National Insurance Fund

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The National Insurance Fund represents the funds of the National Insurance Scheme, set up by the British Government following World War II. In the Beveridge Report this was designed as part of a universal insurance system for all British people.

The funds are held in the National Insurance Fund (NIF), separate from Consolidated Revenue.^[1] Contributions are not "taxes" because they are not directly available for general expenditure by the government.

The income of the NIF consists of contributions from employees, employers and the self-employed, plus interest on its investments. The NIF is used to pay for social security benefits such as state retirement pensions, but not for the means tested Minimum Income Guarantee and Tax Credits. National Insurance contributions as whole finance the National Health Service, but contributions are paid into the fund by the Secretary State net of moneys allocated to the NHS ^[2]. Thus the NIF does not hold money directed for the general provision of health services in the UK. The government determines the total allocation for health each year and the allocation from each class contribution is calculated by the Government actuary.

Each year there is a surplus of the order of £2 billion. The NIF had a surplus of over £34 billion as at 2005/06 and the Government Actuary's Department forecasts that this surplus will grow to over £74 billion by 2012.^[3] The surplus is lent to the government by way of investment in gilt-edged securities, and interest on these investments is paid to the NIF as it falls due.

By the current government’s "golden rule", borrowed money (which includes the NIF surplus) cannot be used to finance current expenditure. It can only be used for investment, mainly capital investment in infrastructure. The money in the NIF can only be used for payment of benefits and administration expenses.

Levels of benefit and contributions are set following the advice of the Government Actuary, who recommends that a prudential balance of two months contribution revenue (about £8 billion) should be kept in the fund. The government says that it needs the invested surpluses of the NIF created by excessive mandatory contributions to pay for such socially useful things as schools and hospitals. There are no plans to return the surplus funds in the form of additional benefits.