25% income change and the annual
income variation review
125. The White Paper proposes to use latest available
tax-year information from HMRC as the basis for calculating a
fixed-term award of one year for child maintenance liability,
unless current income differs by at least 25%; this will then
be updated each year.[139]
In the White Paper the Government states that:
"…we believe that historic tax income information
is close enough to the current financial position of most non-resident
parents at the time to be an acceptable and sufficiently robust
basis for assessment. We recognise, however, that we will need
to introduce appropriate safeguards for circumstances where, at
the time that a liability is being worked out, current income
differs from the relevant tax year by more than a certain amount."[140]
126. The rationale for fixed term awards appears
to be the fact that, with the current system, a small change in
income can lead to a change in maintenance award. Consequently,
fixed awards will be beneficial both in terms of stability for
parents, and for administrative ease.[141]
In oral evidence, Stephen Geraghty stated:
"It [the 25% figure] was set against the number
of reworks that we would have to do in the course of the programme
and also the actual amount of maintenance which on average it
would affect […] We are trying to get it to the level where
we are not spending all our effort recalculating maintenance rather
than enforcing collection […] It means that people who have
lost their job or in a totally different income position are covered
but people who are doing less overtime or it is more hours because
it is summer and so on and we do not have to redo the assessment."[142]
127. Evidence from One Parent Families highlighted
the potential administrative burden that an annual income variation
review would place on C-MEC when they receive all non-resident
parents' gross income information from HMRC at the same time:
"Another question is the extent to which C-MEC
would have to go through an annual assessment review exercise
at the same point each year, when HMRC tax-year data becomes available.
Again, this would pose serious administrative challenges."[143]
128. We received evidence from CPAG that parents
with care who are used to awards increasing regularly upwards
would be disadvantaged if this only occurred once a year.[144]
CPAG expressed concern that, depending on the direction of the
change in income, fixed awards could significantly disadvantage
either the parent with care or the non-resident parent (and second
families). It therefore emphasised the need for "close monitoring
of the impact that fixed awards have on both 'first' and 'second'
families."[145]
129. Resolution expressed concern that the 25% figure
was too high:
"To state that last year's income will be used,
unless a person can show that their income has changed by 25%,
is extremely worrying. This percentage figure is far too high
and will create substantial financial hardship to a considerable
number of families […] a realistic percentage figure has
to be considered, if the aim is to restrict repeated review applications
where there is minimal change."[146]
130. In the appendix to its submission, Resolution
provided an example of a non-resident parent's gross income changing
downwards by 24% from £20,000 to £15,200.[147]
As a proportion of the non-resident parent's net income maintenance
payments would change from 29.2% to 42.4% under this scenario;
this would clearly have significant effects on the non-resident
parent. While the submission does not provide a specific example,
the converse would also be true, and an increase in the non-resident
parent's gross income by 24% would mean a significant delay before
that increase benefited the children.
131. Janet Allbeson from One Parent Families pointed
out that there were a number of issues surrounding the 25% income
change which were not addressed by the White Paper:
"[It] is not only income changes that will affect
the assessment. What happens if there is a new child living with
a non-resident parent, or if a child changes household? There
is also scope for manipulation. The White Paper does suggest
that where someone leaves a job that will cause adjustment. You
can see a situation where someone leaves a job and then goes back
into work, having got the lower assessment. We do not know whether
there will be a duty to report a change of circumstances which
is advantageous - at the moment there is not".[148]
132. The key issue here, in our view, is where the
line is drawn between balancing operational efficiency and responsiveness
to individual hardship. In Australia, for example, a non-resident
parent can apply for a change in maintenance payments if their
income falls by at least 15%. The Secretary of State commented
that:
"We think probably on the modelling which could
be done this would mean maybe a quarter or a third of cases might
involve some reassessment during the year whereas at the moment
the figure is very significant. We are trying to be fair and
strike a sensible balance but it is one of those aspects of the
new system, I think, that we will obviously have to monitor very
closely as we go forward."[149]
133. The written response to the Committee from the
Secretary of State shows the proportion of employed non-resident
parents who would be eligible for an adjustment based on varying
changes in gross income:
Figure 6:
