CMS0035

Written evidence submitted by Dr Christine Davies

My background and credentials

I am a mathematician, previously a Senior Lecturer in Applied Mathematics at Royal Holloway University of London, now retired but retaining an honorary position. My interest in child maintenance was prompted in 2011 through the case of a particular individual who could not possibly pay what was asked of him. My investigations revealed serious flaws in the regulations used to calculate the child maintenance liability. These flaws mean that child maintenance liabilities are unaffordable for those on low income. Moreover, the interaction between child maintenance with the welfare system gives a situation in which work does not pay.

My evidence to the 2016/17 Work and Pensions Committee Inquiry into the Child Maintenance Service[1] has been the prompt for significant developments:

• In July 2017, the Minster asked the Department of Work and Pensions (the Department) to investigate my evidence. In January 2018[2], the Department confirmed that ‘there is an issue’, in particular with the interaction between child maintenance and Universal Credit. The Department has extended my modelling, investigated the scale of the problem and sought ways forward.
• In 2018 the Centre for Social Justice published a paper The Hidden Poverty Trap: Child maintenance and Universal Credit[3].
• In 2019 the Social Security Advisory Committee (SSAC) published their Occasional Paper Separated Parents and the Social Security System[4]. The Report highlighted the problems of the interaction between child maintenance and Universal Credit but, in addition, criticized the Government for having no joined-up policy for separated families.

Finally, to bring things up-to-date, I also submitted evidence to the recent National Audit Office Inquiry into Child Maintenance. Their Report[5], published on 1 March 2022, recommended[6] that the Department should

‘assess the affordability and interaction of child maintenance with the welfare system’

Summary

It is now widely acknowledged that the Regulations used by the Child Maintenance Service to calculate maintenance liability on the 2012 Scheme are fundamentally flawed. The flaws mean that child maintenance liabilities are unaffordable for those on low pay. In addition, the interaction between child maintenance and welfare provision means that work does not pay for those on Universal Credit. Many of the difficulties associated with the CMS arise from those flawed calculation Regulations.

The problems lie in the structure of the calculation regulations. This is explained and the consequences illustrated. The situation cannot be resolved without primary legislation. Since this will take time, some suggestions are made of actions that could improve the situation in the meantime.

Introduction

1.                I welcome the National Audit Office’s comprehensive and careful value for money report on Child Maintenance, published on 1 March 2022. I note, in particular, its key finding[7] that

‘Affordability issues limit the Department’s ability to collect payments from parents on low incomes and on benefits.’

2.                I also note its recommendation[8] that the Department should

‘assess the affordability and interaction of child maintenance with the welfare system …

• review the child maintenance rates to assess the extent to which they conflict with the aims of Universal Credit of supporting into work and otherwise meet the Department’s objectives
• report to Parliament on whether it believes new legislation is necessary …’

The NAO cannot comment on policy so it is highly unusual, if not unprecedented, for such statements to be made. This is an indication of the seriousness of the issues. My evidence will focus on the above finding and recommendations in relation to the child maintenance regulations.

Background

3.                I became aware of the issues of affordability in 2011, through the case of a particular individual. A young man, a caring and fully committed father, had received a demand from the Child Support Agency (CSA) for a maintenance amount that he could not possibly afford – after paying his mortgage, travel to work costs, rates etc, he would be left with just £30 a month to live on. I gave reassurance, saying there must have been some mistake, he should phone the CSA and all would be sorted out.

However, looking up the Regulations myself, I discovered that there had been no mistake. I won’t recount the young man’s story here, except to mention the Tribunal Judge who said that she understood his situation clearly but that her hands were tied, her job was limited to confirming that the Regulations had been followed. Rather, I remark that that phone call early in 2011 marked the start of a 11-year journey for me, seeking to understand where the problem lay and trying to get something done about it.

I learned that the problem lay in the structure of the Calculation Regulations for the CSA 2003 Scheme and that the same structure has been carried through to the Child Maintenance Service (CMS) 2012 Scheme. This structure means that the Calculation Regulations for the two Schemes are fundamentally flawed[9]. The flaws in the 2012 Scheme mean that child maintenance liabilities are unaffordable for those on low pay. In addition, the interaction between child maintenance and welfare provision means that work does not pay for those on Universal Credit.

