CH/2675/2007

DECISION OF THE SOCIAL SECURITY COMMISSIONER

1.	  This is an appeal by the claimant with the leave of a tribunal chairman from a decision of the Brighton Appeal Tribunal given on 26 April 2006 disallowing the claimant’s appeal, confirming a decision of the Worthing Borough Council and finding that the claimant was not entitled to housing or council tax benefit from 13 March 2000 to 7 May 2001.

2.	  For the reasons given below, the appeal is allowed.  I set aside the decision of the tribunal and I remit the case to be reheard by a new tribunal in accordance with the directions given below.

3.	  This case was delayed for four years by the council’s failure, as found by the Appeal Tribunal, to process an appeal made by the claimant on 21 March 2002 (see p.157 of the file).  It would seem that in that time memories may have faded and documentation was lost, or at any rate failed to be produced and included in the appeal bundle.

4.	  So far as I can deduce from the file, the claimant’s case is that he had sought housing benefit in 1999.  Initially either he had been refused benefit, or an award that was made had been suspended while investigations were made by the council, but either he had eventually been awarded benefit or the suspension had been lifted, and he was paid up to March 2000.  The amount which he states that he received was £3138, equivalent to rather over 7 months rent (file, p.11).  It is unclear how he dealt with that sum.

5.	  At that stage, benefit was suspended according to the claimant pending further enquiries, and in October 2000 the council used the result of those enquiries to refuse benefit, apparently on the ground that the claimant had capital in excess of £16,000 (p.63).  There is then said to have been an appeal, following which the council “backed down”, and it is then said again to have denied benefit (p.12).  The documentation disclosed by the claimant shows that by letter dated 31 August 2001, after the claimant’s circumstances had changed and he had withdrawn his claim for benefit from 1 May 2001, the council agreed not to use the supposed capital in assessing the claimant’s entitlement, but asked for information regarding the payment of his rent direct to his landlord by his accountant (p.77).

6.	  The claimant responded to this request by letter dated 7 September 2001, explaining that he had advised the council about the rental payments by the accountant when he first applied for housing benefit in August 1998.  The council representative had spoken to the accountant and had been satisfied that the claimant was entitled to benefit (pp.78, 94).  The council was unable to confirm or deny the claim as the person involved had left its employment (p.97).

7.	  The claimant further explained at p.99 that the arrangement of ongoing loans to pay the rent was originally a temporary measure, guaranteed by other members of his family and the arrangement was reviewed every six months or so until further security was taken by the accountant in 2000.

8.	  The council has not produced any decision awarding benefit.  The first documents chronologically that it has produced have been notices dated 30 January 2002 of decisions assessing the claimant’s entitlement to housing benefit as nil between 13 March 2000 and 7 May 2001 and deciding that the claimant did not qualify for council tax benefit between those dates.

9.	  Put shortly, the reason for these decisions was that the claimant’s accountant had loaned him money by paying his rent of £420 per month directly to his landlord between those dates and that those payments constituted income of the claimant to be taken into account in assessing his entitlement to benefit.  The claimant’s evidence was that the accountant did pay the rent most months, but in some months, when he could do so, the claimant paid it himself (p.11).  According to the record of proceedings (p.206), the claimant told the tribunal that the accountant paid about 20 to 25 monthly instalments of rent between about August or September 1998 and about May 2001, and that he had been repaid around the end of 2003 or the beginning of 2004.  The loans were interest free.

10.	The tribunal, after referring to a number of decisions of the Court of Appeal and of Commissioners, concluded that (1) as a matter of law there was no general principle that loans should be treated as capital rather than income unless there is an immediate and certain obligation to repay, and (2) the tribunal was satisfied on the facts of this case that, although there was a certain obligation on the claimant to repay the loans at some stage, the obligation to do so could not be said to be immediate at any time during the relevant period.  Accordingly, the tribunal found, the payments were correctly treated as income, and the appeal had to be disallowed.

11.	The claimant questions whether the decisions relied on by the tribunal could properly be applied to issues relating to housing benefit and council tax benefit.  He also, in effect, questions the adequacy of the tribunal’s questions and its findings and what was meant by “an immediate and certain obligation to repay”.  He also produces further documentation from the accountant, which he asks me to consider.

