Report by the Government Actuary on the drafts of the Social Security Benefits Up-rating Order 1991 and the Social Security ( Contributions ) ( Re-rating ) Order 1991 .sx CHRISTOPHER DAYKIN .sx Government Actuary's Department .sx February 1991 .sx To :sx The Right Hon .sx ANTONY NEWTON , O.B.E. , M.P. , Secretary of State for Social Security .sx 1 .sx In accordance with Section 63(11 ) of the Social Security Act 1986 and Sections 121(1 ) , 123(2 ) and 123A(6A ) of the Social Security Act 1975 I submit the following report on the likely effect on the National Insurance Fund of the Social Security Benefits Up-rating Order 1991 and the Social Security ( Contributions ) ( Re-rating ) Order 1991 .sx This report also takes account of the proposed Social Security ( Overlapping Benefits ) Amendment Regulations and the proposed Social Security ( Contributions ) Amendment Regulations .sx 2 .sx Taken together , the Statutory Instruments provide for the changes in benefit rates and contributions described below .sx 3 .sx The Benefits Up-rating Order alters the main social security benefits payable from the National Insurance Fund from dates in the week beginning 8 April 1991 .sx The standard flat-rate retirement and invalidity pensions will be increased by pounds5 .sx 10 to pounds52 .sx 00 a week for a single person and by pounds8 .sx 15 to pounds83 .sx 25 for a married couple , with a similar increase of pounds5 .sx 10 a week for widows' pensions .sx Unemployment benefit will be increased by pounds4 .sx 05 to pounds41 .sx 40 for a single person and by pounds6 .sx 55 to pounds66 .sx 95 for a married couple .sx A summary of the principal rates of benefit before and after the changes is given in Appendix 1 .sx 4 .sx As well as increasing flat-rate pensions , the Order increases by 10.9 per cent the earnings-related additional pensions of retirement , widow and invalidity beneficiaries who qualified for these pensions before 8 April 1990 .sx This increase applies to additional pensions before abatement for any guaranteed minimum pensions paid from occupational pension schemes where the pensioner has been contracted-out .sx However , where a guaranteed minimum pension in payment includes an amount arising from earnings after 5 April 1988 , such amount is required to be increased by 3 per cent by the occupational scheme and the increase in additional pension is correspondingly reduced .sx 5 .sx The Contributions Order alters certain contribution rates and the earnings brackets for the different rates of employers' contributions from the beginning of the 1991-1992 tax year .sx It has been assumed that the lower and upper earnings limits will be altered by amending Regulations to pounds52 and pounds390 as announced .sx The changes to the Class 1 earnings limits and earnings brackets , together with the changes to Class 2 , Class 3 and Class 4 limits and contributions , are shown in Appendix 2 .sx 6 .sx The Order also alters the Class 1 secondary rates of contribution from the beginning of the 1991-92 tax year .sx The Class 1 primary rates of contribution are unchanged , as are the allocations from the total rate to the National Health Service , currently 1.05 per cent from employees and 0.9 per cent from employers .sx The rates are shown in Appendix 3 .sx 7 .sx The current Statutory Sick Pay Bill reduces from 1991-92 the amount that employers can recover in respect of statutory sick pay to 80% of the amount paid to employees .sx The Bill also abolishes the additional compensation paid to employers in respect of their liability on statutory sick pay .sx The financial effect of the Bill is included in the estimates for 1991-92 .sx 8 .sx Table 1 shows estimates of income and outgo of the National Insurance Fund for 1991-92 allowing for the proposed changes in benefit rates and contributions on the basis of the working assumptions described in paragraph 9 below .sx The latest estimates for the current year 1990-91 are also shown for purposes of comparison .sx caption&table .sx 9 .sx The income from contributions and the expenditure on benefits in the remainder of 1990-91 and in 1991-92 will depend inter alia upon the level of unemployment and the rate of increase of earnings .sx In accordance with the normal practice , working assumptions have been given to me by the Government in regard to these factors .sx The assumptions I have been instructed to use for the purpose of the above estimates were set out in the following terms in the Chancellor of the Exchequer's Autumn Statement :sx ( i ) the number of unemployed ( Great Britain ) averages 1.62 million in 1990-91 and 1.75 million in 1991-92 ; .sx ( ii ) the increase in average earnings on a year earlier is 10 per cent in 1990-91 and 8 1/2 per cent in 1991-92 .sx Figures for settlements are of course lower than these earnings figures in both years .sx 10 .sx The estimated surplus of pounds1826 million for 1990-91 may be compared with the estimated deficit of pounds1726 million given in my report on the Social Security ( Contributions ) ( Re-rating ) Order 1990 ( Cm 948) .sx 11 .sx Subsequent to that report , the Social Security Act 1990 removed certain liabilities from the National Insurance Fund for financial years from 1990-91 onwards .sx The Act provided for an amount equal to the aggregate of all statutory sick pay and statutory maternity pay paid by employers to be paid out of money provided by Parliament to the National Insurance Fund , thus offsetting the corresponding deductions from employers' contributions to the Fund .sx The Act also provided for the cost of industrial injuries benefits to be met out of money provided by Parliament instead of from the National Insurance Fund .sx These changes improved the financial position of the Fund by pounds1288 million and pounds574 million respectively and thus more than eliminate the deficit shown in my previous report .sx 12 .sx I have been advised that the transfer of the balance of the Redundancy Fund into the National Insurance Fund took place on 31 January 1991 .sx The market value of the assets transferred is shown in Table 1 .sx Redundancy payments from the date of the transfer are included in the estimates of benefit expenditure in Table 1 and are shown in detail in Appendix 4 .sx 13 .sx Higher earnings and more contributors increase the estimated contribution income in 1990-91 by some pounds340 million and pounds450 million respectively whilst other miscellaneous changes increase income by pounds70 million in aggregate .sx 14 .sx In addition to the effect of