Select Committee on Delegated Powers and Deregulation First Report



Memorandum by the Department of Social Security


  1.  This Memorandum identifies provision for delegated legislation in the Social Security Contributions (Transfer of Functions, etc.) Bill. The Memorandum aims to explain the purpose of the delegated powers taken, why the matter is to be left to subordinate legislation, and the Parliamentary procedure which is proposed in relation to the exercise of each power. Much of this material is also included in the Explanatory Notes to the Bill, although this Memorandum goes into greater detail in relation to the delegated powers.

  2.  The Bill contains 12 clauses and 1 Schedule which confer new delegated powers. The majority of powers relate to the new decision making and appeals system introduced by the Bill and reflect existing powers in the Social Security Act 1998. Two clauses confer powers to make Orders in Council, there are two powers to make orders and the remainder are for regulations. All powers conferred by the Bill to make regulations and Orders in Council attract the negative resolution procedure - see clause 24(2).


  3.  The Bill brings into effect the transfers which the Chancellor of the Exchequer announced in the Budget speech on 17 March 1998, of the Contributions Agency to the Inland Revenue and of policy responsibility for National Insurance Contributions (NICs) to Treasury Ministers and the Inland Revenue.

  4.  The Contributions Agency, an executive agency of the Department of Social Security, is responsible for the functions of collecting and recording NICs which are paid into the National Insurance Fund (NIF). It also carries out 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 of the Agency are referred to in this Memorandum as "operational functions".

  5.  The Department of Social Security has policy responsibility for NICs, SSP, SMP, SERPS and contracting-out of SERPS, and is also responsible for the control and management of the NIF. Although operational functions in respect of contracting-out matters, SSP and SMP will be transferred to the Inland Revenue, policy responsibility will remain with the Secretary of State for Social Security. Policy responsibility for NICs will be transferred to Treasury Ministers and the Inland Revenue, and the NIF will be put under the control and management of the Inland Revenue.

  6.  The transfer of the operational category of functions exercised by the Contributions Agency will take place on an appointed day. The Chancellor has announced that this will be in April 1999. The date for the transfer of NICs policy functions and the NIF may be the same as, or later than, that appointed for the transfer of the operational functions.

  7.  Regulations made under the Bill relating to the exercise of most of the operational functionspost-transfer are to be made by the Inland Revenue. Otherwise, powers conferred by the Bill are, except where they relate to Orders in Council, exercisable by the Secretary of State.


  8.  No new delegated powers are conferred in Part I of the Bill, but clauses 1 and 2 (with Schedules 1and 3) transfer a number of existing regulation-making powers. 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 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.


  9.  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.

  10.  Following the transfer of the operational functions, Inland Revenue officers will make appealable decisions on NICs, SSP and SMP, and contracting-out matters. Regulations made under Part II of the Bill will provide for the manner in which decisions will be made, altered or superseded.

  11.  The jurisdiction on appeals against decisions of the Inland Revenue will, except in relation to contracting-out matters, lie with the tax appeal Commissioners. (Details about the two categories of Commissioners are at Annex A to this Memorandum.) Regulations will provide for the procedures under which appeals will be handled.

  12.  Before the transfers were announced, it had been the intention that the new DSS decision making and appeal system introduced by the Social Security Act 1998 (SSA) would apply also to appeals and decisions relating to NICs, SSP and SMP. Some of the regulation-making powers in Chapter II of Part I of that Act are therefore reflected in this Bill. These references are pointed up in the detailed notes that follow.

Clause 7

  13.  Clause 7 specifies the decisions which are to be taken by an officer of the Inland Revenue on matters arising under social security legislation. Subsection(1)(f) confers on an officer of the Inland Revenue the function of making decisions as to entitlement to SSP and SMP, a function presently exercised by the adjudication officer under section 20(3) of the Social Security Administration Act 1992 (SSAA) and conferred on the Secretary of State by section 8(1)(d) SSA 1998. The power to make regulations under subsection (1), which reflects that in section 20(3) SSAA and in section 8(1)(d) SSA 1998, is conferred on the Secretary of State who retains policy responsibility for SSP and SMP. Regulations are to be made with the concurrence of the Inland Revenue, and will provide for such matters as the circumstances in which a person may apply for a decision about entitlement to SSP or SMP, the manner in which such an application is to be made, and the persons to whom the Inland Revenue should notify the decision.

