NEW RESEARCH: How to abolish National Insurance within five years
Nov 2012 18

We today outline how to abolish National Insurance by 2017 to make the tax system simpler and more transparent. National Insurance serves no purpose and our new report sets out a package of measures to merge both employers’ and employees’ contributions with Income Tax. This detailed and extensive transition plan comes in the run up to the Autumn Statement and anticipates the long-awaited launch of the Office for Tax Simplification’s report into simplifying National Insurance, which itself will inform George Osborne’s policy consultation before next year’s Budget.

How to abolish National Insurance builds on the work of the 2020 Tax Commission, a joint project with the Institute of Directors. This research is the first in a series of Towards 2020 papers, which will show how the proposals in The Single Income Tax, the final report of the 2020 Tax Commission, can be achieved in practical and realistic individual steps.

This exciting new paper:

  • Shows how to abolish National Insurance without pensioners and the self-employed losing out. It contains a detailed guide showing that pensioners, the self-employed and other groups will all receive a tax cut
  • Reveals that 79 per cent of Institute of Directors members agree that National Insurance and Income Tax should be fully merged
  • Exposes that 72 per cent of bosses think that high rates of National Insurance reduce the wages they can pay staff

Click here to read the full report

The report recommends that from April 2017 National Insurance and Income Tax should be fully merged:

  • Self-employed rates of National Insurance and Income Tax should be replaced with a single rate of 30 per cent in April 2017.
  • The standard rates of Income Tax at 20 per cent plus employer’s and employee’s National Insurance should be replaced with a single rate of 36 per cent in April 2017. It should be cut to 34 per cent in 2018 and cut again to 32 per cent in 2019.
  • The 40 per cent higher rate of Income Tax should be cut to 36 per cent in 2018 and again to 33 per cent in 2019.
  • From April 2020, all rates should be replaced with a Single Income Tax of 30 per cent.
  • Those aged 60 or over on April 2017 (ie, born before April 1957) should be subject to a different set of tax rates when they reach the State Pension Age to protect their expectation of advantageous rates as a result of being exempt or expecting to become exempt from employee’s National Insurance.

To achieve this the following measures would be needed to make the system more transparent from April 2013 and then simplified from April 2015:

  • National Insurance should immediately be renamed to accurately describe its genuine function.
  • National Insurance should immediately be made transparent so employees can see on their payslips how much income tax they pay, how much employee’s National Insurance they pay, and how much employer’s National Insurance their employers pay on their behalf. All three figures should be added up into a Total Income Taxes figure.
  • As an immediate simplification measure, employer’s and employee’s National Insurance rates should be equalised by cutting both to 11 per cent from April 2013 and employer’s and employee’s earnings thresholds should also be equalised by raising the employer’s level from £144 per week to match the employee’s level of £146 per week. From 2015 the main rates of National Insurance should be cut again to 10 per cent.
  • The self-employed flat rate of £2.65 per week should be abolished and the rate on profits should be increased from 9 to 10 per cent, both in 2015.
  • The Social Security (Categorisation of Earners) Regulations 1978 should be abolished in 2015 so that only one set of rules defines earnings across both Income Tax and National Insurance.
  • National Insurance should also be changed in 2015 from a periodic, per-job applicability with weekly thresholds to an annual, per-person charge to match Income Tax. Employer’s National Insurance should continue to be assessed per-job.
  • The Upper Earnings Limit for Employee’s National Insurance contributions should be aligned with the threshold for the higher rate of Income Tax. Contributions above this limit, currently 2 per cent, should be abolished in 2015.
  • Voluntary National Insurance contributions should be abolished in 2015.

Click here to read the full report

 Matthew Sinclair, Chief Executive of the TaxPayers’ Alliance said:

“We desperately need a simpler, fairer tax system that works for families and businesses. Abolishing National Insurance will make taxes much more transparent and people will be able to see exactly what they hand over to the taxman when they receive their pay cheque. It would also remove a massive burden from Britain’s businesses, which are desperate to use their money to take on new staff and expand. The Government must focus on creating the conditions for economic growth, which will mean more jobs and ease the pressure on families struggling to make ends meet. But to achieve that we need wholesale tax reform, and the changes proposed in this report are a realistic first step towards restoring our economic fortunes while delivering a system taxpayers can trust.”

Britain's independent grassroots campaign for lower taxes

  • Nick

    There is a big problem. It removes the link between paying tax and getting a service, namely a state pension.

    Now as it stands, a worker on 26K only gets back 20p in the pound for their contributions.

    On top, puts the liabilities for the state pensions at 4.7 trillion on top of the other debts such as gilts.

    It doesn’t make it more transparent.

    Hypothecation is what is needed, along with personal statements for your share of the state debt.

    • orac54

      I’m all for hypothecation. And for statements of an individual’s share of state debt. But the statement should also show whether that person is currently modelled to be a net lifetime contributor to taxation, and by how much. Or not, and by how much.

    • tinamac

      this smacks of the “all in it together” sentiment which I resent – I am not in it together with the many people I know who have milked, and continue to milk, the system on benefits. As we speak some of them laugh that they are going to claim their free food parcels from Tesco (while the stupid employees serve them and pay ridiculous taxes). btw, most of them are obese, not because they can’t afford basic (and affordable) fresh food but because they are too lazy to make proper meals and would rather buy expensive ready meals. If you were all aware of how much people on benefits get you would not hesitate to cut – the disposable income is usually quoted as their full income. I am fully in favour of simplifying taxes, realise that we may have to default and that the UK will become really unstable when things are cut. But I would like everyone who works and those who don’t to realise before we do default just how much tax is being paid – just so we get a reality check and hopefully can go forward more realistically.

