A future Conservative government may merge National Insurance with Income Tax, in a move designed to ‘simplify’ the UK’s taxation system, the Independent newspaper has reported today (30 June 2014).
The move would see basic level taxpayers parting with over 32% of their total earnings, while higher earners would be asked to pay up to as much as 52%. Employer National Insurance contributions would not be affected by the change.
According to the Independent, Chancellor George Osborne considered introducing such a system in this years budget but later decided against the move, due to risks involved in integrating the two different computer systems.
However, the plan is now being considered by party chiefs for inclusion in the Conservative Party’s 2015 general election manifesto. It is believed that the new tax could be called an “earnings tax”.
A source close to the party told the Independent newspaper:
“We came within a whisker of doing this at the last Budget, but in the end we decided against it”.
“They are currently on two separate computer systems and we thought the risk was just too great. But it’s something we could do in the future in the next parliament.”
National Insurance is meant to be ring-fenced for welfare, pensions and the National Health Service (NHS), but the government is allowed to ‘borrow’ from the fund for other projects, if and when the need arises.
Monies generated for the Treasury through National Insurance contributions is widely accepted as being insufficient to cover the full costs of what it is intended for. This has led to successive governments having to dip into monies raised through general taxation to help cover the shortfall. For this reason, some senior Conservatives believe that the distinction between National Insurance and Income Tax has become blurred, and that the two systems should be merged into one.
The plan has been criticised by Labour’s John Mann – a member of the Commons Treasury Select Committee – who has compared it to “the sot of thing the Tea Party would come up with in the United States”.
“It would be disastrous”, he said. “People understand national insurance is covering social welfare, not least the NHS.
“Merging it with tax would be a long-term way of undermining the NHS. It’s the sort of thing the Tea Party would come up with in the United States.”
The Conservatives argue that merging the two systems “has the potential to remove economic distortions, reduce burdens on business, and improve fairness across individual earners”.
Politicians share concerns that a merger could result in elderly people paying National Insurance on their pensions. It could also affect the amount of tax people have to pay on their savings accounts and dividends.
Read More: The Independent