Clause 77: 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 Appropriation 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 obtain 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 the Treasury and 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 78: Regulations and orders

Clause 78 sets out how the regulation-making powers arising from this Act may be used. These are standard social security provisions.

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 79: Consequential amendments

Subsection (1) gives effect to Schedule 12, which makes consequential amendments.

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) (which relate to pension sharing).

Subsection (3) enables the Secretary of State to make by regulations, in connection with the coming into force of any of those provisions, the kind of provision that can be included in a commencement order.

Clause 80: Transitional provisions

This clause gives power to make any necessary transitional arrangements in connection with 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;

The rest of the clause provides specific transitional provisions for the pension sharing measures in Parts III and IV.

Parts III and IV of the Bill assume that when they are brought into force the new divorce procedures contained in Part II of the Family Law Act 1996 will be in force. However, whilst it will not be possible to bring Parts III and IV of the Bill into force before Part II of the 1996 Act, it is not certain that Parts III and IV of the Bill will be brought into force on the same day as Part II of the 1996 Act. The purpose of the transitional provisions in subsections (3) to (8) is therefore to cater for the possibility that Part II of the 1996 Act is brought into force before Parts III and IV of the Bill.

If that happened, the intention is that pension sharing on divorce, whether by order or agreement, would only be possible for marriages ended by divorce if the proceedings leading to divorce order under the 1996 Act began after Parts III and IV of the Bill had been brought into force.

Subsections (3) to (5), (7) and (12) achieve this by providing that no pension sharing order may be made (under sections 24B or 31(7B) of the Matrimonial Causes Act 1973) and no agreement to pension share, whether in relation to shareable rights under a pension arrangement or shareable state scheme rights, can take effect (see subsection (7)):

in relation to a marriage which was ended by divorce order made before clause 19 of the Bill comes into force;

(b)     in relation to a marriage which is subject to a separation order immediately before that day unless the separation order is subsequently cancelled;

(c) in relation to a marriage which is subject to 'marital proceedings' on that day unless either the marital proceedings come to an end without a separation or divorce order being made or they come to an end on the making of a separation order which is cancelled. In broad terms, the proceedings which may lead to the making of a divorce or separation order are 'marital proceedings' (Family Law Act 1996, section 20.)

Subsection (8) provides that, in relation to these marriages (i.e. those ended under the 1996 Act but where pension sharing is not available) the court will be able to use a property adjustment order to:

vary a pension arrangement which is a marriage settlement for the benefit of the parties or the children; or

extinguish or reduce an interest of either of the parties in a pension arrangement which is a marriage settlement.

This provision will allow pension sharing by variation of marriage settlement, as occurred in Brooks v Brooks [1996] AC 375, where pension sharing under the Bill is not possible. This result is achieved by disapplying the amendment to section 21(2) of the Matrimonial Causes Act 1973, which is inserted by paragraph 2(2) of Schedule 3 to the Bill.

As in divorce, so in nullity: subsection (5) provides that a pension sharing order under section 24D of the Matrimonial Causes Act 1973 can only be made in relation to the marriage if the proceedings in which the decree of nullity was granted were begun on or after the day on which clause 19 comes into force. Pension sharing on nullity by agreement will not be possible (see clause 24(1)).

In Scotland, no pension sharing order or agreement under the Family Law (Scotland Act) 1985 may be made in any divorce (or action for declarator of nullity) brought before the day on which clause 20 of the Bill comes into force.

Clause 82: Repeals

This clause gives effect to Schedule 13, which repeals some existing legislation as a consequence of the measures in the Bill. For further details:

Part I of Schedule 13 (pensions: miscellaneous): see commentary on Parts I and II of the Bill;

Parts II and III of Schedule 13 (pensions sharing on divorce): see commentary on Parts III and IV of the Bill;

Part IV (abolition of Severe Disablement Allowance): see clause 60;

Part V (joint claims for Jobseeker's Allowance): see clause 54 and Schedule 7;

Parts VI and VII (National Insurance contributions): see commentary after clauses 72 and 73.

