Schedule 4
Child Maintenance and Other Payments
12:30 pm

Andrew Selous (Shadow Minister, Work & Pensions; South West Bedfordshire, Conservative)

I beg to move amendment No. 115, in schedule 4, page 63, line 6, leave out paragraph 2.

Schedule 4 is really what clause 16 is all about. Although we have had considerable debate on clause 16, it is only two lines long. Schedule 4, to which it refers, is the real meat of our discussions and gives effect to the important changes that we have been debating within the last group.

Amendment No. 115 is a probing amendment. I do not want to remove paragraph 2 from the Bill, but I want to use this opportunity to put a number of questions to the Minister about whether the move from net to gross income and the other measures in schedule 4 will achieve greater simplicity and operational efficiencies.

One of the big changes that schedule 4 gives effect to is the use of HMRC data from the latest tax year for which HMRC has details, which is a sensible move. However, as has been brought out in the previous debate, much will depend on the sources of information within HMRC to which CMEC has access and how that information will be accessed. It is worth noting the number of different IT systems within HMRC, all of which will have to work well and communicate seamlessly with CMEC, as I believe happens in Australia where there is a direct data link with the Australian transport agency. The Minister knows that Australia is one of my favourite countries when we discuss child support. Perhaps the Minister will tell us what he and his officials have learned that he thinks will be of use with regard to data sharing and direct computer links between HMRC and CMEC.

On those different IT systems, it is worth putting on the record that there are different systems within HMRC for dealing with self-assessment cases, pay-as-you-earn, repayment of taxes owed, national insurance and tax credits, of which I will have more to say later in our discussions.

Questions arise from the combination of earnings from self-employment and from employment. How will that work? What will happen when someone has more than one job on which they pay tax through PAYE? HMRC does not routinely link PAYE records in cases where a person has one or more jobs simultaneously. HMRC collects information on employment-related benefits that form part of gross income, but, again, that is collected from employers through a different process from PAYE.

Tim Boswell (Daventry, Conservative)

Will my hon. Friend give consideration to circumstances that may still apply—although there are rules to deter the practice—for individuals who park their income into a corporate structure that may not actually be recorded as their personal structure, although it may be available to them?

Andrew Selous (Shadow Minister, Work & Pensions; South West Bedfordshire, Conservative)

My hon. Friend is absolutely right to raise that point, but I think that you would rule me out of order, Mr. Chope, if I went into a detailed discussion of it now. In future sittings, the Committee will discuss a series of amendments that address those issues. However, as ever, my hon. Friend is absolutely right, and he has yet again put his finger on a key issue  that we must get right, namely the ability of some non-resident parents to structure their affairs in a way that may be perfectly legal as far as the tax authorities are concerned, but is frankly morally wrong, and should, in my view, be legally wrong when it concerns the avoidance of maintenance payments to children who need them and are entitled to them.

Returning to the IT challenges that will face both HMRC and CMEC, paragraph 4.9 of child support White Paper, which was published in December 2006, states:

“Discussions between the Department for Work and Pensions and HM Revenue & Customs about the precise configuration of the data gateways to support the necessary movement of information to C-MEC are under way.”

Can the Minister give us an update on those discussions? I appreciate that due to commercial confidentiality there are limits to what he can say, but it is important to get it right. It is also important that members of the Committee are fully briefed as to the Minister’s intentions and what work has been undertaken in this area so far.

Amendment No. 115 touches on issues regarding what the rules will be as far as HMRC is concerned, and the sharing of income information from a non-resident parent with the parent with care. At the moment, HMRC quite properly has a duty of confidentiality to all taxpayers. Will that be the case going forward with its new role where the parent with care is concerned? It is a perfectly legitimate argument to say that the parent with care has an interest in having information about the non-resident parent’s income. That is particularly true given that the standard line at the moment from the CSA to parents with care in cases of suspected under-declaration of income to reduce maintenance is, “Go and find it out yourself. Be your own private detective.” Those are the sorts of conversations—perhaps not those exact words, but along those lines—that the CSA has with our constituents. Those issues are important and need to be teased out.

