Select Committee on Social Security Minutes of Evidence

Examination of witnesses (Questions 413 - 419)




  413. Good morning, ladies and gentlemen. Can I welcome our friends from the Family Policy Studies Centre. We have Dr Helen Barnes, Dr Gillian Paull and Professor Ian Walker. Helen, I wonder if you would not mind saying a few words about your own work. We have been interested to read the Trial and error November 1998 piece of work which was very valuable as background but there have been some changes in some of the public arguments and debates since and you might like to bring us up to date. Also could you introduce to the Committee the work that Dr Paull and Professor Walker have been doing. You have very helpfully supplied us with a summary CS 43, that is very useful and perhaps Professor Walker or Dr Paull can talk us through that. We have not got a lot of time so if you can try and make it as brief as you can.
  (Dr Barnes) I will keep my comments very brief in that case because I think we have quite a lot of new material to add to what was presented in the written evidence. I am Helen Barnes, I am based at the Family Policy Studies Centre. In addition to Trial and error: a review of UK child support policy, which was published in November 1998, which I was the lead researcher on, we have also published a European comparison of child support systems by Anne Corden based at the University of York. We have had an ongoing role in the debate about child support reform. Certainly as part of that we have very much argued for increased simplicity and transparency and to that extent we are broadly supportive of the proposals but we have some concerns. One of our concerns which emerged when looking at the Green Paper some months ago was the relative equity of the proposals between different family types and whether, in fact, some families are going to be made poor at the expense of others. As part of that the Nuffield Foundation, which funded the earlier review, agreed to fund a study jointly between the Family Policy Studies Centre and the Institute for Fiscal Studies, for which Gillian Paull and Ian Walker work. That really looks at the evidence by modelling from existing survey data what we know about the incomes of families, first and second families, models the existing child support regime and then looks at what the new reforms will mean. Will second families be pushed into poverty? Will first families be pushed into poverty to make allowances for second families? Some of the evidence that we will put forward today looks at that. It also looks at things like earnings incentives. This is quite a short self-contained piece of work very much looking at the reforms themselves and that will be published in the very near future. Gillian Paull and Ian Walker also have a longer scale study based at the Institute for Fiscal Studies looking at the long-term behaviourial effects of the reforms in terms of re-partnering and in terms of labour market supply. That will start very shortly and it was also funded by the Nuffield Foundation. That will go on for two years. I think I have outlined some of our concerns in the written evidence so I do not need to go over those, you can ask anything you have in mind. I will hand over to Gillian and Ian.

