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Cite as: [2013] UKUT 175 (AAC)
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SF v Secretary of State for Work and Pensions & Revenue & Customs (HRP) [2013] UKUT 175 (AAC) (09 April 2013)
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DECISION OF THE UPPER TRIBUNAL
(ADMINISTRATIVE APPEALS CHAMBER)
The DECISION of the Upper Tribunal is to allow the appeal by the Appellant.
The decision of the Newcastle-upon-Tyne First-tier Tribunal dated 27 September 2010 under file reference 229/10/00153 involves an error on a point of law and is set aside.
The Upper Tribunal is in a position to re-make the decision under appeal.
The appeal is allowed.
The decision of the Secretary of State issued on 25 January 2010 is revised.
The Appellant was resident in Belgium and in receipt of allocation familiales, the Belgian equivalent to child benefit, between 1979 and 1986.
The rule in regulation 2(2)(a) of the Social Security Pensions (Home Responsibilities) Regulations 1994 (SI 1994/704), restricting HRP to those in receipt of UK child benefit, in conjunction with the presence or residence test in child benefit, acts as a restriction on the right of free movement in the EU and is not objectively justified.
Accordingly, on the facts of the present case Article 21 TFEU and Regulation 1408/71 requires the Secretary of State, for the purposes of awarding a state retirement pension, to take account of the Appellant’s child-raising period in Belgium as if that period had been completed in the UK and the Appellant’s pre-existing award of child benefit had continued uninterrupted.
Thus the Secretary of State (and HMRC) must take into account, for the purpose of calculating the Appellant's periods of HRP, the periods during which she was in receipt of Belgian allocation familiales as if they were periods of receipt of UK child benefit. The determination of the details of the years for which the appellant has the benefit of HRP is remitted to the Secretary of State accordingly.
This decision is given under section 12(2)(a) and 12(2)(b)(ii) of the Tribunals, Courts and Enforcement Act 2007.
REASONS FOR DECISION
The issue in this appeal
1. The issue in this appeal is whether or not the Appellant, a UK national, is entitled to home responsibilities protection (HRP), for the seven tax years from 6 April 1979 to 5 April 1986. This is important for the purpose of assessing her entitlement to a United Kingdom (UK) state retirement pension. Throughout that period she was living in Belgium with her husband, also a UK national (and a “worker” within the meaning of EU law), and her three children. During that period she received Belgian family allowances but not UK child benefit.
2. The Secretary of State for Work and Pensions (the First Respondent) and Her Majesty’s Revenue and Customs (HMRC, the Second Respondent) argue that the Appellant is not entitled to home responsibilities protection under UK law. They further argue that those rules are not in breach of EU law. The Appellant argues to the contrary. She puts the central issue thus:
“What is in issue here, however, is simply the rule whereby years of child-rearing give rise, in effect, to free credit for years of contribution, through HRP, if the child-rearer is resident in the UK, but not if (s)he is in an identical position but resident in another Member State.”
3. I allow the appeal for the following reasons. I accordingly set aside the First-tier Tribunal’s decision and re-make the decision under appeal in the terms set out above.
The proceedings in the Upper Tribunal
4. The complexity of the issues initially suggested that an oral hearing might be desirable. However, no party has asked for an oral hearing. The parties have made several detailed written submissions in response to earlier directions. Furthermore, the case has been subject to a series of delays, for various reasons. In those circumstances, and bearing in mind the overriding objective of dealing with cases fairly and justly, I am satisfied that I can deal with the appeal properly on the papers.
The factual background
5. The facts of the case are not in dispute. The Appellant was an employee in the UK, paying Class 1 national insurance contributions, until 1974. She has three children, born in the UK in 1974, 1976 and 1979 respectively. She received UK family allowances and then child benefit as appropriate for those children. She was credited with one year’s HRP from April 1978 to April 1979, the first year of the HRP scheme’s operation. The Appellant and her family then moved to live in Belgium in April 1979, because of her husband’s work, at which point her entitlement to UK child benefit ceased. Between April 1979 and April 1986 the Appellant was fully engaged in caring for her children in Belgium. She received the Belgian equivalent of child benefit (allocations familiales) but at no time became an insured person under the Belgian social security scheme. The family has since moved to Luxembourg, although that is not material for present purposes.
6. In 2009, when the Appellant turned 60, she applied for a UK state retirement pension. This pension became payable from 23 May 2009. In a covering letter to the Department, she asked for her seven years of child-rearing in Belgium to be recognised through entitlement to HRP for that period (reiterating arguments that she had put in previous correspondence going back to at least 2002, but to no avail). She had already paid Class 3 voluntary contributions in respect of later years of child-rearing abroad.
