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Social Security (Contributions) (Amendment No. 2) Regulations 2009

I am pleased to introduce to the Committee the Social Security (Contributions) (Amendment No. 2) Regulations 2009 and to speak to the Social Security (Contributions) (Re-Rating) Order 2009. As the regulations and the order deal with the various national insurance contribution rates and thresholds, it is sensible that we take them both together. I confirm that the provisions in the regulations and the order are compatible with the European Convention on Human Rights. All the changes were announced at the time of the Pre-Budget Report on 24 November 2008. I will start with the Social Security (Contributions) (Amendment No. 2) Regulations 2009. After an exchange on one of the other orders earlier this afternoon in which there was a slight mistake leading to delay, I have to confess again that there are two minor typographical errors in the preamble to this instrument. Section 122(1) was inadvertently cited. Section 5(6) should have been cited, and the same is true for the Northern Ireland equivalents. These will of course be corrected when the instruments are made. I crave the indulgence of the Committee for those faults. I am also glad to have noted them at this stage and not to have them pointed out to me by the ever-vigilant noble Lord, Lord Howard. In the 2007 Budget, the former Chancellor of the Exchequer announced a package of reforms to modernise the tax and benefits system. Part of the package included changes to national insurance contributions to align the upper earnings limit with the level at which higher rate income tax becomes payable from 6 April 2009. The upper earnings limit is being increased from £770 to £844 per week to fulfil this commitment. These regulations also increase the class 1 lower earnings limit from £90 to £95 per week. The lower earnings limit is legislatively linked to the level of the basic state pension and is the level of earnings at which entitlement to contributory benefit begins. Finally, the regulations increase the class 1 primary and secondary thresholds from £105 to £110 per week, which is broadly in line with prices. Earnings between the primary threshold and the upper earnings limit are liable to main rate employee contributions of 11 per cent. Earnings above the primary threshold are subject to the additional employee rate of 1 per cent. Employers pay contributions at 12.8 per cent on all earnings above the secondary threshold. The Social Security (Contributions) (Re-Rating) Order 2009 sets the NIC rates and thresholds for the self-employed and for those paying voluntary contributions. For the self-employed, it raises the small earnings exception below which the self-employed may claim exemption from paying class 2 contributions. That will rise in April from £4,825 to £5,075 a year, an increase broadly in line with prices. Many people choose to pay these contributions to protect their benefit entitlement. The rate of class 2 contributions for 2009-10 will rise from £2.30 to £2.40 a week, which again is an increase broadly in line with prices. Also for 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 from £5,435 to £5,715 a year. The upper profits limit will increase to £43,875 for the 2009-10 tax year. This ensures that the self-employed pay main rate class 4 contributions on much the same range of earnings as employees who are 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 increase from £8.10 a week to £12.05 a week from April. This is an above-inflation increase and is a consequence of changes made in the Pensions Act 2008 to allow contributors who met certain conditions to pay class 3 contributions outside the existing time limits to improve their basic state pensions. It was made clear when the amendment was introduced that this measure was to be overall cost neutral and that the weekly class 3 contribution rate would therefore be increased accordingly. The review of contribution rates is accompanied by a report from the Government Actuary detailing the effects of the draft order and regulations, and the draft order uprating benefits laid by my right honourable friend the Secretary of State for Work and Pensions on the National Insurance Fund. I am pleased to say that there is no expectation that the fund will need a Treasury grant for the 2009-10 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. The draft order and regulations therefore cover Great Britain and Northern Ireland. I commend the draft Social Security (Contributions) (Amendment No. 2) Regulations 2009 to the Committee.