Select Committee on Work and Pensions Minutes of Evidence

Examination of Witnesses (Questions 20-39)


17 JANUARY 2007

  Q20  Miss Begg: That was the question I was going to come on to, what is the impact of the different charging structure going to be on compliance, especially as the White Paper states that "the clear burden of charging should fall on the non-resident parent and not on the parent with care" yet in the example I have just given it was the parent with care who was the one who went to the CSA in the hope of not getting what might be regarded in the courts as being a fair settlement, but the father was not saying "I am not paying for my children" it was just that he wanted payment in kind such as the holidays and the fact that he did have accommodation for them taken into account, and that could not be taken into account.

  Ms Kazimirski: The idea of charging assumes that the CSA or C-MEC is involved just because the NRP does not want to pay and for no other reason. In order to take that into account one possibility is to charge only if there is proof of a long period of non-compliance or irregular payments or something that shows that the private arrangement is breaking down because of the non-resident parent. It would make more sense for those situations to lead to a charge against the non-resident parent and could act as an encouragement as well to work successfully at a private arrangement.

  Professor McKay: Fees are, in the work we have done, hugely unpopular; people expect this kind of service to be provided so they find it a hugely unpopular concept. In the case you mention, they are going in a sense to be worse off under the new system because under the new system they could go to the CSA and enforce it that way, but under the new system they will go to C-MEC and he will never pay anything on top, so in a sense it is a disadvantage. If the argument for not making it affect PWCs is because you do not want to harm children then you ought to see whether the NRP has any children. I do not really understand why people are not looking at things like ability to pay as being kind of relevant here. If someone is able to pay, whether that be the NRP or the PWC, that should not come into it. As I said, when people go through a separation they are often not at their most rational and I think some people would rather make their ex pay a fee than to get the same amount of maintenance and not make them pay a fee. I do not really see what would be the disincentive for a PWC just to get in touch with C-MEC and go through the process. There is a case for fees and you can use fees in a much more creative way. I do not think it is the NRP who pays or it is the PWC who pays, you can use fees so that they are waived if people supply information quickly and fees are based upon ability to pay. I just think as a kind of knee-jerk it must be the NRP is not helpful.

  Q21  Miss Begg: Have you any suggestions to the Government of other ways or other incentives that would actually allow parents to come to a private arrangement, because obviously what is proposed in the White Paper is that they want the maximum number of people to come private arrangements so that the state is not involved. How does the Government do that; how do they make it easier for people to come to private arrangements that are not going to break down or are not going to tempt the parent with care to go off to C-MEC and say "I think I can get more"?

  Ms Maclean: Paradoxically, the biggest incentive to come to a private arrangement would be to know that there is a fallback position if it does not work because, as I keep saying, coming to the arrangement is easy, you can agree a figure, it is how you cope with change in circumstance, how you cope with non-compliance. That is where private arrangements are frightening, particularly for the parent with care. A strong, accessible collection agency will make people more confident about private arrangements. A complex fee system is a bit of a slippery slope; in order to be equitable and fair, a fee system would have to be quite finely tuned and respect people's circumstances, and the more complex it is the more uncertain it will be and the more it will be a disincentive to use. If we are not quite sure what kind of bill we are going to end up with, we are going to be nervous about getting involved.

  Ms Kazimirski: The registering arrangement has been mentioned—

  Q22  Miss Begg: That was my next question, so please carry on.

  Ms Kazimirski: This is where I find it difficult to distinguish the difference between private arrangements that are registered—and I am not certain but I understand there is a suggestion that there might be some sort of monitoring attached to a register—and maintenance direct, which I have talked about already. I am not sure that there is a point in having those two systems, because the only difference might be that the CSA has been involved in setting the amount in the case of maintenance direct and perhaps not for the register of private arrangements, but if people are moving from the collection service straight into a private registered arrangement, the CSA was involved in the original assessment, it is the same as maintenance direct, so we need to think carefully about setting up too many systems. What might be worthwhile is prioritising some sort of maintenance direct system, or registered private arrangements, whatever we call it, but just have one system like that that perhaps helps parents who are not quite ready to just go out there and set up a private arrangement without any help from the Government agency at all. There is a kind of in-between stage where there is some sort of registering, some sort of monitoring that could be a regular letter that reminds them both what should be being paid, the frequency and the level of payment, perhaps a regular phone call to one or both parents, that sort of in between stage that might help people start looking at—

  Q23  Miss Begg: Who should do that? Is that C-MEC?

