SOCIAL SECURITY (CONTRIBUTIONS, RE-RATING) (NO. 2) ORDER 1979 (Hansard, 18 December 1979)

The Earl of GOWRIE
My Lords, I beg to move that the Social Security (Contributions, Re-rating) (No. 2) Order 1979, a draft of which was laid before this House on 28th November, 1979, be approved. This order has effects for both the employment protection and the social security legislation. So far as the employment protection legislation is concerned, I would start by explaining that the Redundancy and Maternity Pay Funds are both in a state of steadily growing surplus. The Redundancy Fund now stands at approximately £132 million and the Maternity Pay Fund is approaching £35 million. There are two ways of controlling the level of surplus; either by reducing income, increasing expenditure or some combination of both. It is with the first of these possibilities—namely, reducing income—that we are concerned today.
Both funds are wholly financed by an allocation from the secondary Class I earnings related contributions paid by employers in respect of employed earners. The present allocation, equivalent to a contribution rate of 0.25 per cent., is apportioned on receipt from the Department of Health and Social Security as to 0.2 per cent. and 0.05 per cent. into the Redundancy and Maternity Pay Funds respectively. The first effect of this order will be to reduce the allocation from 0.25 per cent. to 0.2 per cent. with effect from 6th April 1980. It is expected to cut the allocation income in respect of 1980–81 by £49 million and actual receipts during that period by £43 million. The difference in the two amounts is accounted for by the time lag involved in collecting social security contributions.
The Social Security Act 1975, under which this order is made, also provides 1586 that any change in the employment protection allocation rate must be matched by a corresponding change in the parent National Insurance rate from which it is financed; that is the secondary Class 1 contribution. The present contribution rate is 10 per cent. It is due to be increased by the Social Security (Contributions, Re-rating) Order 1979 to 10.25 per cent. on 6th April, 1980. The effect of this, the No. 2 Order, will be immediately to reduce that rate to 10.2 per cent. As far as employers are concerned, therefore, the practical effect of this order is that they will have to pay only a secondary Class 1 rate of 10.2 per cent. instead of 10.25 per cent. as from 6th April next year.
As regards the apportionment of the new allocation between the Redundancy and Maternity Pay Funds, it is proposed to apply the whole reduction to the Redundancy Fund income. As from 6th April next the allocation of 0.2 per cent. will be apportioned as to 0.15 per cent. and 0.05 per cent. between the Redundancy Pay Funds respectively. It may be that even this 25 per cent. reduction in Redundancy Fund income will not prevent the continued accumulation of surplus over a period of years. But it will certainly check the excessive growth rate which has persisted since the end of 1976.
It will do, of course, nothing to prevent the continued growth of the Maternity Pay Fund. It can be argued that the reduction should have been apportioned between the two funds, or that it is not enough. On the first point, we think it right to give priority to the fund with the greater surplus. On the second point, we have to recognise that these are public funds and reduction in income can be achieved only at the expense of the public sector borrowing requirement. The full year cost to this requirement of £49 million in respect of 1980–81 is already substantial. The alternative of a reduction by 0.1 per cent. so as to leave a reasonable tidy national insurance rate of 10.15 per cent. would have doubled the cost to the public sector borrowing requirement—and that would have been too much in present economic circumstances. I trust that I have made clear the need for this order and the effect it will have. It is an important step in the right direction and one 1587 which I am pleased to recommend for the approval of the House.

§ Lord WELLS-PESTELL
My Lords, I shall be as succinct and brief as my noble Leader was a moment or two ago. I want to thank the noble Earl, Lord Gowrie, for setting out this order so clearly and so precisely, and to say that we on this side of the House approve it. We recognise that it has been before the Joint Committee on Statutory Instruments and that in their Eleventh Report they have no comment to make on it. I also note, if have understood the position correctly, that it has been before another place without comment. Therefore, we approve the order.

The EARL of GOWRIE
My Lords, I am grateful for those words from the noble Lord speaking for the Opposition.