Is NIC about to rise to pay for social care?
A purported leak to The Guardian suggests an NIC hike to pay for social care could be on the cards. Philip Fisher explores the Chancellor’s plans.
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Controversial proposal - bring property and dividend income into charge for NIC. Don't all bite my head off all at once.
Why not just change everything? Taxes in the UK are not hypothecated. Change the tax structure completely so there is no longer any NIC (ers or ees) and just call the overall percentage tax "combined personal tax" (rather than "income tax" and "NIC") for individuals. Change various allowances to simplify. Then use the opportunity for cost savings - a simple tax system needs far fewer HMRC staff, estate, IT and associated overheads. I am sure it could be justified as it does not increase Income Tax or NICs, as they will no longer exist.
The whole tax regime should be abolished and replaced by one tax rate i.e 15%. There should be no tax allowances, no pension tax relief in fact no tax reliefs whatsoever. This means that any income earned should be taxed at 15% be it £20,000, £ 200,000 or even £2,000,000. This would eliminate the big earners from trying to find tax loop holes especially as there would be none. I can see firms like audit firms and tax specialists being dead against this type of taxation regime as this would mean a serious drop in revenue from most "tax advisory " departments. Just thought I would put this idea out there for discussion!!
Why can pensioners not pay some NI? After all, they are benefitting from using the NHS, and probably to a greater extent than any other time in their lives.
It would have to be at a reduced rate though, as there would be no element of pension contribution needed. Even at 2 or 3% of income over the current tax threshold, the yield could be quite significant. (Yes, I am aware that NI starts at a lower rate, but maybe it could rise to match the tax threshold if this was introduced).
When Gordon Brown added 1% to ERs, EEs and S/E NICs (with no increase in benefit levels), it raised £8bn that was (and still is) hypothecated directly to the NHS, so there's no practical reason why a hypothecated levy of some kind can't be added to fund social care, or indeed the NHS backlog plan (assuming BoJo actually has one - probably the same blank back of the envelope Philip mentions in the article).
Now is not the time to go for a wholesale demolish-and-rebuild job on the tax system, and combining IT and NICs is never going to happen. It's too complex, linking the domestic system with international obligations (tax and NI treaties being very different beasts), and dealing with the very long tail of historical entitlements for tens of millions of voters who will give the party that scraps them a good kicking.
What we need is a sustainable injection of significant cash. Given that social care is an issue for the whole of society, everyone needs to chip in. Increasing income tax for all but the poorest has to be the logical, equitable source of those funds. There's no reason why pensioners shouldn't make a contribution to their own care - plenty of other countries collect a small levy from them. Simple means-testing applies via the single personal tax allowance, and collection is simple.
David Heaton is suggesting that a hypothecation sold to the public when Gordon Brown was Chancellor still exists? By now this nicety - if it ever existed - will have long gone. All tax and NICs will just be lumped together as income. I agree the government is going to need more income from tax BUT it also needs to spend less on collecting it! That means making the whole system more simple and efficient to run, with fewer civil servants, etc. Further, you need to recall that pensioners are often ignored and brushed aside by both the NHS and Social Services at the moment, so they and their relatives will be up in arms if they have to pay NICs on their tiny incomes (bearing in mind that NICs cut in at an earlier point than the personal allowance).