If I may make my final comments on the amendment. I recently met officials from EDS, a company that will be familiar to the Minister, as it is on the verge of being a wholly owned subsidiary of the Department—there is certainly a close working relationship between them, although there is nothing necessarily wrong with that. Some 3,000 of its staff work for the Department. In a recent letter to me, EDS said that

“until the Bill has received Royal Assent and the commission is established, it is unclear what system will be needed and who therefore might choose to bid for the contract (or contracts).”

That is legally correct. Of course, no one would expect EDS to say anything else, because there is legal form, but I would be incredulous, as would all Committee members, if detailed advance discussions were not held about the IT that we will need to make the system work. I am not asking the Minister to breach commercial confidentiality, but given that a range of Departments—not just the Minister’s—have a chequered history with large-scale IT contracts in recent years, I cannot overemphasise how fundamental that is to CMEC’s functioning smoothly and being the success that we all want it to be.

Paul Rowen (Shadow Minister, Work & Pensions; Rochdale, Liberal Democrat)

The hon. Gentleman has given a succinct review of the issues and concerns addressed by the amendment. I remind the Minister of the bold statement in the White Paper on the announcement of plans for the new child maintenance system:

“Using information from a single known source could significantly reduce the time it takes to make a maintenance calculation. For parents, this increases the prospect that they will receive child maintenance shortly after the initial application. For the body responsible for administering child maintenance, it offers the prospects of clearing initial applications much more swiftly, so that a backlog of applications does not build up.”

That is a laudable aim. The hon. Gentleman has asked—I hope that the Minister can give us a response—what will be done to the IT systems to allow that process to happen. At the moment, as he has pointed out, HMRC operates a number of IT systems that do not talk to each other. What steps is he taking to ensure that a single gateway will be operational as soon as the new arrangements are implemented, so that information can be transferred from HMRC about various income sources—whether tax credits, dividends or PAYE—to ensure an accurate assessment? If we do not have that assurance, the statement, although laudable, will end up like much else in the CSA in the past—something aimed for but never delivered.

My second point relates to the earlier argument about income data sharing. The Minister stated that the parent with care should provide evidence. Will he or HMRC permit the sharing of the non-resident parent’s income data with the parent with care, or with one of the information agencies advising and supporting them, to ensure that when an application or claim is made, it will not fall between the stools, and that the parent with care will be able to state clearly on the basis of information provided by HMRC that a reassessment needs to be made? That will give the parent with care much more confidence to pursue claims. Often the forms and paperwork are complicated and not intelligible to most people. If that information is revealed, it will make parents with care much more determined to pursue child maintenance, where the non-resident parent is clearly seeking to avoid it. I hope that the Minister will update us on those issues and ensure that there will be a workable gateway.

What work is HMRC doing to ensure that its systems respond to one another, which they do not currently do? Will the Minister ensure that the information transfers to the Department for Work and Pensions in a single stream? If that has to be done manually, as happens at present, a backlog will accumulate.

My second point is about HMRC sharing data, subject to certain privacy rules. When a child is involved, there is a clear case for making information available, so will the Minister ensure that HMRC makes data available to the parent with care to assist them in the pursuit of their claim?

James Plaskitt (Parliamentary Under-Secretary, Department for Work and Pensions; Warwick and Leamington, Labour)

Naturally, the discussion of the amendment strays into the question of IT, because it is crucial to ensure that that works. I am grateful to both the hon. Members for South-West Bedfordshire and for Rochdale for their comments on the matter. It is of course important that the connection works, and I shall attempt to give reassurances.

There is already a fair amount of data transfer between HMRC and the DWP and it works smoothly, particular in respect of information received from taxpayers  who have completed their self-assessment PAYE forms. I also reassure the hon. Gentlemen that the discussions about evolving the system so that the necessary platforms are in place for the transfer of data envisaged under the commissioner arrangements are well advanced and have been ongoing for some time.

Of course, the Government seek the same reassurances as the hon. Gentlemen on the robustness of the system. It is our duty to lay down the specifications to ensure that there are no unnecessary barriers to prevent its working. The issue of who is contracted to do the job is an entirely separate issue on which I ought not comment. Contractors may have their views about that situation, but they would say that, would they not? We are clear about our obligations, the specifications and about ensuring that the system is there and that the data transfer required to make it work will function and run smoothly. All I should say at this point—this is a public sitting—is that the discussions are advanced.

