Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL File No: CH 2270/09

Administrative Appeals Chamber

6 July 2010

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

SOCIAL SECURITY ACTS 1992-2000

 

APPEAL FROM DECISION OF FIRST-TIER TRIBUNAL

 

Appellant: Kingston upon Hull CC

Respondent: DLM

Claim for: Housing Benefit (Overpayment)

First-tier Tribunal: Hull

Tribunal case ref: 950/08/02039

Tribunal date: 4 June 2009 (reasons issued 22.07.09)

 

 

DECISION OF THE UPPER TRIBUNAL

 

The authority’s appeal is allowed. The first-tier tribunal’s decision is set aside as erroneous in law and replaced with this decision under section 12(2)(b)(ii) of the Tribunals, Courts and Enforcement Act 2007, that the claimant was overpaid the sum of £541.11 housing benefit for the period 11 July 2005 to 6 April 2008 inclusive and that overpayment was not one which arose in consequence of an official error within regulation 100(3) of the Housing Benefit Regulations 2006 SI No 213; so the authority’s decision of 22 August 2008 that that amount had been overpaid to the claimant and is legally recoverable from her under section 75 of the Social Security Administration Act 1992 was correct and is confirmed.

 

 

REASONS

 

Mr P L Howell QC:

 

Introduction

1. This appeal by the Hull City Council (“the Council”) must be allowed, as in my judgment the tribunal sitting at Hull on 4 June 2009 (Ms S A Cracknell, first‑tier judge, sitting alone) misdirected itself in law in holding that the sum of £541.11 housing benefit overpaid to the claimant from 11 July 2005 to 6 April 2008 was irrecoverable from her as an “overpayment which arose in consequence of an official error” within the meaning of regulation 100(3) of the Housing Benefit Regulations 2006 SI No. 213. I set the decision aside and, as no dispute has been raised as to the amount involved, exercise the power in section 12(2)(b) of the Tribunals, Courts and Enforcements Act 2007 to substitute the decision set out above, confirming that the amount in question represented an overpayment (because the claimant's income had to be recalculated retrospectively to take into account a compensation payment she received on 25 March 2008, from the Council itself) but holding that amount legally recoverable from the claimant as it falls outside the narrow exemption in the legislation for cases of “official error”. I decline the Council’s earlier application for an oral hearing of its appeal since I am persuaded on the written submissions that it has to be allowed.

Background

2. This case is one of a number that have raised similar issues on the proper treatment of arrears or compensation payments made by local authority employers in respect of equal pay, equal treatment, sex discrimination or similar claims, when the employee in question has also been in receipt of means‑tested benefits over the period in question. Such payments were the result of an increasing recognition that in the years since the Equal Pay Act 1970 had come into force the rights of women workers to equal pay for equal work and work of equal value, and to equal treatment in matters such as participation in and allocation of bonuses, were not being given full effect in the nationally and collectively agreed pay structures operated by local authorities, in particular in relation to part‑time workers, proportionately more of whom tended to be women. Matters were brought to a head by the activities of no-win no-fee solicitors and claims consultants, and litigation such as GMB v Allen [2008] EWCA Civ 810, [2008] ICR 1407 which opened up the prospect of the authorities having to deal with vast numbers of claims individually, at much greater overall expense than the collectively negotiated arrangements relied on hitherto. The Council was one of those that responded by promoting its own comprehensive job re‑evaluation exercise with “road show” presentations and individual cash settlement offers to each employee potentially affected, on a system designed with the assistance of trade unions and ACAS, the result of which was largely to head off the nightmare; though at substantial expense, for which the authorities had to have central government intervention to relax the normal financial restrictions on how the additional revenue costs could be raised and accounted for.

The claimant

3. The claimant in the present case was one of the Council’s female part‑time employees who was covered by the scheme and accepted the cash settlement offer. She is a lady now aged 41 who since 2003 has been a part‑time employee of the Council, working as a clerical assistant in the occupational therapy department. At all material times she was claiming and receiving housing and council tax benefit, also from the Council since it is the relevant authority for those benefits in relation to the privately rented accommodation where she lives. Those benefits are of course means-tested and were assessed on the basis of her income consisting of part‑time earnings for her 22 hours of work a week as employee of the Council, plus the child and working tax credits she was also getting over the relevant period. There is no suggestion that the assessment calculations were done anything other than entirely correctly on the basis of the actual amount of money she had coming in by way of income during that time.

4. On 25 March 2008 the claimant attended a “road show” at which the Council’s equal pay compensation offers to her and others were presented and explained, with representatives from Unison and ACAS in attendance. She accepted the individually calculated cash offer made to her of the total sum of £4,768.55 in final settlement of any claim she might have against the Council as employer for equal pay and related equal treatment or sex discrimination claims for past and current periods of her employment plus a further “advance period” down to 30 September 2009, signed an agreement to that effect, and was given a cheque. Entirely properly, and promptly, she disclosed the receipt of this money to the Council’s benefit department in connection with her entitlement to housing and council tax benefits: see pages 49 to 51.

