National Insurance Contributions (Hansard, 2 December 1997)

§ The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham)

My right honourable friend the Secretary of State for Social Security has completed the annual review under Section 141 of the Social Security Administration Act 1992. Her proposals will take effect from 6 April 1998.

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 £64 a week. It is set at the level of the Basic Retirement Pension rate for a single person from April 1998, rounded down to the nearest pound.

The upper earnings limit is to be raised to £485 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 £62 and £465 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.

The contribution rates for employers will remain unchanged at 3 per cent, 5 per cent., 7 per cent., and 10 per cent. respectively, as will the earnings brackets for the three lower rates.

NOT CONTRACTED OUT EMPLOYEES AND THEIR EMPLOYERS

Neither employees nor employers will have to pay any contributions if earnings are less than £64 a week. Employees whose earnings do not exceed £465 (the former upper earnings limit) will pay 16 pence a week less in contributions than at present. This is because a further £2 of their weekly earnings will be subject to the 2 per cent. rate rather than 10 per cent. For employees with earnings above £465, the maximum possible increase will he £1.84 a week.

There will be no change for employers where earnings are £64 or more a week.

CONTRACTED OUT EMPLOYEES AND THEIR EMPLOYERS

Employees whose earnings do not exceed £465 (the former upper earnings limit) will pay 13 pence a week less in contributions than at present. This is because a further £2 of their weekly earnings will be subject to the 2 per cent. rate rather than 8.4 per cent. For employees with earnings above £465, the maximum possible increase will be £1.55 a week.

Employers who operate a Contracted-Out Salary Related Scheme (COSR)

Where earnings are between £64 and £465, employers will pay 6 pence a week extra. This is due to the increase in the lower earnings limit, which means that a further £2 of earnings is not subject to the contracted-out rebate. Where earnings are more than £465 a week, employers will pay 54 pence a week less. This is mainly due to the increase in the upper earnings limit, which 170WA means that a further £20 of earnings is subject to the contracted-out rebate.

Employers who operate a Contracted-Out Money Purchase Scheme (COMP)

Where earnings are between £64 and £465, employers will pay 3 pence a week extra. This is due to the increase in the lower earnings limit, which means that a further £2 of earnings is not subject to the contracted-out rebate. Where earnings are more than £465 a week, employers will pay 27 pence a week less. This is mainly due to the increase in the upper earnings limit, which means that a further £20 of earnings is subject to the contracted-out rebate.

SELF-EMPLOYED PEOPLE

The flat rate Class 2 contribution will be raised by 20p to £6.35 a week.

Self-employed people with profits less than a specified amount, known as the small earnings exception limit, can apply to be excepted from paying Class 2 contributions. This limit will be raised by £110 to £3,590.

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 £7,310 and £25,220 from £7,010 and £24,180 respectively.

Self-employed people who pay only Class 2 contributions will pay an extra £10.40 a year in 1998–99.

For people with profits between £7,310 and £24,180 (the former upper profits limit), Class 4 contributions will be reduced by £18.00 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 £44.80 higher.

CLASS 3 (VOLUNTARY) CONTRIBUTIONS

The rate of Class 3 contributions will be raised by 20p to £6.25 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 maximum grant required will be approximately £800 million.

My right honourable friend will be laying a draft order before Parliament together with a report by the Government Actuary describing the effects of her proposals.