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Cite as: [2014] UKUT 60 (AAC)
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LH v Secretary for Works and Pensions (IS) [2014] UKUT 60 (AAC) (04 February 2014)
Capital
Notional Capital: deprivation
IN THE UPPER TRIBUNAL Appeal No: CIS/1470/2012
ADMINISTRATIVE APPEALS CHAMBER
Before: Upper Tribunal Judge Wright
DECISION
The Upper Tribunal allows the appeal of the appellant.
The decision of the First-tier Tribunal sitting at Eastbourne on 10 June 2011 under reference SC171/10/01614 involved an error on a point of law and is set aside.
The substituted decision of the Upper Tribunal is to set aside the Secretary of State’s decision of 10 August 2010 and replace it with a decision that the appellant did not deprive herself of £37,075.34 for the purpose of securing entitlement to income support and she therefore is entitled to income support from the date of claim of 25 January 2010.
This decision is made under section 12(1), 12 (2)(a) and 12(2)(b)(ii) of the Tribunals Courts and Enforcement Act 2007
REASONS FOR DECISION
1. I had at one point thought that the substantive issue around which this appeal would resolve was the impact, if any, that a visiting officer from the Department for Work and Pension’s advice may have had on a claimant’s intention when disposing of capital for the purposes of regulation 51(1) of the Income Support (General) Regulations 1987 (the “IS Regs”).
2. As is well known, regulation 51(1) of the IS Regs provides, so far as is relevant, as follows:
“51(1) A claimant shall be treated as possessing capital of which he has deprived himself for the purposes of securing entitlement to income support or increasing the amount of that benefit except….”
None of the exceptions are material in this case.
3. There is no argument that the appellant had deprived herself of capital. The sole determining issue was and is whether she had done so “for the purpose of securing entitlement to income support”.
4. As will become apparent from what I say further below, having taken evidence from the appellant I am now satisfied that the content of the visiting officer’s advice is not determinative of the appeal.
5. For the reasons set out at the end of this decision, I set aside the First-tier Tribunal’s decision of 10 June 2011 as being erroneous in law. As I have gone on to make the decision on the appeal from the Secretary of State’s decision of 10 August 2010, I set out in some detail below the evidential background and the relevant facts as I find them to be.
6. The appeal arises from a decision made by the respondent on 10 August 2010 to the effect that the appellant was not entitled to income support from 25 January 2010. The basis for this decision was that prior to 25 January 2010 the appellant had deprived herself of £37,075.34 with the purpose of securing entitlement to income support and so was to be treated as still having that capital as at 25 January 2010. That capital exceeded the statutory maximum of £16,000 above which entitlement to income support cannot arise and for that reason the decision found that there was no entitlement to income support from 25 January 2010. This was the date on which the appellant had reclaimed income support.
7. An award had initially been made on this claim for income support. The appellant had also sought backdating of this claim for income support to 29 December 2009. This request was refused and the appellant appealed this refusal decision. She later withdrew this appeal, and so the decision not to backdate is not before the Upper Tribunal. However, the fact the backdating appeal had been made led the respondent to look at its entitlement decision again, and it then revised the awarding decision to give the 19 August 2010 decision referred to above.
8. The appellant appealed the 19 August 2010 decision but on 10 June 2011 the First-tier Tribunal (“the tribunal”) dismissed the appeal and upheld the Secretary of State’s decision. The appellant then sought to appeal the tribunal’s decision to the Upper Tribunal, and on 29 October 2012 I gave her permission to appeal. I will return below to my reasons for giving permission to appeal.
9. However, given the nature of the 10 August 2010 decision, it is necessary first to sketch in the factual background to the appellant reclaiming income support on 25 January 2010. I base this on what is set out in the papers and the appellant’s evidence to me at the hearing of her appeal. I say immediately that I found her to be both a credible and accurate witness notwithstanding that it was nearly four years after the dates of the relevant events.
10. The appellant had been in receipt of income support since 1997. In or about May 2009 she received a payment from an endowment or life assurance policy of just over £54,000. The appellant had been in ill-health for some time and the payment under the endowment policy was made because the appellant met the permanent work disability waiver part of the policy. She did not then inform the respondent of her receipt of this capital because, in her own words, as the policy had been “specifically set up to pay the mortgage, I did not realise it would be treated as capital”. It is common ground that under the terms of that policy the appellant was not required to use the payment out from the policy to meet her mortgage liability.