  414. Thank you. Professor Walker?
  (Professor Walker) My name is Ian Walker. I work at the University of Warwick and some of my work is based with the IFS. I have a history of work on the statistical modelling of the impact of policy reforms on various aspects of individual behaviour. My interest in child support goes back some way prior to the earlier reforms. I have published some work on the impact of the early reforms on the incentive for individuals to work. We have come back to the issue, motivated by the new reforms, and our work is going to be funded by the Nuffield Foundation. To begin with we began to think about what the characteristics of the current system were, what we liked and what we did not like about it, and then began to think about what the impact of the reforms might be. There is a list of good points and bad points about the existing proposed systems on the sheet. One of the striking things about that is that you can marshall logical, plausible arguments in favour of specific aspects of the current scheme or the reforms but similarly you can argue against those aspects. For example, the child support disregard in the child support system under the new system can be argued as a good thing in that it might promote compliance but, on the other hand, it may be argued as a bad thing in that it reduces the incentives for caring parents to work. There are trade-offs involved in the design of child support. In order to evaluate what the net effects of the reforms are you need to do quite a complex statistical analysis of the behaviour of real people. That is what the Nuffield funded work is going to be about over the next two years. In the absence of UK evidence we have been looking at US evidence and there are a number of striking things about the US analysis. Firstly, separation basically makes the absent parents better off in terms of their disposable resources. 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. In the US child support has a reasonably large impact on child poverty amongst the children who end up living with the mother and only a small adverse effect on child poverty in second families because the fathers end up being quite rich. The US ought to be quite informative about the prospects for the current reforms in that since 1996 the Clinton Welfare Reforms have allowed each state to go their own way and different states have chosen different routes for their child support systems. In particular, some states have dropped the old disregard for child support that was a feature of AFDC. AFDC was the US equivalent to income support. Some states have dropped this disregard and some states have kept it. It turns out that there has not been any difference in changes in compliance between those two groups of states. If the US evidence can be translated to the UK context it seems that the disregard for child support in the welfare system, in particular income support, may not actually have much impact on compliance. That is a worrying implication for the reform because one of the things that the reform will do is that it is going to make caring parents worse off unless there could be a significant increase in compliance. So that is the worry we have on the basis of the US evidence. We have some UK work that has looked at the impact of the reform on the incentives for individuals to work and there is a table in our note[3] which shows you what happens under the reform to the distribution of working behaviour for a large sample of households taken from the Family Resources Survey. What happens is that introducing WFTC, replacing family credit by WFTC, which is about to happen, is actually good for work incentives, it reduces the proportion who are not working by about two or three percentage points. The child support reform itself contributes further to that process, so that it turns out that the complete disregard for child support in WFTC under the reform has a beneficial incentive on work which outweighs the adverse incentive effect of the income support disregards, so whilst the income support disregard may, on the US evidence, not promote compliance, at least it does not seem to do too much damage to the incentive to work. That analysis is somewhat naive. It takes a bunch of old behavioural estimates, simulates how people would behave in the labour market and simply runs through a bunch of computer code to show what the effect on behaviour would be. It is not in any way based on experimental evidence. So the recommendation that we have so far is that, actually, we do not know what works. Not only do we need to know what works, but we actually need to know how well it works because, as I said, child support design is about weighing up conflicting forces from particular aspects of design. In order to find out what works and how well it works, we need more research. In particular, we need to do more work on the Child Support Agency's own administrative database which the DSS has had access to, but nobody else. We need better data than is currently in the public domain. The Family Resources Survey is quite extraordinary in that it only tells us about the absent parents who pay child support and you cannot actually identify absent parents in that data who do not pay child support; the survey simply does not allow you to identify that. So the data that we do have in the public domain is actually censored in a way which is extremely unhelpful for this kind of analysis, but we have been doing what we can to overcome that. Finally, in the process of finding out what works, we need to build evaluation into the reform and we need to have the reform implemented in such a way that we can actually deduce from people's behaviour after the reform is implemented what aspects of the reform are changing their behaviour. There are a number of things one can do and, for example, I suggest here that you might, say, randomise the level of income support disregard to find out what effect it might have on compliance and work incentives. Gillian is going to talk about what we have done with the Family Resources Survey.
  (Dr Paull) My name is Gillian Paull and I work for the Institute for Fiscal Studies and I specialise in the areas of labour market and benefits with particular relevance to family policy and working mothers with children. In the work we have done, we used the sample survey that Ian has mentioned, the Family Resources Survey, and we have overcome the lack of evidence on absent fathers by combining it with information from another panel survey where we can actually see couples when they are separated. In the study we consider all mothers in the UK not living with the father or some of their children, so this is not just lone mothers because some of them may have re-partnered, and it is also not just the CSA caseload because not necessarily all of these are on income support and some might actually be in working households. The area we do not cover is caring fathers and absent mothers and obviously that is something that the Committee might wish to bear in mind. We consider the impact of the proposed reforms and WFTC without allowing for any changes in labour supply. That is, we assume that everyone carries on working exactly as they are now, so, if you like, you are getting the lower band on possible changes, assuming no behavioural response. We have been particularly interested in looking at three things. Firstly, we