DECISION OF THE UPPER TRIBUNAL
(ADMINISTRATIVE APPEALS CHAMBER)

The DECISION of the Upper Tribunal is to allow the appeal by the Secretary of State.

The decision of the Northampton First-tier Tribunal dated 21 May 2009 under file reference 044/08/01288 involves an error on a point of law.  The First-tier Tribunal’s decision is therefore set aside.  

The Upper Tribunal is in a position to re-make the original decision under appeal.  The decision that the tribunal should have made on the claimant’s appeal against the Secretary of State’s decision dated 22 September 2008 is as follows:

	The claimant’s appeal is dismissed and the decision of the Secretary of State’s dated 22 September 2008 is confirmed.  The claimant is not entitled to a Sure Start Maternity Grant.  This is because she was not in receipt of a qualifying benefit under regulation 5(1)(a)(v) of the Social Fund Maternity and Funeral Expenses (General) Regulations 2005.  In particular, she had not been awarded “child tax credit payable at a rate higher than the family element”.

This decision is given under section 12(2)(b)(ii) of the Tribunals, Courts and Enforcement Act 2007.

REASONS FOR DECISION

The Upper Tribunal’s decision in summary

1.		The Secretary of State’s appeal to the Upper Tribunal is allowed. The decision of the Northampton First-tier Tribunal dated 21 May 2009 under file reference 044/08/01288 involves an error on a point of law.  The tribunal’s decision is set aside.  

2.		The Upper Tribunal is in a position to re-make the decision under appeal.  The Upper Tribunal’s decision, as set out above, is that the claimant is not entitled to a Sure Start Maternity Grant from the Social Fund.

The legal issue in this appeal

3.		The legal issue in this appeal is a narrow point of statutory interpretation.  The claimant was only entitled to a Sure Start Maternity Grant from the Social Fund if she had been awarded child tax credit payable at a rate higher than the family element. So the question is what the expression “child tax credit payable at a rate higher than the family element” means. 

The facts of the case

4.	The facts of this case are not in dispute.  The claimant’s baby daughter was born on 24 June 2008.  On 8 September 2008 the claimant applied for a Sure Start Maternity Grant from the Social Fund.  She ticked the box stating that she and her husband were receiving child tax credit at a rate higher than the family element.  She also included a copy of her child tax credit award notice from Her Majesty’s Revenue and Customs (HMRC).  This stated that she was entitled to a payment of £858 for the part-year period of 286 days from 24 June 2008 to 5 April 2009.  Part of that letter read as follows:

Child elements for children

1 qualifying child	from 24/06/2008 to 05/04/2009 (286 days)		£1635.92

Family elements	

Basic			from 24/06/2008 to 05/04/2009 (286 days)		   £429.00
Baby			from 24/06/2008 to 05/04/2009 (286 days)		   £429.00

Total Child Tax Credit elements						 £2493.92
Reduction due to your income						 £1635.92

Amount for the period								   £858.00

Eligibility for Sure Start Maternity Grant

5.	The Sure Start Maternity Grant is a lump sum payment of £500.  The eligibility rules are set out in Part II of the Social Fund Maternity and Funeral Expenses (General) Regulations 2005 (SI 2005/3061) as amended.  The first condition of entitlement is that either the claimant or the claimant’s partner has been awarded what is known in departmental shorthand as a “qualifying benefit”.

6.	The list of qualifying benefits is set out in regulation 5(1)(a) of the 2005 regulations.  This regulation in effect provides that entitlement to certain specified means-tested benefits or tax credits acts as a passport to eligibility for a Sure Start Maternity Grant.  Regulation 5(1)(a) therefore applies a mean-test by incorporation. In particular, regulation 5(1)(a)(v) lists “child tax credit payable at a rate higher than the family element” as one such qualifying benefit.

7.	In the present case it is agreed that the claimant and her partner were not in receipt of any other potentially qualifying benefit under regulation 5(1)(a).  It is also agreed that the claimant met the various other conditions of entitlement for a Sure Start Maternity Grant.