5. On 22 August 2008 the benefit department redetermined the claimant’s housing benefit entitlement retrospectively from 11 July 2005 onwards so as to reflect the way her lump sum settlement payment had been calculated, as representing arrears of pay due to her for the period since that date but only paid to her on 25 March 2008, plus a further advance payment of remuneration from then to cover the forward period down to 30 September 2009 (with which this appeal is not directly concerned). This resulted in the claimant being shown to have received a total of £545.11 more in housing benefit over the period 11 July 2005 to 6 April 2008 than the total of her entitlement for that period as now recalculated. Formal decision letters dated 22 August 2008 were issued to that effect and purporting to make that amount recoverable from her: pages 98 to 144. The claimant appealed to the tribunal on both questions, entitlement and recoverability.

The two issues

6. The two points at issue in this appeal, which concerns only the benefit for the period from 11 July 2005 to 6 April 2008, are (1) the correct legal treatment of the settlement payment she received as regards that past period, for the purpose of determining her benefit entitlement; and (2) if in consequence benefit is now shown retrospectively to have been overpaid to her for that period, whether that overpayment is legally repayable by her under Part 13 of the Housing Benefit Regulations 2006 or within the exception for “official error” as held by the tribunal.

The payment in more detail

7. The details of the claimant’s payment appear from the “Calculation sheet – arrears of pay” document at pages 95 to 97 prepared and used by the Council at the time. This identifies £2,946.81 of it as an arrrears payment calculated at the rate of £141.95 per month (or £32.96 per week) for the period of one year 38 weeks from 8 July 2005 to 31 March 2007, plus £1,821.74 (at £151.81 per month or £35.03 per week: I imagine there was an annual pay rise on 1 April) for the succeeding 12 months to the end of March 2008. There was a separate section of the calculation applicable to some employees described as “Capital amount” but the claimant got nothing under this head.

8. The signed “COT3 Settlement Agreement” between the claimant and the Council under which the payment was made to her on 25 March 2008 is at pages 186 to 193 and records so far as material that:

“This settlement has been reached following conciliation of a complaint made by the employee to the Advisory, Conciliation and Arbitration Service (‘ACAS’) (although no claim having been made to the Employment Tribunal by the Employee at the time of this Agreement) that action has been taken by the Employer in respect of which a complaint of equal pay could be made or could further be made to an Employment Tribunal in relation to the Compensation Period as defined in this Agreement.

The Employer and the Employee in relation to the above Job have agreed as follows:

1. The total Settlement Payment is £4,768.55.

2. Without any admission of liability and subject to the terms of this Agreement, the Employer agrees to pay to the Employee the Settlement Payment.

3. The Employee agrees to accept the Settlement Payment in full and final settlement of the following claims that the Employee has or may in the future have against the Employer, any Associate Organisation and or any present or former employees or officers of the aforementioned:

(i) claims that arise within the Retrospective Settlement Period in connection with the Subject Matter which parties agree as being claims for:

(a) equal pay (including any claim under the Equal Pay Act 1970 or the Equal Treatment Directive);

(b) any claim under the Sex Discrimination Act 1975 (including, but not limited to, a claim for compensation for injury to feelings);

(c) Breach of contract (including any sum alleged to be payable under an equality clause);

(d) Unlawful deduction of wages (including any sum alleged to be payable under an equality clause); and

(ii) Claims brought as any of causes of action stated within (a)‑(d) above, that arise during the period 26 January 2007 - 30 September 2009 and relate to payment protection of income levels applied to Comparator groups.

(iii) Claims of loss of pension rights in relation to the Compensation Period.

For the avoidance of doubt, clause 3, and therefore the settlement contemplates claims arising at common law, statute, European Law or otherwise and whether it falls within the jurisdiction of the Employment Tribunal and/or Civil Courts, or not.  …

4. The Settlement Payment

(i) The Settlement Payment represents compensation for the Compensation period. This payment is intended to compromise claims under clause 3 up to and including 25 January 2007. The Payment also compensates claims arising as a result of any element of protection of income levels applied to Comparator Groups between 26 January 2007 – 30 September 2009.  …

5. Payment of the Settlement Payment

(a) On receipt of a copy of this Agreement duly signed by the employee, the Employer will pay the Employee the Settlement Payment by way of cheque made payable to the Employee on the day of signing which is expected to be presented to the Employee during scheduled road shows.

(b) The Settlement Payment will be paid to the Employee without deduction of income tax or National Insurance contributions. Any income tax or National Insurance Contributions which is/are assessed to be payable on the Settlement Payment will be paid by the Employer on behalf of the Employee.”

