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Fraud Bill [Lords]

Draft Contracting Out (Functions Relating to Child Support) Order 2006

The Committee consisted of the following Members:

Chairman: Mr. Eric Martlew
Cable, Dr. Vincent (Twickenham) (LD)
Clelland, Mr. David (Tyne Bridge) (Lab)
Dunne, Mr. Philip (Ludlow) (Con)
Greening, Justine (Putney) (Con)
Iddon, Dr. Brian (Bolton, South-East) (Lab)
Keen, Alan (Feltham and Heston) (Lab/Co-op)
Laws, Mr. David (Yeovil) (LD)
McIntosh, Miss Anne (Vale of York) (Con)
Mactaggart, Fiona (Slough) (Lab)
Penrose, John (Weston-super-Mare) (Con)
Plaskitt, Mr. James (Parliamentary Under-Secretary of State for Work and Pensions)
Stringer, Graham (Manchester, Blackley) (Lab)
Stuart, Ms Gisela (Birmingham, Edgbaston) (Lab)
Thornberry, Emily (Islington, South and Finsbury) (Lab)
Watkinson, Angela (Upminster) (Con)
Watts, Mr. Dave (Lord Commissioner of Her Majesty's Treasury)
Wright, David (Telford) (Lab)
John Benger, Committee Clerk
† attended the Committee

Fourth Standing Committee on Delegated Legislation

Tuesday 20 June 2006

[Mr. Eric Martlew in the Chair]

Draft Contracting Out (Functions Relating to Child Support) Order 2006

4.30 pm
The Parliamentary Under-Secretary of State for Work and Pensions (Mr. James Plaskitt): I beg to move,
That the Committee has considered the draft Contracting Out (Functions Relating to Child Support) Order 2006.
It is a pleasure, Mr. Martlew, to serve under your chairmanship.
The order was laid before the House on 22 May. As the name suggests, it is an enabling piece of legislation designed to help the Child Support Agency achieve some of the key short and medium-term objectives set out in the operational improvement plan. That plan was published by my right hon. Friend the Secretary of State on 9 February.
The Committee may be aware that the operational improvement plan sets out the agency's aims and objectives for the next three years. The overall aim of the plan is to improve service to clients, to increase the amount of money collected, to achieve greater compliance from non-resident parents and to provide a better platform from which to implement future policy.
The plan, this supporting legislation and the package of negative resolution regulations that were laid in both Houses on 16 June all recognise that we owe it to children and their parents to do something to improve child support performance. It would be wrong for us to sit back and do nothing while Sir David Henshaw is making his recommendations—and while we consider and consult on those recommendations. We will know the outcome of that redesign shortly. In the meantime, I hope that hon. Members will agree that we should not pre-empt that in our debate.
In developing the operational improvement plan, the agency identified a significant capacity gap. Contracting out certain services will enable the agency to fillthat gap, delivering the planned improvements byMarch 2009 and staying within the approved resource levels and spending limits. However, contracting out is not only about capacity but about buying in expertise, and learning from the private sector.
The order will enable the Child Support Agency to contract out three main areas of work—the management of clerical cases, a significant amount of debt recovery and some tracing of non-resident parents. The agency's computer problems have been well documented and discussed by the House and by the Work and Pensions Committee; I am pleased to see some members of that Committee here, and I am sure they will add their experience and expertise to today's debate.
The contractor will be required to undertake a wide range of activities in delivering the entire clerical case management process. They will range from initial information gathering to making assessments and calculations and then arranging the collection of maintenance. The contractors will therefore require a wide range of the powers currently used by the agency. As a result, the order has been drafted widely.
The second area of contracting out will be debt recovery. We all know from our postbags that that is another problem area for the agency. Nearly one in three non-resident parents who have been assessed and are due to make a payment fail to pay for their children. Debt accrued since 1993 as a result of non-resident parents' failure to pay now exceeds £3 billion. That is why the operational improvement plan has increased enforcement at its heart. We agreed funding of£30 million to allow the agency to employ external debt collection agencies to recover in excess of £100 million of outstanding debt.
The contractors will enhance the agency's debt reduction capacity by undertaking a wide range of activities to recover individual debts. They will be encouraged to be innovative, within existing legislation, in order to recover what is due or establish promptly a satisfactory repayment arrangement. They will have specialist expertise and in many cases local knowledge. They will be able to concentrate on a narrower range of duties than the agency is required to perform, and the contractors will not be paid if they fail to deliver.
In England and Wales, contractors will enforce the payment of debt through the magistrates courts and the county court as appropriate. That will include the obtaining of county court judgments, liability orders, third-party debt orders and charging orders. Contractors operating in Scotland will fulfil the same role using the appropriate Scottish legislation.
It is important to stress two things. First, there will be no reduction in the child support maintenance received by individual parents as a result of using contractors. Secondly, using contractors will supplement not replace the agency’s own in-house enforcement. The cost of employing the contractors will be borne by the agency.
We also intend to allow private-sector contractors to use their tracing expertise to find non-resident parents who are avoiding the agency. Just under 70,000 cases have not yet been assessed under the old scheme, largely because non-resident parents could not be traced by the agency. I know from my own constituents and from the cases I am called to deal with in the House, that a number of non-resident parents find extraordinary ways deliberately to avoid dealing with the agency—for example, by refusing to answer calls and letters, frequently moving or deliberately providing incorrect information. Such behaviour prevents the establishment of regular child support maintenance payments, so if the agency has failed to find the non-resident parent, it will ask the contractor to locate the non-resident parent and to conduct interviews to capture all the information to enable maintenance assessments and calculations and/or enforcement action to be undertaken.
As I said earlier, it was necessary to draft the order widely. The three areas that we wish to contract out cover most of the functions carried out by the agency, but we have excluded some statutory functions from the order. Section 71 of the Deregulation and Contracting Out Act 1994 precludes certain functions from being contracted out. They include rights of entry and seizure, and seeking committal to prison or disqualification from driving. However, that does not mean that cases referred to contractors can escape those actions. When necessary, contractors will return cases to the agency for them to be progressed.
Contractors will be doing a sensitive job, so it is right that we deal only with the most reputable. The agency intends to use an existing departmental procurement framework to appoint contractors for debt collection and tracing activity. That framework was established following a competitive tendering process. A different procurement route is being taken for clerical case management. Contractors will be selected following a competitive tendering exercise, and will be expected to demonstrate a proven track record in that area of work along with the business and financial capacity to deliver.
Although we have been clear about the cost of the debt contract, negotiations over clerical cases are at such a stage that I cannot give precise figures on the costs. However, I assure the Committee that we would not let any contract that would cost more than keeping the work in-house. All successful contractors will be subject to strict codes of practice and will be required to adhere to all relevant legislation such as child support, human rights and data protection legislation.
The order underpins our commitment to ensuring that the child support system works—both for parents and their children. I assure hon. Members that none of the measures will add to the burdens on the agency, nor will they require further IT changes.
I am satisfied that the order is compatible with the European convention on human rights. It reflects the Government's commitment to the fair and effective operation of the child support system, and I commend it to the Committee.
4.40 pm
Miss Anne McIntosh (Vale of York) (Con): It is a great pleasure, Mr. Martlew, to appear before you this afternoon. On behalf of the Opposition, I welcome the order, which we broadly support. We hope that the Henshaw review will report sooner rather than later. Perhaps the Minister will take the opportunity to tell the Committee when he expects it to report—and confirm that the Secretary of State is expected to make a statement before the House rises for the summer recess. That would be most welcome.
I wish to raise a number of practical matters ofsome moment; indeed, I am delighted to have the opportunity to do so, and I hope that we receive satisfactory replies so that the legislation can proceed. I note one omission in what the Minister said; he did not mention the role of mediation—and I do not mean only for future cases. The CSA operates an adversarial system, and we would like to see more reference to mediation. I am slightly disappointed that the Minister did not take the opportunity to say that cases need not be referred or contracted out but that there is scope for them to be dealt with through mediation by the private agreement of the parties concerned.
I am sure that the Minister will be familiar with the centre in the south of York. It is used by a number of practitioners; at their own cost, the parents submit themselves to the mediation process. It is very much in the interests of the child for whom the support is intended, but it also gives the parents a much more accessible and agreeable approach. Is there a particular reason why the enabling order makes no mention of that?
I am slightly concerned that the order seems to proceed on the basis of awards that have already been made, yet we know that at present it is often the variation of orders that gives rise to most problems. I wonder whether it will complicate matters if the work is contracted and subsequent variations are made in awards of child support.
Article 2 states that
“any function of the Secretary of State relating to child support”
other than sections 15 and 35 of the Child SupportAct 1991 may be exercised by persons authorised by him. I understand that sections 29 and 32 are particularly relevant in that regard.
I shall not read out the very helpful explanatory memorandum as I am sure the Minister and his team are extremely well versed in the matter, but I wonder whether, for the sake of clarity, he can help the Committee. It refers specifically to a wide range of activities. Would the Minister be good enough to tell us what precisely those activities will be? He gave us the three broad heads, but we want to know what specific activities there will be under those heads.
I also want to know what parliamentary scrutiny there will be of the contracting out arrangements. The agency is already one step removed from the Department, and although we broadly support the contracting out arrangements, it will make more difficult the necessary parliamentary scrutiny, which is conducted by the relevant Select Committee—a number of my hon. Friends serve on it with distinction and enthusiasm—the ministerial team and the shadow team, who would relish the opportunity to observe and scrutinise the arrangements. I would like to know what the parliamentary procedures will be.
The Minister referred to the setting up arrangements, but I am not sure whether he said what the costs will be or how they will be met and from what budget. He said—the explanatory memorandum confirms it—that the contracting out arrangements will free a maximum of 700 staff, but he did not say what those staff would be doing other than devoting their time to the new cases. Our understanding is that the old cases are taking most of the Department’s time.
I wonder why the old cases, those that have been waiting the longest, are not being highlighted. The explanatory memorandum says that £3.3 billion is outstanding, so dealing with the backlog of old cases would obviously release those resources to go to child support. It would be helpful if the Minister were to say what the cost of contracting out would be, how those costs are to be met and whether the Department intends to allocate an additional budget for the purpose.
On debt collection, the explanatory memorandum states that in certain circumstances contractors will
“return cases to the Agency where they consider such measures would represent the most effective method of collecting a debt and where other attempts at enforcement have proved unsuccessful or are considered inappropriate.”
It would be extremely helpful to the Committee and to potential contractors to be a little more clear about the specific circumstances in which such cases are expected to be returned to the contractors. It would avoid any possible doubt. It would also be helpful to know how many cases fall into the category of clerical case management—it is referred to graphically in the explanatory memorandum—and for how long those cases have been in that category.
It is said that the CSA has a capacity gap owing to what is described in paragraph 4 of annex A to the explanatory memorandum as a “temporary surge in demand”. I wonder why that is. Under the section headed “Operational Improvement Plan” it states:
“In effect, the Agency has a capacity gap. The agency therefore proposes to meet some of this temporary surge in demand through contracting out certain elements of its core business to the private sector.”
I am intrigued to know why the gap is deemed to be temporary and for how long it thinks the surge will be last.
The right hon. Member for Birkenhead (Mr. Field) has been rather critical of the contracting out arrangements. He was reported in The Guardian of6 February as saying:
“If the Government goes ahead with employing private debt collectors, this should make it possible for thousands more fathers to be forced to pay up.”
An alternative view was put by the Child Poverty Action Group, which asked
“What methods will private firms use, how will they be regulated and how much of the debt they collect will be kept as profit?”
That goes back to my earlier question about how contracting out will be funded and what budget the Government have in mind.
I am sure that all hon. Members have been contacted by the Credit Services Association. At least one newspaper has reported the association’s interest in taking up that work. Its executive director said:
“We would be very keen to take this job on and believe that we can be effective, and single mothers and children will benefit. We would not collect money in cases that have gone to appeal and95 per cent. of cases get handled in an office and are pursued with correspondence and telephone calls. In very few cases would it go to doorstep collection.”
I am told that concerns were expressed about doorstep collection during the consultation.
I understand that the agency consulted Citizens Advice about the contracting out proposals. The latter’s main concern was the potential for private debt collectors inappropriately to use aggressive tactics. It suggested that its own debt specialists should work with the agency to ensure that that problem was addressed. What will the modus operandi be of the contractors in that regard? Can the Minister satisfy the Committee that heavy-handed tactics will not be used and that Citizens Advice concerns will be met?
The agency failed to consult employers and representatives of payroll administration companies at a recent meeting. The employers expressed concern that the contracted debt collection agencies might take them to court to recover their employees’ maintenance arrears if, for entirely legitimate reasons, a deduction from earnings order was not implemented. Can the Minister satisfy us that that will not happen? What enforcement measures will the contracting organisations be able to use if a deduction from earnings order is not to be used?
The Minister will be aware of the criticisms of the CSA. I admire the CSA staff, who work in extremely difficult circumstances, and anything that we can do to assist them in meeting their and the CSA’s obligations and responsibilities would be good for the agency and for the parents—good for all concerned. I wonder why the agency has not used many enforcement orders. What guidance will be given to the contractors on enforcing deduction from earnings orders that have been made?
Further concern was expressed by employers about their ability to recognise as legitimate those deductions from earnings orders issued by contracted organisations rather than the agency. How will the Government address that point? Can the Minister satisfy me that such orders will not be open to fraud? I know of one case of identity fraud in my constituency, and I fear that this type of order could be open to such abuse.
I understand that the agency will be responsible for contacting the non-resident parent two weeks before referring cases to the contractor. It will offer the non-resident parent the opportunity to make an agreement to make regular payments prior to that referral. If it is an arbitrary two-week period, at what point is the case handed over to the contractors, and is there an opportunity for mediation then?
I return to the concerns expressed by the Credit Services Association. It understands that working for the agency will be fraught with difficulties, not least because of the need to ensure that debts are certified before being sent to the contractors. The association asks that that specific point be addressed. It also wants to ensure that customers have a single source of information, and that their right of appeal and complaint is not compromised. Those questions go to the heart of the difficulties currently being encountered by agency staff, and by resident parents with care and non-resident parents. How will the Minister address that matter?
The Minister will know from the nature of the concerns that I have raised that they go to the heart of how the order will operate. Although we support the potential for contracting out in principle, we are reluctant to let it happen until we have in place some mechanism for parliamentary scrutiny and an answer to the real concerns that have been raised.
4.57 pm
Dr. Vincent Cable (Twickenham) (LD): Like the Conservative spokesman, I have no quarrel with the basic principle behind the order. It is surely right that we try to achieve high levels of collection for the benefit of children in the circumstances involved, and I have no ideological problem with the principle of contracting out. However, we know from painful practical experience in central and local government that contracting out is full of hazards. Whether it is a matter of collecting dustbins or sophisticated contracts with the London underground, it requires a public agency to be competent and sophisticated, with a good understanding of the business so that it can pitch its contracts in the right way and assess risk and cost in a way that represents value for the taxpayer.
The sad history of the Child Support Agency and the scathing comments that it has received from many of us and, more recently, from the Select Committee, does not fill me with confidence that it is the best body to negotiate sophisticated contracts, but let us hope. My other source of apprehension is the debt-collecting function. Like every Member, I have had a lot of casework associated with both the CSA and debt collectors, much of which has been horrendous. A typical case is a household that has run up enormous bills with BT because of a telephone scam and is not paying it for good reasons. The householders then find a debt collector on their back, hundreds of pounds of costs payable and bailiffs appearing at their door. Other people run into difficulty with a parking fine that they were not aware of or are disputing, and a debt collector is involved with a bill of hundreds of pounds, and a great deal of difficulty flows from that.
The historical lack of competence of the CSA and the inherent and often unpleasant difficulties associated with commercial debt collecting together present serious potential problems. I quote, as did the hon. Member for Vale of York (Miss McIntosh), the Child Poverty Action Group, which asked the right questions:
“What methods will private firms use, how will they be regulated and how much of the debt they collect will be kept as profit?”
I shall focus on each of those three questions in turn.
On how the firms will be regulated, the Minister said that they will be governed by a strict code of conduct. I do not know the industry in detail, and it is possible that it is formally regulated by the Financial Services Authority and the Department of Trade and Industry, but I do not think so. The Minister may be referring to self-regulation by the industry, but if I am wrong I am sure that he will correct me. If it is self-regulation, what safeguards do we have? The Minister has served on the Treasury Committee for years, and he knows the history of self-regulation in financial services. He knows how unsatisfactory it has been, and that it has had to be supplemented by Government action. Will he make a clear statement about the status of that strict code of conduct? Is it self-regulation, or is it something more?
Secondly, I turn to methods of collection. Again, the hon. Lady was right. A good deal of difficulty can arise as a result of doorstep collection methods, particularly in cases like this. For instance, the second family from whom the proceeds are being collected may be guiltless. The man may have abandoned his first family—he may be at fault, and may need to be pursued—but the family that he now lives with may be guiltless. Such families often have to deal at first hand with aggressive debt collectors. Has the Minister made a rough assessment of the proportion of cases that would proceed beyond the office to doorstep collection?
Thirdly, I ask about the cost. The Minister gave a specific assurance that the fees that the Child Support Agency would pay to the debt collectors would not exceed the costs of administrative collection by the agency. He said that there would be no extra cost to the taxpayer. He also gave a categorical assurance that payments to families would not be affected. How will the debt collectors make their money? They are not charitable organisations. They have to satisfy the interests of their shareholders. Where does the margin come from? It can come only from the family from whom the money is being extracted. In some cases, that may be justified.
How will the process be managed? Let us suppose that someone has an outstanding bill of £1,000. The collection costs will be £300 or £400. What is to stop debt collectors asking for £2,000 or even £5,000? Is the process to be managed? How will the debt collectors make their margin? Who will oversee them to ensure that they do not operate in a highly exorbitant, irregular and unsatisfactory manner?
Although the measures may be desirable or even necessary, they do not address some of the fundamental problems of the Child Support Agency; indeed, in some respects, they may aggravate them. As the Minister knows, one of the central problems is that the agency makes numerous errors. I understand that the figures for 2004-05 show an increase in errors in its calculations of something in the order of 70 per cent. What will happen if subcontracted account payment demands are sent in error? The hon. Lady asked whether the payment orders will be certified? Will there be an additional audit of those accounts before they are sent out, or do we run the risk of there being a30 per cent. error rate, the average on agency accounts?
How does the order sit alongside other recent Government proposals to tighten up payments by the Child Support Agency? I understand that, some time ago, they were recommending that defaulters should be subject to the withdrawal of driving licences. Has that happened? What is the experience of that? Is that a first step before debt collectors are called in or a second step? Is it still in play? Similarly, there was a proposal that defaulters should be tagged. Is that still a live proposal or has it been dropped?
On financing such measures, the Minister responsible has said that, as a result of this exercise, the Government hope to realise an additional net sum of £100 million. If that happens, it will represent positive payments from defaulters to families. Will the Minister say something about the status of that £100 million? If this were a Treasury document, it would be accompanied by a regulatory impact assessment with some independent validation of that sum. Will the Minister say where the sum comes from, what the margin of error is and whether it has been independently assessed?
5.6 pm
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