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The noble Lord, Lord Skelmersdale, asked about the review. It is quite right that we review the introduction of the order, and I am obviously happy to share the effect of that with him, but we need to make sure that these new provisions are operating right from the start of the year. We intend to do that. The noble Lord, Lord Kirkwood, asked why this is not dealt with alongside the rest of the uprating. I will guess that we could do that, but we will have our debate on that shortly. This is separate legislation, distinct from the social security benefits, which is why we are dealing with it in this way.
The noble Lord, Lord Kirkwood, asked about IIDB reform. He is quite right that we made it clear, in the White Paper that we published on 10 December, that while some respondents to the Green Paper consultation supported the principle of lump sum payments for IIDB customers, others commented that there was a
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The noble Lord, Lord Kirkwood asked whether any medical evidence is developing that helps us better to understand and treat those awful diseases. Nothing that I am aware of has been developed recently that helps us. Sadly, mesothelioma is still always terminal within a very short time.
I hope that I have dealt with each point raised by noble Lords; if not, I am sure that they will press me further. I ask for acceptance of the order.
Child Support (Miscellaneous and Consequential Amendments) Regulations 2009
Copy of the Order
5th Report from JCSI
Motion to Approve
6.10 pm
Moved by Lord McKenzie of Luton
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton): My Lords, the Child Support Agency, as part of the Child Maintenance and Enforcement Commission, continues to have responsibility for administering applications for child maintenance under the existing statutory schemes. This package of regulations is intended to aid it in that task.
Noble Lords will be aware that the commission came into being as a result of the Child Maintenance and Other Payments Act 2008. The 2008 Act provides for a new system to calculate maintenance payments, which will use gross income details supplied by HMRC, as well as tougher enforcement powers and other administrative changes. The majority of the provisions contained in the 2008 Act are, however, yet to be commenced. We must therefore ensure that the existing system operates as well as possible prior to the new powers coming into force.
The regulations will add to the conditions in which child maintenance liability can be recalculated where non-resident parents take steps to divert their income and so reduce their maintenance payments; disregard certain credits paid to both the non-resident parent and the parent with care for the purpose of calculating the maintenance liability; and make consequential changes to legislation to bring it up to date with the equalisation of state pension age for men and women.
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The amendments to the diversion of income provisions within the variation and departure direction regulations became necessary following a recent Upper Tribunal decision. The judge, formerly known as the Child Support Commissioner, held that where the non-resident parent was diverting a significant amount of his income into a pension scheme, and in doing so was driving down the amount of net income that could be included to calculate the maintenance liability, the maintenance calculation could not be altered, as doing so would be outside the scope of the regulations as currently worded.
For child maintenance applications which have effect from 3March 2003, known as the current scheme, pension contributions 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 which take effect prior to 3 March 2003, which are known as the old scheme, half of all pension contributions are disregarded.
A change to HMRC rules in April 2006 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 to a lifetime cap. Of course we must encourage people to make provision for their retirement, and those changes to pension rules are an entirely reasonable way to achieve that, but a potential loophole in child support legislation has come about as a result of that and the Upper Tribunal’s decision.
Although most non-resident parents pay a sensible proportion of net weekly income into a pension scheme, the commission is aware of a small number of cases where non-resident parents are making significant pension contributions and using other income not assessable for child maintenance to live on, such as a partner’s income. The child maintenance liability can be severely depressed as a result.
However, where the non-resident parent is diverting high levels of income into a pension scheme or other form of otherwise allowable expense, it has always been our intention to allow the maintenance liability to be altered following an application from the parent with care. Regulations 2 and 4 therefore simply restore the original intention by amending the departure direction regulations for the old scheme and the variation regulations for the current scheme. I hope that noble Lords will agree that non-resident parents should not be able to make substantial pension payments at the expense of their children’s upbringing and that a sensible balance should be struck between paying child maintenance and saving for retirement. These regulations will help bring about that balance.
