House of Commons - Social Security

Select Committee on Social Security Tenth Report

THE 1999 CHILD SUPPORT WHITE PAPER

THE FORMULA

14. The essence of the Government's White Paper proposals is simplicity. In the Government's analysis, the current complex formula for assessing maintenance is central to the failure of the current scheme.[47] Over 100 pieces of information can be required to make a full assessment under the present formula.[48]

15. "The Independent Case Examiner is in favour of a much simpler formula believing that it will remove much of the scope for administrative error and will lead to less delay, one of the principal causes of the complaints which we see."[49] The Children's Society agreed that a simpler formula which was perceived as fair would generate co-operation: "Although it has an element of rough justice, it appears to be the best compromise between clarity and fairness."[50] The National Council for One Parent Families took the view that "the simplified formula will mean rough justice for some but ... we are prepared to live with the consequences."[51] The Deputy Parliamentary Ombudsman told us that "unless you bite the bullet of simplification I think you must expect to continue to have some major problems",[52] but he also warned that

Research base for percentages

16. Under the Government's proposals the liability of the non-resident parent will be based on a simple percentage of net (post-tax) income: 15 per cent for one child, 20 per cent for two children and 25 per cent for three or more children.[54] The only research cited by the White Paper in support of these percentage rates is Small fortunes: spending on children, childhood poverty and parental sacrifice by Middleton et al.[55] We were told that the White Paper had deliberately stripped out footnotes,[56] and a substantial list of research references was supplied to us during our final session of evidence with the Minister.[57] Baroness Hollis told us that the proposed percentage rates were not out of line with the proportions of income which non-resident parents are required to pay in other jurisdictions:

17. The percentages are based on the perceived cost of a child rather than on the ability to pay of non-resident parents. If the simple formula approach is to be adopted, with only very limited scope for special treatment (or 'departures') in exceptional cases, it is essential that the target percentages should be achievable. While it is desirable for the public to have some certainty about the exact rates which will be levied under the new legislation, there is a case for allowing some flexibility on rates to be varied in the light of experience. We recommend the Bill should provide for the Secretary of State to have the power to make regulations subject to parliamentary approval to adjust the standard percentage rates in the formula.

Definition and verification of income

18. One of the key simplifications proposed in the White Paper is in the definition of income. Annex Two of the White Paper sets out proposed new rules for income, under which liability will be based on net income after tax, National Insurance and pension contributions have been deducted.[59] Baroness Hollis stressed that the new system had to be " simple, efficient and transparent."[60] The Public and Commercial Services Union PCS told us that in their members' experience income was probably the principal cause of most reviews and appeals under the present system.[61] Mr Watson-Lee of The Law Society foresaw complications over the assessment of income. It would not be simple to calculate the effect of commission, bonus payments, share schemes or even overtime payments. There could also be attempts to manipulate income, for example where a company director decided to take dividends rather than salary.[62] Mr Andy Farquarson of National Association for Child Support Action (NACSA) admitted that some non-resident parents had manipulated their declared income in order to evade liability for child support, but he thought that this would be less likely to be the case where the assessment process was seen to be fair.[63] The Welfare Reform and Pensions Bill includes provision for the CSA to call upon the Inland Revenue in the last resort to provide details of a self-employed person's income.[64] We recommend that in the case of any dispute the child support assessment should be made on the basis of the last year's assessment by the Inland Revenue.

Ability to pay

19. Since the start of the child support scheme, there has been controversy about the ability of non-resident parents to pay the amounts of child support levied against them. Originally, the aim was to increase average weekly payments from between £25 and £30 per week to £45 per week.[65] A year after the child support scheme came into effect, in June 1994, the average full weekly assessment where a non-resident parent was in paid employment was £45.53.[66] The problem was that non-resident parents protested that assessments at this level were simply not affordable and, as the Child Support Agency's Annual Report reported in July 1994 "many absent parents were not complying in full with the assessments we made."[67] In 1995, in response to mounting pressure concerning the affordability of the child support assessments levied, changes were made which led to reductions in the average amount.[68] In May 1999, the average full maintenance assessment for non-resident parents in paid employment had fallen to £38.23, and £23.22 for those in self-employment.[69] Nevertheless, non-payment of maintenance continues to be a problem, with only 44.8 per cent of assessment being paid in full.[70]

