CHILD SUPPORT REFORM: SOME ANALYSIS OF THE
1999 WHITE PAPER
Summary of preliminary results presented
by Dr Gillian Paull, IFS Professor Ian Walker, University of Warwick
and IFS and Dr Yu Zhu, Keele University (CS 47)
INTRODUCTION
This study:
— considers all mothers in UK not living
with the father of their children;
— not just lone mothers—may have
new partners;
— not just CSA caseload—those
in working households;
but—does not consider caring
fathers and absent mothers.
uses:
— information from a large survey of
such mothers;
— combines with another panel survey
to estimate the characteristics of the corresponding absent fathers
and their families.
Considers the impact of the proposed CS reforms
and WFTC on:
— average weekly child support payments;
— average net (equalised) income for
both caring mother and absent father;
— percentage of families and percentage
of children in poverty, where poverty is arbitrary line given
as half median income.
Also: rough guess at impact on annual net government
revenue
We can calculate how liabilities change, but
to know how actual payments change, we need to say something about
compliance:
— do not know how compliance will change:
could go either way;
— we estimate current compliance: roughly
50 per cent of liabilities paid, but only half fathers with a
liability pay anything;
— White Paper hopes to raise compliance
to 80 per cent (two definitions);
— also look at full entitlement: upper
bound on effects.
Note: the changes reported here ignore any possible
labour supply effects.
Table 1
CURRENT BENEFIT RECEIPT AND EMPLOYMENT
| Percentage of Caring Mothers
| Percentage of Absent Fathers |
| Income Support: |
| — single | 53.1 |
15.4 |
| — partner | 1.4 |
0.9 |
| — partner + extra children | 1.0
| 3.5 |
| All for Income Support | 55.5
| 19.8 |
| WFTC: |
| — single | 18.8 |
— |
| — partner, 1 person working | 1.0
| — |
| — partner, 2 people working | 0.7
| — |
| — partner + extra children, 1 person works
| 1.7 | 5.8 |
| — partner + extra children, 2 people work
| 0.8 | 0.6 |
| All for WFTC | 23.0 | 6.4
|
| Working Independently: |
| — single | 14.2 |
51.1 |
| — partner, 1 person working | 0.4
| 3.1 |
| — partner, 2 people working | 3.9
| 5.9 |
| — partner + extra children, 1 person works
| 0.4 | 5.3 |
| — partner + extra children, 2 people work
| 2.8 | 8.4 |
| All working independently | 21.7
| 73.8 |
NOTES:
Extra children means step or new children with a new partner
in addition to any qualifying children.
Those families defined as income support do not contain any
person working 16 or more hours and have net income prior to child
support sufficiently low for eligibility.
Those families defined as WFTC contain at least one person
working 16 or more hours, but have net earnings sufficiently low
for eligibility.
Those families defined as working independently have net
income prior to child support in excess of the WFTC threshold.
So how do caring mothers and absent fathers compare in employment
and benefits:
— caring mothers: 55 per cent on IS, 23 per cent
eligible for WFTC, 22 per cent working independently;
— absent fathers: 20 per cent on IS, 6 per cent
eligible for WFTC, 74 per cent working independently;
— less than 0.25 of absent fathers live with dependent
children, around 20 per cent with step children.
Hence—increasing CS payments may be a means to reducing
poverty, particularly among children.
