Child Maintenance and Enforcement Commission: Cost Reductions

Transcription

1 House of Commons Committee of Public Accounts Child Maintenance and Enforcement Commission: Cost Reductions Eighty third Report of Session Report, together with formal minutes, oral and written evidence Ordered by the House of Commons to be printed 23 April 2012 HC 1874 Published on 18 May 2012 by authority of the House of Commons London: The Stationery Office Limited 11.00

2 Committee of Public Accounts The Committee of Public Accounts is appointed by the House of Commons to examine the accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit (Standing Order No 148). Current membership Rt Hon Margaret Hodge (Labour, Barking) (Chair) Mr Richard Bacon (Conservative, South Norfolk) Mr Stephen Barclay (Conservative, North East Cambridgeshire) Jackie Doyle-Price (Conservative, Thurrock) Matthew Hancock (Conservative, West Suffolk) Chris Heaton-Harris (Conservative, Daventry) Meg Hillier (Labour, Hackney South and Shoreditch) Mr Stewart Jackson (Conservative, Peterborough) Fiona Mactaggart (Labour, Slough) Mr Austin Mitchell (Labour, Great Grimsby) Chloe Smith (Conservative, Norwich North) Nick Smith (Labour, Blaenau Gwent) Ian Swales (Liberal Democrats, Redcar) James Wharton (Conservative, Stockton South) The following Members were also Members of the committee during the parliament: Dr Stella Creasy (Labour/Cooperative, Walthamstow) Justine Greening (Conservative, Putney) Joseph Johnson (Conservative, Orpington) Eric Joyce (Labour, Falkirk) Rt Hon Mrs Anne McGuire (Labour, Stirling) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at A list of Reports of the Committee in the present Parliament is at the back of this volume. Additional written evidence may be published on the internet only. Committee staff The current staff of the Committee is Philip Aylett (Clerk), Sonia Draper (Senior Committee Assistant), Ian Blair and Michelle Garratty (Committee Assistants) and Alex Paterson (Media Officer). Contacts All correspondence should be addressed to the Clerk, Committee of Public Accounts, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is ; the Committee s address is pubaccom@parliament.uk

3 1 Contents Report Page Summary 3 Conclusions and recommendations 4 1 Current performance 7 2 Future plans 9 Formal Minutes 11 Witnesses 12 List of printed written evidence 12 List of Reports from the Committee during the current Parliament 13

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5 3 Summary The role of the Child Maintenance and Enforcement Commission (the Commission) is to support separated families and secure maintenance payments for children affected by separation. Around half of all children in the UK from separated families are being brought up in poverty. In the Commission collected and transferred 1.1 billion to parents caring for more than 880,000 children. We are encouraged that the new management at the Commission say they recognise the problems they face and have started to address them. Nevertheless significant, all too familiar and recurring challenges remain: parents are frustrated with the standard of support received from the Commission, and too often fail to get any or the right amount of maintenance from non-residential parents; maintenance payments totalling some 3.7 billion are outstanding, but the Commission estimates that only 1 billion of this is collectable; and costs remain high. These continuing problems are difficult to tackle, yet the Commission faces further significant challenges in introducing its new child maintenance scheme. In particular, it will need to respond to substantial cost reductions and successfully implement a new system of charging fees to parents who choose to use the Commission s services.. The Commission needs to deliver acceptable standards of service at a reasonable cost. The new child maintenance scheme should improve efficiency, but further changes are needed to streamline existing processes. Better management information is also required to identify areas for further cost reductions. The Commission has to deliver cost reductions of 117 million by and its plans are currently 16 million short of this target. Its cost reduction plans depend in part on a new IT system which is already late. To meet the current timetable critical testing will have to be undertaken in parallel with development work, mirroring poor practices that have contributed to the failure of a number of government IT projects. Each month of delay will increase the Commission s costs by at least 3 million and may delay planned income from fees. Unless the Commission delivers further efficiencies it will not have the contingency needed to delay implementing the system until it works. The Commission s cost reduction plans are high risk in that they rely heavily on the introduction of fees on parents rather than achieving genuine savings. Forecasting how parents will react to fees is difficult. Whilst ensuring parents accept proper responsibility for the cost of care for their children is important, it would be unfortunate if an unintended consequence of this initiative was more child poverty with extra costs to the taxpayer. Parents lack confidence in the system, and the Commission needs to demonstrate that it has a service which is worth paying fees for. On the basis of a report by the Comptroller and Auditor General, 1 we took evidence from the Department for Work and Pensions and the Child Maintenance and Enforcement Commission on its cost reduction plans. 1 C&AG s Report, Child Maintenance and Enforcement Commission: Cost Reduction, HC1793, Session

6 4 Conclusions and recommendations 1. The Commission has made genuine progress over recent years in some areas. More money than ever before is going to children, backlogs are being reduced, the service is faster, and a higher proportion of non-resident parents pay some child maintenance. Nevertheless, the Commission still faces serious challenges in its goal of supporting separated families and securing maintenance payments for children affected by separation. We have set out below the principal concerns that we expect the new management to address. 2. Outstanding payments total some 3.7 billion, but the Commission considers that only 1 billion of this is collectable and that less than half of that can be collected cost-effectively. The Commission and the Department must recognise that around a half of these amounts are due to parents with care to support their children, not just due to the Commission. Parents with responsibilities for care expect to receive the child maintenance owed to them to support their children and the Commission must keep them informed of progress in collecting their arrears. The Commission should identify the cost-effectiveness of different debt collection methods and set out a clear plan of what it expects to recover. It should also assess the arrears owing for each case and notify parents of what action it plans to take to recover the sums owing to them. It should tell customers of any debt it believes is too costly to pursue rather than leave parents in limbo. 3. A successful fee regime will depend on the Commission being able to deliver reasonable standards of service. Aspects of the service offered to parents remain unacceptable. Maintenance payments change without explanation and parents are frustrated with the lack of communication. The introduction of fees may encourage parents to reach their own agreement and speed up the process for those who use the statutory scheme. But trust in the service must be restored or some customers may see little point in paying fees for a service which has failed them in the past. The risk is that parents who cannot agree private arrangements and do not trust the statutory system are left without effective child maintenance arrangements and that could impact on child poverty. The Commission should work with stakeholders to monitor whether more separated families agree their own arrangements and understand any service-related reasons for lower than expected applications to the new child maintenance scheme. The first monitoring report should be carried out six months after the introduction of fees. 4. The Commission s plans to deliver 117 million of cost reductions by are high risk. There is a 16 million funding gap for which could widen by some 3 million for every month the new IT system is delayed. A further shortfall of up to 30 million could arise in if projected fee income does not materialise. The Commission is reviewing its spending to identify alternative reductions that can be made to build a buffer of up to 30 million to use if needed. The Commission needs to identify further savings to create a greater contingency and meet any further shortfall in planned cost reductions without affecting services.

7 5 5. The Commission is relying on the implementation of a new IT system to improve the service to parents and reduce its costs. The Commission s new IT system is running more than two years behind schedule. In 2011 it strengthened its IT project management and governance, but risks remain and the Commission simply cannot afford for implementation to go wrong. To meet the planned implementation date testing will now have to be undertaken in parallel with development. This mirrors poor practice that has contributed to the failure of a number of government IT projects. The Commission must ensure testing is completed satisfactorily before the system is implemented. 6. There is significant scope to improve the efficiency of the Commission s services. The new child maintenance system should improve efficiency, but further changes are needed to streamline existing processes. Decisions on policy and administrative changes must be based on accurate information, but the Commission has misrepresented the cost of a typical case. The Commission must ensure its new IT system is capable of providing the right management information to help identify areas for further cost reductions. The Commission must develop robust productivity measures and draw on good practices from elsewhere to implement efficiency improvements. It must also benchmark value for money and cost per case between its offices and should publish this data quarterly to drive improvement and rebuild confidence in the service. 7. The Commission should plan to access all information on income when assessing how much maintenance non-resident parents should pay. In the new system maintenance calculations for non-resident parents will be based on taxable earned income for PAYE taxpayers and total taxable profits for the self-employed. But some self-employed parents may minimise their child maintenance obligations by taking dividends instead of salaries; and some PAYE taxpayers may not declare all sources of income to the Commission. Relying solely on parents with care to identify such practices by the non-residential parent to ensure all significant taxable income is taken into account is unreasonable when taxpayer data are available to the Commission. The Commission should access all data on all taxable income sources, such as capital gains and dividends, to calculate the maintenance due, not just PAYE information. Where self-assessment data is not filed until later, the Commission should reassess the maintenance due as part of the next annual review.

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9 7 1 Current performance 1. The objective of the Child Maintenance and Enforcement Commission (the Commission) is to support separated families and secure maintenance payments for children affected by separation. The Commission does this by helping parents that are separating to establish a voluntary child maintenance arrangement. For those who cannot reach such an arrangement, the Commission provides a statutory scheme designed to ensure that parents responsible for childcare receive the maintenance owed to them We welcome the progress made by the Commission in recent years to improve its performance which has seen increasing amounts of child maintenance being collected and paid to parents with care, and a higher proportion of non-resident parents making some payments. However, customer service remains poor in too many areas. The Commission s IT systems remain problematic and work is needed to re-build parents confidence in the Commission. The Commission admitted that the service we deliver to our customers is not one that we are yet proud of we know there is a long way to go on that The Commission takes up to 12 weeks to assess a maintenance application, deal with a change of circumstances, or to identify a missed maintenance payment. The length of time taken can have a significant negative impact on the lives of children. 4 Gingerbread, a charity that provides advice to lone parents, told us that parents have suffered from poor customer service for many years and many were resigned to their cases not being dealt with effectively. All too often parents have to deal with lengthy delays, receive inconsistent or insufficient information from the Commission on their case, and consider that problems are dealt with only when they complain The Commission currently operates two separate IT systems running in parallel. Both have limitations which adversely affect the Commission s ability to deliver maintenance efficiently. They do not provide the data required to allow case workers to identify why maintenance payments due have been missed. As a result, the Commission has to gather this information separately before determining what action to take The Commission has arrears of 3.7 billion in money owed by non-resident parents. Around half is owed to those responsible for childcare and half to the Secretary of State. The Commission estimates that only 1 billion of these arrears is collectable. One reason for this is that figures include punitive amounts raised, without regard to individual circumstances, by the predecessor body the Child Support Agency in an attempt to frighten absent parents into contacting the Agency to agree the correct sum. The Commission has not been able to work through the arrears on every case while also managing new cases and responding to parents who get in touch. 7 The Department stated 2 Q 27 3 Q Qq Qq Q 8, Qq 31-32, 34, 36

10 8 that it is not cost-effective to collect every pound owed and that the Commission expects to collect about half of the 1 billion collectable arrears. The Department is resourcing the Commission to examine each case to decide the correct level of arrears before moving balances to the new system. It expects to complete the exercise by Clearly failure to collect monies due can have an impact on families and could lead to an increase in child poverty. 6. The Commission s spending has fallen from 610 million in to 517 million in However, the Commission spends 56 pence for every 1 of maintenance collected, compared to the comparable organisation in Australia, which spends the equivalent of just 35 pence for every 1 it collects 9 Around half of this gap of 21 pence per pound can be explained by the different policy approach adopted in each country. But the Department accepts that the remaining gap indicates that there is scope for the Commission to improve its efficiency Since the Commission was established in 2008 it has retained the Child Support Agency as an operating division in effect a subsidiary to the organisation. As a result, back office functions have been duplicated. The Commission also has staff in 70 offices across the country. 11 The Commission has only recently taken steps to merge its separate structures and announced plans to reduce the number of its offices to The Commission does not have the management information it needs to compare how its services are delivered by different teams and offices within the organisation which limits its ability to identify areas where it can reduce costs. 8. The Commission s website noted that its costs of a typical case were 25,000, rising to 40,000 for more difficult cases. In response to our questions the Commission admitted that these figures were actually an example of what a case could cost. In fact the average annual cost of a case is 622 and the average length of a case is nine years. The Department told us that it would make the CMEC website clear Qq C&AG s Report, Child Maintenance and Enforcement Commission: Cost Reduction, Session , HC Q C&AG s Report, Child Maintenance and Enforcement Commission: Cost Reduction, Session , HC1793; Q Qq 51, Qq 92-99;

11 9 2 Future plans 9. In future the Commission plans to focus more on helping separated parents to reach their own agreements on child support. But the Commission will also provide a new statutory scheme for parents who are unable to agree arrangements. 14 The new scheme will be based on charging fees to parents. The Commission plans to charge parents a fee of 25 to calculate their maintenance, or to apply to the statutory scheme. In addition, the Commission will charge fees of between 22 pence and 32 pence for every 1 it collects on behalf of parents Gingerbread emphasised the need for an effective statutory scheme and told us that while it would of course be positive if more parents could reach agreement outside the statutory scheme, the relationship between the parents was often too difficult. Furthermore, a study by the Department in 2009 showed that around half of all children in 16, 17 lone parent households lived in poverty. 11. As well as introducing charges the Commission also has to deliver cost reductions of 117 million by Its plans to achieve this are currently 16 million short of this target. The Commission s plans depend on three factors; the timely and successful implementation of a third major IT system, and achieving efficiency savings and charging fees, which is also expected to reduce demand. 12. The Commission s new IT system was originally due to be delivered in full in April The Commission now plans to implement phase one of the scheme in October 2012 and phase two in July To achieve these revised dates the Commission intends to carry out critical testing in parallel with development work on the new system. This approach mirrors poor practice that contributed to the failure of a number of other government IT projects The Department told us that it was aware of past mistakes and would not implement the new IT system until it was sure it would work. 20 However, the Commission admitted that each month of delay in implementing the system would cost between 3 million and 4 million, requiring compensating cost reductions to be made elsewhere The new Commissioner told us that he was taking steps to create a savings buffer of some 30 million to use if there were any delays to the new IT system. The Commission was undertaking a fundamental review of corporate headquarters expenditure to identify 14 Q Qq 11, 44; C&AG s report, Child Maintenance and Enforcement Commission: Cost Reduction, Session , HC DWP Research Report No 656, Households Below Average Income: An analysis of the income distribution 1994/ /09 17 Q 2 18 Qq 61, Qq Q Q 61

12 10 the scope for further savings. In addition the Commission could also achieve savings by recruiting fewer staff and releasing up to 400 fixed-term appointees in the organisation if required. 22 However if demand did not decline this could adversely impact on the timeliness and quality of the service. 15. The Commission is introducing a new Child Maintenance system under which maintenance calculations for non-resident parents will be based on taxable earned income for PAYE taxpayers and total taxable profits for the self-employed. But some self-employed parents may minimise their child maintenance obligations by taking dividends instead of salaries; and some PAYE taxpayers may not declare all sources of income to the Commission. Despite data to help with this being available from HM Revenue and Customs through the self-assessment route, the Commission does not plan to use this to ensure its maintenance calculations are as accurate as possible. Instead the Commission will continue to rely on parents with care notifying them of inconsistencies in the earnings reported by the non-resident parent Q Qq

13 11 Formal Minutes Monday 23 April 2012 Members present: Rt Hon Margaret Hodge, in the Chair Mr Richard Bacon Mr Stephen Barclay Jackie Doyle-Price Matthew Hancock Fiona Mactaggart Mr Austin Mitchell Nick Smith Ian Swales James Wharton Draft Report (Child Maintenance and Enforcement Commission: Cost Reductions), proposed by the Chair, brought up and read. Ordered, That the draft Report be read a second time, paragraph by paragraph. Paragraphs 1 to 15 read and agreed to. Summary agreed to. Resolved, That the Report be the Eighty-third Report of the Committee to the House. Ordered, That the Chair make the Report to the House. Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No Written evidence was ordered to be reported to the House for printing with the Report [Adjourned till Wednesday 25 April at 3.00 pm

14 12 Witnesses Monday 5 March 2012 Page Janet Allbeson, Senior Policy Adviser, Gingerbread Ev 1 Robert Devereux, Permanent Secretary, Department for Work and Pensions, and Noel Shanahan, Chief Executive, Child Maintenance and Enforcement Commission Ev 6 List of printed written evidence 1 Gingerbread Ev 23 2 Department for Work and Pensions Ev 27

15 13 List of Reports from the Committee during the current Parliament The reference number of the Government s response to each Report is printed in brackets after the HC printing number. Session First Report Support to incapacity benefits claimants through Pathways to Work HC 404 Second Report Delivering Multi-Role Tanker Aircraft Capability HC 425 Third Report Fourth Report Tackling inequalities in life expectancy in areas with the worst health and deprivation Progress with VFM savings and lessons for cost reduction programmes HC 470 HC 440 Fifth Report Increasing Passenger Rail Capacity HC 471 Sixth Report Cafcass's response to increased demand for its services HC 439 Seventh Report Funding the development of renewable energy technologies HC 538 Eighth Report Customer First Programme: Delivery of Student Finance HC 424 Ninth Report Financing PFI projects in the credit crisis and the Treasury s response HC 553 Tenth Report Managing the defence budget and estate HC 503 Eleventh Report Community Care Grant HC 573 Twelfth Report Central government s use of consultants and interims HC 610 Thirteenth Report Department for International Development s bilateral support to primary education HC 594 Fourteenth Report PFI in Housing and Hospitals HC 631 Fifteenth Report Educating the next generation of scientists HC 632 Sixteenth Report Ministry of Justice Financial Management HC 574 Seventeenth Report The Academies Programme HC 552 Eighteenth Report HM Revenue and Customs Accounts HC 502 Nineteenth Report M25 Private Finance Contract HC 651 Twentieth Report Ofcom: the effectiveness of converged regulation HC 688 Twenty-First Report The youth justice system in England and Wales: reducing offending by young people HC 721 Twenty-second Report Excess Votes HC 801 Twenty-third Report The Major Projects Report 2010 HC 687