It is not necessary to go further into the detailed provisions about the payment or the definitions beyond noting that the “Retrospective Settlement Period” was that dating back from 25 January 2007 to when the employee had started in a relevant type of job; the Compensation Period was that plus the further period down to 30 September 2009; the “Comparator Groups” were specified categories of the Council’s employees already enjoying the more favourable terms and conditions used for the comparison exercise; and “Subject Matter” was defined so far as material to mean:

“equal pay and/or sex discrimination claims insofar as they relate to the Job and/or any previous job held by the Employee during the Retrospective Settlement Period and relates to:

(i) grading arrangements;

(ii) bonus payments made to anyone employed in the Comparator Groups;

(iii) pay protection arrangements/pay made to anyone employed in the Comparator Groups in return for loss of bonus payments;

(iv) basic rates of pay and/or enhancements to basic pay for irregular working made to anyone employed in the Comparator Groups;

(v) allowances paid to anyone employed in the Comparator Groups;

and in each case where the Employee claims to be employed or to have been employed on like work, work rated as equivalent or on work of equal value to anyone who is or has been employed in the Comparator Groups …”

The legislation: Income and capital for housing benefit purposes

9. Entitlement to housing benefit, which is one of the income-related benefits under Part VII of the Social Security Contributions and Benefits Act 1992, depends by section 130(1)(c) ibid on the measurement of the claimant’s income against a specified “applicable amount”. If a claimant has no income and no capital, he or she gets the maximum housing benefit; if he or she has income, the entitlement is progressively scaled down and at a certain (not very lavish) income level extinguished altogether. By section 136, for this purpose

“(3) Income and capital shall be calculated or estimated in such manner as may be prescribed …

(5) Circumstances may be prescribed in which –

(a) a person is treated as possessing capital or income which he does not possess;

(b) capital or income which a person does possess is to be disregarded;

(c) income is to be treated as capital;

(d) capital is to be treated as income.”;

and by section 175 these subordinate legislative powers may be exercised in different ways for different cases, situations or purposes.

10. By regulation 27 of the Housing Benefit Regulations 2006 already cited, the income of a claimant for the purposes of section 130(1)(c) of the 1992 Act (conditions of entitlement to housing benefit) shall be calculated on a weekly basis by estimating the amount which is likely to be his average weekly income in accordance with Sections 2, 3 and 5 of Part 6 of the Regulations (“Income and capital”); by regulation 29 where a claimant’s income consists of earnings from employment as an employed earner his or her average weekly earnings are to be estimated by reference to the earnings from that employment over a prescribed period, and for that purpose the claimant’s earnings are to be calculated in accordance with Section 3 of Part 6.

11. That Section (“Employed earners”) begins with regulation 35 which provides so far as material:

“Earnings of employed earners

35. - (1) … ‘earnings’ means in the case of employment as an employed earner, any remuneration or profit derived from that employment and includes –

(a) any bonus or commission;

(b) any payment in lieu of remuneration except any periodic sum paid to a claimant on account of the termination of his employment by reason of redundancy;

(c) any payment in lieu of notice or any lump sum payment intended as compensation for the loss of employment but only insofar as it represents loss of income; …

(g) any award of compensation made under section 112(4) or 117(3)(a) of the Employment Rights Act 1996 (remedies and compensation for unfair dismissal); …”

Recoverability of overpaid housing benefit

12. The basic rule on the recoverability of overpaid housing benefit is laid down by section 75 Social Security Administration Act 1992:

“75. - (1) Except where regulations otherwise provide, any amount of housing benefit determined in accordance with regulations to have been paid in excess of entitlement may be recovered either by the Secretary of State or by the authority which paid the benefit.  …

(3) An amount recoverable under this section shall be recoverable –

(a) except in such circumstances as may be prescribed, from the person to whom it was paid; …”

By regulations 99 to 100 of the Housing Benefit Regulations 2006:

“Part 13 - Overpayments

Meaning of overpayment

99. In this Part, ‘overpayment’ means any amount which has been paid by way of housing benefit and to which there was no entitlement under these Regulations (whether on the initial decision or as subsequently revised or superseded or further revised or superseded) …

Recoverable overpayments

100. - (1) Any overpayment, except one to which paragraph (2) applies, shall be recoverable.

(2) … this paragraph applies to an overpayment which arose in consequence of an official error where the claimant or a person acting on his behalf or any other person to whom the payment is made could not, at the time of receipt of the payment or of any notice relating to that payment, reasonably have been expected to realise that it was an overpayment.

(3) In paragraph (2), ‘overpayment which arose in consequence of an official error’ means an overpayment caused by a mistake made whether in the form of an act or omission by –

(a) the relevant authority;

(b) an officer or person acting for that authority; …

where the claimant, a person acting on his behalf or any other person to whom the payment is made, did not cause or materially contribute to that mistake, act or omission.”

Attribution of income paid in respect of a past period

13. I do not understand there to be any dispute in this case over the actual calculation of the benefit at issue if the claimant’s settlement payment does have to be taken into account as “income” and her entitlement redetermined, but for the sake of completeness quote from regulation 79 of the same regulations which provides, by way of exception to the normal rule that a “change of circumstances” takes effect for benefit purposes only from when it actually occurs, that:

“(6) Where the change of circumstances is that income, or an increase in the amount of income, … is paid in respect of a past period and there was no entitlement to income of that amount during that period, the change of circumstances shall take effect from the first day on which such income, had it been paid in that period at intervals appropriate to that income, would have fallen to be taken into account for the purposes of these Regulations.

(7) Without prejudice to paragraph (6), where the change of circumstances is the payment of income, or arrears of income, in respect of a past period, the change of circumstances shall take effect from the first day on which such income, had it been timeously paid in that period at intervals appropriate to that income, would have fallen to be taken into account for the purposes of these Regulations.”