  Ms Kazimirski: I would see that as C-MEC's role, yes.

  Q24  Miss Begg: Not a separate agency that is there to advise, that is not coming in with a big stick. My understanding was that C-MEC was envisaged as the big stick agency, that it was coming in to do compliance. If it is the big stick agency is there not a role for a different agency that would give guidance on parenting, how to manage now that parents have separated, that kind of soft skill approach—here is a reasonable settlement that, given your income, you might accept; that is the kind of ballpark figure you should be settling on. Is there not a role for that kind of soft seats approach that can get parents around the table to settle the child support arrangements so that it is all amicable, but there is a professional sitting in who can advise them in all of these things?

  Ms Kazimirski: That might work better but if you do distinguish C-MEC as only hardcore cases where the father has never paid at all you might get situations where the parent with care is almost too scared to involve C-MEC because of the way that the non-resident parent would react, so even though she may really need the money she may be so scared that it would affect the relationship between them and the way that the non-resident parent would behave with the children, there would be that sort of side effect.

  Q25  Miss Begg: But I can also see a role for registering and monitoring the registration of the private arrangement to protect the parent with care who may be bullied by the non-resident parent into saying you had better accept that because that is all I am going to be giving you, and she—I am saying she because it is usually she—is frightened of the non-resident parent and is frightened to challenge him, but at the moment that is taken out of her hands because the CSA gets involved. That might be much more difficult under the proposed arrangements so how do you look at that particular problem or that scenario?

  Professor McKay: One of the problems is that in the White Paper this idea of a private register is mentioned but there is no detail at all, it is just perhaps someone should be able to consult a register and it is not mentioned that it is going to be something that people could voluntarily sign up to, is it something everybody is going to be involved with—in Australia it is compulsory to register to get other kind of benefits—or is it just some kind of sample of people? There is very little detail of what is envisaged and I find it quite difficult to know how the private arrangement is supposed to work since one person can always say the formula is there and we can use that, that is the number I want to receive and negotiating around that is quite difficult. There is a problem in that at the moment people are compelled to use the agency and they often take some convincing that they should do, and they are reassured by the case worker that there is not going to be any kind of comeback, whereas under the new system you separate and you are going to never want to see this person again so when would you be encouraged to go for this kind of thing. I do not actually see that you would be; you would probably go your separate ways and might well be too scared to actually do anything different. Again, that takes away a lot of difficult cases from the state dealing with them, but I do not really see how they would have actually become involved in the system.

  Q26  Miss Begg: You said the parent walks away but one of the proposals is for the joint birth registration; do you think it is right to address birth registration as part of the child support policy and so on?

  Professor McKay: My personal view is that if this was an idea that came out of DCA with the idea that more children should know their parentage and it now gives you parental responsibility if you are married, it is probably an idea that is interesting to discuss and you could also go down the voluntary route, but because it is bound up with this process it seems to me that it is much more about paternity establishment at an early stage to make later enforcement more straightforward. Maybe that is a good thing, but it is a rather different thing from other objectives you can have. Again, there is not much detail in the White Paper to go on but would the father need to be present for his name to be added or not and what are the different consequences of that? There is some research in the US that seems to show that more births are registered with father's names if it is done quickly and in hospital, and that may well be true, but over here the system is rather different and you do not actually register for some considerable time, two months, after the birth has occurred. I really do not understand how you could compel the father to be there if he does not want to be or what would happen if he does not have to be there and whether he would actually find out that he has been registered.

  Q27  Miss Begg: Or the mother does not know who the father is.

  Professor McKay: Yes.

