Select Committee on Procedure Minutes of Evidence

Memorandum from the Department of Social Security


  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.


  2.1  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.


  3.1  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.


  4.1  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.


  5.1  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.


  6.1  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.


  7.1  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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