Fixing the biggest gaps in our existing National Insurance system would bring in more revenue than the government’s new Levy and would be fairer on younger and lower-paid workers, according to a new report by researchers from the University of Warwick and the London School of Economics .
The report argues that the PM’s plan to introduce a new Health and Social Care Levy of 1.25% is unfair because it will:
- Continue to tax younger workers more than pensioners
- Continue to tax earnings from work more than income from wealth
- Preserve the regressive rate structure of National Insurance
- Increase taxes on employment by more than for the self-employed
The authors recommend an alternative reform to National Insurance that would instead raise money by plugging gaps in our current system.
Using publicly accessible tax data from HMRC, the authors find that:
- Removing the current National Insurance exemptions for investment income and people of pension age would raise £12 billion. This is the same amount of revenue as the Government is targeting from its new Levy.
- Equalising National Insurance on higher earnings with the rates already paid by lower earners could raise an additional £20 billion. This would be enough to fund a cut in the main rate of NICs by 1.25p – instead of raising these rates, as the government is planning.
Under this alternative package of reforms, more of the revenue would come from London and the South East, and from older, wealthier individuals.
Dr Arun Advani, Assistant Professor of Economics at the University of Warwick and CAGE Research Associate said: "It’s great to see that the government has belatedly recognised the problems of just increasing national insurance contributions alone, but the planned changes keep the regressive nature of NICs."
Dr Andy Summers, Associate Professor at the London School of Economics, said: “Focusing tax rises on younger and lower earners is a political choice. Our report shows that reforming our existing National Insurance system could raise the revenue that the government needs in a much fairer way.”
8 September 2021
Notes to Editors:
· A copy of the report is available here.
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University of Warwick
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