Still missing the point on national insurance

Mr Osborne also plans to merge income tax with National Insurance to show more clearly how much tax people are paying. By merging the two rates, the basic rate of tax will rise from 20p in the pound to 32p and for higher rate earners from 40p to 52p.

That\’s good but not great. For there\’s a further 13.8% of so called \”employers\’\” national insurance there.

And just because it\’s called \”employers\’\” doesn\’t mean that the economic incidence of the tax falls on employers. The calculation of quite where it does fall is slightly fraught, but the general consensus is that between most and all of it is really paid by the worker.

So to really clarify matters that should be merged in as well. Certainly, as a political move, it should be merged in.

For, when basic rate tax is shown to be (as it actually already is) 45%, top rate 65%, where then the calls for higher income taxation?

17 comments on “Still missing the point on national insurance

  1. Another great opportunity to hit Pensioners on smallish income with an extra 10% tax. Is there end to the evilness of tax grabbing from government who have already hit Pensioners savings by giving practically no return on savings.

    Won’t be long before a wealth tax comes so as to enable government to get its hands on the 40% IHT they want sooner rather than later because people are living too long.

  2. “I thought you didnt get your pension unless you had made you NI payments for X years?”

    That’s about to change – it will be based on residence only.

  3. “Won’t be long before a wealth tax comes”

    CGT with no indexation relief is a a de facto wealth tax.

  4. Actually, it’s not 52p since NI drops to 2p at the 40% threshold. It’s 32p and 42p marginal rates, plus Employer’s NI.

    Pretty close to a flat tax. Might as well lift thresholds and make it a flat tax.

  5. Unless there are some very large changes to the higher rate income tax bands & rates this will actually subtantially increase taxes for the better paid.

    Employer’s NI is zero after £42k p.a. so an combined higher tax rate of 40% will become 52%.

    They’ll probably ‘rebalance’ this by creating a zero rate band.

    The self-employed will need a lower income tax rate as well as they pay a lower rate of NI but receive reduced benefits.

  6. If you count in the employer’s 13.8% then I think you need to re-base the percentage calculations for employee tax from 100 units of income to 113.8 units of income. This will bring these rates down a bit.

    So for higher rate: 113.8 is “earned” and 65.8 is paid in tax (40 + 12 + 13.8). Effective tax rate 58% not 65%. Still makes your eyes water.

  7. “as they pay a lower rate of NI but receive reduced benefits.”

    Well not really: the NI-conditional benefits are almost worthless: contributions-based JSA is the same, but just skips over a bit of means testing for a short window. Pensions aren’t (or soon won’t be) conditional. What’s left?

  8. “I thought you didnt get your pension unless you had made you NI payments for X years?”
    (R Grey, #2)

    Yes, but if you don’t get the pension, you get Pension Credit instead. OK, semi-means tested rather than automatic, but generally it means that you get the money anyway, whether you’ve paid your NI or not.

    And “If you don’t speak English then an interpreter can help you apply”

    Also, as Kay Tie said, the contribution requirement is ending soon anyway.

  9. Paul (#6) said:
    “Employer’s NI is zero after £42k p.a.”

    No it isn’t; there’s no maxmimum for employer’s NI.

    Employee’s NI drops to 1% (to be 2% from next month) at the point where higher rate income tax kicks in, but employer’s doesn’t drop.

    So ignoring employer’s NI, and just doing income tax and employee’s NI, the tax rates are (from April, for employees below pension age) 32%, 42% and 52%.

  10. Two groups will be screwed by thi:

    – over 65s (who currently don’t pay NI); and

    – self-employed (who pay 9% (from April) rather than 12% employee’s plus 13.8% employer’s).

    But that doesn’t mean it’s the wrong thing to do. If NI really is just a tax (since the benefit from contributing is little or nothing), is there any good reason why those two groups should pay lower taxes than others?

  11. when calculating the “pot” available for pay rises (I can vaguely remember the concept) or when doing any kind of serious calculation the Employers NI is always built into the cost of labour, therefore the workers or unemployed pay the full 100%.

    For clarity they should force all taxes to be clearly stated as such, printed on receipts etc

    maybe then people would wake up to just how much tax they take

  12. Surely pensioners could end up with a double sting. Pension contributions are made AFTER the deduction of NI (although clearly there is income tax relief on contributions).

    However, if these taxes are merged, this will have the effect of allowing the government to take NI a second time from pensions….from money on which NI has already been paid!

  13. NI doesn’t even pay for the NHS (which theoretically it should, with enough over for the dole, pensions and other benefits).

    Last time I checked, pensioners were fairly heavy users of the NHS. Methinks they ought to be making a contribution towards it.

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