7. On 25 January 2010 an HMRC decision maker decided that the Appellant was not entitled to HRP for the period from 6 April 1979 to 5 April 1986. According to the decision maker, “Entitlement to HRP can only be accrued through receipt of UK Child Benefit. Being in receipt of any foreign child allowances does not assist a customer to obtain HRP. Accordingly, the customer will only receive HRP for any complete tax years that she received UK Child Benefit”. The Appellant lodged an appeal, arguing that the HRP rules were discriminatory under EU law.
The First-tier Tribunal’s decision
8. The appellant’s appeal was heard by the First-tier Tribunal (the FTT) at Newcastle-upon-Tyne on 27 September 2010. Neither the Appellant nor any HMRC representative was present. The FTT dismissed the appeal and confirmed the HMRC decision of 25 January 2010. In its statement of reasons, the FTT accurately summarised the facts and the main thrust of the Appellant’s arguments (that the UK child benefit requirement, and hence in effect a residence test, in the HRP scheme was contrary to EU law). The tribunal then sought to explain its decision as follows:
“7. The appellant bases her legal argument on ECJ Case C-135/99 Elsen and Article 9 of Council Regulation (EEC) No. 1408/71. The only way she can gain entitlement to HRP is for any complete years that she received United Kingdom Child Benefit. Whilst the appellant clearly believes the decision to be unfair it is not in the opinion of the Tribunal contrary to EC legislation.
8. The Tribunal finds that the respondent has correctly interpreted and applied the law to the facts of this case. If the appellant can identify that the Tribunal has made an error of law she can seek leave to appeal to the Upper Tribunal.”
9. In reaching that decision, the FTT noted that “neither party was present or represented at the hearing. The Tribunal took all written evidence into consideration before reaching its decision” (at paragraph 4). By way of an addendum to its statement of reasons, the tribunal judge made two further observations. First, she stated that “on reflection, the appellant should have been requested to provide the actual decision (case law) and legislation on which she intends to rely and the respondent (HMRC) should have been given the opportunity to respond to full legal argument. A Presenting Officer might also be expected to attend.” Second, she added that on reflection “the Tribunal is not convinced that it has jurisdiction to deal with this appeal and that it should be dealt with as a tax appeal not a social security appeal.”
10. I must first deal with, and dispose of, that last point. I subsequently joined the Secretary of State for Work and Pensions as a party to the further appeal before the Upper Tribunal. As the joint Respondents now accept, the tribunal judge’s second thoughts as to jurisdiction were misplaced. When HMRC makes decisions about entitlement to HRP, it is not making decisions under either section 8 or 11 of the Social Security Contributions (Transfer of Functions, etc.) Act 1999 (“the 1999 Act”; see further the exception in paragraph 16 of Schedule 3 to the Social Security Act 1998). It follows that HRP decisions do not fall within the exception in Article 6(c)(i) of the First-tier Tribunal and Upper Tribunal (Chambers) Order 2010 (SI 1010/2655). HRP decisions are accordingly decisions taken by HMRC but effectively as agent for the Secretary of State for Work and Pensions (see section 17 of the 1999 Act), “regarding entitlement to ... social security benefits”. Accordingly, appeals from such decisions properly fall within the jurisdiction of the Social Entitlement Chamber of the First-tier Tribunal.
11. In my initial observations, when giving permission to appeal, I raised the procedural question as to whether the FTT had properly exercised its discretion to proceed with a hearing on the papers. In particular, had it adequately considered whether it was “able to decide the matter without a hearing” under rule 27((1)(b) of the Tribunal Procedure (First-tier Tribunal) (Social Entitlement Chamber) Rules 2008 (SI 2008/2685)? In their first written submission on the appeal, the Respondents indicated with regard to that point that, if I was “minded to direct that the case be remitted to the FTT, the SSWP and HMRC would not oppose such a direction”. However, the central focus of the Respondents’ subsequent submissions has been to oppose the appeal on the substantive question of the compatibility of the relevant UK legislation with EU law.
12. I can deal with the FTT’s decision, as elaborated in the statement of reasons, shortly. There are at least two errors of law in the FTT’s decision. First, the tribunal failed properly to exercise its discretion under rule 27 – its second thoughts in the addendum to the statement of reasons demonstrated precisely why it was not (at least on the available papers) “able to decide the matter without a hearing”. Second, the FTT failed to give adequate reasons for its decision. In effect, it asserted its conclusion rather than justifying it by reasoning.
13. I must therefore allow the Appellant’s appeal to the Upper Tribunal. There is also realistically no option but to set aside the FTT’s decision (Tribunals, Courts and Enforcement Act 2007, section 12(2)(a)). There is no point in sending the case back for re-hearing before a new FTT – the facts are not in dispute and I have had the benefit of detailed submissions on the relevant law. I therefore propose to re-make the decision on the underlying appeal (Tribunals, Courts and Enforcement Act 2007, section 12(2)(b)(ii)). The starting point is the relevant (purely domestic) social security legislation relating to HRP and child benefit entitlement respectively. I then turn to consider whether that complies with principles derived from EU law.
