Tsk, Tsk.

I have long been concerned about the regressive nature of the UK tax system; regression that is in part caused by the wholly unfair way in which our social security charges work.

National insurance is charged on earnings up to £34,840 this year (and £40,040) next with a small exemption (£87 a week this year). Any tax at 11% (in the main) that stops (bar 1%) when a bit above average earnings is reached is obviously regressive.

But Richard, National Insurance isn\’t a tax, is it? It\’s payment into a social insurance policy.

If you want to change that, to move to a system whereby the social insurance is indeed funded by taxation, then you have to remove all of the eligibility limits thatwe currently have on the benefits you can receive from the social insurance policy.

 

4 comments on “Tsk, Tsk.

  1. Tim

    You’re wrong as ever

    The contribution to the NI fund can be without limit – as the 1% rate proves.

    And the 10% tax on investment income I propose is a tax – not NIC, but designed to both prevent abuse and maybe cut the basic rate of income tax using the funds realised

    Being narrow minded does not help strategic thinking Tim

    Richard

  2. “It’s payment into a social insurance policy.”

    It’s a INVOLUNTARY payment into a social insurance policy where the coverage and eligibility is not guaranteed and unrelated to the amount paid in. Smells like a tax, quacks like a tax.

  3. Yes, of course NI is a tax. But Richard still misses point.

    Effective rate on employees (incl. income tax, and employee’s and employer’s NI) is 40.6% up to £40,000 (or whatever the limit is) and 47.7% on incomes above that, so pretty flat but far from regressive.

    Effective rate on dividend income is 30% for basic rate taxpayers (i.e. the corporation tax paid – no further income tax) and 47.5% for higher rate taxpayers (£100 profits of company less £30 corp tax = dividend £70 less higher rate tax of 25% on the cash dividend).

    There are a myriad of regressive tax breaks that Richard could have pilloried (PEPs, ISAs, tax relief for pension contributions, agricultural subsidies etc), but he invented two that simply don’t exist. He could have railed against VAT, the worst tax of all and mildly regressive, by all accounts. But no, he’s tilting at non-existent windmills.

  4. I never used it but I’m sure we used to have a system whereby you got out proportional to what you put in when you became unemployed. I vaguely remember that for the first 12 months you got something like 66% of salary and then this tapered to whatever the unemployment benefit was after 12 months.

    I think it was scrtapped in the mid to late 70’s

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