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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Obama's Hiroshima visit is a wake up call on the risks of nuclear weapons

The president's historic visit must lead to fresh efforts to rid our world of destructive missiles and safeguard our futures.

We now know more than ever the dangers of an accidental or deliberate detonation of a nuclear weapon. We also realise that there can be no adequate humanitarian response to such a nightmare scenario.

Malfunctions, mishaps, false alarms and misinterpreted information have nearly led to the intentional or accidental detonation of nuclear weapons on numerous occasions since 1945, according to testimonies by experts and former nuclear force officers. In the past two years alone, the organisation Global Zero has documented scores of “military incidents” involving nuclear weapon states and their allies, alongside the increasing risks stemming from cyberattacks.

Put this together with recent insight into the appalling long-term health impact of the Hiroshima and Nagasaki explosions themselves, and the sheer human cost of any future nuclear bomb blast, and you have a truly alarming picture.

We were in Hiroshima and Nagasaki last year, speaking to survivors, or hibakusha, as they are known. More than 70 years on, their lives, and the lives of countless people in Japan, are still overshadowed by these two watershed events in the history of modern warfare.

After the detonations, Red Cross staff struggled in unimaginable conditions to relieve the suffering caused by the atomic blasts. With hospitals reduced to rubble and ash and medical supplies contaminated, the provision of even basic health care was well nigh impossible.

But the nightmare is far from over even today.

Doctors at the Japanese Red Cross Society hospitals in Hiroshima and Nagasaki say that some two-thirds of the deaths among elderly hibakusha are from probably radiation-related cancers. And aside from the physical symptoms, the psychological trauma is still ever present.

No-one who visits Hiroshima’s Peace Memorial Museum, or who sees the continued suffering of thousands of elderly survivors, can be in any doubt of the catastrophic and irreversible effects of nuclear weapons. Nor could they in good conscience argue that these weapons somehow act as guarantors of global security or protectors of humanity as a whole.

Of course, the bombs in the arsenals of nuclear-armed States today are far more powerful and destructive. And modern research only makes the case against them stronger. Studies suggest that the use of nuclear weapons now even on a limited scale, would have disastrous and long-lasting consequences on human health, the environment, the climate, food production and socioeconomic development.

Health problems would span generations, with children of survivors facing significant risks from the genetic damage inflicted on their parents.

Seventy years after the dawn of the "nuclear age", there may be no effective or feasible means of assisting a substantial portion of survivors in the immediate wake of a nuclear detonation.

And make no mistake. The devastation of a future bomb will show no respect for national borders. It is likely to ravage societies far beyond its intended target country. Which makes the continued existence of nuclear weapons and the risk that entails a global concern.

Faced with these conclusions, you might imagine the international community would pull back from the brink of potential tragedy and take steps to eradicate these weapons.

Sadly, last year’s review conference of the Treaty of the Non-Proliferation of Nuclear Weapons, which had the opportunity to advance disarmament, failed to do so.

The International Red Cross and Red Crescent Movement has called on States to negotiate an international agreement to prohibit the use of and completely eliminate nuclear weapons within a binding timetable. We reiterate that call today. The political will to rid the world of this menace must urgently be found.

Until the last nuclear weapon is eliminated, there are essential steps which nuclear States can and must take now to diminish the danger of another Hiroshima and Nagasaki.

It is imperative that these States and their allies reduce the role of nuclear weapons in their military plans, doctrines and policies and cut the number of nuclear warheads on high alert status. The current modernization and proliferation of nuclear arsenals is leading us towards potential catastrophe.

The horror of Hiroshima and Nagasaki and the human suffering inflicted still holds powerful lessons. President Obama’s landmark visit on Friday will surely be a powerful reminder of the terrible destruction that nuclear weapons wreak.

We must act on this reminder.

To truly pay homage to those whose lives were lost or irrevocably altered by the Hiroshima and Nagasaki bombings, President Obama’s visit must galvanize the international community to move without delay towards a world free of nuclear weapons.

The fact that these weapons have not been used over the past 70 years does not guarantee a risk-free future for our children. Only the prohibition and elimination of nuclear weapons can do that.

Peter Maurer is President of the International Committee of the Red Cross. Tadateru Konoe is President of the International Federation of Red Cross and Red Crescent Societies and of the Japanese Red Cross Society.