IS D O C U M E N T IS T H E P R O P E R T Y O F H E R B R I T A N N I C M A J E S T Y " ^
GOVERNMENT)
66
C ( 6 ? ) 55
COPY NO.
19 th M a y , 1 9 6 9
CABINET
I N C R E A S E S IN NATIONAL, INSURANCE
CONTRIBUTIONS
N o t e b y t h e S e c r e t a r y of S t a t e f o r S o c i a l S e r v i c e s
T h e a t t a c h e d m e m o r a n d u m , c i r c u l a t e d today to the M i n i s t e r i a l
C o m m i t t e e on S o c i a l S e r v i c e s , i s r e l e v a n t to the C a b i n e t s d i s c u s s i o n
of t h e u p - r a t i n g of s o c i a l s e c u r i t y b e n e f i t s o n T h u r s d a y , 2 2 n d M a y .
t
R, H S C
0
D e p a r t m e n t of H e a l t h a n d S o c i a l S e c u r i t y ,
19 th M a y , 1959 0
S.E.I.
c.
/
INCREASES IN NATIONAL INSURANCE CONTRIBUTIONS
I n summing up t h e d i s c u s s i o n i n C a b i n e t l a s t w e e k , t h e P r i m e
M i n i s t e r s a i d more t i m e was n e e d e d t o s t u d y t h e d e t a i l s of t h e
about c o n t r i b u t i o n s , p a r t i c u l a r l y t h e b u r d e n on t h e
2.
proposals
lower-paid.
I t was p r o p o s e d i n C ( 6 9 ) 5 0 t h a t t h e employed m a n ' s
flat-rate
c o n t r i b u t i o n s i x - a i d go up by 1 s . 6 d . and t h e g r a d u a t e d c o n t r i b u t i o n on
e a r n i n g s b e t w e e n £ 1 8 and £ 3 0 p e r week from
iffo
t o 2j^o,
The p a p e r
e x p l a i n e d t h a t t h e y i e l d of t h e s e i n c r e a s e d c o n t r i b u t i o n s was t h e
minimum n e e d e d f o r t h e s a f e t y of t h e F u n d .
The f l a t - r a t e
3,
contribution
At t h e l a s t twc u p r a t i n g s , i n 1965 and 1967? t h e m a n ' s own f l a t ­
r a t e c o n t r i b u t i o n went up b y 2 s , a t t i m e s when e a r n i n g s were l o w e r t h a n
t h e y are today,,
The i n c r e a s e was k e p t down t o t h i s l e v e l b y c h a r g i n g
t h e employer more t h a n t h e employee (jdf/ 3 s . 3d- i n 1365 and 2 s . 3 d .
1967)5 b u t t h i s c o u r s e h a s b e e n r u l e d o u t on t h e p r e s e n t
in
occasion.
Because of e m e r g i n g d e f i c i t s a f u r t h e r 6d., h a d t o be added t o t h e m a n ' s
n a t i o n a l i n s u r a n c e c o n t r i b u t i o n i n May 1968 and a f u r t h e r 6 d . was a d d e d
to the h e a l t h service
4.
contribution,
The p r o p o s e d i n c r e a s e of 1 s
present f l a t - r a t e
injuries.
0
6 d . i s an i n c r e a s e of 11$ on t h e
c o n t r i b u t i o n f o r n a t i o n a l i n s u r a n c e and i n d u s t r i a l
T h i s i s t h e same p r o p o r t i o n a t e i n c r e a s e as i n b e n e f i t s
a time when a good d e a l more t h a n t h e e x t r a c o s t of t h e h i g h e r
needs t o be f o u n d .
T a k i n g t h e e m p l o y e e ' s s h a r e of t h e t o t a l
( i n c l u d i n g N . H . S . ) , t h e i n c r e a s e i s 9%.
It
at
benefits
stamp
i s t r u e t h a t , i f we
i n c l u d e t h e 1 s , i n c r e a s e i n t h e e m p l o y e e ' s c o n t r i b u t i o n l a s t May,
h i s s h a r e of t h e stamp w i l l h a v e gone up by a b o u t 16$ s i n c e O c t o b e r 1967
1
w h i l s t a v e r a g e e a r n i n g s , on t h e l a t e s t T r e a s u r y : f o r e c a s t , w i l l have
r i s e n about 1 3 ? $ , b u t I t h i n k t h i s i s p e r h a p s of* l e s s
than t h e p r o p o r t i o n a t e i n c r e a s e n e x t November.
