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Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: Christopher Fraser
Ancram, Mr. Michael (Devizes) (Con)
Banks, Gordon (Ochil and South Perthshire) (Lab)
Baron, Mr. John (Billericay) (Con)
Barrett, John (Edinburgh, West) (LD)
Beresford, Sir Paul (Mole Valley) (Con)
Hoyle, Mr. Lindsay (Chorley) (Lab)
James, Mrs. Siân C. (Swansea, East) (Lab)
Jenkin, Mr. Bernard (North Essex) (Con)
Jones, Helen (Warrington, North) (Lab)
Marsden, Mr. Gordon (Blackpool, South) (Lab)
Murphy, Mr. Denis (Wansbeck) (Lab)
Selous, Andrew (South-West Bedfordshire) (Con)
Taylor, Ms Dari (Stockton, South) (Lab)
Touhig, Mr. Don (Islwyn) (Lab/Co-op)
Ussher, Kitty (Parliamentary Under-Secretary of State for Work and Pensions)
Webb, Steve (Northavon) (LD)
Chris Stanton, Committee Clerk
† attended the Committee

Fourth Delegated Legislation Committee

Tuesday 10 March 2009

[Christopher Fraser in the Chair]

Draft Child Support (Miscellaneous and Consequential Amendments) Regulations 2009
4.30 pm
The Parliamentary Under-Secretary of State for Work and Pensions (Kitty Ussher): I beg to move,
That the Committee has considered the draft Child Support (Miscellaneous and Consequential Amendments) Regulations 2009.
The clue to the regulations is in the name. The statutory instrument before us is intended to assist the Child Maintenance and Enforcement Commission in administering applications for child maintenance under existing statutory schemes. Hon. Members will be aware that the Child Maintenance and Other Payments Act 2008 makes provision for a new system of calculating maintenance payments that will use gross income details supplied by Her Majesty’s Revenue and Customs, tougher enforcement powers and other administrative changes.
The majority of the provisions in the 2008 Act are yet to be commenced. In the meantime, prior to the new powers coming into force, we must ensure that the existing system operates as well as possible, which the regulations will do in three ways. First, they will extend the circumstances in which the commission is able to alter the child maintenance liability when the non-resident parent takes steps to “divert” their income and so reduce their maintenance payments. Secondly, the regulations will disregard certain credits paid to both non-resident parent and parent with care. Thirdly, they will make consequential changes to legislation to bring it up to date with the equalisation of the state pension age for men and women.
The changes to the “diversion of income” provisions became necessary following a recent upper tribunal decision. The judge, whom we formerly knew as the child support commissioner, held that a maintenance liability could not be altered when the non-resident parent was diverting a significant amount of his income into a pension scheme, because doing so was outside the scope of the regulations as they are currently worded. That was not our policy intention, so these regulations will override that.
For child maintenance applications that have effect from 3 March 2003, which we call the “current” scheme, contributions to a pension scheme are wholly disregarded from the calculation to establish the liability amount. That means that net weekly income is reduced by the amount of the contribution. For applications that have effect prior to that date, which we call the “old” scheme, half of all pension contributions are disregarded.
Since April 2006, a change to HMRC rules has removed the cap on pension contributions, so that up to 100 per cent. of earnings may be contributed to a pension scheme without loss of tax privileges, subject, of course, to the lifetime cap. That is a very sensible rule change in an ageing society in which we need to encourage people to make provision for their retirement. However, in conjunction with the upper tribunal’s recent decision, it creates a loophole in child support legislation.
For most non-resident parents, pension contributions are a reasonable proportion of net weekly income, but the commission is aware of a small number of cases in which the non-resident parent is making significant pension contributions and using other income, such as a partner’s income, that is not assessable for child maintenance to live on, which has the effect of severely reducing the maintenance liability.
Steve Webb (Northavon) (LD): The Minister is using words such as “reasonable” and “significant” and I appreciate that it is the nature of a variation that one cannot give a specific figure. It would, however, be helpful in our assessment of the regulations to have a feel for orders of magnitude. Is 30 per cent. of my income excessive, unreasonable or significant, or is 60 per cent. any of those things? What amounts are we talking about?