Regulation 3(5) enables the Commission to disregard in-work credit, better-off-in-work credit and return to work credit for old-scheme maintenance applications, by making the necessary amendments to the Child Support (Maintenance Assessment and Special Cases) Regulations. It is already possible to disregard these credits for the current scheme by using the existing legislation, and amending regulations are not therefore needed in this respect.
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These credits are paid weekly for a maximum of 52 weeks and are intended to help people move into work for at least 16 hours a week and not return to benefits. They are not part of the tax credits system.
These credits were disregarded for a range of different purposes, including national insurance, council tax benefit, housing benefit and tax credits. These credits are there to aid the transition from welfare to work, and it would not therefore be appropriate for the Commission to treat them as income. Doing so would, I believe, risk undermining the underlying principle that led to the creation of these payments.
While both parents have a right to expect that they are assessed fairly for maintenance payments, in that all forms of relevant income are taken into account, treating these credit payments as income could lead some people to conclude that it is in their best financial interests to remain out of work and on benefits. If that were to happen, the Commission would not collect anything more than the minimum payment from non-resident parents and parents with care, whose income is taken into account in the old child support scheme, would be unable to improve their own financial situation, and that of their children, by finding work. If, on the other hand, they were able to find stable employment, those parents would be able to contribute much more to the maintenance of their children.
The rest of Regulation 3 makes amendments consequential to the equalisation of state pension age. Under the Pensions Act 1995, equalisation of state pension age between men and women will be gradually phased in between 2010 and 2020.
As a consequence of equalisation of state pension age, the disability premium in income support will in the future be payable up to the qualifying age for pension credit, which will increase in line with the state pension age for women from April 2010, whereas it is currently payable where the qualifying person is aged under 60. The regulations therefore refer to the non-resident being under 60 years of age. This needs to be updated so that it is in line with the increasing age of qualification for Pension Credit.
I am satisfied that the statutory instrument before us is compatible with the European Convention on Human Rights and I commend these regulations to the House.
Viscount Eccles: My Lords, I am a member of the Merits Committee and have been so for approaching three years. This is a short instrument about a complex matter which has a long history and I am very grateful for the full explanation given by the Minister this afternoon. I would just like to suggest to him that it would have been better if most of that had been in the Explanatory Memorandum. It is surely the wrong way round to put forward a very short and rather sketchy memorandum—I fully accept that the Commission is a new body—and then to have the very full explanation in the House. It would be better if the full explanation were in the Explanatory Memorandum, which would, no doubt, shorten your Lordships’ proceedings.
On February 10, and reported on February 12, the Merits Committee considered this instrument. If we look at it from the point of view of the Merits Committee,
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This all means that complex consideration needs to be given to this matter in a very short period by the Merits Committee and its staff. I wonder whether the Minister enjoys the complexity with which we are faced. Is it in the public interest that matters are so complicated? If not, what is to be done about it?
I would be the first to say—I shall say it this afternoon—that the two advisers to the Merits Committee, Jane White and Paul Bristow, are, first, extremely skilled at their job and, secondly, incredibly diligent. However, they depend very strongly on the paperwork presented to them—in this case, by the commission—and particularly in the Explanatory Memorandum. In the provision of additional information and, indeed, in a telephone call that I have had with an official today, the commission has been extremely helpful. There is absolutely no question but that it has tried to fill in all the gaps that we thought we had found. However, I repeat that the Explanatory Memorandum, as presented, was sketchy and almost opaque.
Subsequent to the Merits Committee meeting, I have given the matter further thought and carried out further research, and, other than quoting the committee’s conclusion, what follows is my personal view. My personal conclusion is that what was presented to the committee was the tip of an iceberg. I hope that I will be pardoned for putting it this way but when we drew this instrument to the special attention of the House, we just knew that it should be for special attention, although we did not quite know why. We said:
“The Committee particularly noted the first of these changes to the ‘diversion of income’ ground for a departure or variation, which was needed because a recent Tribunal Case”—
- “concluded that a non-resident parent could take advantage of changes to pension contribution legislation to reduce or avoid his child maintenance liability. The Regulations aim to close that loophole”.
