B1601 – Single Income Tax Bill 2020

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Andrew97
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B1601 – "Single Income Tax Bill 2020, TSR Libertarian Party"










Single Income Tax Bill 2020

A bill to simplify the tax system and to introduce a single income tax








BE IT ENACTED by the Queen’s most Excellent Majesty, by and with the advice and consent of the Commons, in this present Parliament assembled, and by the authority of the same, as follows:-

1: For the purpose of this act;
(1) A tax year begins on 6 April and ends on the following 5 April.

2: Repeals
(1) Part 1 of Social Security Contribution and Benefits Act 1992 is hereby repealed.
(2) National Insurance Act 1946 is hereby repealed.

3: Employment tax
(1) For the purpose of this act, employment tax is employers paying tax on their employee’s earnings.
(2) The tax rate shall be set at 13.8%.
(3) The tax shall be payable if the amount paid meets or exceeds the threshold.
(i) There shall be a monthly threshold for every tax year.
(ii) The rate set at this threshold shall be £750.
(iiI) If the employees earn below the threshold the employer shall not be liable to pay any employment tax.
(4) Where employment tax is payable as mentioned in section 3(3) above, the amount of that contribution shall be [the relevant percentage] of so much of the earnings paid in the tax month, in respect of the employment in question, as exceeds the current threshold (or the prescribed equivalent).

4: Single income tax
(1) For the purpose of this act single income tax is a merger of income tax with national insurance contributions.
(2) The basic tax rate shall be 32%.
(3) The higher tax rate shall be 42%.
(4) The additional tax rate shall be 47%.
(5) The tax shall be payable by all eligible taxpayers that earn above the personal allowance.
(i) Personal allowance shall be amended from £15,000 to £14,000.
(6) Single Income tax shall be charged every tax year.
(7) Individuals born up to 1955 shall pay 20% basic tax rate.

5: State pensions rules
(1) Subject to the provision of this act, the qualifying year shall be redefined.
(2) A ‘qualifying year’ is a tax year (April to April) during which you have paid, enough income tax to make that year qualify towards a basic state pension.
(3) The new definition of the qualifying year shall replace the definition for the Pensions Act 2014 and substituted to other relevant acts.

6: National Insurance Fund
(1) The National Insurance Fund shall be closed into the Consolidated Fund;
(2) Any payments formerly made into the National Insurance Fund shall be paid into the Consolidated Fund;
(3) Any payments formerly made out of the National Insurance Fund shall be paid out of the Consolidated Fund.

7: Commencement, Short title, and Extent
(1) This Act may be cited as Single Income Tax Act 2020
(2) This Act extends to the whole of the United Kingdom
(3) This Act comes into force in April 6th 2021




Notes

This bill aims to simplify the tax system by creating a single income tax. The national insurance operates as a stealth tax and has many layers of bureaucracy and various rates which complicates the tax system. By merging the income tax with national insurance you reduce bureaucracy, save the state money on administration costs and makes the tax system more transparent. The employment tax will act as a replacement for employers national insurance and will operate the same way.

Given the National Insurance Fund is rendered mostly redundant through this bill section 6 closes the fund with the balance being transferred to the Consolidated Fund with subsections 2 and 3 enduring the few non-pension transfers to and from the Fund continue, but via the Consolidated Fund if necessary.

The rates are calculated by adding 12% basic national insurance rate on to basic rate of tax at 20% and 2% higher national insurance rate with higher and additional tax rate 40% and 45% respectively.

Repeals
National Insurance Act 1946
Social Security Contribution and Benefits Act 1992

Costs

Overall we believe this bill to be cost neutral after a few years.

The modelling for this costing can be found in the linked Google doc [1] make a few assumptions:

1) At a population level the incomes of the self employed and those of pension age are representative of the population at large

2) The split in national insurance receipts by class is across years is consistent meaning the National Insurance Fund accounts for year ending 31/03/2019 [2] can be used as a baseline for the split in NI receipts

3) We will still model the receipts as two distinct taxes due to the model overstating NICs and understating Income Tax. This potentially leads to a pessimistic outlook but in my view significantly understates the chances of the receipts under the new system being overstated.

