Posts Tagged ‘NI’

Want a fairer tax system? Merge national insurance with income tax

09/01/2014, 08:30:44 AM

by Callum Anderson

One of Ed Miliband’s biggest successes of 2013 was shifting the political argument towards the cost of living crisis. Whilst this will not be sufficient to win the economic debate against the coalition government, it is still likely to be a significant battleground in the run-up to the next general election, as wages continue to stagnate and the cost of living rises, despite signs that unemployment is falling and that economic growth is (finally) beginning to be restored.

Indeed, by May 2015, Ed Miliband could be well set to ask the voters: “Are you better off than you were five years ago?”

Naturally, an aim of a government (and certainly that of a Labour government) should be to increase the money that low and middle income earners have in their pockets. They are more likely to spend more, which will subsequently lead to positive benefits for the economy. Much progress has already been made in increasing wages through the minimum wage (although, of course, a living wage must soon be implemented), as well as increasing the tax-free personal allowances (for which credit deserves to go to the coalition government). One way of improving the living standards of low and middle income households is through the tax system. Tax cuts aimed at the poor are good because they encourage work, reduce the welfare bill, and helps poorer people to be better off.

And the clearest (not to mention the simplest) way of achieving this? Merging National Insurance contributions (NICs) with income tax. I believe that not only would we be able to help millions of the country’s lowest earners, we would also be able to create a fairer tax system that ensured that everyone pays their fair share, as well as making tax avoidance more difficult.

Currently, employees pay income tax on earnings over £9,440 per annum (increasing to £10,000 in April), yet begin to pay NICs when they earn more just £7,748 per annum. Clearly, this is significantly lower than the personal allowance for income tax, despite both being deducted from the same pay packet: NICs are essentially income tax 2.0.

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