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My second question arises from some of the statistics in the briefing, which made me raise an eyebrow. Has the Minister reflected on the implication of the fact that twice as many non-resident parents as parents with care want the voluntary system? Can he think why? I can suggest several reasons: they think that they will get a better deal; they think that they will pay less money; they think that there will be less pressure on them to pay; and they think that they will be able to hug knowledge and information that she—the parent with care—will not have and which will allow them, to a degree, to control what they pay. The question obviously belongs to other debates as well, but if there is any statistic that should alarm the Minister about the potential for the voluntary system to be grabbed by NRPs, if they can, it is the one that I have just given. It can mean only that NRPs will seek to get a better deal for themselves. The perception is not necessarily shared by the parent with care. This frightens me.
Lord Skelmersdale: The noble Baroness has been assiduous in her attendance in Committee, but I think that she had a small gap towards the end of Tuesday, when I suggested that, in a voluntary arrangement, £40 would be the limit, which is what she has just talked about.
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Baroness Hollis of Heigham: It depends on whether the limit of £40 applies only to those who remain within the CMEC system or to those who are making voluntary arrangements. How will one know and track that? The noble Lord is probably right. The person concerned will say, “I am not going to pay any more than £40 because that’s all you’d get under the statutory system at any rate”. I would say that if I were in their position. I might be required to pay £60, but if I knew that, under the statutory system, the other party would receive only £40 and the other £20 would go to the taxman, I would say to them, “Well, I am only going to give you £40. Under the voluntary system, you’d be no better off”. That is another way of keeping the pressure on and reducing the contributions that they may pay.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton): This has been an interesting start to our proceedings today. I shall deal first with the two questions raised by my noble friend. The first was the proposition that there is an existing case under either the first or the existing scheme and that, under the new arrangements, there will be another relationship and a link with that earlier case. The specific question was whether that would automatically force that first case into the voluntary system—
Baroness Hollis of Heigham: Unless there is an opt-in.
Lord McKenzie of Luton: Yes. The question was whether that would automatically force the first case into the voluntary system irrespective of whether the second parent with care was in the statutory system. The answer to that is clearly no. There would not be an automatic deeming that the first case was in the voluntary system. Quite how the mechanics will work during the transitional period will need to be sorted through, but the general principle—this touches on a point raised by my noble friend at Second Reading—is that in linked cases, if I may use that term, one arrangement may well be voluntary by choice and another may be in the statutory system. I could take my noble friend through how the arithmetic works, but perhaps we could do that outside the Committee.
Baroness Hollis of Heigham: My noble friend has been very helpful. Perhaps he could enlighten us a little more. We have family A in the statutory system. A new family, family B, comes into the system. Family B, the second family, chooses to go for the statutory system. What is then the presumption about family A? Is it that the family will be pulled over into the statutory system but can opt out into the voluntary system if they wish, or will the presumption be that they will go into the voluntary system unless they opt out and go into the statutory system? Secondly, if family B has opted for the voluntary system, what then happens to family A? In other words, where is the presumption?
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Lord McKenzie of Luton: The presumption is that each of the parents involved has a choice. In the first case, if there is a non-resident parent and a parent with care, if neither wants to stay in the statutory system, that arrangement does not have to stay in the statutory system. Similarly for the second case—I am not sure whether we are talking about a common NRP or a common PWC—where there is a common NRP. If, for that arrangement, both want to be out of the system, both would be in the voluntary system; if one of them chooses to be in the statutory system, they will be in the statutory system. There is nothing to preclude a common NRP having a voluntary arrangement in respect of one relationship and a statutory arrangement in respect of a second relationship. I know that that raises questions about how the arithmetic works. I can summarise it on the assumption that they are both in the statutory system, although the first case in the voluntary system would not be adjusted for a change in the arithmetic. If that became unaffordable, presumably a parent would choose to opt in to the statutory system.