20. There are differing views on whether more child support can be collected from absent parents. A study of non-resident fathers by Professor Jonathan Bradshaw and Christine Skinner of the Social Policy Research Unit at the University of York suggested that they are likely to have lower incomes, compared to resident fathers. The study showed that two-thirds of non-resident fathers were in employment, compared to over 80 per cent of resident fathers. The unemployment rate among non-resident fathers was 17 per cent, compared to 9 per cent among resident fathers. They were more likely to be low paid and were much more likely than fathers in general to be dependent on Income Support or other benefits.[71] Child support statistics show that in May 1999, 36 per cent of non-resident parents for whom full child support assessments had been made were in receipt of Income Support, or income-based Jobseeker's Allowance.[72] At that date, 51 per cent of non-resident parents who had received a full child support assessment had net incomes of less than £100.[73]

21. The Nuffield-funded research undertaken by Professor Ian Walker, Dr Gillian Paull and Dr Yu Zhu for the Family Policy Studies Centre used different data to analyse the effects of the 1999 White Paper proposals. In the absence of UK evidence, they had looked at US evidence on separated families. "Typically fathers end up being better off after a separation whereas mothers end up without the income and with the children and end up being substantially worse off."[74] UK data used by the Institute for Fiscal Studies suggested that, whereas some 55 per cent of parents with care were on Income Support and 23 per cent were eligible for Working Families Tax Credit, 74 per cent of non-resident parents were working at levels of earnings which made them ineligible for Working Families Tax Credit.[75] Dr Paull, Professor Walker and Dr Yu Zhu concluded that separated partners were in principle sufficiently rich to reduce poverty among children considerably.[76]

Losers and gainers

22. There will be losers and gainers under the Government's proposals. The average maintenance liability paid by employed non-resident parents is expected to reduce from around £38 to around £30.50.[77] An estimated 90,000 parents with care could get a lower assessment.[78] The potential reduction in child support awards will be offset by a number of factors. Parents with care on Income Support, even those with a reduced award, will be better off by virtue of the £10 child maintenance premium.[79] The Child Poverty Action Group (CPAG) drew attention to the fact that around 50,000 parents with care facing lower assessments were in receipt of Family Credit. From October 1999, they will benefit from the total disregard of child support in Working Families Tax Credit.[80] The National Council for One Parent Families agreed that parents with care on Working Families Tax Credit will gain considerably; but pointed out that they will face real reductions in child support when transferred onto the reformed child support scheme after 2001.[81] The CPAG pointed out that there were likely to be losers among parents with care on Working Families Tax Credit with child support of between £5 and £15, who already had the whole of the child support they received disregarded and who would thus experience the full effect of any reduction. Using the child support quarterly statistics, CPAG estimated that there were likely to be in the region of 21,000 parents with care in this position.[82]

23. The White Paper argues that many parents with care are likely to gain from enhanced levels of compliance arising from the reforms, where simpler rules will release resources for greater action to enforce payments, boosting the amount of maintenance which is actually paid.[83]

24. The obvious gainers among non-resident parents are the majority who will benefit from lower assessments. Other gainers, compared to the present system, are non-resident parents who have overnight contact arrangements with a child for between 52 and 103 nights per year who, unlike the present system where 104 nights of overnight contact visits are needed to qualify, will benefit from reduced child support liability.[84] Second families will also gain compared to the present system, in that all children in the second family will be taken into account in the non-resident parent's assessment and any child support being received by the second family will be ignored.[85] Possible 'gainers' also include people in receipt of (non means-tested) war pensions and the state retirement pension from whom the minimum liability of £5 a week is all that will be expected.[86]

