A tax increase to pay for... a tax increase. Brilliant.

From The Mirror:

Almost every person could see their council tax bill rise next year due to the government raising National Insurance to pay for the country's growing social care bill.

The new levy was announced last week, and will see the National Insurance paid by businesses and individuals rise from 12% to 13.25% next April. Councils with directly-employed staff get part of a £2 billion pot from the government to help with this cost. But MPs last night said the issue will really hit councils which outsource services like bin collections to private companies....

This is arrant nonsense of course on an economic level. It's all just the government paying money to itself. If HMRC collects more in NIC from people directly or indirectly employed by the government, they can use some of the revenues to increase block grants to councils and it all nets off. But any old excuse to increase taxes. And of course they should have added the 'social care levy' to Council Tax in the first place.

I've also fixed the banner add for them:

Welcome to the new basic rate of tax - it's 42%

Employer has £100 to pay on wages.

New Secondary NIC rate = 13.8% + 1.25% = 15.05%. So the max. gross wage he can pay out = £100 ÷ 1.1505 = £86.92

New Primary NIC rate = 12% + 1.25% = 13.25%, add on official basic rate of tax 20% = 33.25%.

£86.92 less 33.25% = £58.02, an overall tax bill of £42 = 42%.

If you factor in VAT, which takes one-sixth of earnings in the productive economy, it's closer to 52% overall. It's far worse if you also have Student Loan Repayments or Working Tax Credits that are being clawed back.

Some Tories have a conscience: shock

From The Metro:

... former minister Jake Berry, leader of the Northern Research Group of Tory MPs, warned against a policy that appeared aimed at elderly voters in affluent southern seats [see below].

Tory former Cabinet minister Sir John Redwood warned against a ‘stupid’ tax rise, "A tax on jobs when you want to promote more and better-paid employment is particularly stupid."

Tory former chancellors Lord Hammond, Lord Clarke and Lord Lamont have all criticised the plan to increase National Insurance, while former prime minister Sir John Major said it was ‘regressive’.

I always said the John Major was the only decent PM in my lifetime, in both senses of the word.

From The Times:

In a sign that the tax rise could split Johnson’s electoral coalition, Jake Berry, a former minister who leads the Northern Research Group and is the MP for Rossendale & Darwen, said that the move would disproportionately benefit older voters in affluent southern seats.

“It doesn’t really seem to me reasonable that people who are going to work in my own constituency in east Lancashire, probably on lower wages than many other areas of the country, will pay tax to support people to keep hold of their houses in other parts of the country where house prices may be much higher."

Berry, 42, formerly a close ally of Johnson and a key backer of his leadership ambitions, told Today on BBC Radio 4 that because national insurance was not paid by retired people, a rise would pose questions of intergenerational fairness.

“It doesn’t seem fair to me — particularly following this pandemic where so many people have taken great sacrifices to keep people safe, it’s particularly hit the youngest, particularly hit those in work — that we then ask those in work to pay for people to have protection in care.”

But of course all this logic was ignored and they went ahead anyway.

It's always "National Insurance", isn't it?

From the BBC:

Social care must be adequately funded, Justice Secretary Robert Buckland has said, amid reports ministers plan to raise national insurance. Downing Street did not deny reports of an increase of at least 1% to improve social care and tackle the NHS backlog.

The justice secretary said he would not "speculate" but said there should be a "grown-up conversation" about how to pay for rising social care costs. "The British public are sensible enough to know that when it comes to the issue of social care we have to find some way in which it will be adequately funded," Mr Buckland told BBC Breakfast.

The move would break a Tory manifesto commitment at the last election. He said that the Conservative Party had also promised at the 2019 election that it would bring forward sustainable proposals to fund social care.

The Daily Telegraph reports that Downing Street favours a 1% rise in the national insurance rate, affecting about 25 million workers and self-employed people, as well as employers. But it says the Treasury is pushing for a 1.25% increase. And the Times adds that Health and Social Care Secretary Sajid Javid wants a bigger rise of 2%.

For the sake of this post, I will assume that the rumours are correct.

