Child Support and Claims and Payments (Miscellaneous Amendments and Change to the Minimum Amount of Liability) Regulations 2013

Lord Freud Excerpts

Wednesday 12th June 2013 Grand Committee

Moved By

[Lord Freud]

That the Grand Committee do report to the House that it has considered the Child Support and Claims and Payments (Miscellaneous Amendments and Change to the Minimum Amount of Liability) Regulations 2013

Relevant document: 2nd Report from the Joint Committee on Statutory Instruments

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

My Lords, this instrument was laid in draft before the House on 20 May 2013, and I confirm to the House that I consider it as being compatible with the European Convention on Human Rights.

The minimum amount of liability, more commonly known as the flat rate, is applied to non-resident parents whose gross weekly income is more than the flat rate itself and less than £100 per week. It also applies to all non-resident parents who are in receipt of certain prescribed benefits. The flat rate was set at £5 in 2003 and has not been uprated since. The Child Maintenance and Other Payments Act 2008 made provision for increasing the flat rate of child support for cases dealt with under the rules of any scheme established under the terms of the Act. The change has yet to be brought into force.

The increase provided for in the 2008 Act was from £5 to £7. However, because the 2012 scheme launched as a relatively small-scale pathfinder when it began on 10 December 2012, technical changes were applied to the 2012 scheme calculation regulations to ensure that the flat rate remained at £5. The flat rate for the 2012 scheme will remain at £5 for the duration of the pathfinder and will increase only once the 2003 scheme closes to new applicants. This is to ensure that all new cases will be subject to the same flat rate, regardless of whether they are directed to the 2012 scheme pathfinder or the 2003 scheme.

It is intended that the increase to the flat rate made by the 2008 Act will be brought into force later in the year, when the 2012 child maintenance scheme is opened to all applicants. This instrument makes certain consequential amendments as a result of that increase. The policy intention behind the increase is primarily that the value of the flat rate should be restored to its 2003 real value. This will reinforce the principle that parents have an obligation to support their children where they have the means to do so.

At £7, the increased flat rate will represent broadly the same value as the £5 flat rate when it began. For example, when the flat rate was introduced in 2003, £5 represented 9% of the benefit of a single person over 25 years of age on jobseeker’s allowance. The annual uprating of benefits has meant that the same £5 represents just 7% of the benefit of a single person over 25 years of age on jobseeker’s allowance. A flat rate of £7 represents 10% of the benefit of a single person over 25 years of age on jobseeker’s allowance, restoring the value of the 2003 flat rate.

The proposed flat-rate increase will also amend the percentages applied to the reduced rate of child support maintenance payable if the non-resident parent has an income of less than £200 but more than £100. This will mean that the maintenance liability of parents on the reduced rate will increase in order that the reduced rate continues to smooth increases in liabilities between the flat rate and the basic rate, which is used for those parents earning £200 or more. The Government are also committed to a wider review of the child maintenance calculation formula, with a particular focus on work incentives, once we have delivered the current raft of reforms.

The regulations before us also make miscellaneous amendments in relation to variations, which are those rules that allow for a deviation from the usual child maintenance calculation rules in certain limited circumstances. A variation could increase or decrease a child maintenance liability. For example, if a parent receives unearned income from property, savings and investments or casual earnings, this could increase their liability. On the other hand, if they incur special expenses, such as the cost of travelling to see a child, or boarding school fees, this could reduce their liability. I should make it clear that the changes contained in these regulations affect only those variations that increase liability.

The 2012 scheme is designed to work with historic income information obtained annually from HM Revenue and Customs. The changes proposed will allow that, where the information cannot be obtained electronically from HMRC, we will be able to determine unearned income by reference to information supplied by the parent in relation to the most recent tax year. This change will make for a more efficient means of obtaining reliable unearned income information and therefore allow for a more accurate calculation of maintenance liability.

In addition, the amendments will clarify that where a variation would decrease a non-resident parent’s income for child maintenance purposes to the point that their liability would fall to below the flat rate, even if the variation is agreed, the amount of maintenance that the parent will be liable for will none the less remain at the flat rate. This is in order to strike a balance between reducing liability to take account of special expenses and ensuring that children continue to benefit from some financial support. It puts children first. This will also ensure consistency between a non-resident parent who has their maintenance reduced to the level of the flat rate through a variation and a non-resident parent on the flat rate. A non-resident parent in the latter situation cannot apply for a special expenses variation.

As has always been the practice throughout the development of the 2012 scheme regulations, we have undertaken extensive stakeholder engagement. The proposed increase to the flat rate was subject to a formal consultation in 2011, and stakeholders made it clear that they believe that an increase in the flat rate to £7 is warranted. We have met stakeholder groups since that consultation, and on careful reflection we are persuaded by their arguments and have decided that the flat rate should increase to £7. We will closely monitor the regulations, along with other child maintenance policy changes, to ensure that all the activities in the new 2012 scheme are delivering the intended outcomes.

I hope that that short opening speech reassures the Committee that the changes we have proposed are sensible ones that have been developed with the aim of delivering an efficient statutory child maintenance system. These changes will ensure an appropriate increase in the amount of maintenance flowing to children. They will also make for a more efficient and accurate variations regime. I commend the instrument to the Committee.

[Baroness Sherlock]

My Lords, I thank the Minister for his introduction of these regulations. We could hardly oppose provisions enabling the increase in the flat-rate maintenance amount from £5 to £7, as they flow from the 2008 Act, which was the legislation of the previous Government. The Government were right to listen to stakeholders and to draw back from their original intent of increasing that to £10. As the Minister has indicated, the £7 figure will keep the amount at about 10% of the basic over-25s JSA rate, and the increase should therefore mean more money for children.

