UK Social Security and Child Support Commissioners' Decisions

[2003] UKSSCSC CIS_2208_2003 (25 September 2003)

 


DECISION OF THE SOCIAL SECURITY COMMISSIONER

1. The claimant's appeal to the Commissioner is allowed. The decision of the Sunderland appeal tribunal dated 16 April 2003 is erroneous in point of law, for the reason given below, and I set it aside. The case is referred to a differently constituted appeal tribunal for determination in accordance with the directions given in paragraphs 28 to 32 below (Social Security Act 1998, section 14(8)(b)).
2. This appeal is supported by the representative of the Secretary of State in the submission dated 1 August 2003. By a mistake in the Commissioners' office, when the claimant was sent a copy of that submission he was given the wrong form on which to make his comments. He was given the form that is used when the Secretary of State has suggested the use of a special procedure involving a very short decision, which he did not suggest in the present case. That has caused some confusion. This case obviously requires full consideration of the competing arguments on both sides and a reasoned decision.

The background

3. The claimant was in receipt of income support down to 20 November 2001. On 16 November 2001 he received £17,935.46 from the sale of his family home, taking the total amount of his savings to £24,769.28. They had moved to a rented bungalow which was far better suited to his wife's needs as a wheelchair user. The claimant had informed the Benefits Agency in advance of those changes and his entitlement was terminated at the end of the benefit week in which his capital increased.
4. He made a new claim for income support from 4 April 2002, declaring that his savings amounted to £7,026.54 (see page 28). Part of the reason for the reduction was the purchase from new of a Vauxhall Zafira car for £12,125.25. The decision-maker took the view that the claimant had intentionally deprived himself of that amount of capital for the purpose of securing entitlement to income support, so that he was to be treated as still possessing that amount under regulation 51(1) of the Income Support (General) Regulations 1987 on notional capital. Regulation 51(1) provides, subject to exceptions which are not relevant in this case:

"(1) A claimant shall be treated as possessing capital of which he has deprived himself for the purpose of securing entitlement to income support or increasing the amount of that benefit ..."

As a result the claim was disallowed on the ground that the claimant's capital exceeded the £8,000 limit. There was no dispute over the other expenditure which had reduced the amount of the claimant's actual capital.

5. The claimant's appeal against that decision was dismissed by an appeal tribunal on 7 October 2002. He had given evidence of his reasons for buying the car when the family already had a Renault Scenic on a lease under the Motability scheme which was to expire on 28 October 2002. His wife's mobility component of disability living allowance (DLA) was paid directly to Motability for the leasing of the car. The claimant wished to have the mobility component available to help with household expenses, he thought that the Zafira would be more suitable for his wife's needs and those of the family as a whole and had the chance to buy it at about £5,000 below the list price. The appeal tribunal of 7 October 2002 took the view that it would have been more reasonable for the claimant to have acquired a Zafira on the Motability scheme when the existing lease ran out and to have used his savings to pay the running costs, rather than spend a large amount on the purchase of the new car. It found that he was fully aware of the capital rules and that qualifying for income support was a significant operative purpose when the claimant deprived himself of the capital of £12,125.25. There was no further appeal against that appeal tribunal's decision.
6. A claim for income support from 22 October 2002 was made on an A1 claim form signed on 15 November 2002. On that form the claimant declared that he had savings of £2,699.60 and stated that as from 28 October 2002 the Motability car had gone back, so that the basis for the notional capital ruling had disappeared. The Zafira was a necessity. On 3 December 2002 the claim was disallowed. That was on the basis that the amount of the claimant's notional capital was to be treated as reduced to £7,897.25 through the operation of the diminishing notional capital rule in regulation 51A of the Income Support Regulations. However, the total of actual and notional capital on those bases came to £10,596.85, still well over the limit of £8,000.

