Child Maintenance Service Contents

4Arrears, avoidance and enforcement

Arrears

54.When parents do not meet their legal responsibility to pay child maintenance, arrears accrue. The most recent accounts show that total arrears of nearly £4 billion have accumulated under the CSA.100 When a CSA case in arrears is selected for closure, the PWC can choose to either have the arrears transferred to the CMS or to write them off, perhaps in the interests of making a fresh start. Arrears that are transferred are not taken into account in determining which CMS service a PWC can use, regardless of their value or age. Cases with an arrears value of £353 million had been transferred from the CSA to the CMS by September 2016.101

55.DWP accounts estimate the proportions of arrears considered to be collectable and uncollectable. In the latest accounts, £366 million is categorised as likely to be collectable, £527 million potentially collectable and £3.1 billion uncollectable.102 The CSA has limited means of independently closing a case of outstanding arrears, even if it has long since ceased to be live or the amounts concerned are relatively small.103 A large proportion of outstanding arrears applies to “arrears only” cases where the child involved has reached adulthood and there is no ongoing maintenance liability. The amount deemed uncollectable has grown over time as cases of arrears age. The Minister told us some of the debt was “really old” and that there could be cases of arrears where the children in question were now middle-aged adults.104 We asked for a breakdown of arrears by the age of the debt and age of child but the Department said this not available.105

Criteria for prioritising arrears

56.Though it categorises more than three-quarters of arrears as “uncollectable”, the Government maintains that NRPs in arrears remain liable and should pay. The Minister told us, however, that pursuing historical arrears could be impractical:

The harsh reality is that there are some parents out there who have deliberately avoided paying maintenance for their children over incredibly long periods of time. We will always go after debt that we think we can retrieve both for the Secretary of State indeed and for the parent with care, but we have to be realistic about the cost of that and whether we are doing the right thing by spending taxpayers’ money pursuing funds that we have very little likelihood of collecting.106

She added that priority was being given to pursuing “live” cases relating to “children who will benefit from regular ongoing maintenance payments today” rather than cases where the child concerned is now an adult.107

57.The DWP’s 2012–17 child maintenance strategy sets out a general policy of prioritising collection in live cases over that in arrears-only cases.108 It is not clear, however, whether CMS would pursue outstanding debt in any arrears-only cases at all. Gingerbread told us that this “continued lack of clarity” meant parents had been “left in the dark”.109 They suggested that CMS should contact parents with arrears-only cases to tell them whether the money owed to them for supporting their children would be pursued.110

58.The Government’s strategy also gives no indication of how live cases would be prioritised for arrears collection. A number of parents said they had been encouraged to “write-off” any debt when their CSA case was closed.111 They told us this implied CMS did not consider this money important and that it would not try to collect it.112 One parent told us:

The CMS wrote to mothers owed money for years asking them to write off their arrears, a shameful admission of who the CMS prioritises; revealing very clearly to mothers that the system thinks they don’t deserve the money. If you’d been chasing for years and got that letter how much faith would you have that they will even try? How many more years of pointless stressful phone calls would you make?113

Another parent said of her ex-partner:

He has an enormous amount of arrears owing in child maintenance yet nothing seems to be done to get this money from him. [ … ] Things need to change within [the] system for the children’s sakes it’s them who are suffering financial neglect from these parents.114

59.The Minister told us that the amount owed and the likely difficulty in tracing a NRP could both be taken into account when prioritising arrears.115 She also suggested that pursuing arrears in cases when NRPs owed less than £500 was not viable:

I think in the region of 26% of that [total] debt, is people who owe less than £500. Let’s think about that really carefully. Is it worth us spending taxpayers’ money to pursue 26% of that debt when it is individuals who owe less than £500 each?116

The Department later clarified that in fact £500 or less is owed in 44% of arrears cases.117 Combined, these cases account for 2% of the total value of debt.

60.The DWP strategy mentions no specific value threshold for arrears to be pursued. Professor Gillian Douglas, Professor of Family Law at Cardiff University, said that, whilst small amounts may not seem cost-effective to pursue, this money was still “important and valuable to the families to whom it is owed”.118 Gingerbread said that if it was indeed CMS policy not to pursue arrears of less than £500 then it would affect those families on the lowest incomes:

This means that lower income families where maintenance may be worth £10 or £20 per week are left to wait many months without vital support until the CMS will take action. This kind of cash threshold means receiving parents on lowest incomes will be worst served by debt collection–particularly single parents, for whom even modest amounts of child maintenance can make a real difference.