11. However, it is an important feature of the appellant’s evidence, which I accept, that she did not consider this money was money for her to use to meet her day to day living expense and she instead considered that it was to be used to pay her mortgage and meet other debts. Another important feature was that she was concerned whether, given what she said above, she could use this money to pay off other debts before meeting her mortgage liability.
12. The appellant was then visited by a compliance officer in the employ of the respondent (the “visiting officer”) on 23 September 2009. There seems to be some dispute as to what caused the visiting officer’s visit to take place. The respondent’s suggestion is that it had “received information” that the appellant “was living beyond her means” (page 168), and this is why the visit took place. However, it has never provided any direct evidence to corroborate this allegation. Such evidence – for example, of frivolous dispositions not tied to any debt repayment – may have been material to the test under regulation 51, but it has never featured as part of the respondent’s case. I have therefore ignored this allegation.
13. The appellant disputes this basis for the visit. She says she was not living beyond her means and she had been using the proceeds of the endowment policy to pay off her debts. She further points to the fact that the letter informing her of the visit by the visiting officer only said that the respondent needed “to visit you to get some information or documents to help us deal with your claim”. She further points out, and I accept, that when the visit took place the visiting officer made no mention of her living beyond her means or of her having too much capital, and that the issue of her capital only arose either when she showed him her bank statements or she volunteered the information.
14. Of course the respondent may not have wished to disclose the reason for the visit beforehand if it had credible evidence that the appellant was living beyond her means or it knew she had excess capital. However, if that was the case it is more likely in my view that any such interview would have been conducted by fraud officers and that the appellant would have been called for an interview under caution. Moreover, it was stressed to me by Mr Cooper for the Secretary of State that the visiting officer was a compliance officer conducting a routine interview. I also take account of the fact that, as the visiting officer, candidly accepts on page 168, he was only able to rely on his recollection of events four years or so earlier as all the relevant documents from the visit had been destroyed.
15. On the other hand, visits by compliance officers to claimants to check up on their benefit entitlement do not take place routinely. I am therefore inclined to accept that the respondent may have had some evidence that the appellant may have had too much capital – for example via its data matching service showing payments of interest on capital – and that may have been the reason for the visit. However, I reject that the visit was because the appellant was living beyond her means. Given the appellant’s view at the start of that visit that the endowment policy did not need to be disclosed, it seems to me more likely than not that the capital came to light when the appellant showed the visiting officer her bank statements, as would be routine on a “benefit check” visit.
16. It is what then may have occurred and was said at the visit that led me initially to be concerned whether the visiting officer’s advice may be determinative of the appellant’s intention when she then disposed of more of her capital. However, although still relevant, on the basis of the evidence given to me by the appellant I do not now consider the context of what the visiting officer said is determinative of the appeal.
17. To explain the genesis of my thinking, it is perhaps best to turn back to how the appeal has progressed from the point when I gave permission to appeal.
18. I gave permission to appeal after holding an oral hearing at which both the appellant and the Secretary of State were legally represented. In her letter of appeal the appellant had said this, inter alia (page 81):
“As stated previously, the capital I received when the sickness insurance on my mortgage endowment policy paid out the sum in full, was specifically for paying out the loan amount on my mortgage. It was never capital I could use to live on. When I informed the DWP of this amount the person I spoke to – [the visiting officer] – informed me that it was reasonable and acceptable to pay off outstanding loans and debts – all incurring higher interest than my mortgage – before using the remainder to pay off part of the mortgage loan amount.
This I did and then reapplied for benefits. This was never an attempt to simply dispose of the capital in order to be entitled to means tested benefits. I needed to use the money to pay off the debts and a part of my mortgage since the more I used the money to live on the less I had to use the money for its intended purpose”
19. What was allegedly said by the visiting officer was spoken of by the appellant at least three times at the hearing of her appeal according to the tribunal’s record of proceedings. Thus on page 95 the appellant’s evidence is recorded as being (I have expanded some of the more obvious abbreviations):
“I believed it was to pay off mortgage – paid May – he came in September for review…. – I told him £54k used to pay some debts he said ok….He came to visit [visiting officer] – he said accept; I acted on that….I paid other debts +loans+remainder to pay off mortgage…”
And then from the bottom of page 96 over to page 97, the appellant is recorded as having said:
“Not aware of £16k when originally received money – not thinking of it sensible – he advised it was acceptable – this was at the home visit (see next page) – he did explain it could affect my benefit – I explain I used it to pay off debts – he was fine said as long as I wasn’t using it for a ‘slazzy up expensive holidays’ would be ok – he didn’t say no appropriate – I wouldn’t have carried on otherwise”.