  14.  The power conferred by subsection (1)(m), reflecting that in paragraph 29 of Schedule 3 SSA (which enables the Secretary of State to designate further appealable decisions relating to NICs), will enable the Inland Revenue to specify in regulations any additional NICs issues that are to be for its officers to decide but that are not currently specified in primary legislation. This power would allow the inclusion as appealable decisions of any issues which, for instance, might arise under new subordinate legislation.

  15.  This Bill contains no equivalent power to that in paragraph 9 of Schedule 2 SSA 1998 which enables the Secretary of State to prescribe decisions against which no appeal lies.

Clause 8

  16.  The power in subsection (1) is based on section 11(1) SSA 1998. (Section 11 itself re-enacts in modified form section 58(1) and (4) of the SSAA.) It permits provision to be made in regulations as to the making of any decision by Inland Revenue officers under clause 7.

  17.  Regulations under this clause would cover such matters as the form of decisions, how the decisions would be communicated to the contributor/employer, whether copies of the decision would be sent to representatives of the contributor/employer, and if so which representatives and what procedure would be adopted where a decision could affect more than one contributor/employer (such as an employer and his or her employee). These are procedural issues which are best provided for in regulations rather than on the face of the Bill.

Clause 9

  18.  This clause is based on sections 9 and 10 SSA 1998. Subsection (1)(a) enables the Inland Revenue to set out in regulations the circumstances in which a decision of its officer can be varied. Those circumstances will be fairly restricted so as to protect the contributor from the consequences of a mistake by the Inland Revenue.

  19.  The most likely point at which a decision might be varied would be during the period between the lodging and the hearing of an appeal. Where the variation was agreed between the Inland Revenue and the appellant it would avoid the need for the appeal to be considered by the tax appeal Commissioners.

  20.  Regulations under clause 9(1) would also provide for two other categories of cases: those where further NICs would be due as a result of the variation and those where the variation of the decision would mean that NICs had been overpaid. Different consequences would attach to the two categories:

    (i) Where further NICs became due in consequence of the variation

    Regulations will enable treatment for NICs to be aligned with the position for tax. The circumstances where further NICs become due are most likely to arise where there has been some mistake or failure in the operation of the NICs scheme. Regulations covering this class of case would broadly replicate the circumstances where the Inland Revenue can currently make a "discovery assessment" under section 29 Taxes Management Act 1970 (TMA). This means that only in limited circumstances could a decision be varied so as to increase the amount of NICs payable, for instance, where there had been an inadequate disclosure of relevant facts by the contributor or fraudulent or negligent conduct on his or her part. Except in such cases of fraudulent or negligent conduct a decision would not be varied so as to charge additional NICs over a past period of more than 6 years.

    (ii) Where the variation of the decision reduced the NICs due

    This power will enable treatment for NICs to be the same as for tax under section 33 of the TMA 1970. Regulations under this power will provide for a decision to be varied on application to the Inland Revenue by the contributor. If the application was successful then it would normally lead to a repayment of NICs which would be restricted to a maximum period of 6 years.

  21.  Regulations under clause 9(1)(a) would provide that after the appeal period of thirty days had expired, the decision could not be varied save as otherwise provided by this Bill. This will align with the taxpayer protection in section 31(1), TMA 1970.

  22.  Clause 9(1)(b) is based on section 10 SSA 1998. This power will enable the Inland Revenue to make regulations to establish the circumstances in which a decision of an officer of the Inland Revenue under clause 7 can be superseded. When a decision is superseded a fresh decision is made and takes its place; as a general rule the fresh decision will not have effect from the date of the original decision but from the date on which that decision is superseded.

