HC Deb 26 October 1998 vol 318 cc129-34

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Betts.]

10.13 pm
Mr. Tony McNulty (Harrow, East)

I am grateful to have the opportunity in this short Adjournment debate to raise the problem of the Child Support Agency and self-employed absent parents. I want briefly to discuss many general concerns that I and many others have about the way in which the CSA treats such parents and to refer to a specific case in my constituency, the details of which I gave my hon. Friend the Minister in advance.

I want to make two introductory points. First, I have no animosity towards the self-employed sector and would deprecate any attempt to suggest otherwise. My brother is self-employed, as was my father before he retired, and so are many of my friends. Secondly, it is in some ways a matter of profound regret that I must refer to the case of my constituent, Theresa West, not least because it was the subject of an Adjournment debate introduced by my predecessor, Mr. Hugh Dykes, on 31 January 1994—four years ago. I also note with interest that, after I was notified on 14 October of my success in securing this Adjournment debate, the first question to the Secretary of State for Social Security on Monday 19 October concerned precisely this subject matter: the CSA and the self-employed. I welcomed the response from my right hon. Friend the Secretary of State regarding that matter.

I turn briefly to the case of Theresa West. Theresa sought a maintenance variation order in 1993 and the CSA rather than the courts took on the case. I hasten to add that that was not of Theresa's choosing; she would rather have seen the matter stay with the courts. She had accepted £300 a month maintenance for her two children following her divorce in 1986. The CSA took nine months to determine an assessment and reduced her agreed maintenance to £200 a month. She naturally appealed against that assessment. While awaiting the outcome of the section 18 review, changes in the law meant a reassessment of her maintenance, which was reduced to £100 a month.

The overall review was completed by March 1994 and, as a result, Theresa's payments were reduced to nothing and she was ordered to repay overpayments. That assessment was based on her ex-husband's claim that his salary was only £14,393—a claim that the CSA happily accepted. However, Theresa knew differently. Theresa's ex-husband is a self-employed record producer of international repute. In 1993, he purchased a house worth more than £300,000 and stated clearly on his mortgage application to the Queen's bank, Coutts, that his joint income with his new wife was almost £200,000 a year—at the same time, he had declared his income as £14,000 to the CSA. He also explained that he could easily access and repatriate overseas funds to the value of £160,000. He owned a Porsche, two BMWs, his two children from his second marriage attended private schools and he employed a cleaner and a gardener. He also paid himself a £28,800 dividend through his own company—but forgot to tell the CSA about it.

We have this information only because Theresa would not accept that her ex-husband's bank had, in its words, "lost" his mortgage application. With perseverance and temerity, she obtained a copy of the application from the bank. To achieve that, she had to involve the Serious Fraud Office and the fraud manager of Coutts. At the tribunal hearing in July 1996—this is regarding the 1993 assessment—the CSA revised her assessment from nothing to £1,250 a month.

Her ex-husband appealed to the child support commissioner, who reported his determination on the July 1996 hearing of the 1993 assessment in August 1998. The ex-husband's appeal was refused and, in outlining the reasons, the commissioner stated: it appears to me that their"— that is, the tribunal's— express finding that the applicant had over a long period failed to disclose the true level of his income was justified having regard to the evidence before them. I remind hon. Members that that evidence existed only because of Theresa's own work, and not that of the CSA. The commissioner continued: In particular, the admitted and inadequately explained failure to disclose his £28,800 dividend from his company, the failure to disclose any overseas earnings or income at all through his tax return … and the inability to give any satisfactory information about the level of overseas or other income justifies the tribunal's decision.

Mr. Bill O'Brien (Normanton)

In the scenario that my hon. Friend describes, was the Inland Revenue contacted? Its records should be available to the CSA too.

Mr. McNulty

They should be, but they are not; and when they are, the CSA constantly says that it is beyond its discretion to go beyond what each party gives it.

Therefore, five years after the CSA became involved, a final assessment of the 1993 maintenance level was arrived at—in 1998. The process of getting to that point involved a suitcase of paperwork, thousands of work hours by the CSA, the appeals tribunal, the child support commissioner and legal staff, seven tribunal hearings, three High Court subpoenas, the cost of legal aid for counsel's opinion and a written determination by the commissioner—all simply for the 1993 maintenance assessment.

Theresa made numerous requests to the CSA for the collection of the arrears for 1993–94—a total of more than £10,000—but the CSA refused to pursue that because of her ex-husband's appeal to the child support commissioner.

In 1996, the CSA requested information to complete the periodic review for 1994. The 1994 assessment reduced the maintenance to £380 a month, largely because Theresa's ex-husband claimed that his income for that year was only £34,000—a drop of more than £150,000 from the now accepted level of the previous year. However, although the CSA recognised that this was unusual, it said that, without her ex-husband's co-operation in producing additional evidence, it was bound to accept his accounts.