The relevant domestic UK social security legislation
14. HRP was introduced by the Social Security Pensions (Home Responsibilities and Miscellaneous Amendments) Regulations 1978 (SI 1978/508; “the 1978 Regulations”) with effect from 6 April 1979. HRP is now governed by the Social Security Pensions (Home Responsibilities) Regulations 1994 (SI 1994/704; “the 1994 Regulations”). The purpose of HRP is to help with satisfying the second contribution condition for the various long-term contributory benefits specified in paragraph 5 of Schedule 3 to the Social Security Contributions and Benefits Act 1992 (“the 1992 Act”) (including Category A or B state retirement pensions). HRP assists by defining when a given tax year is a year of home responsibilities protection. Such years are then deducted from the number of years in which a person would otherwise have to satisfy the contribution conditions, subject to the limits set out in paragraph 5(a) of Schedule 3 to the 1992 Act. In effect, as the Appellant puts it, a year of HRP is a “free credit” year in meeting the contribution conditions.
15. So when is a year an HRP year? The various routes for qualifying for a year of HRP were set out in regulation 2 of the 1978 Regulations and the 1994 Regulations respectively. One such route (using the shorter formulation in the 1994 Regulations) is where “child benefit awarded to him was payable in respect of a child under the age of 16” (regulation 2(2)(a)). Child benefit, however, is subject to a presence condition (see now section 146 of the 1992 Act, as amended by the Tax Credits Act 2002 and the Child Benefit Act 2005). On the face of the domestic legislation, as the HMRC submission to the FTT explained, “there is nothing which allows the payment of Child Benefit to continue once a person has left the United Kingdom to take up residence in another country”.
16. The Appellant accepts that she was not entitled to, and did not receive, UK child benefit during the material period. She makes no complaint about that. Her complaint is that the HRP rules, by incorporating the child benefit residency provision, are inconsistent with EU law (which, of course, forms part of UK law).
The European Union dimension to the appeal: an introduction
17. The parties’ core submissions on the EU dimension to this appeal can be summarised as follows.
18. The Appellant’s primary submissions, based on fundamental principles of EU law, are two-fold. First, she argues that the refusal to grant her HRP on the grounds of her non-receipt of UK child benefit is contrary to the prohibition of indirect discrimination on grounds of nationality, enshrined in Article 3 of EC Regulation 1408/71. Second, she argues that this refusal to award her HRP for the years in question is also a restriction on the right of free movement and contrary to the general principle of equal treatment, applying generally across the field of application of Regulation 1408/71, which includes a prohibition of discrimination based on residence. She further submits that no justification has been shown by the Respondents for this alleged discrimination.
19. The details of the Respondents’ arguments have developed somewhat in the course of these proceedings, in part in response to the emerging case law of the Court of Justice of the European Union (CJEU). However, they deny that there is any incompatibility as between the purely domestic legislation governing entitlement to HRP (and child benefit) and the corpus of EU law. The Respondents point out that child benefit is exportable in certain circumstances, and so is not confined to those who are resident in the UK. They contend that the requirement in the 1994 Regulations that a person be in receipt of child benefit for the purpose of qualifying for HRP is not a restriction on the right of free movement in the EU. In the alternative, if the requirement is such an obstacle, then it is said to be objectively justified in that it is consistent with the EU social security coordination rules under Regulation 1408/71.
20. Regulation 1408/71, made under what is now Article 48 (formerly Article 42) of the Treaty, provides for the co-ordination of social security rules across Member States in order to minimise potential barriers to the freedom of movement of workers within the EU. Regulation 1408/71 was in force from 1 April 1973 to 30 April 2010, and so was the applicable legislation both at the time of the Appellant’s residency in Belgium and as at the date of the HMRC decision to refuse HRP for those years. That instrument has now been replaced by Regulation 883/2004, which raises a separate issue dealt with further below.
21. In their submissions the parties have referred to a number of decisions of the CJEU. The full citations (prefaced by the abbreviated case names used in this decision) are as follows:
Elsen: Ursula Elsen v Bundesversicherungsanstalt fϋr Angestellte Case C-
135/99 [2000] ECR I-10423
Kauer: Liselotte Kauer v Pensionsversicherungsanstalt der Angestellten Case
C-28/00 [2002] ECR I-1343
Reichel-Albert: Doris Reichel-Albert v Deutsche Rentenversicherung
Nordbayern Case C-522/10 [2012] EUECJ (19 July 2012)
Scholz: Ingetraut Scholz v Opera Universitaria di Cagliari and Cinzia Porcedda
Case C-419/92 [1994] ECR I-505
Sotgiu: Giovanni Maria Sotgiu v Deutsche Bundespost Case C-152/73 [1974]
ECR 153
Discrimination on the basis of nationality: Article 3 of Regulation 1408/71
22. Article 3(1) of Regulation 1408/71, which concerns equality of treatment, provides as follows:
“Subject to the special provisions of this Regulation, persons resident in the territory of one of the Member States to whom this Regulation applies shall be subject to the same obligations and enjoy the same benefits under the legislation of any Member State as the nationals of that State.”
