Examination of witnesses
(Questions 40 - 59)
WEDNESDAY 22 JULY 1998
BARONESS HOLLIS
OF HEIGHAM,
MR MIKE
STREET and MRS
FAITH BOARDMAN
40. So the other £100 million would
be accounted for by extra benefit for the parents?
(Mr Street) By private cases, this is cases not
on benefit, and also family credit where benefit is not reduced
pound for pound. As I say, £545 million maintenance was collected
last year; £465 million offsets benefit expenditure and is
a saving to the Exchequer. Moving to our proposed system of a
15 per cent scheme applying that to the current case load and
assuming an increase in cash compliance from 66 per cent to 80
per cent, we would expect the amount of maintenance collected
to be £470 million and the benefit savings figure to be £420
million. So a drop of £75 million in the amount of maintenance
collected and a drop of around £45 million in benefit savings.
If I can explain the cost neutral effect, there is therefore a
cost in moving existing cases to the new scheme and there is a
potential cost in new cases coming onto the new scheme at lower
levels of maintenance. There is also the cost of the child maintenance
premium, the £10 disregard in income support. That means
that, over the first two years of the scheme, there is a net cost.
As we get more people onto the books, because of the circumstances
I was explaining earlier, because we get them more quickly before
they go off the books, we can get more maintenance flowing. If
we get more maintenance flowing from the non-resident parent at
work, we would expect to get an average payment of £29. £10
of that will be passed on as a maintenance disregard, so there
is £19 profit. Therefore, over time, that would more than
outweigh the initial costs. Essentially, on some assumptions that
we have made, we would break even in around year three and start
to move into profit in years four and five.
41. You would break even in 2004?
(Mr Street) On those assumptions, yes.
42. You break even at 420 million. At the
moment, we have 465 million as what the Treasury gets in recompense
and you are saying that, by 2004, they will be receiving 420 million?
(Mr Street) Yes.
43. In the meantime, how much would it be
costing the taxpayer to do this?
(Mr Street) When I say that, over five years,
they will be receiving 420 million, they will actually be receiving
more than that because we will have more cases on the books.
44. I thought you said that was based on
the 80 per cent?
(Mr Street) If you convert the current caseload
now, to give you an indication——
45. 66 per cent is 420 million?
(Mr Street) Yes.
46. By 2004?
(Mr Street) Yes.
(Baroness Hollis) It becomes cost neutral in about
year three on the 75 per cent cash compliance. We believe it would
be perfectly sensible to expect 80 per cent. We would be hoping
to get 85 per cent in which case the figures will be even better,
but I think it has been accepted by the Treasury that, over the
five year period, it is cost neutral because, though the costs
are front end loaded because of the maintenance disregard, the
extra compliance which comes in during the second, third, fourth
and fifth year offsets that, so we would move into a slight edge
with the Treasury.
47. To be absolutely clear, over five years,
it will not cost the taxpayer anything to make this change, or
will the taxpayer have lost money and only in year five will they——
(Baroness Hollis) From year three, it should be
cost neutral. From year four, it should be making money. From
year five, it should be offsetting the cost of the first two years.
That is based on a 75 per cent compliance figure. If we do better
than that, those figures will look better than that.
48. "Under the current arrangements,
only around 200,000 of non-resident parents are paying maintenance
in terms of care and support. We expect this figure to double",
which is the 66 to 80 per cent, I presume. It is quite a lot to
expect the figures to double in that way and I wonder whether
Mrs Boardman really thinks that that much compliance will be created
by the formula.
(Mrs Boardman) Clearly, we have not yet got a
live model of what the new system will look like. Therefore, to
some degree, all we can do is to give our best advice, but we
are reasonably confident that the sorts of assumptions that have
been put forward are quite realistic. We have been steadily increasing
the compliance which we have, even with the difficulties of the
current system, year on year. I think the new system will bring
two or three main advantages. One is that it will be more understandable
by the non-resident parents themselves. Quite a lot of the concern
and the difficulty about getting compliance at the moment is because
they do not always have the confidence that we would like them
to have that they are being asked to pay the right figure. I think
that will be materially done away with as a problem. The second
problem we have, as I mentioned earlier, is often that people
start with arrears and feel that they have a large mountain to
climb. That is not very conducive to natural compliance. The third
problem we have is that we are having to spend a very large proportion
of our resources actually on trying to calculate and recalculate
and keep up to date the assessment under the current formula.
We have very few resources to spare to chase that element of non-resident
parents which there is with the current culture, who do not want
to pay even when they understand what they should be paying and
do not start with a debt. The new system will materially help
all three of those basic problems that we have at the moment.
We are as confident as we can be without having run the thing
live.
49. Will it double or is the advice to ministers
that the spectrum might be much greater?
(Mrs Boardman) We are not being asked to double
it because, at present, we have something like a 66 per cent cash
compliance. It is a mixture of improving the cash compliance and
also bringing more non-resident parents actually into the system,
the point which has been made that many of the income support
JSA non-resident parents effectively move out of the system before
we can make an assessment at present. With a reduction in times
to weeks rather than months, we will be able to get more non-resident
parents in the system. It is partly an improved percentage, but
based already on something which is around 66 per cent in cash
terms, and it is partly a natural increase in the number that
we will be assessing and bringing into the system.