Lord Skelmersdale: Surely in the case postulated by the noble Baroness, Lady Hollis, there are two parts. First, there are more children—there is another relationship, but with a common non-resident parent. As I understand it, that automatically affects the calculation. The subsidiary question that I think the noble Baroness was asking was: in that case, assuming that they do not opt out of the system at that point, which formula will be used? Will it be the new CMEC formula or the 2003 formula? I suspect that, for the first three years, it will be the 2003 formula, not the CMEC formula, because the CMEC formula will not really be up and running, except for new cases, and that could not be described as a new case.
Baroness Hollis of Heigham: I think that the noble Lord is right. If I have understood my noble friend correctly, in a new case involving a second family in the voluntary system with a NRP shared with a family in the statutory system, the statutory figure would remain unaffected. All that they could get is the head space of the difference between, say, two and three children, which might be 5 per cent net, 4 per cent gross, as opposed to divvying up the full sum between them. That would be grossly unfair to the second family. That suggests that for any new family coming into the new scheme, if there is any linked case, the only way that they can get a fair apportionment of resources, especially if the first family chooses to stay in the statutory system, would be for them also to go into the statutory system. Otherwise, they could get only the head growth for the extra child, not share the apportionment between the two families.
Lord McKenzie of Luton: Let me have another go at this. Let us start with a situation where the non-resident parent has two relationships, the first one of which is currently in one of the statutory systems, either CS1 or CS2, and there is another parent with care involved. I agree entirely with the noble Lord, Lord Skelmersdale, that if two children have to be dealt with under the formula where there
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If it were the other way around, so that there was a voluntary arrangement to start with and a new arrangement with the same non-resident parent, and the second relationship resulted in a request to be in the statutory system, the calculation on the percentages to be applied to the non-resident parent’s income would be driven on the basis of two children. Whatever sum is produced will be divided by two for each of the two children. The parent with care who is in the system would get that amount, but it could not force any adjustment to the pre-existing voluntary arrangement, regardless of whether that arrangement involved a higher or a lower sum. It may be that that would cause the parties to seek a renegotiation of the voluntary arrangement. If the renegotiation is not successful, there is an option for the non-resident parent to bring the case within the statutory system so that the formula would apply to both situations. This would not of itself disturb a voluntary arrangement. Although clearly the number of children being supported in the system would affect the calculation, it would not be applied to the voluntary system.
Baroness Hollis of Heigham: I am sorry to take up the time of the Committee. Let us say that the non-resident parent is supporting two children at a net level of 20 per cent of his income under one of the statutory schemes. He goes into a new relationship that produces one child. That would mean that his total contribution under the net formula would be 25 per cent. If the second family goes into the voluntary system, would that family get merely 5 per cent, the difference between the 20 per cent already going to the statutory family and the total net percentage required to support three children, which is 25 per cent? Would the statutory family remain unaffected at 20 per cent because the second family was in the voluntary system or, despite that, would there be a presumption that the 25 per cent total would be divided up pro rata, in which case the second family would get a little over 8 per cent? Which of those two would apply in the voluntary system, and what would be the case in the statutory system?
Lord McKenzie of Luton: The 25 per cent calculation would not affect the situation at all ab initio if a voluntary arrangement had been entered into. The two parents have agreed an arrangement—
Baroness Hollis of Heigham: I am sorry. The non-resident parent is paying 20 per cent for two children in the statutory system and now there is a new family. Normally he would be required to pay 25 per cent in total, so the difference between the old and the new assessment would be 5 per cent. Would only the extra 5 per cent go to the second family, or would the entire 25 per cent be reapportioned?
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Lord McKenzie of Luton: Let me try again. The 25 per cent net figure would apply to the new calculation. That amount, whatever it is, would be divided between the three children. There would be an adjustment to the statutory arrangement for the first two children so that the parent with care would get two-thirds of 25 per cent. In relation to the one-third, there would be no effect on the voluntary arrangement. Whatever the voluntary agreement was would drive what the payment is. If that became unaffordable in the light of the adjustment, it would be open to either parent to bring it into the statutory system. In that case, the 25 per cent level would apply and would be divided into three with two-thirds going to the parent with care and one-third to the other parent.
