Clause 66: Supply of information for child support purposes

This provision allows the Inland Revenue, on a discretionary basis, to supply tax information it holds in respect of self-employed non-resident parents to the Child Support Agency (CSA). This will enable the CSA to build up a financial picture of non-resident parents whose earnings are either not known or need to be verified.

Background

The CSA is required by law to assess maintenance liability when a valid application is received. To make this assessment, it needs details of the non-resident parent's earnings. This information is sometimes difficult to obtain directly from the non-resident parent, who may deliberately withhold information with a view to delaying a demand for maintenance or who may simply be unable to locate the relevant documentation. Whilst this is less significant for employed earners, where the CSA can approach the employer direct, non-resident parents who are self-employed, and who refuse to supply details of their profits, are extremely difficult to assess.

The Agency therefore needs to be in a position to build up a financial picture of a non-resident parent who does not provide details of his income, using as wide as possible a range of alternative sources of information. Tax information held by the Inland Revenue may offer the only alternative source of such information for the self-employed. However, the intention is that this will be a last resort measure, where the CSA has asked the non-resident parent for information, and issued a reminder, but there is still inadequate detail to make an assessment.

Access to this information for self-employed non-resident parents is necessary to ensure that more non-resident parents pay the maintenance they owe. Given the Revenue's confidentiality provisions, the CSA can only gain access to this information if there is a specific statutory gateway. This provision provides this gateway and allows direct access, at the Revenue's discretion, to any tax information about self-employed non-resident parents held by the Inland Revenue.

Schedule 2 to the Child Support Act 1991 already allows the Secretary of State to request the Inland Revenue to provide information for the purposes of tracing non-resident parents. This information is restricted to the current address of the non-resident parent and his current employer. The CSA has access, via the Contributions Agency, to earnings information recorded on end-of-year tax returns that employers currently submit to the Inland Revenue. There is currently no provision, however, for other tax information to be used in assessing child support liability.

Commentary

The clause gives the power by inserting a new paragraph 1A into Schedule 2 to the Child Support Act 1991.

• Sub-paragraph (1) limits the power to obtaining tax information about self-employed non-resident parents, not all non-resident parents. It allows access to information for any tax year in which the non-resident parent was or is self-employed.

• Sub-paragraph (2) gives the power itself: it exempts the Revenue from its confidentiality rules when providing this particular information.

• Sub-paragraph(3) ensures that the paragraph only applies to disclosures made to the CSA by, or under the authority of, the Commissioners of the Inland Revenue.

• Sub-paragraph (4) prevents any tax information disclosed to the CSA under this power from being disclosed further. (For example, this overrules the power in section 3 of the Social Security Act 1998, which allows child support information to be used for the purposes of administering social security benefits.) The exception in sub-paragraph (4)(b) allows the information to be used in civil and criminal court cases brought under the Child Support Act. For example, if a non-resident parent is served a liability order, it may be possible to use information covered by this provision to satisfy the court that there is income to meet the liability.

• Sub-paragraph (5) provides that the terms "self-employed" and "tax year" will have the same meaning as in the Social Security Contributions and Benefits Act 1992 (i.e. standard definitions).

PART VI: GENERAL

It also introduces a power to incur expenditure on proposed new services (clause 67).

Clause 67: Authorisation of certain expenditure

This clause enables the Secretary of State to incur expenditure on preparing for changes within his responsibilities: provided that he has the consent of the Treasury and the approval of the House of Commons.

Background

Under a 1932 Public Accounts Committee concordat, any functions of a Government Department that continue beyond a given year - particularly where there are financial liabilities - should normally be defined by specific statute, rather than rely solely on the authority of the annual Appropriate Act.

The clause enables the Secretary of State to seek specific Parliamentary approval to incur expenditure to prepare for future changes in the functions within his responsibilities (i.e. social security benefits, child support, war pensions), without the need for further primary legislation.

