National Insurance Contributions (Hansard, 17 November 1983)

§ Mr. Fowler

I have completed the annual review under section 120 of the Social Security Act 1975 and I have today laid two draft orders which require the approval of both Houses, the Social Security (Contributions, Re-rating) Order 1983 providing for contribution rates and profits limits to take effect from 6 April 1984, and the Social Security (Treasury Supplement to Contributions) Order, which provides for a reduction in the Treasury supplement from 13 per cent. to 11 per cent. I have also laid the Social Security (Contributions) Amendment (No. 5) Regulations 1983, which set out new earnings limits for employees' and employers' contributions. A report by the government Actuary (Cmnd. 9092) which accompanies the orders and regulations explains their effect on the national insurance fund.

EMPLOYEES AND EMPLOYERS

As my right hon. Friend the Chancellor of the Exchequer said in his statement earlier today, I do not propose to raise the rate of contribution for either employees or employers. In line with the requirements of the Social Security Pensions Act 1975, the lower earnings limit for class 1 contributions is to be increased to £34 a week, just below the new basic retirement pension rate, and the upper earnings limit is to be raised to £250 a week, which is about 7.3 times the new basic pension rate. These new earnings limits replace the existing ones of £32.50 and £235 a week respectively. The effects of these changes are as follows:

NOT CONTRACTED-OUT EMPLOYEES

Neither the employee nor his employer will have to pay a contribution if his earnings are less than £34 a week. For people earning between £34 and £235 (the old upper limit) there will be no increase for either the employee or the employer. For those with earnings between £235 and £250 (the new upper limit) the maximum increase will be £1.35 a week for the employee and £1.71 a week for the employer.

CONTRACTED-OUT EMPLOYEES

Contributions payable by contracted-out employees and their employers will rise slightly. Where earnings are less 572W than £235 the increase will be very small, reflecting the fact that the increase in the lower earnings limit reduces the band of earnings on which the lower contracted-out rate is paid; the increase on earnings between £34 and £235 will be 4p for the employee and 6p for the employer. Additional contributions will be payable on earnings between £235 and £250 (the new upper limit): the maximum increase will be £1.07 for the employee and £1.17 for the employer.

THE SELF-EMPLOYED

The flat-rate class 2 contribution will be raised to £4.60. Strict application of the formula for calculating self-employed contributions which has operated since 1977 would have meant a class 2 rate of £4.80 but I have thought it right to continue a modest relief to the small business man while remaining within the broad framework of the formula. The rate of the class 4 contribution is not being increased and the annual limits of profits between which class 4 contributions are paid are being raised from £3,800 and £12,000 to £3,950 and £13,000, the latter figure being in line with the new upper earnings limit for employees.

The effect of these changes is that for self-employed people who only pay class 2 contributions there will be an annual increase of £10.40 but for those with profits between £3,950 and £12,000 the increase will be less—95p per year. For those with profits of or above £13,000, the new upper profits limit, the increase will be £63.95 a year.

CLASS 3 (VOLUNTARY CONTRIBUTIONS

The rate of class 3 contributions is to be raised from £4.30 to £4.50.

RATE OF TREASURY SUPPLEMENT

The Treasury supplement to the national insurance fund is being reduced from 13 per cent. to 11 per cent. This will help to restore the balance of expenditure between the consolidated fund and the national insurance fund. In recent years the consolidated fund has been meeting an increasing share of social security expenditure.