Tag Archives: national insurance

Raising tax for health and social care: National insurance or income tax?

Last month, the independent panel of health experts set up by Norman Lamb published its interim report on “a new deal for Britain’s Health and Social Care Services”. The panel were “unanimously of the opinion that it is necessary to raise additional revenue for health and care through taxation” and Spring Conference seemed to agree. Similar views may partly explain why the Conservatives have so far (sensibly) refused to rule out any headline tax rises in the next Parliament.

The interim report, which may influence the Lib Dem manifesto, concludes with three options: 1) raise Income Tax (e.g. raising all rates by 1p); 2) raise National Insurance (NI); or 3) introduce a dedicated health and care tax. All have their pros and cons, and in the grand scheme of things Income Tax and NI rate increases raise similar revenue and are both very progressive. But in this post I want to highlight a few reasons why the current NI system might not be the fairest vehicle for boosting health and social care – points that are also important for considering what a ‘dedicated’ tax should involve.

Don’t raise employer National Insurance

First up, there’s a question about what forms of NI would be increased under that option. In short, you would want to raise the personal forms of NI that individuals – employees and the self-employed – pay, but not employer NI. That might sound backward – hitting individuals but not companies (though in the long run both just reduce take-home pay). But the existing employer NI system already creates damaging and expensive distortions. Foremost, it creates a large incentive for companies (and you and me) to use self-employed labour rather than employees. No-one seems to be suggesting this but for the avoidance of doubt: unless/until that major problem is solved, don’t raise employer NI further.

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Make cheating employers pay, not lone entrepreneurs

 

Many politicians protesting, quite rightly, about the unfair hike in National Insurance contributions for the self-employed have missed the real solution.

The important contribution is the one paid by employers, at 13.8 per cent of wages for abroad middle range of employees. It is an expensive outlay on workers, and often claimed to be a deterrent to increasing the payroll.

More unscrupulous companies, mostly but not all US-owned multinationals, are evading this tax. They do not employ most of their workforce, but engage people labelled as self-employed.

As one who has been self-employed for many years, even while holding such executive positions as business editor on national newspapers, I recall that becoming self-employed was beset with hurdles. A principal test was to prove that you decided how the task was to be performed, not those paying you.

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The graph which shows why the Lib Dem policy of raising the personal allowance is the wrong priority

Here’s a graph which should make Lib Dems who continue to advocate increasing the personal allowance as an effective way to help low- and middle-income earners sit up and pay attention.

It’s from the Resolution Foundation’s report, Missing the target: tax cuts and low to middle income Britain, published yesterday.

What it shows is which households gain from the party’s policy to increase the threshold at which income tax is payable to £12,500 over the course of the next parliament. As you can see, those households which benefit most are at the wealthier end of the spectrum; the poorest 20% benefit least.

res fdn tax cuts lib dem graph 1

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Opinion: If an NHS Tax is a step too far, let taxpayers make an optional “NHS Donation”

nhs sign lrgLiberal Democrats have committed to protecting the NHS Budget in the next Parliament. But over the next 6 years, we will need to fill a £30 billion deficit to maintain the level of quality we expect from our NHS. Social care faces a £7 billion shortfall.

There have been recent reports that senior party figures are looking at a hypothecated “NHS Tax”.

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Lib Dems pledge more tax cuts: after personal allowance raised to £12.5k will also increase National Insurance threshold

Danny Alexander by Paul WalterToday’s big announcement from the Lib Dems has been the “plan to cut your tax bill further”. Here’s how The Guardian reports it:

The Liberal Democrats are to burnish their credentials as the tax-cutting party for the low paid by floating the possibility of cutting national insurance contributions for anyone earning below £12,500 a year.

In a challenge to David Cameron, who is facing pressure from Tory MPs to pledge bold tax cuts as the economy grows, the Lib Dems will promise in their general election manifesto to raise the level at which workers start to pay national insurance contributions.

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Opinion: Lib Dems should get behind renaming of National Insurance

Tory MP Ben Gummer is today introducing a 10-minute rule bill “to make provision for National Insurance to be known as Earnings Tax”. It’s a very simple renaming proposal. But branding is important, not least in politics. The Chancellor is “said to be attracted to the idea”, so if Danny Alexander and Nick Clegg were to support it, the change could make it into the Budget.

It’s well known that National Insurance is an extra income tax in all but name. As far back as 1994, Lib Dem policy was “to abolish national insurance contributions and create an integrated tax …

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Opinion: Making allowances – 12 conclusions about the Personal Allowance policy

CentreForum today published ‘Making allowances’ – a paper all about the Lib Dems’ flagship policy of raising the income tax Personal Allowance. Here are some of my conclusions – some obvious, some more obscure – to help inform future tax cuts.

1) The costs are huge. The coalition’s Personal Allowance increases have cost £11bn, and the Lib Dems’ minimum wage tax target would cost at least the same again. With this combined total, we could (roughly) reduce VAT to 15%; scrap council tax or business rates; easily deliver quality universal childcare; or

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Recent Comments

  • User AvatarJames Baillie 29th Jun - 12:52am
    Eddie - whether resignations from the party happen is not in the gift of the radical wing, it's dependent on the leadership. If Vince wants...
  • User AvatarClive Lindley 29th Jun - 12:27am
    I think we are fortunate to have Vince prepared to do the job. Reading the above posts, I think that some of our colleagues and...
  • User AvatarEddie Sammon 29th Jun - 12:11am
    Is the leadership election not being cancelled? Isn't the "coronation" going ahead? There seems to be a lot of panic in the radical pro EU...
  • User AvatarSteve Way 29th Jun - 12:02am
    A joint body is the only equitable solution as no single party to an agreement should get to unanimously decide whether the terms of that...
  • User AvatarJoebourke 28th Jun - 11:40pm
    Dave Orbison, What the Lib Dems believe is succinctly set out in this link https://www.markpack.org.uk/150076/what-liberal-democrats-stand-for-poster/
  • User AvatarAndy Hinton 28th Jun - 11:36pm
    "Remember, you can only nominate one candidate." A sentence with what appears right now to be an unfortunate double meaning! I wouldn't sign Vince's nomination...
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