20. From these records it seemed to me at the time I gave permission to appeal that the appellant had told the visiting officer she had used the money she had received from the endowment policy to pay off existing debts and the visiting officer had then allegedly advised her that this was okay as long as she was not using the money to pay for an expensive holiday. It further seemed at that stage that it was the appellant’s evidence that she then acted on this advice when making further dispositions of her capital before she reclaimed income support on 25 January 2010.
21. A concern I had was that this alleged advice and what role it may have then played in the appellant’s subsequent further disposals of her capital had not featured at all in the tribunal’s analysis. Mr Denman, acting for the appellant, submitted at the permission hearing that this was one of her main arguments. He formulated it as the tribunal having failed to say why this advice was not relevant to the appellant’s intention when she made the subsequent capital disposals. He submitted that the tribunal would only not have erred in law in not referring to the advice if the advice could not have made any difference to the appellant’s intention.
22. Mr Brown, for the respondent, was initially disposed to argue that there was no arguable error on the part of the tribunal because the advice made no difference to the appellant’s intention. However he later modified his position to say that it might make a difference and asked for further time for respondent to consider his position.
23. At the end of the hearing of the application for permission to appeal I told the parties that I was granting permission to appeal. I did so because in my judgment it was arguable that the tribunal had erred in law in failing to make findings of fact and give reasons for its decision about the alleged advice: whether it was given and if it was its content; whether the appellant relied on it; and the impact, if any, that the advice had on the appellant’s intentions when she made the disposals of capital relied on in the decision under appeal. I said at that point that I was unclear as to the basis on which it could be said that advice given to a person - however cogent, clear and authoritatively given - could not, as a matter of law, affect a person’s intention under the notional capital rules such that it would not be a relevant matter for a tribunal to consider and address, and I particularly sought the Secretary of State’s observations on this point.
24. After the permission to appeal hearing the Secretary of State resiled from his previous position of not supporting the appeal, in a written response dated 17 December 2012. In that response he accepted that:
“advice given to a claimant for income support (IS) by an officer of the Department for Work and Pensions is relevant to the question of deprivation of capital”.
This he argued was so because:
“if - (a) the claimant advised an officer of the Department for Work and Pensions that she intended to use her capital to repay debts and (b) the officer advised her that her entitlement to IS would not be affected if she did so it cannot be shown that the claimant undertook the expenditure in order to secure more IS than would otherwise be payable. In those circumstances the expenditure would have been undertaken on the clear understanding that it would have no effect on the claimant’s entitlement to IS”.
25. Unsurprisingly, in the light of this argument those acting for the appellant in their observations in reply asked merely for the appeal to be remitted to a fresh First-tier Tribunal to be re-decided.
26. However, on reflection I found myself troubled by the argument of the Secretary of State about the effect of advice, and I wondered whether it was necessarily correct. I therefore directed a further oral hearing, this time of the appeal to the Upper Tribunal, to consider the issue.
27. I sought to set out my concerns in giving directions for the oral hearing of the appeal. I began with the relevant wording of regulation 51(1) of the IS Regs, as set out above, and went on:
“There is a considerable body of caselaw on what these words mean. However, the only case on advice given by a departmental official that I have been able to identify is CIS/621/1991 (attached). That case, in a sense, was the opposite of this one, in that the advice given was that the claimant would lose his entitlement to income support if he disposed of his capital. In those circumstances it is unsurprising that Mr Commissioner Sanders concluded that when the claimant then went ahead and made the capital disposition anyway it could not have been “for the purpose of securing entitlement to income support”, because the advice had been that he would not secure entitlement to income support if he deprived himself of the capital.
In [the appellant’s] case, however, the advice allegedly relied on was arguably to the opposite effect, namely she would be able to secure entitlement to income support if she used the excess capital to pay off debts. In those circumstances, and assuming as seems to be [the appellant’s] case that she acted on that advice, contrary to the argument of the Secretary of State is not the effect of the advice that [the appellant’s] intention in then depriving herself of the capital was for the purpose of securing entitlement to income support? Put another way, if the key operative factor in [the appellant] disposing of the rest of the capital was the alleged advice that if she did so by paying off debts then she would be able to secure entitlement to income support again, in acting on that advice why was she not depriving herself of the capital for the (significant operative) purpose of securing entitlement to income support? In other words, and somewhat crudely, is not the effect of the advice to the opposite for that which the Secretary of State contends?
The general position outside an advice given scenario in respect of using capital to pay off debts is that consideration needs to be given to the claimant’s purpose in paying off the debts. If the debt was a legal debt capable of enforcement in the courts, and it is immediately repayable, then regulation 51(1) of the IS Regs cannot apply to any sum used to reduce or discharge that debt: R(SB)12/91 at para. 15. The rationale for this (para. 13 of R(SB)12/91) is that a person has to pay his or her debts and has no choice in the matter, and if they have no choice then “any divesting of capital resources in pursuance of the reduction or discharge of his [or her] indebtedness cannot be for the purpose of securing [entitlement to income support]”. In Jones -v Secretary of State for Work and Pensions [2003] EWCA Civ 964, however, Lord Justice Dyson, with whom Lord Justice Buxton agreed, cast some doubt on the certainty with which R(SB)12/91 was expressed, when he said (paragraphs 52-54)
“In my judgment, it is a question of fact whether a person acquiring a personal possession (para 10 of Schedule 10) or depriving himself of capital (Regulation 51(1)) does so for the Forbidden Purpose. If the payment is made in satisfaction of a debt, the fact-finder will not usually conclude that, in making the payment, the debtor's purpose was to secure an entitlement to income support, rather than simply to repay the debt.
The phrase "an immediately repayable debt" has assumed some significance in the jurisprudence in this area. In R(SB) 12/91, Mr Commissioner Rice sought to give some guidance. He said:
"13. … A person has to pay his debts. He has no choice in the matter and if he has no choice, then any divesting of capital resources in pursuance of the reduction or discharge of his indebtedness cannot be for the purpose of securing supplementary benefit or any increase thereof. Such a motive cannot direct or influence his course of action. There can only be one purpose governing his conduct, namely the need to meet his indebtedness.
14. Of course, the above principle only applies where the relevant debt is immediately payable. If the obligation to repay does not mature for several years, or, as in the case of the usual mortgage of house property, there is no need to repay the sum borrowed, provided the agreed interest and capital repayments are kept up, then any premature repayment of indebtedness will be voluntary act constituting a deliberate choice. And if there is a choice then the question will arise as to whether a significant operative purpose albeit not necessarily the predominant purpose, was to secure supplementary benefit or any increase thereof (R(SB) 38/85; R (SB) 40/85).
15. In the present case, if the Tribunal find as a fact that the claimant was genuinely indebted to his daughters, and they must be satisfied that there was a legal debt capable of enforcement in the courts, and if they are satisfied that such debt was immediately repayable, then as regards any sum employed in reduction or discharge of that indebtedness, regulation 4(1) will have no application. But if the new Tribunal are not so satisfied, and consider that there was no such indebtedness enforceable at law, or, if there was, that it was not immediately repayable, they must then go on to consider whether a substantive reason for the payment to the daughters was to secure supplementary benefit."
The extent to which Jones modifies or cuts down on R(SB)12/91 may not matter in this case. However, what Jones usefully does is to re-emphasise that each case will turn on its own facts (even ones involving an immediately repayable debt), and that the critical focus is on the nature of the debts and why they were discharged when they were. And that may bring into sharper focus the effect of the alleged advice given here”
28. I informed the parties that as the effect of the advice may depend on my deciding precisely what the advice was that was given and its context, the parties should proceed on the basis that I would wish to take evidence from the appellant and the visiting officer (if he could be made available) at the hearing, as well considering any contemporaneous documentary evidence (e.g. the visiting officer’s notes of the visit to the appellant). This, I pointed out, could have the benefit that I would be able to decide the substance of the first instance appeal rather than remitting it for decision to another First-tier Tribunal, if I was to conclude that the tribunal had erred in law in not enquiring into and making findings in respect of the alleged advice given and its effect (if any) on the appellant’s purpose in her subsequent dispositions of her capital.