4) All figures are being applied to the 2020/21 fiscal year

The modelling gives baseline revenues of:

Income tax: £191 120m

Employer NICs: £89 375m

Employee NICs: £57 343m

Self Employed NICs £3 457m

There are 4 core components to the change in fiscal outlook from this bill:

1) effective increase of the Primary Threshold for NICs from £9500 to £14000

2) the decrease of the income tax personal allowance from £15000 to £14000

3) the effective abolition of Class 2 and Class 4 national insurance with those individuals effectively moving to class 1

4) the effective abolition of people over pension age not paying national insurance a number of years after the bill comes into force

The modelling suggests component 1 would reduce employee NICs to £45 331m and self employed NICs to £2 810m, a cost to the exchequer of £12 659m

The modelling suggests component 2 would increase income tax receipts to £197 672m, an increase of £6 552m

Component 3 trivially reduces self employed NICs as they exist today to nil but the modelling suggests "employee" NICs would increase to £53 051m, a net increase of £4 910m

This leaves the immediate exchequer impact as being £1 197m however this should be mitigated after just a few years by the decreasing number of people of pension age on the legacy system. If the legacy system were to be dropped immediately the modelling suggests employee NICs would increase to £55 098m, an increase of £2 047m leaving an overall exchequer impact of £850m or 0.25% of receipts and comfortably within margins of error and gives an allowance for an overstatement of the benefit of component 3.



https://docs.google.com/spreadsheets...it?usp=sharing

https://assets.publishing.service.go...MVFDfg5KGVNzt8
Last edited by Andrew97; 1 month ago
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Jammy Duel
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Andrew97 links are broken again due to copy and pasting the text and not the address

Although to be fair this time it might be T's fault when coping to the thread OP.

https://assets.publishing.service.go...MVFDfg5KGVNzt8

https://docs.google.com/spreadsheets...it?usp=sharing
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El Salvador
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Looks OK but I'll see what others say in the debate.
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Andrew97
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(Original post by Jammy Duel)
Andrew97 links are broken again due to copy and pasting the text and not the address

Although to be fair this time it might be T's fault when coping to the thread OP.

https://assets.publishing.service.go...MVFDfg5KGVNzt8

https://docs.google.com/spreadsheets...it?usp=sharing

The Gov.uk one now fixed, Not sure abiut the google doc as its being very slow loading for me. Hopefully its good though.
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Keir Starmer
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Basic rate to high and threshold too low in my opinion. It would more acceptable if plan were put forward to help further incentivise work.

-Keir Starmer
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Aph
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The way section 4 especially is written is horrific. It’s incredibly ambiguous as to whether the merger means that both the income tax rules and the NI rules are ported into this “single income tax” or just one set or indeed, neither.

Really this should be done as a series of amendments, not just writing a wish list and pretending it’s a bill. This is especially important as the original bills talks about the “qualifying earnings factor” that is missing here. Thus your definition for a qualifying year leaves the law wondering what amount is needed for a year to qualify because the law doesn’t say and doesn’t leave it up to the Secretary of State.
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Rakas21
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Mr Speaker, bar any procedural changes accruing from Aph's observations this is naturally something i can support.
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Mr T 999
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(Original post by Keir Starmer)
Basic rate to high and threshold too low in my opinion. It would more acceptable if plan were put forward to help further incentivise work.

-Keir Starmer
Movement for Justice
From the notes ''The rates are calculated by adding 12% basic national insurance rate on to basic rate of tax at 20% and 2% higher national insurance rate with higher and additional tax rate 40% and 45% respectively.''
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Mr T 999
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(Original post by Aph)
The way section 4 especially is written is horrific. It’s incredibly ambiguous as to whether the merger means that both the income tax rules and the NI rules are ported into this “single income tax” or just one set or indeed, neither.

Really this should be done as a series of amendments, not just writing a wish list and pretending it’s a bill. This is especially important as the original bills talks about the “qualifying earnings factor” that is missing here. Thus your definition for a qualifying year leaves the law wondering what amount is needed for a year to qualify because the law doesn’t say and doesn’t leave it up to the Secretary of State.
Its merging the rates together. The wording will be amended to reflect that.

Qualifying earnings factor=qualifying year. Existing legislation sets the rules regarding state pension we simply changed the definition, the rules remain the same.
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Jammy Duel
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(Original post by Keir Starmer)
Basic rate to high and threshold too low in my opinion. It would more acceptable if plan were put forward to help further incentivise work.

