HC Deb 30 November 1993 vol 233 cc429-32W
Mrs. Roe

To ask the Secretary of State for Social Security whether he has yet completed his review of national insurance contributions for 1994–95.

Mr. Lilley

I have completed the annual review under section 141 of the Social Security Administration Act 1992. My proposals will take effect from 6 April 1994. The levels of contributory benefit expenditure I am maintaining, and the extra help with fuel costs which I am making available to pensioners, widows and people receiving invalidity benefit, will mean a continuing shortfall in the national insurance fund between income and outgoings. The stability of the fund will be maintained partly by means of the Treasury grant introduced by the Social Security Act 1993 and partly by means of the 1 per cent. increase in national insurance contributions for employees and the self-employed which was announced in the Budget last March.

Employers and Employees

In line with the Social Security Contributions and Benefits Act 1992, the lower earnings limit for class 1 contributions is to be raised to £57 a week, which is the nearest whole pound to the basic retirement pension rate for a single person from April 1994. The upper earnings limit is to be raised to £430 a week which is slightly less than 7.5 times the new basic pension rate as provided by the Social Security Contributions and Benefits Act. These new earnings limits will replace the current ones of £56 and £420 respectively.

There will be no change to the initial rate of 2 per cent. payable by employees on the first £57 of weekly earnings, but the main rate payable on employees' earnings between £57.01 and £430 a week will increase from 9 per cent. to 10 per cent. as already announced.

For employers, I am proposing to reduce the standard rate of contribution from 10.4 per cent., to 10.2 per cent., a reduction of 0.2 per cent. I also propose to decrease, from the same date, the reduced rates which employers pay for lower-paid workers. The reduction will be 1 per cent., giving new rates for 7.6 per cent., 5.6 per cent. and 3.6 per cent. These reductions will therefore be especially helpful to employers of the lower-paid, often smaller employers, and should more than offset extra costs which employers meet as a result of changes to the reimbursement provisions for statutory sick pay.

The thresholds for the special reduced rates will also be raised so that from April 1994 they apply to weekly earnings which fall below the ceilings of £100, £145, and .200 respectively, compared with £95, £140, and £195 at present.

Not Contracted-Out Employees and their Employers

Neither the employee nor his employer will have to pay any contributions if earnings are less than £57 a week. Employees earning up to about £64 a week will pay slightly less in contributions. Employees earning above £64 but not more than the existing upper limit of £420 will generally pay more contributions, ranging from a few pence to £3.56. Employees with earnings above £420 a week will pay a maximum increase of £456. For employers, the reduction in their contributions will depend on the level of the employee's pay.

Contracted-Out Employees and their Employers

Those with earnings between £63 and £420—the former upper earnings limit—will pay more contributions, ranging from a few pence up to £3.58 a week more. Those who earn more than £420 will pay contributions on the next £10 of earnings from next April—up to £430 a week, the proposed upper earnings limit, a maximum increase of £4.40 a week. Contracted-out employees who earn £62 or less will pay the same or slightly less.

For employers, the reduction will again depend upon the level of employee's pay.

Self-employed people

Although contributions for employees are to increase, I do not propose to raise the flat rate class 2 contribution other than in line with inflation. It will therefore increase by 10p to £5.65.

However, class 4 contributions, payable by those self-employed people with profits above a certain level, will be increased by 1 per cent. to 7.3 per cent. The annual limits of profits will be raised to £6,490 and £22,360 from £6,340 and £21,840 respectively. Self-employed people who pay only class 2 contributions will pay an extra £5.20 a year in 1994–95.

The changes for class 4 contributions mean that some lower earners will pay less or no class 4 contributions; higher earners will pay a maximim of £187.21 more.

Class 3—voluntary—contributions

The rate of class 3 contributions will be raised by 10p to £5.55 a week.

National Health Service Allocation

The allocation to the national health service, cunently 1.05 per cent. from employees and 0.9 per cent. from employers, remains unchanged.

Treasury Grant

In accordance with section 2(2) of the Social Security Act 1993, I propose to maintain the level of the national insurance fund during 1994–95 by means of a grant from the Treasury. I estimate that the grant required will be approximately 6.4 billion.

As usual, I shall by laying a draft order before Parliament together with a report by the Government Actuary describing the effects of my proposals.