Northern Ireland - Social Security and Child Support Commissioners' Decisions

ND -v- Department for Social Development (ESA) [2016] NICom 40

 

Decision No: C2/16-17(ESA)

 

 

 

 

SOCIAL SECURITY ADMINISTRATION (NORTHERN IRELAND) ACT 1992

 

SOCIAL SECURITY (NORTHERN IRELAND) ORDER 1998

 

 

EMPLOYMENT AND SUPPORT ALLOWANCE

 

 

Application by the claimant for leave to appeal

and appeal to a Social Security Commissioner

on a question of law from a Tribunal's decision

dated 5 May 2015

 

 

DECISION OF THE SOCIAL SECURITY COMMISSIONER

 

 

1. This is the Department's application for leave to appeal from the decision of an appeal tribunal sitting at Londonderry.

 

2. For the reasons I give below, I grant leave to appeal. I allow the Department's appeal and I set aside the decision of the appeal tribunal under Article 15(8)(a) of the Social Security (NI) Order 1998. I remake the decision which the tribunal should have made.

 

3. I decide that the respondent does not satisfy the contribution conditions for employment and support allowance (ESA) and is not entitled to contributory ESA from 17 June 2014.

 

REASONS

 

Background

 

4. The respondent claimed contributory ESA from the Department for Social Development ("the Department") from 17 June 2014. The Department considered all the evidence and determined that the respondent did not satisfy the relevant national insurance contribution requirements for entitlement to contributory ESA. He appealed.

 

5. The appeal was considered on 5 May 2015 by a tribunal consisting of a legally qualified member (LQM) sitting alone. The tribunal allowed the appeal. The Department requested a statement of reasons for the tribunal's decision and this was issued on 7 July 2015. The Department applied to the LQM for leave to appeal from the decision of the appeal tribunal. Leave to appeal was refused by a determination issued on 17 August 2015. On 26 August 2015 the Department applied for leave to appeal from a Social Security Commissioner.

 

Grounds

 

6. The Department submits that the tribunal has erred in law on the basis that:

 

(i) the respondent did not have the required contributions or credits for tax year 2011/12;

 

(ii) the respondent did not have the required contributions or credits for tax year 2012/13;

 

(iii) the tribunal's decision was therefore irrational.

 

7. The respondent was invited to make observations on the Department's grounds of application. He did not respond.

 

The tribunal's decision

 

8. The respondent attended an initial hearing before the tribunal on 11 December 2014. The tribunal had clearly been impressed by him, finding him truthful and calling him a "hard working and genuine man". On that date the tribunal heard evidence from him that he had been in receipt of incapacity benefit (ICB) until late 2012 and that he had then commenced self-employment as a taxi driver. He stated that he had received working tax credits inclusive of a disability element. He had paid all his national insurance contributions. The tribunal adjourned to seek further evidence from HM Revenue and Customs (HMRC), via the Department, of the respondent's national insurance record and for the Department to check its own records about the respondent's working tax credit claim.

 

9. The tribunal sat again on 5 May 2015. It adopted the reasons of 11 December 2014 as part of its statement of reasons. The HMRC response to the tribunal's direction was to state that "IP only started SE on 28 October 2012 so is only liable to pay 23 weeks Class 2". The tribunal described this as "unintelligible". The tribunal considered that no meaningful attempt had been made by the HMRC to respond to the tribunal's enquiry. The tribunal stated that "it is up to the Department or HMRC to make out a case to refuse [the respondent's] claim". The tribunal indicated that it was not satisfied that the case had been made out or that a meaningful attempt had bene made to answer the tribunal's enquiries. On balance the tribunal decided that the respondent's claim should not have been disallowed, and allowed his appeal.

 

Relevant legislation

 

10. Contributory ESA was established by section 1(2) of the Welfare Reform Act (NI) 2007 ("the 2007 Act"). The contribution conditions appear at Schedule 1 to the 2007 Act, as amended. At the relevant date this provided:

 

1.(1) The first condition is that

 

(a) the claimant has actually paid Class 1 or Class 2 contributions in respect of one of the last two complete tax years ("the base tax year") before the beginning of the relevant benefit year,

 

(b) those contributions must have been paid before the relevant benefit week, and

 

(c) the claimant's earnings determined in accordance with sub-paragraph (2) must be not less than the base tax year's lower earnings limit multiplied by 26.