I have done my best to draw the Government’s attention to the issues over the years, responding to consultations and inquiries. A notable step forward came in July 2017 with the evidence I had submitted to the Work and Pensions Committee (WPC) Inquiry into the Child Maintenance Service. I understand that its draft report made reference to my evidence but that the necessity (after the calling of a General Election) to publish before the end of the session meant that ‘controversial’ issues were dropped. Nevertheless, in July that year the new Minister asked the Department to investigate my evidence. This had been published along with the WPC Report[10].

In January 2018, the Department[11] acknowledged at a meeting with Families Need Fathers that ‘there is no dispute that there is an issue’, in particular with the interaction between Universal Credit (UC) and Child Maintenance. The Department said we could share that statement but it would be appreciated if we were to add that it was investigating what could be done. The Department has since built up an understanding of the problems, analysed the scale of the problem and investigated possible ways of the resolving the issues. However, no action has been taken so far. The issues cannot be resolved without primary legislation.

Meanwhile the problems continue – parents continue to be asked for amounts that are impossible to pay, are moved to Collect and Pay and charged an extra 20%, and arrears continue to accumulate. Parents can then be subject to enforcement measures and are charged for these. We are told[12] that the CMS now attempt to assess the parent’s ability to pay in scheduling repayment of arrears and in applying enforcement. However, they cannot assess the parent’s ability to pay the initial child maintenance liability since that is laid down by law.

              Stories of some the distressing consequences of the present situation. are included in the NAO Report, although it has excluded those which reveal particularly upsetting personal circumstances.

Important contributions

4.                In 2018 the Centre for Social Justice published a paper The Hidden Poverty Trap: Child maintenance and Universal Credit[13]. This was prompted by my evidence to the WPC Inquiry

5.                In 2019 the Social Security Advisory Committee (SSAC) published their Occasional Paper Separated Parents and the Social Security System[14]. The Report built on the CSJ paper but also looked at the wider aspects of welfare support for parents after family breakdown. It criticized the Government for having no joined-up policy for separated families.

What is wrong with the Child Maintenance Calculations?

6.                The calculation regulations that are used in the CMS 2012 Scheme (and also previously in the CSA 2003 Scheme) are fundamentally flawed. They produce maintenance liabilities are unaffordable for those on low pay. Moreover, the way in which the Schemes interact with social security benefits (UC and tax credits) means that work does not pay.

Details of the 2012 Scheme are given in the Appendix. Table A3 illustrates the interaction problem. For the model used, a parent paying for three children through the Collect and Pay scheme has £4 less when earning £350 a week than when earning £100.

The problems lie in the structure of the calculation scheme

7.                The cause of the problems lies in the structure of the CSA 2003 Scheme and the CMS 2012 Scheme. It might be helpful to explain why this structure is problematic.

Both Schemes calculate the child maintenance liability as a percentage of the earnings of the Paying Parent. The practice in such schemes elsewhere is to set a certain level of income that is deemed appropriate for the basic living costs of the parent (a ‘self-support allowance’) and then to calculate the liability from the income above that amount. This is the approach used for National Insurance Contributions and income tax. They are charged on income above certain thresholds which are reviewed annually.

Unfortunately, this is not what is done with the 2003 and 2012 Schemes. Child Maintenance is calculated as a percentage of the whole income. Since this cannot work at very low incomes, the Schemes include two thresholds[15]. Below the first, parents pay only a nominal amount (the flat rate) and above the second they pay the full amount (the basic rate). Between the two thresholds is a ‘catch-up’ region (the reduced rate) – parents pay a larger percentage of each extra £1 earned so that their payments can increase from the nominal sum at the lower threshold to the full amount by the time the upper threshold is reached.

This is where the difficulty lies. It might be helpful to imagine the same approach being used for Income Tax. The current personal allowance is £12,570 per annum and the basic rate of 20% is charged on income above that amount. The current child maintenance approach is equivalent to saying

• Below £12,570 a worker cannot afford to pay any Income Tax
• Above £25,140 they will earn enough to pay 20% of their whole income
• So between £12,570 and £25,140 we will deduct 40% of each extra £1 that they earn so that they are paying the full amount by the time their income reaches £25,140.

This clearly nonsense.

The same can be said of the child maintenance regulations. They do not make sense.

The threshold values

8.                The two thresholds in the 2003 and 2012 Schemes were introduced with good intent. They were intended to ensure that paying parents kept enough of their income after paying child maintenance to provide for their own basic needs. We have seen that the calculation schemes use a structure that is fundamentally flawed. Nevertheless, there are some useful comments to make on the threshold values.

9.                The thresholds for flat rate and reduced rate payments were assigned the values of £100 and £200 net weekly income in 1998 for what became the 2003 Scheme. For weekly net earnings less than £100, it was deemed that a parent should pay only a nominal sum. The values chosen suggest a certain degree of arbitrariness in the decision making. Nevertheless, it is worth noting that in 1998 the threshold for paying income tax was £4,195 per annum, £80 a week. Parents would pay only a nominal sum until their net income was 25% above the threshold for paying income tax

10.            The National Audit Office comments on the failure to update the measures of low income. The thresholds of £100 and £200 net weekly income were never changed and, moreover, were taken over into the 2012 Scheme. They remain in place today, whilst the income tax threshold is now £12,570 per annum, £241 a week. This could suggest that parents with a net income of less than about £300 a week should not be required to pay more than a nominal sum of child maintenance. Interestingly, the Joseph Rowntree Foundation[16] calculated that, in 2021, a net weekly of £325 was required for a single adult outside London to have an acceptable minimum standard of living.

11.            However, upgrading the threshold values will not resolve the problems with the Child Maintenance system - the structure of the 2012 Scheme itself is fundamentally flawed.

12.            Yes, it makes sense to have a ‘low-income measure’ below which a non-resident parent pays a fixed minimal amount of child maintenance. However, the usual way of dealing with this is to assign a ‘self-support allowance’ and to calculate the child maintenance according to the income above that allowance rather than according to the whole income.

13.            Conclusion and Recommendations

The calculation regulations that are used in the CMS 2012 Scheme[17] are fundamentally flawed. They produce maintenance liabilities are unaffordable for those on low pay. In addition, the interaction between child maintenance and welfare provision means that work does not pay for those on Universal Credit.

Many of the problems associated with the CMS arise from these flawed regulations. Calculated liabilities that are unaffordable cannot be paid, arrears develop and enforcement measures are unproductive. Accumulated CMS arrears continue to grow, currently at a rate of £1m a week. Many of these are deemed to be uncollectable. The situation is unsustainable. Meanwhile, Paying Parents are subject to unacceptable pressure, Receiving Parents are upset at not receiving money to which they believe they are entitled and children suffer from the deteriorating relations between their parents.

These issues cannot be resolved without primary legislation. The research, surveys and analysis carried out by the Department since 2017 will have given it a greater understanding of the situation. The Government needs to develop a coherent policy for dealing with separated parents and create a child maintenance system which is appropriate for the circumstances of the separated parents. This will work to the benefit of both parents and children – conflict between parents should be reduced and children should stand a better chance of growing up with the continued support of both parents.

This will take time to achieve. In the meantime, there may be some steps that could be taken to reduce the damage caused by the current situation:

1.                   Drop the 20% collection charge for parents on Collect and Pay (perhaps for those above a certain income level)

90% of parents start on Direct Pay. However, Paying Parents who do not keep up payments (perhaps because they cannot pay) can be moved to Collect and Pay. They are then charged a collection fee of 20% on top of their maintenance payments. If these were initially unaffordable, this makes it even more so.

See also point 3 below.

2.                Amend CMS Options replacement ‘Get Help Arranging Child Maintenance’

The text in the early leaflets on CMS Options provided for parents was excellent. It explained that an arrangement did not have to be financial – the second parent might, for example, care for the children for some of the time. If the arrangement was financial, it did not have to involve regular payments – the second parent might, for example, pay for specific items such as school uniforms or mobile phone bill. Finally, if the arrangement was for regular payments, it was stressed that the amount decided on should be fair, realistic and above all affordable, taking into account the circumstances of the two parents - only then would the arrangement be sustainable. And, of course, the arrangement could and should be amended as circumstances changed.

Much of this good advice appears to have been lost over the years. Parents needed to phone the Options Helpline but, even before they did that, they were directed to the CMS Maintenance Calculator.

I have serious concerns about the on-line service ‘Get Help Arranging Child Maintenance’ which I understand will replace CMS Options from 1 April 2022. This is designed to be neutral and offers only limited information.