I hope that that has dealt with the point. All sorts of combinations can affect this. It is more likely that it will hit cases the other way around, where there is a voluntary arrangement to start with and then someone comes into the statutory scheme. The same principle applies. You take account of all the children who are involved in maintenance. That drives the formula and the percentage. It is divided up among those children and is adjusted only for those in the statutory scheme. My noble friend also asked whether, if there were an arrangement under the new basis of assessment in 2010, that would drag an existing arrangement under the previous scheme across to the new formula. I believe that the answer is yes. Obviously when we get to 2013 there will be only one formula. I see reassuring nods from the back.
2.45 pm
Lord Skelmersdale: I am pleased to hear it. I must say that I am surprised, because that does not come through in my reading of the various papers.
Lord McKenzie of Luton: It may not have come through because some of the intricacies of how this will work in practice are still being worked through. I was enunciating the principles. In a sense that second point is no different from what happens at the moment. If someone starts off in the old scheme and a new scheme case is linked to it, that drags the case across on to a new basis of assessment. There will be differences and fewer complications under the new arrangements. Some of the complexities around linked cases will fall away because under the new system the CSA—or CMEC—will not police the benefits system as it does at the moment. That will be the job of Jobcentre Plus. Therefore, ordering cases around the NRP will make some of the processes easier. That is the principle involved. I hope that that has clarified matters. I will be more than happy to have another go or to write to Members of the Committee if they feel that that would be helpful. We are not intending to change voluntary arrangements although the children involved in that would clearly impact on the percentage that is used.
Lord Skelmersdale: I do not know about the noble Baroness, but I believe that I have the point. However, if, having read Hansard, I find that I have not
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Lord McKenzie of Luton: Indeed. If any noble Lord who has participated in this debate feels that, on reflection, it would be helpful to have something more detailed in writing, I would be happy to arrange that.
Baroness Hollis of Heigham: Perhaps my noble friend will give me an assurance about a parent who currently is in the statutory system. If a second family comes into the new system and, therefore, the first family has to be drawn into the new system, can he assure me that there will not be a presumption that that second family will go into the voluntary system?
Lord McKenzie of Luton: Absolutely. I can give a very clear assurance on that. People have a choice about whether they are in the statutory system or have a voluntary arrangement. The choice is for either parent. There does not need to be agreement to be in the statutory system; just one parent can cause that to happen.
Baroness Hollis of Heigham: It does not have to be an opt-in, then. There is a presumption in favour of staying in the statutory system, unless the existing parent with care chooses to opt out into the voluntary system. Is that right?
Lord McKenzie of Luton: My noble friend asks whether one technically has to make a claim to be in the new system, which I think is broadly the proposition going forward. I would like to reflect on that. In either event, the information and support service will be there to help people to arrive where they want.
Lord Addington: I have listened to most of the debate. Even with the amount of expertise in this Room, there is some confusion. Does the Minister agree that the case for affirmative resolution has been made very strongly? The longer the proposals are out in the open, the better chance people stand of getting near them. Perhaps he would take that away for consideration.
Lord McKenzie of Luton: I shall reflect on that. However, if affirmative regulations give us an opportunity for further wide-ranging debate on the subject—
Baroness Hollis of Heigham: What a good idea.
Lord McKenzie of Luton: I turn to the amendments and I shall pick up some of the broader points that were raised. I welcome the interest in the transfer of cases to the new arrangements because that is very important, as indicated by all Members of the Committee who have participated. Planning for this transfer is one of the commission’s most significant early challenges. The scheme would have to be approved by the Secretary of State.
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Within Schedule 5 we have made provision for regulations to require the commission to develop a scheme for the movement of existing customers to the new statutory maintenance arrangements. The process by which cases transfer will commence in 2010 and take around three years. The provision is for negative regulations, but I hear the strength of the argument and will take this away. I believe that the Delegated Powers and Regulatory Reform Committee did not have any problem with what is proposed. It is usually focused on challenging when it believes that the affirmative procedure should be used. I might return to this, even if we change the procedure for the first set of regulations. I understand the point.
