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Draft Social Security (Amendment of Law No.6) (Jersey) Regulations and Long-Term Care Scheme: Ministerial Comment on Amendments

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A decision made on 4 December 2013:

Decision Reference: MD-S-2013-0127

Decision Summary Title :

DS - Comment on amendment to P.138/2013 (Amd) & P.99/2013 (Amd)(3)

Date of Decision Summary:

04 December 2013

Decision Summary Author:

Policy and Strategy Director

Decision Summary:

Public or Exempt?

Public

Type of Report:

Oral or Written?

Written

Person Giving

Oral Report:

N/A

Written Report

Title :

WR - Comment on amendment to P.138/2013 (Amd) & P.99/2013 (Amd)(3)

Date of Written Report:

04 December 2013

Written Report Author:

Policy and Strategy Director

Written Report :

Public or Exempt?

 

Public

Subject: States comment on amendment to P.138/2013 (Amd) – Draft Social Security (Amendment of Law No. 6) (Jersey) Regulations 201- & P.99/2013 (Amd)(3) – Long-Term Care Scheme

Decision(s): The Minister decided to present a comment to the States with regard to Deputy Tadier’s amendment to P.138/2013 (Amd) – Draft Social Security (Amendment of Law No. 6) (Jersey) Regulations 201- & P.99/2013(Amd)(3) – Long-Term Care Scheme

Reason(s) for Decision:  P.99/2013 and P.138/2013 propose a Long-Term Care (LTC) contribution liability capped at the upper earnings limit of the Social Security scheme (£152,232 per annum in 2013). This would be equivalent to a maximum individual liability in 2013 for LTC contributions of £1,522 per annum at a 1% LTC contribution rate. Deputy Tadier’s amendment seeks to remove the cap of the contribution amount leaving liability uncapped and due against total taxable income. The attached Comment contains the Social Security Minister’s response to the amendment.

Resource Implications: None

Action required: Policy and Strategy Director to request the Greffier of the States to arrange for the comment to be presented to the States as soon as practicable.

Signature:

 

 

Position:

Minister

 

Date Signed:

 

 

Date of Decision (If different from Date Signed):

 

Draft Social Security (Amendment of Law No.6) (Jersey) Regulations and Long-Term Care Scheme: Ministerial Comment on Amendments

SUMMARY

  • The proposed LTC contribution liability is capped at the upper earnings limit of the Social Security scheme (£152,232 pa in 2013)
  • This would be equivalent to a maximum individual liability in 2013  for LTC contributions of  £1,522 pa at a 1% LTC contribution rate.
  • Deputy Tadier’s amendment seeks to remove the cap of the contribution amount, leaving liability uncapped and due against total taxable income.
  • All existing contributions levied under the Social Security Law are capped and are associated with entitlements to a fixed range of benefits. 
  • The LTC contribution and LTC benefits  have been designed in the same way and there is no justification for an unlimited liability to be introduced in this single area.

 

 Members are urged to reject this amendment

 

LTC Contributions

 

The LTC contribution is a  contribution raised under the Social Security Law.

As with all other social  security contributions, there is a maximum contribution above which no additional payment is required.  The proposed changes to the Social Security Law link the maximum LTC contribution to the upper earnings limit,  which is currently set at £152,232 pa.

 

The upper earnings limit was introduced in 2012 as part of the Fiscal Policy Review.  The initial proposal was to levy a new 2% Social Security charge up to the upper earnings limit on both working age employees and their employers.  After review, it was agreed that the charge in respect of employees would not be introduced in 2012.  This decision was influenced in part by the knowledge that a new LTC charge was in the pipeline for employees. The current proposal is that the LTC liability  in respect of individuals will be limited to the same upper earnings limit that is already in place for employers paying Social Security contributions.

 

The proposal to base the LTC liability on all income has created a more progressive charge compared to the original (2011) proposal.  At that time the proposal was  to  base liability on earnings for working age individuals and taxable income for those aged over state pension age.  The decision, confirmed in June 2013, to set the  LTC contribution liability in line with income tax liability has created a broadly  progressive contribution system.    By contrast, the original suggestion in 2011  was for a flat rate contribution rate for all working age adults, which would have collected proportionately more  contribution income from lower paid workers and proportionately less contribution income from higher paid workers.

 

Effective rates

 

Deputy Tadier’s report confuses the concept of effective rate and marginal rate.   An individual’s liability for LTC contributions will depend on their effective rate, which will gradually increase from zero, if their income is below the tax threshold, up to the full LTC rate(e.g. 1% in 2016)  as their taxable income increases up to the upper earnings limit (UEL).

 

This diagram indicates the proportion of tax payers who will be subject to LTC effective rates at different levels. For example, based on 2011 tax data, over 40% of all tax payers would  have an effective LTC rate of less than 0.6%, if  the main LTC rate is 1%.

 

As Deputy Tadier notes in his report (page 11), 2% of taxpayers earn over £150,000 pa, and, at the proposed maximum contribution capped at the upper earnings limit, they will contribute approximately 15% of all the LTC contribution income collected.

 

Conclusion

 

The proposed LTC contribution will collect contributions against all income up to an upper earnings limit of £152,232 per annum.  This is in line with other contributions collected through the Social Security Law.

 

The current proposals provide a much more progressive contribution liability compared to the original 2011 proposals. There is no  justification for increasing this liability beyond the upper earnings limit.

 

Deputy Tadier’s  support for the concept of a long-term care scheme is welcomed but members are urged to reject this amendment.

 

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