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Social Security Contributions (Transfer Of Functions, Etc.) Bill [H.L.]


 

These notes refer to the Social Security Contributions (Transfer of Functions, etc.) Bill [H.L.] as introduced in the House of Lords on 25th November 1998 [HL Bill 1]

Social Security Contributions (Transfer Of Functions, Etc.) Bill [H.L.]


EXPLANATORY NOTES

INTRODUCTION

1.     These explanatory notes relate to the Social Security Contributions (Transfer of Functions, etc.) Bill [H.L.] as introduced in the House of Lords on 25 November 1998. They have been prepared by the Department of Social Security (DSS) in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.

2.     The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.

SUMMARY

3.     At present, the Contributions Agency (CA), an executive agency of the DSS, is responsible for the operational functions of collecting and recording National Insurance contributions (NICs) which are paid into the National Insurance Fund (NIF). (Payment of NICs gives entitlement to contributory benefits.) CA also carries out the operational functions in relation to contracting-out of the State Earnings Related Pensions Scheme (SERPS), Statutory Sick Pay (SSP) and Statutory Maternity Pay (SMP). These functions will be carried out by the Inland Revenue from the day appointed for the operational transfer.

4.     The DSS currently has policy responsibility for SSP, SMP, SERPS and for NICs.

5.     The Chancellor of the Exchequer announced in his Budget speech on 17 March 1998 that the CA and its operational functions would transfer from the DSS to the Inland Revenue in April 1999 (House of Commons Hansard vol. 308, cols 1097 - 1189). It was also announced that policy responsibility for NICs would transfer to the Inland Revenue once decisions had been reached on a new benefit entitlement test. Control and management of the NIF will also move to the Inland Revenue.

6.     The Bill effects these transfers on one or more appointed days.

7.     The Bill makes a number of changes to social security and other legislation as it relates to functions transferred by the Bill, in particular by bringing appeals about NICs, SSP and SMP within the jurisdiction of the General and Special Commissioners for Income Tax, who hear tax appeals. Although operational functions in respect of contracting-out of SERPS will transfer to the Inland Revenue, policy responsibility will remain with the Secretary of State. Similarly, policy responsibility for SSP and SMP will remain with the Secretary of State, while operational functions will transfer to the Inland Revenue. Appeals concerning issues where the policy responsibility remains with DSS other than SSP and SMP (i.e. contracting-out matters, credits and home responsibilities protection) will be heard by the new unified appeals tribunals to be set up under Chapter I of Part I of the Social Security Act 1998.

8.     In addition the Bill corrects a defect in the legislation which governs the financing of national insurance rebates for contracted-out occupational money purchase pension schemes. It represents a technical amendment in relation to Government accounting mechanisms, and does not affect individuals in, or employers running, occupational pension schemes.

BACKGROUND

9.     In practice, around 94 per cent of NICs are collected under statutory arrangements by the Inland Revenue alongside income tax. There are currently five classes of NICs:

  • Class 1 contributions are paid by both employees and employers on the employee's earnings. They are mostly collected with PAYE income tax.

  • Class 1A contributions are paid by employers on the value of cars and fuel provided to their employees.

  • Class 2 contributions are flat rate. They are paid by the self-employed.

  • Class 3 contributions are paid voluntarily by the non-employed for retirement pension purposes. *

  • Class 4 contributions are profits-related, paid by the self-employed. They are collected with Schedule D income tax.

From April 1999 there will also be:

  • Class 1B contributions which will be paid by employers only on small non-cash payments which are dealt with under a PAYE Settlement Arrangement.

10.     Since SERPS was introduced in 1978, employers who operate occupational pension schemes are allowed to "contract out" - i.e. to provide a pension to their employees in place of SERPS - provided that certain conditions are met. In contracted-out occupational schemes both employer and employee pay lower ("rebated") rate NICs in recognition that full SERPS will not be paid. Individuals can also contract out of SERPS via an appropriate personal pension (APP). Members of APPs pay full rate NICs but an amount equal to the rebate is paid directly into the scheme by the CA. As well as paying rebates, the CA administers the system of contracting-out more generally.

