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Social Security (Contributions) (Re-rating) Order 2008

rose to move, That the Grand Committee do report to the House that it has considered the Social Security (Contributions) (Re-rating) Order 2008. The noble Lord said: I am pleased to introduce this order, which deals with various national insurance contribution rates and thresholds. I can confirm that it is compatible with the European Convention on Human Rights. All the changes were announced in a Treasury press release published on 18 October 2007. Since 1997, the Government have delivered a comprehensive programme of reforms to the tax and benefit system. Those reforms have simplified the system, tackled child and pensioner poverty and made work pay. The 2007 Budget announced the next stage in these reforms as part of a rebalancing of the tax and NIC systems to offer more support for work, families and pensioners. The package simplified income tax and NICs, increased the personal allowances for those aged 65 and over, and changed the rates and threshold for child tax credit and working tax credit. It means that from April 2009 there will be just two main rates of income tax, and they will apply to the same bands of income as the two rates of national insurance contributions, creating one of the simplest personal tax structures of any developed country. To achieve this simplification, the package of measures announced in the Budget in 2007 included alignment of the upper earnings limit and upper profits limit with the level at which higher rate income tax is paid from April 2009. This is a two-stage process and the change in this order to the upper profits limit for the self-employed is part of the first stage. I start with the small earnings exception for the self-employed, below which the self-employed may claim exemption from paying class 2 contributions. The exception will rise in April from £4,635 to £4,825 a year—an increase broadly in line with prices. Many people choose to pay these contributions in order to protect their benefit entitlement. The rate of class 2 contributions for 2008-09 will rise from £2.20 to £2.30 a week—again, an increase broadly in line with prices. Staying with the self-employed, the draft order sets the profits limits between which main-rate class 4 contributions are paid. The lower limit, at which class 4 contributions become due, will increase broadly in line with inflation and the income tax personal allowance from £5,225 to £5,435 a year. At the other end of the scale, the upper profits limit will continue to match the upper earnings limit for employees, which will go up as part of the personal tax package to £40,040 for the 2008-09 tax year. This ensures that the self-employed pay main-rate class 4 contributions on much the same range of earnings as employees liable to class 1 contributions and is an essential element in making the national insurance system fair for everyone. The draft order also deals with the weekly rate of voluntary class 3 contributions, which help those with insufficient contribution records in any given tax year to make up a qualifying year for benefit purposes. The rate of class 3 will rise in April by 30p to £8.10 a week, a standard rerating in line with prices. The review of contribution rates is accompanied by a report from the Government Actuary detailing the effects on the National Insurance Fund of the draft order and the draft order uprating benefits laid by my right honourable friend the Secretary of State for Work and Pensions. I am pleased to say that there is no expectation that the fund will need a Treasury grant for the 2008-09 tax year. Northern Ireland has a separate national insurance scheme from Great Britain but the two schemes are closely co-ordinated and maintain parity of contribution rates. This draft order covers both Great Britain and Northern Ireland, and I commend it to the Committee. I beg to move. Moved, That the Grand Committee do report to the House that it has considered the Social Security (Contributions) (Re-rating) Order 2008. 9th Report from the Joint Committee on Statutory Instruments.—(Lord McKenzie of Luton.)