16 14 Twenty-fourth Report Delivering the Cancer Reform Strategy HC 667 Twenty-fifth Report Reducing errors in the benefit system HC 668 Twenty-sixth Report Management of NHS hospital productivity HC 741 Twenty-seventh Report HM Revenue and Customs: Managing civil tax investigations HC 765 Twenty-eighth Report Accountability for Public Money HC 740 Twenty-ninth Report The BBC s management of its Digital Media Initiative HC 808 Thirtieth Report Management of the Typhoon project HC 860 Thirty-first Report HM Treasury: The Asset Protection Scheme HC 785 Thirty-second Report Maintaining financial stability of UK banks: update on the support schemes HC 973 Thirty-third Report National Health Service Landscape Review HC 764 Thirty-fourth Report Immigration: the Points Based System Work Routes HC 913 Thirty-fifth Report The procurement of consumables by National Health Service acute and Foundation Trusts HC 875 Thirty-seventh Report Departmental Business Planning HC 650 Thirty-eighth Report Thirty-ninth Report Fortieth Report Forty-first Report The impact of the changes to public service pensions Department for Transport: The InterCity East Coast Passenger Rail Franchise Information and Communications Technology in government Office of Rail Regulation: Regulating Network Rail s efficiency HC 833 HC 1035 HC 1050 HC 1036 Forty-second Report Getting value for money from the education of 16- to 18- year olds HC 1116 Forty third Report Forty-fourth Report Forty-fifth Report Forty-sixth report Forty-seventh Report Forty-eighth Report The use of information to manage the defence logistics supply chain Lessons from PFI and other projects The National Programme for IT in the NHS: an update on the delivery of detailed care records Transforming NHS ambulance services Reducing costs in the Department for Work and pensions Spending reduction in the Foreign and Commonwealth Office HC 1202 HC 1201 HC 1070 HC 1353 HC 1351 HC 1284 Forty-ninth Report The Efficiency and Reform Group s role in improving public sector value for money HC 1352 Fiftieth Report The failure of the FiReControl project HC 1397

17 15 Fifty-first Report Independent Parliamentary Standards Authority HC 1426 Fifty-second Report DfID Financial Management HC 1398 Fifty-third Report Managing high value capital equipment HC 1469 Fifty-fourth Report Protecting Consumers The system for enforcing consumer law HC 1468 Fifty-fifth Report Formula funding of local public services HC 1502 Fifty-sixth Report Providing the UK s Carrier Strike Capability HC 1427 Fifty-seventh Report Oversight of user choice and provider competition is care markets HC 1530 Fifty-eighth Report HM Revenue and Customs: PAYE, tax credit debt and cost reduction HC 1565 Fifty-ninth Report Sixtieth Report The cost-effective delivery of an armoured vehicle capability Achievement of foundation trust status by NHS hospital trusts HC 1444 HC 1566 Sixty-first Report HM Revenue and Customs Accounts: tax disputes HC 1531 Sixty-second Report Means Testing HC 1627 Sixty-third Report Preparations for the roll-out of smart meters HC 1617 Sixty-fourth Report Flood Risk Management HC 1659 Sixty-fifth Report DfID: Transferring cash and assets to the poor HC 1695 Sixty-sixth Report Excess Votes HC 1796 Sixty-seventh Report Whole of Government Accounts HC 1696 Sixty-eighth Report Ministry of Defence: The Major Projects Report 2011 HC 1678 Sixty-ninth Report Rural payments Agency follow up of previous PAC recommendations HC 1616 Seventieth Report Oversight of special education for young people aged HC 1636 Seventy-first Report Seventy-second Report Seventy-third Report Reducing costs in the Department for Transport Services for people with neurological conditions The BBC s efficiency programme HC 1760 HC 1759 HC 1658 Seventy-fourth Report Preparations for the London 2012 Olympic and Paralympic Games HC 1716 Seventy-fifth Report Ministry of Justice Financial Management HC 1778 Seventy-sixth Report Seventy-seventh Department for Business, Innovation and Skills: reducing bureaucracy in further education in England Reorganising Central Government Bodies HC 1803 HC 1802 Seventy-eighth Report The Care Quality Commission: Regulating the quality and safety of health and adult social care HC 1779

18 16 Seventy-ninth Report Accountability for public money progress report HC 1503 Eightieth Report Cost reduction in central government: summary of HC 1845 progress Eighty-first Report Equity Investment in privately financed projects HC 1846 Eighty-second Report Department for Education: accountability and oversight of education and children s services HC 1957

19 Committee of Public Accounts: Evidence Ev 1 Oral evidence Taken before the Committee of Public Accounts on Monday 5 March 2012 Members present: Margaret Hodge (Chair) Mr Richard Bacon Chris Heaton-Harris Meg Hillier Mr Stewart Jackson Fiona Mactaggart Austin Mitchell Ian Swales Amyas Morse, Comptroller and Auditor General, NAO, Phil Gibby, Director, NAO, and Marius Gallaher, Alternate Treasury Officer of Accounts, gave evidence. Gabrielle Cohen, Assistant Auditor General, NAO, was in attendance. REPORT BY THE COMPTROLLER AND AUDITOR GENERAL Child Maintenance and Enforcement Commission: Cost Reduction (HC 1793) Examination of Witness Witness: Janet Allbeson, Senior Policy Adviser, Gingerbread, gave evidence. Q1 Chair: Welcome. Thank you for coming this afternoon. Normally we have two or three people before us, but we thought you were so brilliant that you could do it all on your own. Let me explain what we want you to talk about. We are looking at the organisation and CMEC as it emerges. This is an opportunity for you, working on the front line with a lot of lone parents who presumably try to extract a bit of money out of this organisation, to express your view on the value that the organisation has given to date, and then to give us a feel for where value for money that is where we are coming from will emerge, or not, out of the future policy and the way in which the system then operates. It is up to you to say whatever you like. Nobody is trying to catch you out; we just want to hear what you have to say from your experience and expertise. Janet Allbeson: I will start by telling you a little about Gingerbread. We run a helpline for single parents that deals with more than 1,200 queries a month, and we give information and advice to single parents in factsheets and online. We get a lot of feedback from single parents about child maintenance and the child maintenance system, but also about how important child maintenance is to them. Single parents continue to be disadvantaged by poverty almost half of all children of single parents are being brought up in poverty. That includes parents in work: 19% of working single parents are still in poverty if they are working full-time, and 25% of working single parents working part-time. Life can be a struggle Chair: You ought define poverty in that context. Q2 Chris Heaton-Harris: Which definition is it the Rowntree one? Janet Allbeson: I am using the 60% of HBAI figure. Life can be a struggle. Maintenance makes it easier at a time when life is getting harder due to tax and benefit cuts, which the Institute for Fiscal Studies estimates will lead to lone mothers being 8.5% worse off in terms of income, and lone fathers 7.5% worse off, by In that context, child maintenance really matters. It is spent on food, clothes, school expenses and shoes. One of the reasons why children of single parent families are poor is that there is only one income coming in, and getting that regular money from the other parent really matters. I also want to highlight why the statutory system matters. We agree with the Government: it is good if more parents can agree their own arrangements. The Government are very keen to encourage that, but there will always be cases where it is very difficult to do. Mrs Thatcher set up the CSA because at that time it was felt that too many non-resident parents were walking away from their children when relationships broke down, and were not paying maintenance. In her words, relationships can end, but your responsibilities to your children continue; and although you cannot make irresponsible parents behave responsibly, you can make them pay towards their children s everyday living expenses. That is the purpose of the CSA, and it is now needed more than ever. At the moment, it helps more than 880,000 children who are reliant on payments from the statutory maintenance service, and last year, it got 1.1 billion in maintenance for children. Those are not trivial amounts of money, and they really matter. The parents who turn to the CSA tend to be the ones who turn to it because they have no alternative. All the evidence shows they are more conflicted. Usually they have been separated for some time. They may have tried a private voluntary arrangement that has broken down. They tend to be older. All the evidence shows that you start off amicably, then circumstances change. People repartner, they have other babies, it

20 Ev 2 Committee of Public Accounts: Evidence 5 March 2012 Gingerbread gets more difficult, but of course those original children still need maintaining day in, day out, and that is what the CSA does it gets regular money week after week, year after year. Moor poorer parents tend to use the statutory service, because it is easier to agree private voluntary arrangements where money is not such a burning issue. Q3 Chair: Do you have statistics on that? They are not in the Report; perhaps you have them. I wondered how many of the people who actually use the service are on benefits, or some definition like that. Janet Allbeson: Yes, I can give you some figures. Around a third (31%) of parents care are on Income Support or income related Jobseeker s Allowance. The DWP did a very big study, the relationship breakdown study, which was a big, quantitative survey using a representative sample. It showed that 39% of parents with care using the CSA have incomes below 10,000, compared to 30% of parents with care not using the CSA. Among those not using the CSA are twice as likely to have a voluntary arrangement if their income is more than 10,000 than if it is less than that. Chair: Twice as likely. Okay. Janet Allbeson: If you look at the figures in the NAO Report overall, you can see that nearly half of all eligible families use the CSA. I think there are 1.2 million cases within the CSA, out of a total eligible group of 2.5 million families. It is a very important part of getting maintenance to children. Q4 Chair: Two questions on the changes: first, on the efficiencies of the current system, do you think that you get value for money out of the current system? Secondly, what is your view of how the changes will make it a more effective system and better value for money? Janet Allbeson: The Report is absolutely right that the service that the CSA, the statutory system, provides has improved over the last few years. There was a three-year operational improvement programme between 2006 and More money than ever before is now going to children, backlogs are being reduced, the service is faster and a higher proportion of nonresident parents are paying something. There are problems, however, such as the collection of arrears. There is partly a debt legacy from past years of failure, but we think that it could still be more energetic about collection. A report from the NAO, the client account Report, showed that there is about 1 billion of collectable arrears. Last year, the CSA collected 121 million. We think that it could make more energetic use of the massive armoury of collection powers it has at its disposal. There are a lot of nil-assessed cases 200,000 and that is because they have never been revisited. Hopefully, that is one of the things the new system will do. At the moment, there is no obligation on a non-resident parent to report when his income goes up. A lot of cases have just stayed very flat, perhaps the assessment was done when someone was unemployed quite a long time ago and it has never been revisited. One of the things that drives parents with care mad and causes immense frustration is the lack of responsiveness of the Agency. Your maintenance may suddenly go down or stop and you do not know why; there is no explanation. Is it because the non-resident parent has stopped paying? Is it because his circumstances have changed? Is it because the CSA has made a mistake and there is a problem at its end? You simply do not know, and it can be very hard to find the right person to talk to. People ring up and ring again. They might discover that the non-resident parent is not paying and they want to find out what the Agency is doing about it. That can be really hard, because somehow the parent with care is seen as a bit of an interruption, an irritant. People get very frustrated at that simple problem of lack of contact. That is particularly true in the group of cases called clerical cases, which are ones where things have gone wrong with the IT system and they are managed offline in a completely different office. It can be hard to communicate there. Q5 Chair: Do you have a view of what has gone wrong? Those cases have been there forever, haven t they? Janet Allbeson: That is part of the legacy that CMEC/ CSA has to grapple with at the moment and it is one of the reasons why it is proposing a new system. That is because the IT of the current system is still not good enough and it is producing these things called stuck cases. A computer upgrade has been put in which has revealed the extent of these cases floating around, and they are systematically being transferred over to another online IT system to deal with, but they are quite expensive to deal with I remember reading Stephen Geraghty s comment that they cost three times as much to process so that is more costly. The throw-out of these cases from the normal online system are causing extra costs. There is also a lack of transparency, particularly for single parents whose partner is self-employed. You get a figure for the calculation and you think, That s funny. It s only 10 a week. I know he should be paying a lot more than that, but you cannot find out what the income figure is. You have to appeal that is the only way you can get a breakdown of the income figure. The CSA, for reasons of speed and processing, simply seems to accept the figure that it is given by a non-resident parent, and in lots of cases it may be correct, but there has to be a culture of a bit more questioning, particularly where the non-resident parent has the ability to control how income is presented. For instance, setting up a private company is fantastically tax efficient, but it may also have the effect of giving you a very small amount of earnings, because you pay yourself an earning of just about the minimum wage and take your income in other forms. The CSA will simply take the earnings figure, which is what the basic calculation is based on. Yes, there are complicated procedures called variations and departures to try to challenge that, but they are very hard for single parents to deal with. Q6 Chair: We want to come back to your view of the new system, but Ian and Chris are both waiting to ask questions.

21 Committee of Public Accounts: Evidence Ev 3 5 March 2012 Gingerbread Q7 Ian Swales: We all have different constituencies, but I can honestly say that CSA cases are my biggest work load. I had another load on Saturday. I want to ask a couple of questions about your view of the administration. We all talk about IT, but IT is made up of dumb machines; they are only as good as what you put into them. On Saturday, I had a case of someone seeking an assessment in 2009 and the result not being available until What is going on that it takes two years? Do you know much about the administration? Janet Allbeson: The frustrating thing is that it is a bit like a black box. You can see there has been a problem, but trying to find out what it is and what went wrong the whole analysis is incredibly frustrating for advisers and for the parents themselves. That is why people complain to their MP. You get replies back from the CSA that may give more information than people can get themselves. Q8 Ian Swales: The thing I find baffling is when we take up the same case twice and get a different story the second time, which I find stunning. It seems as though there is chaotic administration. People even tell me that how you are treated depends on how old your case is somewhere behind the scenes there are four different approaches being taken. You can blame IT, but it seems as though there is just some sort of administrative mess. Janet Allbeson: It is very frustrating for the staff, who struggle with the fact that there was an initial system, the old system, and then what was supposed to be the new system was introduced but that did not work either, so they could not transfer all the old cases to that system. So they have two separate systems in parallel, and they now have a third system where because of IT problems, they are having to do cases offline. It is not surprising that it can be quite hard to work out what happens. In some cases, they could have been diligently trying to trace the non-resident parent, who may be trying all sorts of ways to avoid answering all the letters, but you do not know. The really frustrating thing is, unless you make a strong complaint and complain and complain again so that eventually you might get a full and detailed explanation of all the dates and what went wrong, you just don t know. Ian Swales: That is helpful it is not just me, then. Chair: It is all of us. Q9 Chris Heaton-Harris: It is definitely not just you. Can you say something about the complaints procedure now and how the new system might help or hinder it? I have my own view on how the complaints procedure works: it does not seem to work very well. Do people need to come through us as MPs to complain to the CSA? Janet Allbeson: Originally, when the scheme was set up, the poor old Parliamentary Ombudsman was so inundated with complaints about the CSA that they had to set up an independent complaints adjudicator within the CSA, called the Independent Case Examiner. That is an independent process, but even that takes quite a long time. Last year the agency dealt with about 23,000 complaints and about 8,500 of those went through the MP. It is not a lot. I think the problem is that a lot of people have become very pessimistic and almost resigned they give up. The cases that you get are probably from the few people who make it to you. It has to be said, MPs do make a difference, because you write and there is a special unit that replies in a lot more detail. It fishes the case out, has a look at it and actually does something about it. Q10 Mr Bacon: Surely MPs should not be part of the infrastructure of making the system work? The whole point of pressure from MPs constituency surgeries, in any area of administration, is when the policy is not working as it is supposed to, and the surgery is just a way of at least in theory flagging up the fact that there is a problem. It is not supposed to be a central part of the ongoing mechanism for solving the problem. Janet Allbeson: The Independent Case Examiner does produce an annual report, where he tries to highlight some of the structural patterns of problems. In a sense, though, the whole grinding machinery is one of the things that the future scheme is trying to address. There are problems with it everyone knows that. We have tried to stress that what they have to do in the new system is put the customer at the centre. They have to make this process far more user friendly and transparent, so that people know what is happening on their case they get regular updates, they can follow it and they can get answers. That would help enormously. Q11 Chair: Can I ask you a bit about the new scheme that is proposed? From your work with the customers, what are you looking for that could make it work better? Have you any concerns about the way that the new proposals are being implemented? Janet Allbeson: For us, one of the most startling revelations in the Report relates to our campaign against the introduction of charging to use the future service. Under the future system, parents with care will face an up-front charge. The Government have moved on this, so it is going to be 20 to get into the statutory system. Once an assessment is carried out, the non-resident parent will be offered the chance to pay for free if he makes what is called a maintenance direct arrangement he pays direct to the parent with care. If that breaks down and the Commission is satisfied that the non-resident will not pay, the parent with care can be brought into the collection service, but she will then be charged between 7% and 12%, which will be taken off every child maintenance payment, and the non-resident parent will be charged between 15% and 20% extra on every payment. Our objection is, where you have a system in which the parent with care is only in that collection service because the other parent has refused to pay and will not pay and the Commission is satisfied that it is proven they have not paid, why take money away from children? This is money that pays for shoes, clothes, food and bills. Why take that money away from the parent with care? Sometimes I drop into

