Child Support Fees Regulations 2014

Lord Freud Excerpts

Tuesday 4th February 2014 Grand Committee

Moved by

[Lord Freud]

That the Grand Committee do consider the Child Support Fees Regulations 2014.

Relevant documents: 18th Report from the Joint Committee on Statutory Instruments, 23rd and 27th Reports from the Secondary Legislation Scrutiny Committee

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

My Lords, I will speak also to the draft Child Support (Ending Liability in Existing Cases and Transition to New Calculation Rules) Regulations 2014.

These regulations were laid before both Houses on 2 December 2013. They enable the department to charge application, collection and enforcement fees for the statutory child maintenance scheme introduced in 2012, which is delivered by the Child Maintenance Service. They also make provision for the department to close cases on the 1993 and 2003 schemes delivered by the CSA, and specify the means by which existing clients must exercise their choice to make an application to the 2012 statutory maintenance scheme. I am satisfied that these instruments are compatible with the European Convention on Human Rights.

Before addressing the regulations in detail, I should emphasise that the programme of reform began in 2006 when Sir David Henshaw delivered an independent report on the future of child maintenance. In his report, Sir David recommended stopping using the CSA as a default option for parents, and introducing charges to provide both parents with an incentive to collaborate. Since then, as part of our reform programme, we have ended compulsion on parents on benefits to apply to the CSA, secured the powers to introduce a new child maintenance system and introduced a full disregard of child maintenance for the purpose of assessing benefit entitlement from 2010.

All these actions have been about helping parents to collaborate in the best interests of their children and to reduce levels of conflict between parents after a separation. This is because evidence suggests that children do better when their parents work together. We are taking a twin approach to increasing the number of parents who work together after a separation to agree child maintenance rather than relying on state intervention. First, we are supporting them to work together on not only child maintenance but the whole range of issues faced following a separation. Secondly, we are incentivising them to think twice about whether they could set up a more collaborative family-based child maintenance arrangement without automatically turning to the statutory scheme.

We are therefore reforming the child maintenance landscape to put collaboration and family-based arrangements at the centre. We are investing £14 million in the Help and Support for Separated Families initiative, directing parents to the support they need during and after separation. For those unable to make family-based arrangements, the new, faster, more efficient 2012 statutory scheme, delivered by the Child Maintenance Service, will be there. The 2012 scheme has a built-in HMRC interface.

We opened the 2012 scheme using a pathfinder approach in December 2012 and, following assurance that the processes, procedures and client interfaces were working well, we opened the scheme to all applicants on 25 November 2013. Those making an application to the statutory scheme will be invited to enter into a discussion with the Child Maintenance Options service, which provides free, impartial information and support on the various ways to set up maintenance arrangements. This conversation gives parents the information they need to consider what is the best arrangement for them.

We propose to introduce fees for those wishing to apply to the 2012 scheme and for continuing to use it. Sir David Henshaw’s report recommended this as a balanced incentive. His argument was that people are more likely to consider whether a service is necessary for them if a charge is applied for it.

Evidence shows that more than half of parents with care using the Child Support Agency could reach their own family-based arrangements with the right support. We launched a consultation on the draft Child Support Fees Regulations 2013 and the draft Child Support (Ending Liability in Existing Cases and Transition to New Calculation Rules) Regulations 2013 to seek feedback on our proposals, and published the Government’s response in November 2013.

We listened carefully to the feedback and reduced the proposed application fee from £100 to £20. Vulnerable applicants who declare that they have experienced an incident of domestic violence or abuse and have reported it to one of the organisations named in the guidance referred to in the regulations will be exempt from paying the application fee. Those under 19 years of age will also be exempt.

We have reduced the parent with care collection fee from the proposed “7 to 12%” to 4%. By reducing the fee to 4%, we have shifted the balance in favour of the parent with care even further so that it stands in a one-to-five relationship with the 20% non-resident parent fee. It is also charged only on money actually collected. It is the non-resident parent who faces by far the highest charges, reflecting the fact that they have greater control over whether they use the collection service. We believe that both parents should make a financial contribution towards the cost of the service. The proposed fees will bring in revenue of £170 million per year. This is a financial contribution towards the cost of the service, which remains heavily subsidised by the taxpayer.

We wanted to ensure that there was provision to enable parents who need to use the statutory scheme to avoid ongoing collection fees. We have therefore introduced Direct Pay. Direct Pay is where the Child Maintenance Service calculates the amount payable and the non-resident parent makes payments directly to the parent with care. Direct Pay will provide a way for parents to access the statutory service in a way that can help rebuild trust between them. We are also proposing enforcement charges for non-resident parents to encourage them to comply with their commitments and to help to offset the cost of administrative action to enforce compliance. The current system offers no financial incentive for non-resident parents to pay in full and on time.

There are currently three statutory schemes in operation: the 1993 and 2003 schemes, delivered by the CSA, and the new 2012 scheme, delivered by the Child Maintenance Service. We propose that cases will close on the 1993 and 2003 statutory schemes. We considered the responses to the consultation on these regulations and have altered our initial approach.

