Abolish National Insurance Contributions

True Bred Pomponian

The general taxation system is as ripe for consolidation as benefits, indeed they should be inextricably linked. You either pay tax or get benefits or neither, but never both.

Rhoda Klapp

When I was an employer (never again!) I was always struck by the absurdty of working out NI and PAYE separatley, then writing out one cheque to the revenue to cover both. It was always really a way of taxing while keeping the base rate of tax apparently lower. 97bn paid only by workers and employers, not the idle or the idle rich. Yes, get rid of it.

(Remember the revenue were sending out mails asking ladies to top up their lifetime payments to support their full pension ight up to the day they dropped the time requirements? Bastards.)

se1man

What about the cost of administering the NIC system? How much is that, and how much would be saved by merging NICs with income tax?

As for this revelation, "a Labour initiative that was supposed to raise £900 million a year but which has only brought in £2 million a year", well, that sounds horribly plausible... Is that £2m net of costs or £2m in gross revenue?

AlanL

Calling it National Insurance when it was just a tax was a marvellous piece of skullduggery by Attlee.

Even now, people think it is "insurance" in some way, and that your benefits relate to your contributions. As you point out, your contributions pay for an earlier generation's beneifts, and a later one pays for your. That is, it is a tax.

Labour spinning is a lot older than Mandelson would claim.

TrevorsDen

I see the point - I even see the point Ms Klapp makes.

But to abolish contributions would make the whole thing even more thought of as 'free' when clearly it is not.

The counter argument (and I like a good counter argument) is that the contributions should increase so that if health spending overshoots or has to increase it is directly paid for (a year in arrears) by increased contributions. If the NHS is efficient or underspends we get a rebate.
Likewise if unemployment increases those in work pay more to fund the extra costs. When it falls they should pay less.

I should add that the state though taxation (and taxation covers a wider net than individuals and employers - it covers those bastard bankers and their bonuses and covers company profits) should pay the proportionate share of children and unemployed and non working wives pensioners pregnant women. I would give working pregnant women a NIC holiday.

My point is to associate these services with a cost not to be thought of as 'free' and to help towards paying for benefits as the business cycle ebbs and flows - taking some strain off the deficit.

Companies also pay NICs and would still do under my counter argument. What would they do if NICs were abolished?

I hereby rest my counter argument.

PS - for those who care about these things I am not Tiberius or even Spartacus. I am sometimes on the road for work with a poky little mobile for company. Tiberius is far more eloquent and succinct in his perceptiveness than I (or me?).

Piers Fallowcherry

A simple soul, me, but I've long wondered why bringing NICs under the income tax umbrella has not happened (other than for political reasons). I know that an opportunistic opposition would highlight the initial uplift in income tax rates but a decent campaign to highlight the benefits should overcome this. Such a revolution could be tied in with the proposals to take the personal allowance to £10k.

Does anyone know roughly what the actual effect would be on income tax; eg 40% to, say, 43% etc?

Rob

The problem is that once employers and employees contributions are taken into account, no government is going to want to whack the basic rate of tax up to 30p and introduce employer's income tax. So you can only replace NICs by replacing income tax wholesale at the same time.

A 'Universal Tax' perhaps?

Occasional Ostrich

AlanL

As a matter of interest, was there ever an intention to invest NI contributions for growth, thus giving the system the appearance of an insurance? I've been told that there was, but that the (then) Labour government baulked at the question of what to do if the market fell and payments failed to match contributions. There've been plenty of opportunities since then to do it, but it just never happened; instead we're stuck with the biggest Ponzi scheme ever.

David Ossitt

“Government plans for a universal state pension of £140 per week were reported in the media in late October.”

It is decidedly not universal!

Those who are already on pension will not receive the new rate; it will only be paid to ‘new’ pensioners, thus creating a two-tier system.

This is wrong.

Chris lancashire

Other posts have already commented on this huge deception. NI is a tax by any other name, already pre-Brown, many people knew what a con it was. Brown used it regularly to increase stealth taxes and took the deception to new heights (or lows?). As an employer I can confirm Rhoda Klapp's view - it is a complete pain in the a**e.

Scrapping it would :
1. Save an administrative fortune for both business and government - including a 500 strong office in Newcastle (I know, I know, but they'll eventually get real jobs in the private sector).
2. Expose the true level on income tax and make governments more wary about taxing us.

RODEST

The NI system has always been contentious for emploers and employees. Those who have contributed don't get value for money in their retirement, i.e £6000pa v £29.000pa for benefit claimants. Those who have additional pensions provision are liable for income tax.

The idle and migrants seem to qualify for every handout that is available with nil contribution to either NI or income tax.

The government tinkering will not differ from what has gone before. The proposal for a £140pw pension will benefit some and not others. A more effective change would be to raise the state pension to £150pw from January 2011 and get rid of the fuel allowance and pension credits which would give the economy a much needed boost.

JR

Great post. I think there is definitely a case to be made for this.

However I'm very tempted by an alternative as touched on by TrevorsDan - that is to increase payments and time-limits for contributory (i.e. NI) unemployment benefits.

It is almost ridiculous how mean the UK system is to those who have paid NI who then become unemployed. It's way below the replacement rates needed to have any significant classical disincentive. We have followed a race to the bottom where means tested benefit levels were set almost the same as NI benefits. This had something to do with several recent DWP Secretaries of State not actually understanding the difference between contributory and means tested benefits!

I'd rename it Employment Insurance and place the funds accrued genuinely out of the reach of tax/spend government accounting. I'd then roll the rest of NI into the tax system.

alexsandr

Ummm

firstly, this would increase the tax on unearned income. People over retirement age are exempt from NI even from earned income so they would lose out.
But one big benefit is that people who get a job half way through the tax year would gain as tax is based on a years income, but NI is on that week/months income. So the marginal rate of tax would be less. Until the new tax year.

Victor Southern

National Insurance is income tax coupled with a levy on employment.

bernerlap

What an excellent idea. get rid of the employers contributions to and put the equivalent amount on corporation tax. It then becomes a tax on profits not on employment.

Ben

And employer's NI acts as an unhelpful tax on loss-making companies, especially startups - though at least it extracts something from corporation tax-dodgers like Google

Fergus Pickering

David Ossitt, are you sure about the two-tier pensions. My wife receives about £123 a week because she worked less than the statutory forty years (or whatever it was). I will receive £134 a week because the statutory period is now 30 years and people coming along will get £140 a week for a statutory period of sweet fanny adams. So the older you are, the less you get. Naw! They'll never get away with it. We'll beat them to death with our zimmer frames.

TrevorsDen

I can only repeat - 'losing' something as vast as this in the tax system is dangerous. Where would the shortfall from employers contributions come from? When things are bad it will only encourage deficits and when they are good it will encourage waste.

michael

NI is a tax on those who work and create work
the nett result is less work.... Bright!

David Ossitt

Fergus Pickering

“David Ossitt, are you sure about the two-tier pensions. My wife receives about £123 a week because she worked less than the statutory forty years (or whatever it was).”

Fergus the current rate is £97.65p for a single person and £156.15p for a couple.

My wife who is 71 and only worked until our first child received a pittance at age 60 this increased once I was 65 and drew my own OAP.

I of course receive the extra benefit of the SERPS element but of the old age pension, I receive £97.65p per week and my wife receives £58.50p, this being the difference between the single person and the couples allowance.

As to your question with regard to two-tier pensions see

http://www.dailymail.co.uk/news/article-1323761/Pensions-apartheid-Current-OAPs-qualify-rise-140-week.html

Fergus Pickering

Sorry David, what do yo mean the SERPS element? What's SERPS and when did I pay for that? The chaps tell me I will get £134. I paid NI, but I'm damned if I can see that I paid anything else. Who gets just the £97. Is that people who have never worked? All I know is that from January I will get £134 I haven't worked for. Since I never thought NI was anything but income tax, it seems like a nice free gift.

Rhoda Klapp

Trevorsden, whereas this IS a large sum and cannot be just hidden, doing away with NI by means of, say a new lower tax rate, a basic rate increase, a payroll tax or maybe not allowing 100% of payroll against tax (not quite the same thing) and maybe something on VAT to catch those who speend but do not earn might have the result of removing the benefit trap too. However, this is all pie in the sky, nobody is going to do it, even at the behest of the Centre for Policy Studies.

A pensioner

If you abolish NIC pensioners will be having to pay extra income tax. Almost all of us, I think, have already paid substantial amounts into the system. What about only letting those who've contributed take out of the system? Why should somebody get a guaranteed £140 a week, regardless of whether that person has contributed or not?

A pensioner

"Who gets just the £97. Is that people who have never worked?" No, it's people like me, Fergus, who spent time going without a wage to earn qualifications before working for 25 years without a break. I actually pick up less than £97 a week state pension.

David Ossitt

Fergus Pickering

"Sorry David, what do yo mean the SERPS element? What's SERPS and when did I pay for that?"

Hello Fergus, your first question requires an explanation in order for me to answer it.

I will try to be brief.

For many years successive governments recognised that the basic state pension was not enough to live on and looked for ways of increasing the benefit.

In April 1961 a scheme was introduced called Graduated Retirement Benefit where a specific increase in the National Insurance payment, bought credits that would eventually provide a very modest extra to the OAP, the amount was dependant on how much the individual was credited with, this was disbanded in April 1975.

But; the benefit remained my share is currently £8.88p per week.

In 1978 the Government introduced the state earnings related pension scheme (SERPS) as an earnings related top up to the state basic pension, this was a much more robust scheme than the GRB, every employee who was not in a company pension scheme that was specifically ‘opted out’ paid extra NI to pay for it.

I currently receive £121.46p per week this and the £8.88p are in addition to the £97 65p per week basic OAP.

This scheme originally was intended to pay a percentage of your last five years income (assuming these to be your highest paid) and a high percentage of the pension to your spouse on death.

Later because of cost to the exchequer, these benefits were reduced.

To complicate matters further everyone who paid into this scheme had the option to opt out by allowing a company who provided personal pensions to claim back from the revenue the contributions and put these into a personal pension.

Dependant on age this could have been of benefit, though I never did.

I suspect that your £134.00p is comprised of your OAP of £97.65p + your SERPS benefit.

I hope this helps.

Dimoto

David Ossitt: don't lose hope.
The Mail fought a little campaign to out the pension plan, but failed, (probably because it was only an outline "plan" at that time), then ostentatiously assumed the worst outcome for the existing pensioner, apparently in an attempt to force the government's hand.
They simply don't know.

I would guess that the government don't know either - they are probably beavering away looking at possibilities. They admitted they hadn't yet done the sums.

A two-tier system would lose them the election.

TrevorsDen

yes Ms Klapp - as i said I do advocate a proportion of the benefits / NHS bill coming from general tax, but I see value in those working having a clear understanding as to how much the system is costing.
If the payments come down if these services are more economical then it might encourage such a tendency.

Pensions are a ponzi scheme but a degree of hypothication regarding benefits and health might be valuable.

StrongholdBarricades

I agree with the abolition of NI

It's complexity plus the fact that it misrepresents the now infamous ponzi scheme of benefits should not be forgotten alongside the fact that it's collection is another government department, so "deleting" it should save the exchequor money and allow for collection via normal taxation.