11.     NICs in Northern Ireland are collected by the Contributions Unit of the Northern Ireland Social Security Agency, which is part of the Northern Ireland Department of Health and Social Services (DHSS(NI)). NICs and related matters are "excepted matters" for the purposes of the Northern Ireland Act 1998. It is expected that all functions relating to excepted matters will be transferred from DHSS(NI) to the Secretary of State for Social Security by an Order in Council under section 86 of the Northern Ireland Act 1998 (provision for purposes consequential on the Act etc.). Functions will then be transferred to the Inland Revenue under the power in Clause 23 of this Bill.

12.     Normally transfers of functions between Government Departments would be achieved by an Order in Council under the Ministers of the Crown Act 1975. However, the Inland Revenue does not fall within the definition of "Minister of the Crown" in that Act. As a result, a Bill is required to transfer functions. This Bill achieves this principally by amending the provisions which confer functions on the Secretary of State in relation to NICs, SSP, SMP and contracting-out matters, and by amending incidental provisions of tax and social security law to the extent necessary to enable the transferred functions to be exercised effectively by the Inland Revenue alongside its existing functions in relation to tax.

13.     Throughout the Bill, and in these explanatory notes, the Commissioners of Inland Revenue are referred to as "the Board" or "the Inland Revenue" as appropriate.

OVERVIEW

14.     The Bill is in three Parts.

15.     Part I of the Bill provides for the transfer of both operational and policy functions from the Secretary of State for Social Security to the Inland Revenue and the Treasury on one or more appointed days. It also deals with the exercise of those operational functions by the Revenue post-transfer.

16.     Clause 1 introduces Schedules 1 and 2. Schedule 1 transfers to the Inland Revenue the day-to-day operational functions currently discharged by the CA on behalf of the Secretary of State. These functions, in relation to NICs, SSP, SMP and contracting-out matters, will be exercised by the Inland Revenue from the day appointed for the operational transfer. Schedule 1 amends the provisions of Acts which confer such functions on the Secretary of State, and also other provisions which make consequential references to his exercise of those functions. Functions conferred on the Secretary of State by the subordinate legislation listed in Schedule 2 are also transferred to the Inland Revenue. In most cases, Schedule 1 substitutes "Inland Revenue" for "Secretary of State" in the relevant provisions, and makes related amendments.

17.     Clause 2 introduces Schedule 3 which transfers NICs policy - such as the level and scope of the NICs charge - to the Treasury or the Inland Revenue as appropriate. These functions consist mainly of the exercise of powers to make subordinate legislation in relation to NICs, and the control and management of the National Insurance Fund. They will be transferred from a date appointed by a commencement order under clause 27.

18.     Existing social security law contains extensive powers to make regulations. Where these powers relate wholly to NICs they will be transferred to the Treasury or to the Inland Revenue. However, in a number of cases a regulation-making power affects the operation of the contributory benefits system, which will remain the responsibility of the Secretary of State. Also, in the case of matters such as SSP and SMP and contracted-out pension schemes, policy responsibility (and therefore the prime powers to make subordinate legislation) will remain with the Secretary of State. In these cases the Bill makes provision for the regulations to be made by the Inland Revenue or the Treasury with the concurrence of the Secretary of State or vice versa. This is designed to provide a safeguard against unintended operational consequences, or effects on benefit entitlements, of regulations.

19.     Clause 3 brings NICs under the care and management of the Inland Revenue and places the Inland Revenue under a duty to collect NICs. It amends legislation which governs the role and functions of the Inland Revenue and the powers and duties of its officers.

20.     Clause 4 introduces Schedule 4. This amends certain powers of enforcement relating to contributions, SSP and SMP for Inland Revenue officers to exercise alongside their existing powers of enforcement in relation to tax.

21.     Clause 5 introduces Schedule 5 which amends existing social security and tax legislation, setting out the powers to exchange contributions information following the transfer. Existing flows of information will be protected without creating new, additional exchanges of information.

22.     Clause 6 allows the Inland Revenue to pool, internally, information obtained in connection with functions transferred by this Bill with the information from its tax functions.

23.     Part II of the Bill introduces new arrangements for decisions and appeals relating to NICs, SSP, SMP and contracting-out matters. Decisions about these matters are to be made by the Inland Revenue, with a right of appeal to the tax appeal Commissioners, except in relation to contracting-out, where decisions will be appealable to the unified appeal tribunals to be set up under the Social Security Act 1998 (SSA). See also clause 15.