23. Article 3 accordingly prohibits discrimination based on nationality. However, the Appellant’s submission is that the CJEU jurisprudence makes it plain that Article 3 must be interpreted broadly. Thus, she argues, the prohibition of discrimination on the grounds of nationality applies not only to direct discrimination but also to indirect discrimination on other grounds (such as residence) which have the same effect (see Sotgiu at [11]-[13] and Scholz at [7]-[11]). Such discrimination is, she further submits, unlawful unless some objective justification can be shown for the difference in treatment.
24. There is no doubt that the Appellant comes within the personal scope of Regulation 1408/71, as she is a member of the family of a worker (see Article 2(1)). In principle she can therefore claim the benefit of Article 3(1). However, I conclude that the circumstances of her case do not bring her within the terms of that prohibition of discrimination based on nationality, either directly or indirectly. I reach that conclusion for two reasons.
25. First, the paradigm case covered by Article 3(1) is where a migrant worker (or a member of their family), who is a national of Member State A but is resident in Member State B, is discriminated against, either directly or indirectly, by being denied some benefit which is available to nationals of that host country, Member State B. So, for example, the prime purpose of Article 3(1) is to ensure that a UK citizen such as the Appellant was not discriminated against by being denied access under Belgian law to benefits available to Belgian nationals. In the present case, which is governed by UK law, there is no discrimination against the Appellant on the basis of her status as a UK national. The Appellant received the Belgian equivalent of child benefit while resident there; had she not, because of her nationality, she would have been able to invoke the protection of Article 3(1). Even a truly European teleological approach to statutory interpretation cannot fit the circumstances of her situation within the clear terms of Article 3(1).
26. Secondly, the CJEU case law which the Appellant cites does not actually assist her case. In Sotgiu an Italian national living in Germany, and employed by the German post office, was denied a separation allowance payable to workers allocated to posts away from their place of residence. The CJEU ruled (at paragraph 11) that “criteria such as place of origin or residence of a worker may, according to circumstances, be tantamount, as regards their practical effect, to discrimination on the grounds of nationality, such as is prohibited by the treaty and the regulation.” Similarly, in Scholz the claimant, who was of German origin but who had acquired Italian nationality by marriage, applied for a catering post at an Italian university. Applicants were judged in part by recruitment criteria referring to their past length of employment in the public service. The University’s selection board refused to take account of the claimant’s previous employment in the German post office. The CJEU held that, where a public body takes account of candidates' previous employment in the public service, “that body may not, in relation to Community nationals, make a distinction according to whether such employment was in the public service of that particular State or in the public service of another Member State” (paragraph 12).
27. Plainly Sotgiu and Scholz involved discrimination on the basis of nationality which was indirect in nature, being based on residence. The Appellant’s situation is not analogous for the reasons indicated above; the disqualifying condition in her case may have been based on residence, but it was not a disguised form of discrimination on the ground of nationality. Put another way, she was not refused HRP, whether directly or indirectly, because she was a UK national. She was refused HRP because she was living in another Member State and not in receipt of UK child benefit. It follows that I reject the first of the Appellant’s primary submissions.
Discrimination on the basis of residence: the right of free movement and the principle of equality
28. The Appellant’s other principal argument is that the HRP rules offend the general principle of equal treatment underpinning Regulation 1408/71 and amount to an unjustifiable interference with the right of free movement of workers and members of their families. The case law of the CJEU demonstrates that such a challenge requires a two stage analysis: the first is to identify the applicable national law for the purposes of the right in issue, while the second is to assess the compatibility of that national law with the overarching principles of EU law (Elsen at paragraphs 22 and 23 and Reichel-Albert at paragraph 31). The question of the applicable law is necessarily the first question, as HRP is a provision of UK social security law. In the present proceedings the Respondents appear, rather belatedly, to have conceded that UK law is the applicable law. For the avoidance of doubt, it is important to make it clear why that is indeed the case.
(i) The applicable law
29. The Appellant has been at different times a contributor to and/or a beneficiary of both the UK and Belgian social security schemes. Title II of Regulation 1408/71 deals with the determination of the legislation applicable in any given case. Article 13(1) provides that, subject to certain exceptions which do not arise on the present facts, “persons to whom this Regulation applies shall be subject to the legislation of a single Member State only” and that legislation “shall be determined in accordance with the provisions of this Title”. This provision accordingly determines the relevant national legislation for determining the Appellant’s retirement pension rights. The default position is that “a person employed in the territory of one Member State shall be subject to the legislation of that State even if he resides in the territory of another Member State” (Article 13(2)(a)).
