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REV/HMT 1

27 November 2001

INCOME TAX ALLOWANCES AND NATIONAL INSURANCE CONTRIBUTIONS


Tax allowances

The Chancellor today announced that from April 2002 the income tax personal allowance would be increased to £4,615, in line with indexation. This means that all taxpayers will be able to have income of at least £89 a week in the tax year 2002-03 before they pay income tax.

The Chancellor also announced that age-related tax allowances for 2002-03 will be increased in line with indexation.

National Insurance

The levels and thresholds for national insurance contributions (NICs) will increase from April 2002 in line with indexation. This means that the starting point for payment of both employees' and employers' NICs in 2002-03 will be £89 a week and as such no employee will pay income tax or NICs on earnings below this amount.

For the self-employed the rate of Class 2 contributions will be frozen for the second successive year.

The rate of employer NICs will be reduced by 0.1 per cent from 11.9 per cent to 11.8 per cent from April 2002. This helps to protect UK competitiveness by ensuring that the introduction of the aggregates levy is revenue neutral.

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DETAILS

Tax allowances

The income tax personal allowance will be increased to £4,615 in 2002-03, in line with the increase in the Retail Prices Index (RPI) for the year ended September 2001.

The alignment of the income tax personal allowance and the starting point for payment of employees' and employers' NICs means that, in practice, the amount of the allowance now needs to be announced in the autumn, to give employers time to implement the change in the NICs threshold.

The Chancellor also announced today that the age-related allowances and the point at which a pensioner will get those allowances in full (the income limit) for 2002-03 will rise by indexation. The personal allowance for someone aged 65 to 74 will rise to £6,100 and the allowance for someone aged 75 or more to £6,370. The income limit will rise from £17,600 to £17,900.

The 2002-03 levels of age-related allowances, and the income limit, are set out in Annex 1

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National Insurance

To increase the levels and thresholds in line with inflation, the Paymaster General, Dawn Primarolo, announced the following changes to national insurance contributions today.

For employers and employees:

  • In line with the Social Security Contributions and Benefits Act 1992, the Lower Earnings Limit for primary Class 1 contributions is to be raised to £75 a week. It is set at the level of the basic Retirement Pension for a single person from April 2002 and rounded down to the nearest pound.
  • The Primary Threshold for primary Class 1 contributions and the Secondary Threshold for secondary Class 1 contributions will be raised to £89 a week, the same as the weekly amount of the income tax personal allowance. This means that no tax or Class 1 contributions will actually be paid on earnings below this level.
  • The Upper Earnings Limit for primary Class 1 contributions will be raised to £585 a week in line with inflation.
  • The rate of secondary Class 1 contributions payable by all employers is to be reduced by 0.1 per cent, from 11.9 per cent to 11.8 per cent. This will help to ensure that the introduction of the aggregates levy will be revenue neutral in its overall effect on business, thereby helping to protect UK competitiveness and employment while at the same time helping the UK achieve its environmental objectives.

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For the self-employed:

  • The rate of Class 2 contributions will be frozen at £2.00 a week.
  • Self-employed people with earnings below the annual Small Earnings Exception can apply to be exempted from paying Class 2 contributions. This limit will be raised to £4,025.
  • The annual lower and upper profits limits for liability to Class 4 contributions will be raised to £4,615 (in line with the income tax personal allowance) and to £30,420 respectively, to maintain the link with employees' earnings liable to Class 1 contributions.

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For those paying voluntary contributions:

  • The rate of Class 3 voluntary contributions will be increased by 10 pence to £6.85 a week.

For share fishermen:

  • The special rate of Class 2 contributions, which allows them to build entitlement to contributory Jobseeker's Allowance in addition to the other contributory benefits available to the self-employed, will also be frozen at £2.65 a week.

For Volunteer Development Workers:

  • The special rate of Class 2 contributions which entitles them to the full range of contributory benefits, will be increased by 15 pence to £3.75 in line with the statutory formula of 5 per cent of the primary Class 1 Lower Earnings Limit.

A draft re-rating order, accompanied by a report by the Government Actuary on the effect the order will have on the National Insurance Fund, will be laid before Parliament in due course.

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A table which sets out the rates, earnings limits and thresholds for National Insurance Contributions proposed for 2002-03 is attached in Annex 2.

NOTES FOR EDITORS


1. The announcement today confirms that the personal allowance, the age related allowances and the income limit will be increased next year in line with statutory indexation. Income tax allowances are uprated each year in line with indexation unless legislation is passed to override its effects. Statutory indexation is based on changes to the Retail Prices Index in the year to September, so this early announcement does not affect the amount of the increase. A statutory instrument has been laid today, confirming the effect of indexation on the personal allowance, age-related allowances and the income limit for 2002-03.

2. Estimates of the yield of national insurance contributions will be included in the Government Actuary's report on the draft of the Social Security (contributions) (re-rating and National Insurance funds payments) Order which will be laid before Parliament.

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HM TREASURY PRESS OFFICE

Press enquiries: 020 7270 5238

Non-media enquiries: 020 7270 4558


INLAND REVENUE PRESS OFFICE

Press enquiries: 020 7438 6692 / 6706 / 7327
(out of hours: 07860 359544)

Non-media enquiries: 020 7944 3000
(office hours only)


HM CUSTOMS AND EXCISE PRESS OFFICE

Press enquiries: 020 7865 4775/5949/5471 020 7865 5715/5095/5010

(out of hours:020 7620 1313)

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GOVERNMENT DEPARTMENT INTERNET SITES

Further information and all published documents relating to the Pre-Budget Report may be found on this Internet site and at the following addresses:

Inland Revenue

HM Customs and Excise

PRESS NOTICE ANNEX

Annex 1

Income Tax Personal and Age-related Allowances 2002-03
£ per year
2001-02 Change 2002-03
Personal Allowances (age under 65) 4,535 (+80) 4,615
Personal allowance (age 65-74) 5,990 (+110) 6,100
Personal allowance (age 75 and over) 6,260 (+110) 6,370
Married couple's allowance* (aged less than 75 and born before 6th April 1935) 5,365 (+100) 5,465
Married couple's allowance* (age 75 and over) 5,435 (+100) 5,535
Married couple's allowance* - minimum amount 2,070 (+40) 2,110
Aged income limit 17,600 (+300) 17,900
* Married couple's allowance given at the rate of 10%.

Annex 2

National Insurance Contributions

Item 2002-03
Lower earnings limit, primary class 1 £75 per week
Upper earnings limit, primary class 1 £585 per week
Primary threshold £89 per week
Secondary threshold £89 per week
Employees' primary class 1 rate 10% of £89.01 to £585 per week
Employees' contracted-out rebate 1. 6%
Married women's reduced rate 3.85%
Employers' secondary Class 1 rate 11.8% on earnings above £89 per week
Employers' contracted-out rebate, salary-related schemes 3.5%
Employers' contracted-out rebate, money-purchase schemes 1.0%
Class 2 rate £2.00 per week
Class 2 small earnings exception £4,025 per year
Special Class 2 rate for share fishermen £2.65 per week
Special Class 2 rate for volunteer development workers £3.75 per week
Class 3 rate £6.85 per week
Class 4 rate 7%
Class 4 lower profits limit £4,615 per year
Class 4 upper profits limit £30,420 per year

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