That universal pension


Pensioners are to receive a flat-rate universal retirement payment of £140 a week that will end the injustice of working mothers being penalised for taking a break to raise children, under reforms to be signalled by Iain Duncan Smith today.

Forget the effect on women and look at what the really great prize is.

The abolition of national insurance.

Time was that you had to be paying your stamp to get a variety of benefits. Dole, pension etc. In theory, NI pays for the NHS etc as well.

There\’s still a certain complexity about whether you get dole or income support having paid NI or not. But really, the only major thing that NI (as opposed to a combined system of NI and income tax) does is you have to pay it for a certain number of years (used to be 40 I think, either just has been or just will be changed to 30) in order to get that pension.

If all citizens are to get a flat rate pension just by dint of being 67 (the new pension age coming) then we can abandon the whole NI system and simply roll it into one single income tax.

At which point people will see what the income tax we\’re charged really is. It starts at 45% ish (20% income tax, 13.8% employers\’ NI, 12% employees\’) on incomes as low as £7,000 a year. Yes, 45% on incomes half what the Joseph Rowntree Foundation tells us is the sensible (on Adam Smith\’s linen shirt principle) poverty level.

At the top end it\’s 50% income tax and 13.8% plus 1% NI.

As a political point having just the one tax will make \”let\’s raise income tax\” a very difficult sell. Because people will finally understand just how damn high it is already.

On the economic efficiency front it will also be beneficial: among other things, a combined system would remove an awful lot of tax dodging (despite my snarling at Murph, yes, simpler is better) as well as making saving pay for would be pensioners.

All in all it\’s a wonderful idea: as long as they go through with it. As long as they accept the logic of what they\’re doing and use the abolition of the last reason to actually have NI as a reason for abolishing it.

I know, I know, but we can hope, can\’t we?

9 thoughts on “That universal pension”

  1. “as well as making saving pay for would be pensioners”-Is what you say but…

    Yes and if you are a pensioner you will get hit for a lot of extra income tax on your Pension once in payment as no NI taken from it now.

    Just what is needed when you are already being penalised on your savings and on a fixed income.

    What is your answer to this ? Keep on working or die earlier?

  2. Rolling NI into income tax would clarify matters considerably. It would also put paid to all those arrangements where people running their own business choose to take dividends rather than salary since dividends do not attract NI. Note, I am not commenting on the morales of that approach just that this is a far simpler solution than the detestable, so called IR35 law that attempted to stop such arrangements.

  3. Ritchie doesn’t want to simplify tax at all… he just wants to remove all the carrots from the tax system and just leave the sticks.

  4. @David Duff

    Your implied tax hike for pensioners can surely be corrected by increasing their personal tax allowances. No extra revenue is expected from the retired, as they don’t pay NIC’s anyway.

    Personally, I don’t see why someone rich enough to retire early should pay less tax than someone who cannot.

  5. “used to be 40 I think”: 44/39 wasn’t it?
    “being 67 (the new pension age coming)”; isn’t it 68?

    By the way, if the NI qualification is abandoned, how are the citizens of any other EU country to be denied a British pension?

  6. Nigel ‘Unassailable’ Lawson nailed this one when he pointed out the whole purpose of the tripartite tax system ‘was to conceal from taxpayers the true level of tax paid.”

    So don’t hold your breath.

  7. Justice, would be the withdrawal of benefits and pensions from the hundreds of thousands of people who despite being fit for work, have never lifted a finger to support themselves.

  8. While I think this is a great idea, and an incentive to save, we have to acknowledge its a disincentive to work, as at least there was some link between working and the pension level before.

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