30. The question of how Member States have regard to periods spent child-rearing in other Member States for the purposes of calculating entitlement to old age pensions arose for decision by the CJEU in Elsen, Kauer and Reichel-Albert.
31. In Elsen the claimant, a German national, moved to France in 1981 with her husband, where their son was born in 1984. However, she remained employed and subject to compulsory social insurance in Germany until the end of her maternity leave in 1985, having the status of a frontier worker. After 1985 she was not in paid employment in either Germany or France. In 1994 she applied to the German social security authorities for her 10 years spent child-rearing in France to be taken into account as periods of insurance for the purpose of an old-age pension. The German authorities refused that application on the basis that the child-rearing had taken place abroad and the relevant provisions of German law were not satisfied. The CJEU ruled (and indeed it was not in dispute) that the claimant’s old-age pension rights were governed by German law. She had worked exclusively in Germany and was subject to German legislation when the child was born, albeit as a frontier worker. Accordingly, “a close link can be established between the periods of child-rearing concerned and the periods of insurance completed in Germany by virtue of her occupational activity in that State” (at paragraph 26).
32. In Kauer the claimant, an Austrian national, worked in Austria between 1960 and 1964. She then had three children, born in 1966, 1967 and 1969. In 1970 the family moved to Belgium, where she was not in paid employment. They returned to live in Austria in 1975, when the claimant went back to work. In calculating her old-age pension entitlement the German authorities took into account the period of child-rearing in Austria (1966-1970) but not the subsequent period in Belgium (1970-1975). In this case the relevant applicable law was in dispute. The CJEU held (at paragraph 29) that the claimant remained subject to Austrian legislation while raising her children in Belgium. Following the decision in Elsen, the Court further ruled that:
“...as regards taking account of child-raising periods for the purposes of old-age insurance, the fact that a person, like Mrs Kauer, worked in only one Member State and was subject to the legislation of that State at the time when her child was born, allows a sufficiently close link to be established between those child-raising periods and the periods of insurance completed by virtue of the pursuit of a gainful occupation in the State under consideration...” (at paragraph 32).
33. Elsen and Kauer were further considered and applied by the CJEU in Reichel-Albert. Here the claimant, a German national, worked in Germany until June 1980 and then received German unemployment benefit until October 1980. However, in July 1980 she moved to Belgium with her spouse, who worked there. The couple’s two children were born in Belgium in 1981 and 1984; but in 1986 the family returned to live in Belgium. The German social security authorities subsequently refused to take into account the years spent child-rearing in Belgium for the purposes of credits in the statutory old-age insurance scheme in Germany. However, the CJEU held, in terms almost identical to those in Kauer, that German legislation remained the applicable law (at paragraph 35). In doing so, they disagreed with the Opinion of Advocate-General Jääskinen, who had taken the view that Belgian law was the applicable law on the facts.
34. Although the standard default position is as set out in Article 13(2)(a) (see paragraph 29 above), there is a further complication in that Article 13(2)(f) provides as follows:
“a person to whom the legislation of a Member State ceases to be applicable, without the legislation of another Member State becoming applicable to him in accordance with one of the rules laid down in the aforegoing subparagraphs ... shall be subject to the legislation of the Member State in whose territory he resides in accordance with the provisions of that legislation alone.”
35. How do those principles apply in the present case? The Respondents’ original argument, before the CJEU’s decision in Reichel-Albert, was that there was an insufficiently close link (as expressed in Elsen) between the Appellant’s insured employment in the UK and her child-rearing in Belgium, given that the HRP scheme did not come into being until four years after she ceased employment in the UK. In the light of Reichel-Albert, the Respondents now concede that a close temporal link between the insured employment and the child raising period is not necessary. They also accept that the Appellant has never been employed in another Member State, although there is a distinction on the facts in that Mrs Reichel-Albert, but not the Appellant, had returned to paid employment in her home Member State.
36. The Appellant argues that any suggestion that the applicable legislation in her case is other than UK law is “clearly untenable”. I agree. The necessary close link between herself and the UK social security scheme for the purpose of her pension provision is evidenced by the following three inter-linked factors:
· The Appellant worked and paid national insurance contributions in the UK up until 1974;
· Between 1974 and 1979 she received maternity grant, maternity allowance, family allowance and child benefit in the UK, and hence was subject to UK social security legislation at the time of the birth of each of her three children;
· From its introduction until her move abroad she was entitled to HRP.
37. The Respondents initially argued that the gap of some years between the birth of the Appellant’s first child / her ceasing employment in the UK and the introduction of the HRP regime negated the link between her compulsory social insurance and the HRP scheme. I also agree with the Appellant that this argument is misconceived; what matters is her connection to the relevant social security system, not the date of any particular legislative amendment to that scheme.
