Child Support Maintenance Calculation Regulations 2012

Lord Freud Excerpts

Monday 15th October 2012 Grand Committee

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.

--- Later in debate ---

[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.