username

password

DNA LegalCafcass advert1 Garden CourtGarden CourtCoram Chambersimage of 4 Paper Buildings logoHind CourtHarcourt Chamberssite by Zehuti

Home > Articles > 2014 archive

Child Support – What Is Going On?

Jody Atkinson TEP, barrister at St John's Chambers, Bristol, considers the ongoing changes to the Child Support Act system




Jody Atkinson TEP
  barrister at St John's Chambers, Bristol

Last year, I wrote an article for Family Law Week entitled 'Child Support: Here Comes the New Gross Income Scheme', detailing how child support would be assessed under the new gross income scheme, which was being gradually introduced at that time. I described the Child Support Act system as being in a state of 'continuous revolution'. The last year has borne out this description, and the next three years look set to continue to be eventful for those who are involved with child support, whether as advisors, payers or recipients.

This article deals with the following developments:

• The gross income scheme is now fully in force.

• The transfer of existing cases on to the gross income scheme.

• The introduction of application and collection fees.

However, before we get on to the big issues, the last article began with a discussion of the CSA's latest name change, and it would be wrong to pass over further developments in that area. To recap, as part of the reforms brought in by the Child Maintenance and Other Payments Act 2008, a new independent corporate body called the Child Maintenance and Enforcement Commission ('CMEC') was set up. This took over responsibility for running the statutory child support scheme from the Secretary of State (i.e. the CSA) from 1 November 2008. Quite what the Government hoped to achieve by this move was never entirely clear. However, whatever it was, it did not happen. On 31 July 2012, CMEC was abolished, and the responsibility went back to the Secretary of State (in the guise of the Child Support Agency)1.  This had no effect whatsoever on any cases that were ongoing. Indeed, users of the service may have been blissfully unaware of all these changes, as throughout the CMEC period, the CMEC continued to refer to itself as the Child Support Agency in its letters to service users, explaining that this was its 'operating name'.

Unfortunately, no lessons have been learnt, and a new exercise in rebranding is well underway. Cases that are allocated to the new gross income scheme are described as being dealt with by the Child Maintenance Service ('CMS'), as opposed to the Child Support Agency ('CSA'). This appears to me to be a meaningless distinction. In reality the new cases are certainly being dealt with by the same officials at the Department for Work and Pensions who deal with the old cases (all 7,400 of them). One suspects this is all because the CSA has a bad reputation and this're-branding' allows somewhat misleading statements to be made about the CSA being closed.2 

In order to avoid confusion, and because I suspect that the Child Maintenance Service label (like the CMEC label before it) will not stick, I will refer to the body responsible for administering the statutory child support services as the CSA. In a strict legal sense all decisions are made by the Secretary of State for Work and Pensions. However, in reality all decisions are made by civil servants at the CSA.


Gross Income Scheme in Force for All New Applicants
Another potent source of confusion is that three child support schemes are currently in operation. Each scheme represents a complete regulatory code. It is not just the basic formula for calculating maintenance that changes; the regulations that determine how income is to be calculated and the procedures for making decisions are completely different under each scheme.

The original scheme that was introduced when the Child Support Act was brought into force on 5 April 1993 is variously referred to as the 'old rules' and the '1993 scheme'. The formula for assessing the level of child support was highly complex, requiring several pages of calculation. It took into account the income of both parents, and their partners, and also the parents' housing costs, as well as making assumptions about the amounts required to support the parents and the children based on the level of welfare benefit payments. It was a heroic attempt by the draftsman to produce a formula that would logically take into account all of the circumstances of the case and result in a level of payments that was fair to all the parties. Unfortunately, in practice it was confusing and unworkable. It required the CSA to gather a large amount of information before they could assess liability. Parents, or their advisors, were unlikely to be able to work out a figure between themselves based on the old rules formula because it was simply too complicated.

All new applications after 3 March 2003 were allocated to the second scheme. As a result this is sometimes called the '2003 scheme'; I will refer to it as the 'net income scheme'. Originally, the Government planned to transfer all of the old rules cases onto the net income scheme but this never happened. Consequently, there are still some old rules cases in the system. However, these are now a dying breed as the children concerned grow up. Most are 'arrears only' cases.

