National Insurance Contributions (Hansard, 6 November 1991)

§ Mr. Newton

I have completed the annual review under section 120 of the Social Security Act 1975. My proposals will take effect from 6 April 1992.

Employers and employees

As my right hon. Friend the Chancellor of the Exchequer said in his statement earlier today, I do not propose to change the standard rates of contributions for either employees or employers, which remain at 9 per cent. and 10.4 per cent. respectively.

In line with the Social Security Pensions Act 1975, the lower earnings limit for class 1 contributions is to be raised to £54 a week, which is the nearest whole pound to the basic retirement pension rate for a single person from April 1992. The upper earnings limit is to be raised to £405 a week, which is slightly less than seven and a half times the new basic pension rate as provided by the Social Security Pensions Act. These new earnings limits will replace the current ones of £52 and £390 respectively.

Under the structure for employees which came into force in October 1989 people 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 9 per cent. on that portion of their earnings which exceeds the lower but not the upper earnings limit. For employers the reduced contribution rates of 4.6 per cent., 6.6 per cent. and 8.6 per cent. for the lower paid will continue unchanged. However, the ceilings for these rates will be raised so that from April 1992 they apply to weekly earnings which fall below the ceilings of £90, £135, and £190 respectively, compared with £85, £130 and £185 at present.

150W

Not contracted-out employees and their employers

Neither the employee nor his employer will have to pay any contribution if earnings are less than £54 a week. Those whose earnings do not exceed £390 (the former upper earnings limit) will pay 14 pence a week less in contributions than at present. This is because a further £2 of their weekly earnings will be subject to a deduction of 2 per cent. rather than 9 per cent. For employees with earnings above £390 a week the maximum possible increase will be £1.21 a week. Employers' contributions will generally be unchanged although there will be some gains where employees' earnings which were above the former ceilings fall below the new ceilings. There will be no increase for employers of the higher paid since there is no upper earnings limit for employers' contributions.

Contracted-out employees and their employers

Contracted-out employees will gain in the same way. The contributions due from employees earning less than £390 a week will drop by 10 pence a week. For employees earning over £390 the maximum possible increase will he 95 pence a week. Their employers will generally pay 7 or 8 pence a week more than at present because they will have to pay not contracted-out contributions on the first £54 of earnings rather than the present lower limit of £52 a week, although there will be gains in respect of lower paid employees whose earnings fall between the old and new ceilings for reduced rate contributions.

Self-employed people

The flat rate class 2 contribution will be raised by 20p to £5.35 a week.

There will be no increase in the rate of class 4 contributions currently 6.3 per cent. The annual limits of profits between which class 4 contributions are paid will be raised £6,120 and £21,060 from £5,900 and £20,280 respectively. Self-employed people who pay only class 2 contributions will pay an extra £10.40 a year in 1992–93.

For people with profits between £6,120 and £20,280 (the former upper profits limit) class 4 contributions will be reduced by £13.86 per year assuming an unaltered level of profits. For those self-employed people with profits at or above the new upper profits limit the annual charge for class 4 contributions will be £35.28 higher.

Class 3 (Voluntary) contributions

The rate of class 3 contributions will be raised by 20p to £5.25 a week.

National Health Service Allocation

The allocation to the national health service, currently 1.05 per cent. from employees and 0.9 per cent. from employers, remains unchanged.

The draft order, together with a report by the Government Actuary, will be laid before Parliament shortly.

National Insurance Contributions on Shares

I am also today laying before Parliament regulations concerning the payment of national insurance contributions on certain financial instruments including shares and unit trusts, which are at present treated as payments in kind and are not therefore subject to such contributions, and which in some cases have clearly been used by employers as a means of avoiding them.

151W

As my right hon. Friend the Chancellor of the Exchequer made clear in his Budget statement when announcing the changes in respect of company cars and free fuel, subsequently enacted in the Social Security (Contributions) Act 1991, in the Government's view there is no reason why payments in kind should necessarily be treated any differently from payments in cash for national insurance contribution purposes. The regulations laid today, which will come into effect at midnight tonight, accordingly provide that both primary and secondary contributions will be payable on the value of financial instruments and certain short-term insurance policies which form part of an employee's remuneration. There will however be an exemption for shares and options to acquire shares in the company for which an employee works, so that employee share ownership schemes will not be affected.