Changes to the child support scheme
Briefing for report stage of Child Support, Pensions and Social Security Bill – Wednesday 29 March 2000

Key features of the new system
The commitment to end child poverty
Impact of child support proposals on child poverty
Child maintenance premium
Second families on income support/income-based jobseeker's allowance
Second families in low-paid work
'Good cause'
Suspending the benefit penalty
Reduced assessments for some working lone parents with care

The shortcomings of the current child support system are well documented. Reform is urgently needed.

• 1.8 million children receive no maintenance.[footnote 1]
  
• Only 47 per cent of non-resident parents pay all their maintenance.
• Thirty per cent pay nothing.[footnote 2]
  
• Only 62 per cent of maintenance applications are cleared within the target 22 weeks.
  
• Even now only 77 per cent of Child Support Agency (CSA) assessments are correct.[footnote 3]

The measures contained in the Child Support, Pensions and Social Security Bill are directed to providing a simpler, more efficient scheme that is of actual benefit to the poorest children. CPAG therefore gives overall support to the new scheme. But we are concerned that some families are pushed further into poverty. We believe our concerns can be addressed without undermining the principles of the new scheme.

Key features of the new system
The Government aims to introduce the new scheme in April 2002. Initially, the new rules will only apply to cases new to the CSA. Existing CSA cases will be transferred onto the new scheme at some, as yet unspecified, later date, possibly not until 2003.

• Under a radically simpler formula for calculating maintenance, a non-resident parent will pay 15 per cent of his income where there is one child, 20 per cent where there are two and 25 per cent where there are three or more. There is some protection for parents with second families and for parents on low incomes.
  
• Non-resident parents with net incomes of between £100 and £200 a week pay a reduced rate. Non-resident parents on prescribed benefits ,or with net incomes of below £100, pay a flat rate of £5 a week.
  
• Some non-resident parents will be liable for a nil rate, including full time students, prisoners and some non-resident parents caring for the child at least one night a week.
  
• Parents with care on income support/income-based jobseeker's allowance will keep up to £10 a week of any maintenance paid to them.
  
• Parents with care on tax credits are not obliged to use the CSA. Any maintenance payments they receive are ignored in full.

The commitment to end child poverty
CPAG believes the proposed new scheme is an important step towards ending child poverty. However, any child maintenance scheme is necessarily limited in its potential for tackling child poverty. 63 per cent of lone parents are poor.[footnote 4] Thirty four per cent of non-resident parents are on income support or income-based jobseeker's allowance.[footnote 5] Many more are in low-paid work. Care must be taken to avoid recycling money from quite poor to very poor families.

An essential component of the strategy to end child poverty is the introduction of a 'minimum income standard'. This would provide an estimate of the level of income a family needs to live on, and therefore serve as a benchmark for social security and child support policy.

Impact of child support proposals on child poverty

Parents with care

• The Government estimates that one million children will gain financially from the combination of a simpler system and the increased maintenance disregards for benefit claimants. This includes 600,000 children in families on income support.[footnote 6]
• CPAG estimates on the basis of recent statistics that over time, between 65 per cent and 85 per cent of parents with care will be better off under the new scheme.[footnote 7]

Non-resident parents

• 44,440 second families will be pushed further into poverty when their income support/income-based jobseeker's allowance is reduced by £5 a week for payment of maintenance.
• It now seems that 40 per cent of non-resident parents are expected to have higher assessments under the new scheme.[footnote 8] As significant proportion (70 per cent) of those are on incomes of less than £200 a week.[footnote 9]

Child maintenance premium
One of the most welcome aspects of the new scheme is the introduction of the 'child maintenance premium.' (This is not contained in the Bill as it can be introduced by amending secondary legislation.) Currently, parents with care on income support/income-based jobseeker's allowance lose benefit £1 for £1 if they receive maintenance. Under the new scheme, they will keep up to £10 a week of any maintenance paid.

