The government has scrapped a planned national insurance tax cut for self-employed workers.
Class 2 national insurance contributions (NICs) were due to be abolished in April 2018, but the plans were delayed for a year in 2017. The government has now announced that Class 2 NICs will not be abolished during this Parliament.
Former Chancellor George Osborne announced the tax cut during the 2016 Budget, stating that abolishing Class 2 NICs would benefit an estimated 3.4 million self-employed workers. Class 2 NICs are currently paid at a rate of £2.95 per week by self-employed individuals with profits of £6,205 or more per year.
In a written statement to MPs, Robert Jenrick, Exchequer Secretary to the Treasury, stated that eliminating Class 2 NICs would have introduced ‘greater complexity’ to the UK tax system.
He added: ‘The government remains committed to simplifying the tax system for the self-employed, and will keep this issue under review in the context of the wider tax system and the sustainability of the public finances.’
Responding to the government’s decision to scrap the tax cut, Mike Cherry, National Chairman of the Federation of Small Businesses (FSB), said: ‘The move is extremely disappointing and flies in the face of tax simplification.
‘Rather than hitting more than three million self-employed people with this levy, the Treasury should have worked harder to develop more effective ways to protect around 300,000 low-earners and maintain their contributions for the state pension.’
Think tank the Institute for Public Policy Research (IPPR) has called for a radical overhaul of the UK economy, stating that it ‘does not work well’ for most people.
A poll conducted by Sky Data on behalf of the IPPR revealed that 49% of respondents would describe the way that Britain’s economy operates as ‘unfair to some degree’. Just 22% believe that the way the economy works is fair.
The poll also revealed that 80% of those surveyed support ‘greater regulation’ of major digital companies; would welcome the introduction of a new corporation tax on multinational companies; and would like to see the National Living Wage (NLW) rise from its current level of £7.83 per hour to £8.75 an hour, to bring the NLW in line with the current Real Living Wage.
An additional 50% of individuals would support asking the Bank of England to ‘control house price inflation’, and advocate raising taxes on income from wealth to match taxes on income from work.
Commenting on the findings, Frances O’Grady, General Secretary of the Trades Union Congress (TUC), said: ‘It’s time for a once-in-a-generation rethink of our approach to the economy. Working people have had enough of stagnating living standards and massive inequality.
‘A better deal for working people is possible, and will allow us to build a stronger, fairer economy.’
The Institute for Public Policy Research (IPPR) has proposed the creation of a new wealth fund to help address ‘growing wealth inequality’.
The ‘Citizens’ Wealth Fund’ would give everyone a ‘stake in the UK economy’, the IPPR stated.
It also said that, from 2030, the fund could be large enough to pay all individuals aged 25 a one-off capital dividend of £10,000, which would effectively provide a ‘universal minimum inheritance’ for all.
The IPPR suggested that the Citizens’ Wealth Fund would be owned and run in the interests of UK citizens, and could be worth £186 billion by 2029/30.
Commenting on the matter, Carys Roberts, Senior Economist at the IPPR, said: ‘Who owns wealth and who will inherit wealth is becoming more important – increasingly so as the share of national income paid to people through wages declines.
‘A Citizens’ Wealth Fund would enable citizens to collectively own a proportion of our national wealth, and make sure everyone benefits from rising returns to capital, not just people who will inherit or who already own assets.’
The Institute for Public Policy Research (IPPR) has suggested that income tax bands should be abolished in order for taxpayers to save more.
A report published by the think tank on the matter suggested that the UK’s current income tax system is ‘not progressive’, with the government’s recent reforms only ‘making things worse’.
Under the IPPR’s proposed new system of income tax, over 80% of UK taxpayers could benefit from an increase in their post-tax income, with some potentially seeing an increase of £1,200 per year.
The IPPR recommends replacing the current income tax bands with a ‘formula-based’ system, whereby the marginal rate would rise at a slow pace between a new tax-free allowance and a new threshold for the top marginal rate.
It also suggested combining the rates and allowances for employee national insurance contributions (NICs) and income tax into a ‘single tax schedule’, in order for all income to be treated under the same rates.
Commenting on the issue, Alfie Stirling, Senior Economic Analyst at the IPPR, said: ‘The UK’s system of taxing incomes is not progressive enough, too inefficient and poorly equipped to raise the revenue that will almost certainly be needed to meet the public spending challenges of the 21st century.
‘By combining income tax with national insurance, and replacing most tax bands with a constant, gradual increase in the marginal rate of tax, our proposal would allow policy makers to give significant sums back to low and middle earners while still raising funds to plug deficits in our public services.’