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.