National Insurance Contributions (Hansard, 22 November 1978)

§ Mr. Orme

My right hon. Friend has completed the annual review which he is required to carry out under section 120 of the Social Security Act 1975 and in fulfilment of his obligations under that Act he has today laid a draft order, which requires the approval of both Houses, setting out revised rates of contributions and earnings limits to take effect from 6th April 1979. In determining the rates and levels specified in the order he has taken account of changes in earnings levels as the Act requires him to do. A report by the Government Actuary—Cmnd 7403—accompanies the order. My right hon. Frind has also laid regulations—the Social Security (Contributions) (Earnings Limits) Amendment Regulations 1978—which set out the new earnings limits for employees' and employers' contributions. The Government Actuary's report shows that these changes would lead to the National Insurance Fund's income being a little larger than its expenditure in 1979–80 on the basis of given assumptions about unemployment, earnings and prices. The changes are set out in full below.

Employees

No increase is proposed in the percentage rates of contributions payable by 632W employees and employers. In line with the requirements of the Social Security Pensions Act 1975, however, the lower earnings limit for class I contributions is to be increased to £19.50 a week, which is the recently increased rate of the basic retirement pension, and the upper earnings limit is to be increased to £135 a week, which is about seven times the pension rate.

These new earnings limits replace the existing limits of £17.50 and £120.00 a week respectively. The increase in the upper limit means that people earning £120 a week or more will pay higher contributions from next April—in the same way that people with earnings below that level pay higher contributions immediately they have a pay increase. The effect of the increases in the earnings limits will be as follows:

Not contracted-out employees

Employees who earn less than £120 a week and their employers, will not pay higher contributions. Employees earning £120 a week or more will pay higher contributions, progressing to a maximum increase of 97p a week for those earning £135 a week or more. There will be corresponding increases—up to a maximum (excluding national insurance surcharge) of £1.50 a week—in the contributions payable by employers.

Contracted-out employees

The contributions payable by employees who are contracted-out—and their employers—are reduced on earnings between the lower and upper limits in recognition of the provision by an occupational pension scheme of part of the State scheme pension benefits. The effect of the revised earnings limits is that the reduced contributions will start to become payable at an earnings level of £19.50 a week instead of £17.50 a week. This will result in a marginal increase of a few pence a week for contracted-out employees earning less than £120 a week and their employers. Employees earning £120 a week or more will have a greater increase, rising to a maximum of 65p a week for those earning £135 a week or more. There will be corresponding increases—up to a maximum (excluding national insurance surcharge) of 91p a week—in the contributions payable by their employers.

633W

The Self-employed

When the rates of contributions for the self-employed were reduced following last year's review we said that we would hope to hold the level of liability for five years, apart from changes to take account of increases in the general level of earnings. The following proposals are consistent with that undertaking.

The class 2 contribution is being increased from £1.90 to £2.10 a week. The rate of class 4 contributions remains at 5 per cent., but the range of profits or gains on which it is levied will be from £2,250 to £7,000 a year in place of the present limits of £2,000 to £6,250 a year.

1978–79 AND PROPOSED 1979–80 CONTRIBUTONS
						1978–79	Proposals for 1979–80
Class 1 (earnings-related contributions payable on all earnings up to the upper limit provided that the earnings reach the lower limit):
Rate:
Employee	…	…	…	…	…	6.5 per cent.^*	No change
Employer	…	…	…	…	…	10 per cent.^*†	No change
Lower earnings limit	…	…	…	…	…	£17.50	£19.50
Upper earnings limit	…	…	…	…	…	£120	£135
Class 2 (self-employed, flat rate):
Weekly rate	…	…	…	…	…	£1.90	£2.10
Small earnings exception	…	…	…	…	…	£950	£1,050
Class 4 (self-employed, profits-related—payable on profits between the annual profits limits):
Rate	…	…	…	…	…	5 per cent.	No change
Lower profits limit	…	…	…	…	…	£2,000	£2,250
Upper profits limit	…	…	…	…	…	£6,250	£7,000
Class 3 (non-employed):
Weekly rate	…	…	…	…	…	£1.80	£2
^* Where employees are contracted-out, the rates are reduced to 4 per cent. (for employees) and 5.5 per cent. (for employers) on earnings above the lower earnings limit.
† Exclusive of surcharge payable under the National Insurance Surcharge Act 1976.