Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence


Memorandum by the Department of Social Security (FUS 40)

THE FUTURE OF THE UK SHIPPING INDUSTRY

1. THE NATIONAL INSURANCE SCHEME

  1.1 The National Insurance scheme[84] is a universal social insurance scheme designed principally for people who live and work (in employment or self employment) in Great Britain and Northern Ireland. In return for the payment of National Insurance contributions and satisfaction of entitlement conditions, the scheme provides access to a range of income replacement benefits for a variety of contingencies. These benefits are Retirement Pension (including SERPS), Widows Benefits, Incapacity Benefit, contributions-based Jobseekers Allowance and Maternity Allowance.

  1.2 As well as controlling access to those benefits, National Insurance contributions also finance the expenditure on those benefits. All National Insurance contributions—minus an allocation ("the NHS Allocation") which goes towards the costs of the National Health Service—are paid into the National Insurance Fund. Out of the Fund are paid all social security benefits which depend upon the payment of contributions, plus the costs of administering those benefits and collecting National Insurance contributions.

  1.3 There are currently five classes of National Insurance contributions. Details of the five classes and of the benefits to which they give access are at Annex 1.

2. LIABILITY TO PAY NATIONAL INSURANCE CONTRIBUTIONS

  2.1 To pay primary Class 1 contributions, an employee must be in employed earners employment in Great Britain and satisfy conditions as to residence and presence in Great Britain at the time of his employment. Similarly, to be liable for secondary Class 1 contributions in respect of such an employee, an employer must resident or present, or have a place of business, in Great Britain.

  2.2 Mariners working outside Great Britain are not in employed earners employment in great Britain and do not satisfy the conditions as to residence and presence in Great Britain at the time of their employment. Hence, they and their employers would not be liable to pay Class 1 contributions but for the special regime governing their liability prescribed by Case C (regulations 86 to 98) of the Social Security (Contributions) Regulations SI1979/591. The objective of this special regime is to bring British mariners and their employers within the scope of Class I National Insurance contributions where it is reasonable and practical to do so. Details of the normal rules governing liability to pay Class 1 contributions and of the special regime for mariners and their employers are set out in Annex 2.

  2.3 Nevertheless, as indicated in the Table attached to Annex 2, British mariners are not liable to pay primary Class 1 contributions when working outside Great Britain on ships not registered in the UK. Under general arrangements for the voluntary payment of contributions by people outside Great Britain who have previously—

    —  been resident in Great Britain for a period of not less than three years; and

    —  paid National Insurance contributions for three years;

those mariners may voluntarily pay Class 3 contributions or, if their employment would be employed earners employment if it were undertaken in Great Britain, Class 2 contributions.

3. ALTERATIONS TO NATIONAL INSURANCE FOR BRITISH MARINERS AND THEIR EMPLOYERS

  3.1 Two alterations to the National Insurance contributions regime for British mariners working outside Great Britain and their employers have been suggested by British shipping operators and the maritime trade unions.

  3.2 The first suggested alteration is the alleviation of employers' secondary Class 1 contributions in respect of British mariners—in line with the reduction (down to zero) of employers' social charges in respect of seafarers permitted by the EU maritime state aid guidelines and the practices of many other European countries—in order to improve the cost environment in which the British shipping industry operates.

  3.3 The Government's position on this suggestion—set out at paragraphs 102 to 104 of the shipping policy paper "British Shipping: Charting new course" launched by the Deputy Prime Minister on 16 December 1998—is that any potential benefits attaching to formal alleviation of employers secondary Class 1 contributions on a sectorial basis would not warrant breaching the principle of universality on which the National Insurance scheme is based. However, the Government has undertaken to publish clear guidelines for the industry and unions on the applicability and use of offshore employment contracts for seafarers—increasingly being used by British shipping operators to avoid liability for secondary Class 1 contributions—and will consider whether any amendment to employment rights legislation is necessary to safeguard the position of British seafarers employed on such contracts.

  3.4 The second suggested alteration is to permit those British seafarers who are not liable to pay primary Class 1 contributions, but who may voluntarily pay Class 2 or Class 3 contributions, to voluntarily pay primary Class 1 contributions—in order to deal with the concerns of seafarers about their cover for social security benefits, the constraints those concerns place on the crewing decisions of the operators of "mixed flagged" fleets, and to facilitate the employment of British seafarers.

  3.5 The Government's position on this suggestion—set out in paragraph 116 of "British Shipping: Charting a new course"—is that it will consider, in the context of the present Welfare Reform Exercise, the case for providing better protection under the UK social security scheme to certain seafarers; in particular those British seafarers that work on mixed flagged fleets and are currently unable to voluntary pay primary Class 1 contributions when working on ships not registered in the UK.


84   There are two National Insurance schemes in the UK; [i] the Great Britain scheme, covering England, Scotland and Wales and [ii] the Northern Ireland scheme. Each scheme has its own body of legislation and its own National Insurance Fund. The two schemes maintain parity in all respects. The references to Great Britain provisions and legislation in this note should also be read as references to the corresponding Northern Ireland provisions and legislation. Back


 
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