  Ms Maclean: May I come in on this? Clearly it is desirable for children to know who both their parents are and at the moment the trend is very clearly towards joint registration of birth by co-habiting couples; it is happening by itself. This is an area to be very careful about, the role of law and compulsion and requirement. If it is a very small minority who are not registering directly of course there may be inertia, it may just not have occurred to people, but it is quite possible that there is a powerful reason for not seeking joint registration. There may have been issues of domestic violence, there may have been issues about abuse of earlier children of the couple and one would have to be very careful about any form of pressure in that situation. The other related issue is what goes with joint registration: joint registration would, as I understand it, automatically lead to parental responsibility, and that is quite a murky legal concept. It is quite unclear still what powers and duties parental responsibility in that form confers and there are issues about whether it would require a parent with care to consult with the non-resident parent about various aspects of medical treatment or schooling or whatever. It is setting up a very confused legal position, and if there was compulsion to register jointly you would leave the parent with care in the position of having to go to court to object to a parental responsibility order. It is not an issue where legal aid would be very likely to be available, so I think it is a heavy burden on the mothers and on the court system, whereas at the moment if a non-resident parent wants a parental responsibility order he can go to the court and ask for one and, unless there is a very compelling reason not to have it, he will get it. At the moment the balance is much more sensible; it is a very unnecessary and potentially dangerous route to follow to press for joint registration.

  Q28  Miss Begg: Do you have anything to add?

  Ms Kazimirski: Just that we are still talking about a minority of cases that do not fall into the area where it is not suitable to force the woman to name the father, and the situation is that you would be left with just a few extra joint registrations that would not have a great impact nationally.

  Q29  Miss Begg: Is there a danger, if there is forced registration, that the mother registers somebody but it transpires that actually it is not the father at all—and in some cases they will not know the father—would that not have legal consequences later on if the father on the birth certificate is discovered not to be the father but has been paying child maintenance all these years?

  Ms Maclean: It would be very messy and unhelpful for everybody.

  Professor McKay: It is a criminal offence, I believe, to give false information on a birth certificate.

  Q30  Miss Begg: Yes, but she might not know.

  Professor McKay: I have no idea what the penalties are for giving such false information.

  Q31  Mrs Humble: I would like to move on to ask some questions about the new assessment process and start off with examining whether or not using gross income is the right way forward, because of course the old system used net income and the current new system uses net income. Should we be using gross income as recommended in the White Paper?

  Professor McKay: It is partly bound up with what you then do with the gross income figure. Gross income is a better concept to the extent that it is easier to find out someone's gross income and it is less subject to some of the manipulations you can do to get from gross to net, so there is an advantage that you can get it from HMRC, basically, so it is a good place to start. My concern is that if you then apply a simple percentage formula to gross income, then under a progressive tax system it has the implication that as someone's income rises they can be paying a higher proportion of their income in child maintenance. At the moment, for instance, if your disposable income doubles your child support assessment will double. If you use a fixed proportion of gross income then when your net income doubled your child support assessment would more than double, so I do not actually see that as a particularly desirable consequence, particularly since most evidence is that as people's incomes rise the proportion they spend on their children actually falls. The combination with a fixed percentage, particularly higher up the income distribution, does have this kind of quality that it takes an increasing proportion of income from an income scale.

  Q32  Mrs Humble: Do you think then it might lead to greater incidence of non-compliance for the reasons that you have outlined?

  Professor McKay: In a sense gross income is helpful because it can be taken from HMRC and it is helpful in the compliance and enforcement process because you have much greater access to a given income in the first place, because it is more difficult to thwart the process of actually getting the details to start with, because obviously one of the things that slows the thing down is not getting access to income information. That is a positive benefit, that gross income is more readily available and it is less subject to other deductions, although it does remain to be seen exactly how pension contributions get taken into account. On balance it is probably the right context, but allied to fixed proportions it does have, perhaps, unexpected properties for some income groups.

  Q33  Mrs Humble: Can I briefly return to questions that reflect Anne Begg's constituency examples? Should we be reconsidering whether or not to take into account the parent with care's income, because both in the debate on the original legislation and the debate on the new legislation, the income of the parent with care was not taken into account in the assessments, partly because of the debate that we had at the beginning that Mavis referred to that the Child Support Agency's assessments were supposed to reflect the fact that the child should enjoy the lifestyle that it would have had if the two parents had been together, so by living with the parent with care, by definition the child was enjoying whatever standard of income that parent with care had, but added on to that was the income from the non-resident parent. However, I understand that in Australia they are now looking at reforming their CSA system to take into account the parent with care's income, and also there are examples in America where they are taken into account. Should we be doing it?

