rose to move, That the Grand Committee do report to the House that it has considered the Child Support (Miscellaneous Amendments) Regulations 2007.

The noble Lord said: Getting the child maintenance system right is one of the most important matters that we face, as parliamentarians, as parents, and as a society. This House has always played a crucial role in national debates on the issue, and the considered views of the Members of this House has consistently both informed government thinking and improved the legislation that oversees this area. I think it is fair to say then that this House is well aware that the performance of the child maintenance system has fallen a long way short of the expectations of this House, and more importantly, of the people that the system is designed to help.

Noble Lords will know that the Government are taking action to reform the child maintenance system for the long term so that it is capable of achieving the important objectives we have set: to help tackle child poverty; promote parental responsibility; provide a cost-effective and professional service; and be simple and transparent.

Members of the Committee will soon have the opportunity to debate and scrutinise the Child Maintenance and Other Payments Bill. But there is still the short-term challenge, which we have already begun to address, particularly through the operational improvement plan, which is already showing improvements in several key areas.

The Child Support (Miscellaneous Amendments) Regulations 2007 will tackle problems that have been identified with the existing regulations. These need to be addressed now, before the proposals of the Child Maintenance and Other Payments Bill start to take effect.

The regulations will: change the way the Child Support Agency calculates the net earnings of a self-employed non-resident parent; end geographical restrictions on the courts’ jurisdiction over child support enforcement cases; and increase the time allowed for a non-resident parent who lives abroad to make an appeal, and the notice period that the agency must give such a non-resident parent before commencing certain enforcement proceedings.

The changes to self-employed income became necessary following a judgment of this House last year in the case of Smith. That case was an exceptional one. None the less, this House found that the meaning in legislation of “taxable profits”, which provides the basis for calculating such earnings, was ambiguous. The House ruled that the agency’s interpretation of “taxable profits” was incorrect. We have therefore taken this opportunity to clarify what we mean by providing a definition of taxable profits which corresponds to that used by HMRC; and to change the information used by the agency to calculate self-employed earnings. The result is that self-employed earnings as assessed by the agency will more closely match those of HMRC.

Currently, the agency uses the self-assessment tax return as the primary source from which to obtain a total taxable profits figure and calculate self-employed earnings. If a return is not available, the agency has looked to the tax calculation notice supplied by HMRC to the taxpayer instead. Following these amendments, the agency will use the tax calculation notice as the primary source of information, and this means that the agency will be basing assessments on earnings information which has been agreed by HMRC.

A key feature of the Smith case was the question of whether capital allowances should have been taken into account when calculating the non-resident parent’s income. The majority ruling of this House was that, in the current scheme, they should not. However, we believe that it is right to acknowledge the reality that over time assets tend to lose their value and that the loss should be offset against business income. This is something recognised by both HMRC and in good accounting practices. By using the tax calculation notice as the basis for assessment, capital allowances will automatically be taken into account, and this reflects our original policy intention that the profits of a self-employed person which are assessable for tax should be the basis for the maintenance calculation. The new method will be administratively straightforward and, because it provides a closer link to HMRC rules, will be more easily understood by parents. It also mirrors how we are proposing to recognise earnings from self-employment in the future child maintenance scheme.

The existing child support schemes provide an alternative method for calculating self-employment earnings when information submitted to or supplied by HMRC is not available. Under this method, earnings are obtained by deducting from gross business receipts statutory deductions such as income tax and national insurance contributions, and allowable business expenses. Currently, depreciation is not an allowable expense. These regulations reverse this, providing recognition of depreciation which will broadly mirror that intended for capital allowances.

Regulation 3 inserts a definition of taxable profits into the Child Support (Information Evidence and Disclosure) Regulations 1992 by reference to the Income Tax (Trading and Other Income) Act 2005. It also amends those regulations so that the agency can demand any information that is required from the non-resident parent to determine their taxable profits.

Regulation 4 amends the Child Support (Maintenance Assessments and Special Cases) Regulations 1992 to bring the new methods of calculating self-employed earnings into effect for the old child support scheme. Regulation 5 makes the same adjustments to the new scheme by amending the Child Support (Maintenance Calculations and Special Cases) Regulations 2000.

The Child Support Agency has at its disposal a number of enforcement measures to ensure that non-resident parents meet their child maintenance liabilities. Obtaining a liability order is usually the agency’s first step to enforcing child support debt. At present, an application for a liability order must be heard in the court in the area in which the non-resident parent resides. This means that the agency cannot make an application for a liability order against a non-resident parent who lives abroad. Similarly, appeals against deductions from earnings orders or enforcement of liability orders by distress must be heard in the court in the area in which the non-resident parent resides. This effectively means that non-resident parents who live abroad are unable to exercise a right of appeal in these cases. This is patently wrong and so we have removed these restrictions.

