Abolished N.I - state pension system

MattMattMattUK

Moonwolf said:

MattMattMattUK said:

Moonwolf said:

MattMattMattUK said:

SouthCoastBoy said:

That could be the point when you introduce means testing?

Also, abolishing NI is not likely to be practical, at least in a pure tax cut sense, if NI drops then Income Tax would likely need to rise proportionately, so we can have no NI, but then we would also need 28% starting rate of Income Tax. As we cannot afford the previous 2% cut or the new 2% cut, we certainly cannot afford a further 8% cut. 

Where do you get 28% from?

A simple 20%+8%, yes it would raise more revenue, but we need to raise more revenue.

Moonwolf said:
I reckon from my BOTE calculations rates would work closer to 25%/45%/55%. 

Were did you get 45% and 55% from? The higher and additional rates are 40%, which would then become 42% and 45% for additional, which would then become 47%. I am sure anyone rational would object to an income tax greater than 50%.

Moonwolf said:
This is because at the moment a lot of people don't pay NI on unearned income and would be brought into the tax fold.  This does seem fairer to me, why should I pay more tax on money I have worked to earn than someone who just gets more money because they already have it. Some will have earned it, some got it from other's labour and some were just given it because their great great great grandfather was a robber baron.

Unearned income is complicated, but there are valid economic reasons for things like capital gains being taxed at a lower rate and whilst dividends are taxed at a lower rate that is generally because they have already been taxed a profit first.  

Even just adding NI rates raises more tax but I don't see why after years of increasing inequality we aren't a bit redistributive.

We are already hugely redistributive, 55% of households receive more in cash benefits than they pay in tax (the highest percentage in the EU), less than 5% of adults make a net contribution in any one year, those who make a net lifetime contribution are even lower. 

Moonwolf said:

"I'm sure anyone rational would object to an income tax greater than 50%"  Why, it is 55% in Denmark, France and Austria, it was higher than that here in the 1960s.  

It was higher than that in the 1960s and we suffered a brain drain because of it, Denmark are planning on cutting their top rate by 7.5%, France has a 45% top rate of income and a surtax of 3%, the 55% rate was abolished on income tax and only exists in a small subset of inheritance taxation. Austria has also suffered a huge brain drain due to it's 55%, with most high earners moving to Germany or Switzerland. 

Prism

Entitlement for state pension and paying NI are already different things. They could scrap NI today and already have a system in place to qualify for state pension - its the NI Lower earnings limit. You don't currently pay NI until you reach a different limit - the primary threshold.

BlackKnightMonty

MattMattMattUK said:

Grumpy_chap said:

MattMattMattUK said:

I am sure anyone rational would object to an income tax greater than 50%.

Like everyone with income in the range £100k - £125k

That is the marginal rate, their effective rate is still is still only 37.6% at £125k, although I do agree that the marginal rate cliff edge should be managed, largely by the reduction of the Personal Allowance to £1,000-2,000 to bring it into line with European averages. 

‘Only’ £48k a year in Employee NI and Income tax…

As someone who pays this. When you see the state of everything crumbling; you really do resent paying all that, and seeing nothing for it.

zagfles

hugheskevi said:

It is worth recalling that 2 years ago as Chancellor of the Exchequer, Rishi Sunak announced a big increase to the rate of National Insurance (to 15.05%) and also that the basic rate of income tax would be reduced to 19% in 2024, and then separately pledged during 2022 that income tax would be reduced to 16% by 2029.

Given such a significant change of direction in taxation policy over such a short period, questions have to be asked about whether there is a long-term commitment to a strategy of NI reduction, or whether it is just political opportunism.

In the betting market, the Conservatives are currently given a 10% chance of winning most seats at the next Election, so any long-term ambitions may be of little relevance anyhow.

I think you're looking at the employers' rate there, the employees rate peaked at 13.25% temporarily. 

I suspect the somewhat less cynical reasoning behind the recent switch from income tax reduction plans to NI reduction is the lack of post-COVID recovery in employment, most other countries have seen a good post COVID recovery but the UK hasn't as the number of "long term sick" has increased massively plus increases in early retirement etc. 

So targeting tax cuts at workers rather than more generally at people with other forms of income like investment/, rental, pension etc may be a way to encourage people to stay in/return to work. Similar to the reasoning behind the LTA abolision after years of reducing the threshold. 

BlackKnightMonty

zagfles said:

hugheskevi said:

It is worth recalling that 2 years ago as Chancellor of the Exchequer, Rishi Sunak announced a big increase to the rate of National Insurance (to 15.05%) and also that the basic rate of income tax would be reduced to 19% in 2024, and then separately pledged during 2022 that income tax would be reduced to 16% by 2029.