  Ms Maclean: To be honest, the example you have given, of the Australians moving in the direction of making their formula more complicated while we are moving in the direction of making ours more simple, just points out very clearly that this is an extremely difficult area and, however you do it, it is difficult and there are going to be problems. In Australia they have been suffering a lot of criticism for the lack of sensitivity in their formula, and that is why they are becoming more sensitive; our criticism is about the over-complexity of our formula, so we are becoming more simple. In 10 years' time we will all be sitting here and we will be becoming more complicated and they will be becoming more simple again. It is very, very difficult and it is the nuts and bolts of being clear and visible and the social expectations about compliance that I think matter far more. For that reason I would put up with the disadvantages of gross income for the benefits of clarity and being able to move ahead. I would like it all to become like parking tickets: once upon a time nobody paid parking tickets and then, suddenly, if you did not pay them they doubled within a week, so now I pay them. That is the sort of impetus that child maintenance needs and the fine-tuning of formulae can often just impede that push for action.

  Q34  Mrs Humble: I definitely do not want to get into any controversies about parking tickets, this is bad enough. I am asking a question about the parent with care now because in a way the issue is not relevant to the existing system because the majority of parents with care are on income support or have very, very low incomes, so they are not going to be assessed to pay in any case, but as we move to a system of the private arrangements, when you could have two individuals both earning decent amounts of money it then could be an issue, so is it something about which we might not want to do anything now but as the new arrangements come into place it might be something for us to consider?

  Professor McKay: It is a bit more than just fine-tuning of the formula, it does go to some quite fundamental issues. You mentioned America and in fact about three-quarters of American states do use both parents' incomes. The state of Wisconsin is an exception to that and now uses the NRP, but three-quarters of states do look at both parents' incomes, CS mark one was both parents' incomes and 70% of the public think you should look at both people's incomes. The Australian formula, for example, spoke very clearly to the idea if this family was intact how much money would they be spending on their children? They are no longer intact; they would still expect to spend a certain amount on their children, let us apportion that fairly to them on the basis of their incomes. As I say, under the current system the formula is mostly designed for parents on benefit who have no income so it is very clearly just using the NRP income, but since most intact families have two earners it speaks to fairness to be looking at both their incomes. Certainly, the people I spoke to were very much of the idea that both parents are financially responsible, therefore they should both be included in this. The objections to doing this would be it is another piece of income you have to find, but most of this group will be in receipt of tax credits so the information is more readily available now than it used to be, so actually I feel quite strongly that the issue is something that needs to be looked at.

  Ms Maclean: If you are going to move towards looking at the parent with care's income are you going to look at her personal income, are you going to look at her household income? It leads you to have a very complex and slippery slope, back to Delaney, if you are not careful.

  Professor McKay: The short answer is you look at their personal income. Reading between the lines of Government reforms there is this kind of idea that we tried to be fair back in 1993, we tried to have a fair system but it did not work, therefore we do not need to worry about fairness but there are actually some systems which have greater elements of fairness built into them than others, and one that takes account of both people's income is a fairer system than one that looks at one person's income. You can do that without going down routes of complexity, though it is more complex than what is proposed, absolutely. Having said that, if you look at the CSA they have moved from a complex formula to a relatively simple formula and the effect on compliance, accuracy, is pretty much the same as ever it was.

  Q35  Mrs Humble: Can I then move on to another part of what could be a complexity in the new system and that is how you treat informal payments. Should payments in kind be classified as informal payments, should they be regulated, should the parent with care have any say over payments in kind, should she be able to say to the non-resident parent "I will accept a new school uniform or new shoes for the child, but I do not want you to be paying for a foreign holiday when my child actually needs the school uniform or the new shoes." What should we do about that?

