Draft Child Support (Miscellaneous Amendments) Regulations 2018

Justin Tomlinson Excerpts

Monday 12th November 2018 General Committees

[The Parliamentary Under-Secretary of State for Work and Pensions (Justin Tomlinson)]

I beg to move,

That the Committee has considered the draft Child Support (Miscellaneous Amendments) Regulations 2018.

The draft regulations were laid before both Houses on 12 July 2018. The regulations will enable the Department to make amendments to child maintenance legislation to deliver the new child maintenance compliance and arrears strategy.

A comprehensively reformed child maintenance scheme was launched in 2012. The main aim of the scheme is to encourage and support parents to take responsibility for paying for their children’s upbringing. We want parents to work together following separation and, where possible, to make a family-based arrangement for maintenance, avoiding state intervention altogether. Where parents do not meet their responsibilities, the statutory scheme is there to enforce payments.

I am pleased to say that, following careful staged implementation, the new service is working well and avoiding the problems that beset the previous statutory child maintenance schemes. As we have implemented the reformed scheme, we have listened to the issues that hon. Members and external stakeholders have raised. The draft regulations address a number of those issues by closing known loopholes, updating the way in which child maintenance is calculated and introducing a new sanction to target the small minority of parents who persistently evade their responsibilities.

For many years, the old system under the Child Support Agency did not provide the right support to parents and was expensive to run. The majority of cases with ongoing maintenance have been closed in the CSA schemes. I want to provide clarity to thousands of families who have a case in the CSA with arrears. In many of those cases, the children are now adults and the outstanding debts are small. In some cases, when asked, parents have moved on with their lives and are not interested in pursuing the debt. The draft regulations will enable us finally to address all arrears that built up under the CSA, meaning that we can close the cases and end years of uncertainty for the families involved.

A small number of non-resident parents are able to lower their child maintenance liabilities, or avoid them altogether, by drawing an undeclared income from assets. Whether that is via loans against the value of bullion or 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. The draft regulations introduce new powers to address that problem.

Where a partner believes that the ex-partner possesses the relevant assets, the Child Maintenance Service will investigate, escalating to the financial investigation 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. That would be added to the total income used to calculate liability. We expect the use of the power to be appropriate only in a very small number of cases. We recognise, too, that such assets can be acquired for legitimate reasons. That is why we have protected assets in certain circumstances, including where the asset is used for business purposes or is the primary home of the parent or a child.

Some parents intentionally manage their financial affairs around joint or unlimited-partnership accounts, as those are inaccessible to our existing powers. The draft regulations seek to extend our ability 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. Through that new power, we may be able to collect an additional £350,000 a year for children. I want to make it clear that we want to strike a balance between recovering money for parents who are refusing to pay child maintenance and protecting the rights of other joint account holders. To achieve that, a number of safeguards have been put in place to prevent the other joint account holder’s funds being deducted.

Deductions will only be made from joint or unlimited-partnership accounts where there are insufficient funds held in the parent’s solely held accounts. Before action is taken, the previous six months of account statements will be checked to establish ownership of funds. In a small number of cases where, despite investigation, it is not possible to establish how much of the funds in 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 will be given the opportunity to make representations in relation to the funds targeted. The standard representation period will be 14 days for regular deduction orders, and 28 days for lump sum deduction orders. All account holders will have appeal rights. Further safeguards are in place to ensure businesses have enough cash flow to continue to trade. For example, a deduction would not be taken if it would reduce the account balance below £2,000. We have provided a requirement for the Department to review these provisions every five years.

I plan to commence an existing power to enable the Child Maintenance Service to disqualify a paying parent with child maintenance arrears from holding a UK passport. The regulations make further provisions in respect of this power. The measure will only be used where a parent has consistently failed to meet their financial responsibility for their children and all our other enforcement powers have failed to regain compliance. It will operate in a similar way to existing sanctions of commitment to prison and disqualifications from holding or obtaining a driving licence. Given the serious nature of the power, it will be for the court to decide whether to disqualify a parent from holding or obtaining a UK passport. The court has the power to suspend the disqualification order on such conditions as the court thinks appropriate. Although the power will be used only in a small volume of cases, I expect it will be an effective deterrent to secure payments and maintenance as early in the case as possible.

