Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Case Nos. CCS/1482/2009

ADMINISTRATIVE APPEALS CHAMBER CCS/1652/2009

1. These are appeals by the non-resident parent (Mr C), brought with my permission, against two decisions of an appeal tribunal sitting at Brighton on 6 October 2008. For the reasons set out below those decisions were in my judgment wrong in law and I set them aside. In exercise of the power in s.12 of the Tribunals, Courts and Enforcement Act 2007 I re-make the Tribunal’s decisions in the same terms as those made by the Tribunal, save that in implementing the departure direction the amount to which Mr C’s net income is to be increased shall be £478 per week less the amount at the effective dates of Miss C.C’s income (including that from child benefit and working families’ tax credit/child tax credit). As noted in paragraph 29 below, that will result in departed maintenance assessments of £59.58 per week with effect from 15 November 2006 and £46.06 per week with effect from 12 December 2007.

2. References in this decision to page numbers are, unless otherwise stated, to the file in CCS/1482/2009.

3. Mr C, who is now aged 40, and the parent with care, Miss L.C., have a child, Mia, who is now aged 9. Mr C and Miss C have not lived together for some 8 or 9 years – i.e. presumably since shortly after or before the birth of Mia, who lives with Miss C. Mr C lives with another partner (Miss C.C.), and they have a child (now aged about 2) together. They have since about November 2005 lived in a house which they purchased for £187,000, with a mortgage of some £168,000 (pp.29-30, 42).

4. On 10 December 2007 a child support maintenance assessment was made in respect of Mia in the sum of nil, with effect from 15 November 2006. In the calculations leading to that assessment Mr C’s net earnings were taken as £222.15 per week, being (as I understand it) his earnings from his self-employment as a manual worker in the construction industry (pp.90-1;116). The reason for the nil assessment was that his exempt income is shown as £259.58 per week, a substantial part of that being his and Miss C.C’s liability under the substantial interest-only mortgage on their home. Mr C’s family’s “disposable income” (relevant for “protected income” purposes) is shown as £348.45 per week. That comprised Mr C’s net earnings and Miss C.C’s income of £108.85 per week working families’ tax credit and £17.45 per week child benefit (p.115).

5. On 17 January 2008 a decision was made, having effect from 12 December 2007, again assessing maintenance at nil. Mr C’s net income used for the purposes of that calculation was £176.64 per week (comprised of £125.38 net income from earnings, and £51.26 working tax credit – see p.13). The figure for earnings was supported by a self-assessment tax calculation for the year 2006-7 showing profit from self-employment as being £6968 for the year (p.23). The reason for the nil assessment was again the high amount of his exempt income - £294.24, again to a substantial extent attributable to mortgage interest. His “disposable income” is shown as £194.74 per week, being his net weekly income of £176.64 plus child benefit (payable to Miss C.C.) of £18.10 per week (p.17). There was an error in the calculation of “disposable income” in that the amount of £186.04 per 4 weeks (£46.51 per week) child tax credit payable to Miss C.C. should have been included (see pp.4, 25, 92-3), but that error on its own made no difference, because the assessment was in any event nil.

6. On 29 January 2008 Miss L.C applied for a departure direction on a number of grounds, including the ground of Mr C’s lifestyle being inconsistent with his declared income. She pointed out that his mortgage interest payments alone (£171.21 per week) absorbed almost the whole of his declared net income.

7. The CSA contacted Mr C for his comments. He said (among other things) that his income had been correctly declared, and that he had no savings. On 20 March 2008 a decision maker refused to make a departure direction.

8. On 14 April 2008 Miss L.C. appealed against both the maintenance assessment decisions and the departure direction refusal. The view has been taken by CMEC that the appeals required decisions as to the correct amount of the maintenance assessment at the effective dates of 15 November 2006 and 12 December 2007, and I proceed on that footing.

9. The only direction for additional information which appears to have been made by the Tribunal in the appeals was one requiring Mr C to complete a “lifestyle expenses form”, which he did (pp.40-1). His completed form indicated expenditure of £418.75 per week, substantially more than the amount of his declared net income, and more even than, on the basis of the declared figures, his family’s “disposable income” at either of the relevant dates (see paras. 4 and 5 above).

10. The hearing took place on 6 October 2008. The Secretary of State was represented, and Miss L.C. appeared and gave evidence, but Mr C did not appear, having stated in his enquiry form that he wanted a paper hearing.

11. The Tribunal in its Statement of Reasons pointed out that, even on the basis of Mr C’s lifestyle expenses form being complete and accurate, the shortfall in declared income as compared with expenditure “could not be explained by a partner’s contribution to housing costs or a partner’s contribution to lifestyle.” The Tribunal then proceeded to identify certain items of additional expenditure which it considered Mr C must have incurred, and concluded that when added to his admitted expenditure the total was £478 per week, being the amount necessary to finance his lifestyle. The Statement of Reasons concluded:

“The Tribunal then looked at the just and equitable considerations after considering the applicable rate and weekly liability by reference to the net weekly income as increased by the finding of £478 per week net weekly income. The Tribunal considered these and found that it was just and equitable to grant this departure.”

12. That has to be read in the light of the Tribunal’s Decision Notices. That in respect of the formula appeal stated that the case was remitted to the Secretary of State to recalculate the amount of child support maintenance “taking into account so far as permitted under the regulations any child tax credit and working tax credit amounts received.” (As noted above, the existing calculation as at 12 December 2007 did in fact include working tax credit in Mr C’s net income, as was correct. Even if child tax credit had been payable to him (in fact it was payable to Miss C.C.) it would have been correct not to include it in his net income: see para. 20 below). Child tax credit should have been included in his family’s “disposable income”, but as that was relevant only in relation to protected income, in the absence of a departure direction that omission made no difference, since on the undeparted figures Mr C’s net income was less than his exempt income).

13. The Decision Notice in respect of the departure appeal stated that the case was remitted to the Secretary of State to recalculate the amount of the child support assessment in accordance with the following directions:

“This was a departure application. The Tribunal looked at the lifestyle of [Mr C] and the amount needed by [him] to fund that lifestyle. On [Mr C’s] own evidence submitted in his lifestyle expenses form as at December 2007 his expenses amounted to £418.75 per week.

Taking into account that [Mr C’s] household consisted of himself and his partner and their one year old baby, the Tribunal found that [Mr C] needed £478 per week to fund his lifestyle.

The Tribunal looked at whether it was just and equitable to grant a departure and found that it was.”

14. It should be noted that the departure Decision Notice did not state by how much the net income of Mr C was to be increased, pursuant to the departure direction. It was the Secretary of State who asked for a Statement of Reasons, requesting the Tribunal to state whether the amount of £478 was gross or net. As noted above, the Statement of Reasons referred to “the net weekly income as increased by the finding of £478 per week net weekly income.”

15. The decisions which were made by a decision maker pursuant to the Tribunal’s decisions were that the correct maintenance assessments, taking into account the departure direction, were £104 per week from 15 November 2006 and £91.88 per week from 12 December 2007. No details of the full calculations supporting those figures have been put before me, but it appears from what is said at paras. 5 and 6 of the submission of CMEC dated 27 July 2009 (p.92) that those calculations proceeded on the footing that Mr C’s net income was to be increased by such amount as was necessary, at each date, to bring it up to £478 per week. That obviously resulted in Mr C’s net income being more than his exempt income, and hence the substantial maintenance assessments. Those assessments obviously resulted in substantial arrears of maintenance becoming due.

16. Mr C’s written grounds of appeal essentially (i) take issue, but only in very general terms, with certain of the additional expenses which the Tribunal took into account and (ii) state that he cannot afford to make the payments which he is being required to make. He states that “after paying these amounts and backdated payments I will struggle to pay household bills.”

17. An appeal can only be made to the Upper Tribunal on the ground of error of law by the First-tier Tribunal. Mr C’s grounds of appeal do not identify, or indeed even allege, any error of law by the First-tier Tribunal. The Tribunal was plainly entitled, on the information before it, to make the findings which it did as to the amount required to finance Mr C’s lifestyle (i.e. that of himself and his family). The Tribunal considered whether it was just and equitable to make the departure direction, and decided that it was. It is clear from the Record of Proceedings (p.67) that the Tribunal was told by the person appearing on behalf of the Secretary of State what the approximate amount of the maintenance assessment would be if Mr C’s net income were to be increased to £550 per week, alternatively £418 per week. The Tribunal therefore had a fairly good idea what the end result of its decision would be. Mr C chose not to appear before the Tribunal, and provided no details of his assets, or explanation of how, if his income was what he said it was, he had been able to finance his family’s outgoings. In other words, he did not provide the Tribunal with any concrete information which would have enabled the Tribunal to decide that a departure direction in the terms which it made would cause hardship or be unfair. In those circumstances, subject to the point which I consider below, the Tribunal cannot possibly be said to have erred in law in reaching the decision which it did on the just and equitable point. If I had taken into account only Mr C’s grounds of appeal I would therefore have dismissed his appeals.

