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Child Maintenance and Other Payments Bill

I agree that this is a very important group of amendments. Taken together, they relate to the statutory maintenance calculation in the future scheme and they raise a number of important questions about how it will be calculated, what income will be taken into account, how information about that income might be obtained and what to do about more exceptional cases. The changes that we made in 2003 to maintenance calculations are working reasonably well. As I said a moment ago, we do not intend for this Bill to make any substantial changes to the principles behind those calculations. The overall liability structure, based either on the weekly income of the non-resident parent, or on their benefit, or other specific circumstances, is broadly supported. This will continue to be complemented by a variations scheme that can apply in specified exceptional circumstances. The changes proposed in the Bill are the result of identifying opportunities to further simplify the calculation process, resulting in more transparent calculations that can be made more quickly. Many of the changes—for example, the new basic rate percentages and the definition of weekly income to be gross rather than net—are the result of our decision to make calculations by using income information provided by HMRC. It is our intention that the detailed definition of what will count as income will be given, as now, in regulations. These will be introduced for parliamentary scrutiny and debate after the Bill has been given Royal Assent. Amendment No. 88 would require, in addition to earned income, calculations to take account of income from capital, such as dividends and interest. Amendment No. 92 would make the same requirement, with the exception that its scope is restricted to information provided by HMRC. Amendment No. 93 would give the commission the power to presume a level of income where the non-resident parent is self-employed or a company director. Amendment No. 95 would give the power to take account of income where the non-resident parent had unreasonably deprived themselves of a resource. Finally, Amendment No. 190 simply attempts to address deprivation of resources, but limits its effect to cases where the estimated difference in income is 25 per cent or more. This group of amendments broadly reflects a single significant concern of noble Lords which has exercised our mind greatly in recent months: that some non-resident parents are better able to control their resources by diverting them out of earned income into a form beyond the scope of the maintenance calculation in order to reduce the amount of child maintenance they are required to pay. This is unfair, both to children and to non-resident parents who act reasonably. I agree that any attempt by non-resident parents to manipulate their personal financial circumstances for the purpose of reducing their child maintenance payments must be firmly opposed. It is important that we take all reasonable steps to discourage such actions and to ensure parents with care receive the maintenance that truly reflects the non-resident parent’s financial circumstances. However, the simpler approach to calculations, with its focus on income related to earnings, is the right one. It is imperative that we do not repeat past mistakes by returning to the complexity of the first child support scheme. In that scheme—as outlined by the noble Lord, Lord Skelmersdale—most forms of income are taken into account, including interest and dividends payments. Finding out about these adds to delay and, in many cases, makes little or no difference to liabilities. We also understand that not all taxpayers with investment income are required to complete a self assessment return and, as such, HMRC data coverage of these types of investment will, generally speaking, be less comprehensive than for earnings. Indeed, I think the approach is that you would routinely file a self assessment return if you were a director or self-employed with earnings above a certain level, or with investment income above a certain level. You might be required to report to HMRC if you had investment income which should be taxed at a higher rate, but there are no universal obligations to report, partly because a lot of investment income is taxed at source. There is therefore no need, if one is only a basic-rate taxpayer, to report that. Of course, some income is not reportable at all because it is a tax privilege, such as ISA income and tax-free capital gains up to a certain level. The preferred initial approach, which we intend to carry forward, is for the variations scheme to cater for cases of significant unearned income—I stress the ““initial””. That scheme will also continue to deal with cases where a non-resident parent can control the amount of income they receive from their job, or unreasonably divert income. I should say that, although our initial approach is for the focus in mainstream maintenance calculations to be on earned income, we will work with the commission to look at the feasibility of including certain types of income such as investment and shares income. We will do this when the operational realities of using HMRC data become clearer. We are also retaining the power to estimate income where available information is unreliable, insufficient or atypical. We shall be working with the commission to decide how to make best use of that power. This should help to address the issue raised in Amendment No. 93, where noble Lords wish to have scope to presume income levels for non-resident parents who are directors or self-employed. Our experience of the first child support scheme is that investigating cases of possible deprivation of resources is often not straightforward. The amendment tabled on this matter would require the commission to investigate every change in income which could otherwise result in a reduction in maintenance liability. That would place a significant burden on the commission and does not fit with our intention to operate a simple, effective and value-for-money scheme. It is also unlikely to be cost-effective in terms of outcomes, as only a small minority of non-resident parents seek to manipulate their income in this way. The amendment would entail the commission deciding whether any observed reduction in income was intentional or reasonable. In complex cases in which this power might be necessary, it would be difficult for commission staff to make that kind of decision. Many of the issues raised by the amendments will be open for discussion when the regulations made subsequent to the Bill are introduced. Those regulations will include detailed provisions of what will count as income and will set out how the powers in this Bill and the Child Support Act 1991 will be used by the commission. The concerns raised by noble Lords will be given careful consideration when we come to draw up those regulations. The noble Lord, Lord Skelmersdale, referred to the variations and said that there was often not a high chance of success—that it was a high hurdle to overcome. That is right, which is why we are determined to try to lower the bar so that variations are generally more accessible. Obviously, the more that we can make that happen, the greater reliance we can place on that route rather than on some of the more detailed amendments suggested here. We will come to that matter shortly, but that is our clear intent. It would be helpful to put these matters in context. The family resources survey in 2005-06 found that over half the single males aged between 20 and 50—which we used as the best proxy for NRP, although we know it is not perfect—do not have any investment income at all and most of those who do have only small amounts. Only 5 per cent have more than £10 of investment income per week and only 1 per cent have more than £50 a week. That is not to say that we should not seek to access that information where it applies, but it is a small percentage of the current case load and the likely case load of the commission going forward. The noble Lord, Lord Kirkwood, spoke about problems relating to the self-employed. Again, I believe that it is right to have our starting point for the self-employed in the returns that they make to HMRC, because we and HMRC have common cause in wanting to make sure that those returns are robust in accordance with the law and are properly constructed. However, there are provisions in the Bill, and I have touched on some of them. In the event that such information is not available, other routes will be taken to assess income. Part of the issue with the self-employed is not only making the assessment, but also having effective enforcement powers. That is another route by which we can improve the situation for self-employed people. If you look at the data at the moment, compliance for the self-employed is significantly below compliance for employed people and we need to tackle that seriously. I hope that that will enable the noble Lord to withdraw his amendment. The key argument that we are seeking to advance is that, if we go back to the complexity that we had and demand as an integral and automatic part of the calculation income details that we cannot readily get from HMRC—that we certainly cannot get on a fair basis across all the case load—and we have to resort routinely to getting that from non-resident parents and others, we will return to the problem of having real administrative difficulties, particularly with those people who are not intent on paying the child maintenance that they should. That is why we have gone down the path that we have. The key to it is to make sure that those variations are more accessible, and we will have the chance to discuss that shortly.