I’ve heard it pointed out several times over the last two days that NIC “isn’t a tax”. Whatever was intended when it was introduced, it’s now levied on broadly the same earnings in broadly the same way to pay for broadly the same things. Members of the tax profession have spent years arguing whether tax and NIC should be merged to hugely simplify the personal tax system.
Merging tax and NIC would, of course, present challenges, but perhaps the biggest of these is political. With only one rate, there would be clarity on how high the total tax charge is (although anyone with a tax table and calculator could figure that out). Does Boris Johnson really want people earning just over 100k knowing they pay a combined employee and employer charge of 78.3% on each extra £1 earned? Does Nicola Sturgeon really wants Scots earning £44k knowing they pay 69.3% for each extra £1? The cynic in me might go as far as to suggest that NIC’s principal role is to obscure these total tax charges.
So the plan with this new charge is to add the 2.5% initially to NIC (1.25% each to the employee and the employer), BUT from 2023 it will be separated out and called “health and social care levy”. So that’s introducing a third tax on earnings when you could argue that we really only need one. And sure the new levy is hypothecated to pay for the NHS and Social Care, BUT wasn’t NIC originally designed to pay for those things too?
Here’s a prediction for you – in five years’ time we’ll see the scope, rate and probably complexity of the health and social care levy increased…. What do you think?