Given such a significant change of direction in taxation policy over such a short period, questions have to be asked about whether there is a long-term commitment to a strategy of NI reduction, or whether it is just political opportunism.

In the betting market, the Conservatives are currently given a 10% chance of winning most seats at the next Election, so any long-term ambitions may be of little relevance anyhow.

I think you're looking at the employers' rate there, the employees rate peaked at 13.25% temporarily. 

I suspect the somewhat less cynical reasoning behind the recent switch from income tax reduction plans to NI reduction is the lack of post-COVID recovery in employment, most other countries have seen a good post COVID recovery but the UK hasn't as the number of "long term sick" has increased massively plus increases in early retirement etc. 

So targeting tax cuts at workers rather than more generally at people with other forms of income like investment/, rental, pension etc may be a way to encourage people to stay in/return to work. Similar to the reasoning behind the LTA abolision after years of reducing the threshold. 

It’s smoke and mirrors. Any reduction in NI is dwarfed by the frozen tax thresholds/ fiscal drag.

zagfles

BlackKnightMonty said:

zagfles said:

hugheskevi said:

It is worth recalling that 2 years ago as Chancellor of the Exchequer, Rishi Sunak announced a big increase to the rate of National Insurance (to 15.05%) and also that the basic rate of income tax would be reduced to 19% in 2024, and then separately pledged during 2022 that income tax would be reduced to 16% by 2029.

Given such a significant change of direction in taxation policy over such a short period, questions have to be asked about whether there is a long-term commitment to a strategy of NI reduction, or whether it is just political opportunism.

In the betting market, the Conservatives are currently given a 10% chance of winning most seats at the next Election, so any long-term ambitions may be of little relevance anyhow.

I think you're looking at the employers' rate there, the employees rate peaked at 13.25% temporarily. 

I suspect the somewhat less cynical reasoning behind the recent switch from income tax reduction plans to NI reduction is the lack of post-COVID recovery in employment, most other countries have seen a good post COVID recovery but the UK hasn't as the number of "long term sick" has increased massively plus increases in early retirement etc. 

So targeting tax cuts at workers rather than more generally at people with other forms of income like investment/, rental, pension etc may be a way to encourage people to stay in/return to work. Similar to the reasoning behind the LTA abolision after years of reducing the threshold. 

It’s smoke and mirrors. Any reduction in NI is dwarfed by the frozen tax thresholds/ fiscal drag.

Depends on income level. The NI cuts are far more significant than fiscal drag for someone on an average salary. Graph here Spring Budget: Workers to pay less national insurance from April (moneysavingexpert.com)

Also should be noted that despite recent fiscal drag, the personal allowance is still higher in real terms now than it was in 2010. 

Grumpy_chap

MattMattMattUK said:

Grumpy_chap said:

MattMattMattUK said:

I am sure anyone rational would object to an income tax greater than 50%.

Like everyone with income in the range £100k - £125k

That is the marginal rate, their effective rate is still is still only 37.6% at £125k, although I do agree that the marginal rate cliff edge should be managed, largely by the reduction of the Personal Allowance to £1,000-2,000 to bring it into line with European averages. 

I agree that the cliff edge needs resolving out of the system.
My personal view is that the Personal Allowance should stay in place for all.  This may mean a higher "Additional Rate" and / or the "Additional Rate" starting at a lower threshold. 

The distortion created through withdrawal of the Personal Allowance forces undesirable (and possibly originally unforeseen) outcomes such as excessive SS pension contributions, reluctance to work more hours / take on additional responsibility in role.  The distortion is even greater for parents considering the withdrawal of the childcare provision.

The true marginal rate, when income tax plus NI are considered is 62%.  Even higher in Scotland, 67% as I understand it.  I also understand that the "Top Rate" in Scotland kicks in straight after the 67% band is passed, and that is 50% when Income Tax plus NI are considered.

BlackKnightMonty

zagfles said:

BlackKnightMonty said:

zagfles said:

hugheskevi said:

It is worth recalling that 2 years ago as Chancellor of the Exchequer, Rishi Sunak announced a big increase to the rate of National Insurance (to 15.05%) and also that the basic rate of income tax would be reduced to 19% in 2024, and then separately pledged during 2022 that income tax would be reduced to 16% by 2029.

Given such a significant change of direction in taxation policy over such a short period, questions have to be asked about whether there is a long-term commitment to a strategy of NI reduction, or whether it is just political opportunism.