want to know how the average weekly child support payment changes. We would also like to know how the average net income changes both for the caring mother and the absent father and his family. We have also looked very carefully at the proportion of families in poverty and the proportion of children in poverty and how that proportion changes with the possible reforms. Now, it is very easy to calculate how the liabilities change. The problem is calculating how payments change and we do have to say something about compliance. So we have looked at current compliance in the data and what we find is that roughly about half of all liabilities are paid and that roughly about half of absent fathers who owe a positive liability actually pay something. The way we do this is we look at our results, and we look at the effect of the reforms at several different levels of compliance. Firstly, we consider current compliance levels and nothings changes in the way that absent fathers respond to their liabilities. We also look at the level of 80 per cent compliance which is a figure proposed in the White Paper, which is the Government's target figure, and that 80 per cent, it is not clear what is meant by 80 per cent compliance. It could mean that all absent fathers pay 80 per cent of their liability or it could mean that 80 per cent of absent fathers pay all their liability and 20 per cent pay nothing. The distinction between those two is quite important. The latter where we have 80 per cent paying all of their liability actually has a bigger impact, whereas if you had everyone paying just 80 per cent of their liability, it has a smaller impact and that smaller impact lies somewhere between current compliance and 80 per cent paying everything. In the figures I will tell you now, I am going to assume that 80 per cent of absent fathers pay everything and 20 per cent pay nothing. We also look at what would happen if absent fathers paid their full liability, so that is if we had complete compliance, and this provides an upper band on the effects. If you look at the data, we see that of all caring mothers, some 55 per cent are on income support whereas 23 per cent are eligible for WFTC and 22 per cent are working at levels which place them above the level for WFTC. For absent fathers, on the other hand, only 20 per cent are on income support and that is a much lower figure than that for caring mothers and only 6 per cent are eligible for WFTC, and that is partly because they have far fewer children in the household. In fact less than one quarter of absent fathers have children in their household. Some 74 per cent of absent fathers are working at levels which make them ineligible for WFTC. The caring mother households are much more likely to be on income support than the absent father households which suggests that there might be the opportunity to reduce poverty in caring mother households if we can redistribute that income between households. Turning very briefly to our results, we considered the reforms in two or three stages. In the first stage we asked what would happen following the move from family credit to WFTC, that is to say, we carry on with the current child support system, and we considered that in isolation. We find that the child support payment is essentially unchanged from around £40 a week and the reason for that is that the absent fathers on family credit have no liability, so the change from family credit to WFTC does not change their liability. The caring mothers' income increases marginally from £208 a week to £212 a week with the change from family credit to WFTC, but poverty among caring mother families remains at about 38 per cent and about 43 per cent of children living with just the caring mother who remain in poverty. In the absent father family, the poverty falls from around 16 per cent to 12 per cent. Poverty in the absent father family is much lower than in the caring mother family. Suppose we now move to the White Paper reforms holding compliance at current levels. The amount of child support paid falls from an average £40 a week to £29 a week and that is quite a sizeable drop. The caring mother's average income falls by a lower amount, from £212 a week to £209 a week. The reason for that is there is a benefit cushion and essentially part of the loss of child support is made up by increases in other benefits. The absent father's income rises from £377 a week to £392 a week due to the lower child support liability. There is very slightly lower poverty for both the absent father and the caring mother's family but it is a very small change. Overall family poverty falls from 23 per cent to 22 per cent and poverty amongst children, that is children in the caring mother household and the absent father household, falls from 37 per cent to 35 per cent. That is the impact of the White Paper reforms assuming there is no change in compliance and obviously it is a stated goal of the Government that it will seek to improve compliance. Let us suppose that compliance does increase to the 80 per cent target, in that situation the average child support payment moves back to £41, that is just one pound higher that it is under the current system at current compliance. The caring mother's average income moves to £214, that is only two pounds above the average level of income on the current system and at current compliance levels. Poverty is changed very little, it remains at about 21 per cent for the families and 35 per cent for children. Even if there was full entitlement there would be very little change in child support pay in net incomes. We also have a rough estimate of the cost to the Government of these changes.[4] Supposing that we continue to move from Family Credit to Working Families Tax Credit, we estimate that the cost for these groups of separated families is about a quarter of a million pounds. That is an annual net change in Government revenues. The cost of reforming or changing from the current system of child support to that proposed in the White Paper we estimate to be about £440,000 annual Government revenue if there is no change in compliance but only about £75,000 if the 80 per cent target level of compliance is achieved. Finally, I just want to say something about three specific subjects. I have talked about all separated mothers at the moment and obviously the CSA client group considers only caring mothers on income support, that is their main target group at the moment. We looked separately at what would happen to the caring mother's income support and we foundagain that their child support payments fall with the reform, that is from the current system of WFTC to the reform system of WFTC, from £28 to £20 a week. But if there is improved compliance then the amount could actually rise to £36 or £39. Improved compliance can actually have an impact on the net income of caring mothers. The income rises from £152 to £156 and possibly only to £160 with improved compliance. Poverty for this group is quite high, it is currently 61 per cent of caring mothers on income support on our poverty measure. This will fall to either 55 per cent under the reform or to 52 per cent even if we achieve the 80 per cent compliance. Similarly, the proportion of children in poverty is currently 64 per cent and this will fall to 60 per cent or 58 per cent at best with improved compliance. So the changes in poverty rates are not very dramatic.

