I thank the committee for inviting us here today. I will skip the introduction part because the chairman has already said who is here. Before we turn to the matters tabled for discussion I will give an update in respect of 2022, given that it is December. It has been an exceptionally busy year for the Department. Just as the unprecedented pressures related to Covid-19 were abating we were faced, and continue to be faced, with the twin crises of the war in Ukraine and the, not unrelated, spike in inflation.
Since Russia invaded Ukraine on 24 February, the Department has supported over 65,000 people fleeing the war. Staff from the Department together with colleagues from the Department of Justice and Department of Children, Equality, Disability, Integration and Youth established a one-stop shop reception centre first in Dublin Airport and subsequently in Citywest, as well as Rosslare, with staff from all Departments working extraordinarily long hours to ensure that people arriving were granted international protection status, issued with personal public service numbers, PPSNs, provided with access to income supports and allocated and transferred to accommodation in an expeditious manner. The Department also established outreach hubs in Dublin, Cork, and Limerick cities where Ukrainian refugees who arrived at other ports could access our services. To date we have issued over 65,000 PPSNs, predominantly to women and children, processed over 42,000 claims for income supports and developed and implemented a new scheme - the accommodation recognition payment - which is now being availed of by over 3,500 families hosting Ukrainian refugees.
We have also offered employment supports and services to Ukrainian adults and about 12,000 of them have attended one-to-one engagements with our case officers. Revenue records indicate that about 11,200 of those are now in employment. Total expenditure to date on welfare supports and services to Ukrainian refugees is estimated at €196 million and we estimate that the equivalent of about 200 full-time staff are engaged in delivering and supporting these services. The Department and its staff take pride in this level of response and believe that it acts as testimony to Ireland’s willingness, even in the face of the constraints on our own services, to step up and help ensure that a humanitarian crisis does not translate into a humanitarian catastrophe.
The war in Ukraine and the measures taken by Russia to reduce fuel supplies exacerbated an underlying trend in price increases which had their roots in the monetary expansion implemented in response to Covid-19 and in supply-chain disruption coming out of the pandemic. The Government took steps earlier this year to mitigate this impact including through implementing some budget measures earlier than planned and providing additional payments to people in receipt of the fuel and back-to-school clothing and footwear allowances. More recently the Government agreed the largest ever welfare budget package of €2.2 billion, of which €1.2 billion comprised eight special payments which the Department developed and processed in very tight timeframes in the period since budget day. The total budget package of €2.2 billion is equivalent to about 10% of core social protection expenditure. Analysis by the ESRI indicates that it will be effective in cushioning lower income families from the effect of inflation.
Looking to the future, the Department will continue to argue the case for seeing expenditure on social protection as an investment in social cohesion and human capital vital to the welfare and development of society at all stages of the economic cycle.
While Ukraine and inflation understandably grab the headlines, the underlying core work programme of the Department has also been extremely busy. During the year the Department progressed work on the development of the auto-enrolment pension system; advised and received a Government decision on the approach to the implementation of reforms to the State pension system; prepared and published progress reports on the roadmap for social inclusion; completed a procurement programme for local and national employment services; implemented a new system for ensuring the redundancy payment rights of people affected by Covid-19 temporary lay-offs; migrated its staff to hybrid working; developed and implemented new working arrangements for jobseeker and community welfare services; and developed, and will very shortly open applications to, a new scheme for fuel allowance for people over 70 who are not on an underlying payment. In response to a suggestion made at this committee last year a change was also made to the treatment of rent-a-room income for means test purposes, with the first €14,000 of this income now being disregarded.
Throughout this time the level of demand for our core services has also increased. Applications across all of our main schemes are up on average by over 60% compared with last year and by over 20% compared with pre-Covid levels. Significantly the sting in the Covid-19 tail was evident in the fact that more than 50% of all Covid illness benefit claims received since the pandemic struck were received in 2022. Notwithstanding this level of increase, processing times have remained stable and improvements made during the 2015 to 2019 period have been maintained, as they were throughout the Covid-19 period. This is due in no small part to the dedication of our staff and their willingness to adapt to new ways of working including online service delivery. So far this year the Department has processed over 6.1 million transactions via our online platforms.
While the Department has successfully delivered on this very busy work agenda there are elements of our performance which faced challenges and can improve. For example, there were some delays in processing PPSN applications during the year and the community welfare service experienced service difficulties. The Department took steps to address these issues and performance is improving. Nevertheless, these functions will remain areas of focus in the year ahead.