25. The CPAG estimated that there will be around 150,000 non-resident parents who will face an increase in their child support liability, or the loss of their exemption from paying anything at all.[87] Of these, 68 per cent are on benefit or who have net incomes of less than £200.[88] They were particularly concerned about the plight of second families on Income Support and other second families on low incomes but with high levels of debt, higher than average housing costs, or high travel to work costs: all factors which are not taken into account under the White Paper proposals.[89]

26. These estimates of gainers and losers, and also of the revenue implications of the proposals ignore behavioural changes. We received evidence from the Institute for Fiscal Studies to suggest that the changes, together with exemption of maintenance income from the calculation of eligibility to Working Families Tax Credit, could encourage more lone parents to work.[90] If this proves correct, there could be additional savings to the Exchequer and many more lone parents could find themselves with a higher income.

Minimum payment

27. Non-resident parents on Income Support with second families to support could be a "very, very substantial body of losers"[91] because they would have £5 a week deducted from their Income Support under the Government's proposals, whereas they are excused from paying any child support at all under the present system. This proposal was described by Professor Jonathan Bradshaw as "a regrettable undermining of the safety net and effectively a state sponsored transfer from one poor family to another."[92] The CPAG was concerned that the second families affected would be required to live below basic subsistence levels.[93] Families Need Fathers pointed out that, for fathers on the lowest incomes, £5 could make the difference between being able to visit a child and not being able to do so.[94] The Family Policy Studies Centre (FPSC) described the two main rationales behind the imposition of a minimum payment on all non-resident parents as "the symbolic honouring of the child support commitment, and the creation of a normative expectation of payment."[95] The FPSC accepted that a minimum payment might be necessary to establish a regular pattern of payment from the outset, although they pointed out that there was very little research evidence on this point.[96] Whilst we agree with the view that all non-resident parents should pay something, we are concerned at the effect of the minimum payment of child support on children in 'second' families in receipt of Income Support or income-based Jobseeker's Allowance. We recommend that, before minimum payment is imposed in cases where the non-resident parent has dependent children and is in receipt of Income Support or income-based Jobseeker's Allowance, further research should be carried out on the effect of such a minimum payment on the level of compliance and the well-being of the children in the 'second' family.

Balance between 'first' and 'second' families

28. The Green Paper set out alternative ways for balancing calls on the income of a non-resident parent who was also responsible for other children or step-children in a 'second' family. One alternative, favoured by Families Need Fathers,[97] was to divide the relevant percentage of the non-resident parent's income equally between all the children of both 'first' and 'second' families (Example A). The White Paper came down in favour of reducing the available post-tax income for children of the 'first' family by a percentage for the children in the 'second' family (Example B).[98]

(one child in first family, one child in second family)

Rate for two children 20 per cent

So £40 per week to be divided equally between children

Liability for child in 'first' family would be £20 a week.

Example B:

(one child in first family, one child in second family)

Rate for child in 'second' family 15 per cent of £200, so £30 a week

Remaining pay £170

Rate for child in 'first' family 15 per cent of £170

Liability for child in 'first' family would be £22.50 a week.

29. Baroness Hollis recognised that there was a "tension"[99] between conflicting priorities of children of 'first' and 'second' families. Ms Karen Randall of Families Need Fathers objected to the Government's proposal on the grounds that "all children of all families should be treated equally as a moral principle."[100] Ms Natalie Cronin of The Children's Society also argued that "the prevailing principle should be equality between the children."[101] The Family Policy Studies Centre suggested that there would be a 'double dividend' for step-families because not only were the dependant children in the 'second' family taken into account when calculating a non-resident parent's liability for children in the 'first' family, but any child support being received into the 'second' family would be ignored in assessing the non-resident parent's income.[102] We welcome the White Paper proposal to treat step-children in a 'second' family on the same basis as the non-resident parent's own children in the 'second' family.[103] We prefer the alternative approach set out in the Green Paper[104] that maintenance liability should be split equally between all children, as illustrated by Example A above.

