Department of Health and Social Security
10 John Adam Street
London WC2N 6HD Direct Line 01-217 5192 Switchboard 01-217 3000
28
12 June 1979
Mr R McLaren
Foreign and Commonwealth Office
Hong Kong Department King Charles Street LONDON SW1A 2AH
HKK 234
Dear Robin
Not
3/71
SOCIAL INSURANCE
see 29
I promised to write to you about the point that has been raised in Hong Kong about the extent to which contributions in the UK actually pay for social security benefits.
Not all benefits in the UK of course are contributory. There are some major non-contributory benefits, particularly means- tested supplementary benefits and non means-tested child benefit (which has partly replaced child tax allowances). But the majority of social security expenditure is on contributory benefits and these are paid for out of the National Insurance Fund. Administration costs of contributory benefits are also met from the fund. On the other hand the fund itself receives a Treasury contribution (called a supplement) which is currently equivalent to about 18% of contribution income. I attach three tables dealing with both non-contributory and contributory benefits which gives background flavour: two tables are from Social Security Statistics 1977 and one from a Government Actuary's Report (Cmnd. 7403).
If you are passing on these papers to Hong Kong you might like to say something about the relative merits of contributory and non-contributory social security. There is no doubt that for administrative simplicity it is easier to pay for social security out of general Government revenue as Hong Kong now does. But the greater the scope of the social security system, the more this can be a burden on general Government revenue. There may be a time when Hong Kong would not wish to continue to pay for benefits - especially improved benefits - for the elderly, the sick and the disabled out of general Government revenue if this meant an increase in taxation especially if it meant an increase in salaries tax or corporation tax. The advantage of a contributory scheme is that the money is found in another way. Experience in many other countries has shown that
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