By Richard Johnstone | 16 January 2014
The next government should prioritise increases in the threshold at which National Insurance contributions are paid in a bid to ease the squeeze in living standards, CentreForum has said.
The liberal think-tank today called on the next government to pledge to take all earnings up to the absolute poverty line out of both income tax and National Insurance. In 2014/15 the absolute poverty line for one adult is set to be around £10,050.
The coalition government has implemented the Liberal Democrat policy to increase the personal allowance to £10,000, which will be effective from next April. The LibDems have said that they want to raise this further, to £12,500, so all earnings up to the National Minimum Wage are free from income tax. In an alternative proposal, the Labour Party has said it would reinstate a 10p tax band for lower earners.
However, CentreForum said lifting people out of National Insurance would be the most progressive direct tax cut, as it would provide the most help for low earners and ease living cost pressures for squeezed workers.
Raising employee, employer and self-employed National Insurance thresholds to the same level as the income tax personal allowance, and then up to the poverty line, would also simplify the tax system.
The scheme would cost around £8.8bn a year – less than raising the income tax personal allowance from £10,000 to the National Minimum Wage, which will cost in excess of £11bn, today’s Making allowances report stated.
Adam Corlett, economics researcher at CentreForum and report author, warned that poorer households could see little benefit from future increases in the income tax personal allowance due to corresponding reductions in Universal Credit.
‘It's crucial to get these expensive tax cuts right, and they should be focused as far as possible on poorer workers,’ he said.
‘The policy case for favouring National Insurance cuts is clear and could take the absolute poverty line out of all direct tax.’
