Combining NI and income tax

Obviously this is an idea that should go ahead.

But there’s two important provisos.

1) What’s going to happen to investment and pensioner income given that those don’t currently pay NI? For the logical reason that NI is supposed to pay for the work related elements of the welfare state (unemployment pay, pensions etc). Simply combining NI with income tax would raise the tax rate upon capital income by nearly 25 percentage points. That’s probably not a good idea.

2) It’s vital that employers’ NI be wrapped in as well as employees’. For it’s clearly and obviously a tax that falls on the workers. So the workers should be able to see that it does.

Of course, the major point of doing this is to explode, once and for all, the idea that we have low income tax rates in this country. And given that everyone will see the burden they’re already paying make it more difficult for tax and spend to be a popular programme.

27 comments on “Combining NI and income tax

  1. The only low tax rates are on Corporations-not individuals. WHY not make them more equal??

  2. Corporations don’t pay tax at all. The burden is always upon some live human being. So to argue that corporations pay “low rates” is simply nonsense. They don’t pay anything at all.

  3. let’s keep the overall tax collection the same.

    Increase the corporation tax, because according to you companies don’t pay taxes, and reduce the personal tax rates.

    Then everyone will feel better, because the consumer will think he is paying less even if he isn’t and the Corporations in their wisdom will realise that they’re not paying anything-so they won’t care.

  4. That’s an interesting plan. It’s also one that is known as “lying to people”. Is that how you want the country to be governed, by lying to everyone?

  5. ALD; so why not instead have a system where your employer takes tax (say, a third of your pay) and passes it to the state, but lies about it? Your payslip says Gross £1,000, tax paid £0, Net £1,000.
    In fact it’s really Gross £1,500, tax £500, Net £1,000.
    Would that be OK?

    Tim – the problem lies with your number 2 above; I agree with you, but moving employers NI to income tax would be political suicide. People don’t understand tax incidence.

  6. “lying to the people” wouldn’t be any different from what’s going on at the moment -and I’m sure the consumer would be happier as he would think he was paying less tax and would be happier to see a higher rate of corporation tax.

    surely this is the aim of politics to keep people happy?

    Very few consumers would realise that in fact companies pay no tax at all and if they did they would probably complain.

  7. It will never happen as it’s an electoral nightmare, not least because a government attempting to combine the two tax takes would screw it up, as they have with consolidation of the benefits system, the NHS records debacle, etc. And yes, pensioners would run for the hills, refusing to believe any and all assurances of exemptions.

  8. ALD

    I personally would prefer not to set out to lie to people and not to think that lieing was clever. Apart from anything else people who see through the lie think you’re a tit.

  9. surely this is the aim of politics to keep people happy?

    No, it’s to acquire and spend political capital to get done what you want to get done.

  10. Pretty much waht Alex said though. I can see No. E neing a big problem even if it is the very reason it is such a good idea.

    People don’t believe the lie – and the smug lier shouldn’t believe they do. Instead they choose not to look. The person who forces them to turn their heads and look at the reality is finished.

  11. ALD, by consumer I presume you mean voter because it will be a political battle to get through?

    If you switch all income and NI taxes to CT the consumer will notice in the form of much higher prices. That will be politically untenable because those on fixed incomes like pensioners will be worse off and that would be political dynamite cf LVT and little old ladies in big houses.

  12. So I live abroad and don’t pay income tax in UK but I can keep up my NI payments to get state pension and whatever. How would that work if it was all in one?

  13. @ Dongguan Juan
    There are rules about reduced pension if one pays less than 30 years contributions. This can be applied to consolidated tax just as easily as NI.

  14. Surely the answer to problem 1 is to stop fucking taxing pension income. The amount saved to provide that pension will have already been taxed.

  15. Perhaps we could just integrate employer’s NI into income tax? Deals with the pensioner problem and with Dongguan John? Helps with sticker shock.

  16. Ok… but I still don’t quite understand, what if I want the full state pension and am willing to pay towards that as I can do now with NI payments while not paying income tax? Would they pluck some figure out of the air that I can pay to keep the pension?

  17. Dongguan John,

    New Zealand doesn’t have any kind of National Insurance and a state pension, As long as you are a NZ citizen who has spent more than 10 years living in NZ. It’s not really a great challenge to have a workable system without NI.

  18. *As long as you are a NZ citizen who has spent more than 10 years living in NZ., you get a full pension.

  19. Why not a “retiree’s tax rate” which would be set at the income tax rate at the point immediately prior to joining income tax and NI? So those younger than retiree age pay IT+NI+NI and the retired pay IT.

    Not sure of the ramifications of the long term effects though, given that its likely that politicians wouldn’t be able to leave these unified rates alone.

  20. Why not a corporation tax threshold whereby the first £50000 free every subsequent £500000 gets a 5% increase up to a maximum of 25%.
    That would allow small firms to take on more staff.

  21. Bloke in Wales

    Sorry, but I don’t agree.

    The reason reason we get what Richard Murphy amongst others believes is tax relief on pension contribution is because it’s income from employment we are deferring. We are not actually getting any relief; we are not being taxed on the income we have deferred because,well, because we are not taking it now as we earn it; we are deferring it. So the “relief” must always be at the marginal rate.

    The quid pro quo is that when we do finally recieve our employment income, in the form of a pension, we pay the tax then. By that time it should have been enhanced by however many decades’ investment income and growth it has enjoyed within whatever pension scheme we have, which remember is helped by an advantageous tax regime.

    So no, we should charge pension incomes.

  22. Could they not just start by renaming “Employers National Insurance” as “Employment Tax”, and then just let subsequent budgets play with it as one of the many levers the government can pull to tinker with the economy?

  23. Peter Whale

    Funny you should say that. Because our Ritchie would appear not to agree with that suggestion, arguing that lower tax DOESN’T allow smaller firms to take on more staff. However, he also doesn’t seem to have faith in his own argument and immediately crawls back under his abuse rock.

    Sad really; a man who makes a living by blogging on a subject he doesn’t really want to discuss.

    http://www.taxresearch.org.uk/Blog/2014/06/30/has-labour-been-knocked-out-on-penalties-when-it-comes-to-tax

  24. Simply combining NI with income tax would raise the tax rate upon capital income by nearly 25 percentage points.

    Not sure where that figure comes from. Are you assuming the inclusion of employer’s NI here? I guess that would get you the 25 percentage point figure: in fact, it would get over that, as employer NI is 13.8% and employee NI is 12%, so a total of 25.8%. Is that the calculation?

    Employers’ NI definitely needs merging in as well, but as stated above, it’s politically hotter than scrapping employees’ NI and that’s going to be controversial enough. After all, there’s no *guarantee* that employers would not simply pocket the cut and only bring it out (in portions) when necessary for retention or recruitment. I know that, economically, in due course it will mostly or all be competed into workers’ wageslips: the issue is the political one about the mechanism and length of time for this to happen.

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