The case law
12.	The cases cited by the tribunal are concerned with the distinction between capital and income in the context of various social security statutes and regulations.  The claimant is right to suggest that care needs to be taken in considering a definition adopted in one context and applying it in a different context.  As Jacob L.J. said in Chandler v Secretary of State for Work and Pensions, [2007] EWCA Civ 1211, at paragraph 36, referring to the Child Support Act 1991 and the regulations made under it,

“I think there is considerable danger in jumping from one statute to another. It does not help. Each statute and its associated regulations fall to be construed as whole. The context for construing a particular phrase or word is that statute, not some other statute. This statute is clearly drawn on the basis that there is clear distinction between capital and income. That distinction is pursued right through into the detail of the Schedule to the MASC Regulation. There is no need to hold, perhaps a bit artificially, that that which is capital counts as income. There are anti-avoidance provisions which will generally cover such a case. I see no need to do so on a purposive construction of the Act.”

13.	At the same time, I must also bear in mind, in relation to social security legislation, the words of Richards J, giving the leading judgment of the Court of Appeal in Morrell v Secretary of State for Work and Pensions, R(IS) 6/03, when he said at paragraph 34,

“If there were otherwise any doubt about the matter, then in my view reference to the statutory scheme would strongly favour the conclusion that these receipts were income. Income support is a means-tested benefit designed to meet a person's essential needs on a weekly basis. These moneys were provided to the appellant, and were used by her, for the specific purpose of meeting her recurrent needs throughout the relevant period. It would be contrary to the purpose of the legislative scheme if such payments fell to be excluded from the calculation of income when determining entitlement to benefit.”

14.	While housing benefit and council tax benefit are different benefits from income support, they are also means-tested and a similar approach to construction should apply.  At the present time, both are means-tested benefits under Part VII of the Social Security Contributions and Benefits Act 1992 (“the 1992 Act”), income support being provided for by section 124, housing benefit by section 130 and council tax benefit by section 131 of the 1992 Act.  The relevant provisions as to income and capital to be taken into account are all contained in section 136 of the 1992 Act.  Section 136(3) provides that income and capital shall be calculated or estimated in such manner as may be prescribed, and there are wide ranging provisions in the remainder of that section for income to be treated as capital and capital to be treated as income in prescribed circumstances.

15.	Neither the income support regulations nor the housing support regulations, nor indeed the 1992 Act, provides any definition of income.  This was considered in Leeves v Chief Adjudication Officer, R(IS) 5/99, where the question was whether a grant, which had been made to a student who then gave up his course and became potentially liable to repay part of the grant, was still to be treated as his income for income support purposes after he had given up his course.  The grant had been paid as a lump sum, and the regulations required it to be apportioned on a weekly basis over the period for which it was paid.

16.	 Counsel for the claimant is quoted by Potter LJ, at p.495, as contending that “income” was not defined in the Income Support Regulations and should be given its natural and ordinary meaning and that, in the ordinary way, money accruing in respect of which there was an immediate and equivalent repayment should not be regarded as income.  That submission was accepted by Potter LJ, who stated at pp.495-496 that

“Thus the question of whether, as at the date of their notional payment, the weekly sums are income in the hands of the claimant, falls to be decided on the basis of ordinary notions as to the nature of income.

In that respect I consider that, in the absence of statutory definition to the contrary, or some compelling contrary indication arising from the scheme of the Act, (a) monies received by way of grant towards maintenance which are not repayable are plainly in the nature of income (other than earnings) whereas (b) monies accruing, or required to be treated as received or accruing, under a certain obligation of immediate repayment (i.e. an equivalent debt) do not amount to income.”

17.	Potter LJ went on to decide that the local authority could only reclaim part of the grant as a discretionary matter after consultation with the educational authority and that it was unclear how long it would be before the claimant was called on to repay, nor was it certain precisely what sum or over what period he would be required to repay.  A repayment decision was made by the local authority, and the Court of Appeal held that from that time on the grant money was not to be treated as income for income support purposes.  Before that time, despite the likelihood that that decision would be made, the grant was still to be taken into account in the manner prescribed by the regulations.

18.	In my judgment, that case decided that a grant which was previously to be treated as income would cease so to be treated in the circumstances specified.  It also decided that “income” was, in the absence of any special provision to the contrary, to be given its natural and ordinary meaning.  It did not decide that every advance was income unless and until there was an obligation of immediate and equivalent repayment.