29. That then led to the further hearing, this time on the appeal however, at which the appellant attended and gave evidence and was again represented by Mr Denman, solicitor. Mr Cooper, solicitor, represented the Secretary of State. I apologise to the parties for the time it has since taken me to decide the appeal. However, I have not found the advice given point as I characterised it in my direction on the appeal an easy one to deal with, and, as it turns out, it is not a point that is determinative of the appeal. This is because I am now satisfied, for the reasons I explain below, that the “advice” given was not of the nature that the appellant would be able to secure entitlement to income support if the she used the remaining excess capital to pay off further debts, nor was advice of this nature being sought by the appellant. I have therefore deliberated for some time over what I may usefully be able to say on the effect of advice as characterised in the grant of permission to appeal.
30. Prior to the hearing of the appeal both parties made further submissions in response to the directions set out in paragraph 26 above. The Secretary of State maintained his previous argument as to the advice, in effect, nullifying any adverse intention for the purposes of the test under regulation 51(1) of the IS Regs. He relied, importantly, on a decision of Mr Commissioner Mitchell in CIS/307/1992 as supporting his argument.
31. The issue in CIS/307/1992 was also whether the claimant had notional capital under regulation 51(1) of the IS Regs. The capital in issue in that case was the net proceeds of sale of a house after necessary disbursements. This exceeded the then capital limit. The claimant was the sole beneficial owner of the house that had been sold. However instead of the proceeds of sale being provided to the claimant alone, they were distributed in four equal shares to her and her three children. The claimant’s case was that because each of her three children had contributed to paying the mortgage on the property when they lived in it, she felt a moral obligation to share the proceeds of sale equally with each of them. She had thus deprived herself of 75% of the net proceeds of sale. The issue that then arose was whether she had done so for the purpose of securing entitlement to income support.
32. Although it is not entirely clear from the facts set out in the decision, it seems that the claimant’s argument was that her alleged moral obligation to pay the capital to her children was augmented and strengthened into not being an adverse intention for the purposes of regulation 51(1) of the IS Regs by advice she alleged she was given by an officer of the respondent. Commissioner Mitchell dealt with this in paragraph 11 of his decision in terms of directions to the appeal tribunal that was to rehear the appeal. He said this
“As the adjudication officer now concerned submits in paragraph 8 of his submission, there must be careful investigation into the advice which the claimant states that she was given when she visited the local office of the Department of Social Security. What exactly was said? Did she specify any sums of money in respect of -
(a) the price to be obtained for No 52; and
(b) the respective sums to be given to her children out of the proceeds of sale?
Did she make it plain that her concern was with her entitlement to further income support? If, of course, she did make it so plain, such concern would lie ill with her contention that, “She did not know possession of capital affected her entitlement at all” (see the chairman’s note of evidence on the relevant form AT3). The one qualification which I have in respect of the submission of the adjudication officer now concerned relates to the final sentence of his paragraph 8. Certainly, “the adjudication authorities are ... obliged to apply the legislation as laid down by statute”. But if -
(a) the claimant adequately explained her proposals in the local office, and
(b) was told that the fulfillment of such proposals would, in no way affect her entitlement to income support,
she would not, surely, have gone through with those proposals “for the purpose of securing entitlement to income support”
33. This was not a decision I was aware of before. Nor have I seen it being applied or discussed in any other cases. Moreover, as is evident from the contingent nature of Commissioner Mitchell’s remarks and the stage at which they are made, they are not part of the ratio (i.e. a necessary part) of his decision to set aside the appeal tribunal’s decision that was under appeal to him. His comments are therefore obiter (not necessary), and so not binding on me. Moreover they seem to be remarks that were made against the view of the Secretary of State and without the benefit of oral argument on the point.
34. Should I nonetheless follow what Commissioner Mitchell said? One immediate consideration is that for the reasons given below the advice given to the appellant in this appeal was not of the order of that contemplated by Commissioner Mitchell. Accordingly anything I would say on the subject would itself be obiter and so not binding. However, as I have received argument on the issue and considered the point at some length on this appeal, I feel it may be useful if I, briefly, set out my own view.
35. In my respectful judgment Mr Commissioner Mitchell was wrong in his closing remarks in paragraph 11 of CIS/307/1992 if by those he meant that the advice given would of itself act to nullify any finding of adverse intention under regulation 51(1) of the IS Regs and thus insulate the person provided with the advice from being caught by regulation 51(1). I agree with Mr Cooper for the Secretary of State, who at the hearing resiled from the Secretary of State’s stance in his most recent written submissions, that the remarks elide the consequences of the disposal with the claimant’s subjective intention for making the disposal. If the claimant in CIS/307/1992 had as a matter of fact approached an officer of the respondent and said that she was about to receive some capital and proposed to pay the bulk of it out to her children because she felt morally obliged to do so, and asked the officer if is this would affect her ability to still remain on income support or then reclaim it and he said “No”, I struggle to see why her intention in then paying out the money to her children was not for the purpose of securing entitlement to income support, as that was precisely what she was seeking the advice about. Indeed, staying on or qualifying for income support would arguably have been the significant operative purpose behind the disposal of capital then made. That the claimant then may have had a claim for wrong advice against the government department cannot, in my judgment, alter this conclusion.
36. Of course, it all depends on the nature of the advice sought (if any) and given, as can be seen from this appeal. Take an even starker example. A person receiving income support is paid a net sum of £25,000 under his late father’s will. He has been in receipt of income support for a number of years because he is unable to work, and he also has his rent met by way of housing benefit (which has an identical notional capital rule). He is aware of the capital rule and is concerned that if the money is taken into account he will have to come off both benefits. He therefore decides to give the money away. The claimant on these facts is very likely to be caught by the notional capital rule under regulation 51(1). I cannot, however, see that it would make any difference if he had sought advice from the Department for Work and Pensions with a view to staying on income support, and he had been wrongly advised that giving the money away would not affect his continued entitlement to income support. His giving the money would still then be with the purpose of staying on income support.
37. On the other hand, if the facts of the above case were that the income support claimant was being taken to court over debts amounting to over £25,000 and before he used the money to pay off the debts he checked with the Department for Work and Pensions whether doing so would affect his continuing entitlement to income support and was told it would not, I do not see that the advice given changes the position. Staying on benefit may not even have been a purpose behind paying off the debts. But even if it was a purpose behind the transactions it was not a “significant operative purpose” (per R(SB)40/85): paying off the debts is clearly the main motivating force behind the claimant “depriving” himself of the capital.
38. However, the scenario leading up to the dispositions of capital in this case is different and less clear cut in terms of the advice given. I return to the factual narrative that ended at the end of paragraph 19 above. The narrative ended there with a lack of clarity as to the context in which “advice” was given by the visiting officer at the visit on 23 September 2009. Having taken evidence at the hearing of this appeal I am now clearer as to what occurred.
39. An important context to the visit was that prior to it the appellant had already been using the proceeds from the endowment policy to pay off debts. Another, as I have already referred to above, is that the appellant did not consider the money from the endowment policy was money for her to use to meet her day to day living expense and that instead it was to be used to pay her mortgage and meet other debts. She was also concerned whether she could use this money to pay off other debts before meeting her mortgage liability.
40. Having heard from the appellant it is now apparent to me that it is these factors that underlie much of what was discussed between the appellant and the visiting officer at the visit in September 2009.
41. As I have found above, the visit was not stated to be about the appellant living beyond her means or that she had too much capital. The visit began with the visiting officer going through all the benefits the appellant was getting; housing costs were discussed. Then, as I have found most likely through the visiting officer looking at the appellant’s bank statements, the payment from the endowment policy was noted. The visiting officer said words to the effect “This changes everything”, and asked why the payment had not been disclosed, to which the appellant’s answer was because she thought it didn’t need to be as it was a payment to meet her mortgage.
42. There is then a dispute about what the visiting officer told the appellant the consequences of her having this capital may be. Mr Cooper argued for the Secretary of State that as the visiting officer was only a compliance officer, he would not have been able to give any advice as to any decisions to be made on benefit entitlement. That may be true as to what was meant to happen, but on the facts even the visiting officer has admitted that: “On explaining capital limits, tarrif income and deprivation, during discussion I would have said, that if capital had been used to pay off the mortgage or loan on the property then the decision maker may well not treat as a deprivation of capital”. I appreciate that this is the view of the visiting officer nearly four years later and without the benefit of his notes, but it is instructive to my mind that he has not sought to say that he either cannot recall what occurred or that, consistent with his role, he did not proffer any advice. I am therefore satisfied that he did give some advice to the appellant at the visit.
43. The appellant says that what she was advised was:
(i) that her income support would stop as she still held the capital; and
(ii) after she had explained that she had already used some of the money to pay off debts that were charging her a higher rate of interest than her mortgage was and had paid off other debts she wouldn’t otherwise have been able to pay, and she was looking ahead to pay off more debts and then use whatever was left to pay off the mortgage, the visiting officer had said this was “ok” as long as the spending was not frivolous and that it was fine to pay off other debts before the mortgage.
44. I am satisfied that the visiting officer did give the appellant advice at the visit. I accept too that the phases “tariff income” or deprivation of income” were probably not used at the meeting. What I consider on balance was likely to have been said was:
(i) that the appellant’s income support was likely to stop on referral of the evidence to the decision maker because, although the appellant had already paid off some debts, at the time of the visit she still held over £37,000 of the payment from the endowment policy. I accept Mr Cooper’s evidence that the visiting officer could not have decided this question and that it was therefore unlikely that he would have told the appellant that her income support would stop. It is in this context that the appellant’s statement to the tribunal – “he did explain it could affect my benefit” – has to be read: that is having over £16,000 in capital in September 2009 could adversely affect the appellant’s then entitlement to income support; and
(ii) the visiting officer did make a broad statement that using the proceeds of the endowment policy to pay off existing debts and the mortgage ought to be fine as it was a financially prudent move and was not spending on something frivolous such as an exotic holiday.
45. I accept that the above, and in particular what is set out in paragraph 44(ii), was said as it is broadly consistent with what the visiting officer recalls (see para. 42 above) and it fits with the gist of what the appellant has maintained throughout these appeal proceedings; a maintenance which I found both convincing and credible when the appellant gave evidence before me. However, I also accept that nothing was said at the visit about any future entitlement issues as at that point the appellant’s current entitlement remained to be determined.
46. Of course the immediate relevance of the visiting officer’s remarks concerned any decision that might have been made under regulation 51(1) of the IS Regs in respect of the past payments of debts: the further payments to meet debts and the mortgage with which this appeal is concerned[1] by definition not having occurred at the time of the visit. However, I accept that the context within which the advice was given also meant that the appellant could quite reasonably assume that it applied to any future payments to pay off debts.
47. Three other aspects of the context within which advice was sought are important and need also to be emphasised.
48. The first is that no part of the advice was directed to the steps the appellant could take to qualify again for income support. At the time of the visit no decision had been made as to whether the appellant’s entitlement to income support should cease: the decision to that effect was then made on 13 October 2009 and then only on the basis that the appellant had actual capital as at 14 May 2009 in excess of £16,000 (no part of this decision turned on the application of the notional capital rules under regulation 51(1) of the IS Regs). The advice sought and given was thus not in the context that troubled me and on which I expressly sought submissions from the parties, namely someone seeking advice as to what steps he or she may take in order to requalify for benefit. However, it was advice given by an official acting on behalf of the respondent and which in general indicated that using capital to pay off debts ought to be an appropriate step for a claimant to take.
49. The second important aspect was that a key concern the appellant had was whether it was appropriate to use the proceeds from the endowment policy to meet debts other than, or before paying, the mortgage debt. On the one hand this may be said to be irrelevant if all the debts were repayable and given that the terms of the endowment policy did not require the sums paid out to be used to meet the mortgage. However, it is relevant in my judgment to the appellant’s focus at the time of the visit, which was on which debts could appropriately be met and not on staying on or requalifying for benefit. Having heard from the appellant I accept also that it is in this context that her remark to the tribunal – “I wouldn’t have carried on otherwise” - has to be construed, namely that she wouldn’t have carried on paying off the other debts before the mortgage debt. This is entirely consistent with what the appellant had said in her letter of appeal on page 81, as set out in paragraph 18 above. It may on one analysis seem odd that a claimant would be seeking such general financial advice from a Department for Work and Pensions visiting officer. However, it has been a consistent feature of the appellant’s case and I also bear in mind that she has a long history of mental health problems. In these circumstances, and having seen and heard from her myself, I am satisfied that she was seeking such advice as she needed reassurance about whether what she had already done and was intending to do (i.e. pay off the other debts first) was appropriate.
50. The third aspect is that by the time of the visit the appellant had already paid off some debts and wished to pay off her other debts. Her then disposing of over £37,000 to pay off those other debts was an action she was, in my judgment, likely to take in any event, and all the visiting officers remarks did was to indicate to her that there would be or was unlikely to be any adverse consequence from her taking these (sensible) steps.
