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.

Posted in Op-eds | Also tagged | 27 Comments

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.

Posted in Op-eds | 17 Comments

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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Opinion: Help me deliver a workers’ bonus

Nick Clegg has this week called for a further increase in the basic tax threshold of £500, which would cost around £1bn and put an extra £10 a week into peoples pockets. It is a good call but it’s not the best call.

National Insurance is in theory is a tax that is hypothecated to pay for our pensions, our unemployment benefits and other aspects of social security, but in reality all of our social benefits are subsidised out of general taxation. What it does however do economically is constrain the poorest paid in our society in …

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IFS verdict: Labour’s 10p tax idea “has no plausible economic justification”

institute-for-fiscal-studies-logo-370x229Ed Miliband’s announcement yesterday that Labour will re-introduce a 10p starting rate of income tax paid for through the introduction of Vince Cable’s mansion tax has received a tepid response from the Institute for Fiscal Studies. The IFS put out a note yesterday headed simply, Better options exist to help low earners than 10p tax rate:

A 10p tax rate would reduce taxes for those on low incomes and strengthen their work incentives. A far simpler and more sensible way of achieving these aims would be to spend the same

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Opinion: “The first £10,000 you earn tax-free”? Not unless we act on National Insurance

At Conference, Danny Alexander repeated his view that the personal allowance for income tax should be raised beyond £10,000, saying:

In the next Parliament, I want us to go further; our aspiration should be that someone working full time on the minimum wage should pay no income tax at all. An income tax threshold of £12,500 – think what that would do to work incentives, think what it would mean for basic fairness. Let’s put that on the front page of our next manifesto.

The idea certainly seems popular within the party. But remarkably absent from these discussions is any mention of National Insurance. The very first point in our 2010 manifesto was “the first £10,000 you earn tax-free” but, while it later clarified it meant income tax (IT), it’s hard to see why the parallel income tax that is National Insurance (NI) should be treated any differently.

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Two major tax reforms the government should see through

There’s been some promising chatter in the run up to next week’s Budget about two major changes to our tax system, both of which have often been talked about across the political spectrum and both of which politicians have previously ended up shying away from because of the political hurdles involved.

First is integrating income tax and national insurance. As The Independent reported,

The move is expected to be signalled by George Osborne in his Budget next Wednesday. Although such a huge change would take years to implement, the Chancellor is determined to be seen as a reformer and not just

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What the think tanks are saying: Is this the end of National Insurance?

The Centre for Policy Studies (CPS) is a Conservative think tank, founded by Margaret Thatcher and Keith Joseph in 1974. In November last year, it published an article by David Martin entitled Abolish NICs – towards a more honest, fairer and simpler system .

In the forward, Jill Kirby (at the time Director of the CPS), said: “National Insurance (NI) has become income tax by another name. Yet… it is riddled with inconsistencies”

Do the arguments presented in David Martin’s paper indicate the beginning of the end for National Insurance Contributions? Certainly, the arguments are pretty compelling.

The paper summarises …

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The Independent View: Asking business leaders to think again

This week, leaders of some of the UK’s biggest businesses came out in support of George Osborne’s plans to reverse Labour’s proposed National Insurance rise. In a letter to the Telegraph, they argue that the reversal, to be funded by an extra £6 billion’s worth of efficiency savings, is needed to protect jobs keep Britain’s economic recovery on track.

38 Degrees has launched a campaign to persuade these business leaders to change their minds. We’re concerned that their outcry might have less to do with concerns about job-losses, and more to do with the effect that the increases in their financial …

Posted in Op-eds and The Independent View | Also tagged and | 2 Comments

Vince: Labour and Tory plans “would drive public finances into the ground”

The Tories’ pledged this week to reverse Labour’s National Insurance tax rises by increasing the UK deficit. Today Labour’s Lord Mandelson accused the Tories – seemingly without a trace of irony – of “peddling deception”.

The Lib Dems’ shadow chancellor Vince Cable is having no truck with the Labservative approach:

Labour and the Tories are as bad as each other. Under both their plans, public finances would be driven into the ground. Whether it’s for tax cuts or filling in the deficit hole, both parties seem to be in a competition to see who can come up with the

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