The appeal to the appeal tribunal

7. The claimant appealed against that decision. He explained again his reasons for buying the Zafira when he had the chance, to ensure that the family would have transport after the existing Motability lease came to an end. He stressed that it was not compulsory to use the mobility component of DLA to finance a Motability lease and argued that he should not be penalised under the income support rules for exercising the choice to buy a car instead of using the Motability scheme. The Secretary of State's written submission to the appeal tribunal went through the provisions of regulation 51(1) of the Income Support Regulations on notional capital and the case-law on "significant operative purpose". However, it was submitted that the decision-maker of 3 December 2002 was bound by the decision of the appeal tribunal of 7 October 2002 that the claimant had notional capital of £12,125.25 as at 4 April 2002.
8. The appeal tribunal of 16 April 2003 dismissed the claimant's appeal. The essence of the decision was in this paragraph of the statement of reasons:

"The Secretary of State applied the diminishing notional capital rule, ie by taking into account the claimant's entitlement to Income Support and Council Tax Benefit and decided, correctly in my view, that his notional capital diminished to £7,897.25, that he had actual capital of £2,699.60 - total £10,596.85. He therefore exceeded the capital limit for entitlement to Income Support and his appeal must fail. He made the choice to dispose of his motability car and replaced it by one out of his capital resources. His wife had continued to be entitled to the higher rate of the Mobility Component of Disability Living Allowance and therefore there was no reason why the claimant could not have renewed their motability contract after the first 3 years thereof ended on 28 October 2002. The claimant accepts that he knew and understood the significance of the capital resources rule."

It was noted that the claimant had been awarded income support from 7 February 2003, as the amount of his notional capital was considered to have reduced sufficiently to bring his capital below £8,000.

The appeal to the Commissioner

9. The claimant now appeals against that decision with my leave. When I granted leave to appeal I said the following:

"It is arguable that the appeal tribunal erred in law by apparently adopting the position put forward in paragraph 5.8 of the Secretary of State's written submission that the decision of the appeal tribunal of 7 October 2002 was binding on the question of whether the claimant had intentionally deprived himself of capital for the purpose of securing entitlement to income support, instead of re-examining that question. In addition, there is a problem in the calculation of the amount of notional capital in cases like this (on the assumption that there was an intentional deprivation for a purpose caught by regulation 51(1) of the Income Support (General) Regulations 1987) because the market value of a car acquired with the intention of reducing capital in order to secure entitlement to income support counts as actual capital and double counting should be avoided if possible (see paragraph 10 of Schedule 10 and Commissioner's decision CIS/494/1990). The issues deserve consideration on appeal because of their complexity."

10. The representative of the Secretary of State, in the submission dated 1 August 2003, supported the appeal to the Commissioner on the first ground suggested above. It was then suggested that, because of that error and the problems of valuing capital assets such as cars in such circumstances, the case should be referred to a new appeal tribunal for rehearing. The claimant replied on 29 August 2003 asking for a reasoned decision.

Section 17 of the Social Security Act 1998

11. There can be no doubt that, as set out in the Secretary of State's submission of 1 August 2003, the effect of section 17(2) of the Social Security Act 1998 in the present case is that a finding of fact or another determination which forms part of a decision on entitlement to benefit is not conclusive for other purposes. Section 17(2) allows regulations to be made to give findings of fact or determinations a conclusive effect, but no regulations have been made covering ordinary income support cases. Thus, although the decision of the appeal tribunal of 7 October 2002 was final in relation to the issue of entitlement to income support for the period from 4 April 2002 down to the date of the decision under appeal, the determination of the questions of deprivation for a purpose caught by regulation 51(1) and the amount of notional capital was not conclusive. The result is one that many would find surprising, especially when some question of the application of legal principle has been decided on appeal, but that is what the current legislation lays down.
12. I am not now so sure that the appeal tribunal of 16 April 2003 did simply regard as binding the determination of the appeal tribunal of 7 October 2002 that the claimant had intentionally deprived himself of £12,125.25 for the purpose of securing entitlement to income support. The passage quoted in paragraph 9 above did make reference to some of the factors relevant to that question and there had earlier been a mention of the detailed reasons given by the appeal tribunal of 7 October 2002. That could possibly be read as the making of a fresh determination of the question and an adoption of the same reasons as had been given by the appeal tribunal of 7 October 2002. However, as the law is so complicated and a legally wrong submission had been made by the Secretary of State, it would still be arguable that the reasons were inadequate in failing to set out clearly the legal basis on which the appeal tribunal of 16 April 2003 was operating and the reasons for rejecting the additional points put forward by the claimant in the second appeal. I do not need to come to a final conclusion on that, because I am satisfied that there was another error of law.

