Why we should merge income tax and NI
Merging National Insurance into income tax is one of those perennial topics that gets a bit of air every Budget and Autumn Statement but it may be that we're inching closer to this simplification, and it wouldn't be a bad thing.
You see, there isn't actually that much difference between national insurance (NI) and income tax. Years ago, NI contributions may have been ring-fenced to pay for state pensions but those days are long gone and it is effectively an extension of income tax, with all the money going into one big pot and spent as our politicians see fit regardless of where it came from.
The problem is it blurs the lines around entitlement to the state pension. Those who have seen their state pension age pushed up argued they've paid into their NI pot and deserve their state pension earlier but fail to realise that there is no pot waiting for them, their contributions have funded the pensions of those who have already retired.
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Those working and paying tax are equally in the dark, believing they pay 20% or 40% income tax when actually NI puts another 12% on top for those who earn up to £844 a week. Ouch.
If we merged the two taxes together it would be a much fairer representation of just how much of our wages go to the Treasury – after all this government has just introduced a breakdown of just how much your money is spent so why not make contributions clearer?
Of course, if you're a pensioner or a saver you'll probably be shaking your head at the idea of a merger because you don't pay NI on your income from pensions or your returns from your savings.
Unfortunately, when it comes to pensioners, we have done a lot to safeguard them from austerity measures that those working have been enduring so maybe this would redress the balance somewhat?
It could be a great way for the Treasury to further boost the windfall of income tax they are going to receive from pensioners when they all start stripping their money out of their pots to buy Lamborghinis next year!
The government has said it will move towards a merger and last week it told self-employed people they can now pay their class 2 NI contributions in their end of year self-assessment rather than every four weeks. It's a small steps towards a more streamlined income tax system: pensioners and savers, you have been warned.
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