What would an Income Tax and National Insurance merger look like?

Recent media coverage has suggested that the Chancellor is considering merging Income Tax and National Insurance into one single "Earnings Tax," with the Office of Tax Simplification asked to conduct a review into the possibility of doing so.

Such a move would be a victory for a years-long TaxPayers' Alliance campaign to simplify the tax code by doing away with National Insurance.

In May 2012, the TaxPayers' Alliance and Institute of Directors published The Single Income Tax, the final report of our Tax Commission, tasked with investigating the entire UK tax system and proposing an ambitious but realistic new system.

Soon after, we published How to Abolish National Insurance, a landmark paper written by Rory Meakin, Research Fellow at the TaxPayers' Alliance. This proposed a three stage process in creating a single tax on earnings, including:

  1. National Insurance should be renamed to reflect its genuine function as a second tax on income
  2. Soon afterwards, National Insurance rules, rates and thresholds should be substantially simplified, meaningfully cut and fully aligned with Income Tax
  3. Finally, National Insurance should be fully abolished, with a single tax on earnings introduced

The full paper, with complete details on the three-step process including changes to Social Security Regulations and further details on what would be required to abolish both Employers' and Employees' National Insurance, can be found here. Our plan includes a mechanism to ensure pensioners pay no more than they do now.

The TaxPayers' Alliance have also run a series of campaigns with the goal of abolishing National Insurance. "Call it what it is" was first launched in 2011, and the Giant Payslip - demonstrating the value of tax transparency on workers' payslips - in 2013. In 2014, we demonstrated how much tax you really pay on the "20p rate" with a new campaign video.

Jonathan Isaby, Chief Executive of the TaxPayers' Alliance, said:

"For too long, taxes have been taxing. Merging National Insurance and Income Tax into a single tax on earnings, or whatever the Chancellor wants to call it, would be a hugely welcome step forward in simplifying our tax system and making it more transparent. It is right that concerns are raised about the civil service's ability to deliver an effective IT system, but with HMRC already getting more than 5 million tax bills wrong last year, it's not as if the system we have now is flawless. Simplifying the job of the Revenue by abolishing National Insurance would almost certainly bring that figure down in the long run."

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