In the betting market, the Conservatives are currently given a 10% chance of winning most seats at the next Election, so any long-term ambitions may be of little relevance anyhow.

I think you're looking at the employers' rate there, the employees rate peaked at 13.25% temporarily. 

I suspect the somewhat less cynical reasoning behind the recent switch from income tax reduction plans to NI reduction is the lack of post-COVID recovery in employment, most other countries have seen a good post COVID recovery but the UK hasn't as the number of "long term sick" has increased massively plus increases in early retirement etc. 

So targeting tax cuts at workers rather than more generally at people with other forms of income like investment/, rental, pension etc may be a way to encourage people to stay in/return to work. Similar to the reasoning behind the LTA abolision after years of reducing the threshold. 

It’s smoke and mirrors. Any reduction in NI is dwarfed by the frozen tax thresholds/ fiscal drag.

Depends on income level. The NI cuts are far more significant than fiscal drag for someone on an average salary. Graph here Spring Budget: Workers to pay less national insurance from April (moneysavingexpert.com)

Also should be noted that despite recent fiscal drag, the personal allowance is still higher in real terms now than it was in 2010. 

Thanks, yes good points.

Personal allowance is zero if you earn over £125k. Cry me a small violin I know.

(I see MP’s salary in April will rise by 5.5% to £91k. So soon they will all enter 60% marginal tax territory. I wonder if then they will raise the threshold [which hasn’t changed since 2010] from £100k?)

zagfles

Grumpy_chap said:

MattMattMattUK said:

Grumpy_chap said:

MattMattMattUK said:

I am sure anyone rational would object to an income tax greater than 50%.

Like everyone with income in the range £100k - £125k

That is the marginal rate, their effective rate is still is still only 37.6% at £125k, although I do agree that the marginal rate cliff edge should be managed, largely by the reduction of the Personal Allowance to £1,000-2,000 to bring it into line with European averages. 

I agree that the cliff edge needs resolving out of the system.
My personal view is that the Personal Allowance should stay in place for all.  This may mean a higher "Additional Rate" and / or the "Additional Rate" starting at a lower threshold. 

The distortion created through withdrawal of the Personal Allowance forces undesirable (and possibly originally unforeseen) outcomes such as excessive SS pension contributions, reluctance to work more hours / take on additional responsibility in role.  The distortion is even greater for parents considering the withdrawal of the childcare provision.

The true marginal rate, when income tax plus NI are considered is 62%.  Even higher in Scotland, 67% as I understand it.  I also understand that the "Top Rate" in Scotland kicks in straight after the 67% band is passed, and that is 50% when Income Tax plus NI are considered.

It's even higher at the moment in the £50-60k range for those claiming child benefit for 2 (or more) children. Add in student loan repayments and someone in that range could be looking at over 71%. It will improve in the new tax year but still looking at over 61% for someone with 2 kids and student loan repayments in the £60-80k range. 

And at the other end of the scale someone on a low income and UC could be looking at a 68% effective marginal rate. 

BlackKnightMonty

zagfles said:

Grumpy_chap said:

MattMattMattUK said:

Grumpy_chap said:

MattMattMattUK said:

I am sure anyone rational would object to an income tax greater than 50%.

Like everyone with income in the range £100k - £125k

That is the marginal rate, their effective rate is still is still only 37.6% at £125k, although I do agree that the marginal rate cliff edge should be managed, largely by the reduction of the Personal Allowance to £1,000-2,000 to bring it into line with European averages. 

I agree that the cliff edge needs resolving out of the system.
My personal view is that the Personal Allowance should stay in place for all.  This may mean a higher "Additional Rate" and / or the "Additional Rate" starting at a lower threshold. 

The distortion created through withdrawal of the Personal Allowance forces undesirable (and possibly originally unforeseen) outcomes such as excessive SS pension contributions, reluctance to work more hours / take on additional responsibility in role.  The distortion is even greater for parents considering the withdrawal of the childcare provision.

The true marginal rate, when income tax plus NI are considered is 62%.  Even higher in Scotland, 67% as I understand it.  I also understand that the "Top Rate" in Scotland kicks in straight after the 67% band is passed, and that is 50% when Income Tax plus NI are considered.

It's even higher at the moment in the £50-60k range for those claiming child benefit for 2 (or more) children. Add in student loan repayments and someone in that range could be looking at over 71%. It will improve in the new tax year but still looking at over 61% for someone with 2 kids and student loan repayments in the £60-80k range. 

And at the other end of the scale someone on a low income and UC could be looking at a 68% effective marginal rate. 

CB is not income; and repaying something you are not permitted to keep - although galling - should not be characterised within a marginal tax argument.