Comparisons - "current versus reformed" & various cases
Reasoning for the presentation style used here
Comparisons based on the number of qualifying children
Comparisons based on housing costs
Marginal increases in liability as net income increases
Marginal increases in total deductions as gross income increases
A related topic - NRP incomes and the new formula
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Comparisons based on numbers of qualifying children

Comparisons between the handling of different numbers of children

Both the current and reformed schemes take into account the number of qualifying children in their formulae. They differ considerably in how much difference this actually makes.

1 - Current scheme, simple circumstances, 1 & 2 & 3 children

Circumstances: housing cost 50 per week, all children young, no other complications.

Note how up to a net income of about £250 per week there is no difference in liability however many children there, and up to about £300 there is only a small difference if there is only one child. About 92% of NRPs earn less than £300. For the vast majority of NRPs with circumstances like these, the number of children makes no difference to the amount.

Then up to a net income of about £400 per week there is no difference in liability for any number of children above 1, and up to about £450 there is only a small difference if there are just 2 children. Over 98% of NRPs earn less than £450. There are very few NRPs with more than 1 qualifying child where it make any difference how many children (beyond 1) there are.

NRPs sometimes complain "the children are irrelevant, it is just a scheme to get as much money off us as possible". It is easy to see why they say this! It isn't the full story - part of the reason is that protection mechanisms (such as a cap at 30%) operate which compress the amounts. Without these, the differences would become visible earlier, by allowing the amount for more children to increase even faster.

Nevertheless, a child support scheme which, for the vast majority of cases, doesn't match the obvious fact that the cost of supporting children goes up with the number of children will always be viewed with suspicion!

2 - Reformed scheme, simple circumstances, 1 & 2 & 3 children

Circumstances: no other complications. (In the reformed scheme, housing cost is irrelevant and ages of the children are irrelevant).

Whatever its other advantages and disadvantages, the reformed scheme calculates a different liability for different numbers of children (up to 3) for net incomes beyond £100 per week, and the differences continue.

Although the current scheme actually attempts to cater "properly" for numbers of children, by using benefits rates in the formula, it is the reformed scheme where the number of children makes most difference.

Whether this will make it acceptable is another matter! At least one plausible criticism will disappear.

3 - Both schemes - superimposing the two graphs above

Circumstances: housing cost 50 per week, all children young, no other complications.

This simply superimposes the series for the two graphs above. (Unfortunately the colour scheme has changed in the process! Note that below £250 the current formula does not show differences for the number of children).

Remember that because the sums are only done at £50 intervals, the details at low incomes are not accurate.

What this does show, however, is that while the reformed scheme is "better behaved" in all the ways described above, the liability sometimes (as in these circumstances) starts rising at lower net incomes. NRPs earning in the range £100 to £200 will normally pay above £5 under the reformed scheme, whereas with the current scheme they sometimes stay at the minimum amount (about £5.40) for at least part of this range.

However, remember that net incomes used under the reformed scheme will sometimes (when the NRP pays into a pension fund) be less than under the current scheme, so NRPs will sometimes pay less than suggested here.

Discussion of the implications

Note that the comparisons above are really concerned with the perception of the two schemes. They say nothing about which scheme, if either, is actually a good match to the cost of supporting children. Remember also that these figures are for one narrow set of circumstances, and different circumstances would change the relative positions of the current and reformed schemes.

What these graphs show

First: with the reformed scheme, the liability starts to rise above the minimum once the net income is beyond £100 per week, whereas with the current scheme it sometimes stays at the minimum for part of this range. Some low earners will pay more under the reformed scheme.

Second: with the current scheme the number of qualifying children may not make a difference for the majority of NRPs in some circumstances. With the new scheme it makes a difference for net incomes beyond £100 per week.

Third: the current scheme tends to rise (as income rises) towards 30% of net income however many children there, whereas with the reformed scheme it peaks at the familiar 15% / 20% / 25% level. (Since the most common number of qualifying children is 1, and the next most common is 2, that "painful peak" in the current scheme will never occur at any income level for most NRPs).

Clearly there are winners and losers among both PWCs and NRPs. After all, that "painful peak" for NRPs corresponds to extra money for the PWCs!

But note - in the above graphs, the "painful peak" occurs at about £250 net income, in other words amounts of about £75. Yet this is about the same as, or even higher than, typical estimates of the costs of supporting a child (except perhaps for better-off people). Since mostly there is only one child, and anyway the state pays over £15 in Child Benefit for a first child, it is very likely that the "painful peak" represents an excessive demand on the NRP, who after all ought to be sharing the cost with the PWC and the state.

Criticism by vocal NRPs often assumes that the aim of the current formula is really simply to pay 30% of net income. In fact, relatively few NRPs actually pay 30% (the maximum) of net income - only about 10% of NRPs pay in the range 26% to 30%. It is likely that this "painful peak" represents the biggest source of protest and rebellion among NRPs, and since it arguably represents an excessive payment relative to typical costs of a child, this is understandable.

A thought about NRPs in a trap

Both of these schemes start to show plausible detail at net incomes beyond perhaps £200 to £400 per week. It is as if they were really designed primarily for NRPs with that sort of income or more, then protection mechanisms were bolted on for NRPs on lower incomes. All the talk in press releases and the media about the reformed scheme is about the "15% / 20% / 25%" part of the formula. But, in practice most NRPs earn too little for those parts of the formula to come into play, and probably spend their entire involvement with the CSA in the protected regions of the formula.

Percentages of NRPs at different income levels

This bar chart shows that at November 2000:

over 40% of NRPs had no (declared) earnings

over half had net incomes of less than £100 per week

about 73% had net incomes of less than £200 per week

Since these are net incomes under current scheme rules, the percentages with net incomes less than these amounts would be even greater under the reformed scheme rules. Perhaps three-quarters of NRPs would not reach the familiar 15% / 20% / 25% formula.

Source: "Child Support Agency - Quarterly Summary of Statistics - November 2000"

The latest Quarterly Summary of Statistics is available from the DSS web site.

Apart from the fact that this suggests that the CSA was not intended for its actual constituency, it also means that most NRPs suffer exactly the same trap as in any other means-tested scheme with a strong protection mechanism. As they earn more, the marginal increase in liability is a significant proportion of the extra earnings. A common response is "stuff it, why bother to try to earn more?" To be fair, as the above link shows, the reformed scheme has a better behaved marginal rate of increase, although even that causes concern when income tax and NI are included.

Page last updated: 4 July, 2004 © Copyright Barry Pearson 2003