 

(2) The earnings referred to in sub-paragraph (1)(c) are the aggregate of

 

(a) the claimant's relevant earnings for the base tax year upon which primary Class 1 contributions have been paid or treated as paid, and

 

(b) the claimant's earnings factors derived from Class 2 contributions.

 

...

 

3.(1) For the purposes of paragraphs 1 and 2

 

(a) "benefit year" means a period which is a benefit year for the purposes of Part 2 of the Contributions and Benefits Act or such other period as may be prescribed for the purposes of this Part of this Schedule;

 

(b) "Class 1 contributions", "Class 2 contributions" and "primary Class 1 contributions" have the same meaning as in the Contributions and Benefits Act (see section 1 of that Act);

 

(c) "earnings" shall be construed in accordance with sections 3, 4 and 112 of that Act;

 

(d) "earnings factor" shall be construed in accordance with sections 22 and 23 of that Act;

 

(e) "lower earnings limit" and "upper earnings limit" shall be construed in accordance with section 5 of that Act and references to the lower or upper earnings limit of a tax year are to whatever is (or was) the limit in force for that year under that section;

 

(f) "relevant benefit year" is the benefit year which includes the beginning of the period of limited capability for work which includes the relevant benefit week;

 

(g) "tax year" means the 12 months beginning with 6th April in any year.

 

...

 

5. In this Part of this Schedule, "relevant benefit week" means the week in relation to which the question of entitlement to an employment and support allowance is being considered.

 

Hearing

 

11. I held an oral hearing of the application. The Department was represented by Mr McKendry of Decision Making Services (DMS). The respondent appeared in person and was not represented. The respondent was a candid and realistic witness and spoke well on his own behalf.

 

12. Mr McKendry set out to explain the relevant contributions conditions. The Department accepted that the applicant had commenced self-employment on 28 October 2012. Mr McKendry submitted that the respondent had not satisfied the first contribution condition on the basis that between 28 October 2012 and 5 April 2013 he had only paid 23 Class 2 national insurance contributions, and as this was below what he needed, he did not satisfy the contribution condition. In finding otherwise the tribunal had not based its decision on the evidence.

 

13. I asked Mr McKendry about the basis of the decision in the case. This was to the effect that the first contribution condition was that a claimant "must have worked at least 26 weeks in either of the relevant income tax years". He accepted that this did not accurately express the statutory test.

 

14. The written submission of the Department to the tribunal made no reference to the meaning of "earnings factor" in this context. I asked the Department to locate the definition of "earnings factor" in the legislation. Mr McKendry was unable to assist me at the hearing and I gave further time for written submissions on this issue. However, I did not find his further submissions to be helpful.

 

15. The respondent for his part submitted that he had paid contributions as required and within the relevant time frame. He submitted that the tribunal was correct to allow his appeal. In the absence of clear submissions on the law which explained the legislative basis for the decision made by the Department he asked me to dismiss the Department's appeal.

 

Assessment

 

16. I consider that there are obvious shortcomings in the Department's decision and in the Department's submission to the tribunal. The role of the Department and of the tribunal is to apply relevant law in reaching its decisions. However, the Department's decision is not expressed in terms of the legislation or the statutory conditions which the respondent would have to satisfy. Likewise, the submission to the tribunal is inaccurately articulated.

 

17. The Department's decision is to the effect that the respondent did not satisfy the first contribution condition that "he must have worked at least 26 weeks in either of the relevant income tax years". I consider that this is both crudely expressed and inaccurate. In the submission to the tribunal this same test is expressed as "he must have actually paid Class 1 (employed) or Class 2 (self-employed) national insurance contributions, or a combination of both, on earnings equal to at least 26 times the lower earnings limit". However, while this is an improvement, it does not express the relevant test accurately either. I understand that the requirements of the legislation are as I set out below.

