Memorandum submitted by Dr Helen Barnes,
University of North London and Family Policy Studies Centre, Dr
Gillian Paull, Institute for Fiscal Studies, and Professor Ian
Walker, University of Warwick and Institute for Fiscal Studies
(CS 54)
SUMMARY
The Family Policy Studies Centre has consistently
argued for reforms to the child support system to make it simpler
and more transparent than the present system, and to deliver improved
financial advantages to children. Whilst the proposals in the
White Paper do represent a considerable increase in simplicity
and transparency, we would argue that in their current form, they
do so at too great a cost to other principles, in particular the
welfare of children.
We have serious concerns about the equity of
the proposals, in particular the fact that they appear likely
to increase the inequalities between those at the lower and higher
ends of the income distribution, by reducing the amounts payable
to parents with care, by increasing the number of low-income non-resident
parents who are liable to pay, and by offering those non-resident
parents on higher incomes opportunities to reduce their liabilities.
We are less confident than the Government that the reforms will
be able to deliver the gains which are being claimed for them,
either in terms of the public purse or in reducing the numbers
of children living in poverty.
Evidence
1. We welcome the opportunity to present
evidence to the Committee. The Family Policy Studies Centre has
been involved with child support for a number of years, and has
published several studies in this area. The Family Policy Studies
Centre and the Institute for Fiscal Studies are currently working
on a research project (funded by the Nuffield Foundation) which
models the income effects of the proposed reforms on families
of different composition and at different income levels, whose
findings will inform our evidence. The Institute for Fiscal Studies
is also shortly about to begin work on a project modelling the
more complex behavioural impact of the reforms.
2. We welcome the introduction of a percentage
formula, which will greatly increase the transparency of the scheme,
and enable parents and their advisors to calculate the support
due. However, the fact that a different calculation applies to
those on low income means that it is neither as simple, nor as
radically different from the existing system, as has been implied
in the presentation of the policy. At an individual level, the
amounts of child support will reduce on average. However, some
non-resident parents will be expected to pay more. These include
the poorest non-resident parents (those with low incomes and children
living with them, who are currently exempt and will now have to
make a minimum payment), non-resident parents with high housing
costs, and those whose former partners have high incomes. At the
aggregate level, however, the amount of child support due from
the population of liable parents will be largely unchanged, so
that any increase in revenue will be achieved only by a large
rise in compliance rates.
3. We welcome the proposals to create a
£10 disregard for parents with care on Income Support. Although
we recognise that this may reduce work incentives, we believe
that its introduction is vital, both in order for children to
benefit from the payment of maintenance, and to provide an incentive
for parents with care and non-resident parents to co-operate with
the scheme. However, it should be noted that there is little research
evidence on this issue. Whilst there have been persistent calls
for a disregard of child support (see for instance Garnham and
Knights, 1994; Bennett, 1997), and it will improve the standard
of living of families on Income Support, we have no way of knowing
whether it will act as an incentive in practice. In the US, disregards
have been introduced alongside other measures such as mandatory
wage withholding, which makes it very difficult to isolate the
effect of the disregard alone, and while increased expenditure
on enforcement does appear to improve compliance, the effects
are not large, and it is by no means clear that this would prove
cost-effective as a policy (Freeman and Waldfogel, 1998).
4. As parents with care (and by extension,
taxpayers, who will be expected to fund the shortfall between
increased rates of benefit and the amount of child support paid
to parents with care) are being asked to accept a lower average
amount of child support in exchange for higher rates of compliance,
it will be vital to ensure that compliance rates do in fact rise
substantially. Despite the promise of tougher sanctions and a
better service delivery by the Agency, we have serious concerns
about whether this will be achievable, especially in the context
of continuing reductions in staffing levels.
5. As far as the reduction of liability
in respect of children living with the non-resident parent is
concerned, we have serious concerns about their equity, for a
number of reasons. We agree with the adoption of the formula suggested
in the White Paper, with its slight bias towards children in first
families, not least because they face a substantially greater
risk of poverty than other children. Although we recognise that
it is invidious to discriminate between children of the same father,
it is debatable whether it is necessary to take account of second
families in purely income terms. US research (Meyer, 1998) has
shown that fewer than two per cent of non-resident fathers would
become poor even if no allowance at all were made for second families
in calculating child support liabilities. In this context, we
strongly question the wisdom of allowing step-children to reduce
the amount payable to children of a first family to the extent
proposed.
6. As is stated in the White Paper, responsibility
for step-children is an issue only where no maintenance is being
paid by their natural father, yet it is proposed both to allow
the presence of step-children to reduce liability for child support
across the board, and to ignore any child support which is paid
in respect of them, effectively creating a "double dividend".
The question of the household income of the second family relative
to that of the first is also ignored, since the earnings of the
non-resident parent's partner are completely disregarded. This
is highly inequitable in its effects, since dual-earner couples
will stand to gain the most, and have least need of any modification
to the scheme (Paull, Walker and Zhu, forthcoming). Ironically,
in those second families where incomes are very low, including
those on Income Support and those with earnings below £200
per week, where real hardship may be experienced, liability will
not be reduced by the presence of natural or step-children in
the household, since they are subject to the minimum payment provisions.
7. The results of the income simulations
carried out by IFS suggest that the proposals will have a limited
effect on child poverty in mother-headed households[1].
