It’s happening

To give workers the feeling of an immediate Brexit bounce, Mr Johnson approved an increase in the threshold at which workers start paying National Insurance from £8,628 to £9,500, resulting in a tax cut of £104 for a typical employee starting in April.

Still a way to go but the idea that the working poor shouldn’t be paying income tax and NI on their paltry earnings……it’s happening.

Good.

27 thoughts on “It’s happening”

  1. How much work would have to be done to merge the income tax and NI? Aligning thresholds would be a start but what else? It’s one of those things that gets talked up a lot but seems never to happen, at least so far…

  2. Super duper.

    It will be interesting to see what happens to the LEL.

    A quick explanation – The Primary Threshold is the amount of salary at which someone starts paying NI. That is to move to £9,500. The Lower Earnings Limit is the amount of salary at which an employee gets a credit for a contribution year for state pension purposes. At the moment, the LEL is £6,136. So an employee currently earning £7,000 won’t actually pay any NIC but will still get a contribution year credit.

    Over on ‘another site’ Spud was condemning any increase in the Primary Threshold as it would ‘inevitably’ mean the LEL would rise and so low paid workers would lose state pension entitlement.

    We will see.

  3. MyBurningEars,

    Indeed. Here we are in the 21st century with flying cars and silver jump suits just around the corner and we still have the tax system from when everyone worked up ‘t mill or down ‘t pit. Never happen. Too much cost, not enough benefit.

  4. @MyBurningEars: It’s one of those things that gets talked up a lot but seems never to happen, at least so far…

    That’s because whichever party did it, the opposition would immediately start screaming “look, they’ve raised income tax from 20% to 32%” and there’d probably be enough halfwits to believe that and vote the government out next election.

  5. Just need to convince him the working poor includes everyone on less than 100k now…

    Probably quite easy to be ‘working poor’ on £100k, if to earn it you need to live in London and send your kids to public school in order to avoid knifepoint enrichment.

    I don’t understand why tax and NI aren’t combined. It’s not like NI is actually going into a special state pension fund to be invested for the future, is it? It goes into the same bucket, to be spaffed by the profligate state.

  6. Maybe the non-combination is because once you reach pensionable age you don’t pay NI… There are a lot of pensioners and most of them vote. Exempting them through the tax code would probably be damned tricky. So, safer to do nowt and keep their votes!

  7. If we got rid of NI then it would mean rolling both employers and employees contributions into regular income tax. At which point people would realise how high the tax rate is. Which is why it won’t happen.

  8. The issue is not pensioners, it’s working pensioners. NI is a tax on under-65/66/67-workers, income tax is a tax on anybody with an income. At some point the thistle must be grasped. But in the meantime, pushing the NI threshold up to the tax threshold will get people used to it being the same, and make it easier to get the initial step of legislatively tying them together. (Ideally, along with legislatively tying it to the minimum wage)

    I think once it’s been embedded you can then merge it fairly unobtrusively. In the 1960s/70s/80s many weird tax arrangements merged together and then were abolished. Who on earth now remembers “assumed income from the rent you would get if you let out your primary home instead of living in it”?

  9. ‘Who on earth now remembers “assumed income from the rent you would get if you let out your primary home instead of living in it”?’

    I do: Schedule A income tax, abolished in 1963. Bad move.

  10. @jgh… OK, someone just receiving the state pension would not pay Income Tax or NI under either system as it falls below all the limits, but anyone receiving any additional pension income pays Income Tax once they exceed the tax-free limit, so, on that basis would start to pay NI as well should the two “taxes” be rolled into one. So, it’s not just working pensioners that would be hit, a lot of people have vocational pensions.

  11. ‘Who on earth now remembers “assumed income from the rent you would get if you let out your primary home instead of living in it”?’

    I do: Schedule A income tax, abolished in 1963. Bad move.

    Abolishing it was a bad move?

  12. In part the complexity of the tax system is a device so that people don’t understand what they are paying for.

    As for me, I can’t see the point of paying the part of NI that gives me the state pension once I’m getting the state pension, but I’m OK about being in a scheme that provides other benefits that I might actually receive. Incidentally, once you get to state pension age there’s all sorts of benefits you aren’t eligible for: unemployment, carers’ allowance etc.

    I also don’t think it sensible to make a large part of the electorate tax free, as then they don’t have a dog in the fight about raising tax rates (aka don’t give a flying fuck or worse are in favour). No matter how shite you think that the NHS is, it’s bloody good value if you get it for free.

  13. No, lower the income tax rate to zilch and raise the NI. o cover it. Look!, We got rid of income tax! Oh, there’ll be a tax on ‘the rich’, of course.

  14. MyBurningEars said:
    “How much work would have to be done to merge the income tax and NI?”

    Two biggies:
    – pensioners pay income tax but not NI;
    – NI is only on “earned” income (employed or self-employed); income tax is also on investment income (interest, dividends, rent).

    You’d either have to increase tax on some people (pensioners & investment income), or have different tax rates for them. All possible, but it’s been seen as politically expedient to hide that difference by having two systems rather than making it explicit.

