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Income tax and national insurance could be merged


Income Tax and National Insurance could be merged into a single “earnings tax”, as chancellor George Osborne has commissioned a review into the simplification of the tax system.

David Gauge, the Financial Secretary to the Treasury initiated the new review into the issue by writing to the Office for Tax Simplification (OTS). In the letter he referred to the parallel tax system as a “major source of complexity for taxpayers”.

Mr Gauge also continued to write: “I would like the OTS to look at what the impacts, costs and benefits of closer alignment would be and to set out what the necessary steps would be to achieve closer alignment."

National Insurance was first introduced in 1911, and its purpose was to ensure people were insured against unemployment and illness.

This was eventually expanded to fund the NHS along with social security programmes, but several ministers believe running two parallel taxes is unnecessary, as general taxation methods already help to fund services such as the NHS.

Additionally, a historic review that was conducted in 2011 suggested that the two parallel taxes created bureaucracy and extra costs for employers.

As a result of the historic review the treasury said: “We believe greater integration of the two systems has the potential to remove economic distortions, reduce burdens on business, and improve fairness across individual earners.”


The treasury earns billions of pounds every year via National Insurance contributions, which subsequently funds vital programmes such as the state pension.

The government to collects 12 per cent of earnings from employed people who earn between £112 and £815 a week. Additionally, higher earners pay a further 2 per cent on earnings above this threshold.

However, self employed people pay National Insurance on a different scale, as this is paid at either a flat rate or as a percentage of their individual annual profit.

There are fears that because the National Insurance system works in such a different manner to Income Tax, then merging the two systems could be particularly problematic.

Other tax experts have also warned of the practical problems of merging the two taxes, as they are both collected using different IT systems. However, supporters of the merge claim that such problems can be overcome in time.

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