Tax Transparency

Guido was at a private dinner last week held by an influential think-tank; around the table sat a senior Tory tax policy expert, right-of-centre wonks and an investment banker turned MP newly promoted to the government payroll. The talk was of consolidating national insurance and income tax into one headline figure. The Mail and the Sunday Times have been given the same steer that it is on the budget agenda.

The myth that national insurance is some kind of insurance to fund the welfare state no longer fools anyone. NI is just another income tax, even if it is called “employer’s NI” it is still a tax on the employee’s income. Consolidating the taxes will make income tax more transparent, the headline starting rate  is really 32% not 20%, higher rate taxpayers pay 52% not 40% of their income in taxes. The marginal rate for those on £100,000 is 60%. Making this clearly transparent will make it easier in the long run to win the political argument that we are taxed enough already. It is politically difficult to justify taking more than half a worker’s income in taxes, Guido would further argue it is immoral for the state to take the majority of the fruit of our labour. Feudal serfs kept more of their income. Transparency on taxes will inform the argument more clearly to the public.

The bad news is Osborne is expected to bring the 40% higher rate threshold down to pay for a rise in the lower rate threshold, putting 750,000 more taxpayers on the higher 40% rate. That’ll be the squeezing of the middle…

UPDATE: From the comments:

Employer’s NI is paid on all income and Employee’s continues at 1% after they reach the upper threshold The resulting tax rates are therefore 43.8%, for basic rate taxpayers, 53.8% for middle rate taxpayers, and 63.8% for those paying top rate tax. NI is going up in April so you can add 2% to all these rates.




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