To complement the extension of the courts’ jurisdiction, the regulations also double to 56 days the time allowed for overseas NRPs to appeal against a decision to impose a deduction from earnings order, and they extend to 28 days the minimum notice period that the Child Support Agency must give an overseas non-resident parent when it intends to obtain a liability order. Removing the restrictions on courts’ jurisdiction will allow the agency to pursue centralisation of actions in respect of liability orders in future. This will improve the efficiency of its enforcement of maintenance arrears. To effect the required changes to courts’ jurisdiction and the relevant notice periods, Regulation 2 makes a series of amendments to the Child Support (Collection and Enforcement) Regulations 1992.

I am satisfied that the statutory instrument before us is compatible with the European Convention on Human Rights. I commend these regulations to the Committee and I beg to move.

Moved, That the Grand Committee do report to the House that it has considered the Child Support (Miscellaneous Amendments) Regulations 2007. 19th Report from the Statutory Instruments Committee.—(Lord McKenzie of Luton.)

I was interested to hear the Minister’s introduction to these regulations, and was listening carefully in the hope that some of my questions about the amendments would be answered. I have found myself with many questions about this legislation. The Minister has explained that one of the amendments it contains is a response to the case of Smith. It was found that the agency’s calculations of taxable profits for the self-employed were ambiguous and had been applied incorrectly. It seems important, therefore, that in addressing this problem the Government take care to ensure that their legislation is not ambiguous, but is instead well thought through and fully assessed. That appears, however, not to be the case.

I am sure Members will be assured by the Minister that the regulation does not meet the conditions that require a regulatory impact assessment, but does he not think that faith in the ability of the Child Support Agency would be better restored if changes to the assessment of maintenance, let alone its collection, were given such an assessment none the less? As it is, we have been given no estimate of how many children will be affected by these changes or how many maintenance payments will be changed. Given the Government’s stated intention of addressing child poverty, I am surprised that there appears to have been no analysis of how many of the 3 million-odd children living in poverty will see their families’ income rise as a consequence of these measures.

Of course, regulatory impact assessments are useful not only for the information they deliver about the impact on the public, but also for the assessment of the costs and feasibility of the changes. The Child Support Agency already has an unfortunate reputation for the number of cases waiting to be assessed. Will the Minister explain how many more will have to be reassessed because of these regulations? How much longer will it take for the backlog to be cleared because of them?

Quite a lot of these regulations deal with non-resident parents, a minority of non-custodial parents. Although there will always be unusual difficulties in assessing and collecting maintenance from a person who does not live in the country, has there really been no analysis of whether the costs of the resources that the Government intend to throw at the problem are justified by the benefit that will result?

I also have some queries about the level of interdepartmental co-ordination that will be needed to implement some of these changes. Using Her Majesty’s Revenue and Customs data to assess the taxable income of self-employed parents will require a great deal of Treasury co-operation and input. It will need to be effective joined-up government to persuade the Treasury to use resources for identifying abuses that will not greatly improve the amount of income tax that it collects, but will instead be used to the benefit of another department. Can the Minister assure the Committee that the Treasury has been fully liaising on these regulations, and that they have the Treasury’s full support? Calculating capital allowances for the purposes of macroeconomic policy and international trade will surely have a knock-on effect on child maintenance. How do the Government intend to stop these unintended consequences?

Another aspect of these regulations that has not been fully explained is how a parent without custody will challenge any changes that are made to their child support liability. As I understand it, these regulations move the responsibility for providing evidence away from the parent with custody, who always used to have to show why a reassessment should be made, to the parent without custody, who will now have to challenge HMRC’s reassessment of his or her income. What evidence will be required of them to do so, and what support will be available for them while the challenge is being processed? According to evidence given to the Work and Pensions Select Committee in February 2006, 65 per cent of cases where a liability order is sought have an error in them. That must lead to an enormous number of challenges, many of them successful, the cost of which to the CSA and the involved parents must be considerable.

