§ Mr. Forthasked the Secretary of State for Social Services whether he has yet completed his review of national insurance contributions for 1988–89.
§ Mr. MooreI have completed the annual review under section 120 of the Social Security Act 1975. The proposals will take effect from 6 April 1988.
As my right hon. Friend the Chancellor of the Exchequer said in his statement earlier today, I do not propose to raise the standard rate of contributions for either employees or employers, which remain at 9 per cent. and 10.45 per cent. respectively. 1988–89 will be the fifth successive year when these rates have remained unchanged.
In line with the requirements of the Social Security Pensions Act 1975, the lower earnings limit for class 1 contributions is to be raised to £41 per week, which is just below the basic retirement pension rate for a single person, as announced to the House on October 27. The upper earnings limit is to be raised to £305 per week, which is a 696W little less than 7½; times the new basic pension rate. The new earnings limits replace the current ones of £39 and £295 respectively.
The reduced contribution rates for the lower paid will continue unchanged. The reduced rates of 5 per cent. and 7 per cent. for employees, and 5 per cent., 7 per cent. and 9 per cent. for employers will be extended further; they will now apply to weekly earnings which fall below the ceilings of £70, £105, and for employers only, £155 (the previous ceilings were £65, £100 and £150 respectively).
Not contracted-out employees and their employers
Neither the employee nor his employer will have to pay any contributions if his earnings are less than £41 per week. For people earning between £41 and £295 (the former upper earnings limit) there will be no increase for either the employee or the employer. In fact, owing to the increase in the earnings ceilings for the reduced contribution rates, some lower paid employees will pay a slightly smaller contribution, as will their employers. For those employees with earnings above £295 per week, the maximum possible increase will be 90p per week. There will be no corresponding increase for employers since there is no upper earnings limit for their contributions.
Contracted-out employees and their employers
Contributions payable by some contracted-out employees and their employers will rise slightly, partly as a result of the lower contracted-out rebate which Parliament approved in April, and which will take effect in April 1988. Where earnings are less than the former upper earnings limit of £295 per week, the increase will reflect both the reduced rebate and the fact that the increase in the lower earnings limit increases the band of earnings on which the non-contracted-out contribution rates are paid. Some lower paid contracted-out employees, and their employers, will in fact have their contributions reduced as a result of the higher earnings ceilings for the reduced contribution rates.
Contracted-out employees with earnings above the old upper earnings limit (£295) will pay a maximum of £1.12 a week extra, and their employers will pay 46p per week extra if they are earning £305 per week.
Self-employed people
The flat rate class 2 contribution will be raised to £4.05 per week.
The rate of class 4 contributions will not be increased. The annual limits of profits between which class 4 contributions are paid will be raised to £4,750 and £15,860 from £4,590 and £15,340 respectively.
For those self-employed people with profits between £4,750 and £15,340 (the former upper profits limit) class 4 contributions will be reduced by £10.08 per year in 1988–89 assuming an unaltered level of profits. For those self-employed people with profits at or above the proposed upper profits limit of £15,860 in 1988–89, annual class 4 contributions will be £22.68 higher.
Class 3 (voluntary) contributions
The rate of class 3 contributions be raised to £3.95 per week.
Treasury supplement
The Treasury supplement to the national insurance fund will be reduced from 7 per cent. to 5 per cent. with effect from April 1988.
Employment protection allocation
There will be no employment protection allocation for 1988–89. Currently the rates are 0.07 per cent. for employees and 0.06 per cent. for employers.
697WNational Health Service allocation
The allocation to the National Health Service, currently 0.85 per cent. for employees and 0.7 per cent. for employers, will be increased to 0.95 per cent. and 0.8 per cent. respectively from April 1988.
The draft orders and the contributions amendment regulations, which are required to give effect to my proposals, together with the Government Actuary's report on their effect on the national insurance fund, will be laid before the House shortly.