UK Social Security and Child Support Commissioners' Decisions

[2000] UKSSCSC CJSA_888_1999 (30 June 2000)

RJCA/SH/IW/1

THE SOCIAL SECURITY COMMISSIONERS

Commissioner's Case No: CJSA/888/1999

SOCIAL SECURITY ADMINISTRATION ACT 1992

SOCIAL SECURITY CONTRIBUTIONS AND BENEFITS ACT 1992

APPEAL FROM DECISION OF SOCIAL SECURITY APPEAL TRIBUNAL ON A QUESTION OF LAW

DECISION OF THE SOCIAL SECURITY COMMISSIONER

MR COMMISSIONER R J C ANGUS


 


1. The decision of the Social Security Appeal Tribunal dated 19 August 1997 is not erroneous in law.
2. The claimant appeals, with the leave of the chairman, against the tribunal's decision that, for the purposes of calculating the claimant's entitlement to Jobseeker's Allowance, the claimant's housing costs do not include interest on the £11,000 of capitalised deferred interest included in the £60,000 at the debit of his house purchase loan account with his building society.
3. The background to this case is that the claimant had to move from Northamptonshire to Exeter to take up new employment. He found that the only way in which he could sell his house in Northamptonshire was by purchasing a more expensive house from a builder in Exeter who was prepared to purchase the Northamptonshire house. To purchase the new house in this way the claimant required a building society loan of £49,000. The loan agreement provided that payment of capital was deferred until the maturity of an endowment assurance policy assigned as collateral security. The agreement also provided that payment of a proportion of the interest chargeable in respect of the first 10 years of the loan would be delayed until the maturity of the endowment policy. That part of the agreement was put into effect by the claimant's paying each month an agreed portion of the interest chargeable while the balance was debited to a separate account by the building society. At the end of 10 years the accumulated balance on that second account was transferred to the debit of the loan account and the agreed rate of interest was charged on the new balance. The amount of deferred interest accumulated over the 10 years was £11,000 which, when capitalised, brought the loan account to £60,000.
4. On 10 February 1997 the claimant applied for an award of Jobseeker's Allowance. An adjudication officer calculated the claimant's housing costs in terms of regulations 83(f) and 84(1)(g) of the Jobseeker's Allowance Regulations 1996 as read with Schedule 2 to those Regulations. He decided that he could not allow as eligible housing costs the proportion of the loan interest being paid by the claimant which represented interest on the part of the debit on the loan account which was attributable to the £11,000 of capitalised deferred interest. The claimant appealed the adjudication officer's decision to the Social Security Appeal Tribunal which decided that the adjudication officer's decision was correct as the £11,000 was not money which had been borrowed to acquire an interest in the claimant's home. The initial £49,000 lent by the building society had been sufficient to do that.
5. The claimant's grounds for appealing the tribunal's decision to a Commissioner are stated to be that the tribunal erred in law in regarding the £11,000 as not being part of a loan "taken out to defray monies applied for .......... acquiring an interest in the dwelling occupied as the home". It is argued that the deferred interest arrangement under which the £11,000 was accumulated and capitalised is intrinsically tied to the first loan and therefore part of a package.
6. Schedule 2 to the Jobseeker's Allowance Regulations is a list of items of expenditure on housing which constitute eligible housing costs for the purposes of the Regulations. Paragraph 1 of the Schedule provides that the housing costs applicable to a claimant are those costs which he is liable to meet in respect of the dwelling occupied as his home and which qualify under paragraphs 14 to 16 of the Schedule. Paragraph 14 provides:-

" (1) A loan qualifies under this paragraph where the loan was taken out to defray monies applied for any of the following purposes -

(a) acquiring an interest in the dwelling occupied as the home; or

(b) ..........".

Schedule 2 to the Jobseeker's Allowance Regulations is in terms similar to those of Schedule 3 to the Income Support (General) Regulations 1987.