22 Ev 4 Committee of Public Accounts: Evidence 5 March 2012 Gingerbread saying her. I should say that 97% of parents with care are women. Q12 Chair: Can I challenge you there? That is a policy decision the Government have taken and we are trying to explore whether, within the parameters of that policy decision, it will work and is an effective way of getting value for money. Alternatively, would it have been better, as the Report suggests, to have tried to get greater efficiencies in the way the organisation operates? We are not here to value judge that Janet Allbeson: No absolutely not. Chair: We work within the parameters. The Government are introducing this because they want more people to settle outside both DWP systems and the courts. Will that happen? Will it not happen? What is your view? Again, just focus on the value-formoney issues if you can. Janet Allbeson: One of the striking things is the discrepancy between public statements by Ministers about the justification for charging and the private calculations by officials. The Minister has said that making private arrangements what they call a family-based arrangement is something that parents should be able to do for themselves through an FBA in the vast majority of cases. Yet the National Audit Office Report shows that only 15% of the current CSA case load will go for a FBA, whereas 71% will opt for the statutory scheme. The Minister is saying one thing about where the vast majority of cases are going to end up, but the officials are saying another. In letters to us, the Minister has said that the cost of a typical case is 25,000 over the lifetime of a child using the CSA and it is therefore fair to introduce charging, but if you look at figure 7 on page 20 of the Report, it shows that the cost per case is 417 on average. The Government say that that is a fair charge for the service, given the cost of the system, and that the amount charged will not act as a barrier, but if you look at paragraph 3.7 on page 31 this is what the NAO says, and it is a very optimistic assumption there is a 30% drop-out of people currently using the CSA. We think that part of that drop-out will be because of the charges: people will drop out because they cannot use it. The implication of what Ministers have said to us is that the CSA is expensive and they want to put more money into family services instead, to help people to agree. We are very much in favour of investing in good family support services of course it is better if parents can overcome conflict and deal amicably together with the child but the implication was that savings from charging were going to go to family services. What the Report makes clear, though, is how fundamental charges are to making the new system pay and to achieving the expected savings targets. We were told by Ministers that charging was not about cost cutting, but as figure 15 shows, if you compare the costs of the current system and those of the future system over, say, the next 10 years, the only thing that makes the future system cheaper is charges. We have been promised a significantly improved service as a result of the charges, but looking at figure 17, which sets out the very detailed look that the NAO takes at IT, honestly makes me feel quite queasy. It shows horrible signs of going pear-shaped. It looks like parents will be asked to pay this is money that is going to be taken away from children and that has become the central way of reaching cost savings. There is no guarantee at the end of the day that it is going to be a better service. I can tell you now that parents will be incredibly angry and MPs will be inundated if people are making this sacrifice in charges to pay for the future scheme and it turns out not to work. Q13 Fiona Mactaggart: Will you describe for us, from the point of view of the parents you talk to, what a better service would look like? Janet Allbeson: It would be one that they felt focused on getting money to children. The statutory aim of the system is supposed to be maximising the number of children with effective maintenance arrangements. Sometimes you feel that the focus seems to get lost in budget cuts and whatever. The job is to get money to children, but I think sometimes parents with care feel that they are almost on the sidelines of the calculation. They want much more transparency and good communications with parents. To be fair, some of these things are promised, such as a calculation that people can understand. They want to feel that a fair contribution is being asked for from the non-resident parent, and they want a fair look to be taken at the non-resident parent s income. There is a feeling of frustration. One of the dynamics in child maintenance disputes is about whether the correct amount is being paid. Those can be legitimate disputes, but I think they are seen as rather an irritant by the Agency. There has to be a system where there is a degree of transparency about the basis of the calculation this is the income; this is the percentage; this is the amount. Keeping in touch with parents about when payments are missed and what action is being taken is also important. Communication is one of the big things. Phil Gibby: Going back a little bit, may I clarify the NAO s position in terms of fees? We are not questioning in the Report whether or not they should introduce fees, or how the system would work. Our issue arises from the fact that it is difficult to predict what the fee income will be in the final year of the Spending Review, and that creates a risk. Q14 Mr Bacon: How is the 1.15 billion of fee income in figure 15 calculated? You say in the footnote that it is your analysis of the Commission s financial forecast, but how do you get to the 1,150 million on page 34? Phil Gibby: These are the Commission s estimates of what the fee income will be over a 10-year period. In figure 16 on page 36 you can see how, fee income will rise over the period. Our concern is about the Commission estimate, towards the left hand side, that it will bring in 71 million of fee income in That is the final year of the Spending Review period. If the fee income turns out to be different from that Q15 Mr Bacon: Sorry, which year? I don t see the figure 71 million.

23 Committee of Public Accounts: Evidence Ev 5 5 March 2012 Gingerbread Phil Gibby: These are the different extreme scenarios. The actual estimate lies between the green and the blue 71 million is what the Commission predicts. I could show you that graphic if you like. Q16 Mr Bacon: My point is simple. You have typed the numbers for the high and for the low, but not for the one you are talking about. Phil Gibby: I apologise. Figure 14 on page 32 will give you the individual elements for You get 4 million from the application fee, 4 million from enforcement, 21 million from the parent with care and 42 million from the non-resident parent. That will add up to the 71 million that is expected to be brought in. Q17 Chair: Do you have evidence that would substantiate the basis for the scheme that if we put in fees, more people will settle within families? I understand and empathise with your view that fees will mean fewer going in, but do you have evidence for that? Have you done anything that backs that up? Janet Allbeson: We are all trying to predict what is going to happen. The NAO has said that it thinks the Commission s estimates are over-optimistic. We have asked single parents what they will do, but we have been slightly overtaken by the fact that the Government have brought down the application charge from 100 to 20, and I am not sure in this assessment whether that factor has been taken into account in terms of its behavioural consequences. We have been doing some preliminary work in a big quantitative survey in which we have raised that issue, although we are getting only very early results now. Interestingly, it suggests that the parents with care who have been consulted so far are concerned not just about the deduction from their own money, but about the fact that a non-resident parent would have to pay a lot more. That is putting them off, because it is money that would not go to their children; it would just disappear. Q18 Mr Jackson: We might be veering across the border between a value judgment on the policy and the question of efficacy and value for money. Janet Allbeson: Our concern, which we share with the NAO, is that there is no evidence. We absolutely do not know the behavioural implications of charging. We are trying to find out as best we can. The survey asked non-resident parents whether they would use the collection service, but given that they will have to pay between 15% and 20% extra if they do, it was not surprising that only 13% said that they would. Q19 Mr Jackson: Can I take you back to the nuts and bolts of the new scheme? I can certainly empathise with what you say about the old scheme because I have sat in advice surgeries looking at printouts that are like hieroglyphics. I cannot understand them. I have two degrees and I struggle. Someone who has perhaps got reams of paper and does not get telephone calls answered will be very frustrated I can understand that and I totally agree with you about that. Coming back to the interesting point you made about the demographics of users of the new system, do you see in that system any mechanism to ensure that it moves away from easy wins that is, PAYE into those more difficult areas: the self-employed and those not working? Is there a mechanism to ensure that, or is it just a decision that is taken at a relatively low level? Janet Allbeson: I think what is going to happen with self-employed people is pretty worrying. The service will definitely be cheaper and in some ways better, in that it will be based on figures from HMRC on last year s earnings the last complete year s earnings and they will take those both from PAYE and selfassessment, but they will only look at earnings. In the case of self-employed people, they will not look at dividend income or other income, even though they will have access to it through HMRC 1. Instead, they will rely on the parent with care saying, Can you look into this and see if there s any other income? The onus will be on the parent with care to do it. Q20 Mr Jackson: But do you not think that, because every situation is different, that is a reasonable thing to request that the parent with care does that, if they have legitimate suspicions about self-employed people hiding income? Everyone is different. Janet Allbeson: I suppose the frustration is that CMEC potentially has access to that information it will be in the self-assessment that a non-resident parent has to submit. Why not make use of it when it is front you is, I suppose, our query in terms of ease. There is no doubt that one of the big advantages of the new system is that it will, hopefully, be updated every year that is the plan and we will get away from these nil assessments. They will not be allowed to continue indefinitely. Q21 Mr Jackson: One last question: has the trend in nil assessments been to increase those numbers over, say, the last five or six years, or have they remained about the same as a proportion? Janet Allbeson: I do not have the figures to hand. I can send you the figures for the last five to 10 years. I could not say what the trend is 2. Phil Gibby: I have only the last four quarters, which is not entirely helpful, but in December 2011 nil liability was 264,200, compared with March 2011, when it was 283,900, so over the last year it has been coming down. Q22 Mr Jackson: That is a function of general improvement in the overall scheme? Phil Gibby: I think it is probably reflective also of clearing the backlogs. Mr Jackson: Thank you. Q23 Amyas Morse: You were talking earlier on about the quality of service that you would like the much more responsive service. Despite concerns about IT projects, the fact is that the only way to provide those sort of services is by having a much more effective IT environment, wouldn t you say? Of course there is a 1 Refer to written evidence submitted by Gingerbread 2 Refer to written evidence submitted by Gingerbread

24 Ev 6 Committee of Public Accounts: Evidence 5 March 2012 Gingerbread risk in doing it, but this is a road we are going to need to travel, I think. Janet Allbeson: If there is a more automated system, because that will be cheaper and simpler, there has to be also room for flexibility at the margins. What is alarming about IT is that it appears that the lessons have not been learned from previous attempts at reform. When the Office for Government Commerce says it is not satisfied that the Commission is an intelligent customer, that worries me. The statement that Critical testing must now be performed in parallel with programme delivery to remain on track is pretty frightening. Chair: Where do you get all this from? Janet Allbeson: This is in figure 17 on page 37. That makes me feel pretty queasy. The Commission told its audit committee there is a high risk that the change programme, which is the whole reform programme, may not deliver phase 2 functionality, which is the bit where existing cases get transferred, within the agreed time scale. That is a problem because one of things that the Government have given assurances on is that they will not start charging people until this system is up and running and working effectively. That is quite right it is an absolute given that you cannot possibly introduce charging until the system is working effectively but delay will produce a vicious circle, in that there will be less fee income, yet what the Report shows is how reliant the Commission is on fee income. Our concern is that to make ends meet, to close the circle and meet the cost charges, the Commission, rather than putting its own house in order and looking at internal efficiencies that it can make, has been too ready to focus on taking money away from hardworking, struggling parents. We very much want the Commission to look at ways of becoming more efficient that is what the NAO has come up with so that it can make those necessary savings reductions without looking to charges as its No. 1 way of doing that. Q24 Meg Hillier: Ms Allbeson, you have seen a number of these changes through. Your last answer seemed to suggest that the challenge is in trying to layer one way of getting more money in through fees on top of an imperfect system. We are not asking for your comments on the policy, but do you think, in an ideal world and from the point of value for money, it would be better to get the system in order and then change the policy? Is there a danger of confusion about where things are improving, if indeed they do improve? Janet Allbeson: Yes. What the Report showed is that the Commission has not got its target operating model in place yet. It is planning to do so by March 2012, which is only six months before the new scheme is due to start. It has no adequate plans on how it will achieve its cash efficiency savings of 151 million; its planning tool is described as not fit for purpose; and the costs of implementing the new scheme will be more in the next 10 years than those of running the existing scheme unless you introduce charges. There is something wrong there, which suggests that a much tighter look needs to be taken at other efficiencies, rather than relying on taking money away from very hard-pressed parents. By the time these charges are introduced, a lot of the tax and welfare cuts that are on the way will have really started to bite, and money transferred from one parent to another private transfers will actually become crucially important in helping protect children from the effect of those welfare cuts. Chair: That was very clear, full and very helpful, so thank you very much indeed for your contribution this afternoon. Examination of Witnesses Witnesses: Robert Devereux, Permanent Secretary, Department for Work and Pensions, and Noel Shanahan, Chief Executive, Child Maintenance and Enforcement Commission, gave evidence. Q25 Chair: This is a very quiet session Robert Devereux: Do you think we can do something about that? Chair: until you arrived. Thank you for waiting and listening. I am going to start with a question to Noel Shanahan. How long have you been in post? Noel Shanahan: Since the middle of last year, since May. Q26 Chair: So you have your feet under the table then. Noel Shanahan: Yes. Q27 Chair: You are facing substantial challenges, in terms of both the money you have to get out of the system and the new system that the Government decided to implement. As I read this Report, it threw out a question to me. Before we can have a sensible conversation about value for money and effectiveness, can you tell me, in the new settlement, what the purpose is of the Agency? What are you trying to achieve? What are you there to do? Noel Shanahan: The quick, headline answer to that is supporting separated families and securing children s futures. That really says it all. We are in place to assist parents who are separating to try and overcome their differences and put in place family-based arrangements. For those who cannot achieve that, we are there to run a statutory scheme that s as lean, mean and efficient as it can possibly be. It is both those. That s my brief. Q28 Fiona Mactaggart: Let s hope it s not mean. Noel Shanahan: Yes. Q29 Chair: So you still see your purpose, both now and in the transformed organisation, as being to maximise the support that you can give to separated families and children? Noel Shanahan: Absolutely.

25 Committee of Public Accounts: Evidence Ev 7 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission Q30 Chair: All right. That is just to be clear. I don t want to come to fees straight away, as that is obviously contentious, and we will want to get there. There is so much in the rest of the Report that calls into question whether or not you are able to achieve that. I recognise that you have come a long way. I think that we all recognise the journey that you have come on, and it is well articulated in the Report. You have reduced backlogs and the length of time that it takes to deal with new applications, and you have increased the money collected, so well done well done, but. Looking at arrears, for example, there is 3.7 billion of arrears. For some reason, only a quarter of that is collectable. Then, for some appalling reason, you only expect to collect less than half. That strikes me as pretty worrying. There is a lot of money outstanding, which ought to be going to families for children. You re saying you can only collect a quarter of that. I don t understand that. Then, even out of what you can collect, you say, Actually, we re only going to collect less than half. Noel Shanahan: I think the 3.7 billion or 3.8 billion is really a legacy of the past. This is arrears going back over the last 19 years. About 50% of it is due to the Secretary of State, as well; it is not all due to parents. Through that time 10 or 15 years a number of assessments were made incorrectly. There was a period of time when punitive maintenance agreements were put in place, frankly. If one parent disappeared and we tried to track them down but couldn t get hold of them, we made an assessment of their income that was punitive to try to chase them down and frighten them into contacting us to put a proper maintenance agreement in place. Those punitive agreements are still on the books; they are still on the record. They are not really a reflection of the fact of what that individual was earning at that point in time. There is a legacy in that 3.8 billion, which is, frankly, just incorrect. Q31 Chair: Then why don t you clean up the figures? Why can t they just be cleaned up? Phil Gibby: From the NAO point of view, we have always put a qualification on the account because of the difficulty we have in terms of identifying the amount of the debt and who it is attributable to. Q32 Chair: It seems straightforward to me. If there is a whole load in there that is rubbish, clean it up and start with a base that we can work with. Robert Devereux: The Commission is basically managing to keep new cases going and deal with contacts when parents get in touch with them. They have not set themselves up to work their way through 1 million cases, many of which are, for the reasons that Noel said Q33 Chair: But you ve got to clean to assess yourself. It would be in your interests. If you re getting your accounts qualified and one of the reasons is I want to come back, because there is still 1 billion, which you say is collectable, but you are only collecting less than half of that. If your accounts are being qualified because this crazy figure is floating around that has a historical legacy to it, why on earth aren t we cleaning it up? Robert Devereux: In the costs that we have in place for the new scheme, one of the things that we have got to do is sort out how much of the arrears we will actually be moving into the new system. That will require us to go through case by case to decide what these numbers actually are. Q34 Chair: So how long will that take you? Robert Devereux: The plan at the moment is that that will be done by Noel Shanahan: The best part of three years. Robert Devereux: There is a lot of work in there, but we are now resourcing the Commission in order to make sure that they can do that calculation, which has not been the case to date. That s the way that we are going to take it forward. Amyas Morse: The 50% recoverability is the Agency s number, isn t it? I think I m right about that. The 50%, which is an estimate of how much of that total number might be recoverable, comes from the Agency, as I understand it. Q35 Chair: Okay, so we have understood that 3.7 billion is out with the fairies, but there is 1 billion that you say is collectable, yet you are only expecting to collect and I bet you go underneath that less than half of that. Noel Shanahan: Yes, and as Robert has said, that is part of what we are geared up to try and collect as we go through the transition: effectively closing down the old systems, opening up a new one Q36 Chair: I don t think this is anything to do with it. I am trying to steer away from old versus new. You, not NAO, said there is about 1 billion collectable. This is money that children and families expect to have. Robert Devereux: Can I try an explanation? We have explained why so much of the past probably is based on almost entirely dodgy data. The next question you need to ask yourself is, Is it actually cost-effective to collect the sums of money? Q37 Chair: Cost-effective to whom? Robert Devereux: To the people doing the collection, perhaps. Q38 Chair: But what about the families? Robert Devereux: What price would you put on that? Q39 Chair: I have no idea, but if it is collectable and it is money owed to families and this is the purpose of the organisation? I genuinely got very perturbed as I read the Report. I thought, What s the purpose of the organisation? If the purpose of the organisation, which Noel Shanahan articulated, is to ensure that you get money Robert Devereux: If you want to have a conversation about that, let us write you a note about this, but I am fairly sure I will get Noel to correct me if I am wrong that, actually, there is a calculation here about how much it would cost to collect some of this debt.

