Income tax and national insurance could be combined under a set of new government proposals aimed at making the UK's tax system more simple and more transparent. The idea is the subject of a new paper, launched alongside a public consultation on the country's tax administration.

Announcing the consultation, treasury minister David Gauke said: “At the moment, for a lot of people, the tax line on their pay slip is the only time they see just how much they’re paying in tax, but the Government doesn’t think that’s good enough. We want to make tax more transparent and we want people to be more engaged with their own tax affairs."

Merging income tax and national insurance is seen as a step towards clarifying the real rate of tax paid by UK employees. It would also potentially save HMRC hundreds of millions of pounds in administration.

The Institute of Directors welcomed the consultation, but said that to combine the two would create "a lot of winners and losers".

“We welcome any move by the government towards a simpler tax system, and this paper represents a sensible next step," Richard Baron, head of taxation at the organisation said. "However, it still holds back from serious consideration of a proper merger of income tax and National insurance. We do not say this would be the right thing to do, but we would urge the government to explore the issue fully."