The main change is the order in which cases are selected for closure. The details of this order are included in the scheme that accompanies these regulations. We will divide the caseload into five segments and close them sequentially. To summarise: the first cases to be closed are those where the non-resident parent is assessed to pay a nil amount, followed by those where the non-resident parent is non-compliant. The next cases to be closed will be those handled off the system, followed by the remaining compliant cases.

The final group of cases to be selected will be those where there is an enforced method of payment in place, or legal enforcement action ongoing. Non-resident parents in this category will be invited to undergo a positive test for compliance. They will be required to demonstrate their ability to pay voluntarily for a period of six months. This will inform the department’s decision as to whether they should be allowed to pay the parent with care directly, and avoid collection fees, if an application is made to the 2012 scheme.

This programme of reforms aims to promote collaboration between separated parents in order to ensure that their children achieve the best outcomes in life. We have consulted on both the fees and the case closure proposals, changing our initial proposals on fees and the sequence in which cases will close. I have held two briefing sessions in the House of Lords with the aim of keeping noble Lords fully informed on the reform programme.

I understand that introducing fees to encourage collaboration is a significant change, but emphasise that under Section 141 of the Welfare Reform Act 2012 we have committed to reviewing the effect of the fees regulations within 30 months of their coming into force, and to laying a report about the conclusions of that review before Parliament.

I spoke earlier of the careful way in which we introduced the 2012 scheme. We will continue with this approach, and will not introduce fees or begin the process of closing cases on the 1993 and 2003 schemes until we are confident that the 2012 scheme is working well. We anticipate that this will be in the summer. Those on existing child maintenance schemes will have already been told about case closure and the introduction of the charging of fees. We will not begin charging collection fees until six weeks after the regulations come into force, so anyone affected will have plenty of notice about when the collection changes will begin to affect them personally. I beg to move.

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We are left with a good many questions here. I hope that the Minister can answer them all today—if he cannot, perhaps he will write to us. If he finds that he is unable to answer them, I wonder whether he might think again. In particular, I very much hope to hear the Government tell me that I have missed, which I may well have done, the fact that they have set themselves an overriding objective to increase the flow of maintenance to children as their principal policy aim. If they do that, a number of the other questions may come out in the wash.

[Lord Freud]

I thank noble Lords for a set of very interesting contributions to this debate. It is clear that a lot of thought has gone into this area and it has provided a very constructive approach, not just today but over a considerable time. I therefore need to respond to as many of those issues as I can.

As I said initially, and as the statement read out by my noble and learned friend Lord Mackay confirmed, we have consulted on these two sets of regulations and taken views into account. We have changed our initial proposals on fees and on the sequence in which cases will close.

I want to reflect initially on the contributions that my noble and learned friend Lord Mackay has made to the development of these policies. He has made a series of suggestions, both publicly and privately to us, aimed at improving the scheme and helping children. We have listened very carefully to his representations and taken action to reduce the strain on the parent with care. Although my noble and learned friend has made clear his view that the balance is still tilted towards the taxpayer at the expense of the parent with care, I hope that there is agreement that this is a question of striking the right balance and that it is appropriate that we do that by considering actual behaviour.

First, as a result of the consultation, we have amended our proposals for case closure by putting back those cases where parents within the statutory service have most to lose. We have put to the end of the case closure process those cases where money is flowing, which often follows hard-fought compliance, and the flow is maintained only by enforced collections. We have done this to ensure that money keeps flowing and compliance continues. These cases are most likely to fall into the category that my noble and learned friend is most concerned about, where parents with care find themselves unable to establish workable direct payment arrangements regardless of their willingness to do so.

Secondly, the 30-month review allows us to consider actual behaviour, to check that the impact of the reforms is as expected and to provide an indication of whether there are any unintended consequences for clients or the taxpayer. We intend to evaluate the overall impact of the child maintenance reforms in wider society, including the impact on overall maintenance outcomes. Our approach to the review is to use existing survey and administrative data sources where possible, combining these with internally and externally commissioned quantitative and qualitative research where necessary.

Our aim is that the child maintenance system in Great Britain should work better. We are going to focus on the impact on children of these changes. A key criterion for success of our reforms, which will be tested in the 30-month review, would be to increase the number of children benefiting from maintenance. Our estimates suggest that this number should rise, and we look forward to having this confirmed by the review—a point that the noble Baroness, Lady Sherlock, was particularly interested in. If there are fewer children receiving child maintenance as a result of our charging regime, this will be made clear by the 30-month review and we could consider what changes might be required. By that time, we will know how people will behave and refinements to the system, along the lines that my noble and learned friend Lord Mackay has recommended to us in the past—in other words, segmenting the caseload into “can make direct pay arrangements” and “cannot make direct pay arrangements”—can be considered on a more informed basis. To introduce this complexity at this stage would add delay to bringing the benefits of the new system to parents and further complicate the Child Maintenance Service’s processes.

Pressing ahead with the reforms will mean that more children will be better off, as our estimates suggest that there will be an increase in the proportion of positive outcomes for clients on the statutory scheme. This is due to more availability of data and more updating of maintenance liabilities, together with a significant increase in the number of effective family-based arrangements. In the statutory scheme, the effect of the annual review coupled with direct interfaces with Jobcentre Plus and HMRC should mean that in future fewer cases are nil-assessed, meaning that more money could flow. We estimate that the percentage of nil-assessed cases will fall from the current 23% to around 6% of all arrangements in the longer term; I hope that this answers the questions asked by the noble Baroness, Lady Sherlock.

Over the 20-year period considered in the impact assessment published in 2013, including case closure, charging and the overall reform package, the assessment consistently gives a higher proportion of effective arrangements for parents who would have used or will use the statutory scheme than if the 2012 scheme was introduced on its own. As noble Lords have pointed out, we estimate that these reforms are likely to increase the proportion of effective arrangements from 60% to 70%.

There were a large number of questions, and I will try to go through as many as I possibly can. The noble Baroness, Lady Howe, asked how we will know if the arrangements are working for parents. We will be using data from the Understanding Society longitudinal study to assess progress on family-based arrangements across the whole population. She and the noble Baroness, Lady Sherlock, also mentioned the Secondary Legislation Scrutiny Committee. This was responded to by the Minister for Pensions subsequently and that response has now been published.

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[Baroness Sherlock]

I thank the Minister for going through all those questions—I am very grateful. I still have a couple which perhaps he missed out.

The Minister has explained to us that the Government believe that there will be more children in receipt of maintenance and more effective arrangements. However, he did not pick up on the amount of money that will change hands. For example, it would be perfectly possible for someone who was currently getting the full statutory amount through the statutory system to have in future a family-based arrangement in which they agree to take half of that amount to keep each other happy. Will the Government also be monitoring, and set a target for, the amount of child maintenance that is changing hands, and will they monitor in particular whether the amounts for individual families go down? In other words, one could see a change in the mean—by, for example, people who are currently nil-assessed joining the system—but that might disguise a fall in other cases. How well would that be monitored?

I think that I asked a question about the media campaign that Steve Webb had promised in early 2014. Does the Minister have any information on that?

There is a piece of nuance for which I apologise from this side as a pedant. On the question of domestic violence, the Minister said that he is confident that a non-geographic option will be available. Could he reassure the Committee that where domestic violence is alleged or admitted, a parent with care will not be required to accept direct pay unless and until such a scheme is available to them?

Lastly, I want to be sure that I understood his question about enforcement and HMRC. I think that he is saying that it will become more difficult for a parent with care to raise the question of where they believe earnings have been underdeclared. HMRC may deal with the general question of whether enough tax has been paid but at the moment, as I understand it, and I would be grateful if he would tell me whether or not I am right, a parent with care can go to the CSA with evidence showing that the non-resident parent has higher income than has been declared to the CSA—for example, if the lifestyle in terms of a house, a car or money spent would not appear to tally with the relatively small amount of income declared—and it can investigate and address that. Is he saying that that will not happen unless HMRC decides in general terms to conduct a tax investigation?

[Lord Freud]

On the question of the amount of maintenance, our estimate at this stage is that more children will get maintenance. That is what I have said. How much that maintenance is in money terms is less clear at this stage. It is one of the things that we will find out. I need to remind noble Lords that assistance may take many forms to children—more shared care—so the question is not just about money. It is about the level of support. That is an area that we will be looking at closely.

On bank accounts, the parent with care will be able to dictate to which account the non-resident parent must pay. If that fails to happen, it will result in a return to the collection service, which I think in practice deals with the noble Baroness’s question.

At the moment, the CSA gets a complaint from the parent with care. The place where it goes to check is HMRC. That main checking area becomes irrelevant when there is a direct feed. Where she is suspicious—it is a suspicion—of, effectively, tax fraud, that is what we are talking about.

[Baroness Sherlock]

So the CSA does no investigating of its own? I am sorry; I must have misunderstood that point.

[Lord Freud]

No. Currently the CSA checks with HMRC. As now, it will be able to provide information to support its suspicions that all might not be well. This is a difficult issue more generally.

On the question about the campaign, we are planning a media campaign using social media and paid-for channels such as radio. We are still finalising those details. The intention is to raise awareness of case closure and to promote parental responsibility. We will get more details of that out in coming months.

With all the issues dealt with—perhaps not to everyone’s absolute satisfaction—I will commit to continuing to provide transparency in the delivery of this programme of reforms. We published a strategy for the publication of information about the 2012 scheme on 18 July last year. We plan to release official statistics once we are assured of the appropriate quality of the data; we expect this to be after April 2014, as I said. Ahead of this, we have used the management information that is available to release limited relevant data on a one-off experimental basis, published on 25 November last year. As I mentioned earlier, we will review the effects of the fees and regulations, and lay a report before Parliament following 30 months of operation. I commend the regulations to the Grand Committee.

Motion agreed.