The Secretary of State’s original decision and the claimant’s appeal

8.	A departmental decision maker, acting on behalf of the Secretary of State, refused the claim, ruling that regulation 5 was not satisfied as the claimant was not in receipt of a qualifying benefit.  That decision was later reconsidered but not changed.  The decision maker relied in part on an HMRC computer print out of the claimant’s tax credit award.  This print out stated that as from 24 June 2008 her “entitlement amount” for the rest of the tax year was £429.00 for each of “CTC3 Child Tax Credit for Family Entitlement” and “CTC4 Child Tax Credit for Baby Entitlement”.  Twice £429 is of course £858.  There was no entry against the “entitlement amount” for “CTC2 Child Tax Credit for Child Entitlement”.

9.	The claimant appealed.  She argued that if her award had been spread out over the whole year, she would have been in receipt of child tax credit at a rate higher than the family element and so in receipt of a qualifying benefit.

10.	The Department opposed the claimant’s appeal. The Department’s submission to the tribunal stated that where there was a baby aged under one, the annual rate of the family element of child tax credit was £1,095 or £3 a day.  The submission further stated that the claimant’s award period was 288 days, and that 288 multiplied by £3 a day produced a total of £864. So, it was argued, the claimant’s actual child tax credit award (£858) was less than the family element duly apportioned (£864).  It followed that the claimant was not in receipt of “child tax credit payable at a rate higher than the family element”.  Accordingly, it was said, she did not have an award of a qualifying benefit.

11.	The claimant’s representative submitted otherwise.  His argument, relying on regulation 7(3)(a) of the Child Tax Credit Regulations 2002 (SI 2002/2007), was that the annual rate of the family element of child tax credit was actually £1,090, and not £1,095, as the Department had said.  He added that, dividing that sum by 365, the daily rate was therefore £2.986 (to three decimal places), or £2.99 with rounding up.  The Department’s reliance on a £3 daily rate was simply a matter of administrative convenience.  On that basis he argued that the claimant’s child tax credit award was just above the family element and so she was in receipt of a qualifying benefit.

12.	Following an adjournment, the decision maker provided a supplementary submission.  This pointed out that the correct period of the child tax credit award in question was in fact 286 days, not 288 days, and accepted that the £1,095 annual rate was a rounded up figure, but otherwise continued to oppose the appeal.

The First-tier Tribunal decision

13.	The First-tier Tribunal accepted the arguments advanced by the claimant’s representative and allowed her appeal.   In short, the tribunal decided that the daily rate of the family element for the claimant was £2.986, rounded to £2.99, and not £3.00.  The daily rate of £2.99 multiplied by 286 days produced a child tax credit award of £855.14.  The tribunal ruled that as the claimant was actually paid £858 for the same period, she had therefore been awarded “child tax credit payable at a rate higher than the family element”.  Accordingly she was in receipt of a qualifying benefit and so entitled to a Sure Start Maternity Grant.   A district tribunal judge granted the Secretary of State permission to appeal.

The proceedings before the Upper Tribunal

14.	Both parties have made detailed written submissions on the appeal.  Mr T. McHugh, the claimant’s Community Law Service representative, argues that the tribunal’s decision was correct and the Secretary of State’s appeal should be dismissed.  The Secretary of State’s reply, drafted by Mr D Edwards of Counsel, contends that the tribunal erred in law and the appeal should be allowed.  Mr Edwards also relies for support on the decisions of Mrs Commissioner Parker in Social Security Commissioner’s decision CSG/607/2004 and Mr Commissioner Pacey (as he then was) in CIS/2303/2008.  Regrettably neither of those decisions had been brought to the attention of the First-tier Tribunal charged with hearing this case.

15.	I am grateful to both representatives for their helpful submissions.  Neither party asked for an oral hearing of the appeal. I will not rehearse their written submissions in detail here but will refer to their specific arguments as and when relevant in the analysis that follows.  It is important to start with a clear understanding of how awards of child tax credit are calculated.

The framework for calculating child tax credit: the Tax Credits Act 2002

16.	The principal conditions of entitlement to child tax credit are set out in section 8 of the Tax Credits Act 2002.  Section 9, which is headed “Maximum rate”, is an enabling provision which allows regulations to provide for the calculation of a claimant’s maximum child tax credit.  Section 9(1)-(3) in particular provide as follows:

“(1) The maximum rate at which a person or persons may be entitled to child tax credit is to be determined in the prescribed manner. 

(2) The prescribed manner of determination must involve the inclusion of– 
(a) an element which is to be included in the case of all persons entitled to child tax credit, and 
(b) an element in respect of each child or qualifying young person for whom the person is, or either or both of them is or are, responsible. 

(3) The element specified in paragraph (a) of subsection (2) is to be known as the family element of child tax credit and that specified in paragraph (b) of that subsection is to be known as the individual element of child tax credit.”

17.	Two matters are tolerably clear from reading subsections (2) and (3) together.  The first is that all claimants who are awarded child tax credit must receive the family element, i.e. “an element which is to be included in the case of all persons entitled to child tax credit”.  Secondly, some, but not all, claimants will also qualify for an additional “individual element” in respect of each relevant child or qualifying young person. Whether they do so or not is dependent in practice upon the operation of a means-test.  

18.	The principal statutory authority for the mean-test is section 7(1) (headed “Income test”):

“(1) The entitlement of a person or persons of any description to a tax credit is dependent on the relevant income– 

(a) not exceeding the amount determined in the manner prescribed for the purposes of this paragraph in relation to the tax credit and a person or persons of that description (referred to in this Part as the income threshold), or 

(b) exceeding the income threshold by only so much that a determination in accordance with regulations under section 13(2) provides a rate of the tax credit in his or their case.”

19.	The other relevant provision in the primary legislation is section 13 of the 2002 Act, which states:

“(1) Where, in the case of a person or persons entitled to a tax credit, the relevant income does not exceed the income threshold (or his or their entitlement arises by virtue of section 7(2)), the rate at which he is or they are entitled to the tax credit is the maximum rate for his or their case. 

(2) Regulations shall make provision as to the manner of determining the rate (if any) at which a person is, or persons are, entitled to a tax credit in any other case. 

(3) The manner of determination prescribed under subsection (2)– 
(a) may involve the making of adjustments so as to avoid fractional amounts, and 
(b) may include provision for securing that, where the rate at which a person or persons would be entitled to a tax credit would be less than a prescribed rate, there is no rate in his or their case.”

20.	Accordingly, a claimant qualifies for the maximum child tax credit when the person’s relevant income does not exceed the income threshold (sections 7(1)(a) and 13(1)).  In any other case, regulations must provide for the appropriate calculation (sections 7(1)(b) and 13(2)), enabling the amount of child tax credit to be reduced as the person’s income rises until it reaches a point at which entitlement to the child tax credit is extinguished altogether.  That process “may involve the making of adjustments so as to avoid fractional amounts” (section 13(3)(a)).

The actual calculation of child tax credit: the regulations

21.	Regulation 7 of the Child Tax Credit Regulations 2002 (SI 2002/2007) provides for the “Determination of the maximum rate at which a person or persons may be entitled to child tax credit”.  In particular, and following the framework prescribed by section 9(2) of the 2002 Act, it stipulates that the maximum rate is the aggregate of the “family element” and any relevant “individual element” for each child or young person (regulation 7(2)).  As regards the former component, regulation 7(3) provides further as follows:

“(3) The family element of child tax credit—

(a) in a case where any of the children referred to in paragraph (2)(b) above is under the age of one year, is £1,090; and

(b) in any other case, is £545.”

22.	So Mr McHugh for the claimant is clearly correct in arguing that the annual rate of the family element of child tax credit was £1,090 and not £1,095.  However, Mr Edwards, on behalf of the Secretary of State, has provided this explanation as to how this provision is actually put into practice by HMRC.  He explains as follows, at paragraph 14 of his submission:

“14.	Although there is only one ‘family element’ (the maximum rate of which, in a case where there is a child under the age of one, is £1,090), when the computer calculates the rate payable to an individual, it proceeds on the basis that there are two separate elements comprising the ‘family element’, namely the ‘basic’ element available for all claimants with a child, viz. £545 per annum; and an additional ‘baby’ element available for claimants with a child under the age of one, which amounts to an additional £545 per annum.”

23.	I return to this point further below.  The Child Tax Credit Regulations 2002 then set out the basic eligibility rules.  The details of the means-test are in the Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002 (SI 2002/2008), the “Income Thresholds and Determination of Rates Regulations 2002”), made in part under section 13(2) and (3) of the 2002 Act.  Regulation 3(3) makes provision for the income threshold.  In the 2007/08 tax year this threshold was £14,495 (it is now £16,040).  In the present case the joint earnings of the claimant and her husband in 2007/08 were more than £36,000.  On that basis they clearly did not qualify for the maximum child tax credit under sections 7(1)(a) and 13(1).  Instead, they qualified for a lower amount of child tax credit according to the tapered means-test as applied by the regulations (see regulations 6 and 8 of the Income Thresholds and Determination of Rates Regulations 2002).

Steps 1 and 2 of regulation 8

24.	Regulation 8 of the same Regulations sets out in detail the process for the “Determination of rate of child tax credit”.  It starts with “Step 1”, which is “Finding the daily maximum rate for each element”:

“For each element of the tax credit to be included in the case of the person or persons entitled to the tax credit, find the daily maximum rate using the following formula—
MR
NI

where—
‘MR’ is the maximum rate in relation to that element for the tax year to which the claim for the tax credit relates;
‘NI’ is the number of days in that tax year.”

25.	On that basis the figure for “MR” is 1,090 (see regulation 7(2) and (3)(a) of the Child Tax Credit Regulations 2002) and “NI” for 2007/08 was 365, producing a daily maximum rate of £2.986 (to three decimal places), as Mr McHugh argued.

26.	Step 2, which is headed “Finding the maximum rate for the relevant period for each element” (emphasis added), provides that:

“For each element of the tax credit to be so included, find the amount produced by multiplying the maximum rate (found under Step 1 and rounded up to the nearest penny) by the number of days in the relevant period.”

27.	Step 2 thus puts into operation the rounding envisaged by section 13(3)(a) of the 2002 Act.  As a matter of arithmetic “the maximum rate (found under Step 1 and rounded up to the nearest penny)” must be £2.99.  When multiplied by 286, the number of days in the relevant period in this case, and as required by Step 2, the result is £855.14.

28.	The interlocking effect of these statutory provisions was helpfully explained by Mrs Commissioner Parker in CSG/607/2004 as follows (emphasis in the original):

“14.	Entitlement to a child tax credit tax award is calculated by reference to a whole tax year as the starting point.  The whole tax year from 6 April 2003 to 5 April 2004 contained 366 days.  A claimant can only receive the full year’s rate if a claim is made on the first day of the tax year; if (as is usual) a claim is made during the tax year then the award is a proportion of what would be available if the claim was for a whole tax year and is based on the number of days counted from the date on which the claim is made and ending at the end of the relevant tax year.

15.	The maximum amount of child tax credit to which a claimant is entitled is calculated by adding together each of the ‘elements’ applicable in the claimant’s personal circumstances.  Regulation 7 of the Child Tax Credit Regulations 2002 sets out the amount of each element at the yearly rate.  The elements so set out in regulation 7 are the “family element” (in the applicable tax year £1,090 if, as here, the family includes a child under one) and a “child element” of £1,625 (increased to £3,840 if the child is disabled or £4,730 if the child is severely disabled).

16.	Under regulation 8 of the Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002, the above annual amounts are adjusted where entitlement to child tax credit is for a period of less than a year and a claimant then only has potential entitlement to the correct proportion of the annual maximum aggregate.  This is done by dividing the statutory annual rate for each element by the number of days in the tax year, rounding that figure up to the nearest penny and then multiplying the figure produced by the actual number of days covered by the award in issue.  The result is a claimant’s maximum entitlement for the relevant period.”

29.	I agree with Mr Edwards, for the Secretary of State, that in paragraph 16 of CSG/607/2004 Mrs Commissioner Parker was referring to the rounding required by Step 2 of regulation 8.  However, Mr Edwards then makes the following bold submission in paragraph 17 of the Secretary of State’s reply, building on his explanation noted at paragraph 22 above (emphasis in the original):

“17.	However, because the computer calculation of an award proceeds on the basis that the £1,090 figure is comprised of two elements (that is, of £545 each), the calculation of entitlement made under step 2 of regulation 8 is done in respect of each of them.  The effect is thus: £545/365 = 1.4932 rounded up to £1.50 and then multiplied by 2 (for the ‘basic’ element and the ‘baby’ element); and then multiplied by the number of days, in this case 286, giving the figure of £858 which is what appears on the [claimant’s] award notice.”

30.	Mr Edwards’s account as to HMRC practice is certainly borne out by the evidence in the present case. The claimant’s tax credit award notice, which subdivided the family element into a basic component and a baby addition, is ample evidence of that (see paragraph 4 above).

31.	The idea that the child tax credit comprised a basic family element (of £545) and also a separate “family element, baby addition” of the same amount was certainly contemplated by HM Treasury’s original plans for the new scheme (see e.g. HM Treasury and Inland Revenue, The Child and Working Tax Credits: The Modernisation of Britain’s Tax and Benefit System, Number Ten” (April 2002), Annex A, Table A.1, p.32).  It is also reflected in the information on the current HMRC website, where a Table states:

“The Child Tax Credit elements 	What it means	Maximum amount for 2010/11	
Family element - the basic element	It’s the basic payment if you are responsible for one or more children.	£545	
‘Baby addition’	It’s a single payment paid to families for all children under the age of one. 
It is paid on top of the basic element and the child element.	£545”	

(http://www.hmrc.gov.uk/taxcredits/payments-entitlement/entitlement/how-worked-out.htm):

32.	However, Government policy and HMRC practice are one thing.  The plain words of the legislation are another. The terms of regulation 7(3) of the Child Tax Credit Regulations 2002 are set out at paragraph 21 above.  Those words are clear.  I cannot read regulation 7(3) as providing for the family element to be anything other than either £1,090 or £595.  It does not, for example, provide for the family element to be either two components of £595 or just one component of £595.  Mr Edwards’s submission might well be justified if regulation 7(3) was drafted as follows:

“(3) The family element of child tax credit - 

(a)	in a case where any of the children referred to in paragraph (2)(b) above is under the age of one year, comprises a base element of £545 together with an additional element of £545; and

(b) in any other case, is £545.”

However, that is not the language that those responsible for drafting the regulations have chosen to use.  

33.	Furthermore, both Step 1 and Step 2 of regulation 8 of the Income Thresholds and Determination of Rates Regulations 2002 refer to “each element of the tax credit” to be included.  In the context of regulation 8, the reference to “the tax credit” must be to child tax credit (regulation 7 makes similar but not identical provision for working tax credit).  The further reference to “each element” of child tax credit must be to either the family element or the individual child element(s) (see section 9(3) of the 2002 Act and regulation 7 of the Child Tax Credit Regulations 2002).  It cannot be referring to some internal constituent sub-element of that unitary figure which may be recognised by HM Treasury policy-makers and HMRC computer programs but for which no provision is made by statute.

34.	In my judgment, therefore, there is simply no statutory warrant for dividing the figure of £1,090 in regulation 7(3)(a) by two before undertaking the rounding process required by Step 2 of regulation 8 of the Income Thresholds and Determination of Rates Regulations 2002.  Indeed, as Mr McHugh points out, Mr Edwards concedes as much in his submission that “under step 2 of regulation 8 of the TC Regulations, this figure of £1,090 should be subject to only one rounding (£1,090/365 = 2.9863, rounded up to £2.99)” (at paragraph 16 of the Secretary of State’s reply). The construction of the legislation cannot be driven by the HMRC computer program, which appears to be the underlying premise of the Secretary of State’s submissions.  On the contrary, it is the responsibility of HMRC to put in place a computer program which gives effect to the plain words of the legislation.

35.	To that extent, and to that extent only, I would disagree with Mr Commissioner Pacey’s passing reference (made in reliance on the HMRC decision letter in that case) to the award in CIS/2308/2008 being “made up of just two family elements, each of £545.34” (referring to the so-called basic and baby family elements).  As explained above, the legislation provides for a single enhanced family element where there is a child aged under one in the family, which happens to be double the usual amount.  

36.	However, I accept the thrust of Mr Commissioner Pacey’s overall analysis, namely that the child elements had been included in the initial calculation in that case but then tapered away so that only a family element remained in the actual award of child tax credit. Likewise, I agree with the more detailed analysis of Mrs Commissioner Parker in CSG/607/2004, with which Mr Commissioner Pacey also concurred.  The fact that both those cases happened to be dealing with a leap year is not a material difference; it affects the divisor “NI” in Step 1 of regulation 8, but not the underlying principle.

The remaining steps in regulation 8

37.	The submissions in this appeal have focussed almost exclusively on Steps 1 and 2 of regulation 8 of the Income Thresholds and Determination of Rates Regulations 2002.  However, it is important to recognise that they are simply the first two steps in an 11 step process required by regulation 8.  The effect of these further steps was explained by Mrs Commissioner Parker in CSG/607/2004 in a way in which I cannot improve on (again, emphasis in the original, which also uses the then applicable rates):

“17.	But child tax credit is means tested.  The claimant’s income therefore has to be compared with the threshold.  The first threshold for child tax credit purposes is set out in regulation 3 of the Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002 and is £13,480.  Again, this is an annual figure, so that if the award does not extend for the whole tax year then the threshold figure used in the claimant’s case is one relative to the annual figure; the statutory annual amount also must be divided by the number of days in the current tax year, this figure is multiplied by the number of days covered by the award and the amount rounded up to the nearest penny.  This is then the claimant’s threshold against which income is compared.

18.	Because it is a means tested benefit, child tax credit is only available at the potential personal maximum amount (as determined on the proportionate basis which the number of days in the award period bear to the whole tax year) when income is less than the applicable threshold (determined on a similar ratio basis).  If the claimant’s income exceeds the threshold figure then the maximum applicable child tax credit is reduced by 37 pence in the pound for every pound over the claimant’s appropriate threshold.

19.	As already noted, an award of child tax credit at its maximum level involves both a ‘family element’ for the claimant and an ‘individual element’ for each child (the latter sum being higher if the child is either disabled or severely disabled).  The different elements of a claimant’s maximum tax credit are tapered away for excess income in a set order such that the child elements, (including higher premium if appropriate), are reduced first; the family element of child tax credit is not tapered away at all until the claimant has an income in excess of £50,000 a year at which stage the withdrawal rate changes to £1 in every £15 if, as will be the normal case, there is only the family element left.”

38.	I am satisfied that the explanation from the HMRC award letter to the claimant, and cited at paragraph 4 above, is an attempt to convey this complex statutory process into a few lines of text.  The inclusion of a cash amount against the entry “1 qualifying child” in that explanation would understandably lead both the claimant and any other reader to assume that their award comprised more than just the family element of child tax credit.  However, because of the tapering process described by Mrs Commissioner Parker, that was not actually the case.  

39.	Steps 3 and 4 of regulation 8 require one to identify the claimant’s income and the appropriate threshold for the operation of the means-test.  Steps 5 to 7 are all concerned with identifying the amount by which the non-family element of the child tax credit is reduced.  In particular, the effect of Step 7 may be to reduce the individual child elements of child tax credit to nil, leaving just the family element in payment.  

40.	In broad terms, the structure established by the Income Thresholds and Determination of Rates Regulations 2002 is therefore as follows.  The child tax credit comprises two components: a family element (which is doubled in the child’s first year) and an amount per child (which is increased for children with disabilities).  Families with an annual gross income below the first income threshold (currently £16,040 a year, or £6,420 p.a. if working tax credit (WTC) is in payment) qualify for the full amount of both components.  Families with incomes above £16,040 (or £6,420 if WTC is paid) see their entitlement to the per-child component(s) reduced at the rate of 37 pence in the pound on income over the first income threshold until they are left with just the family element and no child elements.  The HMRC website does not appear to indicate when that happens.  However, according to one expert analysis conducted at the outset of the new scheme, in 2003/04 this happened at £17,135 for a typical one-child family and at £21,040 for a two-child family (M. Brewer, The New Tax Credits, Institute for Fiscal Studies Briefing Note No. 35, p.4).

41.	The precise point at which Step 7 of regulation 8 will bite so as to reduce the individual child elements of child tax credit to nil will vary according to various factors (the level at which the first income threshold is set for the relevant tax year, and especially personal circumstances, such as the number of children and whether there is assistance with childcare costs through working tax credit).  In broad terms, however, the point is clear: entitlement to the individual child elements falls away fairly sharply after the claimant’s income passes the first income threshold.  For every extra pound over £16,040 in annