Child Maintenance (Assessment of Parents’ Income)

1st reading: House of Commons
Tuesday 28th November 2017 Commons Chamber

Motion for leave to bring in a Bill (Standing Order No. 23)

14:12

[Heidi Allen (South Cambridgeshire) (Con)]

I beg to move,

That leave be given to bring in a Bill to equalise the assessment and enforcement of child maintenance arrangements of children of self-employed parents with those of children of other employed parents; and for connected purposes.

In introducing the Bill, I am following in the steps of David Burrowes, who, until the recent general election, was the Member of Parliament for Enfield Southgate. Let me explain the Bill’s purpose in plain language.

One of the greatest privileges in my role as a Member of Parliament has been meeting and getting to know four brave mums in my constituency. I call Melissa, Sue, Kate and Jo-Anne my super-mums. As well as being fabulous women and wonderful mothers, they all have one thing in common: having split up from the fathers of their children, they have all had to fight, and are still fighting, for fair maintenance payments. The aim of the Bill is to ensure that the parents and children who find it hardest to be awarded a fair child maintenance arrangement are better supported by a system with proper teeth. Whether paying parents have complex finances, are hiding their true incomes to avoid tax or are simply determined not to pay maintenance, this Bill is for them.

When parents split up, the Child Maintenance Service can help them to work out a fair payment schedule for their children. When the split is amicable and sensible, the system works well, but if paying parents want to avoid paying, they can do so all too easily—and all too often—by hiding behind self-employed status. By hiding their income, they are not only denying their children the financial support that they deserve, but defrauding Her Majesty’s Revenue and Customs, and, in many cases, forcing the parents with care on to benefits. That is a double hit to the taxpayer. The country loses out on tax, and instead pays out to support the receiving parents. The purpose of the Bill is to ensure that the statutory child maintenance system works for as many families as possible by closing that loophole.

The Child Maintenance Service, which was introduced recently by the Department for Work and Pensions, replaced the old Child Support Agency. In straightforward cases involving a traditionally employed paying parent, it works well. A standard child maintenance calculation under the CMS is based on HMRC’s “gross taxable income” data. That usually means gross earnings from employment or self-employment, with pension contributions deducted. However, the system does not work when the paying parent takes income in other ways—unearned income from, for instance, trusts, dividends, rental income, individual savings accounts, assets, or capital gains from property sales: essentially, any income that does not show up on HMRC records.

I suspect that you are starting to get my drift, Mr Speaker. If it is not shown on HMRC’s records, it is not seen by the CMS. The current system does not work if paying parents are evading tax and not declaring their income to HMRC. In such cases, the amount of child maintenance that the CMS deems a paying parent to owe may be negligible. Receiving parents may be struggling to make ends meet while seeing their exes buy new cars, take holidays and lead luxurious lives with new families. The mum who brought the issue to David Burrowes’s attention was Elizabeth Green. In her case, her ex had organised his finances in such a way as to pay the minimum statutory sum—just £7 a week—but was found to be a multimillionaire and the owner of multiple properties. My super-mums have had similar experiences.

The old CSA system had a component entitled “lifestyle incompatible with earnings”, which allowed the CSA to challenge income if there was evidence of a more comfortable lifestyle than the declared income suggested. I do not understand why, but that feature has been removed in the new CMS system. The right hon. Member for Birkenhead (Frank Field), who is one of the Members who have kindly added their names to my Bill, told me recently about a constituent whose application for tax credits had been called into question by HMRC because it believed that her standard of living was too high for her to qualify. That ably demonstrates that HMRC has the capability to question income and allege fraud. It must therefore be able to extend that power to ensure that appropriate child support payments are made.

This simply cannot be right. I do not seek to demonise the self-employed or the wealthy—most parents living apart from their children do pay what they owe—but as the Government rightly turn their attention to the growth in self-employment and the new challenges that that brings in terms of systems, law and taxation, and as they also crack down on tax evasion, now is surely the time for the Child Maintenance Service’s rules of engagement and enforcement powers to change.

The Work and Pensions Committee, of which I am a member, has already looked into this issue. Much of what we found highlighted the challenges associated with the growth of self-employment and the potential that it creates to hide true earnings. As child maintenance evasion often goes hand in hand with tax evasion, it seems inefficient and ineffective not to combine forces with HMRC in a proactive way. The Government must surely consider that—especially given that the CMS’s financial investigations unit has so far conducted only four investigations, just two of which have resulted in action.

This is not a difficult concept to grasp. Parents can see with their own eyes when their exes are living beyond their declared income or assets. For example, a constituent of mine paid just a few pounds to access a public search facility at Companies House that showed as clear as day that the father had drastically under-declared his income through creative company and dividend manoeuvring.

We must act on this exploitable flaw in the system, or instead allow parents to take their cases to the family courts. My super-mums have all trodden that path, only to find that the CMS is not obliged to uphold the courts’ judgments. I know that the Government are serious about tax evasion, so the current loophole in the CMS process makes absolutely no sense. The CMS must either join up with HMRC, or let the courts do their job: it must be one or the other.

In response to our Committee, the Government have said that they will consider how they can include all sources of income in the CMS calculation. That sounds encouraging, but, in the absence of the promised new arrears and compliance strategy, the Bill can be the vehicle to effect the changes that are so desperately needed by introducing measures to help struggling parents and children to secure the maintenance that they deserve. Child maintenance lifts a fifth of single parents on the lowest incomes out of poverty. It provides a lifeline for parents and children, whether that means putting a roof over their heads, covering childcare costs, or enabling children to take part in school trips. It also saves taxpayers’ money.

A child maintenance system with teeth will also offer protection to parents and children when there has been a history of abuse and control. Some cases are high-conflict, involving parents who are determined to avoid their liabilities. That can be a means of continuing to exert control, just as they used to when the parents were still together. Coercion, domestic abuse and ongoing manipulation are the backdrop for the most vulnerable parents who turn to the CMS, and in those cases the state must step in. The fixes are obvious, and dovetail comfortably with the Government’s determination to crack down on tax evasion, while also getting a handle on our rapidly growing self-employed economy.

I urge Members to allow the Bill to be read a second time.

Question put and agreed to.

Ordered,

That Heidi Allen, Antoinette Sandbach, Mr Ranil Jayawardena, Stephen McPartland, Suella Fernandes, Frank Field, Layla Moran, Neil Gray, Kit Malthouse, Mrs Cheryl Gillan, Kevin Hollinrake and Mr Steve Reed present the Bill.

Heidi Allen accordingly presented the Bill.

Bill read the first time; to be read a second time on Friday 23 February 2018, and to be printed (Bill 133).