Sam Robinson is a researcher at Bright Blue.

Although it comes with a hefty price tag, the Tory policy to raise the primary threshold for employees’ Class 1 National Insurance (NI) to £9,500 initially and £12,500 eventually is a positive step and something which Bright Blue has long called for. Even raising the threshold to the initial rate of £9,500 would take around 600,000 people out of paying NI and benefit 16 million households, by £150 a year on average. Admittedly, as the IFS has noted, this is not the most efficient policy intervention for helping the poorest households: only eight per cent of the gains would accrue to the poorest fifth of working households.

Nevertheless, it is the best-targeted tax cut the Tories could make. It would eventually bring the threshold for NI contributions into line with that for income tax, after years of divergence. This is a welcome simplification. On the face of it, the way we tax income is relatively simple; income tax has only three rates. But NI contributions operate on a different rate schedule and are calculated on a weekly or monthly rather than an annual basis. This muddies the waters for taxpayers.

Another problem with NI is that it leads to patently inequitable outcomes. Consider that someone earning £15,000 in one month with no income the rest of the year would pay less tax than someone earning the same amount but whose income was spread over 12 months equally. Or, consider that a worker with two jobs could earn twice as much as a person with one job before paying any NI.

The standard retort is that NI operates on a contributory principle; that is, it is used to fund specific benefits including state pensions and maternity pay. But although a National Insurance Fund (NIF) does indeed exist, there are no strict rules governing its expenditure. When the Treasury receives less in NICs than the cost of paying NI-linked benefits it tops up the fund with taxes from elsewhere. Conversely, in years of surplus, the government has been known to use the NIF on reducing the national debt. Rather than being akin to a national insurance scheme, NI is in many ways just income tax by another name.

Equalising NI and income tax thresholds prepares the ground for merging the two systems. This would bring with it a number of benefits: greater transparency, lower administration costs and a potentially smoother progression of effective marginal tax rates to name a few. If well-designed, such a move could also equalise the tax treatment between those who are employed and self-employed, where the latter is incentivised through lower tax and NI currently. This is important: sooner or later, the tax system will have to be reformed in order to address the rise of self-employment, as well as the substantial proportion of people in the labour market with multiple jobs. The changing nature of work necessitates modernisation in the tax system.

We have, of course, been here before. In its early days, the Coalition Government mooted merging income tax and NI, and in 2016 the Office for Tax Simplification conducted a review into the issue. Ultimately, a full merger brings significant challenges. There is the question of the effect on pensioners, given that you do not pay NI when you retire but continue to pay income tax. Then there are the political challenges – a higher joint income tax and NI rate could prove hard to sell to the public.

But despite these challenges, the problems of an outdated and opaque tax system will not go away. The potential reward of grasping the nettle, meanwhile, is a system that is fairer, more transparent and more consistent in its approach to taxing different forms of income. In the long term, such reform should form part of a strategic rethink of the tax system. Future governments should follow through on the logic of raising the NI threshold by shifting the tax burden away from income and towards activities with negative externalities, such as polluting vehicles and unhealthy products. Doing so will reward work and spur growth while ensuring that this growth is responsible.