National Insurance (Hansard, 29 November 1994)

§ Mr. Lilley

I have completed the annual review under section 141 of the Social Security Administration Act 1992. For the second year running, the Government will help employers by reducing the three rates of contributions payable for lower-paid employees. These628W will be cut by 0.6 per cent. for all employees earning less than £205 a week at a cost of £250 million a year. This will encourage the creation of new jobs. It will complement a further measure which the Government propose which will give employers taking on someone who has been out of work for at least two years a full national insurance rebate for up to a year. I am also increasing the help with fuel costs for pensioners, widows and certain disabled people which I introduced last year. Together with the general increases in contributory benefit expenditure which I am maintaining, this will mean a continuing shortfall in the national insurance fund between income and outgoings, but I will maintain the stability of the fund by means of the Treasury grant. The national insurance contribution rebate will be introduced from April 1996. The other changes to NICs will take effect from 6 April 1995.

Employers and Employees

There will be no change to the standard rates of contributions for either employees or employers, which remain at 10 per cent. and 10.2 per cent. respectively.

In line with the Social Security Contributions and Benefits Act 1992, the lower earnings limit for class 1 contributions is to be raised to £59 a week, which is the nearest whole pound to the basic retirement pension rate for a single person from April 1995. The upper earnings limit is to be raised to £440 a week which is slightly less than 7.5 times the new basic pension rate as provided by the Social Security Contributions and Benefits Act. These new earnings limits will replace the current ones of £57 and £430 respectively.

Under the current structure, employees whose earnings reach the lower earnings limit will continue to pay an initial contributions of 2 per cent. of that limit and standard rate contributions of 10 per cent. on that portion of their earnings which exceeds the lower but not the upper earnings limit. For employers the three contribution rates for the lower paid will be reduced by 0.6 per cent. each to 3 per cent., 5 per cent. and 7 per cent. respectively. The thresholds for these rates will also be raised so that from April 1995 they apply to weekly earnings which fall below the ceilings of £105, £150 and £205 respectively, compared with £100, £145 and £200 at present.

Not Contracted Out Employees and their Employers

Neither the employee nor his employer will have to pay any contributions if earnings are less than £59 a week. Those whose .earnings do not exceed £430—the former upper earnings limit—will pay 16p 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 10 per cent. For employees with earnings above £430 the maximum possible increase will be 84p a week. Employers will pay between 35p and £6.53 a week less where the employee's earnings are less than £205 a week. There will be no change for employers where earnings are £205 a week or more.

Contracted Out Employees and their Employers

Those with earnings between £59 and £430—the former upper earnings limit—will pay 13p a week less. For those who earn more than £430 the maximum possible increase will be 69p a week. Employers will pay between 29p and £6.57 a week less where the employee's earning are less than £205 a week. There will be little change for employers where earnings are £205 a week or more.

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Rebate for Employers taking on the long-term unemployed

Employers who hire someone who has been out of work for two years or more will get a full NIC rebate for that person for a year, starting in April 1996.

Self-Employed People

The flat rate class 2 contribution will be raised by 20p to £5.85 a week.

There will be no increase in the rate of class 4 contributions, currently 7.3 per cent. The annual limits of profits between which class 4 contributions are paid will be raised to £6,640 and £22,880 from £6,490 and £22,360 respectively. Self-employed people who pay only class 2 contributions will pay an extra £10.40 a year in 1995–96.

For people with profits between £6,490 and £22,360—the former upper profits limit—class 4 contributions will be reduced by £10.95 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 £27.01 higher.

Class 3 (Voluntary) Contributions

The rate of class 3 contributions will be raised by 20p to £5.75 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.

Treasury Grant

In accordance with section 2(2) of the Social Security Act 1993, I propose to maintain the level of the national insurance fund during 1995–96 by means of a grant from the Treasury. I estimate that the grant required will be approximately £5.1 billion.

As usual, I shall be laying a draft order before Parliament together with a report by the Government Actuary describing the effects of my proposals.