My Lords, these regulations set the national insurance contributions limits and thresholds, as well as the rates of a number of national insurance contributions, for the 2021-22 tax year and make provision for a Treasury grant to be paid into the National Insurance Fund if required. National insurance contributions, or NICs, allow people to make contributions when they are in work in order to receive additional contributory benefits when they are not working; for example, when they are retired or if they become unemployed. NICs receipts go towards funding these contributory benefits, as well as the NHS. As announced in November, the Government are using the September consumer prices index—CPI—figure of 0.5% as the basis for setting all national insurance limits and thresholds, and the rates of class 2 and class 3 national insurance contributions, for 2021-22.
I will first outline the specific changes to the class 1 primary threshold and class 4 lower profits limit. The primary threshold and lower profits limit indicate the points at which employees and the self-employed start paying class 1 and class 4 NICs, respectively. These thresholds will rise from £9,500 to £9,568 per year. The rates of class 1 and class 4 NICs are unchanged by
these regulations. Increases to the primary threshold and lower profits limit do not impact on state pension eligibility. This is determined by the lower earnings limit for employees, which will remain at £6,240 in 2021-22, and payment of class 2 NICs for the self-employed, which I will come to shortly.
The upper earnings limit, the point at which the main rate of employee NICs drops to 2%, is aligned with the higher rate threshold for income tax. The upper earnings limit will increase from £50,000 to £50,270 per year. Similarly, the upper profits limit is the point at which the main rate of class 4 NICs drops to 2%. This will also increase from £50,000 to £50,270 per year. As well as class 4 NICs, the self-employed also pay class 2 NICs. The rate of class 2 NICs will remain at the weekly rate of £3.05, due to the rounding rules which require the calculation of the CPI increase to be rounded to the nearest 5p. The small profits threshold is the point above which the self-employed must pay class 2 NICs. This will increase from £6,475 to £6,515 per year. Class 3 NICs allow people to voluntarily top up their national insurance record. The rate for class 3 will increase in line with inflation, from £15.30 a week to £15.40.
The secondary threshold determines the point at which employers start paying employer NICs on an employee’s salary. This threshold will increase from £8,788 to £8,840 per year. The threshold at which employers of people under 21, and of apprentices under 25, start to pay employer NICs on these employees’ salaries will increase from £50,000 to £50,270 per year. The rate of employer NICs is unchanged by these regulations.
The regulations also make provision for a Treasury grant of up to 17% of forecasted annual benefit expenditure to be paid into the National Insurance Fund, if needed, during 2021-22. A similar provision will be made in respect of the Northern Ireland National Insurance Fund. The Government Actuary’s Department report laid alongside the re-rating regulations forecast that a Treasury grant will not be required in 2021-22, but in view of the economic challenges created by the Covid-19 pandemic, the Government consider it prudent to make the maximum provision at this stage.
These regulations will also ensure that tax credits, child benefit and the guardian’s allowance increase in line with the consumer prices index, which had inflation at 0.5% in the year to September 2020. As noted in the Secondary Legislation Scrutiny Committee’s report, the increases provided for in these regulations result from the statutory annual review of benefits and credits rates and, as such, are separate from the temporary measure announced by the Chancellor in March 2020 and enacted in the Coronavirus Act 2020. The powers in the Act increased the basic element of working tax credit by an extra £1,045 for the tax year 2020-21 and ensured that the temporary increase was not to be considered for the purpose of the annual review.
In summary, this proposed legislation makes changes to the rates, limits and thresholds for national insurance contributions and provision for a Treasury grant. It also increases the rates of tax credits and guardian’s allowance in line with prices. I hope noble Lords will join me in supporting these regulations. I beg to move.
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