Again, Theresa asked for a section 18 appeal, reminding the CSA that evidence already produced to the July 1996 tribunal showed that her ex-husband's projected income for 1994 was between £190,000 and £230,000. The result of that appeal was that the £380 a month assessment was confirmed, as although the appeal tribunal directed that her ex-husband's liability be calculated on the basis of the projected income figure, the CSA said that it did not have the discretion to use the projected figure as verified income. Sadly, there was no mortgage application or similar document that could be used to find out his real income level.

By October 1998—let us bear in mind that this process started at the inception of the CSA, in 1993—the picture is that Theresa's ex-husband is to pay almost £800 a month regular maintenance and £413 a month toward arrears. You might think that justice was served at last. The sting in the tail, though, is that the CSA is dealing with an outstanding periodic review of the assessment of maintenance from October 1996 and a further review of the period up to October 1998—and has said that it has no discretion to use projected income figures as verification. It says, therefore, that it is likely that"— the ex-husband's— liability will reduce. It would seem that the projected income is appropriate for the child support commissioner and adequate for the Queen's bank to advance a £250,000 mortgage, but not enough for the CSA to put food on a child's table.

Theresa's ex-husband is now claiming that his income is again around £14,000—despite the fact that he now has a third child in private education and that there is documentary proof that his mortgage payments alone total £28,500 a year. If the CSA used that figure for the two outstanding periodic reviews, the assessment of maintenance would be reduced to about £40 a month and he would be able to argue, on the basis of the assessment, that he is unable to pay any of the arrears, which now total more than £30,000.

This is indeed a sorry tale, and one that is not yet complete. It shows vividly how the CSA has not been adequately equipped to deal with the complexities of dealing with absent parents who are self-employed and who, in some cases, to say the least are unto-operative, if not downright misleading in a wilful fashion.

As I have said, I welcome the Secretary of State's response at Social Security questions on Monday 19 October 1998, when he said that a special unit had been established within the CSA to deal with self-employed people. I welcome the overall approach of the Green Paper "Children First: a new approach to child support" and many of its suggestions for the future.

However, so that we may ensure that the self-employed are dealt with fairly and efficiently by the CSA—in a way that is fair to the continuing parent as well as the absent parent—I should like the Under-Secretary of State for Social Security, my hon. Friend the Member for Wallasey (Angela Eagle), and the Secretary of State to consider areas such as the following, some of which are in the Green Paper.

First, I should like Ministers to consider the use of projected income as well as the most recent year's taxable profit in maintenance assessments, and all reviews should be based on verified and complete accounts. Secondly, as my hon. Friend the Member for Normanton (Mr. O'Brien) said, the Inland Revenue should be fully used—it does not always happen—to verify income levels claimed by the self-employed absent parent, including, crucially, overseas income and resources.

Interest and compensation could be paid on overdue payments or arrears when determined. There could be a proper system of enforcement and collection of arrears, once initially determined, instead of the present constant to-ing and fro-ing round assorted areas of the legal or quasi-judicial system.

As the Green Paper says, there should be a firmed-up commitment that the giving of false or misleading information will be made an offence. I would go further and say that, where it has been proved that misinformation has been used, specifically in the case of the absent self-employed parent, the presumption should automatically then be based on projected income. Projected income is more often than not appropriate, and is used in normal commercial dealings; it is appropriate in other ways, and should be for the CSA as well.

If such a package is used, it will shift the burden of proving ability to pay fair maintenance on to the self-employed absent parent and eradicate the perverse incentives that litter the current system, especially for the self-employed. At present, it is in the interest of absent self-employed parents to play the system, avoid declaring real income and fail in their duties and responsibilities to their children. This package of measures, specifically geared towards the self-employed, is in tune with the spirit and ethos of the new Green Paper.

I formally request that the outstanding elements of Theresa's case are referred to and dealt with swiftly by the new CSA special unit on the self-employed. Clearly, that may not elicit an answer this evening. What my constituent has had to endure cannot be right or fair. The behaviour of her ex-husband has been deplorable. It is only her tenacity in the face of his mendacious behaviour that has meant progress for her case and ultimately for her children's welfare.

Five years after my constituent's dealings with the CSA began, the case still grinds on. That is not the fair, efficient and firmly enforced system of child support that our people need and that we seek. Currently, the CSA cannot adequately deal with the problem. I ask sincerely that, as part of our review, we sort out once and for all the way in which absent self-employed parents are dealt with.

It is a matter of profound regret that my constituent has had to endure this nightmare, but I know that she will agree that it will be made slightly more tolerable if lessons are learned from her case, and the scams, tricks and strokes pulled by some malevolent absent self-employed parents and their coteries of lawyers and accountants are curtailed because of her experiences. Sooner rather than later the welfare of the children must become paramount again.

10.25 pm
The Parliamentary Under-Secretary of State for Social Security (Angela Eagle)

I congratulate my hon. Friend the Member for Harrow, East (Mr. McNulty) on having the good fortune to secure this debate, which he has used to great effect. He has drawn the House's attention to an important issue: how to get adequate child support from self-employed non-resident parents. The case that he mentioned shows up in stark relief many of the failures of the current system, which has often let parents down. However, we must remember that the self-employed present some of the most difficult cases with which we have to deal.

