Child Maintenance

CM03

Written Evidence Submitted by Dr C M Davies

Summary

New CSA assessment regulations for child maintenance payments by a non-resident parent were introduced in 2003. Under the 2003 scheme no allowances are made for any essential living costs. This is unlike the original 1993 scheme. The change has produced a situation for some non-resident parents in which, if they comply with the assessment, they are left with insufficient means to pay basic bills. I give a particular example to demonstrate this.

The consequences of the change are documented in the records of the Work and Pensions Committee (1). These include low compliance and difficulty in recovering debt. Evidence is presented that the current assessment rules are inappropriate.

The consequences in human terms for the non-resident parents caught in this situation are dire. Recommendations are made for prompt action to remedy the situation.

Dr Christine Davies was formerly a Senior Lecturer in Applied Mathematics at Royal Holloway University of London. She retired in September 2009 and is now Visiting Senior Lecturer. Her interest in the area of Child Maintenance arose through trying to help a particular individual affected by the current assessment regulations.

1. The Child Maintenance and Enforcement Commission and the Child Support Agency’s Operational Improvement Plan, Third Report, Session2009-10, HC118

Contents

Page

1. Introduction 3

2. Regulations for calculating child maintenance 4

3. Evidence for the inappropriateness of the current assessment regulations 6

4. Conclusions 8

5. Recommendations 8

1. Introduction

1. I welcome the decision of the Work and Pensions Committee to conduct an inquiry into the proposed reform of the child maintenance system. I note the items on which the enquiry will focus in particular. I also note that the opportunity will be taken to follow up recommendations made by the Work and Pensions Committee in the last Parliament in its 2010 Report on child support (1).

2. I focus in my submission on the regulations concerning the calculation of child maintenance. The appropriateness of such regulations is crucial to the successful working of any new scheme.

3. I also focus on the situation of the non-resident parent since it is in problems in this area that I have been made aware. I acknowledge that there will be some non-resident parents who are unwilling to accept responsibility for their children and avoid paying maintenance, despite being financially able to do so. However, there are many others who want to support their children - financially, emotionally and physically. The reality of the financial situation of some of them seems to have been overlooked.

4. There are other matters of concern that I could include, relating to the specific Government proposals. Since I am confident that these will be raised by other interested organisations and individuals, I restrict myself to the aspects listed above.

2. Regulations for calculating child maintenance

5. The successful implementation of any scheme ultimately depends on the fairness and viability of the regulations concerning the calculation of child maintenance. The payments made by the non-resident parent need to be easily seen to be reasonable and to leave the non-resident parent with sufficient to live on.

6. In the original 1993 scheme ("the old scheme") allowances were made for items such as housing costs and essential travel to work. These allowances were removed in the 2003 scheme ("the current scheme"). The basic rate of maintenance for net weekly incomes of between £200 and £2000 was set at 15%, 20% and 25% for one, two and three or more children. Whilst this scheme has the advantage of simplicity it does not satisfy either the essential requirements of either fairness or viability.

7. I illustrate with the case of a young man currently paying maintenance for three children. With a net monthly income of around £1000, the CSA assessment is £250. After paying his mortgage (£400), petrol for travel to work (£200) and council tax (£120) the young man is left with just £30 a month. This has to cover gas, electricity, water rates, road tax, car insurance, food and household necessities. This is clearly not viable.

8. The family found it hard to manage financially before the break-up, although there were two wages coming in. With just one wage the man’s financial situation is extremely difficult, even before consideration is given to child maintenance.

9. The young man would wish to contribute financially, as well as in other ways, to the upbringing of his children but is placed in an impossible situation. He cannot pay the assessed level of maintenance and also live.

10. There is something inherently wrong with an assessment system which leaves the non-resident parent with not enough to live on.

11. The Child Maintenance and Other Payments Act 2008 set out the formula under which it was planned to calculate maintenance in the future. The key concept is that non-resident parents’ liabilities in the future scheme will be based primarily on their gross (taxable) income sourced directly from HMRC for the latest available tax year. The parameters of the scheme, such as its percentages for the number of qualifying children, are intended to produce broadly the same calculations as the current scheme.

12. If these plans are confirmed all the problems associated with the current scheme will continue.

13. The Green Paper "Strengthening Families, promoting parental responsibility: the future of child maintenance" sought views on the Government’s strategy for reforming the child maintenance system. It stated that draft regulations covering the calculation of child maintenance under the reformed scheme would be developed during 2011.

14. In drawing up the new assessment regulations it is essential that careful consideration is given not only to the financial situation of the parent with care but also to that of the non-resident parent. The new regulations must be "fit for purpose" in that the non-resident parent is financially placed to meet his assessment obligations whilst at the same time being able to cover his essential living costs.

3. Evidence for the inappropriateness of the current assessment regulations

15. Changes in legislation are made with the best of intentions and are subject to debate and scrutiny. It can be hard to accept that mistakes can still happen. However, there is clear evidence in the papers of the Work and Pensions Committee (1) that the 2003 maintenance assessment regulations were ill- conceived and that they have had damaging consequences. I draw attention to some of this evidence.

16. The original (1993) assessment scheme gave limited allowances for some of the essential living costs of the non-resident parent. This would seem to be fair and appropriate. In HC 118 it is stated that under the scheme " a large proportion of non-resident parents (were) assessed as not being liable to pay child maintenance" (2)

17. This may be an unpalatable truth. I state it another way. The financial situation of many non-resident parents was found to be such that, when some of the essential living costs had been met, there was nothing left over to pay towards child maintenance.

18. Rather than acknowledge the unpalatable truth, new assessment regulations were introduced in 2003 which removed the allowances for essential living costs. As a result many more non-resident parents were assessed as liable to pay maintenance, although their financial circumstances were such that they were unable to pay.

19. HC 118 records that "the NAO reported in 2006 that one third of non-resident parents were not paying any maintenance to support their children" and that, although this had decreased somewhat by 2009 "compliance remained below anticipated levels". (3)

20. I refer you to paragraph 17 above. If the non-resident parent has no money left over, he is in no position to comply. (As in my introduction, point 3, I acknowledge that there may be some who are able to pay but choose not to do so. Please take this as read throughout.)

21. Similarly, HC 118 records that the percentage of non-resident parents paying the full amount of assessed maintenance changed "from 46% in March 2006 to 51% in March 2009 (and further to 53% in September 2009)". (4)

2. HC118, Ev 44

3. HC118, para 51

4. HC 118, para 54

22. Put another way, about half of the non-resident parents do not pay the maintenance at the level assessed. Again, I refer you to paragraph 17 above. For many parents this is because they do not have the financial means to do so.

23. If the non-resident parent cannot pay then arrears accumulate. HC118 reports that "at the end of March 2006, the value of the outstanding maintenance arrears was £3.5 billion, having risen by £242 million in the 2005-06 financial year". In September 2009 it was £3.796 billion. (5)

24. If the financial situation of non-resident parent remains unchanged there is no way in which these debts can be cleared. HC 118 reports that the Child Maintenance and Enforcement Commission (CEMC, the Commission) "has assessed that only $1.065 billion of this (2009) total level of arrears is collectible". (5)

25. Under questioning, Stephen Geraghty (CEMC) admitted that "people may not have the income to support" their debts. (6)

26. He referred to work undertaken on their behalf by PricewaterhouseCoopers on the collectability of arrears. They credit scored non-resident parents and asked the question "Would they get a loan for this amount of money?" It was found that "the number of them that would was extremely low". (6)

27. Set against this context it is not surprising that the two CEMC contracted debt enforcement agencies, iQor and Eversheds, collected only "£26 million out of £350 million which we put out". (6)

28. The Child Maintenance and Other Payments Act 2008 and Welfare Reform Act 2009 have given the Commission "a range of new administrative powers to support its enforcement activities and collection of arrears, which do not require recourse to the courts". These were added to by the Child Support Collection and Enforcement (Deduction Orders) Amendment Regulations in August 2009. (7)

29. Set against this context of paragraphs 15 to 26 in this section, these powers would appear to be unhelpful and unproductive, adding to the distress of what is for many non-resident parents already an impossible situation.

5. HC 118, para 59

6. HC118 Q49

7. HC118, para 63

4. Conclusions

30. In summary, the 2010 Report on child support produced by the Work and Pensions Committee in the last Parliament (1) gives clear evidence that the current (2003) regulations for the assessment of child maintenance are inappropriate. With no allowances for essential living costs many non-resident parents are unable to pay and unable ever to clear their accumulating debt.

31. I have concentrated on the practicalities of the situation and made little mention of the human cost to the individuals concerned. Through no fault of their own and as a result of ill-conceived Government policy, many non-resident parents are caught in a situation from which there is no escape. There is only the prospect of increasing accumulated debt and continuing harassment.

32. I have heard first hand accounts of the depths of despair and utter hopelessness that this situation has produced. This is a vulnerable section of our society that deserves support and the problem needs to be remedied.

5. Recommendations

33. An urgent review should be undertaken of the current regulations for the calculation of child maintenance, paying particular attention to the reality of the financial situation of the non-resident parent. The resulting assessment must be fair and viable.

34. Ways should be found to quickly replace inappropriate assessments by amounts that are affordable, in order to stop the present problems growing. It should be anticipated this will result in some non-resident parents being assessed as not liable to pay maintenance.

35. A way should be found to cancel the debt of accumulated arrears for those non-resident parents who have been caught up in this situation, who have never had the resources to pay and never will have. It is not sufficient that the CSA writes off the debt as uncollectable. The individuals concerned need to be informed that the debt has been cancelled and they are no longer liable.

36. A marker should be put down that there are taxation issues for non-resident parents that also need addressing. For example, although 25% of their net income may be spent on child maintenance no allowance is made for this in assessing their eligibility for tax credits.

April 2011