Income of Parent with Care

30. The White Paper proposes that the income of the parent with care should be ignored, because she already contributes to the cost of bringing up the children by caring for them in her home.[105] The Government argues that "taking into account the income of the parent with care would make the new scheme much more complicated [and] lead us back into all the old complications."[106] In any case, the White Paper goes on to argue, fewer than 6,000 parents with care who have a child support assessment now have an income of more than £200 a week and it would be "undesirable and unnecessary" to create complex rules for such a small group.[107]

31. The Independent Case Examiner could see a positive advantage to ignoring the parent with care's circumstances:

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32. Giving evidence for the Family Law Bar Association, Mr Nicholas Mostyn QC told us that the proposal to leave out of account the income of the parent with care was "demonstrably unfair and [would] lead to considerable discontent."[109] Mr Mostyn argued that the Australian experience showed that the income of the parent with care could be incorporated into a new simple formula without difficulty or by creating any degree of complexity.[110] He described as "sinister and worrying" the Government's implicit assertion that it would be acceptable to sacrifice the right to fairness of non-resident parents in order to achieve the expediency of total simplicity.[111] He expected far more than 6,000 cases to be affected, because of the probable increased use of the new CSA formula to override private agreements.[112]

33. Mr Watson-Lee of The Law Society suggested that cases where the parent with care had a substantial income could be treated as exceptions where the issue might be decided in court.[113] Mr Farquarson of NACSA suggested that this aspect of the new formula would be an invitation for better off parents with care to go to the CSA rather than to negotiate or settle matters through the courts.[114]

34. The Family Policy Studies Centre noted that the question of whether or not to take account of the earnings of the parent with care or a non-resident's partner was a difficult one.[115] Not taking account of the income could lead to claims of unfairness, which might have negative implications for levels of compliance[116] whilst taking account of it would introduce additional layers of complexity into the assessment process. One solution would be to disregard earnings below a certain threshold, set high enough to exclude the majority of women earners; for instance, average male earnings.[117] The Family Policy Studies Centre argued that this approach had the potential to improve perceptions of fairness without compromising the simplicity of the scheme, as the need to undertake additional assessment would seldom arise.[118]

35. Baroness Hollis told us in evidence that "we do not think we should devise a system for that very tiny minority [of CSA cases which involved parents with care on high earnings]."[119] Responding to Mr Mostyn's criticisms, Baroness Hollis told us that

120

36. One of the keys to an increased degree of compliance is a general perception of fairness. We are concerned that failing to distinguish cases where the non-resident parent earns substantially less than the parent with care could lead to "unfairness and anomalies."[121] We recognise that taking account of the income of the parent with care could introduce complexity into the simplified child support scheme. In the interests of fairness, we recommend that the Government should set a significant threshold at well above average male earnings beyond which the earnings of the parent with care may be taken into account in calculating the liability of the non-resident parent.

Maximum payment

37. The Government proposes that there should be no maximum liability under the new scheme. Under the current formula, the maximum works out at about £200 a week for two children.[122] The Government contends that the children of wealthy parents have as much right as those whose parents have more modest incomes to share in the income of their parents.[123] The Government's proposal was strongly opposed by Mr Nicholas Mostyn QC on behalf of the Family Law Bar Association who described it as "bizarre"[124] and "unfair."[125] He argued that children do not have a right, in a strict legal sense, to share in their parent's income since

126

Mr Mostyn overstated his case in describing the proposal as leading to "utter folly and injustice"[127] and " the crudest form of social engineering ... it will bring the system into disrepute; and it dishonours its proposers."[128]

38. Families Need Fathers argued that failure to cap child support payments would mean that money intended for children will be used to support the parent with care and so undermine entirely the argument that 'the money is for the child'. In their view this would affect the credibility of the new system and hinder compliance.[129] Their expectation of opposition from non-resident parents was supported by the research carried out by Professor Jonathan Bradshaw and Caroline Skinner:

130

39. The National Council for One Parent Families agreed with the proposal not to impose a maximum payment, on the grounds that "children are entitled to share in the wealth of both parents and it makes no sense to restrict this in higher income cases."[131] The Public and Commercial Services Union PCS agreed with the abolition of the maximum liability under the new scheme since it was "correct to argue that children should share in the wealth of their parents."[132]

40. Baroness Hollis indicated that this was an issue on which the Government might be persuaded to think again:

133

41. We accept that there is a risk that a few highprofile cases involving payments above the maximum contribution may negatively affect public perception. However, on balance, we are persuaded by the case that the children of wealthier parents should have the right to continue to share in that parental wealth. We therefore do not support the introduction of an upper limit on the automatic application of the revised formula.