  23.  A decision might be superseded where it was found to be incorrect for instance because of a mistake by the Inland Revenue officer or because it was based on an inadequate disclosure of relevant facts where, in the circumstances, the Inland Revenue could not vary the original decision. An existing decision would also need to be superseded where the facts on which it was based on had subsequently changed so that the decision was no longer appropriate.

  24.  Clause 9(2) is based on section 9(4) SSA 1998. It requires regulations under subsection 9(1) to provide for the date from which the variation of a decision or a decision superseding an earlier decision, is to take effect. Where a decision was superseded because of a material change in the relevant facts then the date from which the decision was superseded would normally be the date of the change.

Clause 10

  25.  Subsection (1)(b) is based on part of subsection 12(2) of the SSA 1998, and contains a delegated power to prescribe the persons other than the contributor who are to have a right of appeal. With the introduction of a right of appeal on National Insurance contributions decisions, this provision will ensure that employers as well as contributors have a right of appeal to the tax appeal Commissioners in appropriate cases.

  26.  Subsection 12(2) SSA 1998 also contains a power to prescribe in regulations cases in which there was to be no right of appeal and, following the Committee's comments in relation to that provision, the exercise of that power was made subject to the affirmative resolution procedure. However, regulations under clause 10(1)(b) will give rights of appeal which are additional to those conferred by the clause as it stands, it is thought that the negative resolution procedure is more appropriate.

Clause 12

  27.  The power in clause 12(1) enables the Inland Revenue, with the concurrence of the Lord Chancellor and the Lord Advocate, to make regulations about the procedures which are to apply for appeals to the tax appeal Commissioners against decisions under clause 7 of the Bill. (This is a similar provision to section 57 TMA 1970, which is concerned with regulations about appeals in relation to capital gains tax.) This will enable appeals under clause 10 to be dealt with in the same way as tax appeals. However, these tax provisions are written in specific terms relating to tax assessments and other processes. While their concepts read across straightforwardly their detail needs modification for the purposes of the transferred functions. Therefore regulations under subsection (2) will specify which TMA provisions dealing with tax appeals are to apply to appeals against decisions under clause 7 and will also make such modifications of those provisions as are necessary to ensure that they apply effectively to appeals under this Part. Subsection (3) enables provision for appeals about NICs, SSP and SMP matters to be included in regulations made by the Lord Chancellor as to the practice and procedure to be followed on appeals to the tax appeal Commissioners.

Clause 13

  28.  This clause is based on section 18 of the SSA 1998. The Inland Revenue will have the power to provide in regulations for NICs, SSP and SMP matters to be dealt with on a provisional basis pending a decision by an Inland Revenue officer or following the variation or superseding of a decision under clause 9, or on appeal. Where the regulations relate to SSP or SMP matters they must made with the concurrence of the Secretary of State.

  29.  Regulations under this clause will, for instance, provide for issues such as the entitlement to or payment of SSP or SMP pending a decision under clause 7(1), or the payment of a proportion of the amount of NICs believed by the Inland Revenue to be due and not in dispute pending such a decision.

Clause 14

  30.  Part I of the SSA 1998 is expected to be brought into force after Part II of this Bill, and then only in phases. Until it is fully in force, regulations under clause 14 will provide for the modification of other legislation, in particular Part II of the SSAA, so that these new arrangements will work satisfactorily alongside the existing statutory regime for social security adjudication. For instance, the new decision making and appeals structure under SSA 1998, which is to apply in relation to contracting-out matters (see paragraph 31 below) will not come into force until around mid-July 1999. Until then Inland Revenue officers need to be able to carry out their decision-making functions. The power in clause 14 therefore allows for modifications to be made to existing legislation to facilitate the exercise of transferred functions by Inland Revenue officers during the period before Part I of SSA 1998 comes into force.

Clause 15

  31.  It is intended that regulations made under Part I of the SSA 1998 as to decision making and appeals under that Act will apply equally to decisions made by Inland Revenue officers under Part II of the Bill as if they were decisions of the Secretary of State under that Act. Clause 15(2) substitutes new subsections (2) to (7) in section 170 of the Pension Schemes Act 1993 (PSA), which provides for decision making and appeals in relation to contracting-out matters. New subsection (5) enables regulations to be made regarding the revising or superseding of such decisions and reflects the power in section 170(3) of the PSA 1993 as amended by Schedule 7 to the SSA 1998, which will not now be brought into force.