It would be helpful if the CMS could find a way to

• Incorporate the earlier published good advice, stressing the need of affordability for any financial arrangement
• Add a caveat to the link to the CM Calculator, explaining that the amount calculated might not be appropriate in the circumstances of the two parents involved.

3.           Assess affordability for parents on low income

The Calculation Regulations give amounts that are unaffordable for those on low income. The CSA accepted partial payment in such circumstances, on the premise that it was better for the parent with care to receive something rather than nothing. It would be helpful if the CMS did likewise. They should assess a parent’s ability to pay and accept partial payment where appropriate, rather than move the parent to Collect and Pay, with the extra 20% Collection Fee that entails. As was CSA policy, the CMS should not initiate enforcement/arrears collection in such circumstances.

I understand that the CMS do now attempt to assess the parent’s ability to pay in scheduling repayment of arrears and in applying enforcement. However, they cannot assess the parent’s ability to pay the initial child maintenance liability since that is laid down by law.

4.                Change the 25% threshold for reassessment of maintenance

Many parents struggle to pay the assessed child maintenance and a drop in income can make full payment impossible. Parents can only request a reassessment if their income changes by at least 25%. A change of the order of 10 – 12% would be much more reasonable. The CSA used 5%.

The matter came into prominence with the Covid-19 furlough scheme which gave a 20% reduction in income. The DWP[18] investigated changing the threshold to 20%, perhaps as a temporary measure, because of this but no action was taken. Even 20% would have been too high and a reduction should be permanent.

The above suggestions could reduce some of the damage caused by the current situation concerning child maintenance and welfare provision for separated parents. However, they will not resolve the underlying issues.

Government needs to develop a coherent policy for dealing with separated parents and create a child maintenance system which is appropriate for the circumstances of the separated parents.

/

CMD/PAC/09/03/22

Appendix:              The Child Maintenance Service 2012 Scheme

The Child Maintenance Service 2012 Scheme has the same structure as the Child Support Agency 2003 Scheme but uses the gross income of the Paying Parent rather than the net income. Some Paying Parents are on Direct Pay. Those using Collect and Pay are charged a 20% Collection Fee.

Table A1: Maintenance Rates for the 2012 Scheme

Note: The thresholds for flat rate and reduced rate payments were assigned the values of £100 and £200 for what became the 2003 Scheme in 1998. They have not been updated since.

Table A2: Payments on 2012 Scheme for Parents on Collect and Pay

Parents on low income will be entitled to support from Universal Credit (UC) and Council Tax Support (CTS). UC currently has a taper rate of 55%, reduced from 63% in December 2021. CTS is decided locally with 20% being a typical/recommended taper rate. As earnings increase, the decrease in benefits combined with the increase in child maintenance mean that the paying parent gains little, if anything, from the extra pay. Indeed, they may find that they are left with less money than before. Table A3 gives an illustration of this.

Table A3: The interaction of child maintenance with the welfare system

Notes

1.                This table illustrates the impact on parental income of the interaction between the withdrawal of benefits, such as Universal Credit and Council Tax Support, and the payment of Child Maintenance (CM) on the CMS 2012 Scheme. Data has been obtained using the Joseph Rowntree Foundation Minimum Income Calculator[19]. The model is that of a single adult living in social housing outside London.

2.                The situation is worse for parents paying maintenance for more than one child. So it will be helpful to focus on the final column, parents paying for three or more children.

For weekly earnings between £100 and £200 parents pay the reduced rate. We see parents paying for three or more children are ‘worse off’ when earning £200 than when they earned £100. For weekly earnings above £200 these parents pay the basic rate. Their remaining income after paying child maintenance now increases but only by a few pence for every extra £1 earned. By the time that Universal Credit runs out at £350 weekly income, a parent paying Child Maintenance for three children on Direct Pay (DP) would have only about £7 more than when earning £100. If the parent is on Collect and Pay (C+P) they would have about £4 LESS than when earning £100.

3.                The data is for a parent living outside London. For Outer London, Universal Credit would run out when weekly earnings reach £540. For Inner London, Universal Credit would run out when weekly earnings reach £658.

4.                The UC taper rate was reduced from 63% to 55% from 1 December 2021. This decreases the effective marginal tax rates so that, at a particular income level, the parent keeps slightly more of each £1 earned.  However, the earnings level at which Universal Credit reduces to zero increases so that the problems caused by the interaction with child maintenance payments persist longer.

March 2022

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