Deprivation of capital and acquiring personal possessions

13. That error arises from the complex interaction of regulations 51(1) and 51A of the Income Support Regulations with paragraph 10 of Schedule 10 to the Regulations, as briefly noted when I granted leave to appeal. The interaction was discussed in Commissioner's decision CIS/494/1990, which I mentioned when granting leave but did not get copied into the papers. Unfortunately, a copy of the decision was not attached to the Secretary of State's submission of 1 August 2003. The claimant therefore did not have the opportunity to look at the decision when making his reply of 29 August 2003. However, especially as CIS/494/1990 does not supply all the answers and I do not agree with everything said there, it is not necessary to delay the present case to give the claimant that opportunity.
14. The effect of regulation 51(1) has already been made clear in the present case. If the conditions are met, a claimant is to be treated as possessing capital of which he has in fact deprived himself. As the effect is to treat a person as having capital which he does not actually have, such amounts are usually called notional capital. Schedule 10 to the Income Support Regulations list categories of capital which are to be disregarded in calculating a claimant's capital. Paragraph 10 is as follows:

"10. Any personal possessions except those which had or have been acquired by the claimant with the intention of reducing his capital in order to secure entitlement to supplementary benefit or income support or to increase the amount of that benefit."

The implication of paragraph 10 is that, if it were not for that paragraph, any personal possessions which have a market value would form part of a claimant's capital. The amount to be counted is, by virtue of regulation 49(a) of the Income Support Regulations, to be an asset's current market or surrender value, less any incumbrance secured on the asset and, where there would be expenses attributable to sale, 10%. Thus, where the exception to paragraph 10 operates, the amount to be taken into account as actual capital is not what the claimant paid for the asset in question, but what it could be sold for, less 10% if there would be expenses in selling.

15. The decision in CIS/494/1990 discusses such circumstances, but in a way which was not necessary to the result in that case. Mr Commissioner Rice held (wrongly in law as it eventually turned out) that the appeal tribunal in that case was restricted to looking at the claimant's entitlement to income support at the date of the decision under appeal, at which date it was plain that the amount of his actual capital exceeded the limit. But the Commissioner gave guidance about what might happen if a new claim was made from some later date. As such, what the Commissioner said is entitled to respect as it embodies carefully thought-out reasoning, but does not bind me in law.
16. In CIS/494/1990 the claimant had used capital to buy a van for £3,050, and it was found that a significant operative purpose was to bring his capital resources below the limit and to secure entitlement to benefit. The Commissioner proceeded, for purposes of illustration, on the assumption that there was an immediate depreciation of £1,000.
17. The first point which emerges is that where capital in the form of money is used, for a purpose caught by regulation 51(1), to buy personal possessions, the value of the assets as actual capital must be taken into account in calculating the amount of notional capital under regulation 51(1). That must be right. It would be unfair to treat a claimant as still entitled to all the capital used to buy the possessions (giving rise to an amount of notional capital) and also as having the market value of the possessions as actual capital. In an easy case where the market value of the possessions immediately after purchase exactly matched or exceeded the amount of capital spent, there would be no amount of notional capital to be taken into account under regulation 51(1). The mechanism for reaching that result is not entirely clear as both regulation 51(1) and the rules on actual capital which is not disregarded under paragraph 10 of Schedule 10 on their face operate independently. It may be that there has to be some qualification of what was said in paragraph 8 of Commissioner's decision R(SB) 40/85 (see also R(SB) 38/85) - that a person deprives himself of capital if he uses it to purchase some other resource, whether the resource is likely to retain its value or to depreciate and whether or not it would be disregarded for benefit purposes. Such a qualification would rest on the change from a rule where there was a discretion as to the amount of notional capital to take into account to a mandatory rule ("shall be treated as possessing") in regulation 51(1). However, I am satisfied that the general principle that actual capital should be looked at before notional capital supports the approach taken in CIS/494/1990. And the Secretary of State has accepted that approach in the submission of 1 August 2003.
18. However, as Mr Commissioner Rice pointed out, depreciation leads to additional complications. In paragraph 10 of CIS/494/1990 he said:

"10. If one properly analyses the position, the claimant in effect transformed £2,050 in cash into personal property in the guise of a vehicle, which, on the hypothesis made as to the underlying intentions, constituted part of his capital resources. He had however, as regards the £1,000 represented by depreciation, divested himself of this sum altogether. Moreover, on the hypothesis made, he divested himself of this sum for the purpose of securing income support within regulation 51(1). Accordingly, as a matter of logic, he must be still treated as possessed of the £1,000. In other words it became notional property as distinct from actual property. The original £3,050 had been transformed into £2,050 by way of actual capital and £1,000 by way of notional capital. Moreover, as in the fullness of time the vehicle depreciated further, there was a corresponding increase in the notional capital."

I agree with and adopt that reasoning, with the exception of the last sentence, which I think goes too far.

19. I disagree with that sentence for two main reasons. The first is that it seems to me that the amount of capital of which a claimant has deprived himself for a purpose caught by regulation 51(1) must in logic be fixed at the date of the deprivation. It is only that amount to which the prohibited purpose can be attached. The second reason is that the current market value of an asset at any date (eg immediately after a claimant has bought it) will to some extent reflect the likelihood that its value will depreciate or appreciate in the future. If a claimant is fixed with notional capital on the principle I have accepted, the amount of that notional capital will reflect the likelihood of future depreciation. Any future depreciation can only fairly be said to result from the operation of the market and not from the claimant's original purpose to secure entitlement to or increase the amount of benefit.
20. I add that the word "depreciation" is not used above in any special technical sense. There may be other factors, such as the effect of expenses which would be incurred in selling an asset, which lead to a difference between the amount of capital spent on an asset and the amount to be taken into account for the asset as actual capital. The same principles would apply in such cases.

Application to the circumstances of the case

21. Applying those principles to the circumstances of the present case produces the following excessively complicated results, on the assumption that the claimant had a purpose caught by regulation 51(1) when he bought the Vauxhall Zafira. So far as actual capital as at 22 October 2002 (and down to 3 December 2002) goes, it seems not to be disputed that the claimant's savings as at the date of signing the claim form (15 November 2002) were £2,699.60, as he declared. To that amount has to be added the current market value of the vehicle, calculated in accordance with regulation 49(a) of the Income Support Regulations. It might well turn out that that in itself is enough to take the claimant's capital over £8,000. The value of the vehicle would have to have reduced to about £5,700 to avoid that result, which seems highly unlikely even taking account of the expenses of selling or of what could be obtained on a relatively quick sale involving no expenses.
22. Nevertheless, in view both of the history of the case and future decisions which might need to be made, I should also deal with the interaction with notional capital. There should for that purpose have been a calculation in accordance with regulation 49(a) of the current market value of the vehicle immediately after the claimant bought it in March or April 2002. If that was lower than the amount paid by the claimant (as I assume it would have been, even with the £5,000 off the list price) the amount of notional capital under regulation 51(1) as at that date would have been the difference between the two amounts. Pausing at that point, on the assumption made above about the claimant's purpose, on those calculations the balance between actual and notional capital would have been different from that actually adopted in the decisions on entitlement as at 4 April 2002. As the claimant's savings were said then to be £7,026.54, any realistic valuation of the vehicle at that date would have taken the amount of actual capital as calculated above well over £8,000. It would not have been notional capital under regulation 51(1) which took the claimant over the limit. That has important consequences for the calculation of notional capital as at 22 October 2002.
23. As at 22 October 2002, the claimant's notional capital would be whatever the amount was as at 4 April 2002, potentially reduced under a "diminishing notional capital" rule, either stemming from regulation 51A of the Income Support Regulations or existing independently. This is where yet another difficulty lies. The reduction required by regulation 51A does not start to operate until there is a week in which the claimant either would have been in receipt of income support (regulation 51A(3)) or would have been in receipt of an increased amount of income support (regulation 51A(2)) but for regulation 51(1). Now, on the basis adopted in the decisions (of the Secretary of State and the appeal tribunal of 7 October 2002) disallowing income support from 4 April 2002, it was notional capital under regulation 51(1) which prevented the claimant being entitled to income support. Therefore, the condition in regulation 51A(3) was met and the weekly reduction laid down had to be applied to the period from then until 22 October 2002. But the effect of my previous paragraph is that the correct analysis is that as at 4 April 2002 it was not notional capital under regulation 51(1) which prevented the claimant being entitled to income support, but actual capital. On the "but for" test in regulation 51A(3), where actual capital exceeds the limit and a claimant also has notional capital, it cannot be said that "but for" the notional capital the claimant would have been in receipt of income support. I think that the logic of what I have concluded about the effect of section 17 of the Social Security Act 1998 in paragraph 11 above means that in coming to a decision about entitlement on the new claim made from 22 October 2002 the incorrect basis adopted in the decisions on the claim from 4 April 2002 should not be adopted. Therefore, the particular rule laid down in regulation 51A would not apply to reduce the amount of notional capital before 22 October 2002.
24. Could some other principle apply so that the claimant was not fixed as at 22 October 2002 with the same amount of notional capital as at 4 April 2002? I attempted to explain in my decision in CIS/3268/2002 (a copy of which is attached for the claimant and is otherwise available on the Commissioners' website (www.osscsc.gov.uk)) why in such circumstances one could, on principles of fairness adopted by the Commissioners before regulation 51A came into effect, take account of the expenditure which a claimant would reasonably have to incur because of not being entitled to income support, or to a reduced amount, as a result of the notional capital rule. But I also explained that there should not be double-counting of such expenditure. If a claimant has actual capital, as in the present case, and uses that on reasonable expenditure (without reducing actual capital to nil), then there is no justification for a reduction in the amount of notional capital as well as a reduction in the figure for actual capital. To apply that to the present case, between 4 April 2002 and 22 October 2002 (or 15 November 2002), the claimant's savings reduced from £7,026.54 to £2,699.60. No-one has suggested that that was not the result of reasonable expenditure on living expenses. The reduction was at about the rate that was allowed when a calculation under regulation 51A was worked out (see page 21, indicating £165.59 per week). But once that has been allowed for the purposes of actual capital, there is no reason of fairness for also taking account of expenditure in reducing the notional capital figure.