24.     Clause 7 specifies the decisions to be made by an officer of the Inland Revenue.

25.     Clauses 8 and 9 enable the Inland Revenue to make regulations in connection with the decision-making process and to provide for decisions to be varied or superseded in certain circumstances.

26.     Clause 10 provides for rights of appeal to the tax appeal Commissioners against decisions made under clause 7.

27.     Clause 11 provides for the manner in which an appeal is to be brought before, and for the circumstances in which an appeal is to be dealt with by, the Special Commissioners rather than the General Commissioners.

28.     Clause 12 provides for regulations to be made by the Inland Revenue in relation to appeals to the tax appeal Commissioners, and for the application, with appropriate modifications, of provisions of the Taxes Management Act 1970 (TMA) and regulations under it, relating to such appeals.

29.     Clause 13 enables the Inland Revenue to make provision in regulations about the consequences for a person's right to SSP or SMP or his/her liability for contributions, of a decision made either by one of its officers, or on appeal.

30.     Clause 14 enables the Secretary of State to make transitional provisions in connection with decisions of the kind specified in clause 7, and appeals from them, between the day appointed for the coming into force of clause 7 and the coming into force - possibly less than a year later - of Part I of SSA (which provides for new arrangements for decision-making and appeals about social security matters).

31.     Clause 15 makes provision for the Inland Revenue, instead of the Secretary of State, to make decisions about matters arising in connection with the contracting-out arrangements under the Pension Schemes Act 1993 (PSA), and related matters. However, Part I of the SSA (once it is in force) is in all other respects to apply to such decisions in the same way as if they had been made by the Secretary of State under that Act.

32.     Clause 16 allows the Inland Revenue to make decisions as agents of the Secretary of State in relation to "home responsibilities protection" and "credits", both of which affect a person's contributory record and hence benefit entitlement.

33.     Clause 17 introduces Schedule 6 which contains amendments - principally of the Taxes Management Act 1970 (TMA), the Social Security Contributions and Benefits Act 1992 (CBA), the Social Security Administration Act 1992 (SSAA) and the Social Security Act 1998 (SSA) - in connection with the new arrangements for decisions and appeals provided for in Part II of this Bill. Some of these amendments will be brought into force after the day appointed for the operational transfer, so as to fit with the progressive entry into force of the SSA provisions.

34.     Clause 18 contains definitions in connection with the tax appeal Commissioners.

35.     Part III of the Bill deals with miscellaneous and supplemental issues.

36.     Clause 19 provides for national insurance rebates for contracted-out occupational money purchase pension schemes to be funded from NIF, and for any rebate-associated recoveries to be paid into that Fund. It also provides for the Fund to reimburse the Consolidated Fund for the monies it has paid out in respect of such rebates in the current financial year. Corresponding changes are also made to the Northern Ireland legislation.

37.     Clause 20 provides for property, rights and liabilities associated with functions being transferred by the Bill to be transferred from the Secretary of State to the recipient of the functions in question.

38.     Clause 21 makes provision for the transfer of rights and liabilities under contracts which relate partly to functions transferred to the Inland Revenue and partly to functions retained by the Secretary of State.

39.     Clause 22 enables any future transfers of functions relating to contributions, the NIF, SSP, SMP and contracted out pension matters between the Secretary of State and the Inland Revenue to be made by Order in Council.

40.     Clause 23 allows the transfer by Order in Council from the Secretary of State to the Inland Revenue of any functions relating to Northern Ireland which correspond to the functions in relation to Great Britain transferred by virtue of clauses 1 and 2 of this Bill. The Order may also make appropriate consequential or contractual modifications.

41.     Clause 24 provides that orders and regulations under the Bill are to be made by statutory instruments. These may make different provision for different circumstances. It also provides that Orders in Council and regulations under the Bill are to be subject to the negative resolution procedure.

42.     Clause 25 introduces Schedule 7 (which provides for savings and transitional arrangements) and Schedules 8 and 9 (which provide respectively for consequential amendments and repeals).

43.     Clause 26 defines "the Board" and "contributions".

44.     Clause 27 sets out the short title of the Bill, provides for the commencement of its provisions and specifies which provisions of the Bill extend to Northern Ireland.

 
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Prepared: 27 november 1998