Because we guarantee confidentiality when we take on an application for child support, I cannot go into the details of Mrs. West's case on the Floor of the House tonight, although I will of course be happy to meet my hon. Friend to discuss more privately the handling of Mrs. West's maintenance assessment. Tonight, I shall address some of the key matters of concern to my hon. Friend. Before I do so, it may be helpful if I briefly set the problem in the context of the Government's reforms of the welfare state, as my hon. Friend did.

We are determined to reshape the welfare state to meet the needs of the future. The proposals set out in our Green Paper on child support are one part of those reforms. Child support has a key part to play in our determination to tackle child poverty: 1.8 million children are living with a lone parent on income support or family credit and receive not a penny in maintenance from the non-resident parent. It cannot be right that the separation of parents takes away their responsibility to support their children financially and emotionally. A child support system that works with parents to enable them to provide the support that their children need can help many to escape poverty and dependence on benefit.

That is why we are seeking to renew the way in which child support is delivered. Our Green Paper sets out how we intend to address the many problems of the current scheme. The on-going consultation is open and is due to end on 30 November. We must create a child support system that is practical to administer, enjoys the support of our society and delivers effective help to children and parents with care. I shall take on board my hon. Friend's comments and suggestions for dealing with the self-employed, which I shall regard as part of the consultation procedure.

Child support liability is, sensibly, based on the amount that a parent can afford. That means that there will always be the problem of determining how much money a parent has available. The case that my hon. Friend mentioned appears to be a particularly severe example of the problem, with the child support liability varying widely according to differing accounts of the non-resident parent's income.

We all accept that the rules of the current scheme are far too complicated to be workable. In the case of many self-employed non-resident parents, the current system is also too easily manipulated by those who wish to minimise their liabilities. We shall try to simplify the system to minimise any chance of abuse, and we have proposed introducing penalties for those who lie about the money that is available to them in any income-based assessment. However, there are real difficulties with the self-employed, and changes in the child support rules, although they help, cannot entirely overcome them. In other words, the self-employed were always the most difficult cases to assess when the courts were responsible for child maintenance, and after the creation of the Child Support Agency that unfortunately did not change.

In order to establish the income available to pay maintenance, we cannot simply ask the self-employed for wage slips, as we can with most employees. Indeed, simply providing proper accounts is often difficult for many small traders. There are undoubtedly some self-employed people who will always seek to minimise their declared income. Those people present difficulties to all agencies charged with collecting money, including the Inland Revenue.

This is not a new problem or a problem particular to child support. However, it is worth bearing in mind the fact that one in five self-employed non-resident parents pay all the maintenance that is due. That means that 80 per cent. do not, so clearly we must try to create a more effective system.

The means available to the CSA to pursue queries over income declarations are not adequate. Steps have been taken to address that problem. A task force set up to deal with self-employed cases has been successfully piloted. Specialist teams have focused on working with the self-employed to encourage them to comply. This approach has proved very successful in the pilots, with substantial reductions in clearance times and significant improvements in compliance. These special units will therefore be implemented nationally by 1 March 1999.

We are also looking to see whether we can make any improvements to current legislation to widen the access that the CSA has to essential information collected by other agencies. That is something that my hon. Friend emphasised.

Experience has shown that tribunals are able to look at the earnings of the self-employed more in the round. They have reached assessments based on evidence that cannot currently be used by child support officers. Occasionally, tribunals have used their powers to summon witnesses, another avenue not available to the CSA.

As part of our reform of the child support scheme, we are seeking to build on the provisions that allow us to depart from the usual formula assessment. That would enable us to make greater use of the tribunals' broader scope. This scheme can allow a parent with care to apply for what is called a departure from the actual maintenance assessment on the basis that the level of income declared by the non-resident parent is inconsistent with his life style.

We are examining the possibility of making changes to the treatment of self-employed earners. We are considering a method of calculation that is more aligned with Inland Revenue provisions. In that way, non-resident parents could give the same information to the CSA that they give to the Inland Revenue.

That would make things much easier for parents, encouraging compliance as well as speeding up assessments. It would reduce the possibility of unscrupulous non-resident parents hiding the true level of their income, to the detriment of their children. Simplification of the rules would allow officials to spend more time enforcing maintenance and less time trying to work out the assessment.

Child support offers a real route out of poverty for many lone-parent families and particularly for children, many of whom currently live in needlessly difficult circumstances. To make child support work, we will ensure that we close the many loopholes that allow some parents to escape their responsibilities. We will make sure that the self-employed cannot hide from their duties to their children behind false accounts and administrative confusion.

This is why we have made the reform of child support a feature of our welfare reforms, and why we are pressing ahead in the meantime with the short-term improvements that I have outlined tonight, which I hope will begin to address the problems that have been raised by my hon. Friend.

Question put and agreed to.

Adjourned accordingly at twenty-seven minutes to Eleven o'clock.