the removal of industrial injuries benefits from the National Insurance Fund , referred to in paragraph 11 , estimated benefit expenditure is pounds571 million lower than in Cm 948 .sx Unemployment benefit is reduced by pounds161 million due to the lower average numbers unemployed now assumed and to a lower proportion of the unemployed assumed to be entitled to benefit .sx Retirement pension is pounds258 million lower due partly to a reassessment of the distribution of benefit payment dates and partly to recent statistics suggesting a smaller take-up of benefit following the abolition of the earnings rule than was originally estimated .sx Other changes , mainly in widows' benefits and invalidity benefit , reduce estimated benefit expenditure by pounds152 million .sx Taking account of all changes to benefit expenditure and increases of pounds6 million in administration costs and pounds45 million in parity transfers to Northern Ireland , the overall reduction in outgo is pounds1094 million .sx 15 .sx As a result of the changes described in paragraphs 11 to 14 above and the consequently higher projected level of the Fund , investment income is estimated to be pounds310 million more than was shown in my previous report .sx 16 .sx The extra expenditure in 1991-92 as a result of the increases in benefit rates from April 1991 is estimated to be pounds3221 million .sx Particulars of the extra cost and of the expenditure for individual benefits are given in Appendix 4 .sx 17 .sx Table 1 shows that total benefit expenditure is estimated to increase by pounds4051 million between 1990-91 and 1991-92 , i.e. pounds830 million in excess of the cost of the uprating .sx Underlying the benefit estimates are increases in the numbers of retirement and invalidity pensioners and unemployment benefit recipients , though the number of widow pensioners is expected to continue to decline .sx In addition the continuing build-up in the numbers of retirement , invalidity and widow pensioners qualifying for earnings-related additional pensions , as well as the increasing average amounts of benefit to which they will be entitled , increases expenditure by about pounds500 million between the two years .sx 18 .sx The financial effects of the provisions in the Contributions Order which change earnings brackets and contribution rates and of the proposed Regulations changing earnings limits are summarised in Appendix 5 .sx The changes are estimated to result in a decrease of pounds313 million in contribution receipts attributable to the National Insurance Fund and an increase of pounds10 million in the National Health Service allocation .sx 19 .sx The current Statutory Sick Pay Bill reduces the amount of statutory sick pay that employers recover by an estimated pounds162 million .sx It also abolishes the additional compensation to employers thus increasing contribution income by an estimated pounds58 million .sx The increase in the lower rate of statutory sick pay increases employers' recoveries from National Insurance contributions by an estimated pounds9 million .sx The increase in the earnings threshold for the higher rate of statutory sick pay is estimated to reduce employers' recoveries by pounds20 million .sx The increase in the rate of statutory maternity pay increases employers' recoveries by an estimated pounds18 million .sx In accordance with the Social Security Act 1990 as amended by the Bill , an amount equal to the aggregate of statutory sick pay and statutory maternity pay recovered by employers is payable from the Consolidated Fund to the National Insurance Fund ; in 1991-92 this is estimated to amount to pounds1128 million .sx 20 .sx The reduction in contributions in respect of personal pensions in 1991-92 consists of the standard contracted-out rebates and the additional 2 per cent incentive relating to the year 1990-91 .sx The number of personal pensions reached 4.1 million for the United Kingdom by the end of 1989-90 of which 4 million relate to Great Britain .sx It has been assumed that the number will grow further to 4.4 million for Great Britain by the end of 1990-91 .sx In addition , it is assumed that 1 million members of contracted-out schemes will be eligible for the 2 per cent incentive in 1990-91 .sx Details of the estimated amounts are given in Appendix 7 .sx 21 .sx Table 1 shows that the total yield of contributions to the National Insurance Fund , after deductions in respect of personal pensions , statutory sick pay and statutory maternity pay , is estimated to increase by pounds2181 million between 1990-91 and 1991-92 .sx The higher yield in 1991-92 is mainly due to the assumed increase in the general level of earnings offset by a higher contribution reduction of some pounds400 million in respect of personal pensions .sx Appendix 6 shows an analysis of the estimated contribution income in 1991-92 by class of contributor .sx 22 .sx If the average number unemployed in 1991-92 were to be 100,000 lower than has been assumed , and if this reduction were matched by an equal rise in the number working , then it is estimated that contribution income would be pounds130 million higher and expenditure on unemployment benefit pounds65 million lower .sx Similarly , if the average number unemployed were to be 100,000 higher , and the corresponding assumption made , then the contribution income in 1991-92 would be pounds130 million lower and expenditure would rise by pounds65 million .sx 23 .sx If the actual increase in earnings in 1990-91 or 1991-92 is different from that assumed , then the 1991-92 contribution income will change by the amounts shown in Table 2 .sx These figures show the sensitivity of the estimates to the assumptions made regarding earnings changes .sx caption&table .sx 24 .sx For the two years for which estimates are given in this report , and for the immediately preceding year , the estimated balances in the Fund at the end of each year represent the following proportions of the benefit expenditure during the year :sx 1989-90 38 per cent .sx 1990-91 41 per cent .sx 1991-92 33 per cent .sx PREFACE Under the terms of Section 97 of the Police and Criminal Evidence Act 1984 ( the Act ) , the Police Complaints Authority are required to make a report to the Home Secretary each calendar year on the discharge of our functions .sx We are also required under the same section to keep under review the working of Sections 84 to 96 of the Act , which govern the handling of complaints , and to report on that , again to the Home Secretary , every three years .sx