We recognise the principle behind the amendment and agree that we ought to consider whether the commission should have a means of dealing with non-resident parents who intentionally deprive themselves of income to reduce their maintenance liability. However, we must consider the point at which it is most appropriate to take account of intentional deprivation. If the power were included in the main scheme, the commission would be required to decide whether an observed reduction was intentional or reasonable in the case of every non-resident parent whose income fell, which would cause significant delays in processing of cases.

Although the Secretary of State currently has powers to make such regulations and has done so for the 1993 scheme, the powers were not used for the 2000 scheme for the sake of simplicity. We believe that that remains the right approach. To introduce regulations to tackle the small number of non-resident parents who successfully deprive themselves of income into the main scheme would add unnecessary complication and additional delays to the process of finalising a maintenance calculation and ensuring the flow of money to children. If the powers were applied to the main scheme, we would risk creating considerable additional work for the commission by, in effect, casting doubt on the income information supplied by all non-resident parents. However, if we decide to take a power to treat non-resident parents as earning income when they intentionally deprive themselves of income, the variations regime is the right mechanism by which to deal with those rare and complicated cases.

We have a power to introduce grounds for a variation to cover intentional deprivation of income. Paragraph 9 of schedule 4 to the Bill will carry forward powers to estimate income when information relating to a non-resident parent’s income is believed to be inadequate or unreliable.

Tim Boswell (Daventry, Conservative)

I was just wondering about circumstances in which the Inland Revenue may have a taxpayer under investigation because it feels that their income has been systematically under-reported. The amendment is mainly about the system for the automatic transfer of data. To put it simply, will there be powers for the Inland Revenue  to tip off the Department in order to generate the examination of a variation of a maintenance order?

James Plaskitt (Parliamentary Under-Secretary, Department for Work and Pensions; Warwick and Leamington, Labour)

That matter will be dealt with by the annual settlement part of the regime, because the assessments will be based on the previous year’s tax liability. If Her Majesty’s Revenue and Customs were investigating someone and found that there had been an irregularity or underpayment of tax, it would recoup that by bills in subsequent years. There will be a carry-over from the tax assessment into the maintenance assessment by the mechanism of fixed-term maintenance agreements, which we envisage the commission operating based on the previous year’s tax data. There should always be automatic catch-up of any correction that HMRC is doing.

Tim Boswell (Daventry, Conservative)

I am grateful to the Minister for elucidating that process, because I was not aware of it. Does he agree that there is huge sensitivity, which has been exemplified by constituency casework, about the build-up of arrears of maintenance? It occurs to me that if the Inland Revenue is looking for a substantial recovery of unpaid tax, the recovery of unpaid maintenance will equally be at issue. Will he give some consideration to the relative priority of those two claims in relation to whether the revenue will go to the children or elsewhere?

James Plaskitt (Parliamentary Under-Secretary, Department for Work and Pensions; Warwick and Leamington, Labour)

I do not want to get the two things tangled up too much. It is important to remember that moving to a system of annual awards based on gross income will automatically fold information that HMRC gains about income into the maintenance system. I do not want to over-complicate the system, because we have been there and know the problems that that creates. I think that the degree of automaticity between HMRC data and maintenance that we envisage in the new system will cover the hon. Gentleman’s concerns.

We are currently meeting stakeholders, including One Parent Families, to discuss the best way to deal with such cases and whether we can make such a power work in practice. We will also take advice from the new commission before coming forward with secondary legislation. Depending on the outcome of those discussions, we will use existing powers to make regulations to deal with cases in which non-resident parents intentionally deprive themselves of income as part of the variations regime. Having given what I hope are sufficient reassurances, I hope that the hon. Member for South-West Bedfordshire will withdraw the amendment.

Andrew Selous (Shadow Minister, Work & Pensions; South West Bedfordshire, Conservative)

As I have said, this is a probing amendment. I beg to ask leave to withdraw the amendment.

Paul Rowen (Shadow Minister, Work & Pensions; Rochdale, Liberal Democrat)

I beg to move amendment No. 65, in schedule 4, page 63, leave out lines 23 to 27 and insert—

‘12% where the non-resident parent has one qualifying child;

16% where the non-resident parent has two qualifying children;

19% where the non-resident parent has three or more qualifying children.’.

Schedule 4 deals with the basic rate that a non-resident parent will pay from their gross weekly income.