The Department for Work and Pensions (DWP) has outlined major changes to the Child Maintenance Service (CMS), including scrapping the Direct Pay system and introducing a new 2 per cent charge for compliant paying parents.
The reforms aim to create a 'fairer' system and address 'significant shortcomings' in the current setup, but they would mean new charges for many parents who currently pay nothing to the CMS.
What is Direct Pay and why is it being scrapped?
Direct Pay allows separated parents to arrange child maintenance payments between themselves after the CMS has calculated the amount. Introduced in 2012, the government says it is not working effectively and is unsafe for many parents.
Government data shows 55 per cent of all CMS arrangements use Direct Pay, with 43 per cent using the alternative Collect and Pay system, where the CMS acts as a middle man. There are currently 450,000 Direct Pay arrangements in place.
The DWP says: "The headline for a compliant paying parent is a cut from a 20 per cent charge to 2 per cent. The trade off is that everyone loses the fee-free Direct Pay route, so parents who currently pay each other directly at no cost would start paying the 2 per cent instead."
What are the problems with the current system?
DWP research published last year found just 60 per cent of receiving parents got all the maintenance they were owed, and only 40 per cent said they always got their money on time. More than a third of receiving parents did not report a late or missed payment.
The DWP also said 71 per cent of receiving parents and 51 per cent of paying parents in Direct Pay said they had suffered domestic abuse from the other parent. The government wants to end Direct Pay, possibly by 2027, though existing rules remain in place for now.
Lilian Greenwood, Parliamentary Under-Secretary at the DWP, said: "Evidence gathered by the Department has highlighted significant shortcomings with Direct Pay. Under Direct Pay, the CMS is unable to routinely monitor whether payments are being made in full or on time, meaning non-compliance can go undetected until a parent reports a problem."
What are the new charges?
Under the proposed changes, a paying parent using Collect and Pay would see their charge fall from 20 per cent to 2 per cent if paid on time, but would remain at 20 per cent for late payments. Receiving parents would see their charge drop from 4 per cent to 2 per cent.
For example, a paying parent paying £100 a week would go from paying £20 on top to £2 on top if paying on time. A receiving parent would get £98 instead of £96 under the existing rules. Parents paying through a deduction from benefits would not face the 20 per cent non-compliance charge.
The single parents website Gingerbread has supported the reform, describing it as a 'major shake-up', but said it must be made 'with extreme care'. The House of Lords Public Services Committee has expressed concern, saying it is "not persuaded by the Government's case for the removal of the Direct Pay service".
