salary would bring some equity back into the system.

    • Jerry
      Posted July 2, 2014 at 8:27 pm | Permalink

      @Ale Bro: “Restructuring unemployment benefit to be linked to previous salary would bring some equity back into the system.”

      That would be a deterrent to people taking work after a long period of unemployment (that might be due to no fault of their own), never mind that there are a lot of people who are economically inactive but who do not draw JSA, people would feel that they just could not risk jumping out of the life-raft in case they are not allowed back in should things not work out.

      I’m not proposing a luxury life-raft by any means, but the unemployment benefit system should not be a deterrent to people taking employment that might not last.

  52. Marc
    Posted July 2, 2014 at 1:40 pm | Permalink

    Why not move the burden of employers contributions on to the employee too? Obviously tricky. Salaries would need to increase by a corresponding amount. But this would make clear the extent to which each person’s employment is actually taxed.

    • Jerry
      Posted July 2, 2014 at 8:33 pm | Permalink

      @Marc: “this would make clear the extent to which each person’s employment is actually taxed.”

      Surely what you are saying is that the cost to the employer will be the same, so why not just state the employers contribution on the employees wage/salary slip?

      Never mind the risk that some less scrupulous employers might not raise their hourly rates/salaries correspondingly and thus employees would end up taking a real terms pay cut.

  53. Mark
    Posted July 2, 2014 at 2:20 pm | Permalink

    There is a need to look at the structure of taxes and benefits in the round – as to some extent IDS has been doing with trying to reduce the byzantine complexities of the welfare system. NI is peculiar in its bandings that bite well below the Personal Allowance, and in essentially being no more than an extra 13.9% income tax of the highest earners (13.8% employer rate +2% employee as % of 113.8 gross pay). It also applies only to “earned” income, and can even be credited to those getting benefits for the purposes of calculating their state pension entitlement, to which there is a residual linkage to contribution record.

    The interactions at the lower ends of the income scale make it far harder to propose a merger with income tax while retaining equity and not creating hardship for those who lose out. On the other hand, there is absolutely no reason why we should continue to impose NI as opposed to income tax at the highest levels of earnings.

    Therefore I would propose that NI be reduced to zero on the Higher Rate band, which should be adjusted accordingly. The present 45% income tax added to the combined NI works out at an effective rate of 53.4%. Merge the two, and lower the combined rate to 50% – and claim that income tax at 50% has been restored for high earners! The few pensioners who would find themselves paying slightly higher taxes (but no more than after Brown/Darling pushed income tax to 50%) would not be exactly impecunious – while the lower overall rate might increase tax take.

    Fixing things lower down the income scale is more tricky: we already have the anomalous band for incomes just over £100,000 that suffer the highest income tax effective rates, and the complications of child benefit withdrawal rates a bit below that – but it might be achievable in similar fashion to the top rate band.

    Down in the basic rate band and below, I do not think it is realistic to do anything more than show all NI on employee wage slips until there is a much more comprehensive review of the consequences.

  54. BobE
    Posted July 2, 2014 at 3:44 pm | Permalink

    What about putting car tax onto Petrol. The more you use the more you pay. Then have a Insurance disk. The DVLA would still register vehecles and record the owners. I don’t think that the police even bother to look a tax disks anymore, its all on their in car computers.

    • behindthefrogs
      Posted July 3, 2014 at 12:01 pm | Permalink

      Tax discs are about to disappear anyway as modern technology checks the number plate rather than the disc.

  55. The PrangWizard
    Posted July 2, 2014 at 3:49 pm | Permalink

    To me it sounds like a bad idea. I don’t know why, just that my sixth sense tells me we will be worse off in the long run.

  56. Stu Saint
    Posted July 2, 2014 at 4:04 pm | Permalink

    I support the merger with proper protection for pensioners and the low paid.

    Perhaps the answer would be to slowly reduce NI and increase Income Tax though not by the same amount.

  57. acorn
    Posted July 2, 2014 at 4:09 pm | Permalink

    A while back, I and other number crunchers spent a lot of time trying to find a simple formula that would combine NI and Income Tax. Sorry, not that easy. There are a lot of anomalies as you rise up the income scale; you have to combine Welfare Benefits; Tax Credits; NI and Inc Tax to get a sensible answer. Decades of piecemeal amendments by successive governments has created a rats nest.

    Currently, Income Tax should pull in around £170 billion this fiscal. Probably £110 billion from NI. Vat does similar at about £110 billion. The next highest tax take is from the almost voluntary (and miss applied IMHO) Corporation Tax; about £41 billion.

  58. Cheshire Girl
    Posted July 2, 2014 at 5:00 pm | Permalink

    I give notice now that i will not be voting for any party that signs the comittment to give 12 Billion (or more) of Foreign Aid every year! Madness!