26 Ev 8 Committee of Public Accounts: Evidence 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission It is not self-evident that in every case you would want to collect it. Chair: I can understand not in every case. I hear that. There may be somebody who moved somewhere the Antarctic or something and you can t pursue them, but I can t believe that over half is not collected out of the stuff you say is collectable. Robert Devereux: Let us give you a longer answer on why the Commission reached that judgment. Q40 Ian Swales: Do you use outside agencies once you get to a certain point, as some other public departments do, for collection? Robert Devereux: For the actual collection of arrears? No, we don t. Q41 Ian Swales: Is that something you would consider looking at? Robert Devereux: As part of the way in which the Commission has developed its enforcement procedures, we have now got access to a much richer set of data, including the sort of credit reference-type data, that gives us clues as to who actually might have cash and resources that we can actually target. Amyas Morse: You tried it before and it didn t work. Is that right, more or less? Noel Shanahan: Yes. It s been tried before in terms of trying to use debt-collection agencies and so on, with no success even some touch points to see if debt could be sold. It really can t be sold. It is really a difficult number. People see that it is very difficult to get, so it is not really a saleable prospect. Q42 Ian Swales: Why didn t it work before, then? What were the reasons? Noel Shanahan: Frankly, chasing down the individuals, and finding the individuals many of these individuals have worked hard not to be found. Secondly, the basis of the calculation, as I said earlier, is so fraught with errors, actually proving it is difficult. Q43 Ian Swales: That is why I asked the question, because debt collection agencies are very keen to take work on if they know who the person is and the debt is very clear. So are you saying that, actually, the real problem is you couldn t give them reliable data on which to go and act? Noel Shanahan: The amount of work to get it clean that s correct. That s why we have got money set aside for three years: to try and clean it up. Q44 Austin Mitchell: Debt collecting agencies are one of the most flourishing businesses in modern Britain. Why can t you just put it out to the bailiffs? Robert Devereux: This will depend on the distribution and size of the debts. If it is lots and lots of 20s that is a different proposition from lots and lots of 10,000. Q45 Austin Mitchell: The biggest problems are with the self-employed, aren t they? All the complaints I get are about orders not being enforced, husbands not paying, husbands evading, husbands concealing their salary. All that has to be dealt with. It has not been dealt with. There is a huge debt resulting from that. Why not just put the bailiffs in? Robert Devereux: The bailiffs do go in where we think there is a case for Q46 Austin Mitchell: They do it for the rates and traffic offences, and parking offences. Robert Devereux: They do for this, too, at the point at which there is something they can collect. Q47 Chair: Anyway, you are going to let us have a note. It is just a big figure. Robert Devereux: We are confusing what we are doing with the question the Chair is asking, which is why we think 1 billion is collectable which is an interesting word and then propose to collect half of that. Let us give you proper evidence on that. Q48 Chair: In giving us that note, which we require quite quickly, so we can do our report, please: do you tell parents when you can t collect it? Noel Shanahan: Yes. Parents will be kept up to date with the position that we have with regard to their arrears. Q49 Chair: That is not our experience. The reason why you find all of us round this table saying this you will know, because MPs have so many of these cases is that that is not our experience. There is a debt outstanding. It would be interesting: when you go away, just tell us in the note, but my experience, as a constituency MP, is that the parent does not know that you have thought that it is uncollectable. Q50 Austin Mitchell: That is right. The parents have to supply the Agency with the information: My husband works at so-and-so. He s drawing a wage. He s working full-time. But it is usually ignored; it does not produce results. Noel Shanahan: It is fair to say hands up that all too often right now it is the client contacting us, prompting us, that drives us to investigate where we are in each of those cases. That is not a position that we are happy with it is a position that we are going to change but it is a fair point that that is where we are right now. Robert Devereux: One thing that your previous witness said was that she hoped that, when payments were not made, the Commission would be on their case. The whole point of the automated system that we are putting in place is that as soon as a payment is missed, we will know about it; our staff can act on it. Noel is creating teams who will pursue it. That is simply not the case at the moment. We are essentially reactive waiting for the parent with care to say, I didn t get a payment that month, with all the problems that you are identifying. We are trying to put ourselves in the driving seat, so that although we do not want people to be within the statutory scheme, if they are within it, we will be much better able to support them. Q51 Chair: Okay, we look forward to the note on that. What I am trying to do is look first at the existing systems and where the inefficiencies are, before we

27 Committee of Public Accounts: Evidence Ev 9 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission go to the new system. There is so much to deal with, but let me deal now with the offices. Why on earth do we have 64? I looked at this and thought, I don t think any of my constituents ever have dealings with your organisation face to face. I do not know whether the constituents of my colleagues round the table do, but all the dealings that my constituents have with your organisation are on the phone, by letter or by e- mail, so what on earth are we doing, having 64 offices round the place? Noel Shanahan: The Report points out that in the early beginnings the thought was that there would be a headquarters and six major offices, but in the course of the last 15 or 20 years, the CSA went on fire there was a real issue. It grabbed as many civil servants and offices as it could to pile through the paperwork. We ended up, at one point, with 250-odd offices. As recently as 2002, there were 114, so 70 is still progress from Right now, we have a plan to reduce the number of offices. It is already down, in our plans, to 56. I have a plan to continue looking at it, but we need a reality check on what it actually means. In 45, almost 50, of our offices, we are talking about a handful of people, who actually sit round a desk on a Jobcentre Plus site. They rent a few desks. Those are not CSA offices. In reality, we have about 20 Q52 Chair: How many of those out of the 64? Noel Shanahan: There are 45 sites where there is a handful of people. Q53 Chair: Forty-five sites are Jobcentre Plus sites or other DWP sites. Noel Shanahan: DWP sites, and we have visiting officers in them, investigators and court presenters. Those are mobile workers who sit there. Chair: Okay, that makes a bit more sense. Does anybody else want to ask anything on offices? The figure did just hit you. Let s go now to the Amyas Morse: May I ask something, as we are talking about this? Forgive me. That makes sense to me, but why is their performance so variable? Do you mind me asking that? As we looked across all these sites, we saw that, and I m interested to know what drives it, in your view. Noel Shanahan: The question is why there is such a difference in performance between our regional offices. Hands up: our ability to monitor productivity, case by case, site by site and service by service, is nowhere near where I want it to be nowhere near. Our new system will give us rich data that will allow me to monitor, down to individual level, performance and productivity. Right now, that is very difficult to do. We are using past historical performance and extrapolating forward not a good place to drive out cost. I have a new data warehouse coming in, in the middle of this year, for the new system. We have found a way to use it, so I can put in there data that will help me to drive the current organisation s structure and get closer, at least down to team manager level, to drive productivity. Is the position as the Report says? Yes, it is. Is it a position I am happy with? No, it is not. Are we doing something about it? Yes, and the future system will let me drive down to individual performance Q54 Chair: What is the time frame for that? Noel Shanahan: For the data warehouse, it is the middle of this year. That lets me get down to team level on our current system. The future system will come with its rich texture of data. The launch is end of this year. Q55 Chair: But you could start from this year, making comparisons, driving up productivity and driving down costs? Noel Shanahan: Absolutely. Q56 Ian Swales: On offices, will a person always have the same office and the same person looking after them? As the previous witness said, centred on the people who need help is what the objective should be. Will that happen in the new system? Noel Shanahan: I speak to lots of our clients and one of their frustrations is, Each time I call, I can talk to a different person. The nature of our opening hours is that we can never guarantee that you will talk to the same person. However, the issue with our current systems is that if any of us logged on now, to figure out what is going on with the case can take many minutes and many screens. The new system is intuitive. You get straight there and it is right in front of you. Any of us, within seconds, can see what is going on to update the client. We are just not there right now. The thing that we are driving through this year it is part of our efficiency drive this year is that too often we say to clients, We ll call you back. We don t know the details, we ll call you back. When I have touch points with our clients, that is the most infuriating thing that really gets their goat. We have already jumped all over it. We have reduced callbacks by 80% in the last six months. One and done: if you contact us, we want to sort your problems while you are on the phone. That is our drive; that is where we want to get to. That will drive out cost. Q57 Chair: You will have to find 151 million in financial cuts. We will come to the income, but you are anticipating in this spending review an income of 71 million and you are assuming 12 million in less work. Those are the figures as I get them and they are to be achieved by , which is not that long away. You have been in post for a year now, so you are well embedded. Why on earth have you not got what the NAO can identify as proper plans? You have got the figures. You managed to tweak a little bit more out of DWP in the middle of it, but why on earth have you not sorted out how you will get to your cuts figure? Noel Shanahan: We have a number of plans in place. We did furnish them to the NAO. There are a number of steps in place that will help us get to the 151 million saving. The first one is that all our work on the design automates our processes, so that by the time we get to , a number of automated processes will take cost out of the system. We will be closing Q58 Chair: That is assuming the IT is delivered on time.

28 Ev 10 Committee of Public Accounts: Evidence 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission Noel Shanahan: Correct. Of course, we will ensure that we take out the benefits of the new system in the automation. Q59 Chair: But if the IT is not delivered on time, what difference will that make to your 151 million? Noel Shanahan: If it is delayed, it will be a delay to the benefits that we take out. Q60 Chair: It will be a delay to Noel Shanahan: It will be a delay to the benefits, obviously. Q61 Chair: How much? Noel Shanahan: I cannot give you the exact number, but generally speaking, if there is a delay of a month, it will be in the region of 3 million to 4 million. Chair: So, you are assuming it will be in by I cannot remember when the IT was supposed to be in by. Noel Shanahan: October 2012 is phase 1. Q62 Chair: So, every month of delay takes 3 million to 4 million out of the 151 million target by ? Noel Shanahan: To put it another way, it presents me with a challenge to find the 3 million or 4 million somewhere else. Q63 Chair: Of course. It will challenge you. Are you worried about that, Mr Devereux? Robert Devereux: I certainly would be worried if we thought that the IT was going to be late. The thing that the Report properly identifies is that the Commission has done really well recently in driving up productivity. You should not underestimate the extent to which, if there was some other problem, Noel would be on the case anyway, because actually Q64 Chair: But are you worried? We have not come to the IT. The IT does not look the world s most organised and best-managed project. Robert Devereux: When we can finally give evidence on the IT, and not just base it on the stuff s that is in here, I would be able defend that. Q65 Chair: You are confident that the IT will be in? I am just reading the document. Robert Devereux: Maybe we can turn to the words. Q66 Chair: Let us deal with this; I am trying to be logical, so let us deal with Robert Devereux: Many of the words on the IT are correctly identifying what was the case. You will also find perfectly positive words about what is now the case, and there is a bit of a distinction here, which is really worth drawing out. Phil Gibby: Just to clarify from our point of view, we were concerned about the state of the IT earlier on. There has been progress with it. The Commission has assured us that it will not introduce the system until it is clear that it is up and running and it will work properly. What we cannot tell is whether the changes that are being brought in now are enough to mitigate those risks, and therefore whether it will hit that day. Q67 Chair: The IT? Robert Devereux: The most recent review by the external Office of Government Commerce, when it looked at phase 1, said that the team s view is that phase 1 on its own merits a delivery confidence assessment of amber/green. It described the whole project as having substantial risks, which the programme is taking sensible steps to manage, meaning that delivery confidence overall is amber. That is what is being recorded by OGC externally. Q68 Chair: When was that? Robert Devereux: July 11. Q69 Chair: So, presumably, that was available to you. Robert Devereux: It was indeed. You will find it is referred to in figure 17. Q70 Mr Bacon: Was that the OGC report that concluded that the Commission s ability to act as an intelligent customer contributed to slippage? Was that the same report? Robert Devereux: It is indeed, and it is the one where the word had, I think, might have been usefully introduced. It is clearly the case, as you can see from the bit at the bottom of that page in figure 17, that the Commission embarked on a process to put this new IT system in, which was using the agile system that we talked about previously. In their case, this has not worked. They have changed horses. That is what the OGC is referring to. Q71 Mr Bacon: Where would you have inserted the word, had? Robert Devereux: Between customer and contributed. Q72 Mr Bacon: You mean had contributed, but no longer? Robert Devereux: I just read to you their conclusion about the programme as it stands. My guess is that if they genuinely thought that we had a persistent inability to act as an intelligent customer, they would not have given us an amber/green rating. Q73 Mr Bacon: We have seen lots of OGC reports over the years and they come in all the colours of the rainbow. Mr Gibby is more than familiar with most, having been a veteran of the Rural Payments Agency. Can I just ask you Robert Devereux: What other evidence can I bring you? I could go back to our own assertion, which you won t like, so at least I have tried an external reviewer who has looked at the programme. Q74 Mr Bacon: Is this sentence still correct, Mr Gibby I m reading again from figure 17? Can you just confirm it? Critical testing activities must now be performed in parallel with programme delivery to remain on track. Is that still the case, or is it something that was the case but is no longer?

29 Committee of Public Accounts: Evidence Ev 11 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission Phil Gibby: That is our understanding of the case up until Christmas. I don t know if it has moved on since then, but yes Q75 Mr Bacon: So, Mr Devereux, Critical testing activities must now be performed in parallel with programme delivery to remain on track. Is that still true? Robert Devereux: It is. Q76 Mr Bacon: Right. Can you give me some other examples of Government programmes where testing activities were performed in parallel? Robert Devereux: Probably the introduction of the employment and support allowance. Q77 Mr Bacon: Any others? Robert Devereux: I don t know. Q78 Mr Bacon: Tax credits does that ring a bell? Criminal Records Bureau does that ring a bell? Rural Payments Agency does that ring a bell? It is what happened in all of them. The testing was done in parallel in all of them. In some, they hit the go-live button when they knew it didn t work properly, so we are right to be concerned about this, aren t we? Robert Devereux: You are right to be concerned about it, and you are right to assume that Noel and I are spending a lot of time making sure that we do know what Q79 Mr Bacon: So you are not going to hit the live button until you are sure it works, even if it means a delay? Robert Devereux: Absolutely not, and you can assume that that is exactly where Ministers are too. We are perfectly aware of the history. Mr Bacon: It is great that you say we can assume, but the history of this I m not talking about any particular Administration; I have looked at these sorts of things for while is that if we, sitting where we sit, were to assume something generally from history, we would actually assume the opposite. So when you say, You can assume, it is gratifying to hear, but it is not borne out by the track record in the past. Robert Devereux: What might be different now I can only speak for the Ministers I am working with is that we are spending an awful lot of time looking at deliberate plans for testing and all the rest of it. Ministers know exactly where this programme is in far greater detail than some others I have worked with. Their judgment is basically that this is not worth turning on, because you all know exactly what happens if you do turn it on Q80 Fiona Mactaggart: Can I ask what has happened since July? This report is about July. I thought Mr Shanahan could tell us about what has been happening since July, which is quite a few months ago. What are the changes, which have, no doubt, contributed to the confidence that Mr Devereux is showing? Noel Shanahan: We have done a bunch of our useracceptance tests. Testing will highlight and throw up issues we will get those issues and fix those issues. We have also now started to see what the end user interface is going to look like, so what does the machine look like for case workers? What does it look like for employers? There will be a customer portal that also has been completed. We are starting to get a lot of confidence in what this is going to look like, and the dramatic difference it is going to be for our end users. Q81 Ian Swales: It is not usually my role to help witnesses, but I think it is important to read the last couple of sentences of figure 17, which do actually say, The Office of Government Commerce (OGC) concluded in July 2011 well, you can read them as well as I can, but those sentences are a lot more supportive of what has been going on. Chair: Can I ask a question from earlier Robert Devereux: May I answer that? I really do not want to mislead you. We are indeed in the process of user-acceptance testing. As you will all know, we have 90% of the code built for doing this user-acceptance testing. For me the critical date is going to be around April, at the point at which we have finally gone through all the 5,000 test scripts. At that point we will know what quality code we have actually built. That will be fundamental to the rest of our plans. Q82 Mr Bacon: April? Robert Devereux: April 12. Q83 Chair: Is that phase 1 of your implementation or phase 2? Robert Devereux: There are two phases. The thing that we are intending to open in October is phase 1. That does not come with charging. The charging starts in July What I have just described is the first pass of all the user testing for the thing that we want to do in October. You will be perfectly aware from previous systems that until you have completed the testing, you would be wise not to make too many brave assertions, but that is the process that we are going through. We know exactly where our checkpoints are in this programme. There is one in April and another one in August. There is another in September, if we turn it on. For at least one of those, you should reasonably expect us to be asking very hard questions: is this fit for purpose and is it going to work? That is what we are proposing to do. Amyas Morse: I do not have any objection to that. The point of the Report and talking about cost-cutting is to say that I agree with that, but also, like many people, having been involved in the implementation of quite a number of IT systems, however well it goes, the fact is that there is a reasonable I certainly see it as a pathway to delivering better services. Suppose it goes really well, but takes a bit longer. All we are simply saying is that, given that in this review period we are talking about cost reductions being achieved and how confident you can be, don t you think that it would be a good idea to try to have some other ways of making the target rather than relying on those cost reductions? By the time you know whether it is or is not online in time, it will be a bit late in the period for you to retrieve it in some other way. I do not want