Indeed, this afternoon the Minister gave us the date of 2006 as a change in the pension contribution conditions. However, none of that appears in the Explanatory Memorandum.
I considered whether there was a loophole and, if there was, exactly what it was and how it would be closed. The regulations confer some sort of power to do something about pension contributions but that would appear to depend entirely on a judgment of what is reasonable as against a judgment of what is unreasonable. How will members of the public who
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I suspect that the key to the Government’s thinking is in paragraph 7.8 of the Explanatory Memorandum. I paraphrase it because it is written in quite a derogatory way and I shall try to take out that loaded part of it. It says that the existing diversion of income provisions do not apply to high pension contributions. Again, I think that that point has been well covered by the Minister. Indeed, that is what the tribunal found in the case that has been quoted, but I believe that it is not the only case in which these matters have been considered.
My point is that in the original policy it was never intended that the provisions should cover pension contributions, because that was in the days when contribution limits were between 17.5 and 40 per cent. However, under the old scheme only half of those contributions applied as a disregard, giving a maximum of 20 per cent, and under the new scheme a higher maximum of 40 per cent. It is interesting to note that, at the time that the new scheme came in—which was before 2006—the Secretary of State could not have been worried about these pension arrangements being challenged as unreasonable. It was the Government’s decision, in the two schemes, to make a departure a 50 per cent provision and to make a variation a 100 per cent provision. It was the Government’s decision at that time to improve the circumstances of people subject to maintenance orders in respect of their pension contributions.
When did the Secretary of State start to challenge this pension arrangement as being unreasonable? Is the case that has been referred to the only time that he has been, as it were, pushed back, or have there been others? Surely it must have been when the pension contribution limits were changed—very surprisingly in my opinion—to up to 100 per cent of income for both personal pensions and salary sacrifices in 2006 that the problem arose. Of course, the maximum then moves from either 20 per cent under the old scheme, or 40 per cent under the new scheme, to 50 per cent under the old scheme and, potentially, 100 per cent under the new scheme.
This is why we get draft Regulations 2 and 4, which attempt to capture the present pension regime within the scheme of reasonable and unreasonable, so that high—or “extremely high” as it says in the Explanatory Memorandum—contributions can be captured. However, my question is: will they be so captured? Will the commission be able to override the present law on departure and variation pension provisions? These draft regulations add a criterion, but do not revoke the present, quite clear, arrangements for the treatment of pension contributions. What, indeed, will happen if these matters go again to the courts, as they have in the past and undoubtedly will again? These are highly emotional and difficult situations. It is unlikely that people will agree easily to the commission’s definition of what is reasonable and what is unreasonable. I am pretty sure that that will be continuously challenged.
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There must be a better way. Before outlining that, I would be grateful for an assurance that this amending regulation is intended only to capture pension contributions, and that nothing else new is contemplated under the familiar heading of “diversion of income”. If so, is there not a simple amending route, which would be to introduce a cap on the proportion of pension contributions that can be taken into account? Then, of course, these regulations could be revoked. Rough justice might indicate a cap of 40 per cent of income. It was, after all, an unintended consequence of un-joined-up government that led to the possibility of 100 per cent of income in some cases. It seems that there is a tremendous reason why we should introduce certainty, clarity and simplicity and not have a situation in which there is contention between the courts and the commission, the parents and the absent parent about what is reasonable and what is unreasonable. There is not, I submit, a very good way of solving this problem.
6.30 pm
Lord Kirkwood of Kirkhope: My Lords, it is a pleasure to follow the noble Viscount, Lord Eccles. He has done the House a service with his forensic analytical examination of these regulations and I agree with what he said. I am one of those poor unfortunates who have been looking for clarity and simplicity in child support legislation since 1991, but it has always eluded me and continues to do so. I take a slightly different view from the noble Viscount. He has taken a very legal approach and I understand his analysis and support his attempt to solve the problem. Furthermore, he is right that these amendment regulations do not do the job at all. But from my perspective, this is all about clarifying rules and variations.
