National Insurance to be renamed earnings tax

Businesses will be happy that a spade is finally being called a spade, and may be merged with income tax.

by Rachel Savage
Last Updated: 24 Feb 2014

National Insurance is the grand old dame of welfare contributions, set up by Prime Minister David Lloyd George in 1913 as a way for employers and workers to fund new-fangled benefits including pensions and unemployment pay.

Businesses have, for the last century, been fairly arguing that National Insurance is a cuddlier name for what is in fact an employment tax, so will be cheering the news today that the contribution is being renamed ‘earnings tax’.

The change is due to be proposed on Tuesday in parliament by rising Tory backbencher Ben Gummer and will have Treasury support. Chancellor George Osborne is ‘attracted to the idea’, a ‘source’ told the Telegraph.

What businesses would really like is for the payouts to be merged with income tax, so it goes out of employees’ pay rather than as a separate charge to companies. Gummer is keen on the idea too.

‘Changing National Insurance to Earnings Tax is a very simple first step to doing what most people think is a good idea, which is merging it with Income Tax,’ Gummer said. ‘One of the easiest ways of getting more simplicity in the tax system is just being more transparent about tax.’

‘Most people’ is clearly most employers – if salaries stay the same, it won’t make much difference to employees, but companies could feasibly use a tax merger as an excuse to cut already pressured pay packets.

The change may not go ahead straight away though, as Gummer’s Commons proposal is a Ten Minute Rule Bill, which is normally used to draw attention to an issue rather than actually pass a law. With Osborne’s backing, however, National Insurance could soon be consigned to history books.

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