Schedule 6

  32.  Paragraphs 21 and 26 of Schedule 6 insert respectively new sections 10A and 24A into the SSA 1998.

  33.  New section 10A enables regulations to provide for matters to be referred by the Secretary of State to an Inland Revenue officer for either an initial opinion or a formal decision, and for dealing with other issues pending the response from that officer.

  34.  New section 24A enables regulations to make provision of a similar kind to that made under new section 10A, where, on an appeal to an appeal tribunal or a Social Security Commissioner, an issue arises which requires determination by an Inland Revenue officer.


Clause 21

  35.  Clause 21 applies to contracts which relate partly to functions transferred to the Inland Revenue and partly to functions retained by the Secretary of State. These are contracts under which goods and services are provided partly to the Contributions Agency and partly to other parts of the Department of Social Security. Examples would be some of the contracts providing computer hardware and software (managed by the Information Technology Services Agency on behalf of the Department of Social Security) and office services to buildings where there is joint occupancy by Benefits Agency and Contributions Agency staff.

  36.  Clause 21 provides two patterns for the treatment of these contracts. Under the first (subsection (3)), the Secretary of State remains the party to the contract, and, in so far as it relates to transferred functions, goods and services provided under it may be made available also to the Inland Revenue. (This means that the Contributions Agency, as part of the Inland Revenue, will be able to continue to receive goods and services under current contracts.)

  37.  The second pattern, in subsections (4) and (5), involves the exercise of a delegated power. In the case of some contracts to which clause 21 applies the pattern in subsection (3) may be inappropriate and the better solution may be for the contract to be transferred to the Inland Revenue. This would be particularly applicable where the Contributions Agency currently manages the contract and receives the majority of benefits under it. Subsection (4) confers power on the Secretary of State to specify in an order the contracts or classes of contracts to which subsection (5) should apply, instead of subsection (3), so that the contract is transferred to the Inland Revenue but the Department of Social Security can continue to receive benefits under that contract.

  38.  It is envisaged that an order under subsection (4) would do no more than set out a list of contracts or classes of contracts. At this stage the full contents of the list are not yet known but the majority are likely to relate to services provided to the Longbenton estate in Newcastle where the Contributions Agency is the major occupier but other Department of Social Security agencies also use the site.

Clause 22

  39.  Normally, transfers of functions between Government Departments are effected by an Order in Council made under the Ministers of the Crown Act 1975, rather than by means of primary legislation. So this Bill is in that sense unusual, and is made necessary by the fact that transfers of functions to or from the Inland Revenue (which is not a Department with a Ministerial head) cannot be effected under that Act.

  40.  In some instances, the process of determining which functions of the Contributions Agency should be transferred to the Inland Revenue and which ones should remain with the Secretary of State and be exercised by the Benefits Agency has not been an entirely straightforward one. The same has to some extent been true for the process of identifying those policy functions which should be transferred to the Inland Revenue. It may be that, in the light of experience of the actual exercise by the Inland Revenue of some of the operational and policy functions transferred by the Bill, and of the exercise of those retained by the Secretary of State, some further adjustments of the DSS/Inland Revenue functional boundary may seem sensible. Clause 22 provides a mechanism for making such further adjustments by Order in Council in a similar manner to transfers made under the Ministers of the Crown Act, rather than by returning to Parliament with another Bill. It also enables (subsections (1)(d) and (3) the transfer of decision-making and appellate jurisdictions between the Secretary of State and the Inland Revenue, and the social security appeal tribunals and the General and Special Commissioners. However, the Government has no plans at present to make an Order under clause 22.

