HC Deb 08 November 1990 vol 180 cc17-9W
Mr. Andy Stewart

To ask the Secretary of State for Social Security whether he has yet completed his review of national insurance contributions for 1991–92.

Mr. Newton

I have completed the annual review under section 120 of the Social Security Act 1975. My proposals will take effect from 6 April 1991.

Employees and Employers

As my right hon. Friend the Chancellor of the Exchequer said in his statement earlier today, I do not propose to change the standard rate of contributions for employees, which will remain at 9 per cent. However, for employers I propose to reduce the standard rate contribution from 10.45 per cent. to 10.4 per cent., and to reduce the lower rate contributions of 5, 7 and 9 per cent.—which apply currently in respect of employees earning up to £175—to 4.6, 6.6 and 8.6 per cent. respectively. These changes go a considerable way towards offsetting the costs to employers of the proposed changes to statutory sick pay which I announced to the House on 24 October.

In line with the Social Security Pensions Act 1975, the lower earnings limit for class 1 contributions is to be raised to £52 a week. This is exactly equal to the basic retirement pension rate for a single person, which I announced to the House on 24 October. The upper earnings limit is to be raised to £390 a week, which is seven and a half times the new basic pension rate as provided by the Social Security Pensions Act. These new earnings limits will replace the current ones of £46 and £350 respectively.

Under the new structure for employees which came into force on 5 October 1989 people 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 their earnings which exceeds the lower but not the upper earnings limit. The present banded system of contributions for employers will continue, although the percentage rates will be reduced as I have already mentioned and the ceilings for the lower rates will be extended further; they will now apply to weekly earnings which fall below the ceilings of £85, £130 and £185 (the previous ceilings were £80, £125 and £175 respectively).

Not contracted-out employees and employers

Neither the employee nor his employer will have to pay any contributions if earnings are less than £52 a week. Those whose earnings do not exceed £350 (the former upper earnings limit) will pay 42p a week less in contributions than at present. This is because a further £6 of their weekly earnings will be subject to a deduction of 2 per cent. rather than 9 per cent. For employees with earnings above £350 a week, the maximum possible increase will be £3.18 a week. Employers' contributions will generally be reduced and some employers will gain further where employees' earnings which were above the former ceilings fall below the new ceilings. Since there is no upper earnings limit for employers' contributions, and as the highest rate of contribution is being decreased, employers of the higher-paid will also pay slightly less than previously.

Contracted-out employees and their employers

Contracted-out employees will gain in the same way. The contributions due from employees earning less than £350 a week will drop by 30p a week. For employees earning over £350 the maximum possible increase will be £2.50 a week. The reduction in rates for employers will offset the usual increase which stems from the raising of the lower earnings limit and means they have to pay at the higher not contracted-out rate on a further £6 of earnings. So contracted-out employers will either pay slightly more or slightly less than at present depending on the level of the employee's earnings. Also 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 60p to £5.15 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 £5,900 and £20,280 from £5,450 and £18,200 respectively. Self-employed people who pay only class 2 contributions will pay an extra £31.20 a year in 1991–92.

For people with profits between £5,900 and £18,200 (the former upper profits limit) class 4 contributions will be reduced by £28.35 per year assuming an unaltered level of profits. For those self-employed people with profits at or above the new upper profits limit the annual charge for class 4 contributions will be £102.69 higher.

Class 3 (Voluntary Contributions)

The rate of class 3 contributions will be raised by 60p to £5.05 a week.

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.

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