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Baroness Hollis of Heigham: My Lords, I am sure that the last point raised by the noble Earl is correct, if only because child support interfaces with a full array of benefit structures and tax credits. As those change, so must taxes. But behind that is an issue of simplicity. Sometimes we mistake that, because we are moving to a simpler system, the computer system must be simple. It is not. It is precisely because the parent with care will for the first time, if he or she is on benefit, be receiving up to 10 of maintenance paid that there must be an active interface with the IS/JSA system—which currently does not exist. That is one reason for the complexity of the IT system, despite the simplicity of the structure.

To illustrate that point, I was amusing myself this afternoon—your Lordships may think that I ought to have better things to do—by considering the current system of assessment. Currently, to assess an NRP's contribution, one must go through the following steps. First, one must work out family income, then the maintenance requirement, then net income, then exempt income, then assessable income, then protected income, then disposable income and, finally, the child support liability. Those are eight steps that, after the original calculation of income, involve about 39 lines of financial calculation.

Under the new system, one works out family income, net income—after deducting pensions and the like—and then calculates liability. Those are three steps and, after, one has assessed family income, eight lines of calculation. From eight steps to three; from 39

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financial calculations down to eight. I rest my case. It is precisely that complexity that baffles both parents with care and NRPs about how the calculations have been arrived at and whether they are accurate and that, unfortunately, can produce errors in calculation, and so on.

I suggest to the noble Earl, Lord Russell, and the noble Lord, Lord Higgins, that under the new system it will be possible to work out everyone's calculations for child support in about 37 seconds flat, based on a ready reckoner table that will be easily available. It will be a simple and straightforward calculation.

Lord Higgins: My Lords, I am grateful to the noble Baroness. I understand her point. That would be true if we were proposing immediately to transfer from the old to the new system for all the people who are currently entangled in the scheme. But, as I understand it, that is not the case. It may be that the case of the first kind that she described will continue to have to be made for a long time. Perhaps I have misunderstood, but that appears to be the case.

Baroness Hollis of Heigham: Yes, my Lords, I think that there is a profound misunderstanding that also occurred during the debate in another place because of the use of the words "transitional" and "phasing" and uncertainty about their exact meaning.

On how long it will take, the reason that we have broken introduction into A-day, for new cases, and C-day, representing conversion for existing cases, is precisely so that we do not try to achieve a big bang. We know that if we try to do so, we can be pretty sure that the computer system will produce major inconvenience. We are trying to introduce a learning loop so that the new cases that trickle in—well, not so much trickle, but come in—month by month, will give us a learning period before the bulk migration of existing cases.

We are not precise about when that will be; we will go to C-day when we are confident that A-day is working well; but the original planning assumption was of a period of about a year. In about a year's time, if the IT system is working well, if the Secretary of State is persuaded that we do not need further delay, and so on, we should be ready to bring existing cases over to the new system, at which point there will be only one system.

However—and this is where phasing comes in—a minority of non-resident parents, especially those who have high housing costs that are being extracted from the formula, may experience significant alterations in their liability. Given that, we think that it would be unreasonable if we were suddenly to ask them to pay all that in one year, when their wage increases might be insufficient to cope with it.

So we are phasing in the move from a current liability to a new liability in increments of 2.50 for amounts of under 100 a week, 5 for those of 100 to 400 a week, and 10 for those of over 400 a week. Therefore, if a parent's liability is increasing, he can cope and plan for it. Equally, if the liability is

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decreasing so that the parent with care loses money, she can cope, too. In other words, we will move from A-day to C-day when we feel that the situation is ready, but our original planning assumption, which I mentioned when we debated the Bill, was around a year. Once we have done that, and everybody is in the new system, we will phase by steps the financial adjustment so that people are not suddenly hit with a very large sum with which they cannot cope. There was some confusion when the matter was discussed in another place. I am sorry about that.

I have already mentioned that a complex computer system operates behind a simple front-of-house system. The noble Lord, Lord Higgins, asked about the additional costs. They have increased from 427 million to 456 million—an increase of about 7 per cent. I do not think that the noble Lord will regard that as an unreasonable increase in cost, given the extra time.

The noble Lord, Lord Higgins, pressed me about variations, asking why we need to move from departures to variations. First, variations are much more narrowly focused than departures. One of the reasons for complexity now is that, in the effort to be fair under the previous government—I did not necessarily disagree at the time, so it is not a party political point—more and more considerations were brought into effect, which altered the maintenance liability. They were called departures, enabling the original assessment to be altered. We are stripping those out and introducing a simple system in which the only alterations will be child-focused. At present, for example, travel-to-work costs are taken into account, but the care of an elderly relative is not. Why, under the old system, do we prioritise some costs over others? Under the future scheme, we seek on average a lower liability, leaving more money in people's pockets to prioritise as they see fit. It will be up to them to weigh travel-to-work costs against the cost of care for an elderly person. We will not say that one cost matters and the other does not; nor will we recognise one in the formula and not the other.

