National Insurance (Review) (Hansard, 12 November 1984)

§ Mr. Fowler

I have completed the annual review of national insurance contributions 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) (No. 2) Order 1984 providing for contribution rates and profits limits to take effect from 6 April 1985, and the Social Security (Treasury Supplement to Contributions) (No. 2) Order, which provides for a reduction in the Treasury Supplement from 11 per cent. to 9 per cent. I have also laid the Social Security (Contributions) Amendment (No. 2) Regulations 1984, which set out new earnings limits for employees' and employers' contributions. A report by the Government Actuary (Cmnd. 9386) 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 today I do not propose to raise the rate of contribution for either employees or employers. However, 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 £35.50 a week, just below the new basic retirement pension rate, and the upper earnings limit is to be raised to £265 a week, which is about 7.4 times the new basic pension rate. These new earnings limits replace the existing ones of £34 and £250 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 £35.50 a week. For people earning between £35.50 and £250 (the old upper limit) there will be no increase for either the employee or the employer. For those with earnings between £250 and £265 (the new upper limit) the maximum increase will be £1.35 a week for the employee and £1.57 for the employer.

Contracted-out Employees Contributions payable by contracted-out employees and their employers will rise slightly. Where earnings are less than £250 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 £35.50 and £250 will generally be 3p for the employee and 6p for the employer. Additional contributions will be payable on earnings between £250 and £265 (the new upper limit); the maximum increase will be £1.05 for the employee and £1.01 for the employer.

The self-employed The flat-rate class 2 contribution will be raised to £4.75. Strict application of the formula for calculating self-employed contributions which has operated since 1977 would have meant a class 2 rate of £5.05 but I have thought it right to continue — and indeed increase — the modest relief to the small businessman 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 £3,950 and £13,000 to £4,150 and £13,780 respectively. The effect of these changes is that for self-employed people who only pay class 2 contributions there will be an annual increase of £7.80 but for those with profits between £4,150 and £13,000 there will be a reduction of £4.80 a year, assuming the same level of profits as in 1984–85. For those with profits of or above £13,780, the new upper profits limit, the increase will be £44.34 a year.

Class 3 (Voluntary) Contributions The rate of class 3 contributions is to be raised from £4.50 to £4.65

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Rate of Treasury Supplement The Treasury supplement to the national insurance fund is being reduced from 11 per cent. to 9 per cent. In recent years the consolidated fund has been meeting an increasing share of social security expenditure.