Memorandum from the Department of Social
Security
1. INTRODUCTION
1.1 This Memorandum has been prepared for
the Procedure Committee for their inquiry into the use of section
82 of the Welfare Reform and Pensions Act 1999. It provides the
Committee with the information requested in their letter of 19
April 2000.
1.2 The memorandum will explain in greater
detail why the power conferred by section 82 was taken. However,
it is important to stress that the seeking of the power to incur
expenditure provided by section 82 was taken against a background
of years of under investment in IT which has left the Department
with a legacy of old inflexible computer systems that cannot easily
communicate with each other, and which are difficult to adapt
to take account of changing policy. And this under investment
has occurred despite the central importance of the Department
in the lives of much of the country's population. The Department
does deal with 70 per cent of the population and is therefore,
for many people, the face of government.
1.3 Section 82 will therefore allow the
Department of Social Security to begin work on the making of major
changes to the Social Security system earlier than would otherwise
have been the case. The power will allow the Department the time
to prepare properly for the implementation of much needed welfare
reform, reducing the risk of having to delay changes and also
the risks arising from rushing implementation.
2. BACKGROUND
TO THE
TAKING OF
THE POWER
CONFERRED BY
SECTION 82
2.1 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 Appropriation Act.
2.2 For the Department of Social Security
this means that expenditure cannot be incurred on work in preparation
for the introduction of changes to Social Security, other than
initial planning work, until Royal Assent is given for the substantive
legislation bringing in the change. This has particular implications
for amendments to IT systems needed as a result of welfare reform
changes.
2.3 This has important consequences for
the Department. Firstly, almost all of the Secretary of State
for Social Security's powers are defined in primary legislation,
so major changes to the Social Security system require primary
legislation, and waiting for Royal Assent before beginning preparations
would have had a large impact on the Department's welfare reform
programme.
2.4 Secondly, because of years of under
investment, the Department is heavily dependent on the use of
major IT systems, which are relatively old and inflexible. There
are long lead in times, possibly of two or more years, for the
development and testing of changes to these systems, and for the
introduction of new systems. The Department therefore faced the
dilemma of either having to delay much needed reform, or of rushing
design and testing stages which would have increased the risk
of system failures and the costs of implementation. In the past
projects have been planned on the basis that implementation dates
had to reflect when Royal Assent would be obtained, so there have
been no delays as such. But it is certainly the case that IT projects
(such as the introduction of Incapacity Benefit and Jobseekers
Allowance) were implemented to tight time-scales, and this has
contributed to problems in the implementation of change. System
testing is reduced, and important (but not essential) functionality
can be lost. Certainly if system development can be spread out,
and section 82 does allow the Department more time, the resulting
service will be of better quality and in overall terms time can
be saved.
2.5 One way round the problem is to use
paving legislation to authorise expenditure on early preparatory
work. Recent examples of the Department doing so include the Tax
Credits (Initial Expenditure) Act 1998, which allowed the Department
and the Commissioners of the Inland Revenue to incur expenditure
on the replacement of certain Social Security benefits with income
tax credits, and an amendment to the Social Security At 1998 which
authorised expenditure on facilitating the transfer of National
Insurance contributions work to the Inland Revenue. However, whilst
a lack of Parliamentary time for paving legislation has not in
the past caused delays, time for the legislation does have to
be found from within an already crowded Parliamentary timetable
and the House would find the time available for general debates
curtailed. Moreover, the Parliamentary scrutiny of Deregulation
Orders has demonstrated that primary legislation is not the only
type of legislation subject to effective scrutiny. And, the Department's
heavy welfare reform programme could have meant that the need
for paving legislation would have been greater in the future.
The use of paving legislation did not therefore seem an efficient
and safe way of providing for what is in reality short term administrative
expenditure.
2.6 It was therefore to enable the most
effective support for the programme of welfare reform, that the
Secretary of State for Social Security sought the power conferred
by section 82 of the Welfare Reform and Pensions Act 1999. The
section gives a specific and time limited power to incur expenditure
on making preparations for future change to the Social Security
system, prior to Royal Assent being given for the substantive
legislation.
3. WHY POWERS
SIMILAR TO
THOSE GIVEN
TO THE
SECRETARY OF
STATE FOR
SOCIAL SECURITY
BY SECTION
82 HAVE NOT
BEEN SOUGHT
BY OTHER
GOVERNMENT DEPARTMENTS?
