B1601 – Single Income Tax Bill 2020 (Second Reading)

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Andrew97
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B1601 – Single Income Tax Bill 2020 (Second Reading), 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: Repeals
(1) Part 1 of the Social Security Contribution and Benefits Act 1992 is hereby repealed.
(2) National Insurance Act 1946 is hereby repealed.

2: 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).

3: Single income tax
(2) The basic tax rate shall be amended from 20% to 32%.
(3) The higher tax rate shall be amended from 40% to 42%.
(4) The additional tax rate shall be amended from 45% to 47%.
(5) The personal allowance shall be amended from £15,000 to £14,000.
(6) Individuals born up to 1955 shall pay 20% basic tax rate.

4: Earnings factor amendment
(1) Replace section 22 (1) of Social Security Contribution and Benefits Act 1992 with;

''(1)A person shall, for the purposes specified in subsection (2) below, be treated as having annual earnings factors derived—
(a) in the case of 2021-22 or any subsequent tax year, from those of his earning upon which income tax has been paid or treated as paid and any Optional tax payments, and'
(b) in the case of 1987-88 or any subsequent tax year, up to 2020-21 from those of his earnings upon which primary Class 1 contributions have been paid or treated as paid and from Class 2 and Class 3 contributions; and
(c) in the case of any earlier tax year, from his contributions of any of Classes 1, 2 and 3''

(2) Replace section 22 (5) of Social Security Contribution and Benefits Act 1992 with;

''(3) Regulations may provide for crediting—
(a) for 2020-21 or any subsequent tax year and earnings
(b) for 1987-88 or any subsequent years up to 2020-21, earnings or Class 2 or Class 3 contributions, or
(c) for any earlier tax years, contributions of any class''

5: Optional tax payments
(1) Regulations shall provide for earners and others, if over the age of 16, to be entitled if they so wish, but subject to any prescribed conditions, to pay optional tax; and, it shall be paid on a monthly basis at a rate of £61.20.
(2) Payment of optional tax shall be allowed only with a view to enabling the contributor to satisfy contribution conditions of entitlement to benefit by acquiring the requisite earnings factor for the purposes described in section 22 of Social Security Contribution and Benefits Act 1992.
(3)The amount of optional tax in respect of a tax year earlier than the tax year in which it is paid shall be the same as if it had been paid in the earlier year and in respect of that year, unless it falls to be calculated in accordance with subsection (4) below or regulations under subsection (5) below.
(4)Subject to subsection (5) below, in any case where—
(a) Optional tax is paid after the end of the next tax year but one following the contribution year; and
(b)the amount of optional tax applicable had the contribution been paid in the contribution year differs from the amount of an optional tax applicable at the time of payment in the payment year,the amount of the contribution shall be computed by reference to the highest of those two amounts and of any other amount of optional tax in the intervening period.
(5)The Secretary of State may by regulations provide that the amount of a contribution which apart from the regulations would fall to be computed in accordance with subsection (4) above shall instead be computed by reference to the amount of an optional tax for a tax year earlier than the payment year but not earlier than the contribution year.

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



Changes for 2nd reading:
1) amended section 3 to make it clearer
2) Added section 4 earnings factor amendment
3) Added section 5 optional tax payments

Notes

This bill aims to simplify the tax system by creating a single income tax. The national insurance has many layers of bureaucracy and various rates which complicates the tax system. By merging 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. It exists to fund the shortfall.

Personal allowance has to be reduced to £14k to help manage the costs. It should be noted it is reduced in TSR cannon, but it's still far higher than what the real life rates is. As we have increased the primary threshold of national insurance to match personal allowance, individuals are still better off in TSR cannon.

The current pensions rules are linked to national insurance so we have amended earnings factor definition to include income tax. The earnings factor is linked to the definition of qualifying years which is used to calculate state pension.

Optional tax acts as a replacement for class 3 of national insurance. Class 3 was used to fill in gaps in the national insurance record so you are then entitled to a state pension. Where a person does not have the full 35 years, they may wish to pay voluntary contributions to boost their pension entitlement. People with some qualifying years, but less than 10, may want to make voluntary contributions to bring their contribution record up to the minimum of 10 years needed for a reduced pension. The £61.2 rate is based on existing rate of £15.3 per week but done on a monthly basis.
The wording was copied from Social Security Contributions and Benefits Act 1992 but some words were amended to make it relevant for this bill.

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


Cost

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.



