§ Mr. ElletsonTo ask the Secretary of State for Social Security if he has yet completed his review of national insurance contributions for 1997–98. [6584]
§ Mr. LilleyI have completed the annual review under section 141 of the Social Security Administration Act 1992. My proposals will take effect from 6 April 1997. As I announced last year I intend to reduce the main rate of contributions for employers by 0.2 per cent. This will save employers as a whole over £500 million a year. The additional Treasury grant necessary to make up for the shortfall in income to the national insurance fund will be met from the landfill tax announced by my right hon. Friend the Chancellor of the Exchequer in last year's Budget. There will be no change to the standard rate of contributions for employees which will remain at 10 per cent.
Employers and employees
In line with the Social Security Contributions and Benefits Act 1992, the lower earnings limit for class 1 contributions is to be raised to £62 a week. It is set at the level of the basic retirement pension rate for a single person from April 1997, rounded down to the nearest pound.
206WThe upper earnings limit is to be raised to £465 a week which is slightly less than 7½ 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 £61 and £455 respectively.
Employees 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 10 per cent. on that portion of their earnings which exceeds the lower but not the upper earnings limit.
For employers the three lower contribution rates remain unchanged at 3 per cent., 5 per cent. and 7 per cent., respectively. The earnings thresholds for these rates have tended to rise faster than inflation in recent years and will therefore also remain unchanged for the coming year.
Non-contracted-out employees and their employers
Neither employees nor employers will have to pay any contributions if earnings are less than £62 a week. Employees whose earnings do not exceed £455 (the former upper earnings limit) will pay 8p a week less in contributions than at present. This is because a further £1 of their weekly earnings will be subject to the 2 per cent. rate rather than 10 per cent. For employees with earnings above £455, the maximum possible increase will be 92p a week.
All employers will pay less where earnings are £210 a week or more. There will be no change for employers where earnings are between £62 and £210 a week.
Contracted-out employees and their employers
In March this year I announced the new levels for the rebate on class 1 national insurance contributions for people contracted-out of the state earnings-related pension scheme which will take effect from April 1997. The financial effect, combined with changes to the lower and upper earnings limits and the reduction in the main rate of contributions paid by employers, is as follows:
Employees with earnings between £62 and £95 will pay slightly less. Those with earnings between £95 and £455—the former upper earnings limit—will pay between one penny and 72p a week more. For those who earn more than £455 the maximum possible increase will be £1.56 a week.
Employers who operate a contracted-out salary-related scheme
Where earnings are less than £210 most employers will pay 3p week extra. This is due to the increase in the lower earnings limit which means that a further £1 of earnings is not subject to the contracted-out rebate. All employers will pay less where earnings are £210 a week or more.
Employers who operate a contracted-out money purchase scheme
A new system of age-related rebates applies from April 1997. A reduced flat rate rebate will be paid to employers, with a flat rate rebate to employees at the same rate as for COSRS, and a further age related payment made by the Contributions Agency direct to the pension scheme. All employers will pay more, ranging from a few pence where earnings just exceed the lower earnings limit to a maximum of £5.01 a week where earnings reach £455 (the old upper earnings limit), although their statutory requirement to make minimum payments to the pension scheme will be less at all relevant earnings levels.
207WSelf-employed people
The flat rate class 2 contribution will be raised by 10p to £6.15 a week.
There will be no change to the rate of class 4 contributions which will remain at 6 per cent. The annual limits of profits between which class 4 contributions are paid will be raised to £7,010 and £24,180 from £6,860 and £23,660 respectively.
Self-employed people who pay only class 2 contributions will pay an extra £5.20 a year in 1997–98.
For people with profits between £7,010 and £23,660—the former upper profits limit—class 4 contributions will be reduced by £9 a 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 £22.20 higher.
class 3 (voluntary) contributions
The rate of class 3 contributions will be raised by 10p to £6.05 a week.
National health service allocation
The allocation to the national health service is unchanged at 1.05 per cent. from employees and 0.9 per cent. from employers.
Treasury grant
Although benefit expenditure from the national insurance fund will broadly match income—I need to ensure that the fund maintains a prudent working balance throughout the coming year and—in accordance with section 2(2) of the Social Security Act 1993, I propose to do so by means of a grant from the Treasury. I estimate that the grant required will be approximately £1.4 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.