The Commissioner's decision

25. The appeal tribunal of 16 April 2003 did not go into the issue of the application of paragraph 10 of Schedule 10 to the Income Support Regulations, with all the resulting complications. That provision was plainly relevant, although the Secretary of State had not mentioned it in his submission or applied it in any decisions or calculations. It might be the case that, if the appeal tribunal had applied all of the analysis above, it would have come to the same overall conclusion, that the claimant was not entitled to income support from 22 October 2002. But where the legislation is so difficult, it seems to me that the legal basis on which an appeal tribunal acted should have been correctly identified. The appeal tribunal failed to do so. That, and the doubt about the finding on the claimant's purpose expressed in paragraph 12 above, justifies setting aside the appeal tribunal's decision as erroneous in point of law, as I have done in paragraph 1 above.
26. In his reply of 29 August 2003 the claimant made a submission that was in effect that I should substitute a final decision in his favour, as that was the only legally possible result. He said that the points raised when I granted leave and in the Secretary of State's submission were interesting and valid, but did not deal with the main issue about which he had appealed and which he had set out in earlier documents. This was:

"Am I correct in thinking that there is not a law which states that if you need a car and you are eligible for a motability car then you must have a motability car? If there is no such law then I am perfectly entitled to purchase my own car when I did."

The answer, I am afraid, is both yes and no. There is of course no law which requires anyone to use the Motability scheme if eligible for it, just as there is no law which prohibits a recipient of means-tested benefits from spending money which would count as capital on cars or on anything else. However, that does not mean that such expenditure cannot have consequences for eligibility for means-tested benefits. Regulation 51(1) of the Income Support Regulations contains a rule which the Secretary of State had the legal power to make and which allows a claimant to be treated as having notional capital depending on an evaluation of the claimant's purpose in depriving himself of actual capital. The rule in regulation 51(1) is not stopped from applying just because there was no rule of the general law preventing the claimant from making the particular expenditure in question. In addition, the crucial issue is a claimant's purpose at the time of the deprivation of capital. That cannot be altered by subsequent events, such as the handing back of the Motability car in this case on 28 October 2002 or the family's reasonable need from that date to have a vehicle suitable for all of them, factors which the claimant has relied on in this case.