  59. Mar Brandreth- Jones
    Posted July 2, 2014 at 5:21 pm | Permalink

    The idea of NI is completely different from tax . It is for our nation. It is a safety net when private concerns have cocked up all their predictions. To even propose merging it with tax is inane. The tax office cannot cope with their load and communication as it is. Can you seriously imagine the dirty tricks employers and those sided with them would get away with?

    • Corin Vestey
      Posted July 3, 2014 at 9:27 am | Permalink

      The idea of something and its reality are rarely the same. NI is a tax on income disguised by the state to hide the fact that the promises made cannot be funded by the mechanism chosen.

      You are also I think confusing employees NI with employers NI. Both are destructive and stupid however, both need to go.

      • Jerry
        Posted July 3, 2014 at 11:18 am | Permalink

        @Corin Vestey: “You are also I think confusing employees NI with employers NI. Both are destructive and stupid however, both need to go.”

        Then what, replace one tax with another, or scrap the whole idea of people paying into a national “safety net”?

        Always remember that old adage; “But for the grace of God goes I”, anyone is only an uninsured accident or bankruptcy etc. away from being reliant on the states safety net…

  60. JoolsB
    Posted July 2, 2014 at 5:28 pm | Permalink

    12% NI and up to 45% income tax. Add to that the number of graduates leaving university from next year onwards with crippling debts hanging over them, but only if they are English of course, who will have to pay an EXTRA 9p in income tax plus interest for the next thirty years. What incentive will they have to get on in life and do well when they could be paying a whopping 66p plus in income tax on every pound they earn? That’s before they even try and get on the property ladder or start a family of their own. Who can blame them if they take their talents abroad and then the idiots in charge, who received their higher education for free, will be wondering why there is a shortage of much needed skills in the future.

  61. Richard Hobbs
    Posted July 2, 2014 at 5:34 pm | Permalink

    I live in Canada. My wife and I both have UK State Pensions paid for by NI contributions over our working lives. These pension have been frozen at the same amount we received on the date we first got them. Together we are around 80 pounds per week worse off than we would be if we had stayed in UK (and become rather a drain on the NHS). All our income, including these pensions, is taxed by Revenue Canada. I can’t see anyone bothering about us – they haven’t so far! If we lived just across the US border our pensions would have just gone up as in UK.

    Not directly relevant, I suppose, but I am just saying !!

    • alan jutson,
      Posted July 3, 2014 at 10:52 am | Permalink

      Richard

      I agree with you.

      You paid in the right amount at the time of payment, so you should get out the right amount when entitlement is due.

      Your point about non use of the NHS is a good one.

      It seems so daft that we are prepared to treat people (through the NHS) who come here, but have paid nothing into the system.
      likewise we allow visiting workers to claim child benefit for those children living in another Country.

      Our Government needs to wise up !

      • Richard Hobbs
        Posted July 3, 2014 at 8:52 pm | Permalink

        Thanks Alan. Nice to have someone support me. Last time I mentioned this I was told that it was my fault for moving abroad – and this was without anyone knowing the genuine reason we had to leave our own country, give up our home etc. etc.!

  62. Marg Brandreth-Jones
    Posted July 2, 2014 at 6:10 pm | Permalink

    John, popping up at side of this blog site one of your books ‘The Dangers of Monetary Union’ is going for a penny .At the risk of being named a sycophant I wouldn’t mind a read ; really to see if this is similar to my rant many years ago. Of course if there is a case that a reader wants to attempt to take a little bird of her perch by rudeness and underhandedly thinks that it may give them extra leverage by a childish ‘Kick Me’ sticker on someone’s back the self revelation of such an act will need no extra response.

  63. Bazman
    Posted July 2, 2014 at 6:31 pm | Permalink

    Combining the tax credits system with the tax system is more realistic. Everyone has a personal tax code anyway.

    • alan jutson,
      Posted July 3, 2014 at 10:54 am | Permalink

      Bazman

      “Tax Credits”

      Yes that would make sense as well if tax credits are to be continued.

  64. Posted July 2, 2014 at 7:52 pm | Permalink

    On balance I think this would be a bad idea.

    There can be no doubt whatsoever that a Government of any party would use the change to increase taxation and rates of all taxes are still far too high

    I would like to see the principle of double taxation removed :

    An employer pays an amount to employ every one of its employees. The employee then received far less than the employer actually pays out for them because of Income tax and both lots of NI.

    The employee then goes to the shops and is taxed all over again with VAT at 20%.

    The difference between what the Employer pays out and what the employee receives is far too high and it’s obscene that net income is subject to a further 20% tax on almost everything they buy.

    An employee on a salary of £50,000 receives no more than 60% of what their employer pays out for them and that’s before taking into account VAT on purchases.

