[2006] UKSSCSC CH_0264_2006 (26 April 2006)

DECISION OF THE SOCIAL SECURITY COMMISSIONER
1.	My decision is given under paragraph 8(4) and (5)(c) of Schedule 7 to the Child Support, Pensions and Social Security Act 2000. It is:
I SET ASIDE the decision of the Basildon appeal tribunal, held on 1 November 2005 under reference U/42/919/2005/01618, because it is erroneous in point of law.
I REMIT the case to a differently constituted appeal tribunal and DIRECT that tribunal to conduct a complete rehearing of the issues that are raised by the appeal and, subject to the tribunal’s discretion under paragraph 6(9)(a) of Schedule 7 to the 2000 Act, any other issues that merit consideration. 

The issue
2.	This case concerns both housing benefit and council tax benefit. The relevant law for these benefits is identical. For convenience, I will refer only to the former. 
3.	There was no dispute that the claimant received just over £47,000 in May 2004. By July of that year, she had only a little over £2,000. As I understand it, there is no dispute that she disposed of the remaining £45,000. The issue was whether she had deprived herself of that capital ‘for the purpose of securing entitlement to housing benefit’ under regulation 43(1) of the Housing Benefit (General) Regulations 1987. The test developed for the equivalent provisions in legislation governing central Government benefits is whether securing entitlement to benefit was a significant operative purpose of the deprivation: R(SB) 40/85, paragraph 10. That test has now been applied to local Government benefits: R(H) 1/06, paragraph 21.
The adjudication history
4.	The local authority decided that some of the claimant’s expenditure was reasonable, but that the remainder did not. She was therefore treated as still possessing that capital, which exceeded the permissible limit of £16,000. The claimant exercised her right to appeal. The tribunal decided that the claimant had knowledge in general terms of a capital limit and that it was inconceivable that she would have spent as she did unless she was aware of the possibility of claiming benefits for her financial support. To that extent the tribunal agreed with the local authority’s decision. However, the tribunal disagreed with the local authority on the issue of reasonableness. It regarded this as irrelevant; either the expenditure was undertaken for the purpose of securing entitlement to benefit or it was not. It directed the local authority to add back the items that it had regarded as reasonable. The chairman concluded by saying that as his ‘numeracy is so challenged that any attempt by him to do the recalculation would only create chaos’, the local authority should undertake it with liberty to apply in the event of a dispute as to the calculation.
5.	The claimant appealed against the tribunal’s decision with my leave. 
How the tribunal went wrong in law
6.	The assessment of purpose is usually established by inference, which involves an assessment of (a) the claimant’s actions, (b) the reasonableness of those actions and (c) the claimant’s character and credibility. (This list is not necessarily comprehensive.) The tribunal went wrong in law because (i) there is a gap in its logical assessment of the evidence relevant to the purpose of the transactions the claimant undertook and (ii) it did not give appropriate significance to the reasonableness of some items of expenditure. I must now explain and justify these conclusions.  
Knowledge and deprivation
7.	The tribunal found that the claimant had sufficient knowledge of housing benefit to realise that her capital would prevent her obtaining an award and that she had embarked on a course of expenditure that was rash and excessive. Those are findings of fact and I can see no way in which the tribunal went wrong in law in making them. The tribunal treated those findings as conclusive. But were they?
8.	The tribunal was correct that the legal test was whether the claimant had a significant operative purpose to secure entitlement to housing benefit. In order to have that purpose, she needed to know something about the significance of the amount of her capital to an award of housing benefit. The extent of the knowledge that is necessary will depend on the circumstances of the case. In deciding what level of knowledge is necessary, it is necessary to understand why knowledge is important. The reason is this. The only direct evidence will be the claimant’s own evidence of the purpose for which the capital was expended. And that evidence will usually be that the purpose was unrelated to entitlement to benefit. If the tribunal does not accept the claimant’s evidence, it can only find that that the claimant had the necessary purpose by inference. The fact that it does not believe the explanation put forward is some, although not necessarily conclusive, support for the purpose being related to the securing of entitlement to benefit.  But it is impossible to infer that a claimant disposed of capital for a particular purpose if the claimant did not know that the amount of capital could affect entitlement to benefit. 
9.	The level of knowledge that is required to allow an inference of a significant operative purpose will depend on what the claimant has done. This is best illustrated by examples. Take first this example: a claimant reduces capital each time it increases above the capital limit. It is only possible to infer that the claimant had a significant operative purpose of securing entitlement to benefit, if the claimant knew of the precise amount of that limit. A general knowledge that there is some limit would not be sufficient to justify an inference that the disposals were related to benefit entitlement. Of course, the fact that the claimant continually reduced capital to just below that amount would be evidence of knowledge of that limit, but there might be other explanations. 