The net income scheme greatly simplified the basic formula. Indeed most family lawyers now know it off by heart. The basic formula is that the non resident (paying) parent pays 15, 20 or 25 % of their net income (take home pay) to the person with care of the qualifying children, depending on whether there are one, two or three or more children. Significantly, no account is taken of the person with care's income whatsoever. A millionaire who is the person with care of a qualifying child is still entitled to the same slice of the non resident parent's income as child support, even if he is on the minimum wage. Nor is any account taken of the income of either of the parties' partners or spouses.

The Government is currently bringing a new scheme into effect, which I described in detail in my last article. I will call this the gross income scheme; it is also known as the '2008 Scheme' (because this is when the Government originally said it was going to come into force) or the '2012 Scheme' (because this is when it actually did come into force, but only for a limited class of new applicants).

The primary change implemented by the gross income scheme is that the basic formula is now based on the non resident (paying) parent's gross (pre tax) income. Due to the incidence of higher rate taxation, the formula is not as simple or memorable as the net income formula. For gross income of under £800 per week the non resident parent pays 12, 16 or 19 % of their gross pay to the person with care of the qualifying children as child support, depending on whether there are one, two or three or more children. For gross income from £800 up to the cap of £3,000 the liability is 9, 12, or 15 %. Generally, this will produce a broadly similar figure to the liability under the net income scheme. However, the intention is that there should be a small increase and the government estimates that 50% of cases would see an increase of at least £5 per week if transitioned onto the gross income scheme.3

There are a great many more changes between the gross and the net income scheme than just this alteration to the formula. The whole way that income is assessed has been completely altered, and there have been substantial changes to 'variation' applications. There is more about this in my previous article, and the operation of both schemes is fully described and contrasted in the upcoming section on the Child Support Act in Wildblood on Financial Provision in Family Matters that I have written.

Unlike the 'big bang' approach when the net income scheme came into force, the Government initially adopted what it called a 'pathfinder' approach, with a selected class of new applicants' cases being allocated to the gross income scheme and the remainder of new cases being allocated to the net income scheme. The path has now been found, and all new cases are now assigned to the gross income scheme.

The first to be allocated to the gross income scheme were new applicants on or after 10th December 2012, where there was no existing case with the CSA, and where there were four or more children with the same person with care and non-resident parent. This was obviously a very small minority of new applicants.4

From 29 July 2013 the criteria were widened, and all new applicants where there was no existing case with the CSA and two or more children were allocated to the gross income scheme.5

The gross income scheme is now fully in force and all new applications for maintenance calculations from 25 November 2013 will now be allocated to the gross income scheme.6 


Transition from the Net Income to the Gross Income Scheme: Gradual Closure Over of all Net Income Scheme Cases the Next Three Years
Existing net income (and old rules) cases will continue to be administered under their present schemes for the time being.

However, (in contrast to the position when the net income scheme was introduced), the government plans to close all net income and old rules cases by the end of 2017. They have stated that they intend to do this by closing the existing net income and old scheme cases in tranches. There is no plan for an automatic transition to the gross income scheme; parents who wish to continue using the CSA will have to re-apply. They will then become gross income cases, and the new application fee and collection charges will apply to them (see below).7 

The exception to this closure policy is cases where the youngest qualifying child will be 20 years old before 31 December 2017. These cases will not be closed, but will instead be allowed to run their course under their present scheme until they end due to natural causes: the child growing up.8

The Government has announced that the parties in existing net income and old rules cases will be given 6 to 9 months' notice that their cases are being closed.

