Merging income tax and NI would be “inconceivable”

A MERGER OF income tax and National Insurance would be “inconceivable” in the current Parliament, despite the suggestion by the Office of Tax Simplification that it would simplify the system.

Bill Dodwell, a tax partner at Deloitte who sat on the OTS consultative committee, said merging the base of employment income would be a good thing. He said there was “no reason” that certain employment rewards – in the form of benefits, cash, shares – are subject to one or the other of NI or income tax.

But he said a full merger of the systems would be “inconceivable” in the current term of this government because NI does not apply to pensioners or savings income. “We are not going to get into a system where a government says they are going to put up tax on pensioners,” he added.

Furthermore, the limits and thresholds are different for NI and income tax. “You always end up with a bunch of losers,” he said. When Gordon Brown abolished the 10% rate of tax, it left 5 million lower earners worse off. The country then had to compensate by increasing personal allowances. We ended up giving money to 15 million people.

“You will only see a merging of the system if a chancellor has lots of money to give away,” he added.

He said that the report “a fantastic piece of work”, especially given the limited time and resources of the office.

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