The Government has indicated that it plans to rename National Insurance contributions as 'Earnings Tax' in a move to bring some honesty into the tax system. This is great news for which the TaxPayers' Alliance has long campaigned. And Ben Gummer MP deserves much credit for his campaigning for the change, too.
Although it's just a name, it's important. National Insurance is not insurance, it's a tax. When it was introduced it had many insurance features but these have long since disappeared, making the name 'National Insurance' both dishonest and misleading. It would be a lot simpler if we just called it what it is, as our video demonstrates:
Payments are not based on a risk profile, they're based on earnings. There is scarcely any link remaining with benefits or pensions, which will become even weaker when single tier pensions are introduced. And contrary to what many people have been duped into believing, there is no 'pot' into which contributions are kept. Money received this year is spent this year. Most of us have paid National Insurance but there's no money attached to our number. It's all gone.
We first called for the change in 2011 in our Abolish National Insurance report. In May 2012 we published our major review of UK taxes, the Single Income Tax, which also called for National Insurance to be renamed. Once again in November that year, we published How to abolish National Insurance, which mapped out the practical steps the Government could take to align and merge it with Income Tax, and the first recommendation was:
National Insurance should immediately be renamed to accurately describe its genuine function
So we're delighted that the Chancellor has shown interest in Ben Gummer's 10 minute rule bill. The Government should now set out how, over the next Parliament, it will abolish National Insurance.