As soon as the CSA came into existence in 1993, debt began to build up quickly. Operational improvements from 2008 onwards halted the lack of growth, but reducing the historic balance has been extremely challenging. Successive Governments have not sought to hide from it, and since 1996 have published information on the client funds accounts on the amount of debt believed to be uncollectable. The latest Child Support Agency client funds accounts for 2015-16 make it clear that £3.1 billion of CSA debt is deemed uncollectable.

Over the years, a number of strategies have been tried to collect the debt, including using external debt collection agencies and offering parents the option of making a part-payment, but none has been successful in getting money to children. The regulations include changes that help to deliver certainty to parents by attempting a final collection of their debt, where they want it and where such action is likely to be cost-effective for the taxpayer.

For a case to be in scope for the regulations, the debt must have accumulated on either the 1993 or 2003 CSA cases; it must be an arrears-only case, where no maintenance is due for a child currently; and it will not have received a payment within the past three months. Where a case started on or before 1 November 2008 and has over £1,000 arrears, was over £500 if the case started after 1 November 2008, or the arrears were accrued under the CSA but have transferred to the Child Maintenance Service system and are more than £500, we will write to the parent the money is owed to and ask if they would like us to make a last attempt to collect the debt. Parents will be given 60 days to tell us that they want us to attempt to collect their debt. If representations are not received within the 60-day period, the debt may be written off.

The regulations will enable the CSA debt to be written off without seeking representations where it falls below the prescribed thresholds. That is because it would not be cost-effective to attempt to collect the debt below these levels. There are different thresholds according to the age of the debt, as the older the debt, the harder it is to collect. Where such debt is written off, both parents will be notified. Where the debt is below the value of £65, the regulations will enable the debt to be written off without notice to either parent. That is in line with the current threshold used in my Department for debts owed to the Government.

Finally, if a case of debt subject to sequestration—Scottish insolvency—these regulations will enable it to be written off when the sequestration expires. This will apply to all child maintenance schemes if the debts become legally uncollectable due to the way in which sequestration operates.

In conclusion, the launch of the Child Maintenance Service has gone well, but we now need to build on that success. We propose to do that by first widening our enforcement powers, closing down known loopholes and sending a clear signal that we will pursue those who fail to meet their obligations to their children. Secondly, we will not back away from the hard choices. We will commit to tackling the arrears that represent the legacy of the CSA and will do so in the way that best balances the interests of parents and the public purse. I commend the regulations to the Committee.

--- Later in debate ---

[Justin Tomlinson]

I pay tribute to the MPs across all parties who have engaged with me on this subject; since I became a Minister it has been probably the most popular topic. Colleagues have even sat through some of the presentations with me as we have developed the regulations. Their experience, either through individual casework or with people with a lot of knowledge in this area, have helped to shape these regulations. All the contributions recognised that the absolute priority must be the children. There is much that we agree on. It is disappointing that the Opposition do not support the regulations because they send a crystal-clear message to the tiny minority of parents who choose to avoid their responsibilities.

I will try to cover the points raised. The historical debt is about £3.1 billion. It would cost us somewhere in the region of £1.5 billion to pursue all that debt, some of which is many decades old. Estimates are that we would get back between £0.1 billion and £0.6 billion, because of the nature of that historical debt. The absolute key is that we learn the lessons. That is why the CMS was brought in, and it is making a difference. In the first five years of the CMS, about £113 million was owed; in the first five years of the CSA, £1.5 billion was owed. That is a considerable difference. In March 2015, arrears were about 17%; they were 13.3% in 2016, 12.5% in 2017 and 12.1% in March 2018. I do not want to tempt fate, but the last available statistics from June 2018 show it was down to 11.8%.

There is still much more to do, but these regulations are part of the ongoing journey. This will not be the last time that we introduce regulations that are shaped not just by cross-party MPs but by the stakeholder organisations, including Gingerbread, which the shadow Minister rightly credited for the work it does in this area. I have met Gingerbread; we listened the experience it offered. The issue of three months of no payments refers only to the CSA historical debt, not the ongoing CMS or, in effect, live case, when that would not apply.

