§ Mr. Nigel EvansTo ask the Secretary of State for Social Security if he has yet completed his review of national insurance contributions for 1996–97. [3232]
§ Mr. LilleyI have completed the annual review under section 141 of the Social Security Administration Act 1992. My proposals will take effect from 6 April 1996. There will be no change to the standard rates of contributions for either employees or employers. The rates will remain at 10 per cent, and 10.2 per cent, respectively, but from April 1997, I intend to reduce the main rate of contributions for employers by 0.2 per cent. The savings to employers from this measure will be equivalent to the money raised from the landfill tax. The national insurance contribution holiday for employers, also announced in last year's Budget, will take effect from 6 April 1996. This will effectively remove the national insurance costs for employers for up to a year when they take on someone who has been out of work for at least two years. I am reducing the rate of class 4 contributions paid by self-employed earners by 1.3 per cent, to 6 per cent. This will more than offset the effect of the abolition of the tax relief for class 4 contributions announced by my right hon. and learned Friend.
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 £61 a week. It is set at the level of the basic retirement pension rate for single person from April 1996, rounded down to the nearest pound.
The upper earnings limit is to be raised to £455 a week which is slightly less than seven and a half times the new basic pension rate as provided by the Social Security Contributions and Benefits Act 1992. These new earnings limits will replace the current ones of £58 and £440 respectively.
642WEmployees 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 10 per cent, on that portion of their earnings which exceeds the lower but not the upper earnings limit.
For employers, the three lower contribution rates remain unchanged at 3 per cent., 5 per cent, and 7 per cent, respectively. The thresholds for these rates will be raised so that from April 1996 they apply to weekly earnings which fall below £110, £155 and £210 respectively, compared with £105, £150 and £205 at present.
Not contracted out employees and their employers
Neither employees nor employers will have to pay any contributions if earnings are less than £61 a week. Employees whose earnings do not exceed £440, the former upper earnings limit, will pay 24p a week less in contributions than at present. This is because a further £3 of their weekly earnings will be subject to the 2 per cent, rate rather than 10 per cent. For employees with earnings above £440, the maximum possible increase will be £1.26 per week.
There will be no change for most employers, but some employers will pay less as a result of the increase in the earnings thresholds. For example, where earnings fall between £205 and £209.99, employers will pay between £6.56 and £6.72 a week less.
Contracted out employees and their employers
Employees with earnings between £61 and £440, the former upper earnings limit, will usually pay 18p a week less. For those who earn more than £440, the maximum possible increase will be £1.05 per week.
Where earnings are less than £440, most employers will pay 9p a week extra. This is due to the increase in the lower earnings limit which means that a further £3 of earnings is not subject to the contracted-out rebate. Some employers will pay less as a result of the increase in the earnings thresholds. For example, where earnings fall between £205 and £209.99, employers will pay between £6.47 and £6.63 a week less. Where earnings reach or exceed £455, employers will pay 36p a week less.
Self-employed people
The flat rate class 2 contribution will be raised by 30p to £6.05 a week.
643WThe rate of class 4 contributions will be reduced by 1.3 per cent, to 6 per cent. The annual limits of profits between which class 4 contributions are paid will be raised to £6,860 and £23,660 from £6,640 and £22,880 respectively.
Self-employed people who pay only class 2 contributions will pay an extra £15.60 a year in 1996–97.
All self-employed people who pay class 2 and class 4 contributions will pay less, ranging from a few pence a year less for those with profits of £6,860, the new lower profits limit to £208.72 a year less for those with profits of £22,880, the former upper profits limit.
Class 3 (voluntary) contributions
The rate of class 3 contributions will be raised by 30p to £5.95 a week.
National health service allocation
The allocation to the national health service is unchanged at 1.05 per cent, from employees and 0.9 per cent, from employers.
Treasury grant
The general increase in contributory benefit expenditure, which I am maintaining, means that the outgoings of the national insurance fund will continue to exceed income. In accordance with section 2(2) of the Social Security Act 1993, I propose to maintain the level of the fund in 1996–97 by means of a grant from the Treasury. I estimate that the grant required will be approximately £2.2 billion.
As usual, I shall lay a draft order before Parliament, with a report by the Government Actuary describing the effects of my proposals.