why not merge NI and income tax?

[foreverastudent]

I mean, really, what is the argument for keeping them seperate? Surely it would save on admin costs if they were to merge?

Contribution-based benefits are probably all going to go anyway.

Pensioners

I agree. I think the main reasons for not doing it are:

a) the party that did it will for ever be accused of "increasing PAYE to 30%"

b) it removes the ability of parties to frig around with NI rates without affecting the headline PAYE rate.

I think Butterbur has the right of it.

Plus the fact it would no longer be possible to hide the fact that higher rate tax is much less high than it appears (because at the point you move to higher rate, your employees NI rate drops from 10% to 1%).

But why on earth there hasn't been more 'creep' with NI for high earners I cannot for the life of me understand, such a good way for the govts to increase taxes in a way that people really won't understand.

I expect because a lot of us do understand NI Takver and they wouldn't get away with it.

Just as directly taxing more reduces incentives to work, so does indirect taxation. I think a jump of 20% on your tax bill is quite enough (it is effectively doubling) already.

Pensions are a benefit based on NI contributions. If you're not working and therefore not paying income tax, you have the option to pay your NI contributions separately.

But the point is that it isn't 20% on your tax bill, scaryteacher, only 11% (ie from 20% + 10%, to 40% + 1%)

And while lots of high earners do understand it, clearly, changes to NI are much less of a newspaper splash than changes to the headline rate of income tax.

wish they would just merge them. Save money and make it easier to administer.

If you are higher rate for tax, you pay at 40% over the threshold for that amount, so if you earn say £50k and the threshold is approximately £44k, you pay 40% on the £6k.

Tax and NI are different things for different purposes.

Well clearly.

But with the £6K in your hypothetical example, you pay 40% income tax, plus 1% employees NI

Whereas without the upper limit on NI you would pay 40% income tax plus 10% NI, which is a very different thing

And whilst theoretically they are different things for different purposes, NI has never operated on a true insurance basis, and the associated benefits have always from day one been taken from current income, hence NI is effectively a tax, not an insurance scheme.

Totally agree with beenbeta, they should have been amalgamated years ago - but as Butterbur says, people are so aware of the headline tax rate that it is very hard to do politically.

Sorry, the 'well clearly' relates to your first paragraph.

scaryteacher - no they aren't. All the money goes into the same pot. NI contributions don't give you any protected benefits. It's completely up to the government of the day how the money is used.

The only 'different purpose' is to allow you to raise more income tax without putting up income tax.

NI is a particularly nasty, regressive tax, which means the effective rate for someone on 40% tax is 41%, while the effective rate for someone on 25% tax is 35%.

The reason Labour wouldn't touch it is that their union funders wouldn't tolerate the massive savings in administration. The Tories wouldn't touch it because it would remove their ability to claim to be lowering income tax whilst actually (for most people) raising it.

Thank you, TCNY, that is far more concise & to the point than my rambling.

From an employers POV, there would also be efficiency savings from only having to administer one scheme, not two [deeply felt emoticon]

Your ability to get a pension or to claim contributory benefits like JSA is linked to your NI record, not your tax record. I don't pay tax, but can pay voluntary NI contributions to ensure that I have all my contributions made for my pension. I can't pay tax as I have no earned income.

You still pay the 11% rate below the upper earnings limit and the 1% above, so you are still paying more than someone who earns below that limit both in tax and NI.

"Your ability to get a pension or to claim contributory benefits like JSA is linked to your NI record, not your tax record. "

Which would hardly be difficult to change, would it?

"You still pay the 11% rate below the upper earnings limit and the 1% above, so you are still paying more than someone who earns below that limit both in tax and NI."

If you made income tax 25% up to 50 grand and 1% beyond that, higher earners would pay more than lower earners. Few would call that progressive. Indeed, not even flat-tax nutters would advocate it.

It would be hard to change because of the complex and byzantine legislation surrounding income tax that our previous unlamented PM set up whilst he was Chancellor.

I agree the entire system should be looked at, but even in Europe, you still make two payements - one for tax and the other the 'social payment' (NI in UK).

"It would be hard to change because of the complex and byzantine legislation surrounding income tax that our previous unlamented PM set up whilst he was Chancellor."

And that's why the public sector is so expensive. You build increasingly complex systems, with more and more people to administer them, and then "solve" anomalies by employing yet more people to handle the anomalies, guide citizens through the maze, etc, etc.

I do wish they would just stop this charade and pretence that if you pay your NI you will get a pension. You won't and if you do it will have nothing to do with what contributions you made.

Tax and N all goes into the same pot and is collected by HMRC. It get used to pay current pensions. It is not put in a deposit account or investment somewhere for you to collect later.

Totally agree Tokyo, tax was much simpler when I worked for HMRC back in the 80s.

It would mean large tax increases to pensioners, as NI is not payable on non-work income. Also it would make it harder for those saving (for eg a house) tax on any interest outside an ISA outside would increase; it would be very hard on the vulnerable who depend on the investment of compensation payments.

I think such a change would be electoral suicide.