The first-tier decision

14. For that purpose the first-tier judge held, correctly in my view, that the claimant’s settlement payment had been a “relevant change of circumstances” so that her previous awards of housing benefit for the periods it covered fell to be superseded under regulation 8 of the Housing Benefit and Council Tax Benefit (Decisions and Appeals) Regulations 2001 SI No. 1002 insofar as the payment consisted of income or arrears of income. If it did, regulation 79 displaced the general rule that a superseding decision takes effect from the date it is made, and the change of circumstances had to be taken into account retrospectively over the period such income should have been paid if it had been paid on time and at appropriate intervals, with the benefit entitlement for past periods redetermined accordingly. Again entirely correctly, she held there was no question of this being a case of revision for error due to ignorance or mistake of fact in the original assessments, since those had been properly and accurately calculated on the actual remuneration being paid to the claimant at the time. See paragraphs 5-6 of the statement of reasons issued to the parties on 22 July 2009, at pages 206 to 208 of the appeal file.

15. The first-tier judge then considered whether the payment did have to be taken into account as income for housing benefit purposes and concluded that it did, explaining with impeccable clarity and precision that:

“7. Regulation 35 provides that ‘earnings’ in respect of an employed earner means ‘any remuneration or profit derived from that employment’. It then sets out an inclusive list, which at regulation 35(1)(b) includes ‘any payment in lieu of remuneration except any periodic sum paid by reason of redundancy’. In R(SB) 21/86 a compensatory award made by an employment tribunal insofar as it consisted of compensation for loss of earnings, was held to fall under this paragraph. I consider that a settlement made in order to avoid a claim in the Employment Tribunal should also be included. It is clear that the figure arrived at in the lump sum was compensation for the shortfall in the pay and was compensation for loss of earnings. The lump sum therefore could not be viewed as capital but fell to be apportioned as income in accordance with Regulation 79 from the time that it should have been paid. [The claimant] had therefore been overpaid Housing Benefit.”

16. She then turned to consider the second issue of whether the overpayment was recoverable from the claimant and held that it was not, on the ground that it had been due to an official error by the Council as her employer, and she could not reasonably have been expected to realise at the time she received the payment or notifications that she was being overpaid. After referring to the provision in regulation 100 that any overpayment shall be recoverable except one which arose in consequence of an official error, defined so far as relevant in regulation 100(3) as one “caused by a mistake whether made in the form of an act or omission by – (a) the relevant authority”, the judge continued:

“8. ... I considered that the Council had made a mistake in failing to undertake a systematic review of the pay scales and this amounted to an official error. It was submitted by the Respondent Council that the relevant authority meant one that was acting only in its capacity as a Housing Benefit administrator. This view was expressed by Upper Tribunal Tier Judge Mark [in case CH 3826/08, relied on before her and in the tribunal bundle at pages 103 to 105], however in that case it was decided that the relevant authority had not made any error and was dealing with the administration of pension. In CH2321/2002 and CH3586/2007 it was held that relevant authority encompasses the authority as a whole, and not just particular departments. ‘Relevant authority’ in Regulation 2 is defined as ‘an authority administering housing benefit’. In CH/3586/2007 the definition of relevant authority was compared to the definition of designated office in Regulation 2. In paragraph 8 the Commissioner concluded that there was no justification to construe relevant authority in a way to confine it to one department. Regulation 2 merely limited the authorities to those administering Housing Benefit as opposed to those like Shire Counties without such a function. In CH38/2008 this view was confirmed. On balance, I preferred this line of reasoning …”.

Issues on this appeal

17. The Council appealed on that last issue on the ground that the first-tier judge had misdirected herself on the meaning of “official error”: what was said in CH 3826/08 (Middlesbrough BC v DS [2009] UKUT 80) was part of the ratio of that decision and ought to have been followed in preference to the other observations she relied on which were less directly in point. Initially the well-argued written submissions from both sides (on behalf of the Council by its solicitor Mr Ian Miller, and on behalf of the claimant by her representative Mr Darren Green, welfare rights officer with the Hull Community Legal Advice Centre) focused only on that question, and it was common ground that the first‑tier judge had been correct on the first issue that the payment fell to be treated as income in the way above outlined.

18. However shortly after those submissions had been made the decision of another judge in case CH 3829/08 EM v L B of Waltham Forest [2009] UKUT 245 was published, in which it was held that an arguably similar compensation payment in settlement of potential equal pay claims under the Part‑time Workers (Prevention of Less Favourable Treatment) Regulations 2000 SI No. 1551 constituted capital rather than income so there was no overpayment of the housing and council tax benefit the claimant had received in the period to which the payment related.

19. Entirely properly and in response to a direction I gave, Mr Green then put the “capital or income” question in issue, arguing in a supplemental submission that the payment made to the claimant in this case was likewise a lump sum compensation or compromise payment, made voluntarily and without any admission of the claimant having been entitled to extra pay; so it too should have been treated as a one‑off capital receipt at the date it was made and the claimant had not therefore been overpaid housing benefit for the period alleged. Mr Miller disputed this in a further submission on behalf of the Council, arguing that the position of the claimant in EM v Waltham Forest (a male worker, whose claim could only be made under the Part‑time Workers Regulations) was distinguishable from a female worker such as the present claimant who had had equal pay rights under the 1970 Act all along; and for a case such as hers the earlier authorities on compensation payments in lieu of remuneration, in particular CIS 590/93 in which R(SB) 21/86 (relied on by the first-tier judge) was approved and expressly followed in the context of a claim under the Sex Discrimination Act 1975, should still be adhered to.

