Coffee House

Number 10 pours cold water on National Insurance story: why?

30 June 2014

3:28 PM

30 June 2014

3:28 PM

Why is Number 10 pouring cold water on suggestions that National Insurance and Income Tax could be merged? This story bobs to the surface every few months: it was suggested that National Insurance could be renamed the ‘Earnings Tax’ in the 2014 Budget, but then nothing came of it. Now the Times has splashed on the suggestion that the Conservatives will promise to merge the two in their 2015 manifesto. The principle is sound: it makes the tax system less confusing and stops parties from hitting taxpayers by stealth. Much better to have one tax than an income tax and and earnings tax.

It’s also politically sound for the Tories as they have already said that they plan to plug the post-2015 black hole with spending cuts, not tax rises. They can then attack Labour for planning a ‘Jobs Tax’, and make it much easier for Ed Balls and co to hide any tax rises.


So why, at the Downing Street lobby briefing this morning, did the Prime Minister’s official spokesman tell journalists that the story was ‘entirely news’ to the Conservatives and that ‘my guidance to you would be to guide you well away from that’? The reason is that the policy isn’t ready yet, and needs more work before it is announced: there are sensitive groups of voters important to the Conservatives who could be seriously worried by a poorly-planned announcement or a half-baked policy which hasn’t considered all the sensitivities. The most important group, for anyone who hasn’t guessed, are pensioners, who might protest that they are being drawn by stealth into paying extra tax. So this policy could be a great elephant trap for the Tories to set for Labour, but they first need to make sure that they don’t fall into another snare while setting it.

As an aside, it’s worth noting that the tax transparency statements, which come out later this year, will help voters see national insurance and tax as being the same beast anyway, as they’ll see how much of their money is disappearing into government coffers, and which coffers are taking the most. It may be easier, once those statements have become the norm, to announce a merger of the two taxes. But the Conservatives are not quite ready yet.

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Show comments
  • Mrs Josephine Hyde-Hartley

    To me the most important group that could get taken to the cleaners, if what No10 says is true, would be the ordinary members of the general public( ie complete and at large with all our freedoms intact).

    By taken to the cleaners, I refer to being proverbially beaten into submission ( probably to some fallacious affectation of so-called social contract) only to find our new position swept up into some very exclusive bag of tricks that can only effectively serve certain members of the general public, but not others.

    So much for being an ordinary member of the general public? It’s not worth it. We have to stand up for one and all, i think.

  • CharlietheChump

    Necessary. Not simple but necessary.

  • Count Dooku

    There is a very simple solution which is staring everyone in the face:


    This will be the same rate as the old income tax sans NI. It’s not that hard and will be revenue neutral.

    • Mynydd

      This lower rate of income tax will that be applied to your pension income only, and the new merged income tax be applied to income from a full/part time job?

      • davidofkent

        This and countless other questions will not be answered until it is too late. One that I just thought of is: how will the state keep track of the 35 years of NI contributions needed for the new state pension?

      • Count Dooku

        As I’m far from being a pensioner, my knowledge of their tax rates is relatively low.

        It’s not rocket science however to have different rates for different age groups/different forms of income.

        Everyone seems to think pensioners will be against it but it can be designed to be revenue neutral and shouldn’t disadvantage anyone other than the HMRC mandarins.

    • HookesLaw

      You are already complicating a system whose idea is to make it more simple.

      I for one think that we should keep the NI separate and relate it to the services it is paying for and adjust the PAYE tax down.

      There are not just issues with pensioners but other groups as well. If it were easy it would have been done before. NI is ‘insurance’ and its also paid by employers. How is that squared with unifying it with PAYE?
      As insurance we should reclaim the link with the services it pays for. Clearly the govt needs to pick up the tab via taxes for people who cannot pay and for say children and pregnant mothers etc etc, but the level of NI should reflect the service costs provided, and if costs come down (ie unemployment) then NI should fall.

      • Alex

        “…it’s also paid by employers.”
        Although the employers write the cheque, I believe that the consensus among economists is that the tax incidence mainly falls on the employee; in other words that the effect of employers NI is mostly to reduce wages.
        If so, I guess in theory the employers NI could be rolled into the employees income tax without changing take home pay. That would be impossible to sell to the electorate though.

  • Mynydd

    Before the 2010 general election Mr Cameron/Osborne called National Insurance Contributions (NIC) a tax on jobs, yet after four years in power Mr Cameron/Osborne have done nothing on NIC, so is it or is it not, still a tax on jobs. So now we have it, Mr Cameron/Osborne’s tax reforms are all about setting traps for the Labour party. What a way to run a government.

    • Count Dooku

      They scrapped Labour’s planned NI increase on employers.

      From next year, everyone under 21 but below the higher tax rate will have to pay ZERO employer NI. That’s a saving of 5% for every employer who hires a young worker, a huge amount. Youth unemployment will plummet.

      The Tories definitely haven’t done “nothing”.

      • HookesLaw

        Correct… another example of someone frothing off based on total ignorance.

  • samhol

    To placate pensioners’ concerns, let’s do several things:
    1. Make the State Pension means tested. Those without adequate private pensions would receive the State Pension. I understand that this would, in effect, penalise savers, but the cost to the State would be greatly reduced. That’s surely good for all taxpayers.
    2. The pension age would rise, but perhaps beyond the age of 60 all income could be tax-exempt – allowing people to either work fewer hours and/or save more.

    • Mynydd

      When you retire your state pension, plus your private pension plus any other source of income are subjected to income tax, which is a form of means testing, the higher your income the more tax you pay.
      “beyond the age of 60 all income could be tax-exempt” great if you are a high earner, say with an income of over £150,000, but is of no benefit if your income is below your tax free allowance.
      Any pensioner will tell you; why save more when the rate of return on savings is below the rate of inflation.

    • davidofkent

      That’s a wonderful idea. Now explain why I should lose my state pension after paying nearly 49 years of contributions towards everybody else’s. Then explain to future pensioners why they should contribute to a state pension when people like you don’t want them to have it when they reach pensionable age. That’s the trouble with 4th Form socialist ideas; they are total nonsense and never work.

    • Holby18

      So I payed into a system for 45 years to ensure that I received a retirement pension. I also paid into a private pension. I did this as I have no wish to be a burden to anyone as I age. Because, I prepared whilst others did not, you now seek to penalise me- shame on you.

      By the way I am taxed on my pensions.

      • samhol

        I actually agree with all that has been said in response to my earlier comment. It would regrettably penalise those who had ‘done the right thing’ all those years. However, we do need to find a way of making genuine cuts to public spending and the size of the State. I’d much rather see the welfare system cut down to a sustainable size (and that includes the pension system), allowing taxes to be cut significantly.

        What I would like to see is a radical switch back to personal responsibility, with State assistance the last resort.

        • HookesLaw

          Pensions are paid out of the contributions being paid in. there is no burden. The govt are raising the pension age (this after labour did nothing about it for 13 years), the problem such as it is, is being addressed.

          Oh and personal responsibility is the paying in of a lifetimes contributions.

          • samhol

            The State pension is paid out through current expenditure (through borrowing and current taxes), not previous contributions that a person has made through their lifetime NI.
            We must understand that with the State pension, we are not contributing to a pot that we will one day access ourselves: that money funds current pensioner liability (state pension and other related benefits).

    • HookesLaw