"National Insurance" is one of the biggest con-tricks ever. It's just tax, it's a super-tax of over 20% on employment income and a lower super-tax of 9% for people with moderate self-employment income (it's only 1% on high self-employment income).

Social care is the government's responsibility for the simple reason that people seem to assume it is, it is self-fulfilling, so fair enough, and thus it has to be paid for out of taxes (short of the obvious alternative, stop wasting so much money on crap and dishing out billions to ministers' friends and families).

Somehow, National Insurance isn't really seen as a tax (a bit like VAT). In popular myth it only goes towards wholesome stuff like old age pensions, the NHS, unemployment benefit and now social care. On top of that, pensioners genuinely appear to believe that they paid for their own pensions, even though it's actually today's taxpayers who are funding them. If you add up all the things on which people believe National Insurance is spent, it is about double the amount it actually raises.

And people don't seem to mind or even remember. Gordon Brown hiked it by 2% back in 2003/04 and planned to hike it again by 2% in 2010, but he lost he election. The incoming Tories did it anyway. Was there a big outcry? Not that I remember. And they stuck 2.5% on VAT, nobody cared. So the Tories' are likely to pull the same sneaky trick again.

What's even more insane is that when Philip Hammond wanted to up self-employed National Insurance from 9% to 10% (still less than half of what employees bear), there was a huge outcry and he backed down.

Final thought - the additional tax they hope to raise from this appears to be about £3 billion, so why not put a ten percent surcharge on Council Tax and just call it 'National Insurance' and see if people mind?

Your occasional reminder...

From Professional Pensions:

The government will pay out £21bn in income tax relief for pension contributions this tax year, while national insurance relief payments will rise to £18.7bn, according to statistics from HM Revenue and Customs (HMRC).

The estimated figures - published yesterday (10 October) - reveal the cost of income tax relief for registered pension schemes in 2019/2020 will be higher than the year prior, estimated at £20.4bn, and five years ago at £17.9bn.

This covers relief on contributions, relief on investment returns, and tax paid in retirement - but the figures do not provide estimates on the total receipt in tax when pensions are in receipt.

That last bit isn't quite clear - isn't "tax paid in retirement" the same as "receipt in tax when pensions are in receipt"? But hey, let's run with the headline figure. 'Cost' for these purposes is the equal and opposite of the value of the tax saving to the individuals, it's the same thing.

As ghastly as taxes on earnings (income tax and National Insurance) are, if I were in charge, I would chuck the 'focused' tax savings for pensions contributions (focused on older and wealthier people, including Yours Truly; and ultimately on the insurance companies which siphon it all off again) in the bin and share out the savings more equitably:

1. Increase the NIC thresholds (primary and secondary) to £12,500 (same as the personal allowance for income tax). Tax saving per employee earning more than £12,500 = £950 or so, call it £25 bn all in. That's an important first step towards a Basic Income. The Employment Allowance and Apprenticeship Levy can go in the bin as well.

2. Reinstate the personal allowance for those earning more than £100,000 (which results in a marginal income tax rate of 60%), tax saving maybe £3 bn. Either you believe in universal entitlements or you don't, and I do.

3. Harmonise Employees' primary NIC (currently 12%) and self-employed Class 4 NIC (currently 9%) at 11%, an overall tax saving of £6 billion or so. The self-employed will squeal, but so be it. Lower earning self-employed will be up to £370 better off, and those at the upper end will be paying £300 or so more (paying £3,724 = 11% x £46,350 - £12,500, instead of £3,413 = 9% x £46,350 - £8,424), hardly a life changing amount. Employees at the upper end will be saving £800 or so a year. There are more of the latter than the former.

4. Depending on how much is left over (it gets circular and there is guesswork involved), we can start chipping away at Employer's Secondary NIC, get it down from 13.8% of wages to 12% or something...

Shocking stuff, the audience cries, but a government would just have to do it and damn the torpedoes. (As far as I am concerned, the flat rate state pension of £160 covers it, there's no need for more endless tinkering on top).

By the next election, which party would be brave, stupid or corrupt enough to pledge to reverse this? How's that going to go down on the doorstep: "We pledge to hike tax rates for most people for the benefit of large corporations who make large donations to our party and offer us cosy jobs when we retire"?