CPAG regrets that the child maintenance premium will only apply to cases assessed under the new formula. This will not be before April 2002. Nearly 400,000 parents with care on out-of-work benefits will only gain once their cases are transferred into the new system at some unspecified future date, possibly as late as 2003.

The child maintenance premium is the most positive aspect of the new scheme. CPAG regrets that 400,000 parents with care may have to wait until 2003 to see it introduced. Staggering the introduction of the premium risks associating this positive measure with perceived unfairness. The premium should be introduced as early as possible and for all parents with care at the same time. The cost of doing so is £65 million.[footnote 10] We understand that the Government does not wish to risk administrative chaos by transferring all cases onto the new scheme at once. However, the child maintenance premium could easily be applied to parents with assessments under the old formula. This will to help maximise parents' support for the new scheme and bring forward the fight to end child poverty.

We recommend raising the amount of the premium to £15 to have an even greater impact on child poverty. Before the 2000 Budget, income support fell £20 short of the 'low cost but acceptable' budget for a family with two children under 11.[footnote 11] The Budget indicated a £4.35 increase for children under 16 from October 2000, but that still leaves such a family £11.30 a week short. A disregard of £15 would cost £100 million a year, compared to £65 million for the £10 disregard – although originally that was also said to cost £100 million.[footnote 12] As a minimum, a commitment should be given to regularly uprating the premium so that it does not lose its value over time.

Parents with care on tax credits have all of their maintenance payments disregarded (compared to £15 on family credit). However, the disregard on housing benefit and council tax benefit remains at £15. This means that for parents with care getting more than £15 a week maintenance, the value of the more generous tax credit disregard will be eroded if they receive housing benefit or council tax benefit. The Government should consider increasing the maintenance disregard on housing benefit and council tax benefit. The estimated cost of this is unclear – either £30 million or £60 million a year.[footnote 13] This would not need to be included in the Bill as it could be achieved by amending secondary legislation. The Government has said that this may be best dealt with as part of the review of housing benefit.[footnote 14]

Second families on income support/income-based jobseeker's allowance
Although the average level of assessment falls under the new scheme, some poorer 'second' families will find themselves paying more. It now seems that around 40 per cent of all non-resident parents will have increased assessments.[footnote 15] On the current caseload, that would be around 369,000 parents.[footnote 16] In excess of 70 per cent of those who pay more will be on benefit or have incomes of less than £200 a week.[footnote 17]

Under the new Bill, it is proposed that only the following groups will be liable for a 'nil rate' of maintenance:

• full time students in advanced education;
• prisoners;
• 16/17 year olds on income support/income-based jobseeker's allowance;
• young people receiving an allowance for work-based training;
• non-resident parents on income support/income-based jobseeker's allowance who have shared care of the qualifying child for at least 52 nights a year.

Other non-resident parents on income support/income-based jobseeker's allowance will be liable to pay the £5 a week minimum. This includes those responsible for children in a second family (who are currently exempt). The result is that, on recent figures, 44,440 second families will see their income support/income-based jobseeker's allowance reduced by £5 a week.[footnote 18]

We understand that the Government wishes to encourage compliance and to ensure that as many children as possible receive maintenance. It believes all non-resident parents have a responsibility and that this responsibility should not be transferred to the taxpayer.[footnote 19] However, income support/income-based jobseeker's allowance fall significantly short of the levels of income required to meet the needs of families. Deducting a further £5 will cause significant hardship. It seems that this could be in addition to a deduction for arrears of, for example, fuel and water.[footnote 20] These second families will as a matter of public policy be required to live below income support level, possibly well below. The result would be to increase child poverty in these families. CPAG therefore urges the Government to include a £5 premium for payment of maintenance as part of their benefit. A deduction can then be made for payment of maintenance without pushing them further into poverty. The estimated cost is £20 million a year.[footnote 21] This would reinforce the Government's commitment to ending child poverty.

