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Child Maintenance and Other Payments Bill

Members of the Committee will be aware of our proposals for the statutory maintenance service to introduce a system of fixed term awards with annual reviews of maintenance calculations. In between annual reviews, maintenance will be adjusted only for a change in the non-resident parent’s income if that change exceeds a tolerance level, which will be specified in regulations. As has been mentioned, we have proposed a level of 25 per cent. We believe that provides certainty for parents on the amount of liability, allows for significant changes in income to be reflected and will reduce significantly the volume of reassessment work carried out by the commission. The commission will advise Ministers on the level at which the tolerance should be set, taking into account the potential impact on child poverty and what is possible operationally. It will be set out in regulations which, being subject to affirmative resolution, will be available for scrutiny by both Houses. The advantage of placing the tolerance in regulations is that it will be possible for the commission to review it in the light of experience and, if necessary, seek ministerial approval to change it. Amendment No. 96 seeks to set the tolerance level in primary legislation at 10 per cent. Currently, the agency receives around 160,000 applications for a change of circumstances every month. Since 2003, a staggering 5 million changes of circumstances have been cleared by the agency for new scheme cases alone, which results in the agency spending far too many of its resources constantly adjusting maintenance liabilities. Many non-resident parents report repeated—even weekly—changes to their income and shared care arrangements. For the commission to be successful, we need to avoid burdening it with the same level of re-work and reassessment that the agency has faced. Restricting the scope for in-year adjustments will help us to achieve this. Cases will be reviewed annually, and the income figures from HMRC will be updated so that they will always represent the latest available tax year. Analysis shows that between 2004-05 and 2005-06, 39 per cent of non-resident parents had an increase or decrease in income of 25 per cent or more. If the tolerance were set at 10 per cent, that would hugely increase the volume of cases needing adjustment. For the period mentioned, 61 per cent of cases had an increase or decrease in excess of 10 per cent. Setting the tolerance level at 10 per cent therefore would not result in the reduction of reassessments needed for the commission to effectively manage its caseload, nor would it provide the desired level of income stability for parents. We recognise that a tolerance for changes in income means that until the next annual review of the case, a non-resident parent who has had a significant drop in income will pay a higher proportion of their net income in maintenance. For example, a non-resident parent with one child who was earning £20,000, whose income drops by 24 per cent to £15,200, would have to pay around 20 per cent of their net income during this period. In a worst case scenario, a drop in income of 24 per cent would mean that a non-resident parent earning £800 per week with three or more children to support, might pay around 34 per cent of their net income until their next annual reassessment. However, since only 11 per cent of all non-resident parents have three or more children, and only 2 per cent of all non-resident parents are likely to experience a drop in income of between 20 per cent and 25 per cent, this scenario will be somewhat rare. Amendment No. 97 applies to cases where a maintenance calculation has been adjusted for a reduction in the non-resident parent’s income. The amendment would provide that where the commission subsequently receives information from HMRC that shows that for the period covered by the lower maintenance calculation the income was actually 25 per cent or more higher than the income figure on which the lower maintenance calculation was based, the calculation should be reconsidered once more. When a non-resident parent can show that their current income has fallen by 25 per cent or more compared with the figure on which their maintenance liability has been based, it will be possible for their liability to be adjusted to be based on current income. This type of adjustment is known as a ““supersession””. Before the agency will carry out a supersession, it will require robust evidence that income has reduced for a period that is long enough to give a comprehensive and accurate picture of the non-resident parent’s income. This minimises the scope for manipulation and ensures that figures are not affected by short-term falls in income or by seasonal fluctuations. I assure noble Lords that the current rules that allow for a revision of maintenance liability that has been found to be based on inadequate or incorrect information will continue to apply under the new arrangements. This means that if a parent with care believes that the non-resident parent’s income has not dropped by 25 per cent, the decision can be disputed and, if they do so within one month and are successful, the lower calculation will be changed from its start. If she successfully disputes it after the one-month dispute period, the lower calculation could be replaced from the date she disputed it. If the commission subsequently receives information that shows that maintenance should not have been reduced because the non-resident parent had misrepresented or failed to disclose a material fact, the lower maintenance calculation could be revised and the original higher assessment could be put back in place from the outset. There are already existing provisions in place to allow for a decision to be reconsidered in the circumstances envisaged by the noble Lord. It is worth pointing out, however, that data from HMRC will only ever reflect the most recent complete tax year. The current income figures provided by the non-resident parent would inevitably be for a different period. Carrying out routine reconciliation of HMRC data, even if it were possible, would be a resource-intensive and potentially complicated exercise that would reduce many of the administrative benefits of basing maintenance on HMRC information, resulting in frequent minor overpayments or underpayments which would require adjustments to ongoing maintenance that would be complex for parents to understand and budget for and for staff to explain to them. Under Amendment No. 98, regulations would provide that an immediate adjustment takes place where the maintenance calculation had been based on income data supplied by HMRC and the commission subsequently receives updated income information. A non-resident parent could submit new income details at any time and their maintenance calculation would be reviewed. This could have an overwhelming effect on the commission by creating unmanageable peaks in workload following the end of the tax year. To manage the system of annual reviews, the workload needs to be spread evenly throughout the year. Amendment No. 99 would place a requirement on the commission to make proposals to protect low-income non-resident parents from too high a threshold. Noble Lords might consider that there should be a separate, lower tolerance for non-resident parents on low incomes, but that could add significant operational complexity and create other difficulties. For example, would the lower tolerance only apply to those already on incomes below a certain threshold, before their income falls? Or would it also apply when the drop in income itself brings the income level below the threshold? Finally, Amendment No. 100 seeks to limit the tolerance level to 20 per cent. As I mentioned earlier, the agency spends far too much time adjusting maintenance assessments, and we need to reduce the amount of similar work that the commission will be required to carry out. The analysis that I referred to earlier looking at income changes between 2004-05 and 2005-06, shows that around 44 per cent of non-resident parents had an income change in excess of 20 per cent. This is only 5 per cent different to the figure of 25 per cent but, given the likely scale of the commission’s caseload, even a 5 per cent difference could have a significant impact on the volume of cases needing reassessment. As I said earlier, in due course the tolerance level will be set out in regulations, and there will be an opportunity to debate it then. The noble Lord, Lord Skelmersdale, cited an example where someone might be tempted to go from work onto benefit and back into work to try to defeat or get around the rules of assessment. I make it clear that if someone goes from unemployment to work, there is an immediate reassessment of the amount that is due. The range of circumstances is fairly limited where there is an immediate reassessment. The question was also specifically posed why we are not requiring non-resident parents to report increases in income of 25 per cent or more, when they could be earning far more than the figures used in the maintenance calculations. For reasons of simplicity, we want to remain with the historic HMRC figure and avoid changes in liability wherever possible. If the non-resident parent has a large increase in income in any tax year, that will catch up with him when the maintenance is based on his income for that particular year. If a parent with care reports that the non-resident parent had an increase in income of more than 25 per cent and she has some evidence to support the claim, it would be investigated. In conclusion, I suggest that a key difference of the new system proposed is that it will be possible for annual updating of assessments, which has not been possible under the current arrangements. Some assessments have been languishing unchanged for many years. This is a better system. Certainly at the margins it may be perceived as broad-brush, but that is the price that we pay for efficiency and being able to make those annual adjustments.