Chancellor George Osborne. Photo: Oli Scarff
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Merging income tax and NIC: the Chancellor's calculations

The proposed plan could increase pressure for tax cuts and undermine the contributory principle.

George Osborne is planning to merge income tax and national insurance, according to a report in today’s Times.

The move would increase transparency of the tax system and likely raise pressure for tax cuts, because rolling the two together would help workers to see the scale of how much they contribute to the state.

The total sum paid by workers on the basic rate of income tax, for example, would rise from 20 per cent to 32 per cent. The amount paid by those in the higher bracket would rise from 40 per cent to about 52 per cent, with 2 per cent added to earnings above £42,000.

National insurance is the exchequer’s second-largest income source, raking in £104.5bn in 2012-13. Income tax contributed £152bn.

The political calculations made by No 11 and No 10 (said to be actively considering the proposal) are interesting. The Tories are willing, assuming they make it back into government next year, to risk accusations that they have raised the overall tax rate.

Some allegations would be incorrect and based merely on perception. Incidentally, that risk hints at the work the government would have cut out for itself in creating a public-awareness campaign which explains the amalgamation.

Other accusations would be true, reflecting the closure of quirks and loopholes in the national insurance system if it were merged with income tax. The self-employed, for example, would pay more in the new system because generally speaking they pay less national insurance than employees.

So why would Osborne risk the fallout? The gamble is offset by the Conservatives’ hope that greater transparency of the scale of individuals’ contributions to the state will incline voters towards tax cuts, which are on the cards given that public finances look set improve in the next parliament.

Another hidden benefit is that rolling national insurance contributions and income tax together will undermine the contributory principle, making it easier to slash welfare.

Because national insurance is, of course, a social insurance scheme, which entitles people to specific social security benefits – known as “contributory benefits” – through a history of contributions to the scheme made by themselves and by their employers.

First proposed by David Lloyd George in the People’s Budget of 1908, it was introduced in 1912 to create a national system of insurance for working people against illness and unemployment.

While a portion of the national insurance fund is set aside for the NHS, the rest funds contributory benefits. So to do away with national insurance will further harm the contributory principle that is a key defence of welfare.

On the other hand, to give due weight to the downsides national insurance, it is true to say that its rates have become opaque and difficult to calculate. It is because of this opacity, and therefore the ability for govenments to raise it quietly, that the Chancellor is said to be suspicious of national insurance as a “stealth tax”.

But its contributory principle means that accusations from the TaxPayers’ Alliance, among others, that national insurance has become indistinguishable from income tax, with any division merely “academic”, is wrong.

Overall the plan looks likely to be popular with Conservative MPs and voters. The biggest obstacle, however, is likely to be practical rather than ideological: namely, the risks associated with the ambitious IT system that would be needed to implement the merge.

The prospect is a daunting one following the chain of problems, and attendant bad press, that have occurred in the technology developed for the Department for Work and Pensions’ flagship Universal Credit policy, which has suffered delays and multi-million pound write-offs.

According to the Times, it was only such fears of a Whitehall IT disaster that restrained the Chancellor from announcing the move in this year’s budget in April.

The public-awareness campaign needed to explain the merge would present another challenge, as public misunderstanding would lead to the perception that the government was simply hiking tax rates overall.

Other questions remain too. Will pensioners, for example, whose pension incomes are exempt from national insurance contributions, still enjoy the lower tax rate if they continue to work?

And the million-dollar question: how will the shortfall from employers’ contributions to national insurance be made up? It remains to be seen whether corporation tax would be raised, for example, or whether income tax on employees would have to cover it.

Lucy Fisher writes about politics and is the winner of the Anthony Howard Award 2013. She tweets @LOS_Fisher.

 

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I can’t follow Marie Kondo's advice – even an empty Wotsits packet “sparks joy” in me

I thought I’d give her loopy, OCD theories a go, but when I held up an empty Wotsits bag I was suffused with so many happy memories of the time we’d spent together that I couldn’t bear to throw it away.

I have been brooding lately on the Japanese tidying freak Marie Kondo. (I forgot her name so I typed “Japanese tidying freak” into Google, and it was a great help.) The “Japanese” bit is excusable in this context, and explains a bit, as I gather Japan is more on the case with the whole “being tidy” thing than Britain, but still.

Apart from telling us that we need to take an enormous amount of care, to the point where we perform origami when we fold our underpants, which is pretty much where she lost me, she advises us to throw away anything that does not, when you hold it, “spark joy”. Perhaps I have too much joy in my life. I thought I’d give her loopy, OCD theories a go, but when I held up an empty Wotsits bag I was suffused with so many happy memories of the time we’d spent together that I couldn’t bear to throw it away.

After a while I gave up on this because I was getting a bit too happy with all the memories, so then I thought to myself, about her: “This is someone who isn’t getting laid enough,” and then I decided that was a crude and ungallant thought, and besides, who am I to wag the finger? At least if she invites someone to her bedroom no one is going to run screaming from it, as they would if I invited anyone to my boudoir. (Etym: from the French “bouder”, to sulk. How very apt in my case.) Marie Kondo – should bizarre circumstance ever conspire to bring her to the threshold – would run screaming from the Hovel before she’d even alighted the stairs from the front door.

I contemplate my bedroom. As I write, the cleaning lady is in it. To say that I have to spend half an hour cleaning out empty Wotsits packets, and indeed wotnot, before I let her in there should give you some idea of how shameful it has got. And even then I have to pay her to do so.

A girlfriend who used to be referred to often in these pages, though I think the term should be a rather less flippant one than “girlfriend”, managed to get round my natural messiness problem by inventing a game called “keep or chuck”.

She even made up a theme song for it, to the tune from the old Spiderman TV show. She would show me some object, which was not really rubbish, but usually a book (it may not surprise you to learn that it is the piles of books that cause most of the clutter here), and say, “Keep or chuck?” in the manner of a high-speed game show host. At one point I vacillated and so she then pointed at herself and said, “Keep or chuck?” I got the message.

These days the chances of a woman getting into the bedroom are remote. For one thing, you can’t just walk down the street and whistle for one much as one would hail a cab, although my daughter is often baffled by my ability to attract females, and suspects I have some kind of “mind ray”. Well, if I ever did it’s on the blink now, and not only that – right now, I’m not even particularly bothered that it’s on the blink. Because, for another thing, I would frankly not care to inflict myself upon anyone else at the moment.

It was all a bit of a giggle eight years ago, when I was wheeled out of the family home and left to my own devices. Of course, when I say “a bit of a giggle”, I mean “terrifying and miserable”, but I had rather fewer miles on the clock than I do now, and a man can, I think, get away with a little bit more scampish behaviour, and entertain a few more illusions about the future and his own plausibility as a character, when he is squarely in his mid-forties than when he is approaching, at speed, his middle fifties.

Death has rather a lot to do with it, I suppose. I had not actually seen, or touched, a dead body until I saw, and touched, my own father’s a few weeks ago. That’s what turns an abstract into a concrete reality. You finally put that to one side and gird up your loins – and then bloody David Bowie snuffs it, and you find yourself watching the videos for “Blackstar” and “Lazarus” over and over again, and reach the inescapable conclusion that death is not only incredibly unpleasant, it is also remorseless and very much nearer than you think.

And would you, dear reader, want to be involved with anyone who kept thinking along those lines? I mean, even if he learned how to fold his undercrackers into an upright cylinder, like a napkin at a fancy restaurant, before putting them in his drawer? When he doesn’t even have a drawer?

Nicholas Lezard is a literary critic for the Guardian and also writes for the Independent. He writes the Down and Out in London column for the New Statesman.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war