Most employees pay far more National Insurance than Income Tax

The 'earnings threshold' for NIC is lower than the personal allowance for income tax; and for basic rate taxpayers, total NIC is 25.8% of earnings above the threshold but income tax is only 20% of earnings above the personal allowance.

At the top of the basic rate band, it's £9,786 NIC and £6,900 income tax.

Above that, it flips over, NIC is 'only' 15.8% of earnings but income tax is 40%.

The break-even point at which you pay the same amount of NIC as you do income tax is about £58,300, which you can check here, so only the top few per cent of employees actually pay more income tax than they do NIC.

VAT raises approx. the same amount as National Insurance, meaning that a majority of employees probably pay more in VAT than they do in income tax as well.

Just sayin'.

"Tens of thousands of public sector contractors to see net pay slashed by a fifth"

From a press release from Randstad (employment/recruitment agency) which landed in my inbox two weeks ago:

* Final legislation on off-payroll working or “disguised employment” comes into force on 6 April and could see contractors’ net take-home pay drop by 20% (1)
* Public sector organisations, having had little time to prepare for the change, are overwhelmingly following the line that all roles will fall within IR35
* Randstad warns of a mass exodus of public sector contractors to the private sector, leading to skills shortages in vital public services (2)

About time too.

It's fair enough if people/businesses in the private sector try and reduce their National Insurance liabilities by dressing up employment as self-employment. National Insurance is a nasty tax, so I have no moral qualms about that, even though in practice I don't recommend it as HMRC usually catches up with you and then it gets really nasty.

But it always horrified me that public sector employers go along with this charade. The tax withheld from wages by the public sector is not really tax, it is a pay cut, that's great news for taxpayers.

1) How on earth they work out that net take-home pay will fall by 20% is a mystery to me. Income tax rates are the same for employees and the self-employed, and Employees' and Class 4 National Insurance on earnings over the upper earnings limit is the same (2%).

The only difference is between Employees' NIC (12.8%) and Class 4 NIC (9%) on earnings up to that limit (so maximum cost/pay cut approx. £1,000 a year). The rules on allowable expenses are a bit more generous for the self-employed than for employees, but in practice, that doesn't make a huge difference.

2) And finally, let's see whether there is a mass exodus or not, I don't see how there can be. MBK tells me that if you have worked in the public sector for a few years, private sector employers aren't interested in you any more. Private sector employers are not going to magically create roles for all of them with their largely untransferable skills, are they?

Today's award for conflating two totally unrelated issues goes to...

From The Evening Standard:

Liberal Democrat leader Tim Farron said: “The Government is forcing workers to pay for its reckless hard Brexit plans. It’s a disgrace that thousands of hard-working entrepreneurs in London will be hit by a tax hike.”

He's not as old as he is confused, is all I can say. Were the Lib Dems not in the coalition government which increased NIC rates for employers, employees and the self-employed by one percent from 5 April 2011?

All those moany Labour MPs appear to have forgotten that a Labour government did exactly the same thing back in 2003.

And WTF does this have to do with Brexit anyway?

NB, NICs are clearly the second worst tax after VAT so I'm not defending Hammond, I'm just judging people by their own standards.

Adam Smith Institute FAIL

From City AM:

How did people react to the National Insurance hike?

Sam Dumitriu at the Adam Smith Institute said: “It’s right to bring National Insurance on the self-employed in line with that paid by employees. But the chancellor must ensure he is not discouraging the self-employed from investing, and allow them to immediately deduct capital expenditures from their taxable income...

LOLZ! has he not heard of the Annual Investment Allowance, which means that most small and medium-sized business can claim 100% of their capital expenditure in the first year? (This is some nonsense dreamed by Georgon Osbrown: reduce the normal capital allowance rate to a miserly 18% (or 8%) but then give most businesses a 100% rate anyway).

... We shouldn’t be looking to increase the overall tax burden, especially not on low-income workers. So we should use the extra revenue raised to cut the overall National Insurance rate.”