For example, a new benefit, or major changes to existing provisions, requires a significant amount of preparatory work: such as developing and testing new computer systems, and preparing manuals for use by staff. Often such work has significant lead-in time. This power will enable the Secretary of State to get the approval of the House of Commons to commence such work, and so avoid the risk of a delay in implementation.

Commentary

Subsection (1) gives the power to incur expenditure. Subsections (2) to (7) clarify and limit the way the power would work.

• Subsection (2) requires the Secretary of State to obtain the approval of both of the Treasury and of the House of Commons before the power is exercised in any specific instance. A report detailing the purpose and amount of expenditure must be laid before the House of Commons. (This procedure is modelled on the provisions of section 88B of the Local Government Finance Act 1988 - inserted by the Local Government Finance Act 1992, Schedule 10, paragraph 18).

• Subsection (3) limits the Secretary of State's right to incur expenditure to two years, starting from the date the report is approved by the Commons.

• Subsection (4) ensures that other powers to incur expenditure, either for development work or under other specific legislative authority, are not affected by this new power.

• Subsections (5) and (6) provide for adjustments between the Consolidated Fund and the National Insurance Fund (which pays for National Insurance benefits and their administration).

Clauses 68: Regulations and orders

Subsection (2) provides for regulations to be subject to the negative resolution procedure. This means that the regulations will be laid before Parliament after being made, but only debated if a Member or Peer seeks such a debate.

Subsections (3) to (5) follow other social security legislation, in making clear that regulations may make different provision within the classes to which the specific regulation-making power relates, and may make incidental or transitional provisions.

Subsections (8) and (9) give the Treasury a joint role in making regulations under the pension sharing provisions in Part IV of the Bill.

Clause 69: Consequential amendments relating to Parts III and IV (Pension sharing on divorce)

Subsection (1) gives effect to Schedule 9, which makes consequential amendments in connection with the pension sharing provisions in Parts III and IV of the Bill.

Subsection (2) provides regulation-making powers to enable the Secretary of State to amend or revoke any instrument made under an Act as he thinks necessary or expedient as a consequence of the coming into force of any provisions specified in subsection (4).

Subsection (3) provides a power to enable the Secretary of State to make by regulations the kind of provision that can be included in a commencement order.

For fuller details on the pension sharing measures, see the commentary on Parts III and IV.

Clause 70: Transitional provisions

This clause gives the power to make any necessary transitional arrangements for the provisions in the Bill.

• Subsections (1) and (2) relate to the pensions measures in Parts I and II; subsections (10) and (11) relate to Part V (welfare). These are standard formulations, used elsewhere in social security legislation;

• Subsections (3) to (9) provide specific transitional provisions for the pension sharing measures in Parts III and IV. They are intended to ensure that pension sharing orders cannot be introduced with retrospective effect, but can only be made in new cases. They prevent a pension sharing order being made where proceedings for divorce or nullity started before the day (commencement day) on which clauses 15 and 16 are brought into force. A pension sharing order may not be made, nor a pension sharing agreement take effect, where the divorce order is made before commencement day, a separation order is in force, or marital proceedings are on foot on that day (unless the separation order is cancelled or the marital proceedings result in no order or in a separation order that is subsequently cancelled).

Clause 71: Financial provisions

Clause 72: Repeals

This clause gives effect to Schedule 10, which repeals some existing legislation as a consequence of the measures in the Bill. For further details:

• Part I of Schedule 10 (pensions: miscellaneous): see commentary on Parts I and II of the Bill;

• Parts II and III of Schedule 10 (pensions sharing on divorce): see commentary on Parts III and IV of the Bill;

• Part IV (abolition of Severe Disablement Allowance): see clause 54;

• Part V (joint claims for Jobseeker's Allowance): see clause 48 and Schedule 7;

• Parts VI and VII (National Insurance contributions): see commentary on clauses 61 to 64.

