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.”