My heart lifted as I read Monday's reports that the Government may consider merging Employees' National Insurance and Income Tax. If the Chancellor is strongly considering this idea, he will enjoy widespread backing from Conservative MPs, activists and supporters.
Tax complexity costs a fortune
The convoluted tax code is a gift for expensive city lawyers and accountants but it is a nightmare for businesses and employees. We must work towards a simpler, flatter tax system in the national interest; a system that frees firms from the burden of endless forms and headaches at year-end, so they can get on with designing new products and services and creating more productive jobs.
In 2010, the Office of Tax Simplification (OTS) found that the UK tax code had more than 1,000 different reliefs. As John Whiting, Tax Director of the OTS, said: "[many of these reliefs] may simply no longer be used, or are too complex and burdensome to be properly effective." Thankfully many of these have now been rolled back but the system is still far too complex.
The UK has one of the most lengthy and complicated tax systems in the world. It is full of exceptions, exemptions and anomalies. Nobody understands it. Ask employee how their National Insurance (NI) is calculated and you'll generally get a blank stare. Most people imagine that NI is put into a special pot to be spent on healthcare and pensions in later life.
This is not the case.
Let's merge Employees' NI and Income Tax
Merging Income Tax and Employees' NI into a single payment is a sensible way to start simplifying our tax system. While regulated and processed differently, both effectively perform the same function: to tax earnings. Merging them will save HMRC and taxpayers a great deal of money and free millions of small businesses from wasting so much time trying to comply with the current complexities.
I know I am not alone in wanting a more honest and straightforward tax system. Indeed, I can recall many meetings and debates with MPs, think-tanks and Conservative activists over the last 25 years about the importance of merging these two payments. Having written recently for The Huffington Post, New Statesman and Daily Mail, outlining proposals for a single 'Income Tax' for employees, I know the devil is in the detail; merging would not be a simple process, but the move would be widely welcomed.
Rename Employers' NI - let's call it 'Jobs Tax'
In the longer term, it would also be sensible to simplify Employers' NI. As a first step, the Government should inject some well-needed clarity into the tax vs. revenue debate by renaming this pernicious payment the 'Jobs Tax'. We need clarity because Employers' NI doesn't even appear on most people's wage slips. That means employees are simply unaware that their boss has to pay another 13.8% to the Government on top of their salary.
Once we renamed Employers NI, if any future government sought to increase the 'Jobs Tax' it would be instantly clear to the public that the consequence would be people out of work and jobs destroyed. At a later stage, the Government might consider consolidating it with other existing taxes, such as Corporation Tax.
So, now would be a good time for Conservatives to proudly declare the merging of Employees' NI with Income Tax in our manifesto. Consolidating these payments will make the system simpler, less costly and less bureaucratic for businesses and their employees. It would set businesses - and accountants - free to spend their valuable time creating productive jobs. And I would urge our party to unveil this as a Conservative policy for 2015.
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