Clause 73: Commencement

The Bill introduces a large number of measures, which will not all come into force on the same day. This clause provides a power to bring various provisions into force by order, on different days for different purposes, and specifies which provisions will come into effect on Royal Assent.

Clause 74: Extent

This clause sets out the territorial application of the provisions in the Bill. Most apply throughout Great Britain. Some, on pensions and National Insurance contributions, are UK-wide. In some parts of the Bill which deal with interactions with family and civil law (for example, the provisions for pension sharing on divorce), clauses may apply to England and Wales only, or Scotland only.

SCHEDULES

Where necessary, the Schedules are described at relevant points of the main commentary. The table below shows where each Schedule (or Part of a Schedule) is explained.

Schedule	Subject	Refer to commentary on:
1	Application of 1993 and 1995 Acts to stakeholder pension schemes	clause 7
2	Pensions: miscellaneous amendments	clause 14
3	Pension sharing orders: England and Wales	Parts III and IV
4	Amendments of sections 25B to 25D of the Matrimonial Causes Act 1973	Parts III and IV
5	Pension credits: mode of discharge	Parts III and IV
6	Effect of state scheme pension debits and credits	Parts III and IV
7	Joint claims for Jobseeker's Allowance	clause 48
8	Welfare benefits: minor and consequential amendments:
8 Part I	Bereavement benefits	clause 46
8 Part II	Incapacity	clause 52
8 Part III	Abolition of Severe Disablement Allowance	clause 54
8 Part IV	Jobseeker's Allowance	clause 59
8 Part V	Retirement Pension	Parts III and IV
8 Part VI	Social Security Advisory Committee	clause 59
9	Pension sharing: consequential amendments	Parts III and IV
10	Repeals:
10 Part I	Pensions: miscellaneous	Parts I and II
10 Part II	Pensions on divorce etc.	Parts III and IV
10 Part III	Pension sharing	Parts III and IV
10 Part IV	Abolition of Severe Disablement Allowance	clause 54
10 Part V	Benefits: miscellaneous	clause 48
10 Part VI	National Insurance contributions	clauses 61-64
10 Part VII	National Insurance contributions: Northern Ireland	clauses 61-64

FINANCIAL EFFECTS OF THE BILL

Overview

The financial implications of measures in this Bill are set out below. In summary, the Bill is expected to lead to an increase in DSS benefit expenditure in 2001/2 of around £60 million, with long run reductions in the order of £1.2 billion a year. In addition, the introduction of stakeholder pension schemes will lead to additional National Insurance rebates, with long term reductions in expenditure on the State Earnings Related Pension Scheme (SERPS); the extent of each of these effects will depend upon the numbers of people who take out stakeholder pensions. Of the long run reduction in expenditure, around £950 million will be to the National Insurance Fund, and £300 million to the Consolidated Fund. As well as DSS benefit expenditure, ongoing DSS operational spending as a result of this Bill is in the region of £25 million a year. In addition, the single gateway, Employment Zones and housing benefit measures will result in identified spending of nearly £200 million.

The financial effects below are in April 1998 prices and represent current best estimates. In some cases these are inevitably broad, indicative figures only. Figures may not sum due to roundings.

Stakeholder pension schemes (clauses 1-7)

Net financial effects will depend upon the take-up of stakeholder pension schemes. For every 1 million additional people who contract out of the State Earnings Related Pension Scheme (SERPS) into a stakeholder pension scheme, there are likely to be additional National Insurance Rebate Costs of £0.5 billion a year. There are currently approximately 2.2 million SERPS contributors earning over £9,000 a year and aged under 50, who might elect to contract out. Increases in expenditure will be offset in the longer term by a corresponding reduction in public expenditure on SERPS.

There are information technology development costs of £16 million in the first year and £13.5 million in the second year, falling to £1 million a year in the long term and operational costs of £1 million a year in the long term (based on one million stakeholder pension scheme members).

Pensions: General (clauses 8-14)

The only financial effects of these measures will be an increase in operational expenditure for the Occupational Pensions Regulatory Authority (OPRA) of around £1.2 million a year, starting from implementation. This increase may result in 30 additional staff posts. This increase will be recovered via the levy on pension schemes.

Pension sharing (clauses 12-41)

These provisions are not expected to have any effect on benefit expenditure in the short term. Long term reductions in income-related benefits in the order of £10 million a year are expected. The estimated DSS operational expenditure on set-up is £5 million. Ongoing increases in operational expenditure are too small to affect existing provision.

Benefits for widows and widowers (clauses 44-46)

The increase in the amount of the immediate lump sum payment on being widowed from £1,000 to £2,000 and extending provision to widowers will result in additional benefit expenditure in the first year of £70 million. In the long run, there will be an increase in benefit expenditure of around £50 million a year.

The measures to introduce a Widowed Parent's Allowance (replacing Widowed Mother's Allowance and extending the provisions to men) are expected to result in additional benefit expenditure of £60 million in the first year. In the long run, benefit expenditure on this measure is expected to be in the order of £50 million per year.

The measures relating to the introduction of Bereavement Allowance for widows will result in a first year reduction in benefit spending of under £5 million and a long run reduction of around £600 million. For widowers, there will be an increase in benefit spending of £10 million in the first year and a increase in the long run of less than £25 million.

Operational expenditure for all the measures relating to Bereavement Benefits is expected to be around £3.6 million in the two years before implementation and £500,000 a year in subsequent years.

Work-focused interviews (clause 47)

This measure will form part of the Single Work-Focused Gateway pilots, and decisions on national implementation will be taken at a later date. We estimate that the total additional administrative spending on these pilots will be around £80 million over three years. The impact on benefit expenditure of increased numbers of claimants taking up work and ceasing to claim benefit as a result of this measure cannot be estimated at this stage. Such behavioural changes cannot be predicted with any certainty until the new system has been operated and evaluated.

Jobseeker's Allowance : Couples to make joint claim for allowance (clause 48)

The impact on benefit expenditure of increased numbers working and ceasing to claim benefit as a result of these measures cannot be estimated at this stage. Such behavioural changes cannot be predicted with any certainty until the new system has been operated and evaluated. Operational expenditure is expected to be £11.5 million in the year of implementation (2000/01) falling to £1.5 million in the following year and £0.8 million in the long run.

Employment Zones (clause 49)

Total expenditure on Employment Zones (EZs) is estimated at £112 million over the two years, 2000/01 and 2001/02. Of this amount. £27.7 million has been made available in each of the two years to meet the needs of the EZ subsistence payment which will replace JSA that would otherwise have been paid to EZ participants. Remaining expenditure will be met from existing departmental allocations. The impact on benefit expenditure of increased numbers working and ceasing to claim as a result of these measures cannot be estimated at this stage. Such behavioural changes cannot be predicted with any certainty until the new system has been operated and evaluated. Operational expenditure of £2.25 million a year on Employment Zones is expected in 2000/01 and 2001/02.

Incapacity for work (clause 50)

The conditions of benefit entitlement are not affected by the measures to reform the All Work Test. The changes to the All Work Test to include information about capacity will aim to help more disabled people to return to work. But the impact on benefit expenditure of increased numbers working and ceasing to claim benefit as a result of these measures cannot be estimated at this stage. Such behavioural changes cannot be predicted with any certainty until the new system has been operated and evaluated. Operational expenditure is expected to be £20 million in 2001/02 and £20 million in the long run.

Incapacity Benefit (clauses 51-52)

It is estimated these measures will result in a reduction in benefit expenditure of £70 million in the first year, rising to £255 million in the third year and £700 million after 10 years. In addition, there will be a reduction in tax revenues of £5 million in the first year, rising to £120 million after 10 years.

It is estimated that these measures will have an operational cost of £0.55 million in 2000/01 and £3 million in 2001/2 and following years. This may involve 150 extra posts.