  Ms Maclean: In an ideal world people would sort those things out for themselves; they are not matters for regulation or law or state control, they are personal, individual and cannot be regulated in my view. How can the state enquire into that level of detail, and not only detail but variability? Informal arrangements are characterised by being very variable and impossible to regulate.

  Q36  Mrs Humble: In the existing system though sometimes, prior to individuals going to the CSA, a non-resident parent would say but I did actually contribute, I did buy the school uniform and I did buy the shoes and I did buy the books, but then the parent with care could say no, he did not. The CSA would then get involved and often assess arrears to take it that the non-resident parent had not actually paid up because they had been making these payments that could not be traced and could not be specified. Is there any danger that we could have exactly those sorts of arguments under the new system proposed in the White Paper?

  Ms Maclean: I am sure they will be there, but I do not think we should be trying to deal with them. One pair of trainers often takes on immense proportions.

  Professor McKay: Partly that happens at the moment just because of the delays in the system; it is a case of when the actual assessment is made from and when they actually start enforcing, so there is an intervening period. If we could eliminate that delay or make it as short as possible then those kinds of issues would not even arise, but I agree with Mavis, I do not think the state can be involved. If it means looking at receipts for trainers and stuff, I do not think the state should be going down that route. I agree with Mavis, looking at receipts for trainers and stuff, I do not think the state should be going down that route.

  Ms Kazimirski: There could perhaps be more information for non-resident parents to clarify that that sort of payment in kind will not and cannot be taken into account and that, if they want to prove that they have been supporting their children, and so on, they should be going for payment made by bank transfers rather than cash as well and to make that sort of information clearer.

  Q37  Michael Jabez Foster: Going back to the question of the two-incomes being taken into account, is not the problem that historically people used to get into the argument about possible income, so that when people marry rich new partners they do not work and then the paying partner gets upset about that? Is that not impossible to overcome if you take both parents' incomes into account?

  Professor McKay: I understand what you are saying. It is always the case that people are accused of having a different earning capacity from what their actual earnings are, and if you want to assess an earnings capacity you can, but if you want to assess an actual income you can. I think, the way the system has developed, we look at actual income, that is true. Yes, you could say that person could work more, that guy could do more overtime, she could take a job, but I think you can only work on the basis of what their incomes actually are. A lot of US states do assess people on their earnings capacity and, basically, if people are unemployed for a while, their assessment continues at the same level once you get a job. I think the approach here followed by the CSA/C-MEC system is that you have to go on what their incomes are, and the fact that they could earn more, that they could have a better job, I am sorry, means nothing.

  Q38  Michael Jabez Foster: It is totally complex, is it not, and it is certainly going in the wrong direction?

  Ms Maclean: I think so. Wisconsin is a primary example, trying to look at income earning capacity. There was a man who had a PhD in economics. When he finished as a student he was offered a job on the West Coast as a highly paid economics professor but stayed in Madison, Wisconsin, on a janitor's salary to be near his child and see it every day. He was then assessed on the salary that he could have been earning on the West Coast. It is just not a route to go down.

  Q39  John Penrose: I have got a couple more follow-up issues about the new assessment process. Can I quickly pick up on one of your earlier answers about the difference between gross and net income. I was intrigued, because if HMRC is providing details of gross income and the difference between gross income and net income for this purpose, as has been defined to us, is just the difference of tax, NI and potentially, depending on which system, pension contributions as well, is there some devious and disastrous systematic reason why they cannot just provide details of net income instead, which would be simpler, in one respect, in that you do not have to worry about people below gross income thresholds who would not otherwise pay tax?

  Professor McKay: There are a couple of answers to that. You might know of a legal case that has been going through, a certain Smith case, which is about assessing self-employed and the difference between what is gross and what is net and how you get capital allowances. For a lot of people who are self-employed there are quite a few steps, particularly from gross to net, to do with capital allowances, and even for employees there used to be carry-back and carry-forward provisions around pension contributions. It is not necessarily beyond the wit of HMRC to do it, but it is not just tax and NI, they have forward looking and backward looking aspects to them as well. It is doable but more difficult, particularly with the self-employed, as we have seen from the recent court case.

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