Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697751344878.pdf (Ireland)
INTRODUCTION BY MR JOHN MCKEON, SECRETARY GENERAL DEPARTMENT OF SOCIAL PROTECTION, TO THE COMMITTEE OF PUBLIC ACCOUNTS Thursday 1, December 2022 Check Against Delivery Chairperson, Committee Members, I would like to thank the Committee for inviting me here today to discuss the Appropriation Account for Vote 37, together with Chapters 10, 11 and Chapter 14 of the Report on Public Accounts.

I also understand that the Committee would like to review the accounts of the Social Insurance Fund.
I will be pleased to respond to any questions that the Committee members may have on these accounts.

I am joined today by Ms Teresa Leonard, Deputy Secretary General, Mr Ciaran Lawler, Assistant Secretary General with responsibility for Finance, Ms Philomena McShane the Department’s Chief Accountant and Mr Liam Daly, Acting Assistant Secretary General with responsibility for Control Policy.
I may, with the Chair’s permission, rely on assistance from my colleagues in addressing some of the questions that members may raise.

I arranged for an advance copy of this statement together with briefing material on the accounts and the chapters under review, the annual report of the Department, the annual statistics report and other relevant information to be provided to the Committee secretariat last week.

I hope that members found this material to be of use.
______________________ Before turning to the matters tabled for discussion, and given the time of year, I would just like to provide the committee with a brief update on Department operations during 2022.

2022 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.
Supports to Ukrainian Refugees established a ‘one-stop-shop’ reception centre first Since Russia invaded Ukraine on 24th 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 in Dublin Airport and Youth 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 PPSNs, provided with access to income supports and allocated and transferred to accommodation in an expeditious manner.
The Department 1 | P a g e R1604 PAC33 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 of which about 12,000 attended one to one engagements with our case officers.

Revenue records indicate that about 11,200 are now in employment.

Total expenditure to date on welfare supports and services to Ukrainian refugees is estimated at €196m 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.
Response to Inflation The war in Ukraine and 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 was comprised of 8 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 (excluding Covid payments and Ukraine 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.

Progress on General Work Programme 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 (enabling legislation is now undergoing pre-legislative scrutiny), advised and received a Government decision on the approach to the implementation of reforms to the State 2 | P a g e R1604 PAC33 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 assuring the redundancy payment rights of people affected by Covid-19 temporary layoffs, 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 to last year and by over 20% compared to 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 – 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 6.1m 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.

Turning now to the matters under consideration today.
Accounts of Vote 37 and the Social Insurance Fund Payments and services delivered by the Department fall into two broad categories – those which are based on social insurance contributions and funded from the Social Insurance Fund (SIF), and those which are provided under Vote 37 being mainly means-assessed welfare payments, employment services and programmes, and agency services.
So, for example, people who suffer from a long-term illness or disability can, if they have enough social insurance contributions avail of an Invalidity Pension payment from the 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, before appropriations-in-aid, amounted to €18.2 billion.
€2.75 billion of this amount is accounted for by a transfer to the Social Insurance fund to cover its 3 | P a g e R1604 PAC33 funding deficit (€2.6n) and to charge for administration costs (€146m) incurred on its behalf.

Adjusted for these transfers expenditure on Vote schemes and administration at €15.4bn was €959m lower in 2021 than 2020.

This is mainly due to all Pandemic Unemployment Payment Costs being borne by the SIF in 2021.

(€1.3 billion of these costs were carried by the Vote in 2021).
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 €765m on the 2020 outturn of €14.1 billion.
- Again, if Covid related expenditure is excluded, the adjusted figures for 2021 shows expenditure of €10.75 billion an increase of €359m or 3.5% compared to €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 in 2021 is broadly the same as 2020 and represents approximately 13% of modified Gross National Income for the year.
Looking across both SIF and Vote, and excluding Covid related payments, total expenditure increased from €21.34 billion in 2020 to €21.56 billion in 2021, an increase of €217m 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 on 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 10 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 Q1 2023.
The Department will also submit results of the smoothed earnings benchmark for pension rates to Government as part of the budget process for 2024.

4 | P a g e R1604 PAC33 Control of Expenditure Chapter 10 of the Comptroller and Auditors General’s report is concerned with control over welfare payments – meaning the processes and systems used by the Department to try to minimise incorrect payments.

Chapter 10 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 would also repeat what I have said before at this committee 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, on the small percentage of claims that give rise to overpayments, and in particular the sub-set 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.
I know from previous meetings with this Committee that Committee members are equally sensitive to this issue.
Recoverable Benefits In accordance with Sections 13 and 14 of the Social Welfare and Pensions Act 2013, (incorporated into section 343 of the Social Welfare Consolidation Act 2005 (as amended)) 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 €188m in payments under these provisions (up from the figure of €160m as of March this year), from a potentially recoverable sum of about €300m.

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 (as shown in Fig 11.6 of the Comptroller and Auditor General’s report).

– Under the governing legislation amounts can only be recovered if the compensation award specifically 5 | P a g e R1604 PAC33 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 about €200m.

Chapter 11 of the Comptroller and Auditor General’s report sets out the process followed by the Department to the management of recoverable benefit cases and makes a number of recommendations, all of which have been accepted.
An update on progress since the report was published has been provided under separate cover to the Committee.

I and my colleagues will be pleased to take any questions relating to the Chapter or the updates provided.

Classification of Income for PRSI Purposes 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 (Class A).

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 (in some cases class M).
Some non-employment income, for example, income received under approved retirement funds, is charged as Class S (no employer contribution) the same Class 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 is charged under different classes, the benefits available to a person also vary by Class.
For example, there are no benefits available to office holders, 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 which the Comptroller and Auditor General also addressed in his 2017 report and has been a topic of discussion at both this Committee and the Joint Oireachtas Committee on Social Protection.

These discussions have tended to focus on a perceived increase in the incidence of disguised employment/false self-employment and the criteria used by the Department and others to distinguish between employment and self-employment income.
6 | P a g e R1604 PAC33 With regard to the first issue – the incidence of disguised employment/false self- employment - the available data does not indicate either that there is an increasing use of self-employment or that there is an increasing prevalence of falsely declared self- employment.

In fact, 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 social insurance fund 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 – the Employment Status Investigation Unit (ESIU), now comprised 12 social welfare inspectors, which 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 for investigation.
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 ESIU.
With regard to the second issue - 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 which are set out in the report.
________________ Finally, I would like to 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 to the ongoing development and operation of the social protection system is testimony to the value of public service and to what can, and is everyday achieved, by people with a strong public service ethos.

I am proud to serve with and be associated with them.
7 | P a g e R1604 PAC33 I will conclude as I have before by saying that as a Department, while we try to do our best, we are not perfect, we do make mistakes and we don’t always get things right.

We do however hope that you 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.

I and my colleagues will be pleased to take any questions that members may have.

ENDS 8 | P a g e R1604 PAC33 Appendix: (i) Updated Data on Self-Employment Share of Total Employment Share of Self-Employment as% of Total Employment r..6.60% 18.00% 16.00% 14.00% 12.00% - 11.26% 10.00% 8.00% 6.00% _ 5 .34% ..:::::._ 4.00% 2.00% 0.00% --......_ 1 3.92% 9.

81% - se lf Empl.

No Empl oyees - - Se lf-E mpl; With Emp loyees - - All Self- Empl.

4.
11% 9 | P a g e 2010201520202020 vs 20102020 Vs 20152020 vs 20102020 Vs 2015All NACE economic sectors16.49%15.84%14.09%-2.40-1.75-14.54%-11.03%Agriculture, forestry and fishing (A)74.90%70.62%66.17%-8.73-4.45-11.66%-6.30%Construction (F)36.61%35.96%30.33%-6.28-5.63-17.14%-15.65%Wholesale and retail trade; repair of motor vehicles and motorcycles (G)12.63%12.35%10.97%-1.65-1.37-13.10%-11.12%Transportation and storage (H)26.32%24.32%17.94%-8.38-6.38-31.84%-26.23%Accommodation and food service activities (I)12.21%9.34%8.68%-3.54-0.67-28.97%-7.14%Information and communication (J)12.53%12.29%11.27%-1.26-1.02-10.06%-8.30%Professional, scientific and technical activities (M)28.03%28.33%23.68%-4.35-4.66-15.51%-16.43%Administrative and support service activities (N)13.94%10.69%13.95%0.023.270.11%30.58%Public administration and defence; compulsory social security (O)Education (P)5.09%4.34%5.04%-0.050.70-0.97%16.05%Human health and social work activities (Q)6.20%5.78%5.28%-0.93-0.50-14.94%-8.66%Industry (B to E)8.69%7.82%6.18%-2.51-1.64-28.87%-20.99%Financial, insurance and real estate activities (K, L)6.20%8.62%7.94%1.74-0.6828.05%-7.88%Services (G to U)12.23%11.99%10.94%-1.29-1.05-10.54%-8.74%Other NACE activities (R to U)22.23%24.49%25.45%3.220.9614.47%3.93%Self-Employment Share of Total Employment% ChangeQuarter 1 in Each YearPercentage Point ChangeR1604 PAC33 (II) MEDIA CAMPAIGN ON FALSE SELF-EMPLOYMENT • Following a recommendation in the “Report on the implications for social insurance and tax receipts of intermediary employment structures and self-employment arrangements”, published in January 2018, and as recommended by the Joint Oireachtas Committee on Employment Affairs and Social Protection, the Department ran an intensive media campaign on the topic false self-employment.
• Advertisements were run on national and local radio, in newspapers, on social media (in nine languages), a number of sponsored articles in the Journal.ie, in bus shelters, key railway stations and on Dart and Luas services.

• Examples of the advertisements used are attached.

• The focus of the campaign was on the worker who is falsely self-employed, pointing out the implications for social welfare benefits and employment rights like holiday pay.
• The campaign directed people to a dedicated webpage with information on the legal ‘tests’ used to determine employment status, how to request a formal determination from Scope Section, and contacts for the Workplace Relations Commission and Revenue.

The information was made available in 9 languages.


• As a result of the campaign there were: • Over 10,500 website visits with an average time of over 3 minutes on the page; • 1.2 million “impressions” of the Twitter ad; • 50 phone calls and 30 emails to Scope Section.

• However, as a direct result of the campaign, only 10 new applications for a Scope decision were then registered.
• During the period when the campaign operated and in the immediate aftermath (2018 and 2019) there was no significant increase in employment status cases registered with Scope Section.

The proportions held steady at approximately 8% (just over 100 cases) of the overall annual caseload.

10 | P a g e R1604 PAC33 Not all self-employed people choose self-employment If you ·re self-employed just because your employer says you have to be, what then?

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Prct.-cr on Rialtas na h£ireann Government of Ire land I • Contribute : Support us now urna e C.lr-- - - - - - - - - -__JDublin:5"C 0 Tuesdoy3November2020 theJ Irish News FactCheck Voices Brexit Covid - 19 Newsletters Podcasts More • Not all self-employed people choose self-employment Find out more about false self-employment This content is sponsored by the Government of Ireland Riah3s nahtirca nn Government oflrtl• nd 11 | P a g e R1604 PAC33