30 Ev 12 Committee of Public Accounts: Evidence 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission to sound like I am trying to undermine what you are doing in terms of systems, because I am not. Noel Shanahan: I absolutely respect the point. I have two levers that I am trying to pull. First, I started off a number of months ago a line-by-line budget review of corporate headquarters spend. I am taking millions of pounds-worth of costs out of that, which will help me in the spending review period, which, frankly, creates a buffer, so if I get a bit of a delay, I want to consume my own smoke as much as possible. I am finding money from that point of view. Secondly, as we start to increase take-on of the cases, we will be able to see what that volume take-up is. My headcount predictions to help me through transition go up. If I do not see the volume of cases coming across, I can manage my costs down by simply not recruiting. I think I have strong levers: take costs out of the organisation now, where we can afford to take costs out; improve the existing service, which takes costs out; and a tight grip on recruitment on head count which we will put in place only if the demand is there on volume. I have another bit in my pocket: I will have about 300 to 400 fixed-term appointees in the organisation who I can pull out at reasonably short notice. So I have levers to manage down my costs base, depending on what I see the volume is. Q84 Chair: But you want your volume to be high, because you want to help families? Noel Shanahan: Ironically, if I really help families, they will go and sort themselves out with familybased arrangements. Chair: Okay. We will come back to that. Amyas Morse: Before we leave that subject, I want to make sure that I have understood. What you are doing, if I understand it I am very encouraged by it in addition to your plan is building up a buffer. You say you are taking costs down a bit faster than you had planned to put yourself in a position to make target. Is it unfair at this stage to say roughly how much we are talking about there? Noel Shanahan: Over this SR period, I can see my way to getting somewhere in the region of 20 million to 30 million. Q85 Chair: Can I ask something that goes back to the 151 million I do not know how we got to the one? There is 151 million and 71 million. I never understand these ones. How much is coming out on just reorganising? I looked at figure 9 and was absolutely astounded. This organisation has been one since 2008, has it not? That was before you arrived. Noel Shanahan: Yes. Q86 Chair: Maybe it is a question for Mr Devereux? I cannot for the life of me understand why we had to have two corporate structures for all those years. Robert Devereux: Why did we have two corporate structures? The most obvious answer is that that is one of the reasons why the incoming Government have decided to bring this NDPB back in house. This has been at arm s length. Those are the choices that the NDPB made. It is clear that they have already changed that, so the Report properly records that they have merged those two sets of structures already. Q87 Chair: But why out-house as an agency did they need two corporate the structures? Robert Devereux: That is a question the Commission should answer. Noel Shanahan: I can help with that, as I have researched the history of this. There was a CSA structure. CMEC was then created effectively to oversee the CSA and to think of new ways to create a new child maintenance service. It had a separate structure. As time went on, that did look crazy. We have now merged them. By the end of this month, we will have taken 10% of the headcount out of head office, as we start to merge them. Part of the buffer I am creating is driving savings further through that, so the elements of two different corporate structures have gone. Q88 Chair: Okay. The Report also says I know that the Department does not quite agree with this, but there is sufficient evidence for us to have a go at it that in Australia per-family costs are much lower. We can play around a bit and say that the NAO has been generous to you in some respects and that it has maybe been a bit wicked to you in other respects, but there is a disparity in those costs. When are you going to see something that gives us a feel that you are efficient? The Report is quite critical. At the very end it says that you are focusing on the new system. If you actually focused a bit more on doing some of this streamlined service-provision process-management outsourcing, potentially that would get your costs out to meet your 150 million plus your 71 million plus your 12 million, without all these risks of new IT systems and collectability of income and all that sort of stuff. Robert Devereux: Let me try to answer. Noel has just given one point. You have got a lengthy answer about what he is actually doing to drive cost out of the current operation. He has a long track record of doing this. Secondly, on this IT system, you keep implying that it is some sort of free choice vote. Your previous witness wanted a system that enabled a good service. We simply cannot provide a good service on the current system, nor am I prepared to warrant that the current systems will still be operating Q89 Chair: But you have to accept I know that this is a magically new Government and you are a magically new Permanent Secretary that this is the third attempt at getting an IT system in that works here. Robert Devereux: Okay. If everybody who had had two failures could not have another go, we would all be dead. Chair: We are a bit sceptical. Mr Bacon: No, we would never have been born, I think is what you are trying to say. Robert Devereux: Let me come back to the Australian thing because it is a perfectly good question. You know what comparator numbers are like. My view is that there is a gap here. Let me just run you through how I think the numbers work. You are being offered

31 Committee of Public Accounts: Evidence Ev 13 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission a comparison in headline terms of 56p to 34p. I reckon about 5p of that is because of the cost of our clerical system. The Australians are not sitting there with over 150,000 cases being managed separately. About 7p is actually because the Australians are, as the Report records, collecting more per person than we normally do because the settlements are higher. Even having said all of that, I might get us down to 44p against their 34p. That is still a gap, although I have halved it, probably. Why is that? It is probably because the Australians are ahead of us in terms of having a rather more modern system. They have also got a different system out there. Their rules about where they can go to collect money and how they collect it are different from ours. They have a different tax system. They use tax rebates, and we do not. It is a perfectly good challenge. You should expect both of us to be seriously on the case of driving value for money in this organisation. If you do the same comparison of pence per pound saved, on even CMEC s figures, they have gone from being 56p in , down to 42p in You can see an improvement happening there, so rather than use Australia as the obvious benchmark, because it is quite difficult to do these calculations, I would rather you pinned us with actual observed delivery on our own metrics, and that is exactly what we are prepared to be accountable for. Chair: I accept that. I am quite keen on international comparators, because it is very difficult with a lot of public services to find a benchmark against which you can make those comparisons. I am encouraging the NAO to give us those. Of course, it is sometimes a little like comparing apples and pears, and I accept that as a bit of a criticism, but I think it gives us a very helpful benchmark, where a service is unique, to try and get something to look at. Robert Devereux: The other thing that public service in this country can do is be much better at benchmarking between units. You have identified Q90 Chair: Who would you benchmark this against? Robert Devereux: Even benchmarking different parts of the organisation. Chair: Oh, I see. Yes. Robert Devereux: I can tell you that within the DWP, the range of Q91 Chair: But I think there is some merit in international comparisons. Robert Devereux: I think there is some merit, but let s not pretend it is a precise science that s all. Q92 Fiona Mactaggart: My question is that it seems there is a set of figures about how much a case costs, which whirls round the ether, and we cannot know what the real cost per case is. We have costs in figure 7, but I went to the website of the Child Maintenance and Enforcement Commission and discovered something sitting there, saying, Typical CSA cases can cost around 25,000 difficult ones 40,000 or more. I have the feeling that something that is happening is, Look! We are making this as cheap as possible and we re being as efficient as possible, and, Look! This is really costly, expensive and important. It seems as though a bit of having cake and eating it is going on, in terms of pushing both ends of the spectrum, and I would really like to know what the truth is. Is it 25,000? Is it what you have just been saying? Robert Devereux: Let s just get to the bottom of the 25,000. The calculation that the NAO has done in figure 7 takes spend in one year and essentially divides it by Q93 Fiona Mactaggart: If you turn it into, say, 15 years of an average case, that goes up to 6,225 nowhere near 25,000. Robert Devereux: Exactly. So, the figure of 25,000? Noel Shanahan: Yes. Some example cases were drawn out to try and say, what would the lifetime costs of a case be? The particular example of 25,000 was what a typical case has cost, extrapolated over 19 years. The truth is that the average for most of our cases is nine years, but that was saying if there was a full case, from zero to 19 years of age, what would it typically cost, on our current historical rates? Q94 Chair: Why did you do that, for heaven s sake? If, in fact, it is only a nine-year Noel Shanahan: It was requested by our Minister. Q95 Mr Bacon: It looked good in negotiations with the Treasury, did it? Fiona Mactaggart: Exactly. That is the point I was seeking to make, but you made it better. Robert Devereux: The thing that is clear I have now spent weeks poring over this is that there are an awful lot of different moving parts in this story. There is a story about how many of the cases there are, how many are nil-assessed, how many of those are then paid by direct maintenance, how many years are they paying for, and how many children per case. Genuinely, we could generate numbers all day, which is what you have identified. I think the trick is for us to be really clear what particular metric can we see continually giving Q96 Chair: Sorry to come back to this, Robert, but I think it is really important: given that the purpose of the organisation, as articulated by you at the beginning, is to maximise the amount of support that can go to families and children, it is a bit disturbing that you get a distortion of the cost to the state of administering a case, which may then lead you to a conclusion that is not necessarily in the interests of families and children. I do not normally do that, but it strikes me, having heard that to-ing and fro-ing, that if your purpose is to maximise, we need figures that we can all understand, and which are honest and transparent, and this Government have committed to that. Robert Devereux: Can I come back to this, because what Noel said at the start was absolutely correct? What Ministers want to do is give the best possible support for separating families. I think you have consistently interpreted that as the biggest possible amount of money collected through the collection agency. These are different things, so when he says he

32 Ev 14 Committee of Public Accounts: Evidence 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission wants the best possible support, that includes helping people reach arrangements that get nowhere near the collection service. Q97 Chair: But you do not want to give a false picture of the cost of the service as a way of justifying reducing the use of the service. The more families Robert Devereux: I don t want to do that either. Q98 Chair: Well, apparently, from what Fiona got Phil Gibby: These two cases appear in a press notice for the Commission. To be honest, I would not describe them as typical cases; they are extreme, hypothetical examples of what can happen. Q99 Fiona Mactaggart: I am sorry, but in my preparation for this meeting I just looked at the website, because that seemed to be a sensible place to go to see how the Commission itself is describing its costs. I went to the bit of the website that talks about costs, and this is what was there. It was not a Robert Devereux: If that is what is on the Commission s website, let us go away and make sure that it has a rather more straightforward exposition, as you have just described. Chair: Thank you. Someone else is coming in Ian. Q100 Ian Swales: On this Committee, obviously, we are about value for money, which, as we often remind ourselves, is about not only money, but services. A lot of people watching this hearing will, in a sense, care less about the operating cost but a lot more about the service being delivered. Looking at figure 4 in the Report, on the number of children benefiting from statutory schemes and various other metrics by the way, the agency should be congratulated on progress on a number of those metrics, from a frankly diabolical position a few years ago I would like to know, in among all this cost saving and change that you are talking about, what your customers can expect on these metrics or any other customer-service metrics that you think are important in delivering the Agency s work. Noel Shanahan: I would be very up front and say that I think that the people at CMEC/CSA have done a sterling job on bringing these numbers forward, but all of us would admit that the service we deliver to our customers is not one that we are yet proud of we know there is a long way to go on that. Q101 Ian Swales: In terms of holding you to account in future, if you like, what kind of things are you looking at? Are these the key measures, or are there other measures? Where do you expect them to be? Noel Shanahan: There are some real key measures for me that will drive up customer satisfaction in the service, but at the same time will drive out costs once we have the new scheme in and it is working. For example, right now new applications take us about three months, to go through the process and bring online up to 12 weeks but we will be doing that in less than four weeks. Q102 Ian Swales: So that is the statistic about applications cleared within 12 weeks. Your new target will be a percentage to be cleared within four weeks, is that right? Noel Shanahan: We will be looking to clear them in four weeks. Another key element is the payments scheme, which right now can take us up to 12 weeks to alter someone lets us know about what we call a change of circumstance, and perhaps the non-resident parent s pay has changed. We will start to move on that a lot faster and will be looking to make the change within five days. So, again, another quick change making a material difference. If people do not pay their child maintenance, it can take us the best part of three months to chase them down and reinstate. Under the new process, within three days we will have dedicated outbound calling teams chasing them down and chasing them for the money. We are going to drive through a range of service improvements that will be better for clients and will drive out costs, because we will not have people chasing us and we will be proactively doing it. That will therefore benefit the taxpayer as well. Q103 Ian Swales: You think that driving for those new standards will, of itself, drive out costs as well. Noel Shanahan: It will, because right now, as an example, in excess of 20% of the calls that we take we take 4 million calls are people just saying, When am I due my next payment? What is it meant to be? Part of our new service is that people will be able to update themselves what they should expect, when they should expect it and when it has arrived. That will drive out, in that case, 20% of our call volume. Q104 Ian Swales: That is a very encouraging ambition. If you achieve anything like that, it will be a fantastic lesson for others, because these will be enormous changes leading to much higher satisfaction. Good luck with all that. Chair: Can we now go to the charges, unless anyone has not finished? Sorry, Stewart. Q105 Mr Stewart Jackson: I just wanted to get an understanding of the particular challenges that you face, and why you are looking at those time scales. If I do not pay my post office account telephone bill on the second reminder, they will call me within 48 hours and say, You haven t paid the bill, and they will be putting quite a bit of pressure on me. Within a reasonable period, they will then be sending me nasty letters. Is it the sheer volume of numbers that you are dealing with vis-à-vis the number of people administering those numbers that means you cannot reduce the time? Robert Devereux: Sorry, you have just described how quickly they get on the phone after your second reminder. Noel was talking about the actual act of non-payment. Q106 Mr Jackson: Yes, but if I have direct debit and I do not pay, or it gets bounced, they are straight on the phone. I am just trying to get an idea of the reason why you cannot Ian Swales: You were talking about three days, were you not?

33 Committee of Public Accounts: Evidence Ev 15 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission Noel Shanahan: Do you mean currently? Mr Jackson: Yes. Noel Shanahan: Currently, it is heavily a function of the IT system. It does not flag anything up to us to tell us you have not paid. All too often, it is the parent with care who contacts us to say, My payment has not come through. We are not proud of it, but it is a fact of life Q107 Mr Bacon: Can you spend 500 million designing a computer system to replace another computer system that did not work I am talking about the one that you are now about to replace, because, as the Chair said earlier, this is the third and not include something that flags up when payments do not occur when they are supposed to? Robert Devereux: We are. We are talking at cross purposes. The answer to the question why we cannot do it now is that the current system does not tell us Q108 Mr Bacon: Mr Jackson is highlighting a very interesting point, and Mr Shanahan s answer was very clear. We knew seven or eight years ago that we had a computer system that replaced the previous system. It is that system that could not tell you whether Noel Shanahan: Instantaneously, it could not. Eventually Q109 Mr Bacon: How can one design a system and spend so much money on it, and yet it cannot do something so basic? That is what I am curious about. Robert Devereux: That is a good question, which I would have to go and research, because, as you are observing, this was seven or eight years ago Q110 Chair: Who was responsible for it? It just drives me mad. It is one of the real frustrations of the Committee. This happened, presumably, in 2007? Noel Shanahan: The year 2003 was the last. Q111 Chair: So who was responsible then? Robert Devereux: I would have to let you know. Q112 Chair: Is that person still in the civil service? Noel Shanahan: I believe not. Mr Jackson: I declare an interest. I was on the Bill Committee for the Child Maintenance and Other Payments Bill, for my sins. We were promised a Rolls-Royce service from what we had before. Q113 Chair: Who was the civil servant? Mr Jackson: It was five years ago, Chair. It is a valid question. Robert Devereux: Let us tell you Q114 Mr Bacon: There is an honourable tradition of going from the Department for Transport to the Department for Work and Pensions, is there not, Mr Devereux? Robert Devereux: I have no idea. Mr Bacon: From clogged traffic to clogged computer systems. Robert Devereux: As I said previously, I do not know what my possible defence can be here. Noel and I are not getting out of bed every day trying to make a failure of this. We think that we are going to try to succeed in this. You are entitled to be sceptical until you see it switched on, but we are entitled to be proud of what we are doing, and we think we are going to do well. Q115 Austin Mitchell: You are expecting to save 12 million or so by doing less work. Is that because more people are going into voluntary arrangements between themselves? Why should they do that? Why are voluntary arrangements going to increase? Who is going to police them if they break down? We all know that domestic breakdowns can be Huhne-ised and become a very bitter war over money. Who is going to ensure that voluntary arrangements are enforced? Robert Devereux: Do you mind if I just go back to the policy question? We are still answering the question in exactly the same way in which the system has worked to date, which is that the CSA is there as a stick to get between two parties who are separated. It is absolutely central to this Government s policy that that is not a clever way to operate, and that the best thing to do, on all grounds, is to try to support families either not to separate in the first place or, if they are separating, to get themselves some support to ensure that they can be civil and get something sorted out. Q116 Austin Mitchell: But given the cumbersome nature of the old CSA and the difficulty of getting money out of it, it was always sensible to have an arrangement between yourselves anyway. Robert Devereux: Yes it was. But the question that Ministers are asking themselves is, Could we do a lot better if we put better support in place at the point at which people are either separating or coming to the Commission in the first place? The whole idea of the gateway to the services that Noel will offer in the future is to try to ensure that people are fully apprised of all the support that they can get and all the things they could do to support themselves and their children through separation. Q117 Austin Mitchell: But this is a gateway. Therefore, this will turn people away. If they are turned away into an arrangement between themselves, who enforces it? If the husband rats, what happens? Robert Devereux: Okay two things. The point is not to turn people away but to say that it would be better for them to reach their own agreements, and that we will try to support them. What I want most is for parents to have some common, consistent sense of looking after their children over a long time. The money is one element of that, and it is important to get that straight. If they go down that route and make a family-based arrangement that subsequently fails, they will obviously always have the opportunity to come back again. The contention behind this policy is that it would be better to get more people into such an arrangement in the first place. If they then come in through this gateway, the first thing we will do is say, We will calculate how much you ought to be paying each other. Having heard the number calculated by the Commission, you may go away and create for yourself a family-based arrangement.

