Back in October, I attended an event in Doncaster discussing the impact of benefit cuts with the local community.
Unsurprisingly, one of the first questions asked was ‘which benefit would you cut first?’ After debate focused on things like the winter fuel allowance going to expats, or child benefit for the Beckhams, I suggested an alternative - abolishing National Insurance, in its entirety.
This surprised some people, but after about an hour of discussion one of the emerging themes was the complexity of the benefits system, and how it both took money away from the front line and penalised those who were less savvy with their paperwork - not to mention those who didn’t get the benefits they recieved because they were unable to navigate through the various forms. When I returned to my origional point, the idea didn’t seem quite so radical.
When NI was first established, it’s purpose was clear - a contributory system of insurance against illness and unemployment. In subsequent years it would be diluted to cover pensions and then contribute to the costs of the welfare state at large. Now, it is essentially a way for Governments to increase the tax take without increasing income tax, for that is a political line no politician ever wants to cross. (Albeit explicitly, as Gordon Brown’s 10p/20p swindle demonstrated.)
As someone who has both a PAYE tax code and submits a self assessment, I’ve been on the recieveing end of NI paperwork madness, being told almost simultaneously I wasnt paying enough and was paying too much.
Aboloshing NI would simplify the process for businesses, make the true level of taxation more transparent and put back on the political landscape the question of taxes and spending. It will of course mean other taxes are increased - probably both income tax and corporation tax, which does raise competitiveness questions - but those issues already exist when the cost of PAYE and NI are combined, something businesses of all sizes all too aware of.
Equally, it would give a once in a generation opportunity to - in theory - not just reduce but transform the tax system back office, delivering real savings without hitting frontline services.
However, there is an interesting question here - namely, whether doing this could scupper the government’s welfare agenda.
The NPS [National Insurance and PAYE Service] is one of the key components of implementing Universal Credits, and as I’ve previously warned if this technology link breaks down, there could be a high price to pay. The live-flow of data on earnings is essential for the DWP’s system to work, something that has been worrying many who have watched HMRC’s recent IT efforts with Accenture and Capgemini under the multi-billion ‘Aspire’ project.
There has been much positive discussion about improving Government IT, particularly at a pan-Governmenal level. It will be interesting to see amid all the excitement of aboloshing NI, anyone has looked at the impact it would have on existing government systems and the wider Coalition agenda already underway.