On enforcement and, in particular, why we do not take lifestyle into account, that would be a blunt tool. This may also cover the point made by my hon. Friend the Member for Gloucester, because in some cases people might have a flash car but on investigation it is found to be fuelled by debt or is not their car. Rightly, therefore, we have brought in the financial investigation unit, so that we can investigate if receiving parents notify their caseworker if they feel that there is evidence of lifestyle inconsistency. The highly trained specialist team from the unit will now be able to look at that and, if they find grounds for changes, they will take enforcement action.

On the specific point about passports, I must stress that use of that power is a last resort, once we have exhausted all other enforcement powers. Maximum enforcement lasts for two years, and it must be granted by the court—not by us—so there are numerous safety checks in place. We used to rely on the removal of driving licences. Not unreasonably, however, the paying parent often argued, “If you take my driving licence away, I won’t be able to earn and you won’t get another penny from me.” We think that this might be a better way. We hope that it is a sufficient deterrent and is used only in a very small number of cases.

On assets outside the UK, yes, absolutely, they may be considered. On notional income, that would be applied at 8%, not on the primary home, because we work on the assumption that the child and the paying parent live there, but if they have another home and, for whatever reason, the paying parent decides not to charge rent on it. The example given was of an asset from parents given as a goodwill gesture. We would then attribute what we believe to be fair, which is the notional income of 8% derived from that asset. That would be added to the paying parent’s total income for the year, which is used for the calculation of the child maintenance.

The point about targets has been raised with me before, and I understand why—as Governments, we set targets for pretty much everything we do. To be crystal clear, we publish all data, so that all organisations may look at the data and draw their own conclusions. We do not want to set an artificial target, however, because we do not want to create perverse incentives—if we say, “X per cent. has to be enforced”, we might seek to go after easy targets, rather than some of the tricky cases, in particular those of the most vulnerable people for whom it would make a real difference. The key that drives us is to get those arrears down, to act as quickly as possible and to ensure that the child, through the receiving parent, gets the full amount of money to which that child is entitled.

On charges, too, we have had representations, and we undertook a review. What is key, however, is that in an ideal world we would never be needed—all parents would be able to find an amicable way to resolve their differences and to ensure that a fair amount is paid, because that benefits the children. We would all agree on that. The modest charges—bear in mind that my Twitter feed sometimes tells me that the fees are a hugely profitable exercise—cover about 2% or 3% of our total costs. They are a nudge exercise to encourage people to find an amicable way to agree. That can happen—time heals—and we want that in place.

One of the changes that we have made is to go the other way. For example, given those points made about whether Direct Pay always works, we now proactively contact those on Direct Pay through text messages to say, “If you are having problems, contact us, and we can look to change that to collect and pay.” We are ensuring that people, the less confident in particular, are not left without receiving the money that they should be. We can act far quicker than in the past.

On domestic abuse, I am very proud that I have ensured that Women’s Aid is helping to develop training for all our staff, so that they can identify those who might be victims of domestic abuse, which comes in all forms. The administration fee would be waived, and we may take people’s word for it—this is not something that has to be proved strenuously. Through the training, where appropriate, we will then signpost and even—if this is felt to be the right thing to do—contact the police, to alert them to what is happening.

On sole traders, we have trained staff who may use their discretion. I absolutely understand the point about cash flow not necessarily being profit, so they will look into a business not being made unsustainable, which would remove the ability to pay income in future.

We have introduced the measures to continue to build on the success of the reformed child maintenance scheme. Their introduction will send a clear message to parents who go to great lengths to avoid financial responsibilities to their children. Now that the reforms are embedded, it is right to take action to address the historical arrears, allowing us to draw a final line under the problems of previous child support systems and to focus on controlling arrears under the Child Maintenance Service so that they never reach the levels seen in the CSA schemes. The draft regulations will give us the opportunity to offer parents a final chance at collection, where cost-effective to do so and we can be reasonably certain that action would be successful. I commend this statutory instrument to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Child Support (Miscellaneous Amendments) Regulations 2018.