Mr Pond

  415. Could you give us that figure again, please?
  (Dr Paull) 64 per cent to 60 per cent if there is no change in compliance and 58 per cent if compliance improved. A second area we have looked at is the impact of the income support deduction. A £10 proposed deduction for income support does actually seem to have an important effect. For the group of caring mothers on income support the net income without the deduction will be £5 to £7 lower. Also family poverty will be eight percentage points higher and the number of children in poverty will be six percentage points higher without the income support deduction. The cost to the Government of this deduction we estimate to between about £150,000 to £200,000 a year. That seems to be quite a move in poverty compared to the cost.

  416. Can I just ask for clarification on that. Six percentage points or six per cent?
  (Dr Paull) Six percentage points. I can give you the actual figures. On the other hand, for the Working Families Tax Credit full deduction, we considered the impact of that over the current £15 deduction in Family Credit. It raises the net income very marginally for caring mothers but it does not have any impact on poverty for the simple reason that mothers who receive the Working Families Tax Credit are not really in poverty. Finally, we also looked at the impact of including step children in the absent father's allowance in assessing his liability. We estimate that the exclusion of step children from this calculation would raise child support payments by around £6 to £9 a week. It would raise net income by about £4 for the caring mothers of absent fathers with step children. It would fall by roughly the same amount for the absent father's family with no actual overall change in poverty. The inclusion of step children causes a slight switch in resources from the absent father to the caring mother. Our overall conclusion is that the reforms have relatively little impact even if compliance changes dramatically, which might be for better or for worse, but it is not likely that you are going to achieve a great reduction in poverty. On the other hand, you are not going to be plunging large numbers of absent fathers or caring mothers into poverty. It is true that the child support liabilities do fall but if compliance is increased then the actual payments will stay around the same amount. There is very little impact on net income and the poverty levels regardless of compliance. This is partly due to the benefit cushion, that benefit payments change in allowance for the change in child support payments. It is also due to the fact that where payments change they are not sufficiently substantial to move families with children out of poverty or into poverty. More importantly what this work stresses is the general issue of whether absent fathers are actually sufficiently well off to be able to move the corresponding caring mothers in or out of poverty to a great degree. It also suggests that if the goal is to reduce poverty amongst caring mothers with children our best hope might be to look towards the effect of changes in incentives to work behaviour and not to changes in the child support payments themselves.


  417. Thank you. You will understand that is quite a lot for us to take in.
  (Dr Paull) I do. I have some tables which I do not know whether it would be useful for me to photocopy and give to the Committee.[5]

  418. It would be very helpful if we could have a paper for the reason that it is easier to put a wet towel around your head and make sure you understand it all. That sounds a very valuable piece of work, it is just very difficult to know where to start constructively criticising it just listening to it for the first time. Is it possible to have copies of the key figures and the key conclusions?
  (Dr Paull) Yes, I can give you a copy of everything I have just said.

  419. Do I understand that this is really fresh evidence and work that has just been done?
  (Dr Paull) Yes, literally in the last few days.

3   See Ev. p. 167. Back

4   Subsequent to the hearing, the cost estimates have been substantially revised and are presented in supplementary material. See Ev. p. 177. Back

5   See Ev. pp. 176-180. Back

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