Abolition of Severe Disablement Allowance (clause 54)

This measure will result in a reduction in benefit expenditure of £10 million in the first year, rising to around £80 million a year in the long run. Estimated operational expenditure is £2 million in the year before implementation. In the long term there will be a reduction in operational expenditure of around £0.5 million each year.

Disability Living Allowance (clause 56)

This measure will result in additional benefit expenditure of around £15 million in the first year and £20 million in the long term. The increase in operational expenditure as a result of this measures is estimated to be £1.4 million in 2001/2, falling to under £0.1 million a year in the long term.

Child Benefit: Claimant to state National Insurance number (clause 57)

The provision to require a National Insurance number for claims for Child Benefit will have administrative costs in the region of £100,000 a year from implementation.

Measures to reduce under-occupation by Housing Benefit claimants (clause 65)

The pilots are expected to have a net benefit expenditure increase of around £200,000 per year over a three year period. There is operational expenditure in the form of Local Authority expenditure of £45,000 per year. Operational expenditure within the DSS on evaluation of the pilots will be between £50,000 and £75,000 over the three years.

Measures with no significant financial effects

The following measures in the Bill are not expected to have any significant financial effect. Minor increases in operational expenditure, for example, as a result of changes required to forms and process will be managed within existing allocations.

• Attendance Allowance (clause 55)

• General functions of local authorities (clause 58)

• National Insurance contributions (clauses 61-64)

• Supply of information for child support purposes (clause 66)

• Authorisation of certain expenditure (clause 67)

Public Service Staffing Effects

It is not possible to provide an estimate of the overall public-service staffing effects of the Bill, since it is intended that a key measure, the introduction of work-focused interviews, should be piloted first and its full staffing implications will only be settled once the pilots have been evaluated. Where individual measures have an effect which is identifiable at this stage this is noted in the estimate of financial effects.

SUMMARY OF REGULATORY IMPACT ASSESSMENT

Only four areas of the Bill are expected to have significant-or potentially significant-effects for businesses, charities or voluntary bodies: the three main changes to pensions law, and the provision to take account of pension income when assessing Incapacity Benefit. A full Regulatory Impact Assessment is available, but the following paragraphs summarise the main points.

Stakeholder pension schemes (Part I)

Stakeholder pension schemes are intended to provide good value private pensions for those who do not presently have access to them, or whose existing pensions are poor value for money. There are 4 million employees in the target group for these schemes (of whom 3 million are currently in SERPS and 1 million are self-employed).

If employers do not have an occupational scheme for all employees they will have to provide access to at least one stakeholder scheme. Where all employees have earnings below the Lower Earnings Limit and the employer does not deduct National Insurance contributions the access requirement will not apply. So the main impact will be on employers already making deductions from employees' pay.

Main recurring employer costs should be for providing information about stakeholder pension schemes, making deductions of contributions from pay, and for passing them to a stakeholder scheme or a central clearing house. Estimates of these costs range from £10 to £25 a year per contributing employee.

Initial costs for employers include setting up arrangements for payroll deductions and sending them to the scheme or clearing house. It is likely that some stakeholder providers will offer employers a payroll deduction service in order to attract business. The cost of changing an existing payroll system would depend on how sophisticated the employer's current system is - many small employers may require only minor changes to simple clerical systems, whilst others may need changes to payroll software. It is likely that most computer payroll systems will be able to cope with such changes without substantial cost. Estimated costs for an employer could be from £20 to £1,000, depending on the size of the employer and how much work is required to change their systems.

Employers will be required to nominate a scheme and pass information about it to employees. They will have to consult their workforce about the choice but selection costs should be almost entirely within the employer's control - he could simply accept an approach from a provider or scheme, or he could be more active, possibly with research into a number of schemes. Employer costs could vary from £25 to £2,000 depending on employee numbers and how active the selection process is. For most employers, costs will be at the lower end of this range. It is likely that most providers will produce leaflets and other materials to publicise and promote their stakeholder pension schemes, and that they will offer these packages as a means of 'recruiting' employers. The impact on employers themselves of publicising stakeholder schemes should therefore be small, the only costs being for leaflet distribution and handling general queries.