3.1 The problems the Department of Social
Security have which prompted it to seek the powers given by section
82 of the WRAP Act are not necessarily unique, but are likely
to be more acute than for other departments. Firstly the scale
of operations undertaken by the Department of Social Security
in paying benefits to a large proportion of the population is
huge, and the Department is currently dependent on several old
and inflexible computer systems which are difficult to adapt to
meet changing benefit policy. Secondly the Government is implementing
a major reform of the welfare system and the Department of Social
Security will be faced with introducing much change, most of which
will require changes to IT support. And finally, as mentioned
previously, changes in Social Security are probably more tightly
linked to primary legislation than changes elsewhere.
3.2 This does not mean that other departments
will not face specific one off problems in incurring expenditure,
and in these circumstances it may be that the option of paving
legislation is more appropriate than the taking of a more general
power like section 82. Certainly there is no reason in principle
why other departments should not consider seeking a power similar
to section 82 if circumstances suggest that such a move is sensible
and any decision to seek such a power from Parliament would be
based on a combination of factors. Her Majesty's Treasury would
expect any such proposals to be cleared by them and would not
agree unless there was a compelling justification. Parliament
would also have to agree and pass the necessary legislation.
4. A COMPARISON
BETWEEN THE
PROVISIONS OF
SECTION 82 AND
THE POWERS
CONFERRED ON
THE GOVERNMENT
BY THE
LOCAL GOVERNMENT
FINANCE ACT
1988 TO SEEK
AUTHORITY FOR
CERTAIN PAYMENTS
TO LOCAL
AUTHORITIES BY
MEANS OF
SPECIAL GRANT
REPORTS
4.1 Section 88B of the Local Government
Finance Act 1998 (as substituted by paragraph 18 of Schedule 10
of the Local Government Finance Act 1992) provides a power to
pay special grants to local authorities. It can be used for any
purpose, and this must be set out in the special grant report
that is agreed by Treasury and is laid before the House and approved
by resolution of the House.
4.2 The procedure for authorising expenditure
under Section 82 of the WRAP Act is based on that used under Section
88B of the Local Government Finance Act, in that a report has
to be laid before the House of Commons and approval by resolution
of the House is required. However this is the only real link between
the powers. Section 82 can only be used by the Secretary of State
for Social Security to cover expenditure within the areas of his
responsibility and is limited to two years. Section 88B is intended
to provide special grants to local authorities, paid by any Secretary
of State, and whilst there is no time limit in practice reports
are usually issued for each financial year in which a special
grant is paid.
4.3 There are no other comparable powers.
5. WHETHER OR
NOT THERE
SHOULD BE
AN UPPER
LIMIT TO
EXPENDITURE AUTHORISED
BY SECTION
82 OR SIMILAR
POWERS?
5.1 In introducing Section 82, the Government
was careful to ensure that there would be adequate controls on
the use of the power. Firstly, and this is laid down in legislation
(under sub-section 2 of Section 82), Parliament has to agree both
the amount of expenditure, which cannot be exceeded, and the purpose
of the expenditure. There is in affect then a maximum limit agreed
by Parliament each time Section 82 is used, which is not the case
when paving legislation is used to authorise expenditure. Parliament
can of course, decline to give authority for the expenditure if
it feels the expenditure to be excessive.
5.2 Secondly, again laid down within the
legislation (sub-section 4 of Section 82) there is a strict two
year time limit within which the expenditure authorised has to
occur, beginning with the day on which Parliament passes the resolution
agreeing the expenditure. This period will normally be long enough
to pass the substantive primary legislation required for the change,
but is also short enough to limit the risk of nugatory expenditure
if the substantive primary legislation fails to be passed for
whatever reason. If exceptionally the substantive legislation
does not receive Royal Assent within two years, the Secretary
of State will have to again seek the approval of the Treasury
and the Commons before expenditure could continue to be incurred
beyond the original two year limit.
5.3 There is also the useful input into
the early stages of the planning process gained from the involvement
of the Social Security Select Committee in the scrutinising of
plans. During the passage of the WRAP Bill, ministers agreed that
it would be useful, in normal circumstances, for the Social Security
Select Committee to consider Section 82 expenditure plans prior
to the laying of the report before the House of Commons. The committee
has much useful experience of Social Security issues, and it was
considered that their view would be valuable, both to the Department
and to Parliament.
5.4 It is also worth mentioning that the
power given by Section 82 only covers preparation for a change,
it does not cover the continuing programme expenditure incurred
once a change is actually implemented. Royal Assent is required
for this.
5.5 The Government feels therefore, that
in light of the strong Parliamentary control on expenditure under
Section 82, that there is no requirement for an upper limit on
expenditure. And in passing Section 82 Parliament has agreed to
this.
