Child Support Maintenance Calculation Regulations 2012

Lord McKenzie of Luton Excerpts

Monday 15th October 2012 Grand Committee

[Lord McKenzie of Luton]

My Lords, I thank the Minister for introducing these regulations. We should start by making it clear that we support the thrust of the approach reflected in them. Indeed, why wouldn’t we? It stems from our work on legislation when in government. We support the objective of maximising the number of effective maintenance arrangements for children and of encouraging voluntary or family-based arrangements as well as use of the statutory system. I am not sure that we necessarily agree with the emphasis that the noble Lord places on one rather than another but that is probably a point of detail.

We do not need to dwell on the complex history of CMEC/CSA—I will call it the CSA from now on—and the misery that it inflicted on many families, not to mention more than a few Ministers. However, much of the difficulty derived from the system requiring a lot of information, latterly just from the NRP, many of whom had no interest in complying; indeed, quite the reverse. This was compounded by failures of IT systems and inadequate enforcement powers. So the move to a system which is based on gross income of the NRP, which is accessible from HMRC and does not rely on information from the non-resident parent, is, we believe, the correct way forward. It is also right, in our view, to give some emphasis to what is practical rather than in every respect to make a calculation of intellectual purity, which can, I think, sometimes frustrate delivery.

--- Later in debate ---

[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.

--- Later in debate ---

[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.