Is it time to scrap National Insurance?

Mr_Prudent

Extract from The Independent (22 July 2015)
Is it time to scrap National Insurance?
The Chancellor has asked the Office of Tax Simplification to have another look at the idea, which he first considered in the last Government.

Does that mean I would pay less tax?
No chance. If NI was scrapped it would simply be merged with income tax which would possibly be renamed earnings tax. Your tax rate would climb probably from the basic level of 20 per cent to around 30 per cent while the higher rate would rise from 40 per cent to 50 per cent.


What the article doesn’t answer is what this would mean for pension payments which do not attract NI , only income tax. Any thoughts?

System

Mr_Prudent wrote: »

What the article doesn’t answer is what this would mean for pension payments which do not attract NI , only income tax. Any thoughts?

Just increase the personal tax allowance for people over state pension age to compensate.

molerat

What about people under SP age that only have pension income ?

Thrugelmir

The personal allowance can be set at level which benefits all. Over which everybody pays same rates of tax on their income. NHS will have to be paid for. With an ageing population reliance on those in work alone to provide the funding is highly unlikely to be sufficient.

kidmugsy

if everything turns on the govt executing a successful IT programme, then leave well alone.

Prudent

Goodness there is a Mr Prudent :eek:

Paul_Herring

What the article doesn’t answer is what this would mean for pension payments which do not attract NI , only income tax. Any thoughts?

My thought is that the reporter doesn't know much about what they're writing. Presuming your quotes are accurate:

Does that mean I would pay less tax?
No chance. If NI was scrapped it would simply be merged with income tax which would possibly be renamed earnings tax. Your tax rate would climb probably from the basic level of 20 per cent to around 30 per cent

Nope. Not for basic rate - not even close...

IT: 20%
Employee's NI: 12%
Employer's NI: 13.8%

I think 30% is being highly overoptimistic on the part of the reporter.

IT+NI is already (an effective) 45.8% of gross pay for a basic rate employee, split between employer and employee.

Scrapping it would result in basic rate rising to (at least) 46%, and higher (40%ers) rate to (at least) 55% (employee's NI is 2% after ~£42K)

And that is why NI won't be rolled into IT any time soon - the numbers are too high.

System

molerat wrote: »

What about people under SP age that only have pension income ?

Make it any age you want. But the point is that a taxation change that would bear unfairly on older people can most easily be relieved by adjusting the personal allowance with an age factor.

greenglide

..... and have an "employment" tax as well to replace employers NI? Or keep employers NI but ditch employees NI?

I feel a big IT system coming along. Remember Card payments for DWP benefits to replace Order Books!

Paul_Herring

Paul_Herring wrote: »

Scrapping it would result in basic rate rising to (at least) 46%, and higher (40%ers) rate to (at least) 55% (employee's NI is 2% after ~£42K)

Playing around with Listen To Taxman I produced a rough graph:



Basically, at £12,000 for example, over 10% of the money associated with your wage is going on one tax or another.

At £20,000 it's roughly 25%.

Bear in mind that those may "seem low" only because of the ~£10k tax free allowance and the equivalent NI limit of ~£8K.

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Edit: https://www.dropbox.com/s/ze5nzb2o7msyv5t/taxes.ods?dl=0 if anyone wants to play with/correct it.

molerat

I think doing it would be political suicide, probably why it was kicked into the long grass last time.