HC Deb 01 November 1988 vol 139 cc626-8W
Mr. Thurnham

To ask the Secretary of State for Social Security whether he has yet completed his review of national insurance contributions for 1989–90.

Mr. Moore

I have completed the annual review under section 120 of the Social Security Act 1987. The proposals will take effect from April 6 1989.

Employers and Employees

As my right hon. Friend the Chancellor of the Exchequer said in his statement earlier today, I do not propose to change the standard rates of contributions for either employees or employers, which remain at 9 per cent. and 10.45 per cent. respectively.

In line with the Social Security Pensions Act 1975, the lower earnings limit for class 1 contributions is to be raised to £43 a week, which is just below the basic retirement pension rate for a single person, which I announced to the House on October 27. The upper earnings limit is to be raised to £325 a week, which is slightly less than seven and a half times the new basic pension rate. The new earnings limits will replace the current ones of £41 and £305 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 be extended further; they will now apply to weekly earnings which fall below the ceilings of £75, £115, and for employers only, £165 (the previous ceilings were £70, £105 and £155 respectively).

Not contracted-out employees and their employers

Neither the employee nor his employer will have to pay any contributions if earninga are less than £43 a week. For people earning between £43 and £305 (the former upper earnings limit) there will be no increase for either the employee or his 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 £305 a week, the maximum possible increase will be £1.80 a 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

Some lower-paid contracted-out employees, and their employers, will have their contributions reduced because the earnings ceilings for the reduced contribution rates will have been increased. Some contracted-out employees and their employers will pay slightly more. Where earnings are less than the former upper earnings limit of £305 a week, the increase will be very small reflecting the fact that the raised lower earnings limit increases the band of earnings on which the higher non-contracted out contribution rates are paid.

Contracted-out employees with earnings above the old upper earnings limit (£305) will pay a maximum of £1.44 a week extra. Their employers will pay slightly less since the raised upper earnings limit will extend the contracted-out rebate to employers contributions in respect of earnings between £305 and £325 a week.

Self-employed people

The flat-rate class 2 contribution will be raised by 20p to £4.25 a week.

The rate of class 4 contributions, currently 6.3 per cent. will not be increased. The annual limits of profits between which class 4 contributions are paid will be raised to £5,050 and £16,900 from £4,750 and £15,860 respectively. Self-employed people who pay only class 2 contributions will pay an extra £10.40 a year in 1989–90.

For those self-employed people with profits between £5,050 and £15,860 (the former upper profits limit) class 4 contributions will be reduced by £18.90 per year in 1989–90, assuming an unaltered level of profits. For those self-employed people with profits at or above the proposed upper profits limit of £16,900 in 1989–90, the annual charge for class 4 contributions will be £46.62 higher.

Class 3 (voluntary) contributions

The rate of class 3 contributions will be raised to £4.15 a week.

Treasury supplement

The Government propose to introduce legislation as soon as possible to abolish from 1989–90 the Treasury supplement to the national insurance fund which currently stands at 5 per cent. of gross contributions. Abolition will not require any changes to contribution rates and will mean that national insurance benefits are fully financed by the national insurance contributions which earn entitlement to these benefits.

Employment protection allocation

There will be no employment protection allocation for 1989–90.

National Health Service allocation

The allocation to the National Health Service, currently 0.95 per cent. from employees and 0.8 per cent. from employers, will be increased to 1.05 per cent. and 0.9 per cent. respectively from April 1989.

The draft orders, together with a report by the Government Actuary, will be laid before Parliament shortly.