Because the amounts generated are smaller than under the existing
system, compliance levels would need to increase simply in order
to preserve the status quo. Children in second families would
fare slightly better under the reforms; it should, however, be
borne in mind that the actual proportion of children in second
families is far smaller than those living in mother-headed households.
8. The decision to make all non-resident
parents pay a minimum amount of child support is supported by
two main rationales; the symbolic honouring of the child support
commitment, and the creation of a normative expectation of payment.
Although we recognise that payment of the minimum amount may cause
hardship to some absent parents, we accept that it may be important
to establish a regular pattern of payment from the outset, in
order to maximise the chances of future compliance, although there
is in fact very little research evidence on this point. Whilst
there is an observed relationship between payment at a given dates
and at subsequent dates, this appears likely to be due to individual
propensity to payment, rather than the effects of policy, and
as Meyer and Bartfield (1996) observe, those who are partially
compliant with child support liabilities tend to polarise into
"payers" and "non-payers" over time. We would
also argue that this provision should be monitored and reviewed
after a period, since the cost of collecting these small sums
is likely to outweigh any potential benefit, at least in the short
term (Barnes et al, 1998).
9. The question of whether or not to take
account of the earnings of the parent with care or a non-resident's
partner is a difficult one. Not taking account of the income can
lead to claims of unfairness, which may have negative implications
for levels of compliance (Lin, 1997; Barnes et al, 1998) whilst
taking account of it introduces additional layers of complexity
into the assessment process. One solution, which has been adopted
in reforms to the Australian child support system, is to disregard
earnings below a certain threshold, set high enough to exclude
the majority of women earners; for instance, average male earnings
(Barnes et al., 1998). This has the potential to improve perceptions
of fairness, but does not compromise the simplicity of the scheme,
as the need to undertake additional assessment arises only in
a minority of cases.
10. The treatment of income for the non-resident
parent appears to favour those who are richer, as income from
savings is ignored, and they are also able to reduce liability
by making large payments into a pension scheme. It is obvious
that this simplifies the assessment procedure, but it has the
potential to result in serious inequities, particularly in a context
where those on subsistence levels of income are being required
to make a minimum payment. Moreover, the onus for challenging
the assessment in cases where declared income is unrepresentative
of real resources should not be on the parent with care, as it
will almost inevitably result in bad feeling between the parents
(Davis et al, 1998).
11. The use of the provision for exceptional
circumstances to be taken into account will require careful monitoring,
as experience suggests that it will be very difficult to limit
these discretionary powers in the manner desired. They are also
more likely to be used by those on higher incomes, who have access
to professional advice, than by poorer non-resident parents, and
are thus another potential source of inequality.
12. We are in favour of the proposals for
reducing liability in respect of shared care, except where care
is shared equally. In this case, it appears more equitable, and
more protective of the child's standard of living, to base liability
on the relative income of the two parents. 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 is therefore not ideal ) or by ignoring the income of
the parent with care below a certain threshold (see para 9 above)
and then applying a percentage. This would involve additional
calculations in only a very small minority of cases.
13. The reduction in liability for shared
care appears likely to increase contact in marginal cases, but
there are situations in which this would not be in the best interests
of the child. This is therefore another area which would require
monitoring, especially in cases where a non-resident parent who
has previously had no contact requests this on what appear to
be purely economic grounds.
14. In conclusion, we would argue that the
proposals, in trying to achieve transparency, and to take account
of the competing demands of pressure groups, may have simplified
the real world rather more than is good. Reducing child poverty
must be a key aim of any child support policy; achieving this
may require more consideration of the resident and non-resident
parent's household incomes than is currently anticipated.
September 1999
REFERENCES
Barnes, H, Day, P, and Cronin, N (1998) Trial
and Error: a review of UK Child Support Policy, London; Family
Policy Studies Centre.
Bennett, F (1997) Child Support: Issues for the future,
London: Child Poverty Action Group.
Corden, A (1999) Making Child Support Regimes Work,
London: Family Policy Studies Centre.
Davis, G et al (1998) Child Support in Action, Oxford:
Hart Publishing.
Freeman, R and Waldfogel, J (1998) "Dunning Delinquent
Dads: the effects of child support enforcement policy", NBER
Working Paper 6664.
Garfinkel, I et al (eds) (1998) Fathers Under Fire: the
revolution in child support enforcement, New York: Russell
Sage.
Garnham, A and Knights, E (1994) Putting the Treasury
First: the truth about child support, London: child Poverty
Action Group.
Lin, I-F (1997) "Perceived fairness and compliance with
child support", Wisconsin IRP 1150, November 1997.
Meyer, D (1998) "The effect of child support on the
economic status of non-resident fathers' in Garfinkel, I et al
(eds) (1998) Fathers Under Fire: the revolution in child support
enforcement, New York: Russell Sage.
Meyer, D and Bartfield, J (1996) "Compliance with child
support orders in divorce cases", Journal of Marriage
and the Family 58 (1); 201-12.
Paull, G, Walker, I and Zhu, Y (forthcoming) "Child
Support Reform: Some Analysis of the 1999 White Paper", paper
to be presented at a seminar on child support reform 30 September
1999.
1 See separate paper submitted by Ian Walker
and Gillian Paull. Back
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