Social Security
Ministerial Decision Report
The creation of a management charge from social security department to the funds
- Purpose
The purpose of this report is to seek the Minister’s approval of a management charge to be charged from Department to the three Funds to reflect the operational and management costs of running the Department.
- Background
Historically, invoices received by the Social Security Department are either paid directly by the tax funded Department, the Social Security Fund (SSF), Health Insurance Fund (HIF) or Long Term Care Fund (LTCF); or they are apportioned out using a recharge mechanism based on set percentages depending on what the invoice relates to. Staff costs are paid initially by the tax funded Department and then a recharge made to the funds using a different recharge percentage.
This is administratively cumbersome and represents an inconsistent approach for admin and staff costs (which are recorded in the tax funded department and recharged to the funds). It also adds complexity to reporting for budgetholders and in reporting to Senior Management Team (SMT), which in turn makes financial decision making more complicated.
From 2016, the majority of the administrative costs will be recorded in the tax funded Department and a consolidated management charge raised to each of the Funds to reflect the operational and management costs of running the Department.
The key benefits of this change in methodology are:
- A consistent approach for both Staff and Non-staff expenditure by the department;
- Simplified accounting, reducing administration, reducing the risk of error and facilitating the move to a modern Procure to Pay system
- Increased transparency of expenditure, with the majority of expenditure approved through the tax funded department in the MTFP
- Simplified reporting, supporting strong financial decision making and strengthening financial management and budgeting processes.
The funds will continue to pay for benefits directly and certain costs where they are incurred under the legislation relating to the fund in question or are specific expenditure of the funds rather than administration. These costs include audit, actuarial and investment management fees, the contribution from the HIF cost of the Primary Care Governance Team and JQIF payments. The management charge has been calculated by operational managers predicting the split of their staff’s work during the period of the MTFP and using these splits to apportion the budgeted costs of each operational and administrative area between each of the funds and the tax department.
The management charge is agreed for the period of the MTFP (2016-19) agreed in advance of the first year of its operation (2016), and incorporating a 2% reduction per year to reflect anticipated efficiency savings. The first year’s charge will be £5.18m to the Social Security Fund (SSF), £1.54m to the Health Insurance Fund (HIF) and £1.42m to the Long Term Care Fund (LTCF).
| 2016 | 2017 | 2018 | 2019 |
SSF | 5,180,000 | 5,080,000 | 4,980,000 | 4,880,000 |
HIF | 1,540,000 | 1,510,000 | 1,480,000 | 1,450,000 |
LTCF | 1,420,000 | 1,390,000 | 1,360,000 | 1,330,000 |
Total | 8,140,000 | 7,980,000 | 7,820,000 | 7,660,000 |
The level of Management Charge will be fully reviewed in 2019 to establish the levels for the next MTFP reporting period, or sooner if there are substantial changes to the operations of the department. If there is a need to incur further expenditure from the funds in the years (e.g. for specific projects) then the Minister will be asked to approve further withdrawals from the funds, either directly or as a payment to the tax funded department (recorded as income to match the additional expenditure).
- Recommendation
It is recommended that the Minister approve the management charge to be charged from Department to the three Funds to reflect the operational and management costs of running the Department.
- Reason for Decision
Under Article 30 (2) of the Social Security (Jersey) Law 1974, Article 21 (1) of the Health Insurance (Jersey) Law 1967 and Article 2 of the Long-Term Care (Jersey) Law 2012, the Minister can make payments from the fund for expenses incurred by the Minister in carrying the Law into effect.
- Resource Implications
There is no change to the Social Security Department’s revenue head of expenditure for 2016-2019 caused by this decision. As the original MTFP submission only included a management charge for Staff (£4.0m), there will be an increase in income of £4.1m within the tax funded Department which will be matched by a corresponding increase in expenditure.
Section 5 of Financial Direction 3.6 Variations to Heads of Expenditure states that Income of States funded bodies over and above the estimated income notified to the States in the MTFP may be used automatically for additional expenditure over and above that approved in the MTFP as follows:-
• Where any such income and associated additional expenditure match in terms of purpose and/or amount.
The new mechanism of a management charge is expected to create efficiencies within the Department.
There is no change to the Department’s total FTE.
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