The constraint of Treasury neutrality

The importance attached by government to Treasury neutrality

The reformed scheme was heavily constrained to be Treasury neutral, and this minimised the amount by which the poorest children would become better off under the reformed scheme. Here are some telling statements.

Evidence to Social Security Select Committee after the Green Paper

Baroness Hollis showed her thinking on Wednesday 22nd July 1998 when giving evidence about the Green Paper to the Social Security Select Committee soon after the Green Paper was issued:

(Baroness Hollis's opening statement) ".... We hope the mothers and the fathers will both have an incentive to co-operate with the Agency, and I think we will do something genuinely real to tackle child poverty. Because it is simple, because we hope he will comply as a result of the reduced assessment, because we hope that she will cooperate because of maintenance disregard, we expect increased compliance. We currently have 66 per cent cash compliance. The Treasury accept that we should be able to get up to 75 per cent; we think we may be able to get up to 80 per cent or more. At 75 per cent it is cost neutral so the fourth part of the equation, (the father, the mother, the children and the Treasury), the Treasury, is protected. The proposals are cost neutral over the five year period. We hope therefore that more fathers will pay but will pay a somewhat lower assessed maintenance because they are asked to take on their additional responsibilities out of their disposable income. The majority of the parents with care will gain and most of the rest will have a "no lose" situation because of maintenance disregard. The Treasury's position is protected...."

[later]

(Mr Pond) "Could we move on to the question of the formula now and I think all of us are delighted that there is going to be a less complex method of dealing with this. I think the Minister is quite right to explain that we need that sort of formula. Can I ask about the percentages that have been put in, the 15, 20 and 25 per cent, why those particular figures were chosen as the appropriate percentages for the first, second and three plus children?"

(Baroness Hollis) ".... We felt that by going for a 15 per cent figure, which was lower than the current figure, we left him with more income, as I say, to pay for all the things that we will not be building into the formula, that still could allow us to finance the maintenance disregard, still effectively have an assessed maintenance figure than was higher than the average maintenance currently paid so that parents with care should not on the ground be actual losers for the most part, and kept it cost neutral from the Treasury point of view. It was a mixture of what felt right, informed by the research that was available, informed by the balancing act between the three parties if you like. That was why we came to that figure. If we dropped the figure down to say 10 per cent for him, either the parents with care lost out or the Treasury, that is, other parents as taxpayers were having to pick up that responsibility...."

Social Security Select Committee Report after the White Paper

From the Summary of conclusions and recommendations:

67. Baroness Hollis has made it quite clear that the proposed reforms are a "package deal" which has been negotiated with the Treasury to be cost neutral.

What fraction of money administered by the CSA is of interest to the Treasury?

The real question is what will it be when the reformed scheme is operating?

At the moment, about 40% of CSA cases are benefits cases where there is a Treasury interest, and 60% are private cases where there isn't. So a glib answer at the moment is that the Treasury is interested in 40% of the money. But often it is the better qualified PWCs who get back to work and become private cases, and these tend to have been associated with better qualified NRPs. It is probably the case that the average liability for the 60% of private cases is higher than the average for the 40% of benefits cases (and vice versa).

Once there is a £10 disregard in Income Support, the proportions change again. £10 is about one-third of the expected average liability in the reformed scheme, so even if the benefits cases match the average liability, about one-third of that money will cease to be of interest to the Treasury. That leaves about one-quarter. (The proportion of benefits cases is reducing year by year. They probably have a smaller than average liability. So the actually Treasury interest will probably be less than this).

Does this justify the extent of the Treasury's influence on the reformed scheme shown above? I suggest not.

(To be fair, there is another factor too. There is some evidence that the CSA is an anti-fraud tool. Some PWCs withdraw their Income Support claims when the CSA gets involved. But there are no convincing predictions from this, because PWCs sometimes do this anyway. The predictions end up being based on dubious assumptions which are sometimes designed for other purposes. For example, government is motivated to be seen to be effective against fraud, and some of the numbers appears to be intended to look good, rather than be a solid basis for designing a new child support system).

This influence of the Treasury in the reform of child support was at a time when other Treasury policies involved "give aways" to improve the lot of families. (For example, Working Families Tax Credit was a "give away"). It is widely recognised that the UK is a long way away from "joined up government". It is possible that "joined up Treasury" is just as far away!