Payments and services delivered by the Department fall into two broad categories - those based on social insurance contributions and those provided under Vote 37. So, for example, people who suffer from a long-term illness or disability may, if they have enough social insurance contributions, avail of an invalidity pension payment from the Social Insurance Fund, SIF. If they do not have enough contributions, or if they have never worked, they can apply for disability allowance from the Vote. The committee will note, from the 2021 accounts, that total expenditure on Vote 37 services and administration amounted to €18.2 billion. Some €2.75 billion of this amount is accounted for by a transfer to the SIF to fund its deficit and to charge for administration costs incurred on its behalf.
Adjusted for these transfers, expenditure on Vote schemes and administration at €15.4 billion was €959 million lower than in 2021. This is mainly due to all pandemic unemployment payment costs being borne by the SIF in 2021, with €1.3 billion of these costs carried by the Vote. If Covid-related expenditure is excluded from the comparisons, the expenditure for the year, adjusted for the transfer to cover SIF deficit and administration costs, amounted to €10.8 billion, a slight reduction of 1.3% on the equivalent figure for 2020 mainly attributable to reduced spend on working-age payments. Expenditure on social insurance schemes and administration amounted to €14.9 billion. This was an increase of €765 million on the 2020 outturn of €14.1 billion. Again, if Covid-related expenditure is excluded, the adjusted figure for 2021 shows expenditure of €10.75 billion, an increase of €359 million or 3.5% compared with €10.39 billion in 2020.
Combined expenditure, adjusted for the transfers between the Vote and the SIF, including Covid-related spend, of €30.3 billion is broadly the same as 2020 and represents approximately 13% of gross national income for the year. Looking across both the Vote and the fund, and excluding Covid-related payments, total expenditure increased from €21.34 billion in 2020 to €21.56 billion in 2021, an increase of €217 million or 1%.
While this may appear modest, the underlying numbers are very large and it is important to note that Covid-related expenditure would have substituted for some elements of normal expenditure. In addition, there continued to be notable increases in some line items of expenditure. For example, expenditure on pension payments increased by €450.7 million compared to 2021. As previously discussed at this committee, the demographic trends giving rise to this increase are likely to continue with significant implications for expenditure and funding of the social welfare system. In response to the recommendations of the Pensions Commission, the Government has decided to address this challenge primarily by moving to a total contributions approach to pension calculations over a ten-year period and by adjusting PRSI rates on a graduated basis informed by the results from the actuarial review completed every five years. The Government has also decided to introduce flexibility allowing people to defer accessing the State pension in return for an actuarially increased pension payment and to entitle long-duration carers to qualify for full PRSI contributions for pension purposes. The Department has commenced working on these changes with the intention of introducing them from 2024. A proposal with respect to changes to PRSI contribution rates will be prepared in quarter 1 of 2023. The Department will also submit results of the smoothed earnings benchmark for pension rates to the Government as part of the budget process for 2024.
Chapter 10 of the Comptroller and Auditors General’s report is concerned with control over welfare payments. It makes no recommendations but does note, as in previous years, that net overpayments are material. The Department accepts this finding but in doing so would point out that the overall level of overpayments is in line with that reported by equivalent organisations in other states and with levels of "revenue leakage" reported by private businesses. In addition, the Department would again emphasise that it has to strike a balance between on the one hand, designing and managing large-scale service processes that are reliable, efficient and effective for the overwhelming majority of people who use our services and on the other, implementing controls and checks to assure payment and service integrity to reduce fraud and error. However, we are mindful in doing this that our primary purpose is to support people who need support and that we cannot pursue the elimination of error or fraud at the cost of unreasonably denying entitlement to service or frustrating access to that entitlement. I also repeat what I have said before at this committee, which is that we are mindful that discussions on this topic can tend to focus on the few exceptions rather than on the general rule. In other words, it can focus on the small percentage of claims that give rise to overpayments, in particular the subset of those claims that are fraudulent in nature, rather than on the fact that the overwhelming majority of claims are validly made and legitimately paid. This can, unfortunately, feed ill-informed commentary that does a huge disservice to the honesty and dignity of people who benefit from the payments we make.
In accordance with sections 13 and 14 of the Social Welfare and Pensions Act 2013, the Department is entitled to recover amounts paid out in illness benefit and other relevant scheme payments from compensation awards for loss of earnings subsequently made in respect of a personal injuries claim. Since its commencement in August 2014, the Department has recovered €188 million in payments under these provisions from a potentially recoverable sum of about €300 million. This potentially recoverable amount is the total value of payments made under the relevant schemes in cases where the Department has been notified of a personal injury claim. In practice, all of this amount is not recoverable as between 30% and 40% of awards will not specify an amount in respect of loss of earnings. Under the governing legislation, amounts can only be recovered if the compensation award specifically itemises an amount in respect of "loss of earnings". While the precise value of the realisable amount cannot be determined until cases are settled, the trend to date suggests that the realisable value of cases notified to date is just over €200 million.
Chapter 11 of the Comptroller and Auditor General’s report sets out the process followed by the Department to manage recoverable benefit cases and makes a number of recommendations, all of which have been accepted.
While Chapter 14 is titled "Classification of workers for PRSI purposes", it is important to note that PRSI classes do not classify workers per se but in fact classify sources of income for PRSI purposes. Different PRSI arrangements apply in respect of income obtained from different sources with these arrangements denoted through 11 different classes of PRSI. So employment income is generally charged at 4% to the employee with a corresponding charge of 11.05% to the employer. However, some incomes are exempt from PRSI or are charged at a lower rate. For example, income paid in respect of the duties performed by office holders is classified as class K. Some non-employment income, for example, income received under approved retirement funds, is charged as class S and the same class S as is used in respect of self-employment income in which case the classification denotes from a PRSI perspective that no employer contribution is due on this income but the standard "employee" rate of 4% is charged to the self-employed worker. A person may in fact pay different rates of PRSI on different sources of income received during the same period.
Reflecting the different rates of PRSI that are charged under different classes, the benefits available to a person also vary by class. For example, there are no benefits available to office holders and class S contributors do not have access to illness benefit unless they also have other classes of contributions paid, while contributions paid on public service or Army incomes may also entitle contributors to a reduced range of benefits.
Chapter 14 is concerned in particular with how the Department distinguishes between self-employment and employment for the purposes of PRSI classification. This is a topic addressed by the Comptroller and Auditor General in his 2017 report and has been a topic of discussion at both this committee and the Joint Oireachtas Committee on Social Protection, Community and Rural Development and the Islands. These discussions have tended to focus on a perceived increase in the incidence of disguised or false self-employment and the criteria used by the Department and others to distinguish between employment and self-employment income.
With regard to the first issue, namely, the incidence of disguised or false self-employment, the available data do not indicate either that there is an increasing use of self-employment or that there is an increasing prevalence of falsely declared self-employment. A study published in 2018 and referenced in the Comptroller and Auditor General’s report showed that self-employment as a share of total employment in the economy is reducing over time. I have enclosed as an attachment to this statement a table and chart updating this data showing that this trend continues.
Nevertheless, as each falsely declared case of self-employment represents a loss of income to the SIF and can impact negatively on a person’s social protection entitlements, and in response to concerns expressed at this committee and the social protection committee, the Department has invested in measures to detect and investigate potential cases of false self-employment. This includes the establishment of a special unit called the employment status investigation unit, which now comprises 12 social welfare inspectors and conducts targeted investigations. We have also increased the level of employer PRSI inspections undertaken by our general cohort of inspectors and undertaken large-scale advertising campaigns inviting people to report cases of false self-employment. The evidence from these efforts, in particular the unannounced inspections by our general inspectors and the advertising campaign, suggests that the incidence of false self-employment is not as prevalent as might have been feared. We will nevertheless continue to pursue this issue and build up the capacity of the employment status investigation unit.
With regard to the criteria used to classify employment income for social insurance purposes, the Comptroller and Auditor General sets out the criteria that were initially agreed with the social partners and recently updated and published in the code of practice on determining employment status. It confirms from its audit that these criteria were applied to each of the randomly selected 25 cases taken for review. This was also the case in its review and audit in 2017, which looked at 35 cases.
Based on his review of the data and the approach used by the Department, the Comptroller and Auditor General makes a number of recommendations relating to the accessibility of the code, a proposed programme of random surveys and the setting of targets for inspections by sector, all of which I have part-agreed subject to some reservations set out in the report.
Finally, I take this opportunity to acknowledge and pay tribute to the staff of the Department. Their response not just to the Covid and Ukraine crises but also to the ongoing development and operation of the social protection system is testimony to the value of public service and to what can be achieved, and is achieved every day, by people with a strong public service ethos. I am proud to serve with and be associated with them.
I conclude as I have before by saying that as a Department, while we try to do our best, we are not perfect, we make mistakes and we do not always get things right. We do, however, hope that the committee will agree that we are open to challenge, critique and suggestions for improvements. This process today plays an important role in reminding us of our purpose, helping us to identify areas for improvement and helping us to learn for the future. It is through such a process that we would hope to improve. My colleagues and I will be pleased to take any questions that members may have.