50. It seems rather a lot. "Under the
current arrangements only around 200,000 non-resident parents
are paying maintenance", and that figure will double. I can
see where 60,000 of them come from but there is still another
140,000 which is a very significant increase, just because you
have changed the formula. Probably what they really resent is
paying at all, not the formula or how much they are paying.
(Mr Street) It is a mixture between cash compliance
and getting more cases on the books. The Agency gets about 300,000
new applications a year, so there is quite a lot of churning amongst
the lone parent population on income support. A significant proportion
of lone mothers who come onto income support go off before we
have arranged maintenance. If we get more of those—and it
is not unreasonable to expect that we would get twice as many
as we get now—then that 200,000 will become 400,000. It
is because we are getting more onto the books. On top of that,
a simpler formula where we make an assessment should enable the
Agency to increase its cash compliance from 66 to 80 per cent.
Under a simpler formula, we would not only expect to get more
people assessed but, once we have got them assessed, we would
expect to get a greater proportion of that assessment paid.
(Baroness Hollis) The stats are in the Green Paper.
Ninety per cent of the Agency's time is spent on assessment and
ten per cent on seeking compliance with that assessment. Under
a new rate, replacing the old formula, we should be able to reverse
that.
(Mrs Boardman) There are a couple of other quite
important factors. One of them is mentioned in the Green Paper.
It is around the area of us being able to obtain more information
than we currently have, for example, from our colleagues in the
Inland Revenue. That is certainly relevant to some of our difficulties
in obtaining compliance from groups like the self-employed. The
other aspect I think is very much that we are concentrating a
lot of effort over the next 18 months or two years on improving
our techniques in chasing those who do not want to be compliant,
because given the current culture we have to accept that there
is a proportion that do not want to support their children. If
you would like me to, I can certainly expand on some of what we
are trying to do.
Mr Wicks
51. We keep hearing that only ten per cent
of your time is spent doing the rather important thing of trying
to chase the money. If I had been running the Agency, I might
have said to Ministers in the past, "Can I have some more
money to increase that ten per cent to 20 per cent?" because
it would be cost effective. You will know, because we have been
in correspondence about this, when you get a letter back saying,
"Not known at this address", you then say to the MP,
"Actually, he is not known at this address", rather
than sending in detectives. Why on earth did you not ask for more
money to enforce it?
(Mrs Boardman) We have, in effect.
(Baroness Hollis) We have and we did.
(Mrs Boardman) I am glad to say that current ministers
have given us some more money. Essentially, we have £15 million
more for this financial year and the next financial year over
and above what we expected to have in our budgets. That will be
essentially going towards collecting a further £120 million
in each of those two financial years. Our target for this year
is £750 million which is some 50 per cent increase on our
target for last year. That very much reflects the £15 million
and also the improved techniques that I just mentioned. I have
a great deal of sympathy with what you are saying, but we have
actually made that case.
52. In your own Annual Report for 1996/97,
"Active Modern Service", which relates to the CSA apparently,
there is a chapter where you hit all your targets and you say,
"We have achieved this target. We have achieved this target
and this target". The crucial target is the numbers of children
being maintained and that is one in six. You say ministers have
now given you more money. Although it is not one of your official
targets, what is your target for that proportion of children who
will get maintenance next year and the year after that? It is
one in six at the moment. What will it be in two years' time?[3]
(Mrs Boardman) I cannot give you
an exact figure. We can certainly try and provide you with it.
The targets, as you will have seen, are very much ones which have
been in existence for some time. We are very conscious and ministers
are very conscious that they do not perhaps reflect some of the
more important aspects of what we are trying to achieve.
53. They are targets about assessments.
Most of the assessments never lead to full maintenance being paid.
(Baroness Hollis) You are absolutely right. Staff
do what they are measured and if you measure assessments rather
than the money going to children that is what staff will do.
(Mrs Boardman) I think we are very much agreeing
with you.
Mr Wicks: I look forward to next
year's report then.
Ms Stuart
54. If I give you the question in four parts
that makes one question from me but it covers the whole thing.
One, could you explain how it is that you have a 66 per cent compliance
but only one in six children receives maintenance? Could you do
the arithmetic for me there? Second, Faith Boardman talked about
the assessment of income. How, under the new formula, will you
assess the income? Will you have greater cooperation with the
Inland Revenue with something like the Australian model, where
the Inland Revenue will give you some income off the previous
year? How will you avoid the temptation of catching those who
are on PAYE and excluding those who have some control over how
and when they declare their income—i.e. the self-employed?
The third one is what priority will you give to the self-employed,
given that this is a working pattern which is increasing and people
who appear to be employed by the utilities, for example, are really
working as self-employed and therefore would be difficult to assess?
Fourthly, can I very much welcome the fact that you are moving
away from nil assessment. I will never forget one constituency
case of a mother sitting in the surgery crying. She said she had
this stupid paper which said "Nil", which said that
her daughter did not count any more. She said that even if it
was a fiver, she mattered.
(Mr Street) If I could start with the one in six
children, there are around 1.8 million children living in families
on income support and family credit where there is no maintenance
being paid in respect of those children. That is a combination
of cases where the non-resident parent has not yet been assessed,
is assessed to pay nothing because he is exempt, or he has been
assessed to pay and he is not paying. 1.8 million children equates
to 1 in every six children in this country. That is the basis
of those figures.
(Mrs Boardman) In those terms, even if we achieve
100 per cent compliance, under the current policy, we will certainly
not be supporting every child.
(Baroness Hollis) Perhaps Faith, given her contributions
agency background, could enlarge on Gisela's points about self-employed
and the Inland Revenue.
(Mrs Boardman) I think there are two or three
strands here. One is certainly around the powers and the information
which we can obtain. The Green Paper has highlighted that we would
like to think around getting information from our colleagues in
the Inland Revenue about what returns the self-employed have made
to them. We do have greater difficulty in actually getting information
on earnings from the self-employed than we do from an employed
person, for obvious reasons. The second one is what can we do
in terms of how we organise ourselves and how we actually tackle
self-employed cases. There we have been piloting techniques which
we expect to roll out across the Agency during this financial
year, which are essentially to set up local task forces who specialise
in self-employed cases, because they do require particular skills,
accountancy understanding and so forth. Those task forces are
in part desk officers and in part field officers. They basically
make sure that they never put down a self employed case. They
have been using techniques like visiting the self-employed, looking
at their books on their own premises, which are types of techniques
we have not used before but are common within the tax area. Those
are proving very efficient. We have significantly increased the
compliance two or three times as a result of those pilots. When
we roll them out generally, that will help. The other area of
concern is one which is common to many departments and indeed
civil authorities. It is around how we can best use the enforcement
powers which exist within the civil courts. We essentially go
through the normal civil court procedures. We have no more and
no less power than any other creditor has. I think it is generally
of concern as to how speedy those processes are and how effective
those are. That is the subject of a separate consideration to
which we will be inputting.
Miss Kirkbride
55. Maybe you would like to explain how
you see the departure process working?
(Baroness Hollis) We see a three stage process
to make the final decision. The first step is the original computer
printout, based on the collected information. We would expect
that the parent should pay at that point. In other words, that
they would not be able to go through to a tribunal unless that
was already paid, so there is no question of elongating the process
in order to delay paying. The second step is the named staff member
working and sorting out issues like, "My overtime is irregular.
How do I cope with this?" and that sort of stuff. When it
comes through to the tribunal, what we are saying is we do not
want, having stripped all of the complexity out of the assessment,
to transpose it into the appeals. It is crucial that if we are
scrapping a formula and going for a rate we keep the gateway to
the tribunal as tight as possible in order to keep the system
simple. Our thinking at the moment, unless there is an overwhelming
argument against it, is that the primary ground for going to the
tribunal is where a non-resident parent is already properly contributing
to the maintenance of the child or children in the first family
in other ways, in cash ways, ways that are clearly recognisable
and assessable. For example, he is paying the entire mortgage
on the first family home instead of the parent with care doing
it or part of it. In my view, this would be a perfectly proper
consideration. Another case might be that, for example, he has
come out of the armed forces. While he was in the armed forces,
the child was at boarding school. It was unreasonable that that
child should be pulled out of the school. The father is now paying
all the school fees and therefore is paying both the school fees
and the whole of the maintenance liability. We think that would
be a proper ground for going to a tribunal. A third situation
might be where one of the children in the first or second family
was sick or disabled and there were additional costs there. Another
case might be where there are exceptional costs of contact. She
is in Devon; he is in Dundee. The last thing you want to do in
that situation is, by extracting money from him, to subvert contact,
subvert the emotional support of child support. Those are all,
in my view, possible grounds for going to the tribunal. If the
tribunal accepted those—and clearly there would be codes
of guidance and discussion on this—then the tribunal would
displace the original computer printout, which is the simple one
of earnings and children, with the new assessment.
56. Will this tribunal apply to both the
parents?
(Baroness Hollis) Yes.
57. The parent with care who feels that
he has a lot more money and that the percentage share could be
much greater?
(Baroness Hollis) Yes.
58. That avenue would still be open to where
he is disguising his income?
(Baroness Hollis) Yes. The other ground would
be misrepresentation of income or fraud. It is important to the
philosophy behind the Green Paper that the access to the gateway
should be about grounds of child support only, not the double
glazing bills, not the cost of a new car, not the expenses incurred
in other directions; simply that the child support rate should
be reduced because he is already supporting that child directly
in other ways that we would accept are proper, assessable and
decent. If you move away from that, you cannot stop and you reinvent
the CSA.
59. It strikes me that some of the grounds
you have given there are opening the gate a bit wider than you
might want to, bearing in mind that an awful lot of people are
going to try and use it to open this up. If it is okay to take
into account the costs of seeing your children——
(Baroness Hollis) Exceptional costs.
3 See Ev. p. 19. Back
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