In the UK there's a type of income tax called "National Insurance", similar to regular income tax.


What is the rationale for having this separate income tax?
How does it benefit individuals?


This question started life as another question, but was on the way to being deleted as off-topic. I've since re-posted my original question on Politics.SE and edited this question to better fit Kate's excellent answer.

  • 1
    This was reopened on the basis of financial literacy. We should all know where our paycheck goes; if for no other reason than to make sure it all correct.
    – MrChrister
    Commented Oct 2, 2014 at 2:10

1 Answer 1


According to Wikipedia, this started out as a way to fund health insurance and unemployment insurance, and has gradually increased its scope to cover pensions. At least in part, what you can claim back from these systems is connected to what you paid into them - you can't just work one week and then claim 51 weeks of unemployment benefit, or a full pension - which makes them different from taxes. As well, the money collected is not supposed to go into general government revenue, but to be used only for the specific programs it funds.

The UK is certainly not the only country where employees and employers send a fraction of each paycheque to the government for purposes other than income tax. Here in Canada we have Employment Insurance and Canada Pension Plan contributions as well as income tax that come off every paycheque. It's just the way the system works - not everything that the government collects as your income is paid to you is in fact an income tax. There are advantages to all of us to keep these accounts separate - I don't want my pension money spent on a road by someone who wants to get re-elected 20 years before my pension needs to be paid.

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    This is pretty much bang on. It's worth noting that in most cases an employee is fully aware how much of his/her pay goes on National Insurance. It's listed on their payslip as a deduction.
    – Jack
    Commented Sep 22, 2014 at 15:46
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    Some taxes are assessed on employers as x% of payroll. You feel that should be on the payslip and is a "deduction" from what the employer would otherwise have paid the employee. Others disagree. (My firm paid sales taxes on printer ink. Is that money that would otherwise have been in my salary and should be on my payslip? What about rent? Property tax on an owned building?) It's true that the cost to employ someone is more than their gross salary. It doesn't follow that they need to know the exact amount of that difference on every payslip. Commented Sep 22, 2014 at 17:12
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    The UK actually does use National Insurance for current spending - the distinction is partly historic (it was introduced to fund the welfare state) and partly that there are various technical differences, for example you don't pay it once you reach pension age. Commented Sep 22, 2014 at 17:33
  • The employers NI is meant to make sure the all parties pay towards the cost for example employers do not have to fund any health benefits and benefit indirectly from the NHS and Education spending.
    – Pepone
    Commented Sep 22, 2014 at 22:32

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