Second families in low-paid work
There is some protection for second families in the new scheme. Net income is reduced by 15 per cent, 20 per cent or 25 per cent depending on whether the non-resident parent has one, two or three children living with him. Maintenance payable is calculated on the reduced income.
However, we remain concerned about the impact of the simpler formula on some low-income families particularly those with high housing costs. To help such families meet their rent, entitlement to housing benefit and council tax benefit could be calculated on the basis of income after maintenance has been paid. The estimated cost of this is £30 million a year.[footnote 22] The Government has suggested that this should be considered as part of the housing benefit review. Careful consideration should be given to the ability of second families to meet their housing costs.
This would not help homeowners, for whom a different solution should be sought. Concerns about high travel to work costs could be met through widening the appeals system or in a variation to the scheme.

'Good cause'
Under current rules, a parent with care is required to authorise the Secretary of State to recover maintenance from a non-resident parent if she is in receipt of income support or income-based jobseeker's allowance. She has 'good cause', for not doing so if there is a 'risk of her, or of any children living with her, suffering harm or undue distress as a result.' If she refuses to co-operate without good cause, she is subject to a 'benefit penalty' (a reduction in benefit equal to 40 per cent of her personal allowance – £20.88 2000/01 rates).

CPAG is pleased to note that the definition of 'good cause' is retained in the new Bill. However, because of the sensitive and difficult nature of the issue, we are concerned that the operation of this provision is to be extended in the following ways:

• A parent with care will be treated as having applied for child support unless she specifically requires the Secretary of State not to recover maintenance. Under current rules she has to give her authorisation before maintenance can be pursued. This change places additional requirements on parents with care at what might be a very stressful time in their lives, following relationship breakdown.
• Where 'good cause' has been accepted, the Bill allows the Secretary of State to go back to the parent with care, ask her whether she still does not wish to pursue maintenance and, if so, to put reasons in writing. Steps must be taken to ensure parents with care do not feel harassed.
• A parent with care can be penalised for refusing, without good cause, to take a scientific test such as a DNA test. Given the hardship that such benefit penalties can cause, CPAG is concerned to see their scope extended.

Suspending the benefit penalty
We support the Social Security Select Committee in their recommendation that application of the 'reduced benefit penalty' should be suspended while the new system is phased-in to assess whether incentives alone are successful in achieving higher compliance.[footnote 23]

CPAG remains concerned at the hardship caused by reducing benefit paid to parents with care who have good reason for not wishing to co-operate with the CSA. We were informed of two women from ethnic minority groups who preferred to accept benefit penalties rather than apply to the CSA and, as they feared, prejudice the chances of reconciliation with their ex-partners. Another parent said:

'They have now cut our income support and we are trying to live on £59.86 income support per week. We cannot do this, and I have not in my life felt quite so desperate and in need of help as I do now...'

We regard it as unfair to penalise families in such circumstances.

Reduced assessments for some working lone parents with care
The amount of the average assessment for where the non-resident parent is employed will fall from about £38 per week now to £30.50 per week under the new scheme.[footnote 24] Although over 500,000 parents with care could get a lower assessment, many of these will still actually be better off due to the maintenance disregards and expected increased compliance. Using recent figures, CPAG estimates that over time, 65 per cent to 85 per cent of parents with care will be better off.[footnote 25] Those worse off are likely to include those who are not in receipt of means-tested benefits or tax credits. An estimated 140,000 such parents will get lower assessments under the new scheme. A further 10,000 on tax credits will get lower assessments and do not gain from the increased disregard because their current assessment is less than £15.[footnote 26] CPAG believes these lone parents could be compensated. Options include:

• Slower phasing in of lower assessments would give these parents more time to adjust.
• The Government undertaking to guarantee maintenance payments to ensure they are received.
• Introducing a financial compensation scheme to reimburse parents who lose out.

Footnotes