The uncertain relationship between national insurance and income tax
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Version 0 of 1. Larry Elliott, in his recommendation to merge income tax and national insurance contributions (Analysis, 27 July), makes only a brief reference to any potential impact on the structure of the social security system. But this could be significant. A merger on the paying-in side may seem technically tidier. But to remove any connection between contributions and benefits runs counter to the new single-tier pension, which deliberately kept such a link. For people of working age, it would be harder to argue in favour of retaining any benefits that are not means tested. And it would leave the way wide open, instead, to the individual savings schemes operated by private insurance companies for sickness and unemployment cover, which the government is currently considering. Many commentators have recently called for more emphasis on contribution in our social security system. A social insurance scheme can recognise this principle, while also redistributing widely, and rewarding unpaid caring as another form of contribution. To focus on paying in can never be sufficient.Fran BennettOxford • Larry Elliott’s report that the government is considering merging national insurance (NI) and income tax is not the first time we have heard such pronouncements. In his 2011 budget speech, the chancellor said: “I am announcing today that the government will consult on merging the operation of national insurance and income tax.” A consultation was subsequently held, followed by a Treasury report. Little else has happened in the meantime – except that last year the government revealed that it had merged NI and income tax for public expenditure purposes. In 2014, HMRC began issuing its annual tax summary for 2013-14 to all individual taxpayers. This statement provided taxpayers with details “of how your income tax and national insurance contributions were spent” across all areas of government. This combination of NI and income tax in an official publication effectively signifies that the government regards NI contributions as just another tax, and that they no longer count solely towards pensions and a small range of allowances. Neil HornsbyInverness • In a recent survey AAT’s members, who work in accounting and finance and are experts at navigating through the intricacies of the UK tax code, agreed with Larry Elliott that merging income tax and national insurance would be a good idea. Having both national insurance contributions (NICs) and income tax as two separate systems is needlessly complicated. As well as making taxes easier to understand for individuals, a merged system of NICs and income tax would also benefit smaller businesses, leaving them less red tape to deal with, and having to spend less time and money on trying to be compliant. This would help them concentrate on being successful, and would boost our economy, benefiting everyone – businesses and individuals.Brian PalmerTax policy expert, Association of Accounting Technicians • One reason that the Tories may be reluctant to merge tax and NI is that it would put the spotlight on the regressive nature of NI as a tax. People pay only 2% on earnings above £42,384 a year, 12% on earnings below that – just one more way that the poorer in society pay more than the rich. Housing, credit, utilities, food, VAT, getting your own money out of a cashpoint, student loans (the poor pay interest and the rich pay them off or don’t borrow in the first place), the poor subsidise the rich all the time. We ought to stop.Ros CampbellLeeds • In your editorial on the Labour leadership (25 July), you argue for fundamental change, not wishlists and platitudes. Here is an obvious policy that would make people sit up and listen: scrap VAT altogether. It is a regressive tax that hardly touches the wealthy. Small businesses sail close to the wind to avoid it (and I do my best to help them). It requires a huge bureaucracy to monitor all transactions, thus inhibiting the plethora of new exchange systems. Above all, 20% VAT discourages enterprise among small firms. Replace VAT with LVT. Land value tax is progressive and would apply to every plot on the basis of its location. The council tax of most dwellings would reduce, whereas a prime site – where bank lending has escalated the value – would pay, say, £2m a year. LVT would provide an incentive for dwellings to be built on all derelict sites, allowing the green belt to be saved. The Economist (hardly a leftist publication) promoted LVT on 4 April 2015 with a leader and a main article, pointing out that a City plot could not relocate to Luxembourg for tax reasons whereas labour and capital can easily fly our shores. I would vote for any government that promised this change.James BrugesBristol |