That shockingly high number of errors is no doubt partly because of the overtly complex assessment system the CSA uses. We on these Benches have been proposing for a long time that this system could be simplified by being based on a previous year’s income. I am very pleased to note that the Government have taken up our suggestion on the Child Maintenance and Other Payments Bill, although it is disappointing that they do not intend to implement that much-needed proposal until at least 2010. Yet this secondary legislation implements precisely that simpler method of assessment for the self-employed immediately. Why are the Government implementing the new system for 7 per cent of the caseload now, but delaying it for so long for the majority? Are the Government content that the vast majority of CSA clients will have to struggle on with the existing discredited system until 2010? My colleagues in another place have made it clear that we on these Benches will support legislation that fast-tracks these changes for all CSA clients. The families who are struggling to work with the CSA need a speedier, more accurate assessment to process immediately.

I look forward to hearing the Minister’s response to my questions and to the comments of other noble Lords who will speak in this debate. There has been far too little information on these amendments and the wider problems that they are intended to resolve. I hope that the Minister’s response might go some way to filling in the blanks, as well as explaining the Government’s extraordinary method of improving the CSA’s assessment process.

I am very pleased to contribute to the consideration of these regulations and the Committee has little option but to accept them. If the Government were to leave the policy so much at odds with the House of Lords judgment, it would bring unfairness in the short and middle terms. For that reason, if no other, the Government are right to do this in the short term and I therefore support the suggested changes in these amended regulations, so far as they go.

I look forward to further discussions when the Child Maintenance and Other Payments Bill comes before the House in the next Session—I have always been of the view that, since its inception, the Child Support Agency, which has been beset by problems that we all understand, has been far too lackadaisical and not robust enough about recalcitrant self-employed non-resident parents. The evidence of the old and new systems demonstrates that, particularly for self-employed non-resident parents, maintenance calculations have been notional. The changes made as a result of the Smith judgment do not much improve the situation, but I hope that when we consider the more fundamental primary legislation in the next Session we will get a chance to look at that very clearly. There are lessons to be learned from Smith.

The Minister founded his case on the operational improvement plan. He is right to do that; the plan is very important, we are in its second year and I am advised that we cannot expect to see the increased outcomes that we would wish for until year three. I am prepared to believe that because a lot of training and spending is involved in year two. Is the Minister confident that the operational improvement plan will help to deal with the 7 per cent caseload of self-employed people who are difficult cases by definition, because of the trouble there is in trying to assess the real disposable income available to them? I am nervous about overturning House of Lords judgments willy-nilly, because you should do that only if you really, really have to. Reading the judgment is instructive, although the Committee would not thank me for rehearsing some of the finer legal points.

The noble and learned Lord, Lord Nicholls of Birkenhead, in paragraph 1 of his judgment in the House of Lords case, used a phrase that caught my eye. Bearing in mind that Smith was an old case scheme, he said that the regulations were,

“a singularly unhappy piece of drafting”.

That was an understatement when you look at the impact it had in that case. “Total taxable profits” was something that was left completely undefined in the original 1993 scheme. It was not even picked up and put right in the scheme that was introduced as Child Support 2 in 1999 to 2000.

The conclusion I draw from that is that when we turn to the forthcoming legislation next Session in the Child Maintenance and Other Payments Bill, we need seriously to consider applying a Social Security Advisory Committee-type mechanism so that the fine print of the legislation is poured over by people who are much more expert than we as parliamentary proponents and practitioners can possibly be expected to be. You really need to be a professor at law and a specialist in child support legislation to be confident that you can pick up all these things without the assistance of something like the SSAC, and I would be quite happy to tag this on—if I can put it that way. I do not mean to sound facetious or casual, but I think that Parliament would like some reassurance that there was another level to the process.

None of this is ideologically difficult. There are no differences between any of us in terms of the concept. The past two pieces of legislation from both Administrations of different stripes have been largely accepted by Parliament, but you get into the problems and implementation stage. So it seems to me that maybe Parliament should be looking for extra handers, if you like, in making sure that we get this right when we get to the secondary legislation level.

The department does its best, and I do not complain about that, but it is very difficult. I think the lesson of all of this is that we should be much more careful about scrutinising the secondary legislation and the way it is implemented.

The Smith case is a minority issue. It will only affect a very small number of the 7 per cent of self employed, but, by goodness, when it does kick in and applies it makes a very big difference. People involved in the Smith case were sentenced to a decade of legislation. Goodness knows what that cost. I do not know whether legal aid was involved. Trying to work out what “total taxable profits” meant in reality had a huge impact on that case. It had to go all the way to the House of Lords for that to be decided. That is nonsensical. Somebody should have seen that coming a long way down the track to prevent all that having to happen.