  41.  Clause 22 does not provide a general power to transfer functions between the Inland Revenue and the Department of Social Security. Only functions which relate to NICs and the NIF (other than the principal functions of collecting NICs under section 1(1) CBA, or the control and management of the NIF under section 161 SSAA), SSP, SMP and Part III of the PSA could all be transferable. Any Order in Council which effected such further transfers or adjustments to decision-making responsibilities would also be able to make related provision of a kind set out in subsection (4)—which reflects the kind of additional provision which may be made in an Order in Council under the Ministers of the Crown Act.

Clause 23

  42.  This clause enables corresponding provision to be made in relation to equivalent functions under Northern Ireland social security legislation. NICs in Northern Ireland are collected by the Contributions Unit of the Northern Ireland Social Security Agency of DHSS(NI), although in practice much of the work is done on its behalf by the Contributions Agency. It is intended that the Contributions Unit should be transferred to the Inland Revenue at the same time as the Contributions Agency is transferred. However, the transfer of contributions functions in Northern Ireland needs separate provision because the relevant Northern Ireland legislation is contained in separate Acts or Orders in Council. NICs and related matters did not constitute as excepted or reserved matters for the purposes of the Northern Ireland Constitution Act 1973. Social security legislation for Northern Ireland has therefore often been included in Orders in Council under Schedule 1 to the Northern Ireland Act 1974.

  43.  NICs and related matters are excepted matters under the Northern Ireland Act 1998 and therefore the corresponding provision for Northern Ireland has to be made by or under the Bill. However, the Bill has been introduced before a day has been appointed as "the appointed day" for the purposes of the Northern Ireland Act 1998. Until the appointed day, there would be power to make corresponding provision for Northern Ireland by Order in Council under Schedule 1 to the 1974 Act. From the appointed day, there will not. If the Bill included all the relevant amendments of the Northern Ireland social security legislation, it might have to be heavily amended. To deal with these special circumstances, a new power to make corresponding provision for Northern Ireland by Order in Council is conferred by the Bill.

  44.  It is expected that an Order in Council under section 86 of the Northern Ireland Act 1998 will temporarily transfer responsibility for NICs and associated functions in Northern Ireland from the DHSS(NI) to the Secretary of State for Social Security, during the period between the date when the Northern Ireland Assembly becomes effective and the date/s of the transfers under this Bill. An Order under clause 23 will then provide for the onward transfer of functions to the Inland Revenue and the Treasury. This Order will to a large extent reflect the provisions of this Bill, but by reference to the provisions of the Northern Ireland legislation which are the equivalent of those in force in Great Britain and mentioned in this Bill. It is not unusual for social security legislation in Great Britain to be reflected for Northern Ireland by way of an Order in Council.

Clause 24

  45.  This clause provides that orders and regulations under the Bill are to be made by statutory instrument and that Orders in Council and regulations under the Bill are to be subject to the negative resolution procedure. Subsections (3) to (5) include general powers in relation to subordinate legislation which are common in other social security legislation (e.g. section 189 (4) and (5) SSAA 1992; section 175 (3) and (4) CBA1992), for instance to make clear that regulations may make different provision within classes to which specific regulation-making powers relate, and may make incidental or transitional provision.

  46.  The same additional powers would have been available in relation to any regulations made under SSA 1998 to provide for NICs, SSP and SMP decisions and appeals, had those functions remained with the Secretary of State—see section 79(4) to (6) of that Act.

Clause 27

  47.  The final delegated powers in the Bill concern commencement orders. Clause 27(2) sets out which provisions come into force on Royal Assent, in particular so that secondary legislation under this Bill may be made before, and in force on the day appointed for the operational transfer. By virtue of subsection (3) the remaining provisions of the Bill are to come into force on a day to be appointed by an order made by the Secretary of State.

  48.  The Bill provides for different days to be appointed for the commencement of different provisions of the Bill. The expectation is that the transfer of operational functions will take place in April 1999 and the transfer of policy functions will occur on a single date, not before 1 April 1999.

  49.  The commencement order or orders may contain transitional provision. It is anticipated that such provision will include, in particular, provision for matters awaiting decision, or in relation to which appeals are pending, immediately before Part II of the Bill comes into force.

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