Clause 83: 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 84: 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 registered schemes	clause 6
2	Pensions: miscellaneous amendments	clause 18
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 54
8	Welfare benefits: minor and consequential amendments:
8 Part I	Bereavement benefits	clause 51
8 Part II	Incapacity	clause 58
8 Part III	Abolition of Severe Disablement Allowance	clause 60
8 Part IV	Income Support	clause 54
8 Part V	Jobseeker's Allowance	clauses 54, 65
8 Part VI	Maternity Allowance	clause 48
8 Part VII	Retirement Pension	Parts III and IV
8 Part VIII	Social Security Advisory Committee	clause 65
9 & 10	New threshold for primary Class 1 contributions	clauses 68 & 69
11	Contributions and pensions administration	clause 76
12	Consequential amendments:
12 Part I	Consequential on Parts III and IV	Parts III and IV
12 Part II	Other consequential amendments	Clauses 15-16; 52-53, 66; 68-69
13	Repeals:
13 Part I	Pensions: miscellaneous	Parts I and II
13 Part II	Pensions on divorce etc.	Parts III and IV
13 Part III	Pension sharing	Parts III and IV
13 Part IV	Abolition of Severe Disablement Allowance	clause 60
13 Part V	Benefits: miscellaneous	Part V
13 Part VI	National Insurance contributions	clauses 72 & 73
13 Part VII	National Insurance contributions: Northern Ireland	clauses 72 & 73

FINANCIAL EFFECTS OF THE BILL

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. 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 combined effect of the measures relating to National Insurance contributions is expected to be a reduction in revenue from National Insurance contributions of around £260 million in 2000/01. 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.

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 1-8)

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 between £9,000 and £20,000 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 will be an increase in operational expenditure for the Occupational Pensions Regulatory Authority (OPRA) resulting from the requirement to register stakeholder pension schemes. The registration process has yet to be determined so the costs cannot be quantified at this stage; any increase in costs will be recovered by the levy on pension schemes.

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). The increase in long term operational expenditure represents an additional 50 posts, expected to be funded by offsetting savings elsewhere in the Contributions Agency.

Pensions: General (clauses 9-18)

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 19-47)

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.

Maternity Allowance (clause 48)

Benefits for widows and widowers (clauses 49-51)

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. It is expected that the implementation of these measures may result in an additional 170 posts in the year of implementation. Around 80 additional staff will be required in the long run.

Work-focused interviews (clauses 52-53)

This measure will form part of the Single Work-Focused Gateway pilots, and decisions on national implementation will be taken at a later date. It is estimated that the total additional administrative spending on these pilots will be around £80 million over three years. It is expected that this will result in around 300 additional posts. 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 54)

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 (the vast majority of which will be expenditure on development and implementation) is expected to be £11.5 million in the year of implementation (2000/01) falling to £1.5 million in the following year. There is not expected to be any increase in operational expenditure in the long run as a result of this measure.

Employment Zones (clause 55)

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 56)

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 57-58)

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 (clauses 59-60)

This measure will result in a reduction in benefit expenditure of £10 million in the first year, rising to around £60 million a year in the long run (revised estimate following Government amendment to enable people in advanced education or on a training scheme before age 20 to receive IB up to the age of 25 without fulfilling the contribution conditions).

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. It is estimated that the effect on public service staffing will be a reduction of 98 posts in year one and a reduction of 33 posts in the long run.

Disability Living Allowance (clause 62)

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. It is estimated that 13 additional staff will be required in the first year. The long term effect on public service staffing is expected to be minimal and will be met from within existing staff allocations.

Certain overpayments of benefit not to be recoverable (clause 63)

As a result of this clause, overpayments totalling £15 million will no longer be recoverable. This is a one off cost. The operational saving from ceasing current recovery action is £36,000.

Child Benefit: Claimant to state National Insurance number (clause 64)

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

National Insurance Contributions (clauses 68-69)

The effect of raising the starting point for paying National Insurance contributions and increasing the Upper Earnings Limit is estimated to be a reduction in National Insurance contribution revenue of £0.45billion in the first year and £1.01billion in following years. Operational expenditure (including IT costs) is expected to be £0.6million in the year before implementation (1999/2000) rising to £1.1million in year1. These measures are not expected to result in additional operational expenditure in the long run.