If he means align the NIC rate on employees and self-employed, they've got a long way to go (10% vs 23% on the first £43,000), even further if they look the rates above that (2% and 14%) and even further if they look at the NIC rates on investment and rental income (0%). But the Annual Investment Allowance (which is only a timing thing anyway) is bugger all use to low-income self-employed who probably don't incur much capital expenditure.

To give Philip Hammond credit, he did point out that employees pay/suffer two layers of NIC and IIRC, referred to it as a "tax".

Aligning National Insurance rates - half right, but apart from that, completely wrong.

From The Daily Mail:

Philip Hammond was last night urged to abandon plans for a £1billion tax raid on the self-employed, amid warnings it would wreck Britain’s growing entrepreneurial culture.

The Chancellor is reported to be planning a rise in National Insurance rates for the self-employed in tomorrow’s Budget to bring them closer to the level paid by those in salaried jobs. The move could eventually see the National Insurance rate paid by self-employed people rise from 9 per cent to 12 per cent.

Closer? It's not much closer is it? Employees suffer two levels of NIC, which cost 22.7% of gross pay (£25.80/£113.80); the self employed suffer one layer which costs 9%. NICs are a regressive tax and the rates above £43,000 are lower; this largely cancels out the fact that income tax is higher above £43,000 (i.e. the system is a lot flatter than people think).

I'm all in favour of aligning rates, but how about reducing the NICs suffered by employees as well and let the two meet in the middle?

Chris Bryce, chief executive of the Association of Independent Professionals and the Self Employed, said the Chancellor should hold a full consultation before deciding on a massive hit on the sector.

He added: ‘If the Chancellor were to increase National Insurance contributions for the self-employed, a large number of low-paid people could lose out on a significant amount of income.’

Three per cent of not much is not much, is it?

One former minister warned that Mr Hammond would face a major backlash if he pressed ahead with the full rise.

‘We can’t, on the one hand, claim that we are the party of the strivers while, on the other, say we’re going to hit millions of them with a massive tax bill,’ he said.

How about the 'millions' of employees whom you are already slapping with an NI bill that is twice as high?

Treasury sources did not dispute that the overall tax burden could rise slightly as a result of tomorrow’s Budget measures, despite warnings the UK is already heading for the highest tax burden since the 1980s.

Funny how the Tories get away with increasing taxes while still running huge deficits, exactly the thing they are always accusing Labour of having done. History shows that over the long run, Labour run smaller deficits/are more likely to reduce the national debt and do not collect more in tax.

The only good news from all this is that all parties appear to agree that National Insurance Contributions are indeed just another tax.

Economic Myths: Taxes on public sector wages

We've done this one often enough, but here we go again.

From the BBC:

More than six million UK workers could find their take-home pay cut from April after the new flat-rate state pension comes into effect.

The move, first announced in the 2013 Budget, will boost the Treasury's coffers by £5.5bn a year. Most of that sum will be raised from public sector employers and employees by higher National Insurance payments…

The whole move to the flat-rate state pension is much to be welcomed of course, it's more like a 'Citizen's Pension'. This has the added bonus of highlighting that National Insurance is just another tax on earnings i.e. a very bad tax indeed, so hopefully we can move away from this bullshit that "National Insurance pays for my pension" or "I've paid for my own state pension, I'm just getting back the National Insurance I paid over a lifetime." This economic myth is so deeply engrained that people get quite angry when you challenge it.

The result being that people can no longer 'contract out' and pay the reduced NI rate if they are in an employer pension scheme…

Employers will now have to pay higher NI, amounting to that 3.4% of their employees' relevant earnings. The government said in 2013 that the new system was fairer for the self-employed and many mothers.

Public sector employers will pay £3.33bn and employees £1.37bn more to the Treasury in 2016-17 as a result of bringing in the pension earlier, according to the Treasury. From the private sector, employers will pay an extra £570m and employees £235m.

If public sector employers have to pay £3.33 bn more to the Treasury, then unless public sector employees reduce their payrolls by one or two percent, doesn't mean that their budgets, paid out by the Treasury, will also have to increase by £3.33 bn?

So this is neither a real boost nor a real cost to the Treasury at all, is it?

