Jonathan Isaby is Chief Executive of the TaxPayers’ Alliance
For those of us who have for years been banging the drum for tax simplification, it was hugely welcome to read in today’s Times that George Osborne has finally been persuaded of the merits of merging Income Tax and National Insurance. Other politicians from across the spectrum would do well to follow suit, because the difference between these two taxes on income has become so small as to be largely irrelevant. National Insurance is archaic, confusing and opaque, and it’s time to abolish it.
We have seen time and time again how our ridiculously complex tax system can disguise how much individuals really pay to the Treasury. Despite the welcome fall in certain headline rates, the Autumn Statement last year included the 509th tax rise and the 209th tax cut of this Parliament alone.
All these moving parts in the tax system have made it almost impossible to understand, let alone administer. It’s little wonder that HMRC wrongly calculated tax bills for some 5.5 million people last year – even the supposed experts can’t get their heads around it. Of course computer systems would have to be upgraded (surely only Sir Humphrey could suggest that simplifying something might be too complicated?) but it is entirely possible, as the TaxPayers’ Alliance demonstrated in a 2012 paper, to abolish National Insurance within five years while protecting groups such as the self-employed and pensioners.
The outdated divide between the two “earnings taxes” is a symptom of that broken 17,000-page tax code, as are the loopholes which remain big enough for Gary Barlow’s accountant to drive a Take That tour bus through the document. Public anger is understandable when tax avoiders are exposed, but while a televised appearance before the Public Accounts Committee makes for a modern day version of being pelted with rotten fruit in the stocks, it doesn’t actually deal with the problem. Only if politicians make a conscious effort to make the tax code simpler and fairer will taxpayers trust once again that everybody is paying their fair share.
Opening up the tax system to more scrutiny would do more than that, though, stimulating a wider debate about what a “fair share” is, and indeed what the state should be doing. Is it right that anybody should pay more than half of their income to Treasury coffers? And when people realise the extent of the bills they are footing for certain items of government expenditure, they may well wonder why it is any business of the state to be spending that money in the first place. Unlike the USA, where debates about the size of the state are de rigueur, we in the UK – at least since the mid-1990s – have tended to avoid big, philosophical questions, preferring to shuffle deckchairs rather than try to avoid the £1.3 trillion debt iceberg towards which we’re swiftly heading.
Transparency, of course, comes with accountability. If Income Tax and National Insurance are merged, we can guarantee one thing: ordinary taxpayers will be shocked at how much they are paying. To borrow a phrase, it will encourage people to remember that there’s no such thing as public money, only taxpayers’ money.
But warning signs gather. As I write, it seems that both Downing Street and the Treasury are both claiming ignorance of the plans. A merger of Income Tax and National Insurance would be a brave, bold and positive move; and it would be a crying shame if the Conservatives backed away from the idea when it is clearly so sensible. Let us hope it doesn’t go the same way of George Osborne’s pre-election pledge in 2010 to reform Inheritance Tax…