Kitty Ussher: That is a useful question and I can see why the hon. Gentleman asked it. However, I do not think that it is for Ministers to define what reasonableness is, since that concept is well understood in law. What is reasonable might be different for different non-resident parents, depending on their stage of life, how much pension pot they have built up and whether they will draw their pension next year or in 40 years’ time. I cannot say what “reasonable” is in every circumstance. Having said that, if those parents are starting to contribute perhaps more than 15 per cent. of their income, the commission might want to look at it.
Mr. Lindsay Hoyle (Chorley) (Lab): What advice has the Minister been given? Obviously, it is for others to decide, not her, but has she been given any advice on the amount or position?
Kitty Ussher: The commission staff will be given guidelines about what type of case they might want to look at with a view to investigating whether the non-resident parent is attempting to avoid his responsibilities. However, the commission is not proactive under either the current or the old scheme; the parent with care must initiate a process, then the commission staff will consider whether the person is trying culpably to avoid their responsibilities. I hope that that is helpful.
Our original policy intent was to be able to allow a maintenance liability to be altered, following an application, as I have said to my hon. Friend, by the parent with care, if the non-resident parent was diverting high levels of income into a pension scheme or any other form of otherwise allowable expense. We intend through the statutory instrument to clarify our original policy intent after the upper tribunal’s recent decision. We are ensuring that the regulations do what all of us in Committee probably presumed they were doing anyway.
Regulations 2 and 4 will simply restore the original intention by amending the departure direction regulations for the old scheme and the variation regulations, which are the equivalent regulations for the current scheme. Although people should, of course, be encouraged to make adequate provision for their retirement, I hope that hon. Members will agree that non-resident parents should not be able to make substantial pension payments at the expense of their children’s upbringing.
Regulation 3(5) will amend the maintenance assessments and special cases regulations, enabling the commission to disregard in-work credit, better-off-in-work credit and return-to-work credit for old scheme maintenance applications. No amending regulations are necessary for the current scheme, as it is already possible to disregard the credits using existing legislation for the current scheme. The credits are paid weekly to persons who move into employment for at least 16 hours a week. They have been in play only for the past year. They are paid for a maximum of 52 weeks and are intended to help people move into and remain in work rather than returning to benefits. They are not an extension of tax credits. In-work credits are disregarded for a number of purposes, including national insurance, council tax benefit, housing benefit and tax credits. They exist to aid the transition from welfare to work. I do not feel that it is appropriate—I am sure that hon. Members would agree—for the commission to treat them as income. Doing so would risk undermining the very purpose for which they were created.
Although it is right that the non-resident parent—and indeed the parent with care, as both parents’ incomes are considered in the old scheme—should be assessed fairly for maintenance payments, if people were to conclude that it was in their best financial interests to remain out of work and on benefits, it would have two serious implications. First, the commission would not be able to collect any more than the minimum payment from non-resident parents. Secondly, parents with care would be unable to improve their own financial situation and that of their children by finding work. However, if they can find stable employment, those parents can contribute much more to the maintenance of their children.
The remainder of the regulations deal with amendments consequential to the equalisation of the state pension age. Under the Pensions Act 1995, equalisation of the state pension age between men and women will be phased in gradually between 2010 and 2020. The income support disability premium is currently payable where the qualifying person is under 60, but as a consequence of the equalisation of the state pension age, it will be payable in future up to the qualifying age for pension credit, which will increase in line with the state pension age for women from April 2010. Currently, child support regulations simply refer to the non-resident parent being under 60 years of age, so we must simply and consequentially update that in line with the increasing age of qualification for pension credits.
I hope that that is clear. If it is not, I am happy to come back later. I must say formally that I am satisfied that the statutory instrument before us is compatible with the European convention on human rights. I commend these regulations to the Committee.
4.40 pm
Andrew Selous (South-West Bedfordshire) (Con): It is a pleasure, Mr. Fraser, to see you in the Chair. I think that it is the first time that I have served under your chairmanship, and I hope to serve under you again on future occasions. I also want to thank the Minister for her typically comprehensive explanation of the order before us.