I hate it when people say to me, “I told you so”, but I cannot resist saying to the Minister that during our consideration of the Child Maintenance and Other Payments Bill 2008, I did tell him that we needed a general, catch-all provision for gratuitous alienation, as it used to be known in the old Benefit Agency days. There is no end to the creativity of non-resident parents when it comes to finding ways of not discharging their legal maintenance responsibilities for their children in the hands of the caring parent, and it is a false hope to think that we can draft a law to cover every eventuality. We have been discussing the particular loophole in relation to pensions, but if it is not pensions, another diversionary tactic will be along in a moment. The amendment regulations we are now considering are a direct result of the fact that a non-resident parent was shovelling two-thirds of his earnings into a pension scheme and thus reducing his income for child maintenance purposes. Not the agency, not the commission, not the commissioner and not the decision-maker could find a legal basis to challenge him, despite the fact that what he was doing was a denial of common sense that destroyed the spirit of the legislative base for the Child Maintenance and Other Payments Act 2008. None of those bodies could touch him because of the strict nature of the variation scheme introduced in that legislation. Everyone who applied their mind to it was left wanting in terms of a power to do anything about it.
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It is a simple fact that the variations rules are now so tightly drawn that they prevent common sense prevailing. I suggested an amendment to pave the way forward, and I dug out the briefing I used when I tried to introduce a new paragraph to Schedule 4 to the 2008 Bill entitled,
Admittedly it was a blunt instrument and drawn in a way that would give a decision-maker the discretion to apply a test of reasonableness on potential diversions of income. If that amendment to the schedule had been accepted and the power existed in the Bill, the decision-maker could have dealt with this case in a clear and straightforward way. We would not have needed this set of amending regulations.
My charge to the department is this: it should have seen this coming. The noble Viscount, Lord Eccles, is right when he says that the legislative ink on this Act has yet properly to dry, and here we are, bringing forward in regulations fundamental amendments which, in a sensible system that produced watertight legislation—I hope we all aspire to do that in this place—would not be necessary. We failed in this case, in a way that I believe was foreseeable.
The variation scheme is going to become even more important because as the Child Maintenance and Enforcement Commission progresses into the new regime, it will have to rely far more on HMRC data. That is going to be rough justice. The variation scheme will have to be applied to HMRC data in a way that will create all sorts of problems of this kind if we do not undertake a review of the current strictness of the variation regime that was introduced in the 2008 legislation.
It pains me to say that under the old 2003 system before the last set of reforms were brought in we had an element of discretion to get a decision-maker to apply a common-sense test to attempts to alienate income. We made a complete hash of it in the 2008 legislation. I support these regulations as far as they go but they are not adequate. The noble Viscount, Lord Eccles, is right; we will need to return to this unless the Government rigidly and urgently undertake a review of the current variation scheme. There will nothing but trouble of this kind in the future until that gets done.
Lord Skelmersdale: My Lords, this is a very different statutory instrument from the other three we are discussing today. The noble Lord, Lord Kirkwood, made a surprisingly emollient speech and chose his words much more carefully than I am going to. Gallia, if I remember my Caesar correctly, in tres partes divisa est. So, too, is this order, or almost. One and two halves might be a better way of putting it. Taking the last part first, the Minister will remember that during our proceedings on the Child Maintenance and Other Payments Bill last year I told him of reports I had had of absent parents willingly reducing their disposable income by increasing their pension payments. Under both the old and the current child support schemes, this means that they will be due to pay less towards the upkeep of their children to the parent with care.
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The policy of all political parties is that it is a sine qua non that both parents should give financial support to their children, whether they are living with them or not, even when the parents live apart. The three formulas for assessing the amount that the latter should pay depend on the income of the non-resident parent. This is where the non-emollient comes in. I consider it a cheat for someone to reduce their income when approached by the CSA, now the Child Maintenance and Enforcement Commission. I believe that it was always intended that this should not be allowed, although, as we have heard, a recent judicial decision in the upper tribunal found that it was perfectly legal. So it is a legal cheat, if you like. Quite rightly the Government have decided to reverse that decision for the future.
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