"Simplify taxes now"

Allister Heath talks sense for a change:

It would be great if Ben Gummer, the Tory MP for Ipswich, gets his way. He wants national insurance contributions (NICS) to be renamed the earnings tax. This would be a far more accurate way of describing a little-understood levy...

To make matters worse, NICs are dishonestly divided into an “employees” bit (at 12 per cent and two per cent) and an “employers'” share (13.8 per cent on almost all pay). In reality, as most economists would agree, there is no difference: employees pay all of it.

The forces of supply and demand determine workers’ total cost; the fact that some of this is made up of wages and some non-wage costs makes no difference. If employers’ NICs were abolished, wages would eventually rise commensurately. So-called employers’ NICs are a stealth tax on workers.

The total tax bill on wages, salaries and bonuses, including income tax and all NICs, is shockingly steep. Earnings above £7,717 face 12.1 per cent; this increases to 22.7 per cent from £7,769; then to an astonishing 40.2 per cent from just £9,440.

The tax rate then spikes punitively to 57.8 per cent from £41,450; fortunately, that is merely a weird aberration and tax dips back to 49 per cent from £41,558, where it settles; eventually, it explodes to 66.6 per cent from £100,000 before falling back to 49 per cent from £118,880. Earnings above £150,000 face a cumulative tax rate of 53.4 per cent.

It’s time some clarity were injected into our hopelessly complex tax system.

It's just a shame that he didn't squeeze in a mention of the extra high marginal rates for many lower earners, i.e. benefits withdrawal, working tax credits withdrawal and student loan deductions.

And unfortunately he ignores VAT. He appears to have succumbed to the delusion that this is a tax on "consumption" not "production" and of course his beloved banking and residential construction sectors are either VAT exempt or zero-rated.

If you treat VAT more correctly as a tax on "value added", the bulk of which is wages, those marginal rates for people in the productive sector all go up by about ten percent*.

* assuming that an employee gets all the marginal extra income from a sale, the customer pays £100, 20/120 = £16.67 goes in VAT, 13.8/113.8 x £83.33 = £10.10 goes in Employer's NIC, leaving £73.23 gross wage; from which 32 per cent basic rate tax plus NIC is deducted = £49.80 net wages, a marginal tax rate of 50.2 per cent; not the 40.2 per cent he mentions.

Staggeringly ill-informed comments about National Insurance...

... over at The Daily Mail:

In among the dross, the currently best rated comment plus reply:

macular degenerate, limassol, Cyprus:

THE ONLY CHANGE THE GOVERNMENT NEED TO MAKE WITH NATIONAL INSURANCE IS THE WAY IT IS UTILISED.

MarkM, London, 1 hour ago

Well said! So, let me get this straight: NI was supposed to be for pensions, the NHS and other welfare but successive governments have stolen it for their own ends (i.e. re-election campaign bait).

Now, instead of stopping the shameless theft of the much-needed funds as the baby-boomer generation starts to need it, their proposed resolution is to 'rename it'? The concept of the NHS gets a lot of undeserved flack when it has been the plundering of that financial war chest that needs to be addressed and the criminals, like Osborne, locked up.

In popular imagination, National Insurance "pays for" contributory benefits, the old age pension and the NHS. Heck knows what made people pick these three things out of the hat, but there you go.

Those two comments suggest that spending on those three areas is much less than the amount collected in National Insurance, don't they?

Truth is, just over £100 bn a year is collected in National Insurance; about £5 bn goes on contributory benefits; about £90 bn is spent on old age pensions; and about £120 bn goes on the NHS.

Oh, hang about... the government spends more on those things than is collected in National Insurance. If you want to call this "re-election campaign bait", then fair enough, but it's the other big taxes (income tax and VAT) which are paying for half of it.

Twats.

The fiscal multiplier in action

From City AM:

THE PLANNED cut in national insurance payments for employers is making one in three small- to medium-sized companies more optimistic about hiring staff, according to figures out today.

Chancellor George Osborne said in his March Budget that the government will waive the first £2,000 on employers' national insurance bills from April 2014. The so-called employment allowance is set to save companies £5.9bn between 2014 and 2018 and a third of employers will no longer pay national insurance contributions, according to government estimates.