38. It follows that under Article 13(2)(a) she remained subject to UK legislation even though she “resides in the territory of another Member State”. I need to deal with two counter-arguments.
39. The first relates to the fact that when living in Belgium she received Belgian child benefit. Does this mean that Belgian law then became her applicable law? The answer, in short, is no. The purpose of Regulation 1408/71, of course, is co-ordination (not harmonisation). Its function is to avoid the complications that would otherwise arise from the application of two or more sets of Member States’ national legislation to a single benefit. As Advocate-General Jääskinen noted in his Opinion in Reichel-Albert “a person insured under a social security scheme may draw multiple benefits of a different nature, such as a retirement pension and family allowance, to which the laws of different Member States are applicable (Case C-352/06 Bosmann [2008] ECR I-3827, paragraph 31)” (at paragraph 44, note 22).
40. The second concerns the introduction of Article 13(2)(f) (see paragraph 34 above). This provision was introduced into Regulation 1408/71 in 1991 by Regulation 2195/91. It was therefore not in force when the Appellant moved to Belgium nor on the facts in Kauer. Furthermore, the Appellant was in any event not “a person to whom the legislation of a Member State ceases to be applicable”, and accordingly the necessary precondition for Article 13(2)(f) to apply was not met. Just as in Kauer, she remained subject to the legislation of her home Member State, i.e. she “continued to be subject to [UK] legislation during the periods spent raising her children in Belgium, on whose territory she pursued no activity as an employed or self-employed person” (Kauer, paragraph 29).
(ii) Compatibility with EU law
41. Once it is established that UK social security law is the applicable law, the second question is whether the purely domestic element of that law is compatible with the fundamental principles derived from EU law. The context of EU legislative provision in this area is important. The First Recital of Regulation 1408/71 declares that:
“Whereas the provisions for coordination of national social security legislations fall within the framework of freedom of movement for workers who are nationals of Member States and should contribute towards the improvement of their standard of living and conditions of employment”.
42. The answer to this second question of compatibility (or not) itself breaks down into two discrete issues. First, is the restriction of HRP to those receiving child benefit in the UK a restriction on the right of free movement within the EU? Second, and if it is, is this restriction objectively justified?
(a) Is there a restriction on the right of free movement?
43. The CJEU held in Elsen, Kauer and Reichel-Albert that the relevant provisions of social security law in each of the home Member States amounted to a restriction on the right of free movement. In Elsen, of course, the claimant was a frontier worker, although nothing appears to have turned on that rather narrow point as to her employment status. In Kauer the CJEU ruled as follows (at paragraph 44):
44. It is noteworthy there that the CJEU expressly referred to the claimant’s status as a member of a worker’s family. There is no dispute in the present case that the Appellant’s husband was a worker exercising his right of free movement.
45. Similarly in Reichel-Albert the CJEU held as follows (at paragraphs 40-42):
“40 In a situation such as Mrs Reichel-Albert’s, the provisions in question lead to a result where child-raising persons who have not completed periods of compulsory contribution by virtue of an activity carried on as an employed or self-employed person during the raising or immediately before the birth of the child is not entitled to have taken into account, for the purpose of determining the amount of their pension, their child-raising periods solely because they temporarily established their residence in the territory of another Member State, even though they were not employed as an employee or self-employed person in that second Member State.
41 In so doing, such persons are accorded, in the Member State of which they are nationals, treatment less favourable than that which they would have enjoyed had they not availed themselves of the opportunities offered by the Treaty in relation to freedom of movement (see Case C-503/09 Stewart [2011] ECR I-0000, paragraph 83 and the case-law cited).
42 National legislation which places some of its nationals at a disadvantage simply because they have exercised their freedom to move and to reside in another Member State thereby gives rise to inequality of treatment, contrary to the principles which underpin the status of citizen of the Union, that is, the guarantee of the same treatment in law in the exercise of the citizen’s freedom to move (Case C-520/04 Turpeinen [2006] ECR I-10685, paragraph 22).”
46. On the face of it, that reasoning applies with equal force in the Appellant’s case. In the proceedings before the FTT, HMRC did not even begin to grapple with the EU dimension of this appeal. Before the Upper Tribunal, the Respondents’ argument on this point is that there is in fact no restriction on the right of free movement. In Reichel-Albert the offending provision in German law, which required the child-raising period to start within one month of the claimant ceasing employment, only applied to those who were not resident in Germany. Under UK law, however, the Respondents point out that child benefit is exportable. Thus at the time in question it could be exported under the provisions in Chapters 7 and 8 of Regulation 1408/71 (Articles 72-79) and, where the spouse or partner of a relevant UK worker or beneficiary had not worked in the other Member State, HRP could accordingly be taken into account.