I understand from both the documentation and the Minister’s introduction that the regulations are not intended to come into force until the introduction of the 2012 scheme, so the utilisation of gross income in the calculation is used “for all purposes”. Perhaps the Minister could clarify that; otherwise I will have to read the record to see when exactly this is going to come into force. Is it intended to refer to the time when the 2012 scheme is open to all new applicants or the time when the 2012 scheme will have replaced the 1993 and 2003 schemes? If the latter, could he clarify now when the Government expect that to take place?

We have also heard that the regulations cover other “consequential” matters. As the Minister indicated, one of these is the revised rate calculation that applies where the non-resident parent has income of between £100 and £200. The rates in the regulations are lower than those provided for in the 2012 regulations, and perhaps the Minister could explain why. I imagine that it relates to the effect of raising the flat rate but it would be helpful if he could confirm that, as well as setting out the impact on the levels of child maintenance liability for non-resident parents earning between £100 and £200. I would be grateful if he could give some indication of the range of changes—what is the smallest and largest amount by which the future liability will differ from the past? That would give us an indication of whether they are indeed large or small in their impact. I would also be grateful if the Minister could confirm what would happen to someone earning precisely £200. Is there any danger of a cliff-edge when someone moves from below £200, where the reduced rate applies, to £200 where the standard rate will apply?

--- Later in debate ---

We acknowledge the announcement that no charging will be introduced until the 2012 system is open to all applicants and is seen to be working well. The announcement that the collection fee for parents with care is to be reduced from 7% to 4% is a step in the right direction, but not far enough However, most of that is for another day. If the regulations do what the Minister has described and what the Explanatory Memorandum describes, we do not have any objection to them.

[Lord Freud]

My Lords, before I aim to answer most of those questions, it is worth briefly reflecting on where we are with the rollout of the 2012 scheme. As the noble Baroness said, we began a pathfinder in December which was open to new applicants with four or more qualifying children. That has allowed us to micromanage each case so that we are confident that our system and processes will work as we intend. As the noble Baroness will know, we are adopting that structure with all of our reforms so that we are really able to see what happens as we take each person through. By definition, in the early weeks, numbers are intentionally small. We are monitoring and observing the results of that pathfinder so that when we open it much more widely it will work efficiently. I know that the noble Baroness will be as keen as I am for all those systems to work smoothly when we do them in volume.

The timing is that we will open to new applicants with two or more qualifying children—in our jargon, Commencement 2—later in the summer. We will move to all new applicants—in our jargon, Commencement 3 —by the end of 2013. It is at that point that we will increase the flat rate of maintenance. As part of our wider reforms, we are making good progress in implementing the help and support for separated families initiative.

In November 2012, we launched the Sorting out separation web app, which directs people to information and support on the range of issues that they will face after separation. We have also launched the Help and Support for Separated Families mark, which helps parents identify the organisations that they can trust to help them work together; and an innovation fund, which will test and evaluate interventions designed to help separated parents work together and reduce conflict. The first contracts in this fund have recently been awarded to seven voluntary and third-sector organisations, and will give around 280,000 separated families creative and targeted help to collaborate in their children’s interests.

Last month we tabled a Written Ministerial Statement outlining important changes to child maintenance reform. As well as the announcement of our intention to use the £7 rather than the £10 flat rate for the non-resident parent, we announced a reduction in the proposed parent-with-care collection fee from 7% to just 4%. Both changes were the product of an extended period of consultation and reflection, and we have been at pains to ensure that our changes are seen to be fair to both parents. On the outstanding question of how the £100 and £200 figures work together, the reason for the different rates is that they are on top of a different basic amount. The calculation is done not as a pure calculation but on flat rate-plus. There are some variations, but broadly it comes out at much the same level. Let us take the example of a non-resident parent with one qualifying child and no other relevant children and put them in the middle of the range at £150. The current rate would be £14.50, which is the £5 flat rate plus 19% of the £50. That comes out at 9.7% of their gross income. Moving to a flat rate of £7, the same person would pay £16.50, or 11% of their gross income. That is how the sum works. It is impossible to absorb these sums verbally, so I would be very happy to lay them out in a letter to the noble Baroness. That would make them clearer—but broadly, that is one effect.

The noble Baroness asked a very subtle question about the difference between £199.99 and £200.01. There is no cliff edge there. There are quite a lot of factors, and some little bumps here and there. Again, the easiest thing would be for me to write with a few examples so that the noble Baroness can study them on paper. However, I can say that the structure is relatively smooth and that certainly there is no cliff edge. On how widespread we are expecting this to be, where there is a glitch in the system and, for whatever reason, we cannot get a particular piece of information, we are ensuring that there is another way through. We are not anticipating large volumes on this, but one has to have it as a baseline defence. Clearly, this is a different system to RTI. This system was created rather before universal credit was a gleam in anyone’s eye. We do not have this monthly process which UC depends on. It is a different annualised process. It will be up to a future Government at some stage to look at whether it makes sense to use similar systems. However, there is no relationship whatever between the systems under UC and this.

I have dealt with all the specific issues and look forward to getting some interesting tables in a letter to the noble Baroness. I hope that today’s discussion reassures noble Lords that the changes that we have proposed are sensible and have the aim of delivering an efficient statutory child maintenance system. They will ensure an appropriate increase in the amount of maintenance flowing and will make a more efficient and accurate variations regime. I therefore present to you a set of regulations which, if approved by noble Lords, will come into force when the 2012 scheme opens to all applicants later this year. I beg to move.

Motion agreed.