      The biggest hurdle that TPA (or anyone who wants cuts and changes) face is that many people (I know who are on low incomes, working or on benefits) and some who are not so poorly paid, either have no idea where the money for services comes from, (they think there is a mystical pot that somehow the government creates) or they don’t realise that employers have to generate “extra” income to pay taxes on their behalf and that the answer is just to “tax those rich b***t**ds” more and by rich they sadly mean someone on over 25 thousand – not realising that they themselves are on a huge disposable income compared to their working counterpart. I

      When someone rings the council to have some litter picked up or some weeds sprayed outside their house, the council shouls give them a price and ask if they still want it. Services should be cut to really necessary, e.g. essential health treatment, infrastructure and education.

  • Steve Collins

    Oh blimey! Not this old chestnut again – the 30% tax rate.
    It’s all very well and good that the majority of us pay a few quid less in tax a year, whilst higher rate taxpayers get a massive cut, but how would this:
    a, Be sold to the electorate at the ballot box
    b, Be paid for.
    I can just imagine it now: ‘I hope you like our 30% flat rate of tax. You, Mr Joe Ordinary, will benefit to the tune of a few score a year, whilst Mr Tristam Asset-Stripper over there will be handed the equivalent of a new Bentley each year. Now excuse us whilst we close your local library and privatise your primary school. Oh, and we want paying for your son’s leukaemia treatment. Now. Toodle pip!’
    Thank God there’s such a thing as democracy and potty ideas like this never see the light of day.

    • LB

      Well, just wait. With the state debts to be paid, anyone dependent on the state will get nothing. They are going to default.

      So you can democratically demand universal state pensions of 16K a year, but you are going to get nothing.

  • blarg1987

    How does the TPA advocate making up the shortfall or what services would be cut?

    • Rory Meakin

      Almost every day we write about and comment on stories of scandalous waste. There’s hardly a shortage of wasteful spending that could be cut. We even identified £50 billion of savings three years ago:

      • blarg1987

        But even if you include all the effecincies there will still be a shortfall which would have to be covered either through the service being removed or advocating people paying for that service.

        • orac54

          Which sounds pretty sensible and fair, if it otherwise would cause an increase in the structural deficit.

      • LB

        So what? It’s still peanuts compared to the debts.

        The government is 13 times geared, and that is without any spending on the NHS schools etc.

        You’re pissing in the wind to use the phrase. Nothing is going to change what happens which is the state defaulting.

        Blarg however is wrong on one part. It’s not about people paying for the service. Its about people paying for no services.

  • Caroline Gurney

    This paper says it only covers wage earners. Where is the separate report they mention about the impact on pensioners?

  • Gold Bug

    National Insurance should be eliminated with no corresponding increase in any other tax. I can think of plenty more taxes that could go too with the added bonus of forcing the public sector to contract.

  • Charles Peters

    Having been made redundant last year, I am now living on my private pension, on which I pay 20% tax and no N.I. How does increasing my tax to 36% make me, as a pensioner, better off??

    • Riccardo Ronco

      I believe that one should be able to put money in his pension without the State adding anything in the first place. However… the State cannot get ANY tax out of the pension earned in that way because it is from income already taxed. And to incentivate people into saving for pensions, basically NO TAX should be levied on the income generated by this process at all. The system will be symplified at a stroke. The State should not top up anybody’s pension at all. It becomes a sort of ISA pensions, if you know what I mean.

    • Rory Meakin

      p.3, executive summary: “It is important to note that these proposals only relate to labour income”. Not pensions income.
      “investment, pensions and other non-labour income will be addressed in a separate paper”

  • Colin Shepherd

    Having worked in the public sector most of my life I know everyone hates me but how about abolishing the ability to use the capital gains tax allowance to shield profits on share options (including using your wife’s allowance as well). It’s income from your job and I had to pay tax and NI on every penny I earned. I know some who have made 6 figure numbers from this and it’s a one way bet as no-one exercises an option if the share price is less than the striking price.

  • Bill

    So this scheme will make it clear to all just how much they are paying to the government, for all purposes.
    Perhaps I got it all wrong when I concluded long ago that the present tax system is carefully designed to HIDE just how much in total we pay to the government !
    It isn’t transparency we need it is better scrutiny of government expenditure. For example we have one of the bigger businesses in the world, the NHS, that for some unknown reason can’t do deals with its suppliers to buy stuff at a standard best price for the whole organisation.
    The company I worked for had a whole international internal organisation that kept an eye on all the different manufacturing centers to see that they operated in the most efficient way and who were expected to improve every year to reduce prices and improve quality by observing best practices and implementing them in every similar individual center.
    Why is that not possible with government departments and the NHS ?

  • Steve Wilcox

    I’d like to help advance this campaign’s objectives.

  • DonG

    This proposal will fail because it suggests cutting public expenditure as part of the plan. The only way the plan will succeed is by combining both taxes first. When people realise the true income taxes, there will naturally be more pressure to cut tax (and hence expenditure).

  • DW

    How about adding in abolishment of the road fund license by recovering the money at the petrol pump, and abolishment of the TV license fee by replacement by government grant covering a revised public service broadcasting service

    • tinamac

      I have chosen not to support state funded broadcasting propaganda machine, by not keeping a tv. I don’t want it to be added to my taxes. This is one of the first cuts that could be made, probably with little negative effect on the UK

  • tinamac

    how will tax credits be reflected on payslips, such as maternity leave. Taking tax only to give it back in another form is costly, is there a plan for this? Should low paid single men subsidise couples who have children, is there a plan for this?