20. On “official error” which was also dealt with in EM v Waltham Forest, the positions were reversed; with Mr Miller urging me to follow the decision of the judge in that case approving and applying that of the Deputy Judge in Middlesbrough v DS, and Mr Green suggesting that the decision of the first‑tier judge distinguishing it should be left undisturbed, on the footing that the terms of the legislation were quite plain: the Council was a relevant authority and as the first‑tier judge found, had made a mistake in not giving effect to the claimant’s equal pay rights. If that was not so, why was it parting with its taxpayers’ money in making the payment in belated recognition of her claim? I should therefore follow the principle expressed by the Deputy Commissioner in CH 3586/07 (now R(H) 10/08) that if the legislator had intended a more restrictive definition then it would have been easy to construct it.

21. More recently still, the decision of another judge has now been given in case CJSA 0475/09 SSWP v JP [2010] UKUT 90, distinguishing EM v Waltham Forest and holding (on admittedly somewhat special facts but after a more comprehensive review of the authorities including R(SB) 21/86, not itself referred to in EM v Waltham Forest) that a voluntary additional payment on account of any claim the claimant might have under the Equal Pay Act, made to her on a no-strings basis to induce her to sign up to a settlement agreement for a larger sum which she did not in the event do, fell to be taken into account as income under the corresponding, though not identical, provisions relating to earnings under the Jobseeker’s Allowance Regulations 1996 SI No. 207.

22. The two issues I now have to decide in this appeal are thus the same as were dealt with by the first‑tier tribunal, namely (1) whether the claimant’s agreed settlement payment fell to be taken into account for housing benefit purposes as income consisting of earnings, and whether if so (2) the resulting overpayment of housing benefit for past periods was irrecoverable as within the exception for cases of “official error”. The difficult issues that arose in cases CIS 590/93 and SSWP v JP on the period of “attribution” of such earnings as income for income support and jobseeker’s allowance purposes do not arise here as for housing benefit the legislation is different.

Income or capital

23. As to the first issue there is of course a wealth of authority on what counts as income in various different contexts, and the subject seems to lend itself to memorable but ultimately rather unhelpful generalisations (from Lord Selborne’s “Income signifies what comes in” to Lord MacNaghten’s “Income tax, if I may be pardoned for saying so, is a tax on income”) to which I shall try not to add; even the general assurance that terms such as capital and income are to be given their “natural” or ordinary meanings is useful only as a starting point, and provides little reliable guidance at the polar extremities where ordinary usage does not go and the needle tends to swing back and forth between the two. However it is not in my judgment necessary to go in detail into such authorities; as this is not a case within, or anywhere near, those doubtful regions or extremes of meaning. On the contrary there is a simple and straightforward answer, namely that the first‑tier judge decided this issue quite correctly in accordance with both principle and existing authority, and the payment received by the claimant from the Council as her employer was squarely within what has to be taken into account as earnings, and therefore income, for housing benefit purposes.

24. That follows in particular from two points that are in my judgment beyond dispute. First, as pointed out in paragraphs 19 and 21 of SSWP v JP, citing R(U) 1/79 Appx 2 R v National Insurance Commissioner ex p Stratton [1979] ICR 290 per Lord Denning MR at 298A, it is the substantive nature and purpose (or “true characteristic”) of a payment in the hands of the recipient that is determinative, not the label attached to it by either or both of the parties; or I would add the timing, precise pretext or legal process by which it happens to be paid, though of course all of these are of evidential value in deciding the real question of what the payment is and what it was for. Secondly, while a general concept of what constitutes capital or income in other contexts provides a useful starting point, any preconceived notions as to the “innate nature” of either (even supposing one could define such a thing; these are of course purely man-made constructs, not natural phenomena) must in the context of these means‑tested benefit provisions give way to the specific regulations prescribing what amounts are to be taken into account as the claimant’s income for this purpose. That has to follow from the very wide terms of the primary enabling powers cited above, which in Lord Donaldson’s words allow the Secretary of State to prescribe that black is white and that nothing is something and vice versa in the context of income and capital; so it is primarily what is expressed in the regulations, not any prior idea of what is or ought to be contained in those terms, that must have the dominant role in determining what has to be taken into account. To hold otherwise is necessarily inconsistent with what was said in Stratton, with the decisions of the Commissioners in R(SB) 21/86 and CIS 590/93, and with R(IS) 8/99 Owen v CAO where the Court of Appeal upheld as valid under those powers a regulation treating the claimant as possessing income for a period when in fact he had none.