34 Ev 16 Committee of Public Accounts: Evidence 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission Q118 Chair: You don t charge them for that? Robert Devereux: We will charge them one fee for doing the calculation. Q119 Chair: How much is that? Robert Devereux: Sorry, I would like to finish the answer because these steps are important. First, let s try to make sure that we support people before they come anywhere near; next, let s offer them a calculation service; and thirdly, let s say, If you want us to help you put this in place, we ll calculate a maintenance direct arrangement. We will explain how much money should be paid, and you will put that in payment. That will then become a transfer back to a direct debit from one party to the other nowhere near Noel. However, it is an enforceable obligation. If the parent with care rings up and says, You know that maintenance direct arrangement we put in place well, he or she hasn t paid, the case immediately goes back to the enforcement system and will go into collection. Those three options exist before you get to people deciding that they have looked through all the options and don t want them but would rather go straight to the collection system. All that is a deliberate act of policy to try consistently to ensure that people are reaching their own agreements and not seeing the state as the thing that can most usefully sit between two parties who are separating. Q120 Austin Mitchell: Okay, but all these are imponderables. You don t know how many people are going to be turned away or will make their own arrangements. You don t know what you are going to be able to do to help people, but you are going to charge a fee for it. If you had been able to make the kind of savings that you are expected to make by the first calculation or even more savings you wouldn t have to charge a fee. It seems that the fee for service is going to take between 22p and 32p out of every 1 that is headed to support the kids, which as you said, is the main object of the exercise. You are snaffling 32p from every 1. That is an alternative to cuts. Why don t you make more cuts, and give more to the kids? Robert Devereux: I am going to comment on the policy first. I think you have just added together the charge for the non-resident parent and the charge for the parent with care. The charge for the non-resident parent is in addition to the money going to the children; it is not a subtraction. The point about charging is to reinforce the sense that coming to the state is the least best option. Q121 Austin Mitchell: But the state set up machinery to help kids and there was no charge imposed then. This machinery is to serve the kids, not to exact a charge. Robert Devereux: Yes, but what I have been trying to describe, as carefully as I can, is that Ministers conception about what is wrong and needs to be fixed is bigger than simply fixing the CSA collection system. The whole idea is about trying to get parents to be more self-determining in the way they sort things out, rather than immediately putting a third party in the room. All the evidence suggests that as soon as you have a third party in the room, relationships deteriorate. That is not good for the children, over and above the money. Q122 Austin Mitchell: Iain Duncan Smith tells us in a letter that we are failing to recognise that a charging regime is a key part of a much bigger vision for supporting families. It seems to me that it is a key part of a vision for taking 32p out of every 1 that goes to families. Robert Devereux: I am going to repeat myself Chair: Okay. I am going to stop that because I recognise where this is going. Let us go to Meg. Q123 Meg Hillier: Mr Shanahan, the report is pretty damning about your business plans. I can point to page 33 where the headline alone says that the Commission s business plans are unlikely to be sustainable. If you look at figure 13, there is an acknowledged five-year period between 2013 and 2018 where the gross cost will be significantly bigger than the operational cost. As if by magic, after that it is almost exactly aligned. How robust are your figures? Do you agree with this assessment?and how can you convince us that that is the case and can you explain why that gap is so big at that point? Noel Shanahan: Yes. There is a big heavy lifting job to be done to take a million cases across two or three different existing out-of-date platforms, contact those clients, try to assist them to come to family-based arrangements and, if that does not work, to transition them on to a new system, the new future system. We will have to employ a lot of work and activity for about a three-year period to move those clients from our existing systems to our new systems. So you will see that as that drops down and the lines get closer, in 2017 or 2018 off the back of the transition coming to an end, and off the back of all our investment on the IT and the transition investment falling away we will be driving down the costs right across operations, and that comes out. Also the costs for our corporate HQ will come down, in excess of 40% through that period of time. So there will be a very small margin there, between the overall operational costs and gross costs. The big gap is our investment. This is really an invest to save programme there is no two ways about it. Q124 Meg Hillier: But how can you convince us that that is robust, because you have got this big box of difficult cases? Some of them are difficult for a reason, some of them are difficult because they have been delayed. What are your assumptions in projecting over that time scale? What have you assumed? Noel Shanahan: Effectively, we have done some time and motion study, in terms of seeing how easy it will be to get hold of people: how many phone calls we need to make; how many letters; how many conversations; how many of these cases can we transition in every month? We believe that we can transition up to about 30,000 a month. And we have put that into our overall corporate system, and that has kicked out the costs, the headcount and everything else that is required.

35 Committee of Public Accounts: Evidence Ev 17 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission Q125 Chair: How many clients have you spoken to? Noel Shanahan: I have spoken to several hundred clients. I have attended focus groups with dozens of clients. Chair: Okay. Q126 Meg Hillier: So you have done your modelling, but have you done some modelling that accepts that some people might not be traceable now? And if so, what are you going to do about that? Noel Shanahan: Absolutely. In our model, we have to assume that there are so many cut-off points, there are so many times we write to people and so many times we will go through a HMRC database to see if we can find them. We are also linked up with Experian, to try to track people down from other bills, etc. We have got the standard stuff to try to track people, but there is a point at which, if we just cannot get hold of people, we close the case. Q127 Meg Hillier: So you would not pass them over to a bailiff at that point? I suppose a bailiff would not be interested in the case. Noel Shanahan: A bailiff would not be interested because there is nowhere to go. The point on debt collection is that we have opened up the conversations, we are talking about what the possibilities are and they are just not massively hopeful, because generally debt collectors want clean data, and they want to know where their targets are and where their returns are. Q128 Meg Hillier: So what are your assumptions on failure rate in terms of contacting parents who are not coughing up at the moment for whatever reason, whether that is because of your delay or because they do not want to? Noel Shanahan: We suspect that somewhere around the region of 20% will just be very difficult to get hold of. Q129 Meg Hillier: I am a veteran of the Border Agency, for my sins, and over the years as MPs we have heard promises. Ministers meant them and intended that they would be delivered. We also see work-arounds, so first of all it is that everything will be done by a certain date; and then it will be done, but in a slightly different way; or we will make an initial judgment when we have the paperwork to follow. Can you sit here now and tell us that it will not be messy like that, that it will be absolutely as you have described and how can you convince us that that is the case, and that you have done the maths right, because clearly that is the key thing for us as a Committee? Noel Shanahan: The big item on this, and it is one of the lessons from 2003 and in fact from 1993 as well, is that the button was pressed to go live on a system that really just was not going to work well enough. That is the biggest lesson we have to learn. Whatever pressures are on us, we cannot go live with this system unless we know it is going to work well. Inevitably there will be some IT work-arounds; I am sure of that. It will never be perfect perfect. Nothing I have ever been involved in has ever been 100%. But what is really workable, really deliverable that is what we have got to aim for, and anything that falls short of that we should not press the button to go live. It will cost us all in the long run if we do. Q130 Meg Hillier: Okay. I am sure that other Committees will ask Ministers about that. You have moved from the DVLA to this job. How long do you intend to be at the Commission? We would love to have you back that is what we are really saying. Noel Shanahan: You will see on that chart that 2017 is the end of transition. So what I want on this is to be able to say allied with the team that is here, that is in place in CMEC is that we really transformed the legacy of CSA to a new organisation with new results. Great news for our clients; great news for the taxpayer. Q131 Meg Hillier: So you will come back to us in 2017? Noel Shanahan: I d look forward to doing that. Robert Devereux: I was guessing you were going to ask us back before then. Meg Hillier: So I think 2017 might be the triumphant return. Q132 Chair: Chris wants to come in, but I want to be clear. I have totted it up. You have said you have to get 234 million out of your budget, some of it by less work. There are all these bits you are adding together. Maybe it is even a higher figure. You told us earlier that you have reduced costs, anyway, more than the 151 million. You have done some work so that if there are delays, as we have talked about, you won t find that you don t meet your budget. How much have you taken out? As I understand it, NAO hasn t seen that. We would like to have some feel for what it is we have done and whether we can Phil Gibby: We had information on the 151 million, which is the plan. We know that a fundamental review of costs was being kicked off. I think you were mentioning 30 million as the figure you thought might Noel Shanahan: I can see my way to getting an additional 20 million to 30 million. On the 151 million, already this year, we will deliver 10% less head count at corporate head office. Operational costs delivered by the end of this year will be 10% less than last year as well. We have an operational programme going through that will deliver 8% reduction as well through the course of this year. Q133 Chair: What are the figures on that? Noel Shanahan: They are all totting up to my 151 million, but I hold my hand up and say I am about 16 million light, and today I have not got a plan. This is in three years time. I mentioned earlier that I am not happy about where we are with productivity measures and tools. I am going to have something far better than we have got now within the year, which I will use as a big tool to help me deliver on that 151 million. Q134 Chair: Okay, but a lot of your financial savings are dependent on the new scheme, which comes in

36 Ev 18 Committee of Public Accounts: Evidence 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission I accept that miracles can happen and that you might get it in on time, but if there were possibly to be a delay in the IT, or if you just happen to get it wrong on behavioural change and the income that you are therefore likely to get in, what then? Where is your contingency on that? Noel Shanahan: I referred to my contingency earlier. There are two parts. First of all, I am taking cost out now and seeing where I can get that buffer over this spending review period. The second one is the really big lever. I will be absolutely tight on take-up. If I am tight on take-up, I can manage my cost base head count, largely so that it doesn t increase unless the volume coming in matches it. Q135 Chair: What do you mean, you can be tight on take-up? You mean you can refuse people who come to you for the service? Noel Shanahan: No. If the demand and the number of customers coming through is not as high as we anticipated Chair: You can take people out. Noel Shanahan: I won t recruit. Q136 Chair: Yes, but if it is? Noel Shanahan: It will, and that is in the plan. Amyas Morse: Just to be clear then, taking it as it is on the table, if it all goes according to plan, with what you ve got going on, you are going to come in with lower costs than budget, right? I know it is a contingency, but supposing it all launches off on time, you could I am not asking you to commit to it; I am just saying that if it all went according to plan you could come in below where your current cost budget is. Robert Devereux: Amyas, you cannot have it both ways. You either ask us questions that say we will never make the budget, or you ask for contingency. If everything went well, we would all be happy. Amyas Morse: I am just asking the questions to know. Noel Shanahan: I took from the Report, and it was fair, insufficient contingency. I am making some. I need wriggle room, because life in IT means you need it, and I want it. Amyas Morse: I am just asking a question. If it went beautifully, you have some capacity to perform, it sounds like. Noel Shanahan: That would be the ideal world for me. Robert Devereux: It might just be worth observing that there are large future savings already written into public spending, which have not yet been doled out. There is a further round of austerity to go. Q137 Chris Heaton-Harris: My question has just been taken by you, Madam Chair, and by Amyas, which is really kind of you. I was particularly worried. The whole Report basically leads to the point about contingency and the fact that you did not have one, and that somewhere down the line you would have a crunch point, which would not look very pretty. I have happily taken on board what you have said. I desperately want it to work, because you provide me with the majority of my casework, like most of the other people around here, and I do not think the system works particularly professionally now for the parents that I deal with on both sides of the equation fathers and mothers. There is a big job for you to do, so I happily support the policy, although I know we are not a policy Committee. I am pleased to hear what you have said, but I am concerned about the phrase you mentioned earlier: the big, heavy lift. Could you take us through that big, heavy lift in a bit more detail, because that really affects your contingency, at the end of the day, does it not? Noel Shanahan: Yes, it does and it will all be down to the accuracy of our planning and timing, but if you imagine we have 1 million clients and we are going to have to have a look at each case, because each of our cases has two clients and two parts to it we should communicate with both of them. Part of that communication is making it clear that there are alternatives to the statutory scheme and telling them about support mechanisms that are in place to support them coming to family-based arrangements. That is quite a job of work no two ways about it but that is why we have got three years to do that. There is a range of communications. The Minister announced recently 20 million-worth of support for family services to support people coming to their own family-based arrangements, so there is a range of tools in place that we need to point people at and help guide people to, but yes, we are there for a fall-back if people need us. Ultimately, we still can have legal cover to apply enforcement, but people can start off with arrangements through the new scheme but will not have to pay under our maintenance direct option. The payments are only there for people that simply do not pay who do not want to pay automatically. If they can do it themselves, it is free of charge. Q138 Chris Heaton-Harris: Can you just clarify when you are going to flick the switch on the IT? Noel Shanahan: Our target date and everything we are geared for is October 12 for phase 1 that is new applications. Midway through 2013 is when we go on phase 2, which introduces the charging process. Only then, and after then, would we start to transition cases from the old system to the new system. Q139 Chris Heaton-Harris: Are you on track for that? Noel Shanahan: We are focused to deliver that. Q140 Ian Swales: You mentioned a few minutes ago the HMRC database in connection with tracking people. For many of your clients and, indeed, a lot of the people round this table, there is always some surprise at the lack of joined-up work that goes on in some of these agencies. I was wondering how you see the new universal credit system, which hopefully will be in way before the end of this time scale, first, affecting your work in terms of tracking people down and so on, and, secondly, answering the previous witness s question about using income data that is available to you by some means to influence your work. I think you were in the room when the previous witness told us that it is frustrating for clients to have to report on activities of former partners when the

