The Treasury is to announce plans to bring together income tax and national insurance payments in one single \”tax take\” figure, to make it easier for businesses to administer tax and individuals to see how much they are paying.
Yes, this is a good idea. Simplification is anyway and now that we\’re moving to non-contributory state pensions there\’s no real reason to maintain the fiction of a national insurance fund any more.
However, only two cheers because they will almost certainly choke and not do it properly.
They\’ll not, I warrant, roll employers\’ national insurance into this one single charge. Which they ought to for economic reasons (look, even R. Murphy agrees that from the bulk to all of employers\’ NI is actually paid by the worker in the form of lower wages) but won\’t for political reasons.
Making base rate income tax 44% or so just isn\’t going to go down well: even though it\’s the exact equivalent* of 20% income tax,11 % employees\’ NI and 13% employers\’ NI.
I just cannot see anyone having the balls to do that politically. In the short term there would be hay to make for lefties. In the long term it would of course be joyous for low tax people: for finally people would really be able to see how much they\’re paying.
But politics is a short term game, isn\’t it?
*Well, no it isn\’t because I\’ve not bothered adjusting for the way that NI is on gross wages etc but this is close enough
It’s not the ‘exact’ equivalent, is it?
Given that hey can be rolled into one they should be.
Aren’t we always askng for transparency? This would be true transparency and people would have it ‘in their face’ as to how much direct tax they are really paying. The low-paid, the middling-paid and the top paid.
It might be shocking for different people for different reasons.
“In the short term there would be hay to make for lefties”
Why would there be? When people realise what tax they’ve been paying surely they are more likely to vote to for a party which promised to cut their tax – a right wing party.
It’s possible that basic rate payers would demand their tax be reduced to its “previous” rate of 20 per cent.
Tax cut demands would dominate the next election – a situation which would be torture for Miliband.
Tim adds: Imagine being the Tory Chancellor, just before the next election, with Labour running on “The Tories raised basic rate income tax to 45%”.
“I just cannot see anyone having the balls to do that politically.”
Wouldn’t the world be a better place if politicians did not dabble in politics. Although they may be very good at it they are not good for anything else. Certainly not at governing us and making our lives better for it.
Even big changes are possible in stages.
One first step could be to require the complete set of taxes, including employers NI, to be reported and totalled on people’s payslips.
If it became common and everyday knowledge that the current basic tax rate totals 40%+ then that would start to have it’s effects.
“its effects” of course – typing too quickly
Presumably stupid question: is the imagined new transparent rate 44 parts of 113? I’m guessing employees don’t see the employers’ contribution. So that’s, lessee, 39%?
If you earn (say) £20K and get a £1000 pay rise, your employer has to pay an extra £130 NI on your behalf. So he could have given you a £1130 pay rise, if there was no employers NI. So your immediate loss is 130/1130*100=11.5% at the margin.
But you also pay NI on the £1000 of 11%, so your loss there is 110/1130*100=9.7%
And you pay income tax of 20% on the £1000 as well so your loss there is 200/1130*100=17.7%.
Ergo the marginal tax rate is 38.9% not 44%.
I’m all for it (being a yoof and all that), but I have to ask what the implications are for pensioners with working income (who don’t have to pay Class 1 and Class 2 taxes at State Pension age) – will they be on a separate rate of income tax or will they somehow slip in to this new regime, too?
“So he could have given you a £1130 pay rise, if there was no employers NI.”
That’s the REALLY difficult bit: in order to roll the employers NI into the single headline rate requires the employer to give you a rise to your apparent gross salary in order to keep the net pay the same.
to your average moron that is not going to compute and he’s going to blame his employer for “not passing on the salary increase”.
Or (more likely) you will get unscrupulous employers NOT increasing the headline rate, so that net pay falls and the employee blames it on the govt “raising the tax rate”.
TPG: Granted the short run may behave like that, but in the long run, employers should compete the surplus back into the pockets of labour.
James (#9) – different tax rates. They’ve said that they aren’t going to change the underlying different treatment.
Although once it’s income tax and not NI, it’s likely to be more difficult to justify that different treatment.
Personally, I think the best way is for salaries to be paid in to bank accounts gross and nanoseconds later deducted the tax due.
I know I know people are supposed to see the taxes on a pay slip, but they do not. Seeing the fat wedge get removed each month might wake some people up.
Good luck telling current pensioners that their income tax is going up by 30%, too.
(ie adding on the 13% NI that they don’t currently pay to the 20% income tax that they do pay).
Lets leave out the employers NI for realistic and practical purposes. Remove cap on NI and then adjust “Higher” tax rates downwards to reflect the anomaly, thus leaving highest total deduction at 50% – or 40% if you have the cohones. Best idea by far though (stolen from Peter Jay) is to declare a six months ( I say a year) tax holiday. Don’t cut the tax on spending (VAT) but the tax on working. Give something back to all the poor buggers who work all the hours then see it taken off them and given to them what likes to moan that the government isn’t giving them enough of our money. Spend a year realising how much that is costing you and as a sensible citizen you can use some of that extrat income to deleverage yourself a bit and even go shopping a bit. Do this and claim you are also combining the tax and NI so that when it comes back the protests will be comimng from those that pay rather than those that get. Bit like the Germans and the Greeks don’t you think?