Joint Accounts and the Child Maintenance Service
It is very common when discussing the Child Maintenance Service for the subject of Arrears to enter the frame. Previous articles on Voice of the Child outline the various steps you need to take whether you owe or are owed Arrears on a CMS case. Where Arrears are legitimate and correct then we believe the best course of action is for the person to pay them as quickly as practicable. This will likely involve negotiation with the CMS once any alleged arrears have been proven.
On the 29th October 2017 the Department of Work and Pensions (the Government Department that is responsible for administering the 2012 Child Maintenance Scheme) published a response to a consultation on deductions from joint accounts. This forms part of the new “Arrears and Compliance Strategy”. We have previously written about our concerns regarding Arrears and Enforcement (and increasing the powers that that the CMS has) and you can read more about what the teams within the CMS get up to here.
Joint Accounts, who’s money is it?
Up until this point, the Child Maintenance Service (CMS) has not made deductions from Joint Account as, legally speaking, the money is essentially owned by both people. It’s a whole can of worms that they have not wanted to open as yet.
Either person on the account could make a withdrawal of the entire amount in the joint account regardless of who provided the initial funds.
A good example of the principle of joint ownership is to look at the tax treatment of interest earned in a Joint Account. HMRC will attribute 50% of the interest to each holder of the account for tax purposes (unless the holders make a statement that the interest should be divided in an unequal proportion).
What’s the issue?
The Department of Work and Pensions allege that they require further enforcement powers to collect arrears. They paint the picture of a person who is unwilling to pay the demanded amounts then shielding money by holding it in a joint account (where it can not currently be accessed).
The DWP now claim that they need additional powers to apply regular and lump sum deduction orders on joint accounts and that this will be effective in assisting them with collecting the arrears that they claim exist.
The DWP Consultation Response
In addition to the rosy press release put out by the Department of Work and Pensions Press office which is emotively titled “Clampdown on Child Maintenance Cheats“, we have reviewed the full Consultation Response and will provide commentary now. We will not be repeating what is already in the document (you can see it for yourself by clicking on the file at the bottom of the page) but will instead seek to provide our view of the consequences of this ill thought out “improvement” to the Child Maintenance Service.
The initial introduction to the response is made by Caroline Dinenage, Parliamentary Under Secretary of State for Family Support, Housing and Child Maintenance. It is, as we have come to expect from the Department of Work and Pensions, typically naive and overly simplistic.
The original Consultation ran for approximately 3 months in the summer of 2016. The DWP received 23 responses to the consultation (19 from individuals and 4 from organisations). The organisations that submitted responses were:
- The British Banking Association
- The Money Advice Trust
The Consultation was limited in scope and asked respondents to address 4 questions:
We propose seeking bank statements prior to making regular deduction orders (RDOs) and lump sum deduction orders (LSDOs). The purpose of doing this to reduce the risk of targeting funds contributed to the account by an account holder other than the non-resident parent.
In relation to LSDOs, we freeze a proportion of the account for a short period of time to allow representations to be made. We want to ensure that this is as short a period as possible, whilst giving enough time to make representations. We are considering a 28 day period.
In addition to the grounds for applying for a review of an RDO which already exists, we are considering 2 additional grounds for joint account holders – where the amount contributed to the account by the non-resident parent has decreased, and where the joint account holder did not make representations in relation to the making of the order.
We will allow joint account holders the opportunity to make representations about a proposal to vary or lapse an RDO. We are considering allowing 28 days for this.
We’ve already established that any monies in a Joint account are owned by both parties. The contribution by either party is legally irrelevant. Despite this, the DWP seem to think that it’s acceptable for them to start pulling bank statements for Joint Accounts and trying to “assign ownership” of funds.
The government will legislate, supported by comprehensive guidance to deposit takers, to enable them to provide information to the department under this measure.
This looks suspiciously like the watering down of an individuals right to privacy and coercing banks and building societies to release information on private individuals. Let’s not forget that some people affected by this could potentially have no Child Maintenance liability so there is no reason whatsoever that the CMS should go fishing around in their financial affairs.
They go on to say
Information provided under this measure will be used to establish provenance of monies within the joint account to safeguard the assets of the other joint account holders. Information held is managed subject to the Data Protection Act, will not be shared and will be destroyed when no longer needed.