 

18. Unless otherwise prescribed by regulations, the "benefit year", by section 21(6) of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 ("the 1992 Act"), means a period beginning with the first Sunday in any calendar year and ending with the Saturday immediately preceding the first Sunday in January in the following calendar year. It is not disputed that the respondent claimed contributory ESA from and including 17 June 2014. The benefit year in his case corresponds to 2014 therefore.

 

19. From paragraphs 1 and 2 of Schedule 1 to the 2007 Act, it can be seen that the first condition and the second condition involve contribution or credits requirements arising from the last two complete tax years before the beginning of the relevant benefit year. The tax year begins on 6 April and ends on 5 April. For the respondent's claim in 2014, the last complete tax year for the purpose of the claim would have ended on 5 April 2013 and the relevant tax years would have been 2011/12 and 2012/13.

 

20. The Department considered tax years 2011/12 and 2012/13 in the determination of whether the respondent satisfied the relevant contribution conditions. It was not in dispute that these were the relevant years. The contribution conditions for ESA are similarly not in dispute. In order to qualify for contributory ESA in a claim made in 2014, the respondent would have required to have met the following criteria.

 

1. he has actually paid Class 1 or Class 2 contributions in respect of one of the tax years from 2011/13 and his "earnings" in that that tax year must be not less than the tax year's lower earnings limit multiplied by 26; and

 

2. he has, in respect of each of the 2011/13 tax years, either paid or been credited with Class 1 or Class 2 contributions, and the earnings factor derived from his earnings up to the upper earnings limit for the year, and upon which primary Class 1 contributions have been paid or credited, and from Class 2 contributions, must be not less in each of those years than the year's lower earnings limit multiplied by 50.

 

The dispute in the present case centres on the first contribution condition.

 

21. The lower earnings limits for 2011/12 and 2012/13 were £102 and £107 respectively. The Department has submitted that the respondent does not satisfy the first contribution condition. In order for him to satisfy the condition, he would have needed to have actually paid Class 1 or Class 2 contributions in one of the relevant tax years and his "earnings" in that year would have needed to exceed either £2,550 for 2011/12 or £2,675 for 2012/13. No evidence of the respondent's actual earnings was before the tribunal.

 

22. "Earnings", however, has a particular technical meaning in this context. It is the aggregate of earnings on which Class 1 contributions have been paid and the "earnings factor" derived from Class 2 contributions. The respondent had not been employed and therefore had not paid any Class 1 contributions in the relevant period. Therefore, a more accurate representation of the statutory test in the present case might be whether the claimant's "earnings factors" derived from Class 2 contributions exceeded the lower earnings limit in the 2011/12 tax year multiplied by 26.

 

23. The written submission of the Department to the tribunal made no reference to the meaning of "earnings factor" in this context. As indicated above, I asked the Department to locate the definition of "earnings factor" in the legislation. Mr McKendry directed me to section 23(3)(b) of the 1992 Act. However, that provision simply reads:

 

"(3) The tables and rules referred to in subsection (1) above shall be drawn up so that in general-

 

...

 

(b) any number of Class 2 or Class 3 contributions in respect of a tax year gives rise to an earnings factor for that tax year equal or approximating to that year's lower earnings limit for Class 1 contributions multiplied by the number of contributions".

 

The subsection (1) referred to reads:

 

"(1) Earnings factors derived as mentioned in section 22(1)(a) above, including earnings factors as increased by any order under section 30 of the Administration Act-

 

...

 

(b) shall be made ascertainable from tables or rules to be drawn up by the Department and embodied in regulations".

 

Section 22(1)(a) of the Act in turn does not define "earnings factor". Accordingly it appears to me that this submission does not assist me on this matter.

 

24. I have not had the benefit of argument on this point, but it appears to me that the relevant legislation is the Social Security (Earnings Factor) Regulations (NI) 1979 (1979, No.193). While these Regulations were made under the Social Security (NI) Order 1975, it would appear that their validity is preserved by the 1992 Act. By paragraph 8 of Schedule 1 to the Regulations, the "earnings factor" derived from a person's Class 2 contributions in respect of any year shall be that year's lower earnings limit for Class 1 contributions multiplied by the number of the contributions from which the earnings factor is to be derived.