I will deal with the measures that relate to lone parents moving into work for 16 hours or more; the in-work credit, the better-off-in-work credit and the return-to-work credit. They are entirely sensible—I understand where the Minister is coming from, and we completely agree with what the Department is doing. Likewise, the disability premium in income support, and the equalisation of the state pension age. These are clearly sensible and necessary technical amendments to the legislation, which need to be introduced.
I want to focus the bulk of my remarks on regulations 2 and 4, which relate to departures and variations in general. The specific case that has caused the two amendments to come before the Committee and which were considered in the other place on 26 February related, as the Minister helpfully said, to a decision by a judge on pension contributions. I am delighted that we have this order in front of us, because I must say that this is an issue that I have raised for some considerable time in the House. Indeed, I raised it with the Minister’s predecessor, the hon. Member for Warwick and Leamington (Mr. Plaskitt), in Work and Pensions oral questions on 18 February 2008. As I was not wholly satisfied with the answer that I received, I tabled a question on 21 February 2008 to the Minister’s predecessor on an issue which we can call excessive pension contributions. It is absolutely inequitable in my view that a non-resident parent should be able to feather their own nest in retirement at the expense of what their children should be receiving week by week, as per Parliament’s intention.
When I raised this issue on 21 February 2008, part of the answer I received from the Minister’s predecessor was as follows:
“Therefore very little evidence exists to suggest that non-resident parents are exploiting the current rules on pension contributions in a way which unreasonably reduces their child support liability.”—[Official Report, 21 February 2008; Vol. 472, c. 1011W.]
Apparently, it was not a problem for the Department 13 months ago. I am a little puzzled as to why it has taken a decision by a judge for the introduction of this sensible order, for which I have been calling, because it is long overdue, in Parliament. Why did pressure from a judge—a commissioner—produce this result, when the matter had been raised by myself and other Opposition Members some time before?
I must say to the Minister that excessive pension contributions are not the only issue. The regulations refer to departures and variations in general; they do not refer specifically just to pension contributions. In particular, there is the issue of company cars, which falls under this heading. Opposition Members have raised at oral questions the fact that if someone is a non-resident parent and their employer chooses to give them a company car, that is not part of their income that is liable for child support maintenance. If I choose to take the amount that I could be given for a company car in cash terms, say £200 or £300 a month, instead of the car, that amount is liable and assessable for child maintenance. If I am not a very nice sort of person and I am angry with my ex-wife or ex-partner, who is the mother of my children, then out of pure spite I might choose to take the car even though I do not really need or want it, so that my ex-wife does not receive that income. Sadly, these are the human relations with which we are dealing in some of these cases.
This very issue has been raised at oral questions before. Indeed, I tabled a written question on 11 November 2008, to which the Minister replied:
“There are no plans to amend legislation in this respect.”—[Official Report, 11 November 2008; Vol. 482, c. 1106W.]
It is not clear whether regulations 2 and 4—and we have had the illustration of pensions—would apply to company car legislation. Not so long ago, on 11 November, the Department had no intention of doing anything on that point.
A businessman with allowable deductions from the Inland Revenue could choose to have a very expensive motor car for his business. I have a constituent, the father of whose children—the non-resident parent for the purposes of the Child Support Agency—is leasing a very expensive BMW for many hundreds of pounds per month. She tells me that it costs in excess of £600 per month, yet that non-resident parent is supposed to pay—he does not always pay it—£27 per week. Is this not exactly the same case as with pensions? Why is it reasonable for someone to pay a lot of money to drive a high-performance car that is not required for their business? We are not talking about a van to transport tools for a jobbing builder, landscape gardener or something like that. Why is someone legally allowed to reduce their income assessable for child maintenance in such a way as to deprive their children of the income that they should be receiving?
Will the Minister assure me that the regulations will give the commission the power to investigate the issue of people taking company cars? If given the cash option, and if their income is assessable, there is a case for saying that at least part of the money that they use to get a company car should be assessable. I do not think that that is equal; the children should get the money. That would also help the Minister to achieve the child poverty targets to which we have all quite rightly signed up.