Why would it encourage small businesses to take on a significant number of additional employees? If anything, it's a big incentive for a small employer to stay below the £2,000 threshold, which is quickly reached - that would only cover the Employer's NIC on one employee paid £22,000 per annum, on two paid £15,000 or on three paid £13,000. Beyond that, the marginal cost of employing people is exactly the same as it ever was.

But most galling is this bit of fiscal multiplication right at the end:

National insurance, a tax paid by both workers and employers, funds certain state benefits, pensions and the NHS. The coalition has attempted to reform the levy since being elected three years ago.

Does it f-ck!!

From memory, NI raises just over £100 billion a year. State pensions are £90 billion a year, the NHS costs well over £100 billion a year and there's another couple of £ billion for contributory Jobseeker's Allowance. So it covers pensions and a bit of working age benefits but it certainly does not magically pay for the NHS as well. It wouldn't even pay for the NHS in isolation.

And no, the coagulation has not "attempted to reform the levy", they cheerfully bumped up the total rate from 23.8% to 25.8% of gross earnings and left it at that. Sod the employers and employees, those nasty grubby little people who have to engage in free exchange of goods and services in order to make a living.

No wonder the politicians think they can get away with it.

I'm rather alarmed at the results so far to this week's Fun Online Poll after 39 votes:

Which Labour policies did the Tories oppose while in opposition but enact once in government?

2% National Insurance increase - 16 votes
Big Society Bank - 19 votes

*ahem*

Alistair Darling pre-announced the 1% plus 1% hike in National Insurance in Labour's last Budget of March 2010, it was scheduled to come in on 6 April 2011. The Tories opposed it at the time, and George Osborne pledged to slash Labour's tax on jobs. He became Chancellor two months later and the 1% plus 1% increases were duly introduced on 6 April 2011.

Gordon Brown first mumbled on about using money in dormant bank accounts to fund 'the third sector' (i.e. the quangocracy) in 2005 and the Tories opposed the idea at the time. The Tories were still opposing it two years later when it was to be called the Big Lottery Fund. The Tories then actually introduced the Big Society Fund last week, using the same money from the same dormant bank accounts.

*/ahem*

Newsflash: the personal allowance IS £10,000

The coalition is making a big song and dance about the plans to increase the income tax free personal allowance to £10,000 (all figues per annum). The official income-tax free personal allowance was only £6,475 in 2009-10 and it's £7,475 in the current tax year 2011-12, which looks like slow progress.

The truth of the matter is, the effective tax-free personal allowance is already £10,000 and has only increased by £493 in the two years since the coalition took over; the benefit of the higher personal allowance has been more or less wiped out by the total 4% increase in National Insurance and Working Tax Credits withdrawal.

Assuming that you consider National Insurance to be income tax (which I do)* and assuming that you consider Working Tax Credits to be negative income tax (for statisical purposes, they are), then if a single low earner had a gross pay of £9,507 in 2009-10, the total income tax/Employee's NIC/Employer's NIC payable was £1,506; and his Working Tax Credits were also £1,506, net nothing (apart from lots of jobs for bureacrats).

The same calculation using 2011-12 rates show that at gross pay of exactly £10,000, the total tax/NIC payable is £1,242, and the total Working Tax Credits are £1,242.

Given that price inflation was about 9% over the past two years, a 4% increase in the effective tax-free personal allowance means that the real tax-free personal allowance has fallen.

You can look up the rates here and check PAYE calculations here.

Just sayin', is all.

* If you assume that Employer's bear the Employer's NIC, the increase is even less spectacular, and has only gone up from £10,200 to £10,5555 over the two years.

Stealth Tax Fun

You can download the main rates of tax on earned income at the HMRC website. The official basic rate of income tax has come down from 35% to 20% since 1975, but this is completely misleading, as this was merely offset with corresponding increases in every politician's favourite stealth taxes: VAT (currently 20%), Employer's National Insurance (currently 13.8%) and Employee's National Insurance (currently 12%).

You can't just add the rates together, the overall rate is (thankfully) not 20% + 13.8% + 12% + 20% = 65.8%. The more scientific approach is to ask, if you as a consumer spend £1 on the output of a non-monopoly, non-special-interest business, how much does the government take before an average employee can be paid?*

As we see, the overall effective rate has stayed pretty constant at around 50% since shortly after VAT was first introduced, so the benefits of the basic rate income tax reduction are only felt by certain favoured groups or certain favoured sources of income: * For illustration, using this year's rates, for every £1 you spend...
- VAT is not 20% of that, it's one-sixth of that, i.e. 20/120 = 16.7p goes in VAT;
- This leaves 83.3p out of which wages are paid. Employer's NIC is 13.8%, so Employer's NIC is 13.8/113.8 of the 83.3p that's left after VAT = 10.1p goes in Employer's NIC;
- This leaves a maximum of 73.2p to be paid out as wages;
- Employee's NIC is 12% of 73.2p = 8.8p goes in Employee's NIC;
- Basic Rate Income Tax is 20% of 73.2p = 14.6p goes in Basic Rate Income Tax.

Emma Boon on top form

Emma Boon of the TPA, who waste most of their time bleating about Council Tax talks sense in today's City AM Forum:

The national insurance fund is little more than an accounting fiction. The government is already consulting on moving to a flat rate pension and qualifying years for that benefit could as easily be assessed on number of years paying income tax as number of years paying national insurance...

... transparency is fundamentally a feature of this tax reform, not a bug. If the real basic rate is 40.2 per cent, not 20 per cent; the real higher rate is 49 per cent not 40 per cent; and the top rate is 57.8 per cent, as the Centre for Policy Studies has suggested, then it is better people should know that than be misled into thinking they are getting a better deal than they actually are. An honest tax system would mean a better-informed public debate and could even improve industrial relations.

Lengthy, but well worth a read.

If you ask the wrong question, you'll never get the right answer (2)

UKIP's press office asked me if I could respond to HM Treasury's Consultation Document on merging income tax and Employee's National Insurance. I set aside last Sunday afternoon for a bit of fun with numbers, but didn't get very far: the document itself kicks off with this (click to enlarge):
I duly responded as follows:

Dear Sirs

Your Table 1.A suggest that you are not taking the matter at all seriously:

Against 'Entitlements provided' you state that Employee's National Insurance gives 'Entitlement to contributory benefits, such as state pension; also helps fund the NHS'.

You know as well as I do that Employee's NIC raises less than £50 bn a year, but the state pension costs about £70 billion a year and the NHS costs over £100 billion a year. So there's a bit of a mismatch there.

Not only that, but Iain Duncan Smith proposed - quite rightly in our view as this was a key part of UKIP's Pensions Manifesto for the 2010 General Election - that the contributory principle for the state pension should be scrapped and the state pension and Pensions Credit be merged into a flat rate Citizen's Pension.

As to the substantive question 1, we agree wholeheartedly that there is no difference in principle or in practice between income tax and National Insurance, and that the two should be merged into a flat-rate tax on all incomes as soon as possible.

Regards [etc]

Falling Real Wage Fun

I can't find actual official statistics for total wages paid out every month, so as the closest proxy, let's use monthly National Insurance receipts from April 2008 to April 2011 as published by HM Revenue & Customs, subject to one adjustment*:Ho-hum, that's as clear as mud, so I made two further adjustments:

1. I smoothed the monthly receipts, i.e. April receipts are on average 13.5% higher than in other months, so they were adjusted down by a factor of 100/113.5 and so on.

2. I downloaded the RPI figures from the ONS and rebased everything to April 2011 prices.

There, that's a lot clearer, isn't it?* I adjusted the original April 2011 figure because the effective main rate of NIC increased from 23.8% of wages to 25.8% (ignoring the very high earners, for whom it increased from 13.8% to 15.8%, and ignoring the increase in the thresholds), so I reduced the original figure of £10 billion by a factor of 23.8/25.8, so as not to overstate increase in headline wages. Employee's NIC went up from 11% to 12% of headline wages, i.e. people's net income went down from 89% of headline to 88%, so I reduced the figure by 88/89, seeing as we are only using NIC as a proxy for real wages.