    Should they spend 50% of their net salary on goods bearing VAT, their net disposable income will be half of what their employer pays out for them.

    This is scandalous.

  65. Tony Wakeling
    Posted July 2, 2014 at 10:54 pm | Permalink

    Scrap ALL income taxes. Simply tax all expenditure paid through machines i.e tills, cash registers, credit /debit cards at a rate needed for government expenditure. The more you spend the more you pay in tax. Seems fair to me.
    It doesn’t matter what a person “earns”, it’s what they spend that determines their standard of living. A “smart card” which would allow £xK tax free expenditure available to all adult residents who CHOSE to register would cater for low earners. Just think, all tourists, black economy workers would contribute. No need for tax accountants, tax inspectors etc. etc. That would free-up millions of unproductive workers who could find useful work and reduce the necessity of immigrants to meet our labour needs.

    • Jerry
      Posted July 3, 2014 at 11:27 am | Permalink

      @Tony Wakeling: Never heard of Purchase tax/VAT, a tax on sales? No need for debit, credit or smart cards, no need to remove Cash from circulation, as one would have to under your idea if one wasn’t going to create an incentive for the black economy!…

  66. John Hill & Co
    Posted July 3, 2014 at 12:27 am | Permalink

    There are several types of income that do not attract NI at the moment:
    - state pensions and private pensions, so potentially affecting anyone over 55;
    - savings and dividends;
    - income from property;
    - and self-employed income, if earned as dividends through a limited company.
    All the above are taxed at 20% for basic rate taxpayers.

    To avoid there being losers from the merger of Income tax and NI, I believe the 20% rate should be retained for the types of income listed above, and a higher merged rate introduced for employment income only.

    Also, beware of the effect on incentives. At the moment the NI threshold applies per job, so the marginal tax rate on taking on an extra part-time job or starting a self-employed business is only 20%. You have to earn £7,956 from a new activity before paying NI. If the marginal tax rate goes up to say 30%, it will certainly be a dis-incentive to starting a self-employed business as a side-line – and that is how most businesses start up.

    Instead I would recommend abolishing NI for the self-employed altogether and taxing them at 20%. Since the self-employed can already enjoy a 20% tax rate by setting themselves up as a limited company, the principle has already be conceded!

  67. Atlas
    Posted July 3, 2014 at 12:28 pm | Permalink

    As you ask for opinions, let me tell you mine: I would oppose this merger.

  68. Posted July 3, 2014 at 2:02 pm | Permalink

    “As most will appreciate, the so called National Insurance scheme was never funded but was always a pay as you go scheme.”

    How can it possibly be anything else?

    The Bank of England tells us that the £ is just an IOU of government. It doesn’t make any more sense for government to save up its own IOUs than it does you or I.
    Its like a railway company saving up its own tickets. Or the Post Office saving up its own stamps.

    If Mrs Thatchers government had been even more ‘prudent’ than she’s already been given credit for, and it had secretly saved up some money in a secret fund, how would spending that money, should it be discovered, be any different from issuing new money into the economy?

  69. John Wrexham
    Posted July 3, 2014 at 11:46 pm | Permalink

    Why can’t we start moving towards a contributory system for National Insurance starting with people leaving school and university now ie if you don’t pay in, you take considerably less out. We wouldn’t have all this posturing over EU migration and benefits if we moved to a contributory system. Why shouldnt pensioners pay National Insurance if their income is above the threshold? They are the ones using public services disproportionally to the working age population. What do you think, John?

    • John Hill & Co
      Posted July 6, 2014 at 9:17 pm | Permalink

      “Why shouldn’t pensioners pay National Insurance if their income is above the threshold?”

      Because any government that increased taxes for pensioners by 50% would be hammered at the polls.

  70. sm
    Posted July 5, 2014 at 7:45 pm | Permalink

    Yes its a good idea and we can then see more clearly the real rate of tax we pay on certain narrowly defined income. This could then be compared against other taxes and the value we get as a society.

    It would simplify the position between employee’s and self employed, other income like dividends, interest etc

    We might even start about thinking of taxing capital gains to an income tax rate.

    Or taxing on a worldwide basis individuals by deductions and refunds based on confirmed tax paid in other countries.

    Given we cant control the EU what impact would this have on rights of others citizens to UK benefits without contributions?

    It needs to be part of a plan to bring in honesty,transparency into spending and taxation. However we would need direct democracy in place for it to work and be free of a public sector e.g. banking or other vested interests bias.

  71. Peter
    Posted July 9, 2014 at 5:38 pm | Permalink

    Yes, merge NI and income tax!

    It is the only honest and transparent way to deal with what really amounts to a second, hidden, income tax.

    But of course there is no chance of it happening. Because the government won’t want to do anything that might make people realise just how much they are really being taxed.

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  • About John Redwood

    John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.
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