Premature conversion to the new CSA scheme - A loophole that may thwart government policy
by Barry Pearson
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Appendix B - useful comparisons between the schemes

The current scheme and the new scheme "behave" very differently, which accounts for the particular situations chosen for this paper. Here are a couple of situations that are useful to understand.

The effect of multiple children

In most cases, under the current scheme the number of children actually makes little or no difference to the assessment. The reason is that, although obviously the "maintenance requirement" increases with the number of children, there are safeguards such as "exempt income" and "protected income" and "caps" that mask this. It is only at relatively high incomes (for example, perhaps at £250 net income per week, above the average income for non-resident parents) that these safeguards are removed sufficiently to reveal the different maintenance requirements.

However, under the new scheme, the calculations for different numbers of children yield different results at quite low incomes, typically just above £100 net income per week. This means that the loophole described in this paper will often be of interest to parents with the care of 2 or 3 children.

This (colour coded) graph shows how the assessment and calculation, respectively, change as a percentage of net income, as the income itself rises. A relatively modest housing cost of £50 per week is assumed. There are different lines for 1, 2 and 3 children. This graph also hints at how tricky it can be to predict who the winners and losers will be under the new scheme!

(For those who can't see the colour coding in this graph, the "new scheme" lines are those that become horizontal at 15%, 20%, and 25%, while the "current scheme" lines are those that rise indistinguishably to nearly 30% of net income and then fall away at higher incomes).

The effect of high housing costs

It is well known that cases with high housing costs will often have an increased liability under the new scheme. Not only do these cases often have a much higher liability, but also housing costs can be hard to adjust in the short term. It is likely that such cases were in ministers' minds when the phasing-in scheme was being designed.

For this reason, it is desirable to close both the loophole that enables a case to be prematurely converted to the new scheme, and the additional loophole that enables the phasing-in stage of the new scheme to be bypassed. (These are identified by regulation 28 (1) and 28 (2) of The Child Support (Transitional Provisions) Regulations 2000, as shown in Appendix A).

This graph shows how the assessment and calculation, respectively, change as a percentage of net income, as the income itself rises. The housing cost is assumed throughout to be the highest value permitted for that income under the current scheme (typically half of net income). There are different lines for 1, 2 and 3 children. The new scheme has a massive impact in these cases.

(For those seeing this graph in black and white, the "new scheme" lines are those that become horizontal at 15%, 20%, and 25%, while the "current scheme" lines are those that rise nearly indistinguishably to about 20% of net income and then fall away at higher incomes).

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Page last updated: 12 December, 2003 © Copyright Barry Pearson 2003