EcP
r
a
significance
m
a
n
earning
£15 a week t h e i n c r e a s e w i l l t h e n by 1$ of h i s g r o s s pay,
e s t i m a t e d t h a t o n l y a b o u t one m i l l i o n men w o r k i n g f u l l "
earning, l e s s t h a n
that.
and i t
t
i
m
e
a
r
e
is
5.
I n view o f t h e f o r m i d a b l e sum t o b e r a i s e d ,
I do n o t t h i n k an i n c r e a s e
of I s . 6 d . i s u n r e a s o n a b l e .
And t h e r e i s s o m e t h i n g i n t h e p o i n t t h a t ,
long a s we h a v e a f l a t - r a t e
s c h e m e , t h e r e a l i m p a c t of t h e r i s i n g c o s t
so
should
be b r o u g h t home by a n a p p r e c i a b l e i n c r e a s e i n t h e c o n t r i b u t i o n w h i c h e v e r y ­
body p a y s . I n e v e r t h e l e s s go on t o c o n s i d e r a l t e r n a t i v e ways i n which t h e
might
money/be r a i s e d s o a s t o l i g h t e n t h e b u r d e n on t h e l o w e r p a i d .
6.
P o s s i b l e ways of r e d u c i n g t h e f 3 . a t - r a t e c o n t r i b u t i o n .
Given t h e
amount we must r a i s e i n c o n t r i b u t i o n s , a n d t h a t t h e b u r d e n i s t o b e
e q u a l l y s h a r e d by e m p l o y e r a n d e m p l o y e e , we can o n l y g e t l e s s from
lower p a i d by r a i s i n g s t i l l more from t h e h i g h e r
The f o l l o w i n g t a b l e compares t h e e f f e c t
the p r o p o s a l s p u t forward i n c(69)50-
the
earne
of t h r e e p o s s i b l e v a r i a n t s on
E a c h of t h e v a r i a n t s w o u l d p r o d u c e
a b o u t t h e same c o n t r i b u t i o n income i n 1 9 7 0 / 7 1 a n d 1 9 7 1 / 7 2 ( w i t h i n £ 1 m i l l i o n
or so) a s t h e p r o p o s a l s i n C ( 6 9 ) 5 0 and m i g h t y i e l d a l i t t l e more i f
r i s e by more t h a n t h e 3 p e r c e n t a s s u m e d .
collecting graduated contributions,
by up t o a b o u t £6m.
Because of the t i m e - l a g
earnings
in
t h e d e f i c i t i n 1 9 6 9 / 7 0 w o u l d be i n c r e a s e d
I t i s a s s u m e d t h a t no r e d u c t i o n i n t h e
self-employed
and n o n - e m p l o y e d c o n t r i b u t i o n w o u l d b e j u s t i f i e d m e r e l y b e c a u s e more of
t h e employed c o n t r i b u t i o n s w e r e
earnings-related.
C o n t r i b u t i o n s of m a l e e m p l o y e e s n o t c o n t r a c t e d o u t
( i n c l u d i n g lv.K, S. a n d ^ i n d u s t r i a l i n ^ r i e s " ^ " "
Present
contribution
Increase in
A
s.
d.
B
contributions
C
s.
d.
s.
d,
s.
d.
s.
d.
£10
17
10
1
6
1
3
1
0
1
0
£15
22
7
1
6
1
3
1
0
1
3
£20
25
4
2
9
2
8
2
6
2
9
£25
26
0
4
10
5
0
5
1
5
1
£30
26
5
6
11
7
3
7
7
7
k
A
( a s i n c(69)50)
Add I s , 6d. t o f l a t - r a t e
contribution
Add 2^ p e r c e n t t o c o n t r i b u t i o n on e a r n i n g s of £ 1 8 - 3 0
B
I s . 3 d . on f l a t
rate
2-g- p e r c e n t on £ 1 8 - 3 0 ( m a k i n g 3 p e r
"C
I s . on f l a t
rate
2^ p e r c e n t on £ 1 8 - 3 0 ( m a k i n g 3;? p e r
D
lid.
on f l a t
cent).
cent)
rate
5 p e r c e n t on £ 9 - 1 8 a n d 2^- p e r c e n t on £ 1 8 - 3 0
( m a k i n g 5 p e r c e n t on £ 9 - 1 8 a n d 3 p e r c e n t on £ 1 8 - 3 0 ) .
