A quick back of an envelope calculation suggests that NICO, employing 4600 people, costs around £92 million a year in salaries alone. This change would save a large portion of that money at the same time as improving the transparancy and integrity of the tax system and reducing the bureaucratic burden on employers.
National Insurance has not been hypothecated for years. When initially introduced it was set aside for welfare and the NHS but it is now simply another form of general taxation that largely duplicates income tax. Abolish it. Doing so would free employers from having to administer two independent tax systems with different rules, rates and thresholds. It would also make an entire bureaucracy in the form of the National Insurance Contributions Office almost entirely surplus to requirements. Income tax rates would of course need to be raised to compensate, but currently NI and income tax become payable at similar income levels. This means you could achieve a roughly similar effect in broad brush terms by getting
rid of NI, raising the basic rate of income tax to 31%, and introducing a discounted basic rate for pensioners who do not currently pay NI.
I'll admit that there are one or two details that complicate the picture slightly. Making this change in a revenue neutral manner would impact on the plans to raise the income tax threshold, but I am sure that it could still be raised by a slighty lower amount and the lowest paid would benefit as much as they would from a £10,000 basic tax allowance. Benefits entitlement would need looking at as well. The obvious approach would be to replace the
requirement that NI is paid with payment of income tax but if the objective is to take the lowest paid out of income tax altogether that would need addressing to ensure they do not lose future benefits entitlement. However, I am sure addressing these details would be
easy enough for the Treasury experts to work out.