Other pensions changes (Part II)

We expect extra compliance costs to total around £1.6m a year for employers, and there will be one-off set up costs of about £1.9m for insurance companies.

Clause 13: Compensating occupational pension schemes

It is estimated that the changes to the compensation scheme could increase the maximum costs of the levy by about 25 pence per scheme member or a total of £2.5 million a year. However, it should be borne in mind that no claims for compensation have been made since the provisions came into force in April 1997 and there is therefore no compensation levy on schemes this year.

Pension sharing on divorce (Parts III-IV)

Pension sharing has financial implications for business, for Government and for individuals. It is very difficult to quantify these for a number of reasons. Pension sharing will not be compulsory, so it is not possible to predict precisely the number of divorces in which it will be used. Even if it were compulsory the overall assets, the precise financial settlement, and therefore the size of the pension transfer, will be particular to the individual divorce case.

Therefore a range of assumptions has been used to make estimates of the overall cost implications of pension sharing. They are set out in full Regulatory Impact Assessment.

Compliance costs for business

Pension sharing will mainly affect:

• employers offering occupational pension schemes and their scheme providers. Around 10.5 million employees are members of occupational pension schemes (including public service schemes);

• providers of personal pensions. Around 10 million employed and self-employed earners have personal pensions, from over 100 providers;

• family lawyers. As family lawyers already consider pensions in divorce settlements there will be no ongoing impact on family lawyers over and above any initial work to familiarise themselves with pension sharing.

The policy has been designed so far as possible to fit alongside existing pensions and family law to minimise the additional costs to employers, the pensions industry and family lawyers.

The potential impact on small businesses and charities has been considered. The costs of pension sharing do not fall disproportionately on these groups. Indeed, as small employers are less likely to provide pension schemes for their employees, it is anticipated that the majority of costs of pension sharing will fall on larger employers.

It is expected that there will be initial set-up costs for pension providers of £20 million (1996/7 prices), followed by annual administrative costs of around £15 million in the long term. However, as the legislation allows pension schemes to recover from the divorcing couple the reasonable costs of implementing pension sharing orders and agreements, the net additional ongoing administration costs to private pension providers are assumed to be nil.

Incapacity Benefit: reduction for pension payments (clause 52)

Some costs would arise for employers if the proposal to take account of permanent health insurance (PHI) payments resulted in an increase in insurance premiums.

It is estimated that there are about 2.4 million people covered by PHI policies: 1.2 million people are individual policy holders and the rest are in group schemes. The Government made it clear in the consultation document "A New Contract for Welfare: SUPPORT FOR DISABLED PEOPLE" that payments from individual PHI policies would not be deducted from Incapacity Benefit.

Responses to the consultation document have made it clear that group PHI policies are largely used to fund occupational sick pay schemes where a contract of employment continues. It is not intended to take into account such payments when assessing entitlement to Incapacity Benefit. Under the proposals, payments under group PHI contracts will only be deducted from Incapacity Benefit if they are made after the contract of employment has ceased: i.e. if they are analogous to occupational pensions. Limiting the change to this very special form of PHI should mean that any costs to employers who fund group PHI schemes are likely to be negligible.

COMMENCEMENT

Clause 72 sets out which provisions of the Bill should come fully into force on Royal Assent, or come into force for the purposes of making regulations only. All the other provisions are to be brought into effect by Order.

EUROPEAN CONVENTION ON HUMAN RIGHTS

Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). On 8 February 1999 the Secretary of State for Social Security, the Rt. Hon. Alistair Darling M.P., made the following statement:

In my view the provisions of the Welfare Reform and Pensions Bill are compatible with the Convention rights.