I have a question for the Minister on all of that. Has the department taken any steps to go back and look at the consequences of Smith, and, indeed, the consequences of putting it right in a policy sense? Are there any cases out there of a parent with care which might still be prejudiced as a result of either the Smith judgment or the policy rectification that we are engaged in this afternoon? It will not be a big number, but some of them could be prejudiced one way or the other really quite dramatically. I would like to go to my bed this evening to sleep more contentedly knowing that some effort was being made to look back at that, and not just leaving it to parents with care to say, “Well, now we have the Smith judgment. I have just read the House of Lords judgment. I will go down to my Jobcentre Plus to try to get some advice about whether this affects me”. I think that there is an onus on a department to put any disadvantage right which has occurred as a result of the Smith case, however complicated and difficult that might be.

As I said earlier, the CSA historically has been far too willing just to accept at face value the self-assessments of non-resident parents who are self-employed. In my previous experience, I came across not many, but some, extraordinary lengths to which self-employed people would go to make sure that their maintenance assessment was reduced to an absolute minimum. Of course, introducing “gross” rather than “net” will help that—and is to be welcomed. There are established concepts of deprivation of income in the social security canon of benefits law that could perhaps be used with a bit more creativity to deal with the situation more sensitively, and individual cases could be looked at a bit more slickly. At the end of the day, Her Majesty’s Revenue and Customs investigations into lifestyle versus what is carried in the account would help, too. I dealt with one or two cases in my former constituency in which the lifestyle of the self-employed non-resident parent was clearly at odds with his self-assessment of his income. In one case, a trading profit of £170,000 but a taxable income of £20,000 was shown in the accounts at the end of the year. That disparity is far too big. While in some of these cases there are difficult judgments to make, parents with care are clearly being short-changed if such situations are allowed to obtain in future.

We need to think about perhaps setting up some kind of specialist unit within the current Child Support Agency, or the new CMEC if the legislation finds favour in both Houses. We need to look carefully at definitions of capital allowances. I understand why the change is being made in this way in these regulations, but adopting even the definition that we have here is not the full answer. We are importing a taxation term that everyone understands and which is designed for a purpose that has been worked through and understood for many years. However, we are not looking at capital; we are looking at, in a child support context, the income of parents with care—which is a different context altogether from taxation rules and their definitions.

Although I think that what is being done by the Government is necessary and essential, we need to be much cleverer in looking forward to how we get a mechanism that allows the possibility of some kind of dialogue between self-employed non-resident parents that tackles capital allowances in a way that keeps his or her business going, because that is essential for everyone—if no profits are generated, then no one gets any money, including children. However, there should be some kind of dialogue with a little bit of discretion and variation. I know that I am always going on about having more simplicity and my suggestion might make the rules more complicated, but going to a tribunal appeal to deal with some of these cases is daft if we can achieve a process that is a little more flexible, allows a little more discussion and engages the self-employed non-resident parent in a way that says, “You cannot be expected to get away with gratuitous alienation and expect to hide assets in a way that disadvantages your children. That will not be allowed in future”.

However, if I were the government Minister I would be doing exactly the same as the noble Lord this afternoon. I hope that he is prepared to accept that this is not the last word on this issue. We must look again very carefully at the House of Lords judgment, take it away to the beaches with us over the Summer Recess, put a wet towel around our heads and come back with a system that is more sensitive to the circumstances of the reality of family incomes, rather than taxation law, because if we do not do that we risk failing parents with care.

I thank both noble Lords who have contributed to the discussion on these regulations. It has been an interesting prelude to what will come when we consider the Bill before too long.

The noble Lord, Lord Taylor, asked what these regulations do for faith in the CSA and asked why there was no regulatory impact assessment. It is important to consider in context the numbers of people likely to be affected, in particular by the capital allowance issue. Some 84,500 of the CSA’s cases deal with self-employed people—who noble Lords recognised as representing about 7 per cent of the total caseload. Within that cohort, very few are significantly impacted by capital allowances. I do not have the number with me, but I think it is literally a few hundred where it makes a significant difference. It is important that we see this in context.

Before the Minister sits down, if the noble Lord, Lord Skelmersdale, were here, no doubt he would be wishing that the Minister would see the Bill through because he often talks about temporary bosses and so on. I feel that I speak for other noble Lords in hoping that that will be the case. It has been nice to have a dress rehearsal.

The noble Lord is very kind. It could be the noble Lord, Lord Kirkwood. Who knows?

On Question, Motion agreed to.

That completes the business before the Grand Committee this afternoon, and it stands adjourned.

Grand Committee adjourned at 5.23 pm.