§ Mr. David NicholsonTo ask the Secretary of State for Social Security whether he has yet completed his review of national insurance contributions for 1990–91.
§ Mr. NewtonI have completed the annual review under section 120 of the Social Security Act 1975. The proposals will take effect from April 6 1990.
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 £46 a week, which is just below the basic retirement pension rate for a single person, which I announced to the House on 25 October. The upper earnings limit is to be raised to £350 a week, which is almost seven and a half times the new basic pension rate as provided by the Social Security Pensions Act. The new earnings limits will replace the current ones of £43 and £325 respectively.
Under the new structure which came into force on 5 October employees whose earnings reach the lower earnings limit will continue to pay an initial contribution of 2 per cent. of that limit and standard rate contributions of 9 per cent. on that portion of earnings which exceeds the lower but not the upper earnings limit. The reduced contribution rates of 5 per cent. 7 per cent. and 9 per cent. for employers of the lower paid will continue unchanged. However the ceilings for these rates will be extended further; they will now apply to weekly earnings which fall below the ceilings of £80, £125, and £175 (the previous ceilings were £75, £115 and £165 respectively).
Not contracted-out employees and their employers
Neither the employee nor his employer will have to pay any contributions if earnings are less than £46 a week. Those whose earnings do not exceed £325 (the former upper earnings limit) will pay 21p a week less in contributions than at present. This is because a further £3 312W of their weekly earnings will be subject to a 2 per cent. deduction rather than 9 per cent. For those employees with earnings above £325 a week, the maximum possible increase will be £2.04 a week. Employers contributions will generally be unchanged although some employers will gain where employees' earnings which were above the former ceilings fall below the new ceilings. There will be no corresponding increase for employers of the higher paid since there is no upper earnings limit for employers' contributions.
Contracted-out employees and their employers
Contracted-out employees will gain in the same way. The contributions due from employees earning less than £325 a week will drop by 15p a week. For employees earning over £325 a week the maximum possible increase will be £1.60 a week. Their employers will generally pay 11 or 12p a week more than at present because they will have to pay not contracted-out contributions on the first £46 of earnings rather than the present lower limit of £43 a week, although there will be gains in respect of lower paid employees whose earnings fall between the old and new ceilings for reduced rate contributions.
Self-employed people
The flat rate class 2 contribution will be raised by 30p to £4.55 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 £5,450 and £18,200 from £5,050 and £16,900 respectively. Self-employed people who pay only class 2 contributions will pay an extra £15.60 a year in 1990–91.
For those self-employed people with profits between £5,450 and £16,900 (the former upper profits limit ) class 4 contributions will be reduced by £25.20 per year in 1990–91 assuming an unaltered level of profits. For those self-employed people with profits at or above the proposed upper profits limit of £18,200 in 1990–91, the annual charge for class 4 contributions will be £56.70 higher.
Class 3 (voluntary) contributions
The rate of class 3 contributions will be raised to £4.45 a week.
Employment protection allocation
There will be no employment protection allocation for 1990–91.
National Health Service allocation
The allocation to the National Health Service, currently 1.05 per cent. from employees and 0.9 per cent. from employers, will not be changed.
The draft order, together with a report by the Government Actuary, will be laid before Parliament shortly.