Our intention is to be completely transparent about how this transfer process will work. The commission’s plan will be published and will be available to Members of both Houses, key stakeholders and, most important, parents, so that they can raise any concerns at that time and before the transfer to new arrangements begins. It is essential not only that Parliament can scrutinise the plan, but also that parents understand the choices that will be available to them during this transfer period. A communication programme to support parents through this process of transition will start in 2009, enabling the first case transfers in 2010. The commission will consult stakeholders on our plans for transition.
Amendments Nos. 102 and 105 seem to have similar intentions, which is to keep existing maintenance liabilities running during the transfer process. The amendments differ in their effects, but I understand that they are probing by nature. By freezing ongoing case activity, we run the risk of not addressing any urgent changes of circumstances that may be required. For example, if someone paying an assessed amount of maintenance lost their job, all action on reassessing their case in line with their new circumstances would stop. I do not believe that this is a fair situation to present to anyone, nor do I believe that it is the intention of the amendment. Unfortunately, some incomes do not keep pace with prices; therefore, to base an assessment on what someone earns as opposed to what prices are is a much fairer way of doing things. Additionally, we know that there are many cases that have a current liability of nil. For these cases a percentage increase would have no effect and the nil assessment would remain in place for the length of the transition process. I am sure that this is not the noble Lord’s intention either.
During the transfer period, any current assessment will remain in place and will not cease until a new assessment has been carried out under the HMRC assessment formula. This would remove the ability of parents to choose what is best for them, whether this is in or out of the statutory system. I am sure that that is not the intention of Members of the Committee but that would be the consequence. I confirm that the liability will not end before the new schemeliability begins where parents choose to stay in the statutory scheme.
We know that a large number of voluntary arrangements are compliant and successful and have a real benefit for the child or children concerned. Therefore, to remove this facility could have a
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Amendment No. 104 stipulates that certain cases should be given priority in the move to the new HMRC data-based assessment during the transition period. In the White Paper, which has been referred to, we laid out guiding principles for the approach to transition. These are to focus on supporting the poorest families first; meet parents’ needs by empowering them to make informed choices; minimise disruption and provide a seamless service for the move to the new regime; and ensure that the approach is practical and achievable, learning from the past.
As the Committee will be aware, we have consistently stated that it is right that the commission should consider the order in which cases are moved. This gives the commission time not only to plan but also to take account of the scale of the task and the nature of the cases involved. Only the commission will be in a position to know about its levels of other work and available staff resources. It would therefore be inappropriate for us, at this stage, to dictate to the commission how to carry out this major administrative challenge.
We know from previous attempts at reform of the child maintenance service that a large scale movement of cases is a complex and time-consuming process. I am sure that the Committee will agree that it would be prudent to let the commission, having learnt the lessons from the past, assess for itself the right order for the movement of its customers, the right plan of action and the right point at which to begin the transition. It would not, therefore, be appropriate to dictate any priorities on the face of the Bill.
Amendment No. 106 would remove the facility to allow for a set of prescribed adjustments to be applied to the new formula assessment in certain cases, where the new calculation based on HMRC data differs significantly from the existing liability. This could have the effect of either a marked increase or a marked decrease in maintenance paid or received for either parent. By removing that facility, we run the risk that either parent may not have sufficient time to adjust to a change in their maintenance payments. That could create significant hardship and is not consistent with our intention to minimise disruption during that period.
I think that the noble Lord, Lord Skelmersdale, raised the point that some adjustments could be quite significant, as some of the assessments are based on data that are quite old. That is right, so it is important to have a mechanism to potentially smooth the impact of that. Similar arrangements were introduced when the current system was changed from the first one, although they turned out to be quite complex and difficult to manage. A good deal of thought needs to be addressed to this. Without such a mechanism, some parents with care and non-resident parents could hit difficulties. I recognise that the prescribed adjustments regime currently administered
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