25. Those two simple points in my judgment provide the conclusive answer to the case on the income issue. As to the substance or “true characteristic” of the claimant's payment, the first‑tier judge expressly found that the whole of it was compensation for past loss of earnings and as a statement of plain fact that is simply incontrovertible, as witness not only the calculation sheets and other documents evidencing the payment but also the process leading up to it. It would be absurd to shut one’s eyes to the fact that the beginning and end of what this and similar equalisation exercises involving local authority part-time workers were about was the calculation and payment of remuneration. Whether the possible claims they were designed to redress might have been presented under the Equal Pay Act 1970 and section 23 of the Employment Relations Act 1996 (formerly the Wages Act 1986), the Sex Discrimination Act 1975, Art. 141 of the EC Treaty and the Equal Pay Directive 75/117/EC, or the Part‑time Workers Regulations (probably all of them at once, if the claimants’ representatives were doing their work) the common root of the complaint, and all it was concerned with, was unequal treatment in the matter of pay. I do not for my part think there is any material distinction to be made between any of them for the present purpose, and it is undesirable that there should be: as Lord Browne-Wilkinson said in Strathclyde RC v Wallace, [1998] ICR 205, 212D-E, the provisions together form a single code which should be construed so as to work harmoniously, and that remains true now that the scope has been extended by the 2000 regulations to cover pay inequalities even without the element of sex discrimination. In my view therefore the basic reality common to all these cases should be recognised without attempting to find distinctions where none of substance really exist; and the catch‑up payments made to this claimant and many thousands of her fellow local authority workers by way of agreed compensation, voluntary payment or tribunal award alike, treated as what they actually were: payments of remuneration made in belated recognition of a valid claim that the original amounts they got for the periods covered had been unfair and inadequate. The Council was therefore right in my judgment to treat them as arrears of remuneration for past periods, paid by way of a retrospective correction.

26. Even if there were any reason for doubt over whether such payments fall directly within the basic term “remuneration” in the opening words of regulation 35(1) without more, the fact that they were made as compensation for not having been given enough remuneration in a defined past period to satisfy equal treatment claims means they are drawn into the meaning of “earnings” beyond arguable doubt by the provision in regulation 35(1)(b) that this “includes ... any payment in lieu of remuneration”. In that respect they are indistinguishable from the compensation awards for loss of earnings which were held to be income in Stratton and R(SB) 21/86. The decision in the latter case was given on a definition of earnings in the Supplementary Benefit (Resources) Regulations 1981 SI No 1527 identical in the material respects to that in regulation 35, and the first‑tier tribunal in the present case was in my judgment right to regard it, the reported decision of a most experienced Commissioner, as binding on the treatment of such a compensation sum as income, and indistinguishable.

27. Nor in my judgment is there actually any countervailing meaning or a priori principle pointing towards catch‑up payments of this nature constituting capital in a general context, and I am not aware of any authority that would support that. On the contrary there can in my judgment be no doubt that “top-up” amounts for equality would have been remuneration, and thus income, if actually paid during the period(s) to which they relate; and there is no reason in principle for them to alter that character merely because paid in one lump after the existence of an equality claim in respect of the same period has belatedly been recognised. If for example a public company has been forced by media or governmental pressure to suspend payment of its dividends for a certain period, and afterwards makes a retrospective catch‑up payment to satisfy its shareholders' rights or reasonable expectations as to the distribution of profits for that period, there can be no doubt that as between the cestuis que trust of any shares held in trust the payment would belong to the tenant for life (or current income beneficiaries), not the ultimate capital remainderman, even though made in one abnormal lump and covering more than one past dividend quarter. An employee's catch‑up payment in respect of the earnings it is claimed he or she should have been getting for a past period is in my view a fortiori.

28. I therefore accept Mr Miller’s arguments on this aspect of the case and hold that the first‑tier judge was right in applying the principle of R(SB) 21/86, also followed in CIS 590/93 and most recently in CJSA 0475/09, in holding the compensation payment to be earnings for housing benefit purposes. Although in that last case compensation related to Equal Pay Act claims was held distinguishable from that under the Part‑time Workers Regulations which was held to be capital in EM v Waltham Forest, I am bound to say that for my part I am not able to see that there really is or should be a material distinction, for the reasons already given. The substance of these payments is all the same, namely catch‑up redress for past failure to recognise the existence of claims to equal treatment in the matter of remuneration, no matter under which legislative provision such claims happen to arise or be brought; and that applies just as much to claims of unfair or unequal wages by employees claiming solely as part-timers as to those also able to rely on the previously developed legislative code based on inequality or discrimination on the ground of sex. It follows (and it is better to acknowledge frankly) that I find myself unable to agree with or follow the conclusion reached in EM v Waltham Forest on this issue. The substance of the payment there (a compensation payment to the claimant, a part‑time worker, for not having had bonus included in his remuneration like the full‑time workers) appears to me squarely within the same principle in the decided cases as to compensation for loss of earnings and thus a “payment in lieu of remuneration” to be taken into account as earnings on the authority of R(SB) 21/86 and CIS 590/93.