37 Committee of Public Accounts: Evidence Ev 19 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission agencies have already got data about their income and so on. My question is therefore about joined-up thinking and how universal credit might affect your work. Robert Devereux: Can I do the universal credit and you pick up on the earnings bit, Noel? This programme was designed it was invented just to make sure there is a regular annual feed of how much earnings the non-resident parent has actually got. The universal credit system takes that on one stage further and starts producing monthly amounts of how much people have earned in order to adjust their benefits. It is not strictly necessary within the bounds of the scheme that we have currently designed for CMEC for it to be a monthly calculation. You can hypothesise that maybe it would be even more accurate if you did it monthly and in principle you could do that, but you would not thank me if I made it more complicated at this stage. I think the main answer is that it is such a big step forward for the Commission to have regular, annual feeds of what the data is, exactly as the lady from Gingerbread said, and we will bank that. I do not think you need to worry that although there is a further step happening for universal credit, it necessarily casts a shadow over this. Q141 Ian Swales: The real question then is to what extent you would then use that data that you have from the system. As the lady from Gingerbread said, there is frustration even where you know data, it does not appear to affect the outcome until somebody appeals or complains. Noel Shanahan: Yes, we will use data from HMRC. If for any reason and it is not just self-employed people, but also employed people they say that the amount of child maintenance they are going to get doesn t fit with the lifestyle of the other partner, they come to us, and talk us through why. When there is evidence, or an opportunity to track it down and check it out, we will do that. It may be very difficult because people s lifestyle is sometimes not in line with their PAYE. We do what we can to check it out Q142 Ian Swales: We all know of examples of that, but I am asking whether you are going to build in the assumptions that you already have about a partner s income, and have an automated way of checking that against their income in the HMRC system. That is the basic question. Robert Devereux: We are talking at cross-purposes. The whole point of the system is that the data that HMRC has on someone s earnings is what no one will have access to, so he is not ringing up occasionally; that is fundamental to the design of the system. That is a different point from asking whether HMRC s information is a fair reflection of the individual s lifestyle. That is a tax collection problem. Q143 Ian Swales: But then uses it before the person comes and says something about the lifestyle. Robert Devereux: Yes. Q144 Ian Swales: So that will come. Noel Shanahan: Absolutely. It is part of the process. Robert Devereux: The annual review that was referred to in the report is precisely the act of getting the latest year s data from HMRC and updating the earnings, instead of waiting for 1 million parents with care to come and say, I think he earns such and such. Q145 Meg Hillier: Is that all income, not just earnings? Robert Devereux: I m not sure I know the answer to that question. Noel Shanahan: As it stands right now, it is all the income that comes through PAYE. That s the policy we have. Q146 Chair: So it s not all income. Mr Bacon: This is my question, and it s precisely the point that the witness from Gingerbread made. HMRC has information about income, not PAYE, but income. If you own lots of shares Woolworths is perhaps a bad example that pay dividends, HMRC takes that into account when assessing the overall tax liability, does it not, Mr Shanahan? You are nodding, but the record cannot reflect that. Could you say yes or no to my question? Noel Shanahan: Could you repeat the question please? Q147 Mr Bacon: I know that you are not a tax expert. You have done other things, but am I right in thinking that when HMRC assesses someone s tax liability it takes into account all their income, including income that they have received from dividends? Noel Shanahan: Yes. Q148 Mr Bacon: Am I right in thinking, therefore, that as the witness from Gingerbread said, you have in front of you this thing called dividend income, but you are not going to take any notice of it. Robert Devereux: No. Q149 Mr Bacon: Is that wrong? Robert Devereux: No, that is wrong, because we are not going to be collecting information that we are not going to use. That is a fundamental principle. Q150 Mr Bacon: But you are not asking for all the income, are you? Robert Devereux: Exactly. You are asking an interesting question, to which I genuinely don t know the answer have we self-limited ourselves to earnings, which is an interesting concept, but not income, or is there a way in which we could use income? Q151 Mr Bacon: This is not a policy question. Robert Devereux: It is a policy question. Q152 Mr Bacon: No, it s not. The question is about efficiency and effectiveness in doing your job the job that the policy is designed to deliver. This Committee looks at value for money, which comprises economy, efficiency and effectiveness. If information is available to the Government which you are

38 Ev 20 Committee of Public Accounts: Evidence 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission ignoring, that raises questions about effectiveness, which is the remit of this Committee. I am curious about it because, if you are relying on parents with care to come forward and say that their partner owns lots of shares and has extra income, that is less effective than taking advantage of the fact that you already know that information, isn t it? Again, nodding doesn t cut it for me. You agree that it is less effective. Noel Shanahan: Yes. Mr Bacon: Thank you. Q153 Ian Swales: That is what was behind my question, which I am glad Mr Bacon clarified, because I did not ask it in enough detail. If the carer comes forward and makes the comments you referred to earlier about lifestyle and so on, would you then go and look at all sources of income? Robert Devereux: I do think this is a policy question. Ministers have determined either that they want this based on earnings, or that they want it based on income. I can see exactly why everyone thinks income is the right answer. Can I write you a note to explain whether it is income, and if it is deliberately earnings, what rationale people have thought about for that? I doubt very much whether at any stage the commission is in possession of facts that it cannot themselves put straight into its computer, because that is not the way data sharing normally works under legislative constraints. Ian Swales: That note would be very useful. Robert Devereux: Let us offer it to you, because quite genuinely the point that was made Phil Gibby: Can I just clarify one thing, if I may? I cannot comment on the income thing, but I think the other point to bear in mind is the historic the last self-assessment or tax return that is used for the next set of maintenance payments. I think there is a 25% tolerance, isn t there, in terms of whether you would adjust. I think as long as it is within 25% it doesn t change from that. Robert Devereux: That is a different point. Let us write you a note. I perfectly understand the question; I just don t know the answer. Q154 Mr Jackson: Just a question about whether you are satisfied that you have got the capability to track people down. I say that because I understand that you are at the moment participating in pilot projects with the Electoral Commission on data matching and DWP is the lead Department. So presumably there is the capability, albeit it is among a small number of areas, including my constituency, Peterborough. Would you look to develop something similar? That is about actually physically tracking people down in this case to find out that they are registered to vote; but it can be used. That is the first thing. The second thing, briefly: right back at the beginning of your evidence you talked about the imposition of punitive fees. It seemed to me in terms of the legacy issues into the organisation that punitive fees were in inverse proportion to the chance of ever catching up with people. I just wondered: are you going to pursue a similar policy? I don t understand the rationale for punitive fees if you are never going to track people down. It seems to me that that has totally skewed the figures in terms of likely income, if you are just saying, Well, 10% we ll give punitive fees but you are never going to catch up with these people. I just wonder what your particular view on that one is. Robert Devereux: Can I just correct that; he was not talking about punitive fees. He was talking about punitive assessments. Mr Jackson: My error. Assessments. Robert Devereux: Clearly, the thought process was, Actually, I m not making progress here. Let us, as it were, put a rather generous assessment punitive in front of this individual, to see if that concentrates their mind. The reason we got into explaining that is because that is the thing which is actually sitting in the database at the moment, calculating all the 3.7 billion arrears and almost certainly it s wrong. Q155 Mr Jackson: But to use the technical term, it s buggered up the figures, really, hasn t it? Robert Devereux: Correct, that is a very technical example. On the other question about data matching, the Commission is already routinely running the people it can t trace through surveillance with both HMRC, with Experian, with others, and whatever additional things that we are trying to do across Government, we will be trying to do the same. So, if you are not paying at the moment, then either we are trying to trace you or we are trying to take enforcement action. That is what we want it to be. Q156 Austin Mitchell: I am sorry you are not going to use the information on dividends; it seems to me a major part of income for many people. If it comes to MP cases IPSA will be pleased to shower you with information on why our lifestyle is so much lower than our tax liabilities; but that is not the question. It is a reflection. I was asked to ask this question by operations management people I met. Mr Shanahan, you have got to improve your operational efficiency, so let me ask what training you provide to equip back-office staff and you said some of those will be short-term or temporary appointments with the ability to effectively manage the delivery of the operations. So what training and operations management do your back-office staff have? Noel Shanahan: There is a range of training. It comes in two key parts, often delivered together. The first part is just driving the technology of the systems even on the clunky systems there, there is quite a lot of training to be able to drive and put applications through and do the normal tasks on those systems. In addition to that is training in terms of service how to deal with customers; how to talk with customers, who often talk to us in a distressed state; how to manage those conversations; how to try and get to the key point; how to drive a conversation forward on what is an agreed outcome and at the end of it to try and make sure that when that caller is on the line, we have found and addressed all the issues that they have got. So there is a suite of training, depending on which part of the business you are in. Some of it could be more legal-oriented, some of it more service-oriented,

39 Committee of Public Accounts: Evidence Ev 21 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission some of it more finance-oriented. It depends on where you sit. So there is an overall buffer of training systems and service, and then there can be specific bits on top. Q157 Chair: I shall ask some final questions on this, and then I want to raise one other issue. Somewhere in the papers it said that 20,000 of the cases could go to court now. Have you done a costing of that? Have you looked at the relative cost of cases being considered by the court as compared with being considered by the Commission? Robert Devereux: As I understand it, there are two costs here. I am guessing that you mean the cost to the court system or do you mean to the individual? Chair: The cost to the taxpayer. Robert Devereux: The answer to that is no. We have not added that in to the calculation. Chair: If you remember, this thing was originally set up to get people out of court. If one of the effects is to put more people back into court, there is a cost to the taxpayer. Robert Devereux: There would be, but it is also the case that people who make an application to court pay 200. Chair: There is still a court cost. Robert Devereux: The question is whether or not the court is properly covering its costs, which is a question for my colleagues. Q158 Chair: Except for us, it is across Government. I understand that you have a lot to do in DWP. Robert Devereux: I just do not know whether 200 is the cost. Q159 Chair: I assume that the Treasury will be interested in this. Marius Gallaher: We are and we always look at the total cost to the Exchequer if we can. Q160 Chair: So, in the new business plan that is being submitted to you have you got it yet? Marius Gallaher: I am not aware that we have. Q161 Chair: But it is going. Can we be assured that the cost to the taxpayer, the overall cost to Government, will be considered? Robert Devereux: It is a very reasonable request, yes. Marius Gallaher: Yes. Q162 Chair: The second thing is that you have thought about introducing fees. I accept that there is a policy view on that. I asked this question of Gingerbread. We have this fascinating behavioural insights team in Government. Did they give you any advice as to whether or not people s behaviour would change? Did you take any advice from them? Robert Devereux: I think that the behavioural insights team has four people in it, and they have been doing quite a lot of other work. I do not think that they have done this particular piece of work. Chair: What a shame. I am trying to find out what the hell they are doing. I ask this question quite frequently of people. I am asking the NAO to do an investigation on it. Robert Devereux: As it happens, I know about some of it. They have been working with HMRC. By simply changing the wording on the letters that are sent out, they are getting fundamentally different answers. If you say to someone, Actually, you haven t paid your tax 92% of people in your postcode have you will get a better answer than if you just say, You haven t paid your tax. If you ask me, it is quite a remarkable science. Q163 Chair: But you need them to help you. Robert Devereux: If I may, it is not as if we have not thought about this. In the Green Paper, we set out quite clearly the evidence from our large-scale surveys about what people may or may not wish to choose to do. Please do not think that the only expertise in behavioural insights sits with these three in the Cabinet Office. Q164 Chair: If it turns out that the introduction of this policy were to lead to an increase in child poverty, which is another of your responsibilities as accounting officer in the DWP, have you got plans in place to review it to make sure that that does not occur? Robert Devereux: You have seen how much interest the Government are taking in issues to do with social justice and child poverty. The very reason why we were going down this course Q165 Chair: I understand why you are doing it. What I was asking you is that if the evidence comes back that this leads to an increase in child poverty, have you plans in place to review it? Robert Devereux: Plans in place to review, fine. Q166 Chair: You have no plans in place to replace? Robert Devereux: I do not have a completely separate policy up my sleeve. It is hard enough to deliver the one that I have in front of me. Were it the case that it was manifestly not working Q167 Chair: If you are not getting the income in, if you do not get the 71 million that everyone apart from you is sceptical about, and it is coming in in the last year of the spending review, have you got plans in place for alternative cuts? Noel Shanahan: If I do not get the 71 million in, it will also mean that I have not got a lot of the volume in, and therefore a lot of my cost base will be reduced in line with that. Q168 Chair: That is possibly where the poverty comes in. Robert Devereux: Possibly, but that actually Chair: That is why we need the evidence. Robert Devereux: But that actually needs to be looked at after the fact. Q169 Chair: May I ask you about the people with arrears, whom I am really interested in and you can write me a little note about? Will they be subject to a collection charge, when you are chasing those arrears? Noel Shanahan: No, historical arrears won t be. Q170 Chair: Okay, thank you for that.

40 Ev 22 Committee of Public Accounts: Evidence 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission If there is a non-resident parent and they fall behind, which they do, or there is a change in their circumstances, at what point are you going to trigger a charge? You have an arrangement and something happens that changes it, at what point are you going to trigger a charge? Noel Shanahan: Well, that would be a discussion with the parent with care as well. So if the parent with care wanted to give their other partner an opportunity to continue paying Q171 Chair: At what point would you trigger a charge? Noel Shanahan: When that parent with care has said, I have had enough, this person hasn t paid. As long as there has been a duration of at least a week between the payment being due and it not happening, we will then contact the non-resident parent and give them 14 days to prove that they did make the payment sometimes that happens or to say, Okay, I m not going to make it, in which case we would start to put in our normal collection process, which includes charges. Q172 Chair: Thank you very much. Mr Devereux, since we had our last hearing with you, on the Work programme, quite a lot has happened. I wondered whether you as a Department had had any allegations of fraud or malpractice against any of the other providers who have taken part in the Work programme, apart from A4e. Robert Devereux: Not new ones that I am aware of. Q173 Chair: Have you current ones? Robert Devereux: I have not brought that information with me. Q174 Chair: Can you let me know? I am interested in allegations of fraud or malpractice, whether investigated by the providers themselves, by the DWP or by the police, against your providers? Robert Devereux: I am sorry, I was not prepared for that. Chair: Since the hearing, I have personally just me, and I don t know if other people are in the same position because I have not shared this with the Committee had close to 100 s, phone calls or letters, from employees, former employees and clients of A4e. Some of them contain serious allegations of fraud, or they contain allegations of unacceptable, poor practice. Again, I wondered whether you had received similar correspondence, s, phone calls or letters. Robert Devereux: I have not, but I have not asked whether they have had them in my organisation. Q175 Chair: Clearly, I am considering what to do with this stuff that I have received, but it is so overwhelming I have never had all this before and I just wondered at what point you would believe that there is systematic fraud. Robert Devereux: As you probably know, we have agreed with A4e an independent examination of what Chair: They are paying for it it s theirs, they own it. Robert Devereux: Would you rather I paid for it? Chair: I would rather it was independent. Robert Devereux: In what sense then, I am sorry? Q176 Mr Bacon: What was the sense in which you meant it was independent? Robert Devereux: It is being done by someone that is not A4e. Chair: But it is being paid for by them. Q177 Mr Bacon: Who chose this person who is not A4e? Robert Devereux: Okay, I am going to have to write you a note on this, because I do not have it in front of me, but we are engaging with A4e to get an independent assessment in the sense of getting an audit practice in, that sort of thing, which is independent. Anyway, the point is that that is under way. Maybe you want another conversation with us about whether that particular audit might be a place for you. It depends on what you wish to do with Q178 Chair: You would be willing to talk about that. Robert Devereux: Absolutely. Q179 Chair: The final question is about the criminal investigations into A4e in Hull. Those investigations were proceeding in 2010, and the convictions happened in July 2011, I think. Emma Harrison was appointed by No. 10 in I presume that the Department was aware of those proceedings did the Department tell No. 10? Robert Devereux: I am sorry, but as I understand it there were no criminal proceedings at the point at which Emma Harrison was appointed by No. 10. Q180 Chair: There were, and I can let you know, because this is from DWP itself, that DWP has investigated nine cases, five of which were found to have a case to answer and have been dealt with, while one is ongoing we know about that. In five cases, money was paid back. The Hull case actually went to court in July 2011, but it was proceeding earlier the police were investigating and that was one in which someone was found guilty on eight counts of forgery. So that was all proceeding, the police were investigating and everyone knew about it in 2010, when Emma Harrison was appointed. Did you tell No. 10? Robert Devereux: The Prime Minister has already answered these questions in PMQs, so why don t I write you a letter Q181 Chair: The Prime Minister didn t, he just said I ve got it somewhere that there were no formal investigations into A4e. There were, because the police were at that time preparing a case to go before court. Robert Devereux: Forgive me, I have come prepared to answer questions on CMEC, so may I write you a note on this?

41 Committee of Public Accounts: Evidence Ev 23 5 March 2012 Department for Work and Pensions and the Child Maintenance and Enforcement Commission Q182 Chair: The other thing that I want to know is: did your Ministers know? Robert Devereux: Let me write you a note on it. You are asking me a lot of questions about a subject that I have not been prepared to talk about, my apologies. Chair: I thought you would have known about it because it is quite important at this point in time. Robert Devereux: You might have done, but it is reasonably difficult just to get the CMEC thing straight. Chair: All right. Thank you very much. Written evidence from the Policy Adviser, Gingerbread Please find attached my corrections to the unedited transcript of my evidence to the PAC on 5 March. I have also done two short supplementary briefings, one as requested on nil liability assessments, ( Supplementary Memorandum B ) and another on the future treatment of the self-employed within the statutory child maintenance system ( Supplementary Memorandum A ). I have also added a background note on the exchange (Questions 103 to 110) between Members and Noel Shanahan and Robert Devereux on the costs of a typical case. The third note attached explains why Gingerbread believes the figures posted on the CMEC website regarding the costs of a typical case, and cited by DWP Ministers in both the Commons and the Lords during the passage of the Welfare Reform Bill, when defending the introduction of charging for parents using the statutory scheme, are wrong. I am happy for this note to be included as a further supplementary memorandum although it does not, of course, refer to evidence from me. Self-employed Income and Child Maintenance (Supplementary Memorandum A) 1. The treatment of self-employed non-resident parents within the statutory maintenances system is problematic, because the main child support formula is based solely on earnings. Where a non-resident parent is self-employed, he 1 is likely to have a greater ability to determine how much of the income he receives from a business is classed as earnings. Currently, 8.3% of the Child Support Agency s current cases (around 94,660 cases) are classed as involving a self-employed non-resident parent. This is likely to be an underestimate, in that some non-resident parents are counted by the Agency as employees by the Agency when they are, in fact, employees of a company they own. 2. In its consultation document on the new statutory maintenance calculation, 2 the Child Maintenance and Enforcement Commission gave details of the income information which will be used by the Commission in future to set child maintenance. Under the future scheme, the Commission will rely on gross income information provided by HM Revenue and Customs. For each case, HMRC will provide a single figure to the Commission of the relevant taxable income for the latest of the last six tax years for which it holds complete information at the time of the Commission s request. 3. The consultation document says: where an individual has completed a self-assessment return, this will contain more comprehensive information about taxable income than a PAYE return, with the latter s focus on taxable earnings. Therefore, HMRC has agreed that where it has received both types of return for a non-resident parent for the same tax year, the income figure supplied to the Commission will be taken from the self-assessment return However, in adherence to a key principle surrounding the use of HMRC income information, which is that there should be equal treatment between those who are self-assessed and those who are dealt with via the PAYE system, 4 the Commission had decided that a non-resident parent s gross weekly income used in the normal maintenance calculation should comprise only those elements of taxable income most closely related to earnings. These are: taxable earnings and benefits for employees; taxable trading income for the selfemployed; taxable social security benefits (Incapacity Benefit, contributory ESA, JSA and IS); and payments from occupational or personal pension schemes. 5. Reasons given include: (a) HMRC rules do not require an individual to compete a self-assessment form if their taxed savings income in a year is less than 10,000. This could result in a self-employed non-resident parent paying more in maintenance than a parent with PAYE earnings, if the latter despite having savings income had not been required to complete a self-assessment return. 1 97% of non-resident parents are fathers. 2 The Child Support Maintenance Calculation Regulations 2012: A technical consultation on the draft regulations, CMEC Dec See The closing date for this consultation was 23 February The Government has yet to publish its response to the consultation exercise. 3 Ibid, Appendix C, para 15, page Ibid, Appendix C, para 12, page 36.