Child Maintenance is calculated in the first instance on gross earned income. The 2012 Scheme is very specific on this point and the CMS already has the ability to query HMRC’s systems to establish a persons earnings. They also have the ability to make “Deduction from Earnings Orders” (DEO’s) to have maintenance deducted at source by the employer.
An interesting point was made about the Consultation with the Department saying :
Some respondents were concerned that the department was consulting on the process and operation of deduction orders in joint accounts, rather than on the choice of policy itself.
The purpose of this consultation was to seek views on how best to implement deduction orders against joint accounts held by paying parents who have sufficient funds in bank and building society accounts to pay the maintenance they owe but choose not to.
We would echo this concern as the DWP Child Maintenance Policy Department does not appear to have considered the wisdom of the policy itself and in effect the consultation is looking at how to make it “less bad” (but bad nonetheless).
Potential for Hardship (and increased conflict)
The DWP says they want to:
design the process so that it targets the right people and does not create unnecessary hardship.
At Voice of the Child we do not think that allowing the Child Maintenance Service the ability to raid joint accounts is at all child focused and the ramifications will be far wider ranging than the DWP has thought to consider. Why have they not considered the consequences of this action?
Joint accounts can be held for any number of reasons including (but not limited to):
- Administration of finances for disabled or elderly people
- New partners/families payment of bills household bills
- Commingling of marital assets or relationship assets
None of the above imply an “intent” to avoid paying child maintenance. However, these new measures will penalise people who have nothing to do with the Child Maintenance Service and have no responsibility to pay child maintenance under the 2012 Child Maintenance Scheme.
We have serious concerns over the “safeguards” that the Department of Work and Pensions says it will build into the new system.
They have said
In relation to LSDOs, we freeze a proportion of the account for a short period of time to allow representations to be made.
So, it appears like they will apply the “guilty until proven innocent principle” to joint accounts. Freezing assets first (as if the joint account holder was some sort of third world despot or drug dealer) and then saying “show us that we should give you your money back” hardly seems sensible or indeed fair or proportionate.
We intend to legislate for the Secretary of State to be given flexibility to consider representations from joint account holders outside of the representation period as long as the joint account holder informs us in a timely fashion of an acceptable reason why they did not make representations.
The problem with the above statement is that words like “timely” and “acceptable” are open to a wide degree of interpretation. Who decides what is acceptable? Is the process consistent? Or, as is the case with other discretionary powers afforded to the Secretary of State (who at the time of writing is David Gauke), is the decision going to be devolved to the caseworkers within the Child Maintenance Service? The same people responsible for the shambles that is the current statutory scheme.
It is our view that the proposed introduction of this measure will cause more hardship and problems within second families; leading to further relationship breakdown and issues with inter-parental relationships (ultimately impacting on children). In addition, any willingness that a new partner would have to facilitate or assist with contact arrangements could be severely compromised by the proposed developments. Child welfare is likely to suffer as a result of the increased parental conflict and newly generated conflict within the second family.
At the Voice of the Child we think that it is time for the Ministers and elected officials responsible for these initiatives to start being held accountable. Sound bites and platitudes do nothing to mitigate the harm that policy decisions like the Joint Account raid will have on the current and future generations of children.
There is a certain irony in the consultations’ initial introduction outlining the positive outcomes for children of a functioning parental relationship which is closely followed by proposals that will no doubt make such a scenario totally unworkable. One wonders whether the Minister has actually read the proposals in the context of how they are likely to impact on the parental relationship (and indeed the relationship between step parents or new partners and the children involved).
Finally and perhaps most significantly, what is the figure that the DWP believes will be collected by these new powers? New powers which will draw people with no prior contact with the CMS (or indeed liability) into their inefficient and infuriating system?
That is the figure outlined in the DWP Press release. Child Maintenance Arrears are currently estimated (by the DWP but disputed by the National Audit Office) to be £3.8bln.
The £390,000 the DWP expects to collect amounts to 0.01% of the total arrears figure, or putting it another way, 1/10,000th of the outstanding alleged arrears.
A significant win or a huge waste of time (and public money, as, let’s not forget the parliamentary debates that will follow )?
Child focused? We don’t think so…..
If you have a partner with a Child Maintenance Service case and also hold (or are thinking of opening) a Joint Account then you should take action now by writing to your MP to tell them what you think of this proposal. Any legislation would have to be passed by the House of Commons so you must write to them if you want to challenge this proposal. If you’re not sure who your MP is then you can find them here. Just enter your postcode.
Also published on Medium.