19.	In Morrell, the claimant had been receiving monthly sums of varying amounts, but in the region of £2000 per month, from her mother to help her with living expenses following a divorce.  The money was paid by way of loan.  No time for repayment had been arranged.  At paragraphs 31-33 of his judgment, Richards J stated as follows:

“31 In my judgment the issue in the present case can and should be decided by applying the guidance in Leeves. "Income" should be given its ordinary and natural meaning. The 1992 Act and the 1987 Regulations do not define it and there is no need to embark upon the elusive quest for a definition. There is nothing in the statutory scheme, including the various deeming provisions whereby certain capital is to be treated as income and vice versa, to compel any departure from the ordinary and natural meaning, though the statutory context, with its focus on weekly amounts available to meet outgoings, may help to inform the answer in a doubtful case. 

32. I reject Mr Coppel's submission that loans are as a general rule capital rather than income and are therefore to be taken into account as capital in the absence of a specific provision requiring them to be treated as income. I do not read the tax cases as laying down any such rule. Nor is it supported by the existence of specific provision in the 1987 Regulations for certain loans to be treated as income. The fact that the draftsman considered that those particular types of loan would or might be regarded as capital in the absence of a specific provision requiring them to be treated as income cannot be generalised into a rule that all loans are to be regarded as capital in the absence of a specific provision requiring them to be treated as income. 

33. Subject to the effect of the repayment obligation, I think it clear that the sums received by the appellant from her mother, being regular monthly receipts towards her rent and other living expenses, had the character of income. The fact that they were loans and therefore subject to a repayment obligation does not automatically give them a different character. As with the student grant in Leeves, so with a loan it is necessary to examine the nature of the repayment obligation. I accept that, in accordance with the reasoning in Leeves, a sum received under a certain obligation of immediate repayment would not amount to income. But it is difficult to envisage anything less certain or immediate than the repayment obligation in the present case. On the basis of the mother's evidence, the sums would be repayable by the daughter either "gradually as her problems decrease" or "when she is able to find employment". In reality they might never be repayable at all, since the conditions for repayment might not arise or the mother might convert the loans into gifts at some future date (which, given the family relationship, must be viewed as a realistic possibility). In any event the obligation to repay is an uncertain and future obligation. In my view that is not sufficient to deprive the receipts of their character as income.” 

20.	Again, the Court of Appeal is emphasising that “income” is to be given its ordinary and natural meaning.  So far from stating that all loans, or even all periodic loans, are to be treated as income, Richards J states that the fact that they are loans does not automatically mean that they are not income.  The point was emphasised by Thorpe LJ in the same case, at paragraph 57, when he stated:

“Whilst I accept that in the ordinary case sums borrowed will be classified as capital receipts, and perhaps invariably in the case of commercial loans, in the case of a family arrangement the classification of the sum or sums received will usually require closer scrutiny of the surrounding facts and circumstances…… Regular recurring payments designed to meet outgoings might serve as one definition of income.”

21.	On the basis of these two decisions of the Court of Appeal, while loans, and in particular recurrent loans, may well be income if there is no immediate repayment obligation, all the facts and circumstances need to be examined to decide if this is the case.

22.	Leeves, Morrell and other cases were reviewed in R(JSA) 4/04, where a deputy commissioner concluded, in paragraph 48 of his decision, that the correct approach in the context of student loans was to consider the purpose of the loans in the context of a means-tested benefit, in that case income based jobseeker’s allowance.  He decided that the principal purpose was to enable the claimant to meet his living expenses during the academic year in question, and that repayments would not normally start until some months after graduation, and even that was dependent upon their having sufficient income.  On this basis, he concluded that the loans were income for the purpose of eligibility.

23.	The third decision of the Court of Appeal referred to by the tribunal is R v West Dorset DC ex parte Poupard (1988), 28 RVR 40.  That was a case which involved the meaning of income under the Housing Benefit Regulations 1985.  Those regulations were made under earlier legislation which was differently drafted and which included no provision for capital limits on the eligibility of applicants for housing benefit.  The Court of Appeal held that both drawing from a business and from a bank overdraft facility should be treated as income, Balcombe LJ stating at p.43 that, in his judgment, in calculating or estimating income for the purposes of regulation 16 (4) of those Housing Benefit Regulations 

“(1) Income is that which comes in to the applicant.
 (2) It may, depending on the facts of the case, be appropriate to take into account cash withdrawals from the gross receipts of an applicant’s business, or withdrawals from an applicant’s bank account or other moneys received by way of loan, notwithstanding that these may not be classified as income on accountancy principles and notwithstanding that the loan may eventually be repaid out of capital.
(3) Capital which is in no way utilised cannot be deemed to constitute or create income.
(4) However, again depending on the facts of the particular case, the utilisation of capital, whether directly so as to pay for living expenses, or indirectly as security for a loan which is used to pay for living expenses, may thereby “convert” the capital so used into “income”.”

24.	In Chandler, the Court of Appeal refused to draw any assistance from Poupard.  Jacob LJ pointed out that it and Morrell, which was also relied on, were decided under different statutes.  He stated:

“34. Each was under a different statute and were in different contexts from that of this statute and its regulations. More specifically none of those cases were specifically about a man simply taking regular helpings from his own capital – taking what is in substance no more than re-payment. Morrell involved taking an income by way of building up a loan, Poupard involved taking payments from sources which included a business income and Longsdon involved an obvious attempt to convert income into capital (the ploughing back), financed by borrowings. That is the sort of thing which, under this statute, would be caught by the anti-avoidance provisions. 
35. Besides, as Miss Leventhal pointed out, if you start looking for analogous cases under other "analogous" statutes you can find cases which go the other way. She took us to Lillystone v SBC [1982] FLR 52 by way of example. To raise money for repairs to her house, a widow living on supplementary benefits sold her house for a capital sum payable by monthly instalments. It was contended (1) that these instalments took her income above the threshold for entitlement to benefit and/or (2) her capital resources were above the relevant threshold. This court held the latter to be so. Importantly for present purposes, however, was the holding that the regular payments of the capital were not income. Lord Denning MR said: 
"Wien J was quite right in saying that the £70 a month could not be treated as income. He said: 'It is self-evidently a payment of capital by instalments.' That would be quite right."
And Oliver LJ said:
"Let me say straight away that I agree entirely with the judge that what this case is concerned with is capital and not income."
So in that case "that which came in" was not income.””
 
25.	A further case which applies the definition of income in Morrell is CIS/1813/2007, where I held that where HMRC failed to amend an award of working tax credit and to stop payments into the claimant’s bank account of working tax credit after the claimant had told them that she has stopped work and did not want to be paid any more, those further payments were not income, although they were not repayable unless and until HMRC demanded repayment.  Again, “that which came in” was not income.  This is to be contrasted with CIS/647/2007, where the claimant had failed to advise HMRC of the change of circumstances, as a result of which the tax credit payments continued.  HMRC remained under an obligation to make the payments, and they were held to be income for income support purposes although ultimately it was likely that they would have to be repaid.

26.	In the light of the other Court of Appeal authorities to which I have referred, I do not find Poupard assists me.  I take the law as to the meaning of income in the 1992 Act and in the Regulations made under it to be as stated in Morrell.  The word must be given its ordinary and natural meaning in the context, subject only to specific provisions of the regulations giving it a different meaning in accordance with the powers to that effect contained in section 136 of the 1992 Act.  Loans can be income, but it is necessary to examine all the facts before coming to a conclusion.

27.	The tribunal also relied on CH/3393/2003, where a commissioner held that payments made by the claimant using a credit card were part of his income.  In coming to that conclusion the commissioner cited Leeves and Morrell, but failed to cite the passage in which Richards J said that “income” was to be given its ordinary and natural meaning.  I find the greatest difficulty in seeing how, in general, payments using a credit card can mean that the commercial borrowing on the credit card can be said to be part of the claimant’s income, giving “income” its ordinary and natural meaning in accordance with Leeves and Morrell.  Without expressing any view as to whether the end result in CH/3393/2003 was correct, bearing in mind that in that case other loans were being made by the claimant’s ex-wife, I consider that the commissioner in that case was wrong to treat credit card payments in the manner that he did.

28.	Finally, in this respect, the tribunal referred to R(H) 1/05.  That was an overpayment case in which a claimant had been drawing various means-tested benefits as a result of misrepresentations.  When his housing benefit was superseded, and overpayment decision was also made.  The commissioner held that in determining whether the claimant should have been entitled to receive any amount by way of housing benefit, which could be offset against any overpayment, all his actual income had to be taken into account except where he could show that the amounts were legally recoverable from him and were being fully recovered from him.  Bearing in mind that the overpayments in question were between 1994 and 1997, and the overpayment decision was made in 1999, this decision would appear to be incompatible with Leeves and Morrell, in that on the basis of those decisions, the benefits were undoubtedly income coming in during the period of the overpayment, and there could only be an immediate liability to repay once an overpayment decision had been made by the relevant authorities responsible for the benefit in question.  That approach is also consistent with CIS/647/2007, to which I have already referred.  Unless and until that decision had been made during the period of the overpayment, I see no reason why the payments in question should not be treated as income of the dishonest claimant.
 
The application of the law to this case
29.	 The tribunal only considered the question whether there was an immediate obligation on the claimant to repay the loans.  It did not consider whether the loans were properly to be considered as income in the absence of that obligation.  Bearing in mind that the claimant’s entitlement had to be assessed on the basis of his weekly income, and the evidence was that the accountant only paid his rent on about 20-25 occasions between August 1998 and May 2001, a period of about 33 months, the tribunal also ought to have investigated and made findings as best it could what the position was between March 2000, when benefit was suspended, and May 2001.  I therefore consider that it erred in law and that its decision must be set aside.

30.	The claimant has stated in representations on this appeal that the accountant had made the loans as a temporary measure while the claimant’s application for housing benefit was being considered (p.294) and has produced a lengthy letter from the accountant dated 17 January 2007, confirming that this was the basis of the arrangement, and that there were months when he did not pay the claimant’s rent because the claimant informed him that he could meet them from savings or that he had received a payment from housing benefit (see in particular pp.278-279).  

31.	It appears to me that in considering whether the loans, or any of them, in this case are income of the claimant, the following factors need to be considered: 

(1)	If the claimant had regularly been receiving loans from family or friends to cover rent or other outgoings before applying for benefit, and has not been expected to repay them until some time in the indefinite future, then it is likely to be right to categorise those loans as income
(2)	If the claimant and the accountant had agreed that the accountant should lend the claimant money for his rent for a month or two, while his claim for housing benefit was being processed, then all else being equal, those loans would not be income in the ordinary sense of the word, particularly if the accountant would expect repayment as soon as the award was processed and the arrears paid.  Further, it would not appear to be the intention of the legislation to penalise somebody in need who made a legitimate application for benefit, because, through no fault of his own his application took time to process and he needed to borrow temporarily to cover his needs while the application was being considered.  Particularly if his home was at stake, he would have to take steps to ensure that he did not lose it, and should not be penalised for taking an interest free loan rather than seeking an expensive commercial one that he could not afford.
(3)	The claimant ought not in principle to be penalised because, through no fault of his own, his application took a year or more to process.  
(4)	If, however, the evidence were to establish that the accountant was lending the money regularly in ignorance of the application, or would have gone on lending it regardless of its outcome, then it may well be right to treat the loans as income.
(5)	It is for a tribunal to consider all the facts and then decide, by reference to those facts, whether in all the circumstances all or some of the loans are to be categorised as income.
(6)	The fact that loans were not made every month is a factor to be taken into account with all the other circumstances, both in considering whether all or some of the loans were income, and in considering what the claimant’s income was at any particular time.

32.	It appears to me that I do not have enough information as to the timing and number of the loans, or as to the application of such housing benefit as was received, to determine what loans were made when, or what loans were or were not income.  I also do not know how far the information can now be provided.  It seems to me that it would not be appropriate for me to substitute my own decision in this case, and that I must remit it to a new tribunal for further investigation and finding of facts.  The new tribunal may wish to bear in mind that the burden of proof that the loans were income in on the council, and that if information and documents are no longer available, it may wish to consider how far that is the responsibility of the council for failing to consider the matter in 1998/9, assuming that it was told of the loans at that stage, or for failing to consider it at some later stage, or for causing the delay of 4 years when it failed to process the appeal.

33.	The appeal is allowed and I make the order set out in paragraph 2 above.

	(signed on the original)	Michael Mark
		Deputy Commissioner
		13 March 2008