6. THE INFORMATION
TO BE
INCLUDED IN
REPORTS LAID
BEFORE THE
HOUSE WHEN
SEEKING POWER
TO INCUR
EXPENDITURE UNDER
SECTION 82
6.1 The Committee has specifically asked
for the government's view on the categories of information that
should routinely be made available to the Social Security and
Public Accounts Committees in respect of future Section 82 reports
laid before them in draft.
These categories, and the Government's responses,
are detailed below.
A detailed breakdown of the proposed expenditure
together with the expected timing of this expenditure and the
reasons why it is desirable to incur the expenditure.
6.2 The expenditure for which authority
will be sought under the power given by Section 82 will, in its
nature, be in support of policy changes that are not totally settled.
In addition it is difficult to predict the cost of IT development
with certainty. This means that the Department's plans and expenditure
estimates will therefore evolve over time, and this makes it difficult
to give too detailed a break down in the report laid before the
House. It is worth noting however that there will be an absolute
maximum limit to the amount of expenditure authorised, and as
specifications develop, estimated expenditure could actually fall.
If estimates were to rise above the amount authorised under Section
82 by Parliament then further approval to incur expenditure would
need to be sought.
6.3 The uncertainty inherent in the development
of policy and IT systems does also make the early involvement
of Parliament in these projects, in the scrutiny given to draft
expenditure reports by the Social Security Select Committee, important.
The amount, nature and timing of any financial
liabilities to be accrued.
6.4 A distinction needs to be drawn between
the information that is required by the terms of Section 82 to
be provided in the report laid before the House, and information
which would aid the House in its consideration of the report.
6.5 The report must contain an estimate
of the accruing liability under, for example, a PFI contract to
replace an IT system where such liability is relevant to the purposes
of a Section 82 report, ie expenditure is on legislative-dependent
elements and within the chosen time-scale of the report.
6.6 But the Department recognises that this
information alone may not allow the House of Commons to appreciate
the whole of the project. Therefore, at the request of the Social
Security Committee in the first of these Section 82 reports, in
addition to the required information (at paragraph 15 of the report),
further information on spending on the entire child support reform
project was included (at Annex A of the report).
6.7 This Annex reflected as much as could
be said, consistent with commercial confidentiality, of all liabilities
entered into under the systems development contract. Under PFI
financial liabilities incurred would fall for payment after the
IT services have been delivered for live operations and have passed
acceptance.
6.8 The Department will endeavour to make
available to the House, in any future reports, as much financial
information on whole projects as is consistent with commercial
confidentiality, so that the House will be able to make informed
decisions on the request for the passage of the Section 82 report.
Details of any contractual relationships
into which the Government proposes to enter in relation to the
proposed spending.
6.9 The intention will be to provide as
much information within the report on contractual relationships
as is possible, taking account of the state contractual negotiations
have reached at the time the report is being drafted.
An estimate of the unavoidable expenditure
that would arise in the event of the subsequent bill not being
enacted or being substantively amended?
6.10 It will always be a possibility that
the substantive legislation enacting the change for which authority
to incur expenditure is being sought could fail to be passed,
or be substantially amended. And the total amount of money authorised
under section 82 provides a maximum estimate of possible nugatory
expenditure. However, what actually happens in practice will be
difficult to foretell, depending as it will on the extent to which
the legislation is amended, or (if it fails to get Royal Assent)
of what subsequent legislation follows, and also the stage in
the development process at which the legislation fails. In addition
it is likely that much of the work done could be applicable to
other policy changes, or enhance the way current work is undertaken,
so nugatory expenditure will probably be very much less than the
maximum limit authorised.
6.11 With limited resources available for
welfare reform however, section 82 would not be used if there
was substantial risk of the legislation not being enacted or substantially
amended.
7. WHETHER OR
NOT DEBATE
ON REPORTS
UNDER SECTION
82 SHOULD TAKE
PLACE ON
THE FLOOR
OF THE
HOUSE RATHER
THAN IN
DELEGATED LEGISLATION
COMMITTEE
7.1 To an extent the government has an open
mind on whether or not debate on reports made under section 82
take place on the floor of the House or in the Delegated Legislation
Committee, and it may well be that the best approach is to retain
flexibility with decisions being made by business managers in
the light of the circumstances at the time. For example it could
be that the expenditure being asked for is non-controversial,
and relates to relatively small amounts of money. And the Social
Security Select Committee will have reported formally on the draft
report. In these circumstances a one and a half-hour debate on
the floor could be using valuable Parliamentary time best spent
on other issues.
May 2000
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