10.	Now take a different example: a claimant inherits £100,000 and spends it within a week. In this example, a general knowledge that there is some limit may be sufficient to allow an inference that the claimant’s purpose was to secure benefit. It is possible to infer that the claimant’s purpose involved securing of entitlement to benefit without proving any precise knowledge of what the capital limit was. However, once again, the claimant’s knowledge is not necessarily conclusive. There may be other explanations. 
11.	Having identified the extent of the claimant’s knowledge, it is then necessary to consider what can be inferred from that and the other circumstances of the case. It is always possible that a claimant who has knowledge of the capital rule does not act on it. The tribunal in this case found it inconceivable that the claimant would have spent as she did if she had not known that benefit would support her. It is certainly conceivable that a claimant would spend as this claimant did if she knew of the capital limit. But that does not mean that it is inconceivable that a claimant may simply be feckless in spending and not give any thought to what will happen when it is all gone. I disagree with the tribunal and consider that this a conceivable possibility. In other words, the tribunal was not entitled to infer that the claimant had a relevant purpose simply from the rash and excessive expenditure with some knowledge of some sort of capital limit. The tribunal had to go further and consider whether, on its assessment of her character and thinking, this is what happened. The tribunal did not do that; it based itself solely on any other purpose being inconceivable. By omitting that necessary step from its reasoning, it went wrong in law. 
12.	The local authority has argued that the tribunal did not misdirect itself on the law. In support of this argument, it has referred to the decision of Mr deputy Commissioner Paines in CH/1873/2005. The Commissioner was there concerned with regulation 43(1), although he wrongly referred to it as regulation 42(1). He wrote:
‘12.	… Where a person has had capital adequate to cover his housing costs and council tax liability …  but has disposed of a large part of that capital, it is in my view sufficient, in order for the regulations to apply, that when he disposed of that capital, he had it in mind that he would compensate for its absence by claiming benefit.
‘13.	For this to be the case, it is necessary that the claimant should appreciate that having the capital would disentitle him to benefit but that without it he would (apart from the notional capital rule) be eligible.’
I respectfully agree. However, those propositions have to apply on the facts of the case. They do not apply regardless of the facts and the deputy Commissioner went on in paragraph 14 to deal with the issue whether ‘the claimant did appreciate those things’. Moreover, the claimant must appreciate those things at the time of the expenditure. I am setting the tribunal’s decision aside in this case, because it went wrong in its chain of reasoning. Mr Paines’ decision is an authority on the correct legal test to apply, but does not show that the tribunal’s application of that test in this case was soundly reasoned. 
Reasonableness
13.	The tribunal also went wrong in law by deciding that the reasonableness of the claimant’s expenditure was irrelevant. 
14.	The legal test is that set by regulation 43(1). Reasonableness is not a constituent legal part of that test and the tribunal was correct to remind the local authority of this. However, it was unnecessary to do so as it made no difference in this case. The local authority only had to consider the amount of the claimant’s capital between the date of claim and the date of decision. That amount was always well above the £16,000 throughout that period whether or not the items of expenditure disregarded by the local authority were taken into account. 
15.	Not only was the tribunal’s decision on reasonableness unnecessary, it was also wrong in that it treated reasonableness as irrelevant. Reasonableness is not decisive as a matter of law, but it is relevant as an evidentiary consideration. As I have said, the necessary purpose for regulation 43(1) can usually only be proved by inference. The reasonableness of a particular item of expenditure is relevant to whether that inference can be drawn. A claimant who uses part of an inheritance to replace a car that has just failed its MOT may be able to use the state of the car and the need for a replacement as evidence that the securing of entitlement to benefit was not a significant operative purpose of the expenditure. In contrast, a claimant who spends large sums of money on multiple purchases of the same luxury items will not be able to use reasonableness in that way. But, just as reasonableness is not decisive in a claimant’s favour, unreasonableness is not decisive against a claimant. As I have said, inference must depend on all the circumstances of the case. 
16.	The parties have not referred in their observations to the decision of Mr Commissioner Rowland in CJSA/1425/2004. However, I must mention it as it is relevant. The Commissioner was there concerned with the equivalent provision to regulation 43(1) in the jobseeker's allowance legislation. He decided that the test was whether it was reasonable for the claimant to act as she did in depriving herself of capital. With respect to my colleague, I consider that his reasoning is based on a misreading of the authorities and that his decision erroneously converts an evidentiary factor of reasonableness into a legal test and a subjective test of purpose into an objective test of reasonableness. 
Disposal
17.	I allow the appeal, set the tribunal’s decision aside and direct a rehearing in accordance with the analysis of the law in this decision. 
18.	So that the claimant does not misunderstand my decision, I will emphasise that I have not decided whether or not she undertook some or all of her expenditure with a significant operative purpose of securing entitlement to benefit. All I have decided is that the tribunal’s reasoning was not sound. It will be for the tribunal at the rehearing to decide the purpose of the claimant’s expenditure on the evidence and arguments before it. 

Signed on original
on 24 April 2006	Edward Jacobs
Commissioner