Then there is the issue of what is allowable as a business expense. I would like the Minister to introduce a reasonableness test. The hon. Member for Northavon quite properly asked what would be a reasonable pension contribution. We will need some guidance on that; the commission will decide what is reasonable and will at some point alight on a figure or percentage, so it will become established by way of guidance. For company cars, or cars used by people in their business, I would like a reasonableness test, by which I mean that the non-resident parent should have a car sufficient to transport their new family, if they have one, and for their business needs, but not one that is so expensive as to deprive the children from their first relationship of income.
I think that all Members would agree with those views. This is not a party political issue—it is about the will of Parliament. I want to ensure that what we, as Members of Parliament, thought that we were doing when we passed the child support legislation comes to pass. If I speak with some concern, it is because, as I have told the Committee, I have tabled written questions on the matter, and have been told that the Department had no plans to do anything. This is a timely statutory instrument, therefore, and I look forward to hearing the Minister’s response. As I say, pensions are important, and I am glad that we have finally moved on that issue, but other matters of concern are depriving children of income that Parliament thought that they should legitimately receive.
4.49 pm
Steve Webb: It is a pleasure to serve under your chairmanship, Mr. Fraser, for the first time I think. I congratulate the hon. Member for South-West Bedfordshire on the doughty way in which he has pursued these issues. Some might regard them as the concerns of an anorak going into the fine detail, but they affect real people and their lives. He is quite right to point out that the regulations do not mention pensions anywhere, as far as I can see. He was quite right, therefore, to raise that wider set of issues. Taking the issue that he raises about other ways of diverting income assessable for child maintenance, the logic of his position, as I understand it, is that anyone who has a company car should probably be assessed on the scale rate, as they would be for income tax. Otherwise one might think, “Did they only get the company car to avoid CSA liability?” It would have to be consistent to avoid yet more complexity, but it could be done. Clearly, there is a risk of a disjunction between people who work for large firms that routinely offer company cars and those who do not, for whom the value might be in their salary, which is assessable. Therefore, the hon. Gentleman raises an interesting point.
I have three observations on the regulations on which it would be helpful to obtain the Minister’s further thoughts. On pensions, company cars and so on, my noble Friend Lord Kirkwood of Kirkhope raised the issue of a general anti-avoidance provision, when another place debated the measure. The regulations have a slight feel of that circus game in which a mole pops up, gets hit with a hammer and then another pops up and it gets hit as well—there is always another mole. There is always another way of siphoning cash off to avoid the CSA. I wonder whether we will be back in six, 12 or 18 months to rule something else out.
There is an element of generality in the regulations, so they are a sort of hybrid. There is generality in the provisions that tackle things
“unreasonably reducing the amount of...income that would otherwise fall to be taken into account”.
That may be part of a general anti-avoidance provision, but I am not convinced that it is broad enough. Does the Minister think that this just about does it or does she sense that the ingenuity, shall we say, of non-resident parents might lead us to further and further regulations? Constantly chasing our tail and catching up with the latest wheeze is not satisfactory. The latest wheeze usually lives for a year, in this case, or more before a tribunal says, “Hang on a minute, there is a problem here,” and a regulation is passed. I hope that the Minister can get ahead of the game by ensuring that we have a general presumption against this kind of activity.
Finally, on lining things up with the increase in the state pension age, I can understand the need for consistency, but I have a niggle. The state pension age does not increase neatly every April. Over the phasing period between 2010 and 2020, I believe that it changes on something like a quarterly basis. Is there a risk that several times during a financial year we will change the threshold at which these disability premiums apply? Would that mean that we would get three-monthly child support reassessments, because we are passing a regulation that links it to the state pension age, which changes four times a year for the next decade? Is that a slightly messy side effect that has not been considered? Will the Minister clarify that and address the point of a general anti-avoidance provision? We want people to pay what they should pay, and we do not want people to divert their income. You could cut the argument about in-work benefits either way, and I do not feel terribly strongly about it. If the Minister gave us those reassurances, we would approve the regulations.
4.54 pm
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