The reason why we need different words is not just that they cover different aspects—I could enlarge on what they do precisely—but because the two schemes will run together during the interim year between A-day and C-day, with departures under the current system and variations under the new. We need to have different language or jargon, as the noble Lord said.

The noble Lord, Lord Higgins, is right that Regulation 2 merely clarifies beyond doubt where the deduction is made, because it could result in occasional irregularities. It is a minor clarification. I do not think that we should place much emphasis on that trivial point, but I will be happy to enlarge on it if the noble Lord wishes.

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Lord Higgins: My Lords, as I understand it, that is not the Government's argument. They say that if you do not do it in the way proposed—namely, insist that the amount is knocked off earnings rather than from the top-up—there is somehow a disincentive to work.

Baroness Hollis of Heigham: My Lords, I shall enlarge on the point. The noble Lord has argued that working tax credit, and family credit before it, was regarded as a benefit as opposed to earnings. One of the propositions behind the new tax credits is that they are not vulnerable to sanctions or deductions. For example, leftover money from the Social Fund would not be deducted against them, but against earnings. We are trying to protect that distinction so that any liability for maintenance falls on earnings. We do not expect problems, but we are making it clear beyond doubt.

The noble Lord raised a major point. He asked how much we expect to obtain under the new system. At present, the cash case compliance on the existing system runs between 70 and 75 per cent. It is less for self-employed and slightly more for people in the disciplined services—soldiers, police, and so on. I am afraid that we cannot get any further under the existing system. We are achieving 52 to 54 per cent full compliance. The rest is half partial compliance and half no compliance. We cannot push the system any more. For example, taking housing costs into account, there are 49 different types of mortgages. Quite junior staff must be aware of every change in any mortgage to recalculate the appropriate maintenance to see whether it makes a difference to liability or whether it breaches the tolerance rules. The system is collapsing under its own complexity, and every time that we tried to make it fairer, we made it more complex.

I hope that, once the scheme is bedded in and has settled down—that may be five years on, when phasing is complete—we will get compliance of 85 per cent or more. We cannot get much beyond 90 per cent, simply because some NRPs have died, some have gone abroad, some are untraceable and some have changed identity. I hope that we will do better in getting money to poorer children.

The noble Lord asked how much had been written off. The amount of real maintenance that has been lost—as opposed to the punitive interim maintenance assessments, which were nominal—is about 1.5 billion, of which 0.5 billion ought to be collectable. The noble Lord also asked about the letters. I think that the delay may have been caused by delays in receiving Hansard or by the House of Commons' half-term break. I am not sure about that, but I will ensure that the letters that need to be written also come to the Library of this House and to Front-Bench spokesmen, whether or not they have already gone to the Commons. I apologise if that has given rise to any difficulties in preparing for tonight.

The noble Earl, Lord Russell, made a point about tailoring things to suit individuals. We have argued the point before. I prefer to have a lower assessment, giving people more money in their pocket and allowing

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them to make their own decisions and be treated as moral adults. I hope that those on the Liberal Benches will one day come to support us in that position.

The noble Earl also asked about sanctions. I take his point about Mr Justice Collins. Any legal decision that reflects on what counts as an adequate basic level of provision will be of interest to the department, and we will keep the position under review. The sanction regime affects few lone parents. More importantly, I hope that, with the maintenance disregard of up to 10 a week that lone parents will keep, such parents will, for the first time, have a real interest in co-operating with the agency. At the moment, for a lone parent, the CSA represents all hassle, no cash and debt collection that is not always efficient. In future, such parents will see up to 10 going to their child. The child will know that its father is investing in its financial life. For that money to flow regularly, the lone parent will need to maintain relations that are as cordial as possible—sometimes in difficult circumstances—with the non-resident parent. If that happens, the child will be the beneficiary, financial and emotional. We are using gentle encouragement to try to ensure that, although the parents may have broken up, the child will remain in touch with both parents.

The noble Earl, Lord Russell, asked about a point that was made in another place by his colleague Professor Webb. We are trying to prevent any manipulation of income within a household such that the moneys that should go to the first family are reduced because of virements or switches of tax credits within the family. I am sure that most people will not engage in such fraudulent behaviour, but, as the noble Lord, Lord Higgins, said, there is great bitterness left over from the CSA. CSA staff have been the lightning conductor between conflicting and, often, hostile versions of events.

I pay tribute to the staff. They have been extraordinarily professional and have made huge improvements in the past couple of years. MPs regularly tell me that the number of complaints has reduced. However, the system is imploding on itself. If we are to get money to children, strengthen child support and tackle child poverty, we must get the new system working as quickly and decently as we can. I hope that your Lordships will accept the regulations as part of that move.

On Question, Motion agreed to.

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