House of Commons Hansard Written Answers for 2 Dec 1997 (pt 24)

National Insurance Contributions

Mr. Trickett: To ask the Secretary of State for Social Security if she has completed her review of national insurance contributions of 1998-99. [19162]

Ms Harman: I have completed the annual review under Section 141 of the Social Security Administration Act 1992. My 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 rates as provided by the Social Security Contributions and Benefits Act 1992. These new earnings limit 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

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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 be £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 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.