-Keir Starmer
Movement for Justice
The rates are essentially the same as IRL , the personal allowance is higher than RL but a slight reduction on TSR canon, the higher and additional rate thresholds are unchanged.

It is worth noting that while the personal allowance is decreased workers are still better off because the Primary Threshold for NI is effectively increased
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Iñigo de Loyola
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Conditional Aye so long as the threshold is kept at £15k.
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Jammy Duel
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(Original post by LiberOfLondon)
Conditional Aye so long as the threshold is kept at £15k.
"fiscal conservative"
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Mr T 999
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(Original post by LiberOfLondon)
Conditional Aye so long as the threshold is kept at £15k.
The pa had to be lowered to help fund the shortfall. Despite the pa being lower it's still higher than that of real life and because the primary threshold for NI has been increased to match pa people are still better off.
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Iñigo de Loyola
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(Original post by Jammy Duel)
"fiscal conservative"
Tax cuts are fiscally conservative...
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Jammy Duel
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(Original post by LiberOfLondon)
Tax cuts are fiscally conservative...
Deficit hikes aren't, it's been hiked high enough by your party already.

To be a bit more precise fiscal conservatism is really just an extension of fiscal responsibility, adding lower taxes to the lack of deficits, logically therefore deficit reduction should come first. It shouldn't be a tricky concept to understand either, after all borrowing is just deferring tax except when you borrow not only are you having to pay the original amount but interest too so by borrowing you are not just deferring tax but increasing tax
Last edited by Jammy Duel; 1 month ago
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Aph
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(Original post by Mr T 999)
Its merging the rates together. The wording will be amended to reflect that.

Qualifying earnings factor=qualifying year. Existing legislation sets the rules regarding state pension we simply changed the definition, the rules remain the same.
But that is confusing. You cannot merge two taxes with two different rule books into one and say they now act as one. You need to decide which set of rules, if any, this new tax will follow or write your own.

The current law states “(4)In this Part “qualifying year” means a tax year, during a person's working life, in which the person's earnings factor (or the sum of the person's earnings factors) is equal to or greater than the qualifying earnings factor for the year.

(5)For earnings factors, see sections 22 and 23 of the Contributions and Benefits Act.”

This lazy amendment changes (4) to be “A ‘qualifying year’ is a tax year (April to April) during which you have paid, enough income tax to make that year qualify towards a basic state pension.”

You have no mention of tax years, you don’t specify that different parts may have different definitions of qualifying year, you do not specify that it needs to be during the persons working life (I’m not sure if that last bit is needed)

Qualifying earnings factor is defined separately down a rabbit hole of bills citing other bills citing other bills which I’ll let you explore so that you understand what it is you need to amend here.

Pensions Act 2014
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04MR17
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Notes that long ought to be in spoilers.

I welcome the delayed start date, very sensible.

Since the notes don't, could somebody explain what change to the status quo is being made by section 5 and why?
The same may be said for 3.2
And for 4.5.i, why?


Section 3 doesn't make much sense to me so I look forward to see that tidied up before division.

4.1 is written pretty vaguely to me. What does "a merger" mean in practice will happen? Is it the case that both will be abolish and replaced by this single income tax? If so, say so. The language as it is feels like it's better suited in the notes.

On the whole I don't necessarily oppose this bill, and look forward to arguments made in the debate.
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Jammy Duel
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(Original post by Aph)
But that is confusing. You cannot merge two taxes with two different rule books into one and say they now act as one. You need to decide which set of rules, if any, this new tax will follow or write your own.
Two taxes aren't being merged, if they were the NIF wouldn't need closing
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Aph
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(Original post by Jammy Duel)
Two taxes aren't being merged, if they were the NIF wouldn't need closing
Perhaps you ought to tell your leader that. So I’ll ask again, which rule book, if any, is this new tax following?
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Jammy Duel
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(Original post by Aph)
Perhaps you ought to tell your leader that. So I’ll ask again, which rule book, if any, is this new tax following?
I'm looking at the notes and his responses and I can't see where he calls NI a tax, the closest he gets is stating "it operates as a stealth tax"
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