Child Support Maintenance Calculation Regulations 2012

Monday 15th October 2012 Grand Committee

Considered in Grand Committee

17:16

Moved by

[Lord Freud]

That the Grand Committee do report to the House that it has considered the Child Support Maintenance Calculation Regulations 2012.

Relevant document: 6th Report from the Joint Committee on Statutory Instruments.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, I will also speak to the draft Child Support Maintenance (Changes to Basic Rate Calculation and Minimum Amount of Liability) Regulations 2012. These two sets of regulations were laid before both Houses on 2 July 2012 under the powers contained in the Child Support Act 1991, as amended by the Child Maintenance and Other Payments Act 2008. It is a requirement that I confirm to the Grand Committee that these provisions contained in the two sets of regulations are compatible with the European Convention on Human Rights, and I am happy to do so.

Getting the child maintenance system right is one of the most important matters that we face as parliamentarians, as parents and as a society. This House has always played a crucial role in national debates on the issue, and the considered views of Members of this House have consistently both informed government thinking and improved the legislation that underpins this area.

The two sets of regulations before us today are a key part of the Government’s child maintenance reform programme, outlined in our Command Paper entitled Supporting Separated Families; Securing Children’s Futures, which we published in July 2012. I know that noble Lords are well aware that the performance of the child maintenance system has fallen a long way short of the expectations of this House and, more importantly, of the people that the system is designed to help. The starting point for our reforms is that the current child maintenance system is broken. Only half of all children benefit from an effective arrangement, despite the Government spending almost £0.5 billion each year on the child maintenance system.

The system places far too much emphasis on the state determining financial support and not enough on supporting separated and separating families to reach their own arrangements. Too many parents feel trapped in the system, which can entrench conflict and encourage hostility between parents, reducing the likelihood of continued co-parenting. Our surveys tell us that half the parents in the existing child maintenance statutory schemes administered by the Child Support Agency would, with the right help and support, be likely to make their own arrangements. This all needs to change.

Noble Lords will know that the Government are committed to rebalancing the child maintenance system to support families to make collaborative, family-based arrangements. Children benefit where parents work together. We are investing £20 million over the next three years in help and support for separated families in order to help co-ordinate existing support services to make it easier for parents to know where to turn when they separate. However, we recognise that not all parents can make family-based arrangements, so we will introduce a new, fairer and more efficient but still heavily subsidised statutory scheme for those who most need it. No doubt noble Lords will have views on our proposals for charging for using the new scheme, which I do not propose to dwell on today. Noble Lords will know that the Government are presently consulting on the charging regulations. After the consultation, Parliament will have an opportunity to debate the charging regulations package. As noble Lords will remember, I made a commitment to involve them fully in that process outside the formal part of it.

I shall move on to the detail of the two sets of regulations themselves in a moment, but first I will briefly touch on the benefits of the new scheme. It will benefit from better links with other parts of government and clients will therefore receive an improved service. We will be able to process applications more quickly and tackle those parents who miss a payment much more rapidly. The scheme will be introduced using a pathfinder approach in the coming weeks. As we have always said, our priority is to go live first time with a system that works for clients. We are currently undertaking our final round of testing and training to enable us to go live by the end of the year. Initially, we will accept new applications on to the scheme where four or more qualifying children with the same parents are named in the application. When the new scheme is seen to be working well, we will open it to new applications where there are two or more qualifying children with the same parents, and thereafter to all new applicants.

The draft Child Support Maintenance Calculation Regulations 2012 set out the new rules relating to how child maintenance will be calculated, including how income is determined and the circumstances in which the calculation may be varied. They will apply to applications for child maintenance under the new scheme. The regulations will also tackle some problems that have been identified with the existing regulations. They will introduce the following main changes.

Maintenance calculations will be based where possible on the non-resident parent’s latest tax-year gross income as reported by HMRC. Assessments will depend less on what parents choose to disclose about their income, ensuring a fairer and faster child maintenance service. For the first time, maintenance calculations will be reviewed annually using the most recent income information provided by HMRC to ensure that they remain fair, accurate and up to date. At the moment, cases are reviewed only when either parent contacts the agency to report a change in circumstances, which means that some cases have not been reviewed for many years. In-year income changes to the calculation will not be made unless the non-resident parent’s income changes by at least 25%. This will make it easier for parents to budget, giving them greater financial security and promoting financial responsibility.

Students with a significant gross weekly income will no longer be exempt from paying child maintenance. An assumption of shared care equivalent to one night per week will be made where parents agree in principle that there is shared care but cannot agree on the number of nights. Parents who share the care of their children exactly equally will no longer be required to pay maintenance through the statutory scheme, resulting in both parents being treated fairly. Parents with care will no longer be required to provide evidence to support an application for a variation of the maintenance calculation as income information will be available through HMRC.

These regulations do not include assets and lifestyle- inconsistent variations. They replace these with expanded “unearned income” variations that capture a non-resident parent’s taxable income from property, savings and investments including dividends, and other miscellaneous income declared to HMRC. The intention is to base maintenance calculations on income details available through HMRC, thus reducing the burden on parents with care to provide supporting evidence when they apply for a variation. I believe that this will allow more parents and their children to benefit from maintenance valuations that genuinely reflect the income of the paying parent in the case.

To encourage parents to make their own maintenance arrangements, children supported outside of the statutory scheme through a family-based arrangement, court order or under child maintenance schemes abroad will be acknowledged in the same way as qualifying children within the maintenance calculation. The non-resident parent will be required to provide evidence of a formal or informal agreement that ensures they are paying for a child before this change is applied in a particular case.

The Child Support Maintenance (Changes to Basic Rate Calculation and Minimum Amount of Liability) Regulations 2012 lower the percentages by which a non-resident parent’s gross income is reduced to take account of relevant other children living in his or her household. This will ensure that the maintenance calculation makes a more equal allowance between the children who are the subject of the maintenance calculation and any relevant other children who live with the non-resident parent. They also set out the minimum amount of liability where the non-resident parent is party to another maintenance arrangement which they wish to have taken account of in the maintenance calculation.

These regulations will, first, reduce the percentages applied to relevant other children to better equalise the treatment between first and second families. Let us take an example of a non-resident parent with a gross weekly income of £300, one relevant child and one qualifying child. Without these changes, the non-resident parent’s income would be reduced by 12% to make allowance for the relevant child—a reduction of £36. The reduced gross weekly figure of £264 is then carried forward; 12% is then applied to £264 to calculate the maintenance for the qualifying child, resulting in a liability of £32, so there is a £4 difference between the amount notionally allowed for the relevant other child and the amount calculated as payable for the qualifying child. Using the same example but with the 11% reduction for the relevant child proposed in these regulations leads to a difference of only £1 between the amounts allocated for each child, so, as far as possible, the same financial provision will be made for all children within the maintenance calculation.

These regulations will, secondly, make the minimum liability for a non-resident parent subject to other maintenance arrangements for other children at £5 per week, keeping it in line, as intended, with the flat rate of child maintenance which is payable by a non-resident parent whose gross weekly income is more than £5 but less than £100 per week, or who is in receipt of certain prescribed benefits.

The Government consulted stakeholders publicly on proposed measures between 1 December 2011 and 23 February 2012. As part of the consultation process, the previous Minister for Disabled People also met with key stakeholders together with officials at a stakeholder meeting held in January to get their views. We received 36 responses to the consultation. Respondents to the consultation were generally supportive of the draft regulations and the points raised were considered when finalising the regulations. I beg to move.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for introducing these regulations. We should start by making it clear that we support the thrust of the approach reflected in them. Indeed, why wouldn’t we? It stems from our work on legislation when in government. We support the objective of maximising the number of effective maintenance arrangements for children and of encouraging voluntary or family-based arrangements as well as use of the statutory system. I am not sure that we necessarily agree with the emphasis that the noble Lord places on one rather than another but that is probably a point of detail.

We do not need to dwell on the complex history of CMEC/CSA—I will call it the CSA from now on—and the misery that it inflicted on many families, not to mention more than a few Ministers. However, much of the difficulty derived from the system requiring a lot of information, latterly just from the NRP, many of whom had no interest in complying; indeed, quite the reverse. This was compounded by failures of IT systems and inadequate enforcement powers. So the move to a system which is based on gross income of the NRP, which is accessible from HMRC and does not rely on information from the non-resident parent, is, we believe, the correct way forward. It is also right, in our view, to give some emphasis to what is practical rather than in every respect to make a calculation of intellectual purity, which can, I think, sometimes frustrate delivery.

17:30

There is no doubt that recent years have seen improvements in the operations of the CSA, although there is clearly some way to go. Readiness of the IT systems to cope with the new basis of calculation will be crucial, and my noble friend Lady Sherlock will, I think, probe that matter in some depth.

The end objective for the strategy scheme is one basis of calculation for all within it. Until that is achieved, the CSA will have to contend with cases determined on a historic basis; those on the current scheme; those dealt with manually in so far as they are technically on a different scheme; and those on the new scheme. The transition through this will clearly be challenging. Although not before us today, the issue of taking everyone out of the statutory system and then applying a fee for rejoining seems just another aspect of pushing people away from the statutory system.

We have some questions. We have received a briefing from the Law Society of Scotland which, in particular, focuses on the 12-month rule, recipients of Armed Forces pensions and their flat rate contribution, and the changing of the Child Support (Variations) Regulations 2000. The issue of the 12-month rule is not, as I recall, a new one, but given the added impetus for people to make their own arrangements outside the statutory system, can the Minister say whether this issue has been specifically reviewed? Can the Minister also comment on whether it is correct that the whole income of the recipient of an Armed Forces pension is ignored for child support purposes and not just the pension itself? Is this the policy objective?

We will perhaps come to the matter of variations in a moment.

The issue of shared care has been a long-standing problem and, as we have heard, seeking to get it settled has often held up progress on a case. Can the Minister confirm that the adoption of the one-night formulation is predicated on there being agreement that there is a shared care arrangement but disagreement as to its extent? If there is a dispute as to whether or not there is shared care at all, how is that matter to be resolved? How is the determination of equal day-to-day care to be resolved when the parties do not agree? Given that equally shared care will mean no statutory maintenance liability, this is a crucial determination. We obviously would not want to see its application used as another means to push people from the statutory system.

The 25% tolerance level by which income must change for the annual review figures to be adjusted is not an easy judgment, as my honourable friend Anne McGuire made clear in the other place when these regulations were debated. This is particularly so given the volatility in the current jobs market and the increase in part-time working. As for deduction of pension contributions other than by net pay arrangement, the regulation states,

“if the non-resident parent so requests”,

so I ask what sort of prompt is envisaged will be available to the non-resident parent to at least raise the issue or believe it to be of relevance.

The rationale behind the exclusion of tax credit income, which I believe disappears under the universal credit, is something that should be explained, but again I believe that my noble friend Lady Sherlock, an expert in these matters, will pursue that issue.

Can the Minister say more about investment and unearned income? It is understood that this will be excluded from the NRP’s income in the calculation unless the PWC seeks a variation. HRMC will then be asked to provide details of unearned income from the NRP’s self-assessment return.

In another place, the Minister suggested that this threshold was driven by HMRC requirements—the £2,500 threshold—and that unearned income below this amount did not have to be reported via self-assessment. It was suggested that to include it would create an inconsistency between earned and unearned income. Perhaps the Minister can expand on that point. On the basis of current interest rates, unearned income of about £2,500 would imply an investment pot of the order of £100,000. The figure, of course, includes only taxable income. Income from ISAs in particular would be excluded. Is it proposed that this figure be kept regularly under review?

A genuinely worrying aspect of the proposals is the denial of the opportunity for a parent with care to seek a variation to the maintenance calculations on the grounds that the NRP’s lifestyle is inconsistent with declared income. It is accepted that dealing with such claims has been particularly resource intensive, but we should also recognise that, sadly, some NRPs will go to any lengths to avoid meeting their maintenance obligations. No effective alternative approach is offered in these regulations. This is to the disadvantage of PWCs.

Obviously to the advantage of PWCs is the increase in maintenance where NRPs are on low incomes or benefits, although doubling the liability of the poorest is a bit steep. As is clear from the impact assessment, the new calculation rules will lead to considerable changes to current outcomes for a variety of reasons. The regulations are likely to change the amounts due for hundreds of thousands of existing parents. What advice and information is to be made available to help parents make appropriate decisions under these new regulations? However, I conclude by reiterating that we are supportive of their thrust.

[Lord Kirkwood of Kirkhope]

My Lords, perhaps I may make a brief intervention in this important debate. I am opposed to charging, and I hope that we will be able to get rid of it. I understand that there are deficit reduction problems, but an important state-run service should be available to single parents who are struggling to raise children, sometimes with little or no help from non-resident parents. That is what we should be aiming for in the long run and as a matter of principle.

The current plans underestimate the extent to which winners and losers will become a big issue when the plans are eventually rolled out in full. The extent of this change has not properly been taken into account, and there will be big swings in both money in and money out of the hands of non-resident parents and parents with care.

However, I want to concentrate on the National Audit Office’s concerns expressed in February 2012 after it started to look at whether implementation of phase one and phase two of the plans may or may not be delayed. I remind colleagues that at that stage the commission planned to introduce the new scheme in two phases. In phase one, the commission would be able to enter applications to the new scheme from new clients from October 2012. That was the plan in February, and we are now into October. Phase two was to be started six months later, with an indicative start date of July 2013. That would involve the launch of the whole statutory gateway service, introduce charges and transfer the caseload.

I read the NAO report with great interest, and I read page 37 with particular interest. It was headed,

“Figure 17 … Commission risks repeating past mistakes”.

Some of us have been following this saga since 1991. The NAO rightly said that if this policy is to have any chance of success, the new maintenance system needs to be properly worked through and, importantly, it needs a new IT system that works. I understand, although I may be corrected if I am wrong, that the new IT system commissioned from Tata Consultancy Services—TCS—is a mixture of agile computing, which is an iterative way of developing programmes, and more conventional ways of delivering government IT systems.

The February NAO report is concerning as, among other things, it says at page 38:

“The Commission reported to the audit committee in October 2011 on the high risk that the change programme may not deliver phase two functionality within agreed timescales, to realise the benefits outlined in the business case”.

Therefore, there was an early risk. People understood that this was a challenge and that the system might not be delivered on time. The next paragraph of the report—paragraph 3.27—expresses the worry that:

“The Commission has not built any contingency into delivering the new scheme”.

This worrying NAO report was produced in February. The NAO was right to mention both those points about the functionality of the computer and the lack of contingency plans.

The next iteration of the development of the IT issue and the possibility of delay in the IT system occurred when the Permanent Secretary and the then chief executive of the Child Maintenance and Enforcement Commission, Mr Shanahan, appeared before the Public Accounts Committee. At that stage, the Permanent Secretary and the CEO of CMEC were bullish about the fact that the NAO report was out of date. They said that phase one on its own merits had,

“a delivery confidence assessment of amber/green”,

from the Office of Government Commerce, and that that office’s review described the whole project, including phase one and phase two, as,

“having substantial risks, which the programme is taking sensible steps to manage, meaning that the delivery confidence overall is amber”.

Therefore, the NAO report, which adverted to real concerns, was batted back by the Permanent Secretary and Mr Shanahan when they made those remarks in March 2012.

The last annual report of the Child Maintenance and Enforcement Commission, which was produced just before it was taken back into the department in July 2012, revealed that,

“over the last 6 months of the financial year, slippage occurred around testing”.

It went on to refer to,

“a number of required actions to improve delivery confidence”.

We were also told that a pathfinder would be used to introduce the new scheme. Therefore, phase one was no longer where it was supposed to be; it is now a pathfinder. The annual report goes on to say:

“This, and improved testing velocity, mean that the Executive Team has strong confidence in a successful October introduction”.

However, I do not know what “testing velocity” means. That report was issued in July 2012. The Minister tells us today that the pathfinder seems to have changed. Before I continue with that point, I should say that my good friend, Professor Steve Webb, said on 11 September that the pathfinder group would be extremely small and would consist of parents with main care who had four or more children, where at least four of the children had the same non-resident parent. That is hundreds or it might be thousands—these are new applicants—so this pathfinder for phase one is nearly invisible as far as I can see. It has not started yet. If that was not bad enough, my good friend, Professor Webb, when answering questions about this in the other place on 11 September, said that,

“we are now in the final stage of testing, with new system staff training to start in a few weeks”.

That was the position on 11 September. We have been here before. We deserve some assurances about the implementation schedule for all this.

Obviously, the delay is of great concern to the NAO because the business case means that savings of £117 million need to be made between now and 2014-15. In this delay in implementation, the full phase one/phase two configuration costs the taxpayer £3 million a month. These are big sums of money.

17:45

My concern is really about the quality of service. We all know what it means if the computers do not work for people applying and using this system. The evidence of that in the past is there for all to see. First, what is the problem? Is it code? Is it that the relationship between the department and this new Tata Consulting Services is not working? How long will phase one, with its tiny profile, continue? Secondly, can we have an absolute assurance that phase two, which will roll out the charging and bringing across the cases, will not start until this system is absolutely guaranteed to work at scale? If this whole system of charging was delayed for five years, I would be very pleased in some respects, but that is a facetious point to make. The more serious point is that we need at least nine months of serious testing at load before we can start thinking about introducing phase two safely. That has big consequences for the savings that the new departmental service is supposed to achieve between now and 2014-15.

What has gone wrong since July 2012? Can we have an assurance that we will have a decent period of full running with a caseload of all new applicants before parents with existing CSA cases are moved across? What are the contingency plans if the computer system does not work properly? These are technical issues and may be indirectly related to the statutory instruments, but I for one am very concerned. There is an awful sense of déjà vu all over again about these things. I know that the Minister understands computers and these systems. He has persuaded me that agile computing is a big improvement—I believe that. I just hope that he can put on record the fact that it is not that we are just not facing up to the fact that this computer system is slipping, and in a way that we really should be told about if there are the kind of problems that I suspect there may be.

[Baroness Sherlock]

My Lords, I should like to pick up where the noble Lord left off. I am grateful for the opportunity to discuss this rather large package of regulations. In doing so, I should remind the Committee of my declared interests, which include having been a non-executive director of CMEC and, in the dim and distant past, a deeply historic interest in having once been the chief executive of the National Council for One Parent Families, which is now part of Gingerbread—to whom I am very grateful for their briefing, as with other organisations.

I will focus on three specific issues. One has just been picked up, about the readiness of the new statutory maintenance system. Secondly, perhaps the Minister could help us better understand the decisions behind what income to include or exclude. Finally, I will pick up another issue raised by my noble friend Lord McKenzie of Luton about the readiness of parents for the introduction of the new system.

First, on the readiness of the system, I was very glad that the noble Lord picked up the issue of the pilot group. I was going to ask the Minister to give the names of the members of the pilot group because frankly I cannot believe that it is so big that he could not, with his legendary skills, memorise their names very easily. The question is whether he is confident that a pilot group of that size and peculiarity, statistically speaking, will provide all the evidence the department needs to assess whether the system will work once it is rolled out properly.

The second question raised by the noble Lord, Lord Kirkwood, is much more worrying. It is the idea that we will end up seeing the critical testing of phase two performed in parallel with the programmed delivery of phase one. What will that tell us down the line? I read the report from the Public Accounts Committee, which I am sure is acid-etched on the Minister’s heart. He may recall the questioning by Mr Bacon, who was teasing out whether, when simultaneous testing and development had been tried in the past, it had led to problems. He mentioned tax credits, the Criminal Records Bureau and the Rural Payments Agency. He said:

“The testing was done in parallel in all of them. In some, they hit the go-live button when they knew it didn’t work properly, so we are right to be concerned about this, aren’t we?

The committee was taking evidence from the Permanent Secretary, Mr Robert Devereux. Mr Bacon went on to say:

“So you are not going to hit the live button until you are sure it works, even if it means a delay?”

Robert Devereux replied by saying:

“Absolutely not, and you can assume that that is exactly where Ministers are too. We are perfectly aware of the history”.

I should like to give the Minister the opportunity to go on the record himself on this. Can he assure us that this will not happen? Does he personally have confidence in the amount of testing that it will be possible to carry out before the system goes live?

What assurances can the Minister give about the consequences of the potential losses that have just been mentioned? If delay is going to cost the department £3 million or £4 million a month, will that money come from anywhere else in child maintenance? If so, will we have an opportunity to scrutinise the effect of that? I am also interested in what potentially could happen. My noble friend Lord McKenzie said that a series of different systems could all be running at the same time. Could there be a period, and how long would it be, when delivery staff might be running four systems in parallel? These would be CSR, the pre-2003 old-rules system; CS2, the 2003 current-rules system; the offline clerical system; and the new IT system. What is the maximum period during which the four systems might run in parallel? Given the cuts in staffing levels under the resource constraints the department is facing, can he give an assurance that the department can manage this so that existing CSA clients do not suffer as a consequence?

The next area that I want to address is the effect of the decisions that the Government have taken in relation to the amounts that will be payable. I am particularly exercised, as my noble friend Lord McKenzie flagged up, about the decision that the new system will ignore tax credits when considering the income of a non-resident parent. According to the Government’s own estimates, around 100,000 existing CSA clients could lose an average of £6 per week in child maintenance as a result of changes to the way it will be calculated. Tax credits will no longer be counted as part of gross income. That is significant because at present just under a third of non-resident parents within the CSA are entitled to tax credits, and therefore a significant financial blow to many single-parent households will be coming at a time when they are already suffering in other areas. They will end up having to pay fees for charging out of their current income, and they are facing cuts to benefits in other areas. There are all kinds of problems for this category, and they could be quite significant. I will not go into any more detail until the Minister has had a chance to respond, but I reserve the right to come back on it. Can the Minister explain quite carefully what alternatives were considered? Given that tax credit information rests with HMRC and is therefore available to the department, why can that information not be considered?

Secondly, as others have mentioned, the Government have confirmed that for non-resident parents within the statutory scheme, they intend to raise the minimum flat rate of child maintenance from £5 per week in current-rules cases to £10 per week. That rise is far above inflation, which would probably have been to around £7, but it amounts to 14% of a single person’s weekly jobseeker’s allowance of £71 per week. That is a significant amount of money and is even more than the 12% of earnings that a working non-resident parent in the £200 to £800 band will be expected to pay. Two things have happened here. The parent with care may be getting less money while the non-resident parent in the poorest income bracket will have to pay a higher proportion of his income than those who earn more. On top of that will come the 20% collection charge, should that become necessary.

At the same time, the scheme will be more generous to self-employed parents. The Public Accounts Committee recently criticised the fact that the maintenance calculation will be based on taxable earned income for PAYE taxpayers and total taxable profits for the self-employed. Unearned income such as dividend income or rental income will not be counted. The onus shifts to the parent with care to find that out and apply for a variation. It is only at that point that HMRC will be asked to provide details of taxable unearned income, which it presumably must have anyway. I accept that that will not be the case below the threshold, but I am interested in how that will happen in practice.

The PAC report states:

“The Commission should plan to access all information on income when assessing how much maintenance non-resident parents should pay”.

The report explains how in the new system’s maintenance calculations will happen, and continues:

“Relying solely on parents with care to identify such practices by the non-residential parent to ensure all significant taxable income is taken into account is unreasonable when taxpayer data are available to the Commission. The Commission should access all data on all taxable income sources, such as capital gains and dividends, to calculate the maintenance due, not just PAYE information. Where self-assessment data is not filed until later, the Commission should reassess the maintenance due as part of the next annual review”.

This is particularly especially important because—if I have understood correctly, and I may well not have done as I am rather out of date—HMRC data on income will in future be treated as final so there will not be an opportunity for the parent with care to seek a variation on the grounds of lifestyle, which is what I think the Minister was saying at the outset. This means that there will not be an opportunity for a child maintenance assessment to take account of significant non-taxable income, as my noble friend mentioned, such as substantial ISA and savings certificate holdings or a failure to declare income. I am interested in how the Government respond to the PAC’s concern. Will the Minister explain to the Committee how that combination of the fact that this income does not have to be taken into account and the greater difficulty for the parent with care in being able to persuade the authorities to take it into account, should she be aware of it, will be dealt with? What steps will the Government take to make sure that any potential deliberate evasion of maintenance due will be tackled?

Finally, I want to explore what steps will be taken to prepare parents for the impact of the changes. The new calculations seem to be creating considerable losers and gainers among existing CSA clients who move into the new system. Of course, some gain and others lose, but each time that that happens, there are two parties to that transaction, so it is not always a zero-sum game. The department has managed to make it worse than a zero-sum game by taking charging out on top so everyone is potentially worse off. At the very best, it will be a zero-sum game.

When the new historic gross-income method of calculating comes in, around 9% of existing non-resident parents—just over 100,000 cases—could see a rise in liability of £40 or more per week. Around 3% of existing parents with care—some 33,000—could get £40 per week less. These are very significant sums. Given that, what information and advice will be given to parents regarding the impact of the new rules to prepare them for the translation to the new system? Have the Government given consideration to any kind of transitional help? In other changes in benefits or tax credits, or even in the replacement of council tax benefit, the Government have been able to be persuaded that some sort of transitional help should be available because the jumps in the amount people have to pay or the reduction of the amount they receive are simply too great. Why have the Government not been able to come forward with some means of helping parents in this system?

I shall not say any more at this stage, but I should like the opportunity, if necessary, to come back at the end. I hope the Minister will be able to give us a detailed account of these very significant regulations with enormous consequences. I look forward to hearing his response.

[Baroness Howe of Idlicote]

My Lords, because the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Sherlock, have covered almost all the points I was going to make, I shall be very brief. It is estimated that the new system will lose between £3 million and £4 million a month, which is very concerning. Where is that going to be taken from if it continues? We would be very grateful for some reassurances. Although the plan is behind in its full implementation and in the benefit savings that we expected, a little more reassurance on that point would be extremely welcome.

The other point I wanted to stress was this business of the non-resident parent receiving unearned income that was not part of the calculations on which his contribution was being assessed. I have to say that I found it slightly odd that it was now going to be left to the caring parent, the one doing the work, to go out and do the research for themselves—I should have thought that that was a little over the top—and then come back and have the situation looked at again by HMRC to see whether it could make any adjustments. Nevertheless, it would be useful to hear from the Minister that a rather more caring approach should be given to the people who are doing the real job of bringing up the children, and that these sorts of responsibilities should not in future be left to those people to justify action that the Government should be taking on their own account.

18:00

[Lord Freud]

My Lords, the debate has strayed somewhat from these regulations, most substantially into the readiness of IT. I shall try to deal with that issue full on, because it is a fair question.

The concern is that the new system is late and will not work, and the normal things that people get concerned about with IT were raised. There is clearly a balance here to be struck as regards making sure that you deliver what you are intending to deliver in terms of savings and product, and making sure that it works. You fine-tune that as you get closer and closer and you know more. Regarding the timing, as my noble friend said, we were planning to start in October. It will be a few weeks after that when we will really go in on phase one, but in the scheme of things, it is a few weeks late but will come in safely because we are currently testing to make sure that when we start the system is working. The general point I was asked was: will we go ahead before we are confident that the system works? I can give an absolute assurance, and repeat what the Permanent Secretary said, that we will not go ahead until we are confident that the system will deliver for both the client base and the taxpayer.

The first phase will go ahead in a matter of weeks. As regards the numbers that my noble friend was interested in, we will begin incrementally. In the first phase, we will start off with literally 100 or 200 cases a month for the first, say, four months. We then move up rapidly in the next couple of months to 3,000 or 4,000 cases a month. After six months, when we take over all the new intakes, we will be dealing with 10,000 cases a month. That is the planned progression. Again, as regards the question of the noble Baroness, Lady Sherlock, on when we will press the button, I should make it absolutely clear that we will not do so unless we are confident that this works. Everyone here knows the history, and we are as conscious of that as anyone.

I take the question of personal assurance very seriously. For a lot of the computer systems that we are introducing, and universal credit in particular, I will give personal assurance. This system is not actually part of my personal portfolio. Although I am dealing with it for the House, the reality is that I am not sitting on this particular computer system with quite the same ferocity—

[Lord Kirkwood of Kirkhope]

My Lord, that is what worries me. Is it still the case that the target date for the introduction of phase two is July 2013, with a few weeks’ slippage?

[Lord Freud]

We are still on that timetable, absolutely. But we will be flexible as a department. The one piece of advice that the Public Accounts Committee has given to us as a Government, and to the last Government, is to feel our way into these things, to be flexible, pathfind the way and build from there. So we are taking that advice. We cannot have it both ways. This means that there is not a date on which we must press the button, and if we do not press the button on that day we are late, it is a delay and a fiasco. I believe it is wrong of us as politicians to play with computer systems in that way. It is not the right way to do it. We must go in steadily and introduce these systems in a smart, incremental way. That is the lesson that we have learnt from some superhumungous tragedies. When it comes to computer systems, the Government get a lot of the stick for bad computer system introduction. This is because Government computer systems are publically known. The private sector has just as many snafus with computers as the public sector, it is just that they do not make them public.

This ties in neatly to the point about four schemes in parallel, from the noble Baroness, Lady Sherlock. We already have three systems running in parallel, and this new system will be more automated and more efficient than those. By using the pathfinder approach that I have described, the new system will be working well before we introduce it full tilt. If the new system is working and sustainable with the kind of volumes that I described, then we will be able to manage the four systems that we will have under our hand at any one time.

[Baroness Sherlock]

I am grateful to the Minister. As I understand it, one of the arguments for the new system was that, as it would be more efficient, there would be fewer staff needed to run it and it would be cheaper et cetera. I know that that may all be up for grabs, but is the Minister confident that the kind of cuts in resource that CMEC had before its transition will leave enough staff to be able to run this? I understand the point he makes about agile development and wanting to take time to run the system in before shedding its predecessor systems. However there is a danger, as seen both here and with housing benefit. As each new system has come in, everybody has been assured that the new system will be the thing that will render all previous systems unnecessary, but all that has happened is an accretion of systems. I just want to be confident that he feels that he has the resource to manage all these systems for as long as it takes, because otherwise people stuck on the earlier systems could suffer and find their situation getting worse, not better.

[Lord Freud]

Yes, my Lords. The approach is to bring in a new system, which is efficient and automated, at a level that does not consume a lot of resource to start with. You are running your existing systems with the resource that they require. As you ramp up the new system, it starts to establish itself, because you are doing it on a careful pathfinder basis that maintains that automation and efficiency. Then you can start, in practice, reducing the load on the other three systems. That is how you get the gains by doing it, and that is why it is so important to ramp up the new system so that it does not throw a huge amount of clerical work back into the system to compound the clerical overload. We are still running 100,000 cases clerically in one way or another. It may appear a bit smoother to the outside world now, but every £100 transferred is costing the state £35, and that is not something that any Government can tolerate. That is the process: get something efficient; roll it out when you know that it works; build it up; and then start to work down your existing portfolio. That is the process.

The noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, asked about assets and lifestyles. The reality is that that provision was very difficult to use, as everyone involved knows. It was not a successful mechanism for the parent with care to use. Capturing actual income is far more meaningful for parents and far more administratively achievable, which is why we switched over to that approach.

The minimum flat rate of £5 has not increased since 2003 and will remain until the new scheme is fully open to all new applicants. I fully accept the point made by the noble Baroness, Lady Sherlock, about whether it is compatible with UC. At some stage in the future, it may be possible to look at tapers and matching it up, but it is too soon to do that. I accept the general point, but I do not think we are there yet.

The noble Lord, Lord McKenzie, asked about ignoring unearned income in the calculation. We are making the main calculation on taxable employment income, trading income or pension income because HMRC holds that information for the vast majority of taxpayers. Taxpayers who are not liable for self-assessment are not required to declare income of less than £10,000 per year from savings and investments. It would be unfair to take account of unearned income details sourced from HMRC and not pursue parents who had that income but were not required to declare it. Asking non-resident parents to supply that information would be to repeat the delays of the current schemes where non-resident parents are often unco-operative. A parent with care can apply for a variation to take account of unearned income. It is the same with shared care. The noble Lord was right that where it was agreed that there was shared care and the disagreement was about how much it was, the one-seventh assumption would come in. Where there was no agreement that there was sharing, it would have to be done by way of variation.

On taking account of pension schemes, the new scheme will, as now, allow contributions to an occupational pension scheme to be deducted from income, with the resulting figure used to calculate child maintenance. There is no limit on the amount of contributions that can be deducted. That is not a change in the existing system.

[Lord McKenzie of Luton]

I apologise for interrupting the Minister. The question I asked there was: if it is a net pay arrangement, does it get dealt with automatically via HMRC? If it is not, then it requires the non-resident parent to do something, to say, “I am making these contributions and want that reflected”. My question was whether there would be any prompt to the non-resident parent because many would not necessarily know that that was available to them.

While I am on my feet, perhaps I can go back a bit to this issue of variations, lifestyle and all that. We accept the difficulty in identifying unearned income, particularly that which does not have to be reported to HMRC. Why would it not be in every parent with care’s interest automatically to seek a variation on the basis that the non-resident parent may well have some unearned income, simply to see what comes out of the pot? Effectively, HMRC will automatically have to look at that.

[Lord Freud]

May I offer to write on that issue? We are layers down. Rather than dealing with that impromptu I will aim to write, as I will on how the prompts might work for the non-resident parent on their pensions. Again, that is getting to a level of technicality that I do not have at my fingertips. On tax credits, ignoring that loses 100,000 families about £6 a week in maintenance. Both noble Lords made that point. Again, that is an attempt to get rid of a level of complexity and drive through simplicity. We have set the percentages and thresholds to ensure that changes in liability are minimised except where, as a flat rate, we deliberately intended to raise them. We expect more than half of non-resident parents to pay more than under the current scheme.

[Baroness Sherlock]

Does the Minister accept that those who will pay more and the lone parents with care who are getting less may not be the same pairs of people? Obviously one cannot assume that the poorest parents with care are necessarily partnered to the poorest non-resident parents, but actually research shows that broadly speaking it is not uncommon for partnerships to be among people of very similar socioeconomic backgrounds and demographics. Is the Minister conscious that, even if overall many non-resident parents are paying more, the poorest parents with care may end up getting less as a result of the fact that the poorer among the non-resident parents are having this income ignored?

[Lord Freud]

I am not sure I have a precise breakdown within the socioeconomic groups to do that analysis. I will look later to see if I can send the noble Baroness some information on that. I am not sure off the top of my head that I know how that balances out but I will see what I have and include it to the extent that I do.

[Baroness Sherlock]

I am very grateful for that. Also, if that is not the case, I would settle for an alternative justification of the decision.

[Lord Freud]

I will either produce information or a justification.

On the war pension point made by the noble Lord, Lord McKenzie, a war disablement pension is considered a prescribed benefit, in which case the flat rate of maintenance will apply. A parent with care can apply for a variation to take account of any additional income received by the non-resident parent.

On the 12-month rule and the position with the Scottish minutes of agreement, we are in discussion with the Ministry of Justice and colleagues in the Scottish Government to ensure that the statutory maintenance system and the family justice system both north and south of the border work together as effectively as possible in the interests of parents and children. We are hoping to meet family lawyers’ representatives in England and Wales and Scotland to discuss this soon. However, I should say that at this point we are yet to be convinced that there is a compelling case for legislative change.

In reply to the question from the noble Baroness, Lady Sherlock, on the level of information and evidence required from a parent with care to make an application for variation, the link with HMRC means that the department has immediate access to a non-resident parent’s income information, which removes the requirement for the parent with care to supply substantial evidence of the non-resident parent’s financial circumstances. That means that fewer applications will be rejected at the preliminary stage and makes it easier for the parent with care to apply for variations. I believe that I have dealt with all the questions.

[Lord McKenzie of Luton]

Perhaps I may briefly revert to the issue of shared care when it is equal shared care. Obviously if both parties agree that there is equal shared care, they would not be in the system anyway because no maintenance would flow from it. Clearly it is potentially in the interest of the non-resident parent to claim equal shared care because then there would be no maintenance liability. What will the process be for determination of that and whether any form of appeal is attached to it?

[Baroness Sherlock]

One of the questions I asked was in relation to preparing parents in the current system for moving across to the new system, in particular transitional protection. I apologise if I missed the Minister’s answer.

[Lord Freud]

On transitional protection, the basic approach is that these rules have been very difficult to operate and our intention is to have very simple rules that are capable of being applied to the majority of parents. While there may be winners and losers, we expect there to be relatively few large losers. Many of them are likely in any case to go into a family-based arrangement, which may be a better option. That is the reason for not planning transitional protection. We will be providing an expanded service of information and advice to customers before the launch of the new system, to be called “Help and support for separated families”.

The way it will work is that if there is equal shared care and there are no payments either way, both parents have to agree that. If there is no agreement, we will go to the one-seventh proportion; that is, one night of shared care. We will accept verbal information about shared care, but both parents must agree. If they do not do so, we then move into the more formal process.

I am down to a very few issues on which I can now write to noble Lords, otherwise we will be here all night. There will be plenty of opportunities to debate these issues since further debates on the child maintenance system are coming up, and I know that many of us are looking forward to those. However, these regulations are narrow in scope and focus on simplifying the statutory child support scheme, improving the service to clients, reducing the costs to the taxpayer and increasing the flow of maintenance payments to children. I am heartened by the fact that there is support in principle, albeit that I will provide some more detail. On that basis, I commend this instrument to the Committee.

Motion agreed.