Child Support (Miscellaneous Amendments) Regulations 2018
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Baroness Buscombe
That the Grand Committee do consider the Child Support (Miscellaneous Amendments) Regulations 2018.
Relevant document: 41st Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)
My Lords, I begin by thanking noble Lords for bearing with me as I take these regulations through from a seated position. I want to say a particular thanks to the noble Baroness, Lady Sherlock, for giving me early notice of her response to the regulations, for which I am extremely grateful. The regulations were laid before both Houses on 12 September 2018. They enable the Government to make amendments to child maintenance legislation to deliver the new child maintenance compliance and arrears strategy. Let me give the Committee some context and background to the regulations.
The Government introduced a reformed child maintenance scheme in 2012. The reformed scheme provides stronger incentives for parents to work together following separation and, where possible, to make a family-based arrangement for maintenance, avoiding state intervention altogether. The Child Maintenance Service is there for families unable to make a private arrangement. It delivers a simpler scheme, avoiding the problems which beset the previous statutory child maintenance schemes. These draft regulations will strengthen the statutory scheme and introduce measures to prevent parents artificially minimising their child maintenance liability. They will also introduce new collection measures, close loopholes and broaden the sanctions that we can bring against the small number of parents who persistently fail to meet their obligations to their children.
Now that the majority of cases with ongoing maintenance have been closed on the CSA schemes, the Government want to draw a line under the regrettable legacy of the CSA and end the years of uncertainty that families who have historic CSA cases have experienced. For many years, these cases have been held in limbo. The debts outstanding are often small, and in some cases, when asked, parents have moved on with their lives and are not interested in pursuing the debt. These regulations will give parents in certain circumstances a final chance to tell the Government that they still want to consider taking action to collect their debt where it is likely to be possible at reasonable cost to the taxpayer. This will enable these cases to be closed finally in the next few years.
A small number of parents are currently able to lower their child maintenance liabilities artificially, or avoid them altogether, by drawing an undeclared income from assets. Whether this is via loans against the value of bullion or through the acquisition of virtual currency, the cultivation of a cash-poor but asset-rich lifestyle is a rare but growing method of evading child maintenance responsibilities. These regulations introduce new powers to address this problem. Where a client believes their ex-partner possesses the relevant assets, the Child Maintenance Service will investigate, escalating to its financial investigations unit if appropriate. If possession of a relevant asset is confirmed, and the value exceeds £31,250, a notional income will be calculated at 8% of the asset’s total value. This will be added to the total income used to calculate the maintenance due. It is recognised that assets can be acquired for legitimate reasons, which is why this power will be used in only a very small number of cases. The draft regulations protect assets in certain circumstances, including where the asset is used for business purposes or is the primary home of the parent or a child.
It has become evident that some parents are able to place all their funds in joint or unlimited partnership accounts, rendering them inaccessible to our current powers. These regulations extend the Government’s powers to enable the Child Maintenance Service to use regular and lump sum deduction orders in relation to joint and unlimited partnership bank accounts and to use lump sum deduction orders in relation to sole trader accounts. The introduction of this new power will mean that an additional £350,000 of maintenance per year may be collected for children.
To protect the rights of other joint account holders, a number of safeguards have been put in place to prevent deductions being taken from the other joint account holder’s funds. Joint or unlimited partnership accounts will be targeted only where there are insufficient funds in the parent’s solely held accounts. Before action is taken, the last six months’ account statements will be checked to establish the ownership of the funds. In a small number of cases where, despite investigation, it is not possible to establish how much of the funds within the account belong to the parent—for example, because no evidence is furnished as to ownership—a pro-rata approach will be adopted. This will assume that the parent’s share of the funds is equal to that of the other account holders. All account holders will be notified before a deduction order is made in respect of a joint account and given the opportunity to make representations in relation to the funds targeted. The standard representation periods will be 14 days for regular deduction orders and 28 days for lump sum deduction orders. All account holders will also have appeal rights. Further safeguards are in place to ensure businesses have sufficient cash flow to continue to trade. A deduction will not be taken if it would reduce the account balance below a reasonable amount; we suggest, for example, £2,000. There is also a requirement for the Government to review these provisions every five years.
Baroness Buscombe
I thank noble Lords for their contributions to this debate and for the constructive approach that they have taken towards today’s proceedings. I will now respond to some of the key issues raised. I will attempt to do this in order but I doubt whether I will succeed. I will do my best and if I fail to answer any questions, please be assured that we will write to the Committee following the debate.
I wish to put into context the justification for what we are doing. This has not been a quick or easy decision; it has involved exhausting other approaches to deal with the debt. We have also had numerous long debates and discussions within the department in trying to decide the best thing to do. We are talking about huge sums of money here. I say immediately that when considering resources and budgets, the truth is that we have to be proportionate—what is reasonable in the circumstances; what is more pressing; and what is more important. In our department we are already spending 25% of the entire government budget across Whitehall, so we have to think about resources and the degree to which we want to protect and support children going forward versus the difficulty of writing off such a considerable debt. We have to balance that against the fact that if we do not write it off and keep it on our books it would cost us approximately £30 million a year, which would not be money well spent. It has been a difficult balancing act.
Moving all the debt to the CMS IT systems would incur a one-off cost of at least £250 million, without the resources to action it. We have taken various actions to collect this debt, including using debt collection agencies to chase what is owed. More than 63,000 cases were passed to debt collection agencies for them to arrange collection, but after three years we took back 55,000 cases because the DCAs had not been able to make any debt collection arrangements.
This is our approach following exhaustive discussions, debates and thinking through what is fair to the taxpayer. As the noble Baroness, Lady Sherlock, said, the most important thing is to put the children at the forefront of our minds while seeking ways to send out the critical message that no one should cease to be responsible for their children. Enforcement matters.
I say to the noble Lord, Lord Kirkwood, that I absolutely respect his considerable and lengthy involvement on this really important subject. Of course, there have all along been compelling arguments on both sides. It is interesting what he said about the economic environment being different. Maybe there is also a sense that people are becoming more artful in how they seek to avoid their responsibilities, which is depressing. I am not sure what that says but the truth is that we must have the well-being of children at the forefront of our minds. In a sense, yes, these regulations are overdue, so it is important that we look forward. It is also important to say here that they form the first of two packages. We plan to lay a further set of regulations in 2019 to secure the remaining powers to deliver the 2018 compliance and arrears strategy. These will allow us to take a consistent approach to deduction from benefits.
I should explain that the regulations are being laid in two packages because the Social Security Advisory Committee needs to consider the regulations that make changes to deductions from benefits. But we would not wish to delay the rest of the regulations so that we may lay them all together. Those regulations are not yet drafted, so there is still time—I stress this—to take into account any thoughts on these provisions from noble Lords and honourable friends in another place. We welcome any input on that.
Lord Kirkwood of Kirkhope
That is an opportunity perhaps, under an SSAC consideration of the second package of regulations, for affected parents with care and non-resident parents to make submissions to the SSAC scheme later this year. If I understood what the Minister was saying, the Social Security Advisory Committee will undertake a normal consultation and will be looking for people to make submissions for consideration as the committee makes its recommendations. Am I right in thinking that?
Baroness Buscombe
I ask the noble Lord to bear with me, because I do not want to get this wrong. The answer is: only if the committee decides to report the regulations.
I will focus on some of the questions put to me, which are welcome. I start with the question from the noble Lord, Lord Kirkwood, on case closure timescales and the fact that there has been slippage. We are still on course to have ended all existing liabilities on CSA cases by the end of this year, 2018. The noble Lord referenced the NAO report. In that context, it is really important to say that we are continuing to consider the recommendations in the report. The department, in a broader context, has really taken on board that we need to be much better at listening. We thought that we were doing enough perhaps, but there is always more that we can do—within time and resource constraints, of course—but it is very important that we listen.
The noble Baroness, Lady Sherlock, asked how the representations will be sought. Will each parent to whom money is owed be written to individually? Depending on which category a case falls into, a client will receive a different letter or series of letters explaining what is happening and why, and, where appropriate, giving them the opportunity to ask us to try to collect their debt. These letters will be sensitively worded and will acknowledge that this may not be the outcome a client is hoping for. I was asked whether, if there has been a payment in the last three months, we will continue to collect. The answer is yes. If the case is in payment, we will continue to collect any arrears still outstanding for as long as the case remains in payment.
I was also asked whether our power to confiscate passports will be used only in a few cases. We will use this power in a targeted, proportionate way. I noted what the noble Baroness, Lady Sherlock, said about our having tried driving licences and asking whether that worked. The keyword here is “deterrent”. The vast majority of parents, we must stress, willingly pay towards their liabilities; we will seek to apply sanctions only in cases where parents wilfully refuse to pay. This happens only in limited circumstances. As with other enforcement powers, such as removing driving licences, the threat of exercising it can be very persuasive. The threat of denying people a passport is certainly something that stood out, when I first read the draft regulations, as something quite exceptional. I hope noble Lords will agree that it should send out a strong message to those who, frankly, are consistently refusing to take responsibility for their children.
The noble Baroness, Lady Sherlock, and the noble Lord, Lord Kirkwood, enquired about compliance rates for cases of collect and pay, asking what we are doing to improve the figure of 57%. The latest data, published in September, for collect and pay compliance shows it is going up; it is now 62%. Of the £1.85 billion due to be paid since the Child Maintenance Service began, £1.6 billion has been arranged through direct pay or collected through collect and pay while £290 million is currently unpaid—around 12% of the total. This percentage share continues to decline from 12.4% last year and 13.1% two years ago.
The CMS is not the only option available for separated parents to arrange child maintenance; it is there for people who cannot work together to make their own arrangements. The collect and pay service is in place for those parents unable to work together, who are less likely to be compliant. This means that the caseload is smaller but naturally more challenging than the CSA caseload.
The noble Baroness, Lady Sherlock, asked how many cases will be affected by the notional income power each year. We have not made projections on this point, but we anticipate the number to be small as, historically, only a small number of parents attempt to avoid their liabilities in this way. On the question of how many passports we expect to be disqualified every year, the figure referred to indicates that we project 20 applications for all types of sanctions will be made in the year. These include commitment to prison and disqualification from driving. Sanctions must only ever be a last resort; this is not just about how many we pursue but about targeting the right people. The threat often results in payments restarting.
The noble Lord, Lord Kirkwood, asked why the passport power is not being introduced for people in Northern Ireland. I can assure the noble Lord that this is not a particular sop to those resident in Northern Ireland who do not respect their responsibilities for their children. This is not being introduced in Northern Ireland simply because Northern Ireland citizens are entitled to an Irish passport; they have options for dual nationality, which would reduce the effectiveness of the power—they would simply find an easy way around it.
The noble Baroness, Lady Sherlock, asked whether giving periods of representation to account holders would mean that NRPs can move money to other accounts. This change is intended to close down a known loophole. If we intend to deduct a lump sum from a joint or business account, the funds will be frozen during the representation period. If parents move their funds to another type of account—for example, a sole account—we will target that account. If the funds are moved to an account we are unable deduct from, we will use our other strong enforcement measures to collect the debt.