Letter: The benefits maze

While NI was established as an insurance scheme, the reality is that in recent times it has become a form of stealth tax which, with the basic employee contribution of 12 per cent and employer’s contribution of 13.8 per cent (from April 2012), makes it for those who do not have an agreed contracted-out pension scheme a heavier burden than the basic rate of income tax.

Even for those contracted out and paying pension contributions the rates of 1.4 per cent and 3.4 per cent respectively add up to another significant share of tax.

The reality is that many of those in lower paid jobs without a private pension are paying almost 50 per cent in tax on their income above the tax and NI limits. Even if the tax threshold is raised to £10,000 per annum the NI threshold is set at £7,592.

Aside from the nuisance for employers in separating these two income taxes, is it not time to bring some form of co-ordination into the tax system?

The reality is that in the modern world if someone does not qualify for any benefits due to lack of NI contributions, they usually come under some other part of the benefits maze.

Would it not be better to separate out the pension contribution completely in the way that contracted-out employees do? That combined contribution, which is over 20 per cent, could become a proper funded pension fund.

Those with a private pension would not be affected. The remaining contribution could be incorporated into income tax and set with its threshold limits.

With all the fiscal changes suggested by both independence and devo-whatever a new administrative system is required. As part of that, sorting out the complexity of the present system would make both these options far more attractive than the status quo.

Bruce D Skivington

Strath

Gairloch

Wester Ross