7. The Secretary of State's representative does not support the appeal. She explains that before the introduction of Jobseeker's Allowance an unemployed person requiring financial assistance would have applied for Income Support. Schedule 3 to the Income Support (General) Regulations was radically amended with effect from 2 October 1995 by the elimination of interest on capitalised arrears of interest from the eligible housing costs. Where a claimant's eligible housing costs had before 2 October 1995 included interest on capitalised arrears of interest that interest would, by virtue of the transitional protection provided in paragraph 18 of Schedule 2 to the Jobseeker's Allowance Regulations, continue to be eligible interest for the purposes of those regulations where the claimant became entitled to Jobseeker's Allowance instead of Income Support. In this case the claimant had not been entitled to Income Support prior to 2 October 1995 and prior to his becoming entitled to Jobseeker's Allowance. There was, therefore, no eligibility of housing costs which continued in the claimant's case for the purposes of Jobseeker's Allowance by virtue of paragraph 18 of Schedule 2. Paragraph 14 of Schedule 2, like paragraph 15(1) of the new Schedule 3 to the Income Support (General) Regulations, does not include interest on capitalised arrears of interest on a house purchase loan as an eligible housing cost.
8. The claimant's representative's response to that submission is to expand on his argument that the capitalised interest in the claimant's case is part of a loan used to defray monies applied for the acquisition of an interest in the dwelling occupied by the claimant as home. It was part and parcel of the arrangement which the claimant required to make with his building society in order to finance the purchase of the dwelling. It was part of the claimant's agreement with the building society that a particular level of interest would be paid and part of what had to be borrowed to defray the monies applied for the purposes of acquiring an interest in the dwelling house was the accumulated amount of deferred interest.
9. Although I see some merit in the claimant's argument I have to reject it for several reasons. Firstly, a similar point was considered by the Commissioner who decided CIS/141/93 although not in relation to the same type of loan. In that case the loan was a capital repayment loan but when the rate of interest was increased the borrower had the option of adhering to the original monthly payment instead of increasing it to allow for the increased amount of interest. It would seem that any monthly shortfall in the payment of the interest which thus arose was capitalised with the result that by the time the claimant applied for an award of Income Support his capital debt had increased from £7,900 to £11,000. The Commissioner confirmed the Social Security Appeal Tribunal's decision that the interest on the difference of £2,100 was not an eligible housing cost for the purposes of Income Support because having acquired an interest in his dwelling house when he took out the loan of £7,900 the claimant had acquired no further interest in that home for the acquisition of which interest he had applied monies which had been defrayed by taking out an extra loan of £2,100.
10. Secondly, the history of Schedule 3 to the Income Support (General) Regulations would indicate that in its present form the Schedule cannot be interpreted as including interest paid on capitalised deferred interest in eligible housing costs. In its original form paragraph 7(6) of the Schedule provided that such interest would be an eligible housing cost where under the terms and conditions of the loan agreement the interest on the loan, or part of that interest, was not to be payable for a period of at least two years from the beginning of the agreement. As the adjudication officer explained in her submission, that provision has been dropped from the Schedule. Therefore, to my mind, even if the reasoning of CIS/141/93 were not correct the inclusion in and then removal from schedule 3 of a specific provision that capitalised deferred interest is an eligible housing cost indicates a clear intention on the part of the minister making the regulation that such interest is no longer to be an eligible housing cost. Schedule 2 to the Jobseeker's Allowance Regulations makes provisions parallel to those of Schedule 3 and the legislative history of the latter is, therefore, relevant to the interpretation of the former.
11. Thirdly, although I am rejecting the claimant's case I think that it is, as I say above, arguable. Where there is some doubt about the correct interpretation of a Social Security regulation it is the practice of Commissioners to look at the relevant report of the Social Security Advisory Committee, or other relevant background papers, to ascertain the object which the regulation is intended to achieve (R(G) 3/58, R(M) 1/83 etc.).
12. Schedule 3 to the General Regulations was inserted in those regulations by the Social Security (Income Support and Claims and Payments) Amendments Regulations 1995. Those Amendment Regulations were the subject of consultation between the Secretary of State for Social Security and the Social Security Advisory Committee which is recorded in that Committee's report and the Secretary of State's Statement under, respectively, subsection (1) and subsection (2) of section 174 of the Social Security Act 1992 (both published in Command Paper 2905 of June 1995). Appendix 2 to the Command Paper is a memorandum by the Department of Social Security to the Advisory Committee on the new provisions relating to mortgage interest intended to be enacted by the Amendment Regulations.
13. Paragraph 31 of that memorandum is as follows:-

" 31. Help with Accumulated Arrears

In the existing scheme, Income Support will help with interest that is charged on arrears of interest that have been claimed during the 16 week period. Additionally, deferred interest mortgage products, where the period of deferment is 2 years or longer, are treated advantageously, in that interest is allowable on the full amount outstanding when the unpaid interest is capitalised at the end of the deferment period.

The Government does not intend to bring these arrangements forward into the new arrangements as such measures are incompatible with a simple scheme based on the principle that private provision will take the main role.".

I think that the word "claimed" in that passage is a misprint for "accumulated".

14. The Secretary of State's statement to the Committee explained that the main object of the amendments to the housing costs provisions of the General Regulations was to introduce a standard rate of interest eligible as housing costs and to move the defrayal of housing costs in the first weeks of a period of claim for Income Support, with certain exceptions, from Income Support to private insurance arrangements. In paragraphs 61 to 63 of its report the Advisory Committee acknowledges those intentions and "in view of the difficulties of recommending protection without introducing a perverse incentive not to insure" made no recommendation for the protection of claimants who could not obtain insurance.
15. It is apparent from those papers that both the Secretary of State and the Advisory Committee were clear that the object of the 1995 amendments to the Income Support (General) Regulations was to exclude interest on capitalised deferred mortgage interest from the eligible housing costs specified in schedule 3 to those regulations. As I say above, schedule 2 to the Jobseeker's Allowance Regulations makes provisions parallel to those of Schedule 3 and falls to be interpreted in the same way.
16. For the foregoing reasons the claimant's appeal fails and my decision is in paragraph 1 above.

(Signed) R J C Angus

Commissioner

(Date) 30 June 2000