Child maintenance – a complex web with some large holes

Posted: 23/02/2018

There are currently three child support schemes operating in Great Britain under the Child Support Act 1991. The most recent has been in force since November 2013. Confusingly it is based upon an Act from 2008 and so it is referred to here as the 2008 scheme. All new claims are handled under this 2008 scheme.

There has been much criticism of the child support system in the press and from lobbying groups. The complexities of the different schemes, divergent rules and basis for calculations and the power (or lack of) the state to enforce payments have all been the subject of numerous reports and commentary.

One of the main failings of the 2008 scheme is that it does little to protect the parent who should receive payment for a child if the paying party earns their income in a way that deviates from the PAYE norm. The framework struggles to cope with the challenges involved if the payer’s income is generated abroad or if it involves receiving interest from tax free ISAs, or from venture capital trust fund dividends, by way of a few examples.

The 2008 scheme also fails to account for those payers who have huge asset bases, but divert their income elsewhere.

Sadly, it is not at all uncommon for payers to artificially deflate their income and, by doing so, they are able to avoid paying a sufficient level of child maintenance, leaving the resident parent out of pocket.

This woeful lacuna in the scheme has arisen as a result of the removal of two “variation” grounds which used to enable the person receiving payment to argue that they should receive more on behalf of a child than pure income figures at HMRC would suggest, if:

• the paying party was leading a lifestyle beyond the means suggested on paper (‘lifestyle inconsistent with income’ ground), or
• the paying party had valuable assets which could be said to enable them to generate income (‘assets in excess of £65,000’ ground).

These grounds gave the Child Maintenance Service (CMS) the ability to look behind what was presented on paper, to the reality of a payer’s financial circumstances.

Under the first ground, the CMS could calculate the difference between the income disclosed by the payer, and the income required to maintain their lifestyle, and would add this figure to the declared income, before calculating the child maintenance liability.

Under the second ground, the CMS could attribute a higher weekly income to the payer, by multiplying the value of their capital assets by 8% (the statutory rate prescribed for a judgment debt), dividing this figure by 52, and adding this to the payer’s weekly income before undertaking the ordinary child maintenance calculation.

There is one variation ground available under the 2008 scheme which offers a glimmer of hope for those struggling to convince the CMS that the paying party has the means to pay at an increased rate, but its remit is significantly reduced from its scope for previous schemes. Therefore, the 2008 scheme has generated a situation whereby a payer can decide not to take full advantage of assets which generate income for the benefit of their children.

Understandably, the present situation has attracted some criticism, most notably by Mostyn J in the case of Green v Adams (No 2) 2017 EWFC 52. In this case the mother made a Schedule 1 application in 2013 for both capital and income provision. Mostyn J attributed assets to the father of approximately £5.2 million. Despite the level of assets involved, the CMS calculated that the father’s child maintenance liability was just £7 per week. In the course of this judgment, Mostyn J stated as follows:

‘It is an indictment of the child support system that it has not been able to furnish reasonable maintenance in the mother's hands.’

‘In my opinion the Government needs to consider urgently the reinstatement of the ‘assets’ ground of variation.’

What next?

The Work and Pensions Committee reported upon the pitfalls of the CMS in the same month, and recommended that the 2003 variation grounds (outlined above) be reinstated. Despite the clear judicial steer from Mostyn J, in September 2017, the Department of Work and Pensions rejected this recommendation on the basis that it was often too difficult for the payee to obtain the requisite financial details. It did, however, state that:

‘as part of the consultation on the new Arrears and Compliance Strategy, we will consider how we can strengthen our ability to ensure all sources of income are included in the calculation’.

Consultation on child maintenance arrears and compliance

The consultation was launched on 14 December 2017, and its proposals include improvements to child maintenance calculations and compliance measures, and stronger collection and enforcement measures. The consultation ran until 8 February 2018 but the results have not yet been published. One can only hope that new measures will be introduced without delay, to ensure recipient parents and their children are better protected.

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