29. The main reasons given in the decision in EM v Waltham Forest for reaching a different conclusion (on a point it acknowledged to be “finely balanced”) were that contrary to the judge’s own initial view, he was impelled to do so by some general observations in an unreported case, CH 1561/05, about the Housing Benefit regulations “assuming an initial classification” of a payment into capital or income before the provisions of (now) Part 6 could be applied to it; and approaching the question in that way, the compensation payment before him was “by way of a capital settlement” so the express provisions of regulation 35(1) for taking such payments into account as earnings never began to operate.

30. The first part of that rests on the proposition (which would logically apply to all forms of compensation payment for inequalities of pay, not just those to male employees only able to claim as part-time workers under the 2000 regulations) that to look at the regulations which expressly prescribe what payments are to be taken into account as income by way of earnings is mistaken and “to start at the wrong end of the problem”; those regulations can only ever be applied to payments counting as income under some general classification derived from elsewhere, and (see paragraph 42 of the judgment) deal only with the assessment and quantification of income and capital, not with what may fall within those categories which is a logically prior question.

31. For the reasons already given that approach is in my view too purist. It is inconsistent with the express terms of the legislation and with the authorities already cited of Stratton, R(SB) 21/86 and CIS 590/93, and R(IS) 8/99 Owen v CAO: indeed the “quantification” point is closely similar to the ultra vires argument considered and rejected by the Court of Appeal in that last case. I note also that the author of the decision in CH 1561/05 considers his general comment to have been taken out of context in EM v Waltham Forest and has reaffirmed that if the legislation specifically includes a particular type of payment in the income provisions, tribunals must accept and apply the provision as it stands: see paragraph 18 of his judgment in SSWP v JP.

32. Nor in my view is the latter part of the reasoning, that the payment was one of capital on general principles, correct. The first reason for so holding is stated to be that it was paid by way of a compromise sum in settlement of a claim. As already indicated I do not think there is any general principle that turns such payments into capital merely because made on the occasion of a compromise and in one lump sum, regardless of what the payment represents and what it is for.

33. The second is that it is the substance that matters and not the label attached, with which I entirely agree (Stratton, supra) but does not seem to me to point either way on whether the payment was income or capital.

34. The third stated reason is that despite the admitted fact of the compensation payment in that case having been calculated in a detailed and specific way to reflect what the claimant’s bonus earnings would have been had he been treated in the same way as the full-time drivers, this

“cannot detract from the fact that they were payments by way of settlement of a potential (and indeed highly probable) legal liability under the PTWR 2000. In other words they were capital payments for a breach of those Regulations and were not paid in respect of a clear contractual liability for a past period.”:

see paragraph 46. Again it does not seem to me to follow that what were so obviously catch‑up payments to make up for past inequalities in remuneration ceased to be remuneration and automatically became capital by virtue of being paid in settlement of a (probable) past legal liability; or that their nature as remuneration, or a compensation payment in lieu of remuneration, would be any different according to whether that past liability was contractual or statutory. As the Council was for practical purposes recognising by making the payment, the claimant in this case too had had a legal claim all along to more than she had been getting, by virtue of the overriding effect of the equality legislation; though I doubt in any event if any pre-exising legal right is actually essential for this purpose, as even non‑contractual payments such as a bonus are “remuneration” nonetheless for being made voluntarily by the employer.

35. A closely related point arises on the fourth stated reason which contrasts the Part‑time Workers Regulations, giving a statutory right to complain to an employment tribunal about less favourable treatment and thus the possibility of obtaining “just and equitable” compensation, with the position under the Equal Pay Act where an equality clause is implied into the individual’s contract of employment. Again in my view that does not render such cases distinguishable from the present or from the compensation payments considered in R(SB) 21/86 and CIS 590/93, when in all of them the substantive nature and purpose of the actual payments in point is concerned with remuneration and remuneration alone. Both of those cases were concerned with compensatory awards made by tribunals in exercise of similarly wide “just and equitable” powers. Under section 123 of the Employment Relations Act 1996 the amount of the compensatory award shall be “such amount as the tribunal considers just and equitable in all the circumstances”; and in section 65 of the Sex Discrimination Act 1975 the tribunal “shall make such of the following as it considers just and equitable ... (b) an order requiring the respondent to pay the complainant compensation” which is closely similar to the provision in regulation 8(7) of the Part-time Workers Regulations providing the remedies for breach of the positive legal right to equal treatment separately conferred by regulation 5. I have to differ from the suggestion in paragraph 47 of EM v Waltham Forest that awards made by reference to the two provisions are distinguishable from one another, or that the length of the period of unequal treatment being compensated for can make any difference to the principle.

36. The fifth reason given is that the way the payment in question may have been treated for income tax purposes is not determinative for benefit purposes and with that of course I agree. It underlines the point that it is the terms of the particular legislation in question that must determine whether and how a particular payment is to be brought into account as income for its own purposes, and how it may fall to be treated for any other general or specific purpose is of only inferential relevance. But neither of course does any of that necessarily make a payment into capital.

37. The underlying argument that because a compensation payment is all made in one lump and is non‑recurrent it must therefore be capital rather than income is I think a mistaken oversimplification. It ignores what the payment is actually for, and confuses the periodicity which is a normal characteristic of income with the number of times it happens to be paid. Nobody supposes that an employee who quits his job at the end of the first month can thereby turn his one and only paycheque into anything other than his remuneration for that month. And as pointed out in SSWP v JP there are many instances in the cases of one‑off payments constituting income: for example the one‑off profit from a single ‘adventure in the nature of a trade’ which is of course a trading profit (and therefore income) of the period it took to earn it, both for tax purposes and in the more general sense. I agree with what is there said about references in earlier cases to income as having to be “recurrent” needing to be read with some caution and in context.

