Details of the government’s “grand plan” to merge National Insurance (NI) and Income Tax were briefed out this weekend.
Yesterday, Downing Street played down the speculation, with the Prime Minister’s Official Spokesperson telling journalists the reports were “entirely news to them”. The Chancellor is said to have considered announcing the change at the last Budget, but the decision was postponed over doubts about whether the two existing computer systems could be integrated without it all going a bit Universal Credit. You can hardly blame Number 10 for exercising caution.
For all the teething problems with the implementation of Welfare Secretary Iain Duncan Smith’s reforms, few reasonable people doubt that he believes he is on a profound moral mission to improve the lives of the most vulnerable in this country. Ultimately, he is responsible for how his policy is rolled out, and should face the consequences if it eventually fails. But IDS does deserve credit for pushing through radical reforms in the face of vitriolic opposition.
George Osborne has yet to show many signs that he has the appetite for an equivalent moral mission with regard to Britain’s tax system. He has been busy… fixing the roof while the sun is shining… for hardworking people… in the global race… as part of his long term economic plan. Yadda, yadda, yadda…
But if he is to have another five years at the helm, with the economy in at least a slightly healthier place than when he got hold of it, he could do a lot worse than beginning to revamp the way the state taxes its citizens.
The wisdom amongst the pointy heads is that a merger of NI and Income Tax, blue screen of death fears aside, would be a good start. The Tax Payers’ Alliance has previously set out how a merger could be done successfully; it says the proposal is “great news” and while “nobody wants another government IT catastrophe… Mr Osborne should grab this bull by its horns and press ahead with the plan”.
Ryan Bourne of the Institute of Economic Affairs says it is “brilliant if true”, and that the change is “long overdue and a great simplification of tax system”.
The benefits are clear: payslips are simplified, deductions become more transparent, people are much more aware of what they are paying to the government in one simple “earnings tax”. The main benefit, however, is that it lays the foundations for far more wide-ranging and radical reforms of the way workers in this country pay tax, and indeed how much they pay.
An earnings tax would mean that basic-rate taxpayers will know in black and white that they are passing 32 per cent of their earnings onto the state. Higher-rate taxpayers will be clear they are handing over 52 per cent. Forgive me for sounding a bit Karl Marx, but workers would be liberated from their exploitation at the hands of the ruling class, they would achieve class consciousness and rise up together to throw off the shackles of oppression. Or, at the very least, they might realise that they actually pay quite a lot of tax, and parties seeking their vote might decide that it could be a quite a good idea to offer to tax them a little bit less.
A merger of NI and Income Tax could be the catalyst for radical changes to make our taxes considerably lower, flatter and more transparent. It could be the start of George Osborne’s moral mission for the next parliament. The question is whether the Chancellor has the appetite to follow through.