§ Mr. Fowler
I have completed the annual review under section 120 of the Social Security Act 1975. The proposals will take effect from 6 April 1987.
Employers and Employees
As my right hon. Friend the Chancellor of the Exchequer said in his statement earlier today, I do not propose to raise the standard rate of contributions for 603W either employees or employers, which remain at 9 per cent. and 10.45 per cent. respectively. This is the fourth successive year that these have remained unchanged.
In line with the requirements of the Social Security Pensions Act 1975, the lower earnings limit for class 1 contributions is to be raised to £39 per week, which is just below the basic retirement pension rate for a single person, which I announced to the House on 22 October. The upper earnings limit is to be raised to £295 per week, which is a little under 741/2 times the new basic pension rate. The new earnings limits replace the current ones of £38 and £285 respectively.
The reduced contribution rates for the lower paid will continue unchanged. The reduced rates of 5 per cent. and 7 per cent. for employees, and 5 per cent., 7 per cent. and 9 per cent. for employers will extend further up the earnings scale and will apply to weekly earnings which fall below the ceilings of £65, £100, and for employers only, £150 (the previous ceilings were £60, £95 and £140 respectively).
Not Contracted-Out Employees and their Employers
Neither the employee nor his employer will have to pay any contributions if his earnings are less than £39 per week. For people earning between £39 and £285 (the former upper earnings limit) there will be no increase for either the employee or the employer. In fact, owing to the increase in the earnings ceilings for the reduced contribution rates, some lower paid employees will pay a slightly smaller contribution, as will their employers. For those employees with earnings above £285 per week, the maximum possible increase will be 90 pence per week. There will be no corresponding increase for employers since there is no upper earnings limit for their contributions.
Contracted-Out Employees and their Employers
Contributions payable by some contracted-out employees and their employers will rise slightly. (The maximum combined increase is 6p a week.) Where earnings are less than the former upper earnings limit of £285 per week, the increase will be very small reflecting the fact that the increase in the lower earnings limit increases the band of earnings on which the non-contracted-out contribution rates are paid. Some lower paid contracted-out employees, and their employers, will in fact have their contributions reduced as a result of the higher earnings ceilings for the reduced contribution rates.
Employees with earnings between the old and new upper earning limits, £285 and £295 respectively, will pay a maximum of 71p a week extra. The increase in the upper earnings limit will extend the contracting out rebate to contributions in respect of earnings between £285 and £295, with corresponding savings for employers.
The flat rate class 2 contribution will be rasied by lop to £3.85 per week.
The rate of class 4 contributions will not be increased. The annual limits of profits between which Class 4 contributions are paid will be raised from £4,450 and 604W £14,820 to £4,590 and £15,340 respectively. The effect of these changes is that, for self-employed people who only pay class 2 contributions, contributions in 1987–88 will be £5.20 per year higher than in the current financial year. For those self-employed people with profits between £4,590 and £14,820 (the former upper profits limit) class 4 contributions will be reduced by £8.82 per year in 1987–88—assuming an unaltered level of profits. For those self-employed people with profits at or above the proposed upper profits limit of £15,340, class 4 contributions will be £2194 per year higher in 1987–88.
Class 3 (Voluntary) Contributions
The rate of class 3 contributions is to be raised from £3.65 to £3.75 per week.
The Treasury Supplement to the National Insurance Fund will be reduced from 9 per cent. to 7 per cent. with effect from April 1987.
Employment Protection Allocation
The employment protection allocation, currently 0.25 per cent. for employees and 0.20 per cent. for employers, will be reduced to 0.07 per cent. and 0.06 per cent. respectively from April 1987.
National Health Service Allocation
The allocation to the National Health Service, currently 0.75 per cent. for employees and 0.6 per cent. for employers, will be increased to 0.85 per cent. and 0.7 per cent. respectively from April 1987.
The draft orders and the contributions amendment regulations, which are required to give effect to my proposals, together with the Government Actuary's report on their effect on the National Insurance Fund, will be laid before the House shortly.