7,
The a l t e r n a t i v e s c o n s i d e r e d a l l b r i n g t h e i n c r e a s e . o r t h e man e a r n i n g
£30 a week t o w e l l o v e r 7 s .
Because of t h i s and t h e c o n s i d e r a t i o n s
set
o u t i n p a r a g r a p h s 3 and 4* I do n o t t h i n k a n y of t h e v a r i a n t s i s t o b e
p r e f e r r e d t o our o r i g i n a l p r o p o s a l s ,
tolerable.
t h o u g h v a r i a n t B would' p e r h a p s b e
T h i s would add a b o u t £3 m i l l i o n t o t h e d e f i c i t
t h i s y e a r , w u i c h a t a n e s t i m a t e d £93 m i l l i o n i s a l r e a d y
on t h e Fund
uncomfortably
large.
8-
P o s t p o n e m e n t of p a r t of t h e i n c r e a s e .
One q u e s t i o n w h i c h h a s b e e n
r a i s e d i s w h e t h e r t h e r e w o u l d be any a d v a n t a g e i n p o s t p o n i n g p a r t of
increase u n t i l next
9,
the
year,
D u r i n g t h e de" a t e on 15th
May, t h e S e c r e t a r y of S t a t e t o l d t h e House
t h a t we h a d d e c i d e d n o t t o l e a v e p a r t of t h e i n c r e a s e o v e r t o n e x t A p r i l
and t h i s announcement met w i t h some a p p r o v a l and no c o m p l a i n t .
would b e o b v i o u s d i f f i c u l t i e s
in having a separate, large increase next
s p r i n g , w i t h o u t any i n c r e a s e i n b e n e f i t s .
frequent
others,
10.
especially if
think
t h e g r a d u a t e d i n c r e a s e had t o be
level,
divided.
we c o u l d w a i t so l o n g f o r any w o r t h w h i l e p a r t of
the
By l a s t December t h e N a t i o n a l I n s u r a n c e Fund was down t o t h e
d a n g e r l e v e l of j u s t o v e r £ 1 0 0 m i l l i o n .
first
Purely a t the mechanical
c h a n g e s i n c o n t r i b u t i o n s would mean t r o u b l e f o r e m p l o y e r s and
Nor do I
money.
There
We h a d t o go t h e H o u s e , f o r
the
t i m e e v e r , t o g e t a u t h o r i t y t o t r a n s f e r £200 m i l l i o n from t h e
R e s e r v e Fund m e r e l y t o k e e p t h e N a t i o n a l I n s u r a n c e Fund a t a s a f e w o r k i n g
level.
N e v e r t h e l e s s , by t h e end of March t h e Fund was down t o £240 m i l l i o n
and, ieven i f we t a k e t h e f u l l
c o n t r i b u t i o s i n c r e a s e i n November,
would b e down t o a b o u t £150 m i l l i o n b y n e x t March.
This i s
it
without
a l l o w i n g f o r t h e c h a n c e t h a t e x p e r i e n c e w i l l once more p r o v e w o r s e t h a n
the e s t i m a t e .
next A p r i l ,
I f we p o s t p o n e d ,
s a y , one q u a r t e r of t h e i n c r e a s e
until
t h e Fund would b e d e p l e t e d b y a f u r t h e r £30 m i l l i o n - £40
m i l l i o n t h i s y e a r and
there
would be a s e r i o u s r i s k of h a v i n g t o go b a c k
t o t h e Commons f o r a u t h o r i t y t o make a f u r t h e r w i t h d r a w a l from t h e
Reserve Fund.
11.
A p a r t from a l l t h i s ,
t h e C h a n c e l l o r ha,s made h i s B u d g e t
calculations
on t h e u n d e r s t a n d i n g t h a t t h e f u l l i n c r e a s e i n c o n t r i b u t i o n s would be
secured t h i s
12.
year.
For a l l these reasons,
I am s u r e i t
a t once i n November.
D e p a r t m e n t of H e a l t h and S o c i a l
1 9 t h May 1969
Security,
i s r i g h t to take the f u l l
amount