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National Insurance Contributions

Volume 687: debated on Wednesday 6 December 2006

My right honourable friend the Paymaster-General (Dawn Primarolo) has made the following Written Ministerial Statement.

I have completed the annual review under Section 141 of the Social Security Administration Act 1992. I propose the following changes to take effect from 6 April 2007. These rates and limits will also apply to national insurance contributions in Northern Ireland.

Employers and Employees

In line with the Social Security Contributions and Benefits Act 1992, the lower earnings limit for primary class 1 contributions is to be raised to £87 a week. It is set at the level of the basic state pension for a single person from April 2007 and rounded down to the nearest pound. The primary and secondary thresholds for class 1 contributions will continue to be aligned with the weekly amount of the income tax personal allowance, which will be increased to £5,225 from April 2007. The primary and secondary thresholds will therefore be increased to £100 a week. This means that no tax or class 1 contributions will be paid on earnings below this level. The upper earnings limit for primary class 1 contributions will be raised to £670.

The Self-employed

The rate of class 2 contributions will increase in line with prices by 10 pence to £2.20 a week. Self-employed people with earnings below the annual small earnings exception can apply to be exempted from paying class 2 contributions. This limit will be raised by £170 to £4,635 in line with prices. The annual lower profits limit for liability to class 4 contributions will increase to £5,225 a year, in line with the income tax personal allowance. The upper profits limit will increase by £1,300 to £34,840 to maintain the link with employees' earnings liable to class 1 contributions.

Class 3

The rate of class 3 voluntary contributions will be increased by 25 pence to £7.80 a week.

Share Fishermen

The special rate of class 2 contributions for share fishermen, which allows them to build entitlement to contributory jobseeker's allowance in addition to the other contributory benefits available to the self-employed, will increase in line with prices to £2.85 a week.

Volunteer Development Workers

The special rate of class 2 contributions for volunteer development workers, which entitles them to the full range of contributory benefits, will be increased by 15 pence to £4.35 in line with the statutory formula of 5 per cent of the primary class 1 lower earnings limit.

Treasury Grant

To ensure that the fund can maintain a prudent working balance throughout the coming year, and in accordance with Section 2(2) of the Social Security Act 1993, I propose to prescribe that the maximum Treasury grant that may be made available to the fund in 2007-08 shall not exceed 2 per cent of the estimated benefit expenditure for that year. Similar provision will be made in respect of the Northern Ireland National Insurance Fund.

I shall be laying a draft re-rating order before Parliament in due course. This will accompany a report by the Government Actuary to me and my right honourable friend the Secretary of State for Work and Pensions, which we shall jointly present to Parliament. The following table sets out the rates, earnings limits and thresholds for national insurance contributions proposed for 2007-08.

National insurance contributions, proposed re-rating, April 2007

Item

2007-08

Lower earnings limit, primary class 1

£87

Upper earnings limit, primary class I

£670

Primary threshold

£100

Secondary threshold

£100

Employees' primary class 1 rate

11 per cent between £100 and £670, 1 per cent above £670

Employees' contracted-out rebate

1.6 per cent

Married women's reduced rate

4.85 per cent between £100 and £670, 1 per cent above £670

Employers' secondary class 1 rate

12.8 per cent on earnings above £100

Employers' contracted-out rebate, salary-related schemes

3.7 per cent1

Employers' contracted-out rebate, money-purchase schemes

1.4 per cent2

Class 2 rate

£2.20

Class 2 small earnings exception

£4,635

Special class 2 rate for share fishermen

£2.85

Special class 2 rate for volunteer development workers

£4.35

Class 3 rate

£7.80

Class 4 lower profits limit

£5,225

Class 4 upper profits limit

£34,840

Class 4 rate

8 per cent between £5,225 and £34,840, 1 per cent above £34,840

1, 2 See the Secretary of State for Work and Pensions’ order, the Social Security (Reduced Rates of Class 1 Contributions, Rebates and Minimum Contributions) Order 2006.