Three reasons to be cautious about Osborne’s proposed National Insurance / Income Tax merger

In theory, it makes perfect sense to merge NI and Income tax. It would make the tax system simpler, and would close down a route by which taxes have been raised on the quiet in the past – increasing Income Tax tends to generate much more heat and light that hiking NI. However, the real world is a just a little bit more complicated. Here are three reasons why merging NI and Income Tax is more difficult – and politically risky – than it sounds:

  1. It will mean tax hikes for pensioners, unless there is a carve-out to compensate them for losses.
  2. Some people with more than one part-time job (usually low paid) will also lose out. NI is paid per employment rather than on total income. It will be more difficult to identify and compensate these losers.
  3. It would require another major government IT project, involving tens of millions of UK taxpayers. No need to worry about any risks there then.

So if I were Chancellor, I’d want to align NI and Income Tax thresholds before proceeding down this route. And I’d think about rebadging NI, branding it explicitly as a tax. Two small simple steps that could help pave the way for one big radical one.