Shared care

42. The White Paper proposes that child support rates should be modified where both parents have "substantial" involvement in caring for their children.[134] It is proposed that liability for making child support payments should be reduced by one-seventh for each night per week children spend with their non-resident parent.[135] This reduction from the current threshold for a reduced liability of 104 nights per year to 52 nights a year was welcomed by Families Need Fathers[136] and by the Public and Commercial Services Union PCS.[137] A quarter of the current case load are shared care cases where the non-resident parent has the child on average for at least two nights a week; there are no reliable data on what proportion of the caseload might be shared care cases under the new definition.[138] Mr Mostyn for the Family Law Bar Association queried how the shared care proposals would work in practice in complicated cases where more than one child was involved.[139] Professor Jonathan Bradshaw told us that the available evidence suggested that shared care arrangements were more prevalent among richer and better off parents.[140]

43. The National Council for One Parent Families argued that the Government's proposal "would be unfair to lone parents whose costs do not reduce by one-seventh for each night a child spends away from home."[141] Ms Sherlock of the National Council for One Parent Families told us she agreed that shared care should be encouraged and that she would like to see non-resident parents being able to claim Housing Benefit for somewhere big enough to have the children to stay.[142] Ms Sherlock recognised that this was not a realistic option because of competing priorities,[143] and Baroness Hollis told us of the Government's anxiety to see housing stock used sensibly and their reluctance to use Housing Benefit to supplement or subsidise under-occupation.[144]

44. Mr Barry Pearson argued that the White Paper's formula for the shared care case was seriously flawed as it failed to account for the costs to both parents of caring for their children, failed to look ahead to an era when both parents are likely to be working, as a result of various government policies, and failed to learn from approaches used by many other nations and states to achieve a fair formula for shared care.[145] Families Need Fathers argued that assessing parents who shared care of their children at 15 per cent of each of their net incomes (for one child) would be a fair, symmetrical, simple and transparent way to deal with shared care which would provide a just outcome and recognise the true cost of shared parenting.[146] Baroness Hollis told us:

147

45. According to the Family Policy Studies Centre, there could be situations in which increased contact between a child and the non-resident parent would not be in the best interests of the child. They suggested that there should be monitoring of cases where a non-resident parent who had previously not had contact requested shared care on what appeared to be purely economic grounds.[148] Mr Pirrie of the Solicitors Family Law Association expressed concern at the potential for conflict between estranged parents arising from the financial knock-on effects of the non-resident parent's contact with the child in reducing the liability to pay maintenance.[149] Professor Bradshaw also pointed out the possible "unintended behavioural results."[150] We recommend that the Department of Social Security should commission research jointly with the Department of Health and the Lord Chancellor's Department into the consequences for the well-being of the children of linking child support liability to overnight contact of non-resident parents with their children.

46. Families Need Fathers argued that when a child was being cared for on a shared care basis by the non-resident parent, support was not available from either the state in terms of Child Benefit or from the parent with care:[151]

152

Families Need Fathers presented several case studies to illustrate their point.[153] They suggested that in shared care cases Child Benefit should be divided between the parents to reflect the actual nights the child spent in each household.[154] The White Paper proposes that there should be some extra recognition of the cost of equally shared care, by reducing maintenance by an amount equivalent to approximately half the average Child Benefit payable for a child.[155]

47. The Family Policy Studies Centre suggested that where care was shared equally, it would appear more equitable, and more protective of the child's standard of living, to base liability on the relative income of the two parents.[156] They suggested that this could be done either by a percentage variation in the child support due based on the percentage differential in the earnings of the two parents (which would involve an assessment in almost every case of shared care, and would therefore not be ideal) or by ignoring the income of the parent with care below a certain threshold and then applying a percentage (which would involve additional calculations in only a very small minority of cases).[157] The National Stepfamily Association thought that the cases of exactly equal care would be so rare that they should be dealt with separately "through tribunals or whatever."[158]

48. We would expect that in most cases it would be in the best interests of the child for both parents to share their responsibilities for care. We support the White Paper proposals to reduce the non-resident parent's liability in shared care cases.