18. However, I gave permission to appeal because I was doubtful whether the Tribunal had been right in effect to direct that the departure direction should have the effect that Mr C’s net income should be increased by the whole of the difference between (i) the £478 per week necessary to finance his family’s lifestyle and (ii) his declared net income, without taking into account the income of Miss C.C., and in particular child tax credit, available to finance that lifestyle. I.e. I questioned whether his net income should be treated as £478 per week, when Miss C.C. had income with which to contribute to the lifestyle. The precise way in which I put the question was whether, in determining the cost of Mr C’s lifestyle, the Tribunal should have deducted the amount of child tax credit (£46.50 per week) which would appear to have been available to contribute to the cost of the lifestyle.

19. It is necessary here to have regard to the precise terms of the relevant parts of regs. 25 and 40 of the Child Support Departure Direction etc. Regulations 1996:

“25 (1) Subject to paragraph (2), a case shall constitute a case for the purposes of paragraph 5(1) of Schedule 4B to the Act where the Secretary of State is satisfied that the current assessment is based upon a level of income of the non-applicant which is substantially lower than the level of income required to support the overall life-style of that non-applicant.

(2) Paragraph (1) shall not apply where the Secretary of State is satisfied that the life-style of the non-applicant is paid for –

(a) out of capital belonging to him; or

(b) by his partner, unless the non-applicant is able to influence or control the amount of income received by that partner,

40(5) In a case to which regulation 25 (life-style inconsistent with declared income) applies, the net income of the non-applicant who is a parent of a child in respect of whom the current assessment is made shall be increased by the amount specified in that departure direction, being the whole or part of the difference between the two levels of income referred to in paragraph (1) of that regulation.”

20. It is also necessary to bear in mind that the amount of Mr C’s net income included in the formula assessments did not include the child tax credit awarded to Miss C.C. That was correct on two counts. First, it was not his income. Secondly, in any event, child tax credit is expressly excluded from the calculation of net income by para. 48D of Schedule 2 to the Child Support (Maintenance Assessment and Special Cases) Regulations 1992 (“the MASC Regulations”). However, in the calculations of the income of the non-resident parent and his family which are relevant for assessing the amount and effect of his “protected income”, it is specifically provided that child tax credit (whether payable to the non-resident parent or a partner) is to be included: para. 11(1)(l) of the MASC Regulations.

21. In its initial submission in this appeal CMEC submitted that the point which I raised when giving permission to appeal did not identify any error in the Tribunal’s decision or the subsequent calculations in that:

(a) The cost of Mr C’s lifestyle is required to be determined without reference to what is available to pay for it;

(b) Reg. 25(2)(b) does not apply because Miss C.C’s income is not sufficient to fund the whole of the difference between Mr C’s declared net income and the cost of his lifestyle – see my own decision in R(CS) 6/02; and

(c) in any event, Miss C.C’s income, and in particular child tax credit, is taken into account in the protected income calculation. “In this way CTC is a factor in the calculation; I submit that to subtract the CTC from the cost of the absent parent’s lifestyle at the outset would distort the legislator’s intended calculation because it would be taken to be wholly consumed by the Absent Parent’s lifestyle needs, and then taken to be available again in the income needed by the whole family.”

22. I am prepared to assume that, in determining “the level of income required to

support the overall life-style of that non-applicant”, within the meaning of reg. 25(1), it is not right to deduct income of Miss C.C. which is available to finance it.

23. It is further correct that reg. 25(2)(b) cannot apply in this case, because Miss C.C’s income was at no time sufficient to pay for the whole of the difference between Mr C’s net income and the cost of supporting his lifestyle.

24. However, as I pointed out in paras. 15(4) and 16 of R(CS) 6/02, para 40(5) of the 1996 Regulations, in referring to “the whole or part of the difference between the two levels of income” expressly provides that a departure direction need not increase the non-resident parent’s net income to the whole of the amount required to support his lifestyle. I said that

“in deciding by how much to increase the non-applicant’s net income the part of the difference in the two levels of income which is paid for by the non-applicant’s partner is plainly a highly material factor; but there is no absolute prohibition against that part being included in the departure direction increase. A decision to include the part paid for by the non-applicant’s partner in the departure direction increase, would, however, in my view, given the existence of Reg.25(2), have to be justified by some special factor.”

