THE CHANGING BURDEN OF NATIONAL INSURANCE CONTRIBUTIONS AND INCOME TAXATION IN BRITAIN*

DOIhttp://doi.org/10.1111/j.1467-9485.1982.tb00443.x
AuthorJohn Creedy
Date01 June 1982
Publication Date01 June 1982
Scottish
JoumalofPolitical
Economy,
Val.
29,
No.
2,
June
1982
0
1982
Scottish
Economic
Society
0036-9292/82/00110127
$02.00
THE CHANGING BURDEN
OF
NATIONAL
INSURANCE CONTRIBUTIONS AND
INCOME TAXATION IN BRITAIN*
JOHN
CREEDY
University
of
Durham
Instead of a standing revenue, you will have therefore a perpetual quarrel
(Edmund Burke,
Letter to the Sherifls ofBristol,
1777).
I
INTRODUCTION
Despite the fact that the subject of National Insurance contributions was
fiercely debated in Parliament at the end of
1980,
it seems that the complexity
of the system in Britain ensures that it
is
still not widely understood.' National
Insurance contributions and benefits are debated separately from income
taxation, and do not go through the normal budgetary procedure. The way in
which Insurance contributions and income taxation combine has important
implications for both total revenue (from both schemes) and income
redistribution. Although it has often been suggested that the two systems
should be integrated, the precise implications
of
integration seem to have been
given surprisingly little attention.
A
preliminary analysis
of
its effects on
required tax rates has been given in Creedy
(1981).
The purpose of the present
paper is to extend those results, and particular emphasis is given here to the
question of the burden of income taxation and Insurance contributions.
Recent years have seen
a
significant increase in contribution rates relative to
tax rates, and this trend is expected to continue as more people begin to receive
earnings-related benefits under the new state pension scheme.
The present paper considers two alternative approaches to the analysis of
the distributional implications of variations in Insurance contributions and
income tax rates. The first approach, presented in section
11,
examines the
changing distribution of after-tax income without regard to the way in which
the revenue may be allocated. The second approach, of section
111,
examines
an explicit mechanism for the distribution of revenue to low-income groups.
*
I
am very grateful to Jill Line for computing assistance.
'
The Annual Social Security (Contributions, Re-rating) Order, required by the 1975 Social
Security Act, usually gives rise to confused discussion in the House of Commons.
For
an earlier
example see Hansard
(5
December 1978, pp. 1365-1382).
Date
of
receipt
of
final typescript
:
3
December 1981.
127

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