Of all the questions about why our tax system is structured like it is, the question whether to merge income tax and national insurance must surely be the most asked – but least answered. Why is that?
Proponents of a merge include Gavin Kelly (Chief Executive of the Resolution Foundation), the Taxpayers Alliance, the Institute of Fiscal Studies, the Centre for Policy Studies, PWC, the Centre Forum (a liberal think tank), Judith Freedman, UKIP. Why, then, has it not happened? They are, as all of the above have pointed out, both taxes on personal income.
The short answer is the enormous political challenges that a merger would involve.
- It would expose a not terribly progressive tax system: once you include primary and secondary NICs, income tax currently starts (for the employed) at over 40% on income above £10,600. And it rises to more than 53% (ignoring for a second the anomaly consequential on…
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