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04 August 2008

UK Government big thinking. National Insurance

The present government is accused by Tony Blair of having no policies.

Here's a policy which someone who has been chancellor for 11 years should be able to sort out.

Simplify the tax system and make it accountable.

Here's an example - look at what National Insurance is for on the direct gov website.

Then use that explanation to explain why EMPLOYERS who derive only a minuscule benefit from National Insurance need to pay more NI than employees. Employers do not get the pension benefit, employers get only a tiny benefit from sick pay. Employers still have to pay the majority of maternity pay and employers get no benefit towards unemployment benefit through this tax. Indeed as a self employed person in a Ltd company, you end up paying approx 24% in National Insurance even though you CANNOT CLAIM UNEMPLOYMENT BENEFIT BETWEEN CONTRACTS because "looking for work" whilst out of work is deemed to be paid employment even though you are not being paid whilst doing it.

This nonsense is little better than the equally bureaucratic mess inherited from the Tories. I took my case in 1996 to my MP who now happens to be Chancellor of the Exchequer (i.e. Alistair Darling). This was around the time of Harriet Harman's "send my kids to private school" story:

Letter in The Herald 5-Feb-96
This was published in full as their main letter of the day
Poverty trap bound by red tape

The disproportionate publicity given to a Labour MP's decision to send her child to a grant maintained school is causing the real issues affecting millions of people to be quietly brushed aside by the Conservatives. Here is an example of a "customers" experience of the disastrous state the Welfare system is in after nearly 17 years of Tory rule. They only have themselves to blame. As a "Customer" my response is that the Welfare state is a mass of red tape and I'd like to shop elsewhere, if I could.

Last year I was made unemployed and I registered as such with the unemployment office. It turns out, that despite a 500 a month mortgage, approx. 100 a month in bills and a requirement to buy food to live, I am not eligible for any state aid. I am disqualified from receiving any unemployment because during the year 93/94 I was on the Government's Employment Training initiative and only being credited with National Insurance, not paying it. My other 7 full years of actual contributions count for nothing. I couldn't even get the Welfare State to pay my £70 train fare for an interview because the initial contract was for less than 12 months.

I am disqualified from Social Security as I live with my fiancée and she works 25 hours a week. It apparently doesn't matter that her monthly wage is the same as my mortgage. It costs about 600 a month minimum plus food for us to exist and every month we are going more overdrawn because of the lack of the welfare state. The government defines "full time employment" as 16 hours or week or over and if one of a couple is working this, the other is not eligible for social security or housing benefit no matter what their income is. This definition of "full time employment" is patently ridiculous. If I put on my job applications that I would work 16 hours full time, I'd get laughed at. If I put I'd only work 16 hours a week on my signing on card, I would not get full unemployment benefit. The Government clearly has it both ways.

The "Employment Service" fully accept this problem and numerous people at the Employment service have said "I shouldn't say this but you would be a lot better off if your fiancée gave up her job or moved out". Is it really the Conservative party which believes in "family values" which has created this appalling system - forcing people out of work or splitting up families so that they can afford to eat?

Taking the Conservative philosophy of choice to its conclusion - I believe my paying National Insurance is like obtaining an insurance policy for myself and for the benefit of others. My experience of this system is that the rules are obscure and complex. It eliminates people who need money whilst giving money to those who may be out of work but well off. I would like to opt out of this mess, as I can with a pension scheme, and pay towards a scheme which has clear, easy to understand rules which pays out when I need it. Looking at private redundancy schemes, this is what they offer.

What this country really needs though is a simple system for the unemployed and low paid of adding your income, subtracting reasonable outgoings and then paying all or some of the difference, at a level which gives a guaranteed minimum income but is an incentive to go back to work. No exclusion clauses based on one person's 16 hours work expected to fund a couple. No exclusion clauses based on what happened in the tax year years ago and no automatic benefit for the wealthy whilst genuinely poor people are trying to make ends meet.

The issues surrounding one child's schooling pale into insignificance next to the millions caught in a poverty trap by Conservative Red Tape.

So over 12 years later we still have a state system which means that people out of work can end up being disqualified from receiving any state aid whatsoever because of red tape. Zero income was the sort of thing that national insurance was supposed to eliminate so that people did not end up in poor houses. Zero income does not pay bills. Zero income fuels the credit crunch. In a credit crunch, we need an accountable and fair tax system which ensures that when someone is out of work they are entitled to a minimum benefit, just as when they are in work they are entitled to a minimum wage.

So no more paying 24% national insurance contributions and then excluding people from the very benefits that national insurance was set up to provide. Have a flat rate of NI for all. Abolish employers NI contributions and if necessary adjust the income tax rate accordingly to ensure no employees are worse off. This would result in a fairer and more open tax system. The present alternative of taking a 24% insurance premium and then refusing to pay out for the benefits of that scheme is little better than state theft.


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