The idea is that this will give the parties enough time to re-apply and go onto the gross scheme should they wish to do so. The Government has indicated that those who re-apply will have to go through the 'Child Maintenance Options' process, which encourages parents to reach a voluntary arrangement between themselves if possible. Where this does not produce a voluntary arrangement, and the parties re-apply in good time, there should not be a gap in liability. The initial gross income scheme maintenance calculation will be given an effective date of the day after the net income scheme calculation ceases to have effect.9 

The Government has stated that it plans to send out notices closing existing cases in the following order: first to cases where there is nil liability (160,000 cases); second to cases where the non resident parent is not paying, but there is no enforcement action taking place (140,000 cases); third to cases where the non resident parent is paying (460,000 cases); and fourth and finally, to 'enforcement cases' (130,000 cases). Enforcement cases are cases where there is a deduction from earnings order or regular deductions order currently in place, or where enforcement action is currently in progress (for example by way of a liability order). 

The closure process will be accelerated where a new application is made which is 'related' to an existing net income scheme case. This will happen where a new application is made in respect of a person, who is already the non resident parent with respect to a different child and different person with care. So, for example, Dave has a child with his ex partner Emma, for whom he has been paying maintenance through the net income scheme. Dave splits up with his current partner Kate, by whom he has another child. Kate makes an application for maintenance (which will be assigned to the gross income scheme); this will lead to Emma's case being closed early. The Government has indicated that in these cases the person with care under the existing net income scheme claim will be given only 30 days notice that their case will be closed, and that they will then have to re-apply under the gross income scheme. It seems unlikely that the CSA will be able to turn around a new application within 30 days, so this seems likely to produce problems (given the CSA's own target for clearing a case is 12 weeks).10


Introduction of Fees
The Government has published draft regulations which will introduce three kinds of fees to the Child Support Act: an application fee, a collection fee and enforcement fees. Of these, the application fee has achieved the most coverage, but it is the collection fee that will be far more important in practice.11 


The Application Fee
The application fee will be a £20 charge payable by the applicant (who will usually be the person with care) for a maintenance calculation.  Initially, the Government wanted the fee set at £100, but was persuaded to lower it by sustained lobbying. The fee is part of a drive to discourage parents from making applications to the CSA, rather than reaching their own voluntary arrangements. The Government has been refreshingly open about this, with Steve Webb MP stating, 'If it were free the danger is that all 1 million cases, or the best part of them, would simply go straight from one system to another and we would be exactly where we started. The £20 fee is a stop and think fee...'

As I said, applicants are also referred to the 'Child Support Options' website and helpline, which is designed to help them reach a voluntary arrangement with the other parent where possible (there is even an 'app' apparently). Their application will only be allowed to proceed once they have considered having a voluntary arrangement.

The application fee is not payable by applicants who are under 19, or who are victims of domestic violence or abuse. In order to qualify as a victim of domestic violence the applicant must have reported the domestic violence to an appropriate person and must make a declaration at the time of the application that they are a victim of domestic abuse or violence (which the CSA may require to be in a written form).12 


Collection Fees

The proposed collection fees will have a much greater impact on parents than the application fee, because they are continuing charges on maintenance collected by the CSA, rather than a one off fee.

The idea is to discourage parents from using the CSA collection service by a 'plague on both your houses' approach.

When the collection fees are introduced, and they will only be introduced for parties on the gross income scheme, the Government has stated that they intend to charge non resident parents a 20% collection fee on top of the weekly amount of child maintenance that the non resident parent is liable to pay, if (and only if) the CSA collection service is used. A non resident parent with a gross income of £10,400 and 3 qualifying children will have a maintenance liability of £38 per week, or £1,976 per year. If they are subject to collection charges they will have to pay an additional £7.60 per week, or an additional £395.20 per year.

The person with care will be charged a 4% collection fee on any child support collected through the CSA. So, the person with care in the example above would receive only £36.48 maintenance after the collection fee was deducted, rather than the full £38, and would effectively be paying £79 per year to have her maintenance collected by the CSA.13

Parties, in particular non resident parents, will be keen to know how the collection fees can be avoided. There will be no collection fees at all if the maintenance payments are made directly from one parent to another, even though there is a maintenance calculation in force (i.e. it is not a voluntary arrangement). The CSA calls arrangements where the payments are made directly from one parent to each other 'maintenance direct' or 'direct pay'.

Those on the gross income scheme will have to pay collection fees, when they come into force, where the CSA collects child maintenance and those payments are transmitted through the CSA. This situation is referred to by the CSA as using the 'collection service' or 'collect and pay'.

It is important to appreciate that an applicant for a maintenance calculation does not have to apply for the CSA to collect the maintenance due at the same time. The decisions to apply for the CSA to collect maintenance, and for the CSA to enforce maintenance, are both separate matters to the decision to apply for a maintenance calculation. So parties who only want the CSA to work out how much maintenance should be paid, and give them a maintenance calculation, will only have to pay the £20 application fee. This could be worthwhile, because, with direct access to HRMC figures, the CSA will be able to tell them how much their former partner has been earning.

Subsequent to the CSA having made a maintenance calculation, either the person with care or the non resident parent can ask the CSA to start collecting maintenance or to enforce the obligation to pay maintenance in accordance with the calculation.14

Even where a party asks for the CSA to collect maintenance due under a maintenance calculation, the CSA still has discretion to specify whether the payment will go through the CSA or direct to the person with care, as well as what method of payment the non resident parent should use. The CSA has a duty to listen to the representations of the parties before making this decision, but historically, if either party wanted to pay through the CSA, this request was likely to be granted (e.g. non resident parents sometimes wanted to pay through the CSA to avoid disputes about whether maintenance had been paid or not).

This power will have more significance when the collection fee scheme system is in force. The CSA may still specify that payments should be made direct to the person with care, even where the person with care has asked the CSA to collect maintenance for them. The Government has announced that it plans to use this power to give non resident parents who are currently subject to enforcement (e.g. a deductions from earnings order) the opportunity to demonstrate that they can comply with a payment plan, and thus have a 'direct pay' arrangement and avoid the 20% collection fees when their case migrates across to the gross income scheme (on the assumption the person with care will reapply), during the 6 months prior to their net income scheme case being closed. This power should enable the CSA to prevent the collection fees being used as a weapon, since without it a vindictive person with care could theoretically insist that the CSA collects, even in a case where it was unjustified, knowing that it would hurt the non resident parent five times more (20%) than it hurt them (4%).15

It is important to be aware that the CSA does not monitor the collection of maintenance at all where a 'direct pay' arrangement is in place. Therefore, the CSA will not automatically enforce maintenance arrears when the parties use 'direct pay' and the non resident parent stops paying, because they will not know that this has happened. When the person with care tells them about the arrears, the CSA will first insist that the case is shifted on to the 'collection service' (and thus that collection fees begin to accrue), before they take any enforcement action. This is the only course of action open to the person with care, because there is no way for the person with care to enforce any arrears due under a maintenance calculation themselves at all. Only the CSA have the legal standing to enforce sums owing under a maintenance calculation.16  


Enforcement Fees
The Government has also announced that it intends to levy an additional penalty payment where the CSA decides to take enforcement action against a non resident parent. These 'enforcement fees' will not go to the person with care, but instead will go into the consolidated fund, as with a fine for a criminal offence. The proposed enforcement fees are: £50 for a deductions from earnings order, £50 for a regular deductions order, £200 for a lump sum deduction order, and £300 for making an application for a liability order.17 

A similar power to levy penalty payments has been in place for many years, but was rarely used. Previously, the CSA concluded that just increasing the size of the arrears frequently served to dishearten non resident parents, and was often counterproductive. The CSA did not like it either because if the enforcement action failed to get the arrears in, the penalty payments drove up the uncollected arrears figures! As a result that power fell into disuse, but the lessons seem to have been forgotten already. As presently drafted, it will not benefit any children, as the enforcement fee money will be retained by the CSA.  


