Proposals to merge income tax and national insurance are to form a key plank of the next Conservative manifesto.
The Times reports that Chancellor George Osborne is being urged to roll together NI with income tax, and that the plan is actively being considered by Downing Street.
A source told the newspaper the Government came “within a whisker” of implementing the plan at the last Budget, but stopped short because the risk was said to be too great.
The Office of Tax Simplification first suggested merging NI contributions and income tax in March 2011. The Treasury announced it would consult on the reforms a year later, before pushing back the consultation. Advisers said the complexity involved in integrating the two systems would see the reforms “kicked into the long grass”.
The Times says the Chancellor believes NI is a “stealth tax” as it can be raised without causing public outrage.
Under the proposed merger, the amount paid by workers on the basic rate of income tax would go from 20 per cent to 32 per cent, while the amount paid by higher rate taxpayers would go from from 40 per cent to about 52 per cent, with 2 per cent added to earnings above £42,000.
Sources said one simpler tax system would encourage public understanding of the system, and work alongside plans to give workers a breakdown of how their taxes are spent.
One source told the newspaper: “We came within a whisker of doing this at the last Budget, but in the end we decided against it. They are currently on two separate computer systems and we thought the risk was just too great. But it Is something we could do in the next Parliament.”
They added: “Some people think it is a cynical attempt by politicians to ensure pensioners keep paying national insurance, but it is not. Your tax rate would automatically reduce if you are a pensioner.”