47. This argument, as the Appellant contends, is clearly wrong, and for two reasons. First, as a matter of fact, German law, like UK law, also makes provision for certain special cases where child-rearing abroad can be credited for domestic purposes in assessing the length of a period of child-raising (see Reichel-Albert at paragraphs 12-13 and 37). This exceptional provision did not save the German legislation from being in breach of the right of free movement. Thus, second, the issue is not whether or not the national scheme makes some other special allowance such that in those narrow cases there is no restriction on the right of free movement. Rather, the focus is on the particular legislative provision in issue on the facts of the case and whether that is “disadvantageous to European Union nationals who have exercised their right to move and reside freely in the Member States, as guaranteed by Article 21 TFEU” (Reichel-Albert at paragraph 39). The HRP rule in the present case clearly has that effect, as did the relevant German provision in Reichel-Albert. Paragraphs 40-42 of the CJEU’s judgment in Reichel-Albert apply with equal force to the Appellant. All one needs do is substitute the Appellant’s name for that of Mrs Reichel-Albert in the passage cited at paragraph 45 above.
(b) Is the restriction objectively justified?
48. The question then is whether this restriction is objectively justified. There is no real analysis of this issue in either Elsen or Kauer, but the CJEU’s reasoning and decision is such that no conceivable justification was found for the restriction on the right of free movement. In Reichel-Albert the Member State concerned did not seek to argue that there was justification based on objective considerations and proportionate to the legitimate objective of the national legislative scheme (at paragraph 43). Advocate-General Jääskinen was in no doubt that, if German law was the applicable law (as the CJEU subsequently concluded), then the relevant provision was not compatible with the requirements of EU law (at paragraphs 77-78 of his Opinion).
49. The Respondents here argue that if there is a restriction then it is objectively justified. They submit that the limitation of the exportability of child benefit (and thus the recognition of child-raising periods abroad for HRP purposes) reflects the EU co-ordinating provisions in Regulation 1408/71. They further argue that the right of free movement under the Treaty does not guarantee neutrality as regards the impact of social security provision across the EU. They rely on the CJEU judgments in von Chamier-Glisczinski v Deutsche Angestellten-Krankenkasse Case C-208/07 and van Delft v College voor zorgverzekeringen Case C-345/09. In both cases the CJEU ruled that Article 48 of the Treaty provides for the coordination, not the harmonisation, of social security legislation across the EU, and so Member States retain the power to determine in their legislation, in compliance with European Union law, the conditions for granting benefits under a social security scheme (von Chamier-Glisczinski at paragraph 84 and van Delft at paragraph 99). Furthermore,
“In view of the disparities existing between the schemes and legislations of the Member States in this field, such a move may, depending on the case, be more or less advantageous or disadvantageous for the person concerned from the point of view of social protection” (van Delft at paragraph 100).
50. These submissions are unconvincing, for the reasons advanced by the Appellant. The argument based on Chamier-Glisczinski and van Delft is simply misplaced. The authorities cited make the well-established point that Regulation 1408/71 does not require the elimination of all differences in social security provision across the EU. Thus the fact that child benefit in Belgium is more or less generous than in the UK is not a breach of the requirements of Regulation 1408/71. Benefit levels are pre-eminently a matter for the legislature of each Member State. Likewise the more general argument based on co-ordination is unpersuasive. The Respondents’ arguments appear to be directed at justifying the restrictions on entitlement to UK child benefit when residing elsewhere in the EU, rather than seeking to justify the restriction of HRP to those in receipt of UK child benefit (which is the point in issue here).
51. The Respondents make a faint argument that the link with UK child benefit entitlement is required so as “to accurately and efficiently identify periods of child raising [CRP] at the point at which a claim for pension is made (which may be years or even decades after the CRP in question” (Respondents’ joint submission, 19 November 2012, paragraph 10). This argument simply will not wash. The Respondents have already conceded on the facts that the Appellant was in receipt of Belgian child benefit during the period in question. Moreover, and in any event, this sort of recognition of periods of compulsory social insurance or benefit entitlement in another Member State is in practice the day-to-day currency of Regulation 1408/71 in the dealings between social security authorities in different Member States.
52. The plain fact of the matter is that receipt of child benefit is simply a convenient proxy to demonstrate prime responsibility for raising a child. That fact can equally well be demonstrated by the Appellant’s entitlement to Belgian child benefit as against UK child benefit. The Respondents have not satisfied me that there is any objective justification for confining HRP entitlement to those in receipt of UK child benefit (whether paid to those resident in the UK or exceptionally in other cases in relation to the export of child benefit). The restriction in the present case is both a restriction on the right of free movement and a fetter which fails the objective justification test. I allow the Appellant’s appeal on that basis.
The arguments around Regulation 883/04
53. Although that is sufficient to dispose of the appeal, the parties have also made submissions on the potential significance of Regulation 883/04 which I should mention. Regulation 1408/71 remained in force until 30 April 2010. It was replaced with effect from 1 May 2010 by Regulation 883/2004. This was after the date of the decision under appeal (25 January 2010), albeit before the FTT hearing date.