Conclusions
The legislation regarding fees and the closure of the existing net income scheme cases is still only in draft form and has yet to be finally approved by Parliament. There has been some strong criticism. The point has been made that it is not fair to charge persons with care a 4% collection charge, when the fact that the maintenance is not being collected is entirely the fault of the non resident parent. However, the Government has been absolutely resolute in its determination to bring these reforms into force, and it seems very likely that they will be, because it is an important part of meeting the Department for Work and Pensions' austerity targets. As the Minister, Mr Webb, explained:

'We estimate, very roughly, that the total amount of child maintenance gathered, which is a bit over £1 billion a year, divided by the costs of running the agency, which is about £400 million, shows that it costs 35p for every pound of maintenance we collect... The charge we will make on the parent with care is 4p, so we could say that 4p of the 35p comes from the parent with care, 20p comes from the non resident parent and the rest comes from general taxation. We are charging a tiny fraction of the true cost of running the scheme.'

That may well be true, but it is never popular when charges are imposed for something that was previously 'free'. Furthermore, as Kate Green MP, one of those who has criticised the introduction of fees, observed: 'The reasons why parents with care enter statutory schemes are not trivial, and we should be cautious about deterring them from doing so.'


12/03/14

Jody Atkinson TEP
  barrister at St John's Chambers, Bristol. He is part of both the Family and Chancery departments. He specialises in advising and representing clients in all kinds of family finance disputes: divorce/ancillary relief and cohabitation/trusts cases as well as probate and Inheritance Act disputes. He is ranked in the Family/Matrimonial section of Chambers 2013, which comments that he is 'outstanding in child support cases'. He is available for direct access work. 

________________________________________

1 The Public Bodies (Child Maintenance and Enforcement Commission: Abolition and Transfer of Functions) Order 2012.
2 Number of staff and all subsequent statistics from Child Support Agency Quarterly Summary of Statistics for Great Britain: September 2013 (DWP)
3 Mr Webb MP, Minister of State, Department for Work and Pensions in comments to the House of Commons Delegated Legislation Committee on 3 February 2014 in debate on the Draft Child Support Fees Regulations.
4 The Child Maintenance and Other Payments Act 2008 (Commencement No 10 and Transitional Provisions) Order 2012 (SI 2012/3042)
5 Child Maintenance and Other Payments Act 2008 (Commencement No 11 and Transitional Provisions) Order 2013.
6 Child Maintenance and Other Payments Act 2008 (Commencement No 12 and Savings Provisions) and the Welfare Reform Act 2012 (Commencement No 15) Order 2013 (SI 2013/2947).
7 The draft Child Support (Ending Liability in Existing Cases and Transition to New Calculation Rules) Regulations 2014.
8 R. 8 Child Support (Ending Liability in Existing Cases and Transition to New Calculation Rules) Regulations 2014.
9 R. 6 Child Support (Ending Liability in Existing Cases and Transition to New Calculation Rules) Regulations 2014.
10 R. 4 Child Support (Ending Liability in Existing Cases and Transition to New Calculation Rules) Regulations 2014.
11 Draft Child Support Fees Regulations 2014.
12 The Secretary of State has published guidance on the definition of domestic violence and abuse that will be applied; it is a wide one and includes controlling or coercive behaviour, as well as outright physical violence. This guidance also contains the list of appropriate persons to whom the applicant must have reported the domestic abuse: see Guidance on regulation 4(3) of the Child Support Fees Regulations 2014: List of persons to whom an applicant must have reported domestic or abuse (2013, DWP).
13 R. 7 Child Support Fees Regulations 2014 (Draft).
14 S. 4(2) Child Support Act 1991. Note that applications which were made on behalf of parents who claimed benefits under the now repealed s. 6 automatically included collection and enforcement. 
15 R. 2(1)(a) Child Support (Collection and Enforcement) Regulations 1992 (1992/1989). 
16 R (on the application of Kehoe) v Secretary of State for Work and Pensions [2005] UKHL 48, [2006] 1 AC 42
17 Rr. 9 – 12  Draft Child Support Fees Regulation 2014, there will be certain exceptions for deduction from earnings orders in specific circumstances (eg. servicemen), and the fees will be refunded if the enforcement action is overturned by the courts.