42 Ev 24 Committee of Public Accounts: Evidence (b) (c) A person completing a self-assessment form is required to give details of any State Retirement Pension. However, DWP does not supply State Retirement Pension details to HMRC. Some allowances that employees can claim against taxable earnings on a self-assessment return are not offset by the employer under PAYE arrangements. 6. As a result, available information on the non-resident parent s self-assessment form concerning savings income, dividends and property income will be excluded from the normal maintenance calculation. 5 The Commission commented: Whilst we accept that the effect of this for some cases will be to use an income figure to set child maintenance which does not mirror the HMRC figure and may result in a lower amount of child maintenance being payable, we believe once again that the greater priority is to provide calculation rules which maximise the possibility of consistency across all cases Instead, where the parent with care considers that the NRP has unearned income which the main calculation has not taken into account, she will be expected make a separate application to the Commission for a variation to the normal maintenance calculation. Somewhat contradicting the information quoted above (which states that HMRC will supply self-assessment income information to CMEC, if held as well as PAYE information for the same year), the consultation document states: Information on taxable income such as savings and investment income, dividends and property income is collected by HMRC from those taxpayers who are required to complete self-assessment returns This information will be available to the Commission on request, but only following a request for a variation If a parent knows to ask for a variation, they will be required to give an explanation as to why they suspect the non-resident parent might have additional income before the Commission will investigate, so as to weed out what the Commission describe as spurious or speculative claims. Once allowed to proceed, the Commission will then access the income information contained on the NRP s self-assessment form, available to it via HMRC This represents a definite improvement compared to the present situation, where the onus is on parents with care to provide evidence to the Commission regarding a non-resident parent s unearned income. However, we believe the Commission should go even further and look as a matter of course at all income information held by HMRC both earned and unearned, rather than leaving it to the parent with care to first request this. 10. This would avoid the necessity of CMEC having to making possible two HMRC requests and two maintenance calculations in order to capture the unearned income of a non-resident parent, and ensure that all non-resident parents with unearned income paid maintenance for their children at a level which reflected their ability to pay. In its response to the CMEC consultation on the draft maintenance calculation regulations for the future scheme, Gingerbread said: Overall Nil Cases Current Scheme Old Scheme Year total cases (per cent and no) (per cent and no) (per cent and no) December % 13% 48% 1, ,000 83, ,400 December % 15% 50% 1,313, , , ,500 December % 15% 54% 1,213, , , ,600 December % 14% 48% 1,152, , , ,800 December % 14% 45% 1,140, , , ,800 Given its access to HRMC and DWP data, the Commission will be in a far better position than the parent with care, in many cases, to know whether non-resident parents have additional income which could materially affect their maintenance liability if a variation was sought. It therefore seems unfair that it will be left to a parent with care (who may have little idea of the non-resident parent s current financial circumstances after years of living apart) to raise the issue of additional income, and understand how to use the variation procedure. 5 Ibid, para 48, page Ibid, Appendix C, paragraph 20, page Ibid, paragraph 88, page Ibid, Appendix C, paragraph 51. page 44.

43 Committee of Public Accounts: Evidence Ev 25 Nil Liability CSA Cases over Last Five Years (Supplementary Memorandum B) In June 2011, Noel Shanahan Commissioner and CEO of CMEC told the Work and Pensions Select Committee: We have a situation that I have right now [sic] in the CSA in which there are in excess of 200,000 cases, which I call nil-assessed cases, where there is not an assessment on the book that says anything has to be paid. Why? They were set up years ago and there has not been a review since then. The new reforms suggest that we will look at those annually. That means that children now who are not getting monies will be getting monies. That is a key part. 9 Broken down by the age of a case, the following table shows the percentage of CSA cases at present where there has been no subsequent assessment following the initial assessment. 10 Age of Case Per cent with no subsequent assessment Less than five years 56% Five to ten years 33.5% Ten to fifteen years 14% Fifteen years plus 7% Total 25% The Costs of a Typical CSA Case In the last few weeks, in a series of public utterances, Government Ministers (in seeking to defend proposals to levy charges on parents with care wishing to use the statutory maintenance service) have said that the cost of a typical CSA case is 25,000, rising to 40,000 when there is enforcement action. For example, in the Lords Debate on the Welfare Reform Bill on 25 January, the Minister Lord De Mauley told Peers: following the introduction of a demonstrably better future scheme, it is fair to ask for a contribution to the costs of what is a heavily subsidised service. To reiterate, the cost of a typical CSA case is up to 25,000, and that can rise to 40,000 where we take substantial enforcement action. 11 In the Commons debate on the Welfare Reform Bill on 1 February, the Minister Maria Miller told MPs: By charging an up-front fee and getting people to reconsider staying outside the system, we will be making considerable savings as I have outlined. When she considers that each case costs around 26,000, or up to 40,000 if it involves any sort of enforcement, she will quickly see that getting people to reconsider will lead to significant savings. 12 We set out below, why these figures given to Parliament are considerably misleading and capable of causing MPs and Peers to draw wrong conclusions regarding the cost of typical statutory child maintenance cases to the taxpayer. Where do these Figures come From? These figures are explained on the CMEC website, headed as a news item on 31 January as follows: Typical CSA cases can cost around 25,000 difficult ones 40,000 or more. 13 Why these Figures are Difficult to Recognise given Previous CMEC Figures These figures are very surprising given that, in the latest CMEC Annual Report, the Commission reported that in : the cost of a case managed on the main computer systems was around 350 a year. A case managed off the main computer systems costs significantly more, at around 600 per year. 14 The figures in the Annual Report do appear credible in the light of the fact that the statutory child maintenance service currently handles a caseload of 1.14 million cases, with annual running costs of 450 million: an average of around 394 per case. 9 Oral Evidence to the Work and Pensions Committee, 15/6/2011, Q145. See: 10 Written Answer, Hansard, 18/07/2011, col W. 11 Lords Hansard, 25/01/2012, col Maria Miller, Parliamentary Under-Secretary for Work and Pensions, 01/02/2012, Commons Hansard, col See 14 CMEC Annual Report and Accounts 2010/11 page 15. See 11.pdf

44 Ev 26 Committee of Public Accounts: Evidence Going forward, the Government has said that the future cost of processing an application will be around 220, and that processing an application will be cheaper (by 50 per case) compared to now. It has also said that it will cost around 80 per case less to maintain a case annually. 15 According to the NAO report, the costs per case across the total caseload are Why are the Figures in the CMEC News Article so High? Study of the CMEC news article reveals the following: The figures are based on just two cases from the 1.14 million cases the CSA deals with each year. The release states that these were two real cases where sustained action was required to ensure compliance. Sustained action to ensure compliance is only required in small minority of cases and is certainly not typical. (See below). The costs are multiplied over 18 years, when we know from DWP evidence that the average length of a case is nine years. 17 Both cases take the cost of a high peak of activity in setting up an arrangement and establishing payment where there is a non-compliant non-resident parent, then assume the same level of high effort and cost throughout the whole of the (exaggerated) length of the case. The typical case 1 (costed by CMEC at 25,000) includes: the costs of setting up of a Deductions from Earnings Order. In a total of 63,063 DEOs were issued, and there were 140,125 active DEOs in total, representing just 12% of cases in the overall caseload; 18 the costs of Bailiff Action, taken in just 11,325 cases in or under 1% of the overall caseload; 19 the cost of CMEC having to deal with a complaint from the parent with care to her MP. In , the CSA dealt with a total of 8,500 complaints via a Member of Parliament. There were from both parents with care AND non-residents parents, representing 0.3% of the million parents (NRPs as well as PWCs) engaged with the CSA; 20 total estimated costs of the above actions during an intensive 19 month period (including the initial calculation and set up costs of a statutory arrangement) of It is from this figure that CMEC calculates that over 18 years a similar typical case would cost up to around 25,000. The typical difficult case 2 (costed by CMEC at 40,000 or more) includes: the cost of dealing with what the Commission itself calls a difficult case involving a determinedly resistant parent where, during a marathon legal battle, the Agency was forced to deploy nearly all of the legal enforcement tools available to it. As the article makes clear, this was a wholly exceptional case; the cost of multiple legal actions including liability Orders and County Court judgements, two Charging Orders on the NRP s main home and an Order for Sale. In 2010/2011, there were: 18,500 liabilty orders granted; 1,730 charging orders granted; and 450 cases referred for consideration of an Order for Sale and only 75 granted. Again, pretty rare in practice. Conclusion In her comments to MPs on 1 February, the Minister Maria Miller went beyond even the misleading news article produced by CMEC on 31 January, by asserting that each case costs around 26,000 and suggesting that the costs rose to up to 40,000 if it involves any sort of enforcement. The news article itself bears no relation to the official statistical information produced by the Commission in its Quarterly Statistics and in its Annual Report and Accounts. 13 March See government Impact analysis of the new maintenance calculation 16 Child Maintenance and Enforcement Commission: Cost Reduction, National Audit Office, HC 1793 (2012) Figure 7, page DWP Green Paper Strengthening families, promoting parental responsibility: the future of child maintenance, Page 21 para CSA Quarterly Statistics December 2011, Table 10: Enforcement. 19 CSA Quarterly Statistics December 2011, Table 10: Enforcement. 20 See Commons Hansard, 22/2/2012, col 854W.

45 Committee of Public Accounts: Evidence Ev 27 Written evidence from the Permanent Secretary, Department for Work and Pensions Child Maintenance and Enforcement Commission: Cost Reduction During the evidence session on 5 March 2012 I promised to write to you to with further details on some of the issues we discussed. I have also taken the opportunity to clarify a couple of points that Noel Shanahan and I made during the session. Please also find attached some minor amendments to the transcript. Q41 & Q51 53 (Collectability of Arrears) Why do we think around 1 billion out of the 3.7 billion total arrears is potentially collectable? The total potentially collectable figure comprises the following: 1. Arrears on cases where at least one arrears payment has been made in the last six months. 2. Arrears on cases where funds already received exceed scheduled ongoing maintenance payments. 3. Arrears on cases which had a schedule to make arrears payments at any point in the last six months. 4. Arrears on cases which arose in the last six months and against which at least one payment was made following the last day of the reporting year. 5. Estimated arrears collectable by applying our deduction orders and order for sale enforcement powers more widely. Criteria one to four are applied at a case level to determine the relevant amounts, although criterion four can only be applied to cases on the CS2 system. Criterion five is a management estimate. The last time this exercise was performed and published it resulted in a total of 1.0 billion being deemed at least potentially collectable. Why do we only expect half of the 1 billion to be collected? The figure likely to be collected is the result of applying only criteria one and two from above; the last figure reported was 0.5 billion. What do we tell clients about their arrears? We only update clients on the status of their case in the course of normal work. Where we have had no contact with a client for a significant period, it is unlikely that we will provide them with any information about the status of their arrears, although we are currently reviewing this. Q103 (Cost of a CSA Case) Why are there different figures for the cost of a GSA case? CMEC s Annual Report and Accounts for reported the cost of a case managed on the main computer systems as being around 350 a year, with a case managed off the main computer systems at 600 per year. There is considerable variation from these averages at an individual case level. The cost of processing cases can vary considerably depending on the amount of enforcement action and intervention required and the method of processing. For example, Maintenance Direct cases (with little or no ongoing CSA involvement once the assessment has been completed) cost less to administer than the lower figure mentioned above. At the other end of the scale there are cases, both compliant and noncompliant, where it is necessary for the CSA to undertake the time-consuming and expensive enforcement action. For example, in there were 70 cases where the CSA was granted a full order for sale of a non-resident parent s property (usually their home) in order to secure maintenance; with a cost of up to 10,000 per case for that action. A recent case that required such an extreme level of enforcement activity cost the CSA around 40,000 over its 18-year lifetime. The CMEC website tries to illustrate this variation in cost. The 25,000 figure which was referred to in the Committee was designed to provide an illustration of how much a case which is compliant most of the time but needs significant amounts of intervention from the CSA to keep compliant, might cost to manage, if it lasted 18 years, from birth to adulthood. This figure is drawn from the estimated cost to the CSA of managing an actual case over 19 months, during which time more than 50 hours staff time was devoted to managing the case, including time spent on the telephone to both parents, tracing and speaking to the non-resident parent s employer, the calculation of four separate maintenance assessments reflecting changes in his financial circumstances and dealing with a complaint by the parent with care through their Member of Parliament. Additional costs were incurred through the setting up of a Deduction from Earnings Order and instructing bailiffs when the case fell into arrears. The estimated operational cost to the CSA over the 19 month period was nearly 2,000 which, if extrapolated to 18 years, would come to around 22,500. This figure has been rounded up to reflect the fact that costs in

46 Ev 28 Committee of Public Accounts: Evidence respect of other areas of the business, including central directorates and related operational areas, have not been included. The figure also does not take account of the cost of management time. In parallel with this letter, we are making the CMEC website clear. Q172 (Classification of Earnings in the New Scheme) Under the new scheme, maintenance calculations will be based on a non-resident parent s gross taxable income which has been supplied to HM Revenue & Customs, usually via a Pay As You Earn (for employed people) or self-assessment return (mainly for self-employed people and those with complex tax affairs). This will result in quicker calculations which are based on more reliable income information. Cases will be subject to an annual review to ensure calculations are kept up to date, using, where possible, income information for the non-resident parent s latest available tax-year. The maintenance calculation will be based on taxable earned income, as this is the only income type which is included in both returns. Taxable earned income includes income from employment or from occupational or personal pension schemes. For self-employed non-resident parents, it will be their total taxable profits. We did consider whether the maintenance calculation should be based on a broader definition of income which would capture all of the income types HMRC could provide. We decided against this because it would introduce differential treatment of non-resident parents: self-assessed taxpayers would have all of their taxable income brought to account; PAYE only taxpayers would not, because we would not necessarily have details of their income from savings and investment, property etc. Parents with care, however, will be able to make an application for a Variation if they believe the non-resident parent has significant taxable unearned income, such as income from property, savings and investments. This includes dividends which legally are a type of investment income, being a return on a shareholding rather than remuneration for work done. Further details are available in the consultation on the calculation regulations for the new scheme, which closed in February please see: Technical-Consultation.pdf Clarifications I would like to take this opportunity to clarify some of the points raised during the evidence session. During exchanges following 054 and 0117 both Noel Shanahan and I indicated that the current CSA systems do not alert caseworkers to a non-resident parent missing a payment. This requires a correction: the existing computer systems do have an in-built functionality that identifies when a non-resident parent fails to pay his or her maintenance liability. A process runs nightly that identifies all cases with a payment that was due that day and checks to see if the payment due was received. If the payment was not received, debt management activity is triggered for a caseworker to take action to re-establish payment. However, the current systems are far from perfect, because they do not readily provide information relating to the reason why a payment has been missed. The system is reliant upon the caseworker themselves to investigate the reason for non-payment and the type of action that is then required. Ultimately, it is how quickly information can be gathered and the speed in which the caseworker performs the actions that dictates how long it takes to re-establish collections. The process will be improved when the new scheme is launched: the system will also alert caseworkers as to the reason why a payment has been missed and the right action to take based on the client s payment record and circumstances, so for example a caseworker will be able to take different action for a first missed payment and for serial non-payment. On 0184, I should clarify that we had one meeting with the Behavioural Insight Team who provided some advice to us to help shape policy. I trust this provides the information you require and look forward to receiving a copy of your final report. 19 March 2012 Printed in the United Kingdom by The Stationery Office Limited 05/

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