94/182 29 November 1994 ANNUAL REVIEW OF NATIONAL INSURANCE CONTRIBUTIONS Peter Lilley, Secretary of State for Social Security, today gave full details of the changes in National Insurance contributions announced in the Chancellor's Budget statement. These will take effect from 6 April 1995 and include further reductions in the National Insurance contributions paid by employers as an encouragement to job creation. In reply to a written parliamentary question, Mr Lilley said: "For the second year running the Government will help employers by reducing the three rates of contributions payable for lower paid employees. These will be cut by 0.6 per cent for all employees earning less than Pounds 205 per week at a cost of Pounds 250 million a year. "This will encourage the creation of new jobs. It will complement a further measure which the Government proposes 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 National Insurance contributions 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 Pounds 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 Pounds 440 a week which is slightly less than 7 1/2 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 Pounds 57 and Pounds 430 respectively. "Under the current structure 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 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 Pounds 105, Pounds 150 and Pounds 205 respectively, compared with Pounds 100, Pounds 145 and Pounds 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 Pounds 59 a week. Those whose earnings do not exceed Pounds 430 (the former upper earnings limit) will pay 16 pence a week less in contributions than at present. This is because a further Pounds 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 Pounds 430 the maximum possible increase will be 84 pence a week. Employers will pay between 35 pence and Pounds 6.53 a week less where the employees earnings are less than Pounds 205 a week. There will be no change for employers where earnings are Pounds 205 a week or more. Contracted Out Employees and their Employers "Those with earnings between Pounds 59 and Pounds 430 (the former upper earnings limit) will pay 13 pence a week less. For those who earn more than Pounds 430 the maximum possible increase will be 69 pence a week. "Employers will pay between 29 pence and Pounds 6.57 a week less where the employees earnings are less than Pounds 205 a week. There will be little change for employers where earnings are Pounds 205 a week or more. 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 National Insurance contributions 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 Pounds 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 Pounds 6,640 and Pounds 22,880 from Pounds 6,490 and Pounds 22,360 respectively. Self-employed people who pay only Class 2 contributions will pay an extra Pounds 10.40 a year in 1995-96. "For people with profits between Pounds 6,490 and Pounds 22,360 (the former upper profits limit) Class 4 contributions will be reduced by Pounds 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 Pounds 27.01 higher. Class 3 (Voluntary) Contributions "The rate of Class 3 contributions will be raised by 20 pence to Pounds 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 Pounds 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." Notes for Editors: Tables A1 and A2 attached set out the changes proposed for 1995-96. Table B1 shows their effect on individual liability on a range of earnings between Pounds 57 a week (the current lower earnings limit) and Pounds 440 a week (the proposed upper earnings limit for employees). Table B2 provides similar information for self-employed earners. Draft estimates of the yield of National Insurance contributions will be included in the Government Actuary's report on the draft of the Social Security (Contributions) (Re- rating) order which will be laid before Parliament as usual. CHANGES IN CONTRIBUTION RATES AND LIMITS FOR 1995/96 Table A1 1994/95 Change 1995/96 CLASS 1 (EMPLOYED EARNERS) STANDARD RATE (for details of 2% + 10% for 2% + 10% for reduced rates for lower bands of employees No change employees earnings see Table A2) 10.2% for 10.2% for employers employers LIMITS Lower Earnings Limit (LEL) Pounds 57.00 a week Pounds 2.00 Pounds 59 a week Upper Earnings Limit (UEL)* Pounds 430.00 a week Pounds 10.00 Pounds 440.00 a week CLASS 2 (SELF EMPLOYED RATE) Pounds 5.65 a week Pounds 0.20 Pounds 5.85 SMALL EARNINGS EXCEPTION Limit of net earnings for Pounds 3,200 a year Pounds 110 Pounds 3,310 a year exception from Class 2 liability CLASS 3 (VOLUNTARY CONTRIBUTIONS) Pounds 5.55 a week Pounds 0.20 Pounds 5.75 a week RATE CLASS 4 (SELF EMPLOYED) RATE 7.3% No change 7.3% LIMITS (CLASS 4) Lower limit of profits or gains Pounds 6,490 Pounds 150 Pounds 6,640 Upper limit of profits or gains Pounds 22,360 Pounds 520 Pounds 22,880 * Applies to Employees' contributions only PROPOSED RATES OF CLASS 1 CONTRIBUTIONS FOR 1995/96 Table A2 PRIMARY CONTRIBUTION (EMPLOYEE) SECONDARY CONTRIBUTION (EMPLOYER) PROPOSED BANDS OF | STANDARD RATE | REDUCED RATE NOT WEEKLY EARNINGS |-------------------|--------------| FOR MARRIED CONTRACTED CONTRACTED | | | WOMEN AND OUT RATE % OUT RATE % | | | WIDOW | NOT | | OPTANTS % | CONTRACTED | CONTRACTED | | OUT RATE % | OUT RATE % | | Pounds 59.00 - Pounds 104.99 2% of Pounds | 2% of Pounds 3.85 3 Nil Pounds 105.00 - Pounds 149.99 59 PLUS 10% | 59 PLUS 8.2% 3.85 5 2 Pounds 150.00 - Pounds 204.99 of that part | of that part 3.85 7 4 Pounds 205.00 - Pounds 440.00 of earnings | of earnings 3.85 10.2 7.2 which exceeds| which exceeds Pounds 59 but| Pounds 59 but does not | does not exceed Pounds| exceed Pounds 440 | 440 OVER Pounds 440.00 (NO ADDITIONAL CONTRIBUTIONS PAYABLE) 10.2 10.2 Note: The contracted out rate applies only to that portion of earnings between the Lower and Upper Earnings limits (Pounds 59 and Pounds 440 respectively). Employers' contributions on earnings below the Lower Limit and above the Upper Limit are assessed at the not contracted-out rate. EFFECTS OF PROPOSED CHANGES ON INDIVIDUAL LIABILITY Table B1 Employed Earners - Not Contracted Out Employee | Employer Weekly 1994-95 1995-96 Change at | 1994-95 1995-96 Change Earnings 6/4/95 (b-c) | e-f a b c d | e f g Pounds 57 Pounds 1.14 Nil -Pounds 1.14 | Pounds 2.05 Nil -Pounds 2.05 Pounds 59 Pounds 1.34 Pounds 1.18 -Pounds 0.16 | Pounds 2.12 Pounds 1.77 -Pounds 0.35 Pounds 100 Pounds 5.44 Pounds 5.28 -Pounds 0.16 | Pounds 5.60 Pounds 3.00 -Pounds 2.60 Pounds 105 Pounds 5.94 Pounds 5.78 -Pounds 0.16 | Pounds 5.88 Pounds 5.25 -Pounds 0.63 Pounds 145 Pounds 9.94 Pounds 9.78 -Pounds 0.16 | Pounds 11.02 Pounds 7.25 -Pounds 3.77 Pounds 150 Pounds 10.44 Pounds 10.28 -Pounds 0.16 | Pounds 11.40 Pounds 10.50 -Pounds 0.90 Pounds 200 Pounds 15.44 Pounds 15.28 -Pounds 0.16 | Pounds 20.40 Pounds 14.00 -Pounds 6.40 Pounds 205 Pounds 15.94 Pounds 15.78 -Pounds 0.16 | Pounds 20.91 Pounds 20.91 Nil Pounds 250 Pounds 20.44 Pounds 20.28 -Pounds 0.16 | Pounds 25.50 Pounds 25.50 Nil Pounds 430 Pounds 38.44 Pounds 38.28 -Pounds 0.16 | Pounds 43.86 Pounds 43.86 Nil Pounds 440 Pounds 38.44 Pounds 39.28 +Pounds 0.84 | Pounds 44.88 Pounds 44.88 Nil EFFECTS OF PROPOSED CHANGES ON INDIVIDUAL LIABILITY Table B1 (cont) Employed Earners - Contracted Out Employee Employer Weekly 1994-95 1995-96 Change at | 1994-95 1995-96 Change Earnings 6/4/95 (b-c) | e-f a b c d | e f g Pounds 57 Pounds 1.14 Nil -Pounds 1.14 | Pounds 2.05 Nil -Pounds 2.05 Pounds 59 Pounds 1.30 Pounds 1.18 -Pounds 0.12 | Pounds 2.06 Pounds 1.77 -Pounds 0.29 Pounds 100 Pounds 4.67 Pounds 4.54 -Pounds 0.13 | Pounds 4.31 Pounds 1.77 -Pounds 2.54 Pounds 105 Pounds 5.08 Pounds 4.95 -Pounds 0.13 | Pounds 4.44 Pounds 3.87 -Pounds 0.57 Pounds 145 Pounds 8.36 Pounds 8.23 -Pounds 0.13 | Pounds 8.38 Pounds 4.67 -Pounds 3.71 Pounds 150 Pounds 8.77 Pounds 8.64 -Pounds 0.13 | Pounds 8.61 Pounds 7.77 -Pounds 0.84 Pounds 200 Pounds 12.87 Pounds 12.74 -Pounds 0.13 | Pounds 16.11 Pounds 9.77 -Pounds 6.34 Pounds 205 Pounds 13.28 Pounds 13.15 -Pounds 0.13 | Pounds 16.47 Pounds 16.53 +Pounds 0.06 Pounds 250 Pounds 16.97 Pounds 16.84 -Pounds 0.13 | Pounds 19.71 Pounds 19.77 +Pounds 0.06 Pounds 430 Pounds 31.73 Pounds 31.60 -Pounds 0.13 | Pounds 32.67 Pounds 32.73 +Pounds 0.06 Pounds 440 Pounds 31.73 Pounds 32.42 +Pounds 0.69 | Pounds 33.69 Pounds 33.45 -Pounds 0.24 EFFECT OF PROPOSED CHANGES ON INDIVIDUAL LIABILITY Table B2 Self Employed (Liability for Both Class 2 and Class 4 Contributions) ANNUAL PROFITS OR GAINS YEARLY CONTRIBUTION CHANGE ON (1995-96) 1994-95 (CLASSES 2 & 4) Pounds Pounds ============================================================================================ Pounds 3,200 (1) - Pounds 3,310 Nil (2) -293.80 Pounds 3,311 - Pounds 6,490 (Current LPL) 304.20 + 10.40 - Pounds 6,640 (Proposed LPL) 304.20 - 0.55 - Pounds 10,000 549.48 - 0.55 - Pounds 22,360 (Current UPL) 1,451.76 - 0.55 - Pounds 22,880 (Proposed UPL) 1,489.72 + 37.41 LPL Lower Profits Limit for Class 4 Contributions UPL Upper Profits Limit for Class 4 Contributions _______________________________ (1) Self employed people who earn less that Pounds 3,310 and who have been granted a small earnings exception will not have to pay any Class 2 contributions in 1995-96. The previous limit was Pounds 3,200. (2) Provided that a small earnings exception is granted.