 

25. The tribunal had evidence before it that the respondent had paid Class 2 national insurance contributions for 23 weeks in 20012/13. As the resulting earnings factor is the lower earnings limit for the year multiplied by 23, the inevitable consequence is that the respondent's "earnings" in that that tax year is less than the tax year's lower earnings limit multiplied by 26.

 

26. The tribunal had evidence that "IP only started SE on 28 October 2012 so is only liable to pay 23 weeks Class 2". It found the evidence from the HMRC to be "unintelligible". It decided that the onus was on the Department and HMRC to make out a case to refuse the respondent's claim. However, as stated by Baroness Hale at paragraph 61-62 of Kerr v. Department for Social Development [2004] UKHL 23 (also reported as an annex to R1/04(SF)), the process of benefits adjudication is inquisitorial rather than adversarial. In determining entitlement to benefit, both the claimant and the Department must play their part. Lord Hope in Kerr v. Department for Social Development has said at paragraph 15:

 

"in this situation there is no formal burden of proof on either side. The process is essentially a fact-gathering exercise, conducted largely if not entirely on paper, to which both the claimant and the Department must contribute".

 

27. When a decision taken by the Department is appealed, the appeal tribunal stands in the shoes of the Department and has the power to consider any issue and make any decision the Department could have made (R(IB)2/04). The principles set out by Lord Hope at paragraph 16 of Kerr v. Department for Social Development equally apply in the context of an appeal.

 

28. The tribunal made the finding that the evidence of HMRC in the particular appeal was "unintelligible". I find it difficult to accept that the tribunal was unable to understand the evidence. However, if it did find the evidence to be unintelligible, I do not consider that it was rationally open to it to decide the appeal against the party providing the evidence. It had a number of alternative courses available, such as directing the attendance of a presenting officer, or adjournment for a fuller explanation of the evidence. A tribunal also can in cases where it is necessary, apply to the High Court under Order 38, rule 17 for a sub poena to compel attendance of a witness.

 

29. It was not open to the tribunal simply to decide the appeal against a party for failure to provide evidence in a form which it could understand. Such an approach may be consistent with adversarial proceedings, but it is not consistent with tribunal proceedings.

 

30. The tribunal also stated that "it is up to the Department or HMRC to make out a case to refuse [the respondent's] claim". However, as indicated by the House of Lords, there is no formal burden of proof on either side. It would be quite alien to the approach in Kerr v DSD to suggest that the Department had an obligation to show that every claimant had no entitlement. There is no such onus on the Department and I consider that the tribunal has therefore misdirected itself in law.

 

31. I find that the tribunal has materially erred in law and I set aside the decision of the tribunal.

 

Disposal

 

32. On the basis of the documentary evidence and uncontested factual submissions made in the course of the hearing before me, I consider that I can make the decision which the tribunal should have made.

 

33. The parties were agreed that the relevant contribution years for his contributory ESA claim were 2011/12 and 2012/13. The respondent submitted and the Department accepted that he had paid 23 Class 2 contributions for the 2012/13 year, covering the period from 28 October 2012 to 6 April 2013. The first contribution condition required the respondent to have paid at least 26 Class 2 contributions for the 2012/13 year. As he had not done so, he did not meet the first contribution condition.

 

34. I made further enquiry as to whether the respondent should benefit from a relaxation of the first contribution condition under regulation 8 of the ESA Regulations. I am satisfied by the evidence of the parties, which was agreed, that the respondent was engaged in self-employment from 28 October 2012 to 16 June 2014, when he claimed ESA. As he had not been engaged in qualifying remunerative work for a period of more than 2 years immediately before the first day of the period of limited capability for work, he was not entitled to relaxation of the first contribution condition.

 

35. It follows that I must disallow the respondent's appeal and hold that he does not satisfy the contribution conditions for ESA. He is not entitled to contributory ESA from 17 June 2014.

 

 

(signed): O Stockman

 

Commissioner

 

 

 

6 June 2016