61.We deplore the non-payment of child maintenance, which can cause financial difficulty and immense stress to the parent with care, ultimately to the detriment of the child. We understand that it is not cost-effective for the Government to pursue every case of arrears. Money owed still, however, rightly belongs to the parent with care to support their children and CMS has made no clear statement of which cases it intends to take up. This can cause uncertainty and disruption for parents seeking recompense. Furthermore, failure to demonstrate that it is taking seriously the worst legacy cases of prolonged under-payment risks undermining trust in the new system. We recommend the Department clearly set out in response to this report the criteria it uses for prioritising the collection of arrears, including any time or value thresholds, and how it intends to approach and resource tackling each category of arrears, appreciating that even small payments can be of huge value to vulnerable families.

62.We understand the Government’s rationale in favouring arrears cases that relate to children with current support needs. It is, however, unclear whether the Department intends ever to pursue any arrears-only cases. It is unfair to leave those parents still owed for historic underpayments in the dark. We recommend the CMS clarify its stance on this and inform parents with care if their arrears-only case will not be pursued.

63.Children from previous relationships and children from new relationships should be of equal importance to parents. We recommend the DWP set out, in its response to this report, how it intends to ensure that all children are given fair and equitable treatment in cases where CMS intervention is necessary.

Enforcement

64.The Minister told us that the vast majority of NRPs using the CMS pay regularly.119 In a minority of cases, however, NRPs refuse to pay maintenance owed to PWCs to support their children. The Henshaw report emphasised that enforcement of maintenance liabilities was important for its own sake, but also to act as a deterrent to underpayment of maintenance:

Effective enforcement is key to the success of the child support system. We cannot repeat past failings that have led to weak enforcement, feeding the perception that parents can get away with not taking financial responsibility for their children. Enforcement should be run as a dedicated part of the business with clear performance targets for bringing more cases to successful conclusion.120

65.PWCs are not able to bring their own enforcement proceedings and rely on the CMS to do so.121 Professor Gillian Douglas, Professor of Family Law at Cardiff University, said this meant “the person with the most direct interest in enforcement—the Parent with Care—is unable to influence the CMS to take action, or to take action herself, to enforce payment”.122 Durham Legal Services suggested that PWCs should be allowed to pursue payments through the courts themselves if the CMS was reluctant to take enforcement action. However, without access to legal aid, which is unavailable in the majority of family law cases, permitting a PWC to take such action would have limited practical impact.123 Janet Allbeson argued:

Unless you can afford to pay solicitors there are enormous cost barriers to using the courts, to be honest. Ideally you want the CMS to do its job and we should not need to go to court.124

66.The CMS has a range of strong enforcement powers including:

The Minister told us that existing powers were used “relentlessly” and that the Department was exploring possibilities for additional powers:

Under the review of our compliance and arrears strategy, we are looking at powers to deduct direct from joint bank accounts. We do have some non-paying parents who will channel their earnings through maybe a close relative’s account or maybe a partner’s joint account with them, and we are looking at powers to go after them.126

67.CMS cases can be moved to enforcement immediately after the first missed payment.127 This does not, however, take place automatically: decisions are taken on a case-by-case basis. DWP told us that enforcement action is expensive, “especially when the NRP is determined not to pay” and that it prioritises cost-effective cases involving active liabilities.128 DWP data for the period to November 2016 show there were 11,225 CMS cases subject to enforcement proceedings compared with 103,300 cases in arrears in Collect and Pay alone.129

68.Those figures reinforced the impression provided by stakeholders that the CMS is reluctant to use its enforcement powers. Professor Gillian Douglas said:

the CSA/CMS have been poor at getting the sums owed and apparently loath to make use of the range of enforcement measures at their disposal.130

Janet Allbeson told us that the CMS’s approach to enforcement involved much “prevarication and foot dragging” and that it was unwilling to take enforcement action except in the most exceptional of circumstances.131 This tallied with evidence from parents who had asked the CMS to take enforcement action. One PWC said getting the CMS to use enforcement powers was “a long, arduous process”.132 Another told us:

The CMS clearly state that they have the power to enforce payments take people to court and even go into their bank accounts but in all the years I have been dealing with the CSA and CMS nothing has ever been done about it.133

69.Some NRPs took the view that enforcement action should be used sparingly. One suggested that payments should only be enforced where a court order was in place. Another suggested that enforcement should “only be used in instances that a parent refuses to make a payment over a longer period of time (3–6 months)”.134 Conversely, many other stakeholders said that the CMS needed to use its powers more frequently. Janet Allbeson suggested a three-year period of intensive enforcement action would establish “the right culture for this new system to operate in”.135 James Pirrie, Board Member of Resolution and Director of Family Law in Partnership, suggested that cases should be put into enforcement automatically as a result of missed payments.136

70.Parents do not themselves have recourse to the courts to enforce child maintenance payments. Instead they rely on the CMS to act on their behalf. The CMS has extensive enforcement powers and can take action once a single payment is missed. It is, however, currently tentative in deploying those powers. This enables non-resident parents to get away with not making appropriate contributions to their children’s upbringing. It also signals to other non-resident parents that they may well be able to do the same. Faith in the statutory child maintenance system is fundamental to its effectiveness. The CMS ought to strike fear into would-be evaders of parental responsibility. It must take a stronger approach to enforcement, comparable with the Government’s approach to other areas of financial liability such as benefit fraud or tax. We recommend the CMS adopt a presumption in favour of enforcement action when a payment has been missed, and proceed unless there is either evidence of a valid reason why or a credible reparative payment plan is in place.

Maintenance cheats

71.Some NRPs hide or disguise income in order to reduce their child maintenance liability. The CMS relies on gross income data from HMRC to calculate payments owed. The Minister told us that DWP works “hand in glove with HMRC” to identify people who are trying to avoid payment of both child maintenance and tax.137

Self-employment

72.We heard that reliance on HMRC gross income data could lead to problems when NRPs were not employees. We heard that self-employed people and company directors were able to deploy techniques to significantly lower income declared to HMRC or hide assets using their company accounts in order to minimise their maintenance liability.138

73.Gingerbread told us that it is “far too easy for determined parents to avoid paying fair levels of maintenance by manipulating their income and assets”.139 One mother told us her ex-partner had hidden all of his earnings and that she had lost her marital home because of the lack of payments.140 Another PWC said that the CMS did not “have a reliable system that deals with a self-employed NRP who is intent on paying as little in maintenance as possible”.141 The Minister acknowledged that the self-employed were one of the “biggest challenges” for the CMS.142

74.Unearned income, such as that from dividends and property rents, is not included in CMS calculations as standard, but PWCs can request a “variation” from this for such income to be taken into account.143 Gingerbread told us that this option is little known and little publicised.144 HMRC confirmed that the requisite data are available to the CMS through existing data-sharing arrangements.145 A tax return alone, however, would not give an accurate picture of a self-employed NRP’s income if they were determined to hide it.146

Liaison between CMS and HMRC

75.One PWC told us that having gathered evidence the NRP had undeclared income she was referred to by the CMS to HMRC:

I sent all this in and the Child Maintenance Service just said, “If you suspect any fraud or any inconsistency you need to contact HMRC”, which I did. They asked me for progress later on and asked me how far I had got with HMRC, so I followed that up with them [ … ] five months later got a standard letter back saying, “We do not get involved and CMS can come to us for information when they need to.”147

Janet Allbeson told us that HMRC did not welcome reports of falsely declared income from PWCs using the CMS:

We have had parents ring our helpline to say that they have been told by HMRC, ‘We are getting inundated by these calls from all these mums and what do you expect us to do about it? We haven’t got the capacity’148

76.We asked HMRC about how they work with CMS. HMRC told us their input into the design of the 2012 scheme was primarily confined to the development of the data-sharing interface and associated legal issues. They were not involved in the development of policy, including how to ensure that statutory maintenance calculations reflect the NRP’s ability to pay.149 We spoke to an MP who was also a PWC. She told us that HMRC’s focus was on large tax evasion cases, which meant it was unlikely to pay sufficient attention to behaviours designed to minimise child maintenance payments.150

Inconsistent lifestyles and assets

77.Under the CSA, a PWC who suspected the NRP of disguising their income to reduce maintenance liability in this way could challenge the determination on the grounds that their lifestyle was inconsistent with their declared income, or that they have extensive assets. Under the 2012 scheme, these variations are no longer available. In explanation, the Minister cited access to extensive HMRC income data in the new scheme. This does not, however, solve the problem of NRPs hiding income. Income that routinely does not appear on tax returns, such as income from ISAs or from venture capital trust fund dividends would also not be taken into consideration.151 James Pirrie explained:

The problem is that as the CMS has been built for efficiency’s sake it cannot perceive capacity to pay. All it will look at is a tax return.152

78.The MP we spoke to said that removing the inconsistent lifestyle variation was a mistake. Her former partner had been a director of his own companies and had used his position to disguise his income through directors’ loans and expense claims.153 She said that the removal of the lifestyle challenge was a huge disadvantage to PWCs and that the CMS needed a team dedicated to investigating inconsistent lifestyle.154 Introducing his Bill to add an assets variation to the 2012 scheme, David Burrowes MP explained how the old system helped a parent with care establish maintenance liability:

The hearings eventually revealed that the other parent had assets to the value of some £800,000 from the sale of various businesses and from inheritance, and found that he could regularly pay CSA maintenance to support their teenage son.155

79.The Minister told us that DWP had recently set up a specialist Financial Investigations Unit (FIU) to work on both CMS and CSA cases. She confirmed that the FIU could take independent action, even in cases where HMRC did not intend to pursue a case.156 It can request information direct from financial institutions, prosecute people for failing to provide accurate information and refer tax frauds to HMRC.157 The Minister said the FIU was being “beefed up” from 35 to 50 staff because of the number of PWCs raising concerns.158 The Department told us that:

where a non-resident parent has a lifestyle which it does not appear could be supported purely from their earnings, we are confident that such funds will be identified through the “unearned income” variation ground in the CMS, providing the paying parent has not failed to disclose any other sources of income.

They argued that this approach removed the need for “subjective decision-making” necessary in the old scheme.

80.James Pirrie told us that, ultimately, the reinstatement of the inappropriate lifestyle challenge was necessary to address NRPs diverting income: “You can’t hide lifestyle but you can definitely hide capacity to pay behind a tax return”.159 He gave an example of an NRP who could keep money in an offshore trust and then borrow from the trust.160 He told us that capacity to investigate complex cases had been diminished with the loss of the lifestyle challenge:

We could go on appeal and we could say “His tax return may show small income, but his lifestyle is this or his assets are that”. We could have all of that taken into account and now we cannot. You are now stuck with a tax return. For those who have complex finances it is very easy to have a very low figure.161

81.We heard that consent orders could be granted by courts to determine appropriate child maintenance. These would, however, could be superseded by the CMS after 12 months should one of the parents make an application. If the CMS, relying on tax returns, had access to less information about the financial circumstances of the NRP than the court this could result in very substantial reductions in child maintenance awards.162 James Pirrie gave one example:

I brought a mother with me today who started with a court order of £3,500 a month. She has now had the father turn the CMS to £11 a week, so we have gone from £3,500 a month to £11 a week.163

A PWC told us:

I do not understand how we as parents can spend thousands of pounds going to court to get a court order, for it to be so easily overturned after 12 months, by the non-resident parent (NRP) simply coming to the CMS. In my case this happened the week my ex husband re married. My £800 a month court order was overturned as his self employed business had only given him an income of 27,000 per annum and my payments were immediately cut to £316 per month. I had to sell my home and move myself and my children to a new home, to make up for the short fall, taking out equity of the house to live on as my income is not very high.164

82.Most parents want to provide for their children. Unfortunately some want to avoid paying fair child maintenance and disguise their incomes, through self-employment loopholes, creative accounting or fraudulent tax returns, in order to do so. Such cases are often not a high priority for HMRC. We therefore welcome the creation and expansion of the DWP Financial Investigations Unit. But the use of tax return information alone will not be sufficient to solve this problem. Some unscrupulous parents are adept at hiding income to minimise their liability. It is far harder, however, to hide assets or a lifestyle inconsistent with their declared income. We recommend that the Department reinstate provisions for parents to challenge child maintenance awards on the grounds of assets and lifestyle inconsistent with income.

83.Parents can currently apply to the CMS for a maintenance calculation which supersedes a court order that has been in place over 12 months. This has provided opportunity for some non-resident parents to replace maintenance payments that accurately reflect their means with those that greatly underestimate them. We recommend that, when an application for an assets or lifestyle variation has been made and a tribunal or court ordered higher maintenance payments than would arise from a standard CMS calculation, the higher payments should apply until the variation is dismissed.

84.Child maintenance cheats are very often tax cheats too. There is considerable shared interest for DWP and HMRC in bringing such people to justice. It ought not to be beyond the two Departments to share resources and expertise in the interests of retrieving the monies owed. We recommend that a small HMRC investigation team be embedded in the Financial Investigations Unit to work in tandem with the CMS.

Conclusion

85.Throughout our inquiry, witnesses agreed that the ideal outcome for separated parents and their children was a fair and consistent payment of maintenance agreed by both parents. The Government is right to encourage this co-operation. Many separated parents are, however, unable to make suitable arrangements without support or even enforcement. In some cases a parent may have suffered domestic abuse and it will not be safe for them to continue contact with their abuser. In others a non-resident parent may be determined to selfishly avoid their parental responsibilities, passing on financial costs to the parent with care and, in the form of benefit payments, the taxpayer. But in cases of avoidance it is above all the children who ultimately lose out. The Government must ensure that the CMS is working so that does not continue to happen. The implementation of our recommendations will help to achieve this goal.


100 These figures include money owed to the Government as well as PWCs. The DWP’s audited accounts show an arrears of £3,976 million in March 2016 whereas the figure given in the rolling quarterly statistics is £3,708 million for the same period with the most recent figure of £3,476 million. See DWP Client Funds Account 2015/16: 1993 and 2003 Child Maintenance Schemes HC855 16 December 2016 p7 and Data tables: Child Support Agency Quarterly Summary of Statistics, September 2016.

101 Written Answer 30 January 2017

102 “Likely to be collected” arrears are those where some effort has been made by the Paying Parent to clear their arrears within the previous 6 months, “potentially collected” are those where an arrears schedule is agreed but may not have been kept to or where enforcement powers could be used. DWP Client Funds Account 2015/16: 1993 and 2003 Child Maintenance Schemes HC855 16 December 2016 p6–7

103 NAO, Child maintenance: closing cases and managing arrears on the 1993 and 2003 schemes, HC 1054, March 2017. For example if one of the parents has died.

104 Q80 and Q82 (Caroline Nokes)

106 Q83 (Caroline Nokes)

107 Ibid

109 Gingerbread (CHM0095)

110 Ibid

111 Name Withheld (CHM0057), Name Withheld (CHM0070)

112 Name withheld (CHM0003)

113 Walthamstow Single Parents (CHM0067)

114 Name withheld (CHM0003)

115 Q85 (Caroline Nokes)

116 Q84 (Caroline Nokes)

117 DWP, Follow-up letter, December 2016

118 Professor Gillian Douglas (CHM0033)

119 Q100 (Caroline Nokes)

120 Sir David Henshaw Recovering child support: routes to responsibility Cm 6894 2006 p6

121 A 2005 ruling by the House of Lords determined that PWCs have no direct recourse to the courts to pursue any arrears they are owed under the Child Support Act and are reliant on the Government to do so on their behalf. R (Kehoe) v Secretary of State for Work and Pensions [2005] UKHL 48

122 Prof Gillian Douglas (CHM0033)

123 Durham Legal Service (CHM0065); Prof Gillian Douglas (CHM0033)

124 Q53 (Janet Allbeson)

125 Department for Work and Pensions (CHM0025)

126 Q84 (Caroline Nokes)

127 Department for Work and Pensions (CHM0025)

128 DWP supplementary written evidence (CHM103)

129 DWP, Statistics on the 2012 statutory child maintenance scheme: Aug 2013 to Nov 2016 (experimental).

130 Prof Gillian Douglas (CHM0033)

131 Q53 (Janet Allbeson)

132 Q17 (Parent 1)

133 Name withheld (CHM0023)

134 Name withheld (CHM0006)

135 Q63 (Janet Allbeson)

136 Q60 (James Pirrie)

137 Q95 (Caroline Nokes)

138 Q61 (Janet Allbeson); Durham Legal Services UK (CHM0065)

139 Gingerbread (CHM0090)

140 Note of meeting with three PWCs (CHM0102)

141 Name Withheld (CHM0085)

142 Q100 (Caroline Nokes)

143 DWP supplementary evidence (CHM103). Citizens Advice has an online explanation of grounds for variation for both NRPs and PWCs.

144 Gingerbread (CHM0090)

145 HMRC (CHM0104)

146 For example, Name Withheld (CHM0063)

147 Q28 (Parent 2)

148 Q69 (Janet Allbeson)

150 Unnamed MP (CHM0101)

152 Q51 (James Pirrie)

153 Unnamed MP (CHM0101)

154 Ibid

156 Q99 (Caroline Nokes)

157 DWP, follow-up evidence, 9 January 2017

158 Q95 (Caroline Nokes)

159 Q66 (James Pirrie)

160 Q50 (James Pirrie)

161 Q49 (James Pirrie)

162 Q51 (Jane Allbeson)

163 Q49 (Jane Allbeson)

164 Name Withheld (CHM0016)




28 April 2017