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

[2] https://assets.publishing.service.go...MVFDfg5KGVNzt8
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Jammy Duel
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As expected the lack of Class 3 replacement was not noticed during the first reading (intentionally omitted from the first reading to see if anybody would notice, knowing there would be a second reading).
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Theloniouss
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As with the first reading, I'm not terribly bothered.
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04MR17
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(Original post by Jammy Duel)
As expected the lack of Class 3 replacement was not noticed during the first reading (intentionally omitted from the first reading to see if anybody would notice, knowing there would be a second reading).
How very clever of you
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04MR17
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I am glad the notes are now in a spoiler.
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Iñigo de Loyola
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Aye.
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Jammy Duel
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(Original post by 04MR17)
How very clever of you
Disappointed nobody knows their NI well enough, especially when looking for any reason to oppose and no Class 3 replacement being a pretty good reason to, as I said I'm not surprised though.
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Aph
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(Original post by Jammy Duel)
As expected the lack of Class 3 replacement was not noticed during the first reading (intentionally omitted from the first reading to see if anybody would notice, knowing there would be a second reading).
I mean I noticed, but I didn't care enough as I don't mind people not being able to pay voluntary tax.
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Jammy Duel
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(Original post by Aph)
I mean I noticed, but I didn't care enough as I don't mind people not being able to pay voluntary tax.
Sure you noticed, the thing is Class 3 exists for a reason, it's called "state pension eligibility" and you seemed to have a bit of an issue with that
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Aph
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(Original post by Jammy Duel)
Sure you noticed, the thing is Class 3 exists for a reason, it's called "state pension eligibility" and you seemed to have a bit of an issue with that
You can believe it or not, I really don't give a damn what you think.

I also still reject your costing method of assuming all errors are scaling rather than zero-point errors but I'm sure that the house does not wish for that argument to take over again.
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Mr T 999
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(Original post by Aph)
You can believe it or not, I really don't give a damn what you think.

I also still reject your costing method of assuming all errors are scaling rather than zero-point errors but I'm sure that the house does not wish for that argument to take over again.
Do you support the bill now or you still have objections?
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Jammy Duel
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(Original post by Mr T 999)
Do you support the bill now or you still have objections?
Well he objects to using a costing method that doesn't show a loss £10bn simply by changing how much things are overstated by...em..£10bn although doesn't seem willing to go for his alternative approach to try to deal with it.
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Jammy Duel
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(Original post by Aph)
You can believe it or not, I really don't give a damn what you think.

I also still reject your costing method of assuming all errors are scaling rather than zero-point errors but I'm sure that the house does not wish for that argument to take over again.
I know you don't, that is why soon people will be taking a year of leave without having to give reasonable notice.

So when did you stop caring about pension eligibility?
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El Salvador
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Right, so the Libbers deliberately submitted a faulty bill?
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Jammy Duel
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(Original post by El Salvador)
Right, so the Libbers deliberately submitted a faulty bill?
Technically no
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Theloniouss
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(Original post by Jammy Duel)
Technically no
How?
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Jammy Duel
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(Original post by Theloniouss)
How?
Because there not being a class 3 replacement does not mean there is a fault, it means something that currently exists ceases to exist. One could very reasonably push for removal of class 3 entirely, it is a bit of a silly idea tbh, but it doesn't break anything (unlike not bothering to read prior debate and as such publishing a bill devoid of a correction that the author should be aware of)

Intentionally incomplete with intention to add it for the inevitable second reading: yes, guilty as charged and it did what was wanted; faulty: no.
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Rakas21
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Mr Speaker, as alluded to in the first reading i shall likely support this bill in division.
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Aph
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(Original post by Jammy Duel)
I know you don't, that is why soon people will be taking a year of leave without having to give reasonable notice.

So when did you stop caring about pension eligibility?
You are aware that there are two months of term left?

The state pension barely pays as it is and most people have work place pensions. I’ve not seen the numbers but I can’t imagine that class 3 helps more than maybe 1,000 people a year.
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Jammy Duel
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(Original post by Aph)
You are aware that there are two months of term left?

The state pension barely pays as it is and most people have work place pensions. I’ve not seen the numbers but I can’t imagine that class 3 helps more than maybe 1,000 people a year.
It barely pays, I guess that is why the full new state pension is £9,110.40 per week, why in 2017/18 the average single pensioner saw 60% of their income coming from their state pension (and any other benefits) with this increasing to over 80% for the poorest 20% of single pensioners (and not much less than 80% for the poorest 20% of couples)

Quite a lot of people do use class 3, based on the NIF accounts class 3 receipts are about £170m, at £15.30 per week that works out at about 11m weeks or 200,000 years of class 3 NICs paid a year. Sure, as of the last census there were 56.3m people of working age in the UK meaning it is only about a third of a percent that pay Class 3 (assuming everybody who pays does so for a full year) but that is a hell of a lot more than 1000, in fact it is orders of magnitude greater. Also, given that the assumptions being used that 200,000 is the minimum, in theory it could be over 11m people or about a fifth of the working age population.
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