Mr Major’s Written Parliamentary Answer on National Insurance Contributions – 20 May 1986

Below is the text of Mr Major’s written Parliamentary Answer on National Insurance Contributions on 20th May 1986.

Mr. Meacher Asked the Secretary of State for Social Services what would be the gain to the National Insurance Fund or the Exchequer of removing the upper earnings limit from national insurance payments for the self-employed (a) with present tax relief and (b) without it.

Mr. Major [pursuant to his reply, 6 May 1986, c. 78]: If the upper profits limit for class 4 national insurance contributions for the self-employed were removed from 6 April 1986 the full year effect on the national insurance fund including treasury supplement and interest, is estimated to be a gain of £205 million. (This figure is calculated on the same basis as the Report by the Government Actuary on the draft of the Social Security (Contributions, Re-rating) Order 1985, (Cmnd 9672).).

The hon. Gentleman’s question contains alternative assumptions about tax relief on the additional class 4 contributions that would be raised if the upper profits limit were abolished. Tax relief has no effect on the class 4 receipts to the national insurance fund, but does, of course, affect the tax receipts to the Exchequer. If, on the one assumption, tax relief was available on 50 per cent. of the additional class 4 contributions collected above the upper profit limit, the tax forgone would be in the order of £40 million. If, on the other assumption, tax relief was removed entirely, the extra tax collected in respect of 50 per cent. of class 4 contributions below the upper profit limit (currently eligible for relief) would be about £60 million.