“Official error”

38. Turning at last to the “official error” point which was the original ground of contention in this appeal, I am again of opinion that Mr Miller’s arguments are to be preferred and that the first‑tier judge did misdirect herself in holding the overpaid housing benefit irrecoverable from the claimant. On this aspect I agree with the analysis in EM v Waltham Forest that despite the terms of regulation 100(3) and the corresponding Council Tax Benefit regulation not having been quoted entirely accurately, the actual conclusion reached in Middlesbrough v DS on the limits of the exception for errors by the “relevant authority” must be right. It is expressed succinctly and lucidly in paragraph 13 of the judgment of that case where the judge said:

“It appears to me, giving a purposive construction to these provisions, that the official error must have been in the context of the performance of the council’s duties in relation to the relevant benefit. It does not cover mistakes made as, for example, a pension provider or an employer.”

39. That in my judgment follows not only from the absurd results which, as pointed out in both those cases, would follow if the recoverability of overpaid housing benefit were to depend on the coincidence of whether a claimant who had received a retrospective payroll or pension adjustment happened to be the employee or pensioner of his own local council, or a neighbouring one; but also from the actual terms of the legislation itself where a literal reading in my judgment supports the Council’s case rather than the reverse. As already noted the definition of a “relevant authority” in regulation 2(1) of the Housing Benefit regulations is that it “means an authority administering housing benefit”, which is not strictly or necessarily the same thing as “an authority that happens to possess housing benefit administration powers” as the comment on the term in a different context in R(H) 10/08 at paragraph 28, and the submissions made by Mr Green in support of the first‑tier judge’s decision in this case, appear to assume. Local authorities do of course have and exercise a multitude of different functions under different legislative schemes and the use of the present participle in the definition here does in my view literally define, and accurately identify the entirely rational intendment that in the context of overpayment recovery under regulation 100 what is being referred to is the authority in its role as the housing benefit authority and not as anything else.

40. However that may be I would for my part also doubt whether the making of correct remuneration payments in accordance with the individual employees’ terms and conditions of employment and nationally or collectively agreed wage structures, as will have been the case in the vast majority of instances where compensation payments have been made following later re-evaluation exercises, can properly be considered within the categories of “official error” excepted by regulation 100(3) in any event. It is of course impossible to identify any individual mistake made by the authority or an officer in relation to the actual payment of benefit at the time since there was none; and the making of wage payments by the Council as employer, intentionally and in accordance with its own policy and contractual or statutory obligations as understood at the time, is in my view too far removed from the kind of “mistake” envisaged by the regulation even though the generally shared understanding of the extent and implications of the equal treatment legislation on which it was based is later acknowledged to be too narrow. In accordance with established, and in my judgment still applicable, authority on the scope of the exception for “official error” what must be shown is a “clear and obvious” error of fact or law made by the authority or some officer on the facts disclosed to it or him, or which it or he had reason to believe were relevant, and this was not such an error: see for example the cases cited in R(H) 2/04 paragraph 13.

41. It follows that I do not agree with the first‑tier judge that the observation in R(H) 10/08 (which was concerned with the question of a notification to the housing benefit authority through its housing department, and the proper office for notifying changes of circumstances) should be read as leading to the conclusion she reached in the context of the Council’s earlier payments of the claimant’s remuneration as her employer. The judge’s reasons refer also to two other cases, CH 2321/02 and CH 38/08 as holding that “relevant authority” encompassed the authority as a whole and as confirming that view, but neither of those in fact does so. In the first, the only point where the topic is touched on at all is the direction in the final paragraph that if on a rehearing of the case a tribunal found that benefit had been overpaid “consideration should be given to whether any official error by the Council (and not merely the Housing Benefit Department) and/or the Benefits Agency caused the overpayment”, though without deciding the point, on which there had apparently been no argument. In the second, which was a case of a claimant overpaid housing benefit because his incapacity benefit, which had been stopped but afterwards reinstated by a tribunal, had not been taken into account for a period, the judge held expressly that the fact of the reinstatement did not show there had been any “official error” in the stopping of the award such as to prevent the ensuing overpayments of housing benefit being recoverable when the later adjustment was made: it was not necessarily an error at all, but in any case it was “not an error which relates to the award of HB or CTB”. I cannot see that it supports the point being made on the definition of “relevant authority” at all: if anything the implication is the other way.

Conclusion

42. For those reasons I consider the Council’s arguments are to be preferred on both issues and the consequence is that a decision confirming the overpaid housing benefit of £545.11 is legally recoverable from the claimant has to be substituted in the terms set out above. The extent and manner of any actual recovery of this sum is a matter for the discretion of the Council in accordance with well established principles, and not something that is at issue or requires comment in this appeal.

 

P L Howell

Judge of the Upper Tribunal

6 July 2010

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