    Investment income we’ve already got some different rates for, but not as different as they’d have to be.

  15. Smaller things as well;

    the NI threshold applies each time you’re paid (so 1/12th per month, 1/52nd per week), whereas the income tax threshold is per year. So, for example If you work one week a year and are paid £1,000, you’ll pay NI but not IT.

    NI isn’t charged on most non-cash benefits in kind (well, the employer’s bit is, but not the employee’s).

    There’s some other stuff as well, but all of that’s relatively trivial. The biggies are the pensioners and the investment income.

  16. I generally don’t agree with increasing zero-tax thresholds, same for NI.
    Creates too many voters with no skin in the game.
    Much better to have low thresholds and low rates. Total the same, but far more of the people voting for more government spending will know they need to fund it. Too easy to vote for something paid by anyonelsebutme.

  17. No-one should be paying income tax and receiving means-tested benefits at the same time.
    No-one should be paying tax to provide benefits for someone better-off [you can use “equivalised household income” if you like or just wages if you’re simplistic]
    Abolish subsidies to Royal Opera House and other things that can only be afforded by the well-off.
    Make London commuters pay the full cost of their rail fares and watch house prices drop.
    Make “social housing” subsidise the tenant who needs it, not the house – so people like Bob Crow pay a fair rent not half of it and those who really need it get bigger subsidies.
    Pensioners should pay the bit of NI that, in theory, covers the NHS but not the bit that covers, in theory, unemployment pay. Those that, like I, deferred taking state pension because it rose during deferment, should pay the bit that covers the state pension.

  18. Thanks all for comments above.

    Personally I can see an argument for some kind of universal basic income with, as the price for that, income taxes kicking in immediately on any earned income (which helps get around both the “how to make sure poor people get enough to live on without disincentivising them from getting a job” and the “how do you give low income people a reason to prefer low tax rates and lower state spending” problems) but that would be an even more herculean task to bring about…

  19. ‘Still a way to go but the idea that the working poor shouldn’t be paying income tax and NI on their paltry earnings……it’s happening.

    Good.’

    Not good. People losing their rights is not good. People should not have to pay tax at a different rate than other people. All people should be equal under the law.

    Either levy income tax in equal rates or get rid of it. Progressive taxation is wrong. (Though widely accepted.) If poor can’t ‘afford’ income tax, do away with income tax, don’t charge others more.

    “I also don’t think it sensible to make a large part of the electorate tax free, as then they don’t have a dog in the fight about raising tax rates”

    “Creates too many voters with no skin in the game.”

    Exactly. Incentivizes people to petition the government to treat people differently.

  20. Still a way to go but the idea that the working poor shouldn’t be paying income tax and NI on their paltry earnings……it’s happening.

    Income tax, may be, but why an exemption from NI? Isn’t that the forced pension scheme? I can see how you might size a government in such a way that only the ‘rich’ need to pay for it, but everyone should be saving for their old-age.

    As for no income tax – I would certainly prefer a different form of tax (or, better, no taxes at all) but if you’re not paying tax then a) you’re not paying for those services you benefit from. And despite all the talk about how the rich have more to protect, its the poor that benefit most from having public police and fire services, in addition to all the other bullshit governments pile on – the rich can afford to hire their own police. b) not paying taxes you are more likely to be supportive of increasing taxes on other people. After all, it will only get you more money if those other bastards are taxed more.

    Its a strong argument against a progressive tax system.

  21. “MC
    January 31, 2020 at 9:29 am

    I don’t understand why tax and NI aren’t combined. It’s not like NI is actually going into a special state pension fund to be invested for the future, is it? It goes into the same bucket, to be spaffed by the profligate state.”

    For the same reason we do it over here – its so politicians can pretend there’s an SS/NI ‘fund’ and that they’re not paying out benefits from current tax revenues and that the money will be there to pay my SS in 15(ish) years.

  22. True, Ag. Gore’s “lock box” was a lie. U.S. Sociable Security is paid out of current taxes. Period. Actual funds were replaced with IOUs. U.S. government owing the U.S. government.

  23. @An0n January 31, 2020 at 10:18 am

    Spot on, yet many MPs scream “More Tax”

    @TtC

    Creates too many voters with no skin in the game.

    Spot on

  24. @ Tim the Coder
    Tax on low incomes creates people with negative skin in the game – especial if they are already getting means-tested benefits. One of the arguments for Universal credit was to *reduce* marginal tax rates for lower earners to 20% above those on top incomes. IMHO, one of the rare occasions when IDS was right was when he argued, to the point of resigning, with Osborne that we should toss in a couple of £billion in the short term to save many £billion in the medium and long term by cutting the clawback rate on UC to 60% or less.

  25. @john77

    IDS did a lot of good, despite Osborne. Shame IDS isn’t back in post

    Skin in game:
    Retailers should print full tax on receipts
    Nett Total
    Excise Tax
    VA Tax
    Total Tax on your shop £x = y%
    Total Payment due

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