54. Article 5 of the new Regulation is entitled “Equal treatment of benefits, income, facts or events”. It provides as follows:
“Unless otherwise provided for by this Regulation and in the light of the special implementing provisions laid down, the following shall apply:
(a) where, under the legislation of the competent Member State, the receipt of social security benefits and other income has certain legal effects, the relevant provisions of that legislation shall also apply to the receipt of equivalent benefits acquired under the legislation of another Member State or to income acquired in another Member State;
(b) where, under the legislation of the competent Member State, legal effects are attributed to the occurrence of certain facts or events, that Member State shall take account of like facts or events occurring in any Member State as though they had taken place in its own territory.”
55. As the Appellant argued in her notice of appeal to the Upper Tribunal, Article 5 “clearly corresponds precisely to my situation and the issue in this case”. The problem, of course, is that Regulation 883/04 was not in force at the time of the decision under appeal. The Appellant accordingly accepts that in the context of the present appeal the correctness of the decision of 25 January 2010 cannot be determined by Article 5.
56. The Appellant, however, argues that Regulation 883/04 has the potential to affect her pension rights with effect from the date of that instrument coming into force (1 May 2010). She therefore acknowledges that Article 5 cannot assist her as regards her pension entitlement between 23 May 2009 and 1 May 2010. Indeed, whilst the present proceedings were under way, and in response to my earlier observations on the appeal, the Appellant therefore made a request under Article 87(5) for a review of her pension rights calculated prior to the coming into force of Regulation 883/04. This was, in terms of purely domestic social security procedural law, a request for a supersession (the Appellant’s letter of 10 March 2012 to the Second Respondent refers).
57. The proper approach to, and effect of, a review under Article 87(5) raises a number of potentially complex issues which the Respondents’ submissions do not really engage with fully. For present purposes it is sufficient to note that neither Respondent as yet appears to have made a decision on the Appellant’s request for a review under the new provisions. As and when such a decision is made, that will generate a fresh right of appeal to the FTT. That said, the effect of my decision as set out above on the application of Regulation 1408/71 is to make the Appellant’s separate application for a supersession otiose (subject, of course, to any appeal against my decision by the Respondents to the Court of Appeal).
Other matters
58. There has been some debate in the parties’ submissions on the possible relevance of Article 9 of Regulation 1408/71. In earlier observations I also raised the issue of the Appellant’s rights as an EU citizen, given her status as a UK national. In the light of the conclusions above I do not need to express any decided views on those other matters. I also note that in her letter requesting a review under Article 87(5) of Regulation 883/04 the Appellant asked for reimbursement of the voluntary Class 3 national insurance contributions that she made in respect of a later period of child-rearing abroad. That is not a matter which can be resolved through the current proceedings.
Conclusion
59. For the reasons explained above, the FTT’s decision involves an error of law. The first ground of appeal does not succeed; I do not accept the Appellant’s arguments based on Article 3 of Regulation 1408/71. However, the second ground is successful. I conclude that the rule linking entitlement to HRP to receipt of UK child benefit acts as a restriction on the right of free movement and that restriction has not been objectively justified. I therefore allow the appeal and set aside the decision of the tribunal (Tribunals Courts and Enforcement Act 2007, section 12(2)(a)).
60. The facts of the matter are not in dispute and so there is absolutely no point in sending the case back for rehearing by a new First-tier Tribunal (section 12(2)(b)(i)). I therefore remake the decision of the FTT in the following terms:
The appeal is allowed.
The decision of the Secretary of State issued on 25 January 2010 is revised.
The Appellant was resident in Belgium and in receipt of allocation familiales, the Belgian equivalent to child benefit, between 1979 and 1986.
The rule in regulation 2(2)(a) of the Social Security Pensions (Home Responsibilities) Regulations 1994 (SI 1994/704), restricting HRP to those in receipt of UK child benefit, in conjunction with the presence or residence test in child benefit, acts as a restriction on the right of free movement in the EU and is not objectively justified.
Accordingly, on the facts of the present case Article 21 TFEU and Regulation 1408/71 requires the Secretary of State, for the purposes of awarding a state retirement pension, to take account of the Appellant’s child-raising period in Belgium as if that period had been completed in the UK and the Appellant’s pre-existing award of child benefit had continued uninterrupted.
Thus the Secretary of State (and HMRC) must take into account, for the purpose of calculating the Appellant's periods of HRP, the periods during which she was in receipt of Belgian allocation familiales as if they were periods of receipt of UK child benefit. The determination of the details of the years for which the appellant has the benefit of HRP is remitted to the Secretary of State accordingly.
Signed on the original Nicholas Wikeley
on 09 April 2013 Judge of the Upper Tribunal