Select Committee on Work and Pensions Fourth Report

7  Debt

265. Since its creation in 1993 the CSA has collected over £5 billion in maintenance; however, around £3.5 billion of debt has accumulated.[296] The White Paper states that existing debt accrued from the punitive Interim Maintenance Assessments (IMAs) will be revalued from £1.3 billion to £0.5 billion,[297] while a further £50 million will be written off in other specific forms of debt.[298]

Interim Maintenance Assessments

266. IMAs have accrued in old scheme cases under the rules which apply to cases taken on between 1993 and 2003. They were imposed if the full details of a non-resident parent's income were not available, and were set at a punitive level in order to act as a penalty for any non-resident parent who failed to provide the necessary information about their circumstances in order to carry out a Full Maintenance Assessment. They were intended to encourage a non-resident parent to comply and co-operate with the CSA and pay child maintenance. However, in practice, the penalty did not have the required effect and many non-resident parents continued to evade their child maintenance responsibilities.[299]

267. Much of the evidence which the Committee received accepted that debt resulting from the system of IMAs may need to be reassessed to provide more realistic estimates of the actual debt owed. Stephen Geraghty stated that where the appropriate information is subsequently received to make a proper assessment, "it comes out on average about a third of what we have estimated."[300] However, Citizens Advice expressed concern about how the reassessment of IMA debt downwards will be communicated to parents with care.[301]

268. When asked about this, Stephen Geraghty said this was "something which I have not got a definite answer to. It is one of the things that we are considering."[302] The Secretary of State commented that "I think we should involve parents with care to the greatest extent that we can and come to an understanding of the process that we are following and also, this may be necessary, to get their agreement to proceed along these [IMA reassessment] lines."[303]

269. We raised the rate of growth of outstanding debt with the Chief Executive of the CSA and the Secretary of State.[304] In response, Stephen Geraghty stated:

"The rate of increase has dropped from about £23 million a month to just over £20 million a month now, so we are making some inroads into the rate of increase but I agree not into the book. We have got the debt book broken down. There are 880,000 people that owe an amount of money. For half of them it is less than £1,000, and for 1% of them it is over £50,000, which are a lot of the IMAs that we have just talked about. We are setting up debt enforcement teams and as part of the operation we are quadrupling the number of people we have in enforcement, each of whom has a target list of cases to work. In other cases, once the debt is confirmed we send them out to these private debt collectors that we were talking about - we have an 18-month contract with two private debt collectors - and 17,000 cases with £81 million has gone out to them so far, so we are bringing those cases back to life."[305]

270. Given that the level of arrears is still rising, we ask the Government to explain in greater detail the changes in resourcing levels and processes which it plans to introduce to turn the situation around.

Factoring debt

271. The CSA first began piloting the use of private debt agencies in August 2005. Contracts with two private debt collection agencies began in July 2006. These involve payment by the Agency of a fee for successful collection of debt, rather than paying for each referral. A recent Parliamentary Question showed that a total of £72,000 has been paid to these debt collection agencies for their services up to November 2006.[306]

272. NACSA noted that while genuine debts should be recovered where possible, proposals "… to factor (sell) debts … would only lead to bigger debts as a result of interest being added by the new owner (who will be looking to make a return)."[307] Resolution also highlighted the problem of factoring debt that may have been calculated incorrectly.[308]

273. Evidence was not entirely negative regarding the factoring of debt however, Professor Stephen McKay believed that in some cases it could be appropriate:

"There are some people out there who are trying to wilfully dodge paying any money, and you do need the tools to deal with that group. That does not mean you should go after people in an unfair or disproportionate manner, but you do need these kinds of sanctions there just to show the organisation's teeth.

Chairman: If they have owed money for the last ten years, they have lost all rights to any sympathy, have they not, brutally?

Professor McKay: Yes, basically, they must have ignored a whole sequence of correspondence, court summonses and all other kinds of things. There does come a point where you have to draw the line and say the sympathy is at an end. There are rights of appeal and so on."[309]

274. One Parent Families also believed that there may be cases where factoring debt is appropriate:

"We agree that there is scope to 'clear off' debt by seeking negotiated settlements or factoring debts, but are pleased that this will only be done if the parent with care agrees. We recommend that the application of these new methods of dealing with debt should be carefully monitored."[310]

The 6 year rule, maladministration and compensation

275. There is no reference in the White Paper to the substantial part of the debt which is legally unrecoverable - i.e. debt more than 6 years old. The CSA originally had no powers to obtain a Liability Order in respect of debts that were more than six years old.[311] New regulations introduced last year removed this limitation period but only in relation to amounts that became due after 12 July 2000 (i.e. amounts that were not already time-barred at the commencement of the new Regulations).[312]

276. Therefore, while there is now no six year time bar, some arrears have already become time barred by the elapse of time (for example, if liability started in April 1993 and the CSA did not obtain a liability order until April 2000, then the arrears up until April 1994 would be statute-barred). According to a 2006 National Audit Office report, this amounts to about £760 million, and the only way this debt can be collected in the future is if the "non-resident parent [becomes and] remains compliant and agrees to pay the debt back."[313] Directly, referring to this £760 million, Stephen Lawson in written evidence said "[in] many cases it seems there has been Agency maladministration, which has caused financial loss. The CSA should be taking proactive steps to make compensation payments to parents with care who have lost money as a result of CSA maladministration."[314] James Pirrie from Family Law in Partnership warned:

"Lawyers groups now expect to pursue full and fair compensation where maladministration can be shown. This will radically increase the fairly minimal levels of compensation now being paid and will consume significant amounts of Agency resource in dealing with these historic cases."[315]

277. Janet Allbeson from One Parent Families said in oral evidence:

"In a lot of cases some of this money is uncollectible, due to the agency's own incompetence, and its own maladministration. There are debts that are more than six years old worth £760 million sitting there that they cannot enforce. We also know that one of the reasons they were not able to bring cases on to the new system was because the data on which those cases are based is dodgy. In a sense, it makes it very hard to enforce because they cannot justify the debt. That is their own problem, and what we say is if you are going to clear this amount of historic debt you could do it by setting up some sort of compensation system where they have been at fault, and maybe that is the way out. We do not think they can just ignore it and hope it goes away; they have got to face up to the fact that quite a lot of that debt is caused by problems that they have had. That money is legally owed to lone parents […] there has also got to be some kind of compensation for the sad history of the agency and those parents who have lost out as a result - and children, of course; a whole generation of children has grown up without the maintenance that they were owed."[316]

278. Resolution pointed out that there are already procedures in place to compensate where maladministration by the DWP or its agencies can be proven:

"the [DWP] has its own guide called Financial Redress from Maladministration. It is not mentioned in the White Paper and very few people - certainly very few members of the public - are aware of it. What this guide states, in paragraph 15, is that as far as possible a customer should be put back in the same position that they would have been in but for the official error."[317]

279. The Secretary of State gave the following statistics on maladministration payments by the DWP:

"The largest amount paid to date to a single individual (whether in one payment of several) is £91,000. This was paid in four separate payments over a two and a half year period."[318]

280. Furthermore, the following payments of financial redress were made in 2005-06 in each of the following bands:

Figure 11:
£250 or less7922
£251 - £500 550
£501 - £1,000 625
£1,001 - £5,000 968
£5,001 - £10,000 64
Over £10,0007

Source: DWP written submission Ev 121. Note: The 11,515 payments published in Hansard on 18th December is the number of financial redress payments actually paid in the financial year 2005/06 and reported in the Annual Report and Accounts. The analysis is about a breakdown of the number of cases that have been authorised to receive financial redress in 2005/06. The Agency only has detailed information on payments authorised and not those actually paid in a given time period.

281. The Committee recommends that the DWP should develop an action plan to ensure that the availability of compensation for maladministration (as described in the Department's publication, Financial Redress for Maladministration) is effectively drawn to the attention of potential applicants. The Committee further recommends that the Secretary of State be required to report to the Committee annually setting out the full details of the sums paid in respect of alleged maladministration by C-MEC, both under the scheme for Financial Redress for Maladministration and through legal proceedings.

Informal payments and debt

282. As outlined above, some of the CSA's £3.5 billion of accumulated debt has been caused by the CSA's slowness in making maintenance assessments; during these delays huge arrears built up for non-resident parents which they were not capable of paying, although, during this time, many informal payments may have been made (for more information on informal payments see paras 163-167 of this report). As Michelle Counley from the National Association for Child Support Action pointed out:

"A number of cases come through where payments are not registered, and that can lead into all sorts of difficulties because the non-resident parent is not aware of the need to record those payments and then, 10 years later, the CSA become involved and say: 'By the way, you owe £70,000.'"[319]

Debt owed to the State

283. In its response to Sir David Henshaw's report, the Government stated that of the £3.5 billion of debt currently outstanding, "around half is owed to parents with care and around half to the State" and that "It currently costs around 60 pence in administration costs to get each £1 of maintenance to a child."[320]The 2006 National Audit Office report on the CSA noted that the total cost of enforcement activity during 2004/05, including work on penalties, fraud investigations and information gathering, was an estimated £12 million; they collected £8 million.[321]

284. In response to these figures, Stephen Geraghty stated that these figures were not comparing like-with-like:

"… while they are accurate that is not quite the right description. The £12 million is the cost of running our Enforcements Directorate in that period, which is the one that takes people to court and, as said earlier on, were we to have administrative sanctions rather than legal ones, we would be much more cost effective. So it is comparing the total cost of running the Enforcement Directorate with the money that is paid by people into that Directorate, so it is the consideration for us not taking action, it is not a fair comparison."[322]

285. Regardless of whether these figures are a fair comparison, collecting outstanding debt is clearly costly and it could therefore be argued that it is not in the state's best interest to chase debt owed to it. However, the adoption of such a policy would undoubtedly give those non-resident parents who have complied with their child support obligations to date a very real and legitimate sense of grievance. On balance, the Committee recommends that the Department should make every effort to collect debt owed to parents with care that can be proved to be accurate. However, the Department should look in more detail into the efficiency of collecting debt owed to the state, particularly where the calculated amounts are questionable.

296   White Paper, para 5.32 Back

297   White Paper, para 5.42 Back

298   Specifically, unpaid fees and interest arising from regulations abolished in 1995; cases where the PWC is deceased, or NRP is deceased and the debt cannot be recovered from the estate; and where the parents are reconciled or the PWC has asked for the cessation of recovery activity. See: White Paper, paras 5.39-42 Back

299   White Paper, paras 5.41-42 Back

300   Q 233 Back

301   Q 116 Back

302   Q 234 Back

303   Q 235 Back

304   Q 236 Back

305   Q 236 Back

306   HC Deb, 25 January 2007, cols 1968-69W Back

307   Ev 86 Back

308   Ev 62 Back

309   Qq 80-81 Back

310   Ev 82 Back

311   see Regulation 28 of the Child Support (Collection and Enforcement) Regulations 1992. Back

312   Statutory Instrument 2006 No. 1520 The Child Support (Miscellaneous Amendments) Regulations 2006 Back

313   NAO, Child Support Agency - Implementation of the Child Support Reforms, June 2006, p 64 Back

314   Ev 67 Back

315   Ev 87 Back

316   Q 145 Back

317   Q 119 Back

318   Ev 121 Back

319   Q 133 Back

320   Government's Response to the Henshaw Report, para 10 Back

321   NAO, Child Support Agency - Implementation of the Child Support Reforms, June 2006, p 65 Back

322   Q 228 Back

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