25. The rationale for that is in short this. The reason for the lifestyle inconsistent departure ground is obviously that if the cost of the non-resident parent’s lifestyle is substantially greater than his declared net income, he must be financing that difference from somewhere. That leads to the inference that he has additional income which he has not declared. Reg. 25(2) sets out two cases where the explanation for the shortfall is one which the legislature considered should not lead to the non-resident parent’s net income being increased. Thus, if the explanation is that the non-resident parent’s partner is paying the difference out of her income, it is not reasonable to treat the non-resident parent as having an increased income. The same applies where the shortfall is paid for out of the non-resident parent’s capital, capital not being taken into account under the scheme. Reg. 25(2) only applies in terms where the whole of the shortfall is paid for by the partner or out of capital, but the same rationale applies as regards any part of the shortfall which is paid for by a partner out of his or her income, or by the non-resident parent out of his capital.

26. I am not aware of any special factor which in the present case justified the departure direction increasing Mr C’s net income in respect of the part of the lifestyle funded out of Miss C.C’s income (including her child tax credit). The same point applies to her child benefit, and also to her working families’ tax credit as at 25 November 2006). In my judgment, therefore, and in accordance with paras. 15(4) and 16 of R(CS) 6/02, in determining the amount of the increase in Mr C’s net income under the departure direction, the amount of Miss C.C’s net income should have been deducted.

27. I have not overlooked the point made by CMEC in the part of its submission which I referred to in para. 21(c) above. However, I do not accept the force of that point, if I understand it correctly. First, it is not, as I understand it, correct that child tax credit is taken into account in determining the “income needed by the whole family”. Child tax credit is not taken into account in the primary calculation of protected income, save in relation to the determination, under reg. 11(1)(l) of the MASC Regulations, of the amount of the surplus of which 15% is to be added to protected income. It is taken into account in determining the amount of the family’s “disposable income”, and therefore in determining the amount which is available to pay child support maintenance after the amount of “protected income” is deducted. However, I do not see in that fact any legislative indication that the part of the shortfall in net income as compared with cost of lifestyle which is paid for out of child tax credit should be added to the non-resident parent’s net income by means of a departure direction. On the contrary, if the whole of the difference were financed out of the partner’s child tax credit, reg. 25(2) would have the effect that a departure direction could not be made at all. I do not see any difference in this respect between child tax credit and any other income which the partner may have and which is available to fund the cost of the lifestyle. Further, the fact that child tax credit is specifically excluded from the calculation of net income is in my view an indication, if anything, that such part of the cost of lifestyle as is funded out of child tax credit should not form the basis of a lifestyle departure direction. The recalculations of the maintenance liability on the basis of this decision (see para. 29 below) in fact show that the departed protected income calculation does not influence the end result at either of the two effective dates.

28. The same outcome as that which I favour could be reached on the application of the just and equitable principle. Where a partner’s income finances part, but not the whole, of the difference between the cost of the non-resident parent’s lifestyle and his net income, I do not see why it is just and equitable to increase the non-resident parent’s net income to the extent of that part. The rationale behind this departure direction ground, namely that it can be inferred that the non-resident parent must have net income which he has not declared, simply does not apply. Where the partner’s income consists of child tax credit, that point can be made even more forcefully, for the reason which I have mentioned.

29. After receipt of the initial submissions of all parties, I on 7 January 2010 made a Direction requiring CMEC to comment on a draft decision substantially in the terms of this decision, and to produce calculations of the maintenance liability on the footing set out in the draft decision. CMEC supplied a further submission dated 21 January 2010, and attached calculations (pp.103-115). Helpfully, CMEC now accepts the reasoning in this decision. The recalculations on the basis of this decision result in a maintenance assessment of £59.58 per week from 15 November 2006 and £46.06 per week from 12 December 2007. In my judgment it is just and equitable, for the reasons set out above, to make departure directions leading to that result.

30. Both Mr C and Miss L.C. asked for an oral hearing of this appeal, but neither stated any grounds for that request. The effect of my decision will be to reduce the maintenance assessments, but possibly not by as much as Mr C would like. I refuse Mr C’s request, because his written grounds of appeal do not give any indication that he would at a hearing be able to identify any additional error of law in the Tribunal’s decision. It may be that he would still wish to argue that the departure direction operates unfairly and harshly, given his actual financial position. However, as I have mentioned, the Tribunal was entitled to decide the appeals on the evidence before it. I refuse Miss L.C’s request because, with all respect to her, I do not think that she would be able to add anything on the point of law which forms the basis of my decision.

Charles Turnbull

Judge of the Upper Tribunal

27 January 2010