Table 2
SUMMARY
| Current Child Support System
|
| Family Credit
| Working Families Tax Credit
|
| Current Compliance
| Full Entitlement | Current Compliance
| Full Entitlement |
| Average weekly CS | 39.89 |
60.36 | 39.89 | 60.36
|
| Average net weekly income: |
— caring mothers
— absent fathers
| 208.11
376.31 | 215.49
349.48
| 212.40
376.65 | 222.24
349.82
|
| Per cent families poor: |
— caring mothers
— absent fathers
— both
| 38.3
9.0
23.7 | 32.2
11.2
21.7
| 37.7
8.2
23.0 | 30.6
10.3
20.5
|
| Per cent child poor: |
— caring mothers
— absent fathers
— both
| 43.3
16.3
38.0 | 38.8
23.5
35.8
| 42.5
12.2
36.6 | 36.6
19.6
33.3
|
| Change in annual net govt. revenue (£ million)
| + 478 | + 1,666 | base = 0
| + 971 |
| Reformed Child Support System in White Paper (with WFTC)
|
| Current Compliance
| All Pay 80 per cent of Entitlement |
80 per cent Pay Full Entitlement & 20 per cent Pay Zero
| Full Entitlement |
| Average weekly CS | 28.81 |
34.25 | 41.27 | 42.81
|
| Average weekly net income: |
— caring mothers
— absent fathers
| 209.46
392.13 | 209.91
385.49
| 213.93
375.47 | 215.03
374.59
|
| Per cent poor families: |
— caring mothers
— absent fathers
— both
| 35.5
8.0
21.8 | 35.2
8.2
21.7
| 34.1
8.2
21.1 | 33.2
8.5
20.9
|
| Per cent child. poor: |
— caring mothers
— absent fathers
— both
| 41.0
11.4
35.2 | 41.8
11.9
35.9
| 40.4
12.3
35.0 | 39.6
12.7
34.3
|
| Change in annual net govt. revenue (£ million)
| --836 | --419 | --143
| --168 |
NOTES
The change in annual net government revenue is calculated
from the average weekly unequivalised net income for both the
caring mothers and absent fathers, multiplied by 52, by the sample
size, and by 1,000 as the FRS is a 1 in 1,000 survey. Estimated
current compliance rates indicate that 52 per cent of absent fathers
with a positive child support liability pay something and that
50 per cent of total entitlements are paid. Equivalised income
is set to the level for a couple.
Consider our results.
Move from FC to WFTC:
— CS unchanged from around £40 (absent fathers
on FC have no liability);
— caring mother's income small increase: £208
to £212;
— but, poverty among CP families remains around
38 per cent and among CP children at 43 per cent;
— AP children poverty falls from 16 per cent to
12 per cent (much lower than CP).
Move to White Paper reforms, holding at current compliance:
— CS paid falls from £40 to £29;
— caring mothers' income falls by less from £212
to £209 (benefit cushion);
— absent fathers' income rises from £377 to
£392;
— very slightly lower poverty for both AP and CP:
overall family from 23 per cent to 22 per cent and children from
37 per cent to 35 per cent.
What about 80 per cent compliance?
— caring mothers' income to £214 poverty little
changed at around 21 per cent for families and 35 per cent for
children.
Even full entitlement would make little difference.
Indeed, full entitlement under the current system would reduce
poverty slightly further CPs, but be slightly higher for APs'
children.
Annual cost to government of these changes:
— FC to WFTC: £478 million;
— reforming CS (holding WFTC constant):
— £836 million under current compliance;
— £143 million if 80 per cent compliance achieved.
Now, just focus on three areas:
— CSA client group: caring mothers on IS;
— impact of IS and WFTC deductions;
— impact of including step children in the absent
father's second family allowance.
Table 3
CARING MOTHERS ELIGIBLE FOR INCOME SUPPORT (CSA CLIENT
GROUP)
| Current CS System with WFTC
| Reformed CS System with WFTC
|
| Current Compliance
| Current Compliance | 80 per cent Pay Full Entitlement & 20 per cent Pay Zero
| Full Entitlement |
| Average weekly CS | 27.66 |
19.29 | 36.28 | 38.45
|
| Average net weekly income | 153.09
| 155.63 | 158.33 | 159.80
|
| Per cent poor families | 60.5
| 55.4 | 53.5 | 52.0
|
| Per cent poor children | 63.7
| 60.1 | 59.4 | 58.1
|
CSA client group: (assume WFTC)
— CS falls from £28 to £20 from reform;
— but improved compliance could raise it to £36
or £39;
— net income rises from £152 to £156 (due
to IS deduction);
— and to £160 with improved compliance;
— family poverty falls from 61 per cent to 55 per
cent or 52 per cent at best;
— children poverty falls from 64 per cent to 60
per cent or 58 per cent at best.
Not very dramatic!
Table 4
IMPACT OF £10 AND £15 DEDUCTION FOR INCOME SUPPORT
ON CARING MOTHERS ELIGIBLE FOR INCOME SUPPORT
| Reformed CS System with WFTC
|
| Current Compliance
| 80 per cent Pay Full Entitlement & 20 per cent Pay Zero
| Full Entitlement |
| Average weekly net income: |
— without any deduction
— with £10 deduction
— with £15 deduction
| 150.00
155.63
157.44 | 152.86
158.33
160.94
| 152.90
159.80
162.55 |
| Per cent poor families |
— without any deduction
— with £10 deduction
— with £15 deduction
| 63.2
55.4
52.8 | 60.8
53.5
49.6
| 60.8
52.0
48.0 |
| Per cent poor children |
— without any deduction
— with £10 deduction
— with £15 deduction
| 66.4
60.1
57.8 | 65.1
59.4
56.0
| 65.1
58.1
54.6 |
| Change in annual net govt revenue (£ million) due to:
|
— £10 deduction
— £15 deduction
| - 298
- 396 | - 295
- 438
| - 368
- 516 |
Without £10 IS deduction:
— net income would be £5 to £7 lower;
— family poverty would be 8 percentage points higher;
— children poverty would be 6 percentage points
higher;
— annual cost to government of £298 million
to £368 million (depending upon compliance).
Table 5
IMPACT OF FULL DEDUCTION FOR WFTC ON CARING MOTHERS ELIGIBLE
FOR WFTC
| Reformed CS System with WFTC
|
| Current Compliance
| 80 per cent Pay Full Entitlement & 20 per cent Pay Zero
| Full Entitlement |
| Average weekly net income: |
— with deduction
— without deduction
| 209.83
206.70 | 221.97
216.08
| 222.78
216.94 |
| Per cent families poor: |
— with deduction
— without deduction
| 16.7
16.7 | 13.3
13.3
| 13.1
13.1 |
| Per cent children poor: |
— with deduction
— without deduction
| 20.8
20.8 | 18.0
18.0
| 17.6
17.6 |
| Change in annual net govt revenue due to the deduction (£ million)
| - 74 | - 141 | - 141
|
NOTES
Without deduction means the current £15 deduction for
child support in the calculation of WFTC
WFTC full deduction (over £15 deduction):
— raises net income marginally, but no impact on
poverty;
— annual cost to government: £74—£141
million.
Table 6
IMPACT OF THE INCLUSION OF STEP CHILDREN IN THE ABSENT
FATHER'S SECOND FAMILY ALLOWANCE FOR ABSENT FATHERS WITH STEP
CHILDREN
| Reformed CS System with WFTC
|
| Current Compliance
| 80 per cent Pay Full Entitlement & 20 per cent Pay Zero
| Full Entitlement |
| Average weekly CS: |
— including step children
— excluding step children
| 25.09
30.69 | 34.62
42.73
| 37.98
46.55 |
| Average weekly net income for caring mothers:
|
— including step children:
— excluding step children
| 185.32
188.74 | 187.48
191.94
| 189.15
193.64 |
| For absent fathers: |
— including step children
— excluding step children
| 252.37
248.48 | 245.93
240.31
| 244.24
238.31 |
| Per cent families poor for caring mothers:
|
— including step children:
— excluding step children
| 45.1
44.3 | 44.3
42.6
| 43.7
42.1 |
| For absent fathers: |
— including step children
— excluding step children
| 12.3
12.3 | 13.1
14.2
| 13.6
15.6 |
| For both: |
— including step children
— excluding step children
| 28.7
28.3 | 28.7
28.4
| 28.7
28.8 |
| Per cent children poor for caring mothers:
|
— including step children:
— excluding step children
| 48.6
47.7 | 48.9
47.2
| 48.4
46.6 |
| For absent fathers: |
— including step children
— excluding step children
| 12.0
12.0 | 12.8
14.0
| 13.3
15.4 |
| For both: |
— including step children
— excluding step children
| 30.9
30.4 | 31.4
31.1
| 31.3
31.5 |
| Change in annual net govt revenue due to including step children (£ million)
| - 32 | - 59 | - 67
|
NOTES
An estimated 19 per cent of absent fathers live with dependent
stepchildren.
Impact of step children on families with absent father living
with step children:
— exclusion would raise CS by £6 to £9;
— net income would rise by £4 for caring mothers
and fall by around same amount for absent fathers;
— no change to overall poverty.
CONCLUSIONS
Reforms have little impact even if compliance changes dramatically:
— for better or for worse;
— no groups of major winners or losers;
CS liabilities do fall
— but CS payments will stay around same level if
compliance rises to 80 per cent.
But very little impact on net income and poverty levels regardless
of compliance:
— due to benefit cushions;
— where payments change, not sufficiently substantial
to move families and children out of or into poverty.
So:
— issue of whether absent fathers are sufficiently
well-off to be able to move caring mothers out of poverty under
any scheme;
— best hope may be to look to the changes in incentives
to encourage work as the means out of poverty.
Dr Gillian Paull, IFS
Professor Ian Walker, University of Warwick and IFS
Dr Yu Zhu, Keele University
16 September 1999
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