HC Deb 16 March 1993 vol 221 c179

In my autumn statement, I took some tough decisions on current spending to maintain capital programmes, but, to protect the poorest and most vulnerable members of society, we also decided to uprate social security benefits in full. That decision was warmly welcomed on all sides of the House. However, had no further action been taken, the effect of that decision, combined with the rise in unemployment, would have been to push the national insurance fund into deficit. To prevent this, I introduced a new Treasury grant, and legislation to implement this has been taken through the House.

This makes sense at a time when ensuring economic recovery is our priority, but it is clearly not a fair or reasonable basis for financing the national insurance fund over the medium term. A Treasury grant is paid for by the general body of taxpayers, including millions of pensioners who have already made a full contribution to the fund throughout their working lives. Accordingly, my right hon. Friend the Secretary of State for Social Security and I propose to place the finances of the national insurance fund on a firmer footing.

I do not propose to increase national insurance contributions in the coming year. However, from April 1994 my right hon. Friend and I propose to increase the class 1 main rate of employee national insurance contributions by 1 per cent., to 10 per cent., and the class 4 rate for the self-employed by 1 per cent., to 7.3 per cent. The arrangements for employees earning below the lower earnings limit and the self-employed with profits below the lower profits limit will be unchanged by these measures. The necessary legislation will be brought before the House in the coming year.

Taken together, these increases will raise about £1.8 billion in 1994–95 and £2.2 billion in a full year.

However, that will still leave a deficit in the national insurance fund of £2.8 billion in 1994–95 and a similar sum the following year. National insurance contributions are, of course, paid not just by employees and the self-employed, but also by employers; and when a deficit of this size emerges in the fund, it is natural to look to all contributors to make up the balance. The remaining deficit is roughly equivalent to an increase in the employer national insurance contribution rate of 1.2 per cent. from 10.4 per cent. to 11.6 per cent. However, having reflected carefully, I do not believe that it would be appropriate to increase the burden on employers. I therefore propose to retain a smaller Treasury grant to make up the continuing shortfall in the fund.