49. The Children's Society agreed with the Government's proposals on shared care, but suggested that confining the reduction of liability to overnight stays would discriminate against non resident parents on low incomes and non resident parents with several children who could not afford the extra housing costs necessary for overnight stays.[159] The Independent Case Examiner had expressed concern that daytime care allowances would be very difficult to administer effectively and could lead to complaints.[160] Families Need Fathers conceded that it was unrealistic to expect daytime care to be taken into account.[161]

Exceptional cases

50. The Government accepts that there will be cases where simple rates do not allow for the full range of circumstances[162] and the White Paper proposes that child support rates should be subject to variation, but only in clearly defined circumstances.[163] Since the Child Support Act 1995, the present scheme has provided for a system of 'departures' which allow assessments to be varied, in a wider range of circumstances than the White Paper proposes for the future. Under the White Paper proposals, parents with care would be allowed to apply for the rates of liability to be raised if a non-resident parent deliberately diverted income to reduce their child support liability, or had a lifestyle inconsistent with the income used to calculate their child support liability or had significant income from investments.[164] Rates of liability could be lowered where the non-resident parent who was regularly paying his current liability had exceptional expenses for keeping in touch with the children, supporting a severely disabled child, paying off debts incurred for the child's benefit when the parents were living together or paying to maintain the child while away at school (but not paying for tuition fees).[165] Other grounds for reduction would be if the non-resident parent transferred property or capital to the parent with care before April 1993 to help support the child, or if he is paying the mortgage on the former home and has transferred all the equity to his former partner.[166]

51. Mr Nicholas Mostyn QC on behalf of the Family Law Bar Association told us that a simpler formula would have to be accompanied by a more liberal departures regime and that he did not understand how a more restrictive departures regime than the present one would aid a more simple formula.[167] He suggested that there should be at least four additional grounds for exceptions.[168] Professor Nick Wikeley was concerned that once a system was provided for exceptions "there is bound to be pressure for yet more exceptional cases and so the whole things grows like Topsy as more and more changes are made incrementally and then we get away from the transparency and clarity which the Minister was arguing for."[169] Ms Maeve Sherlock of the National Council for One Parent Families thought that the grounds for departures should be strictly limited only to the costs of contact with the child.[170] Baroness Hollis maintained that "if we are taking complexity out of the basic formula, we do not want to reintroduce it again at the level of departures."[171]

52. In cases where the issues are straightforward and rest on what the White Paper calls "objective facts", the Government proposes that applications for exceptional variations should be determined by an official caseworker.[172] More complex issues would be sent straight to a tribunal.[173] Mrs Anne Parker, the Independent Case Examiner, suggested that "a great deal of further thought" needed to be given to drafting legislation on how the discretion allowed to officials should be exercised consistently.[174]

53. We endorse the view of the Independent Case Examiner that the parameters of the discretion allowed to officials must be specified in Regulations carefully before the legislation comes into effect.

47 Cm 4349, Chapter One page 7 summary. Back

48 Cm 4349, Chapter One page 2 para 7. Back

49 Ev p 18 para 1.2. Back

50 Ev p 145 para 3. Back

51 Ev p 33 para 4.1. Back

52 Q. 98. Back

53 Ev p 25 para 7. Back

54 Cm 4349, Chapter Two page 9 para 4. Back

55 1997. Cited in Cm 4349, Chapter Two in footnotes on pages 9 and 11. Back

56 Q. 469. Back

57 Ev p 201-202. Back

58 Q. 477. Back