A new report from the Compass think tank has called on Labour MP Andy Burnham to extend National Insurance contributions to property and savings income. The report, backed by Neal Lawson, a key ally of the Prime Minister, argues that the current system is outdated and creates unfair differences in how earnings are taxed based on their source.
Report highlights disparities
The report states: "Apply National Insurance to investment and partnerships income. Our outdated National Insurance system creates stark differences in how earnings are taxed according to their source." It notes that currently, National Insurance is paid on income from work but not investment, such as rent from property and interest on savings.
This means that landlords without a mortgage, earning large sums during a housing crisis, pay a lower tax rate than their renters whose only income is from their job. The report also points out that there is no equivalent to 'Employer NICs' on partnership profits, despite these being some of the richest earners. Nearly half of all partnership income is received by the highest earning 0.1 per cent of earners, often in legal and financial services.
Call for equal tax treatment
The Better! report adds: "Partners in firms are taxed at a different rate to regular employees - sometimes resulting in junior staff in partner firms paying higher tax rates than senior, better paid partners in the firm. The government should end the differential rates of National Insurance Contribution for partnerships."
The think tank suggests broadening the NICs tax base to include income from investments and partnerships. This would eliminate economic distortions, ensure that income from wealth is taxed at the same rate as earnings from work, and be more conducive to growth.
These measures could generate approximately £6.1 billion annually - £4.2 billion from investment income and £1.9 billion from partnerships income.