51. Drawing all of these threads together, I am not satisfied that the disposals of capital that the appellant made after the visit in September 2009 were made with the “significant operative purpose” of securing entitlement to income support. As Mr Commissioner Howell (as he then was) in R(H)1/06 rightly makes clear, the test here involves consideration of the individual claimant’s subjective intentions, as gathered from all the available relevant evidence. The subjective intentions test sounds too in Mr Commissioner Monroe’s “significant operative purpose” description of the test in what is now, relevantly, regulation 51(1) of the IS Regs: the word ‘operative’, as I see it, referring to the activating intention of the claimant.
52. I accept, of course, that it was a consequence of the appellant’s actions that she would have to reclaim income support if she used the money as she did to pay off further debts. However, that is not in itself enough to satisfy the regulation 51(1) test. The decision maker – myself in this case – must be affirmatively satisfied that the deprivation (here the paying off the debts) was done with the significant operative purpose of securing entitlement to income support.
53. I am not so satisfied because it seems to me entirely reasonable for the appellant to have reduced her debts which she otherwise could not have met or which would otherwise have charged her a higher rate of interest (i.e. increased her indebtedness at a greater rate) than her mortgage and then use the remainder of the money to meet part of the mortgage. I do not read anything in what Lord Justice Dyson (as he then was) said Jones as precluding this approach or requiring that in every case there has to be evidence showing that the lender is in fact requiring immediate repayment. Lord Justice Dyson expressly recognised in Jones that “even if the debt is not immediately repayable, the repayment of it by a debtor will not necessarily have been made for the forbidden purpose”.
54. However, I accept that the objective reasonableness of a person taking certain steps may not necessarily amount to the (subjective) reasons why he or she took the steps in questions and so may not necessarily provide the answer to what his or her purposes were in disposing of the capital (and therefore whether a significant operative purpose was to secure entitlement to income support). But on the facts of this case the evident reasonableness of the appellant using the proceeds of the endowment policy to pay off her debts dovetails with her reasons for meeting her debts. These were debts that she owed and which she could not meet other than by use of the endowment policy payout. Moreover, she sensibly wished to avoid the greater indebtedness that not paying off the debts would lead her into. That it seems to me was the key motivating force behind her actions in disposing of the capital. I am satisfied that these were actions she had taken before the visit and planned to take after the visit regardless of the consequences for her entitlement to income support, albeit that the remarks or advice of the visiting officer reassured her that taking such steps was appropriate and either would not, or was unlikely to, affect her entitlement to income support.
55. In these circumstances I do not consider that the strong motivating force the appellant already had (to use the endowment policy proceeds to pay off her debts), became instead an intention on her part to dispose of the capital in order to go back on to income support: that was not a significant operative purpose of the transactions. As the appellant puts it:
“At no point did I understand that there would be any expectation of me to sue the endowment policy payout as capital to use for day to day living expenses, given that would mean not paying off my mortgage OR my debts, and so losing my home! My use of the funds to pay off debts rather than purely using it for the mortgage was an attempt at financial prudence and not an attempt to discharge the capital in order to be entitled to benefits”
56. Of course all of my views on the evidence count for nought if the tribunal did not err in law. My ability to remake the substantive decision is contingent upon my finding that “the making of the [tribunal’s] decision concerned involved the making of an error on a point of law”: per section 12(1) and then (2)(a) and (b)(ii) of the Tribunals, Courts and Enforcement Act 2007. However, I am satisfied that the tribunal did err materially in law. It did so:
(a) because it failed to investigate adequately in its reasoning the context, content and effect of the advice given by the visiting officer; and
(b) in focusing over-rigidly on whether the debts met were immediately repayable or whether, in contrast, the appellant had a choice over whether to pay them. The former is contrary to the view in Jones and R(SB)12/91 that even if the debt is not immediately repayable its repayment may not be for with the significant operative purpose of securing entitlement to income support. The latter and its use of the word “choice” in my judgment indicates that the tribunal took an erroneously narrow focus to the evidence before it and failed to have regard to the reasons why this appellant used the proceeds from the endowment policy to meet other debts and then make a payment towards the mortgage.
57. It is for all the reasons given above that I have allowed this appeal.
(Signed) S. M. Wright
Judge of the Upper Tribunal
Dated 4th February 2014
[1] I should perhaps emphasise that it was not argued before me that the monies expended after the September 2009 visit were not in fact paid out to meet debts the appellant owed.