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I wonder whether Jeremy Hunt regrets his Budget comments about the future of National Insurance. Suggesting that there was a case for abolition of employees’ contributions on earnings was, probably, little more than thinking out loud. But it forced him on to the defensive when the opposition painted this as an unfunded tax cut of ‘Trussian’ proportions.
There is, however, a serious point here. Nobody designing a tax system from scratch would come up with what we have now, ie two taxes on essentially the same income but with different eligibility criteria and method of calculation. National Insurance contributions started out as a simple system where most employees paid a fixed amount (four shillings and 11 pence a week in 1948) for a stamp which was affixed to a card kept by the employer – hence the expression ‘being given your cards’ when you were sacked. Contributions only started to become income related in 1975 and the rate has (until the recent cut) been steadily rising since then.
Merger of tax and NI has been a subject of regular debate over the years but has always been in the ‘too hard’ column. Abolition would be a radically new way of solving the problem but the practicalities of doing this – to say nothing of the economic impact – would be enormous. To take just one example. Those over the state pension age pay no NI on their earnings. As somebody in that position myself, while not complaining about it, I find it odd that the government effectively gave me a pay rise simply because I made it to my 66th birthday still in work.
Despite the potential political embarrassment, I think Mr Hunt was right to raise the issue. But don’t expect any substantial progress anytime soon.
If you do one thing…
Read the draft regulations on data collection – will they affect your practice (tinyurl.com/hmrcdatacollection)?