27. So I cannot give a decision in the claimant's favour in the present case on the ground he has put forward. Everything turns on the evaluation of the claimant's purposes and intentions at the time he bought the Vauxhall Zafira. He is entitled to another opportunity to make his case on those issues within the principles established for the interpretation of regulation 51(1) and to have them decided afresh. Accordingly, there should be a rehearing by a new appeal tribunal.

Directions to the new appeal tribunal

28. The claimant's appeal against the decision dated 3 December 2002 is referred to a differently constituted appeal tribunal for determination in accordance with the following directions. There is to be a complete rehearing of the appeal on the submissions made and evidence produced to the new appeal tribunal, which will not be bound by any findings made or conclusions reached by the appeal tribunal of 16 April 2003.
29. The new appeal tribunal must apply the legal analysis set out above, but I strongly suspect that that will turn out not to be nearly as fearsome as it appears at first. The crucial issue is whether it has been shown by the Secretary of State that the claimant when depriving himself of capital in buying the Vauxhall Zafira did so for the purpose of securing entitlement to income support within the meaning of regulation 51(1) of the Income Support Regulations and with the intention of reducing his capital in order to secure entitlement to income support within the meaning of paragraph 10 of Schedule 10 to the Income Support Regulations. Although different phrases are used, I direct the new appeal tribunal that the same practical test should be applied. The test, as there seems on current evidence to be no doubt about the claimant's knowledge of the capital limit for eligibility for income support and of the deprivation of capital (although the precise amount might need investigation), is whether securing entitlement to income support was a "significant operative purpose", as has been firmly established by a series of Commissioners' decision. The outcome will depend on the judgment of the new appeal tribunal on its own evaluation of all the evidence and all the circumstances. I do not wish to give any directions of law about what factors might be relevant or what weight might be given to them.
30. If the new appeal tribunal decides that securing entitlement to income support was not a significant operative purpose of the claimant when buying the Vauxhall Zafira, then there would appear to be no obstacle to the claimant's being entitled to income support from 22 October 2002. The value of the vehicle would be disregarded as part of the ordinary disregard of the value of personal possessions. The claimant's savings were well below £8,000 and below the level at which a tariff income would be generated. There would be no notional capital under regulation 51(1).
31. If the new appeal tribunal decides that securing entitlement to income support was a significant operative purpose of the claimant when buying the Vauxhall Zafira, then many complicated issues potentially arise. However, the new appeal tribunal will only be able to look at the position for the period from 22 October 2002 to 3 December 2002 (section 12(8)(b) of the Social Security Act 1998). It may well be that, in the light of the figures mentioned in paragraph 21 above, the case will be concluded by the calculation of the claimant's actual capital including the current market value of vehicle in that period. The new appeal tribunal is prohibited from considering any circumstances obtaining after 3 December 2002, so cannot deal with any questions of entitlement to income support after that date, when the amount of notional capital is less unlikely to be irrelevant.
32. I direct that before the rehearing the Secretary of State is to make a written submission, to be provided to the Appeals Service and the claimant, putting forward figures for the value of the Vauxhall Zafira, in accordance with regulation 49(a) of the Income Support Regulations, at all relevant dates, including copies of evidence relied on to support those figures. The relevant dates will include the day immediately following the purchase of the vehicle and the weeks in the period from 22 October 2002 to 3 December 2002. The Secretary of State may need, in advance of making that submission, to obtain from the claimant further details of the precise model of the vehicle, mileage covered etc. The submission must continue by setting out how those valuations would affect the claimant's eligibility for income support in the period from 22 October 2002 to 3 December 2002 on the assumption that the value of the vehicle is not disregarded under paragraph 10 of Schedule 10 to the Income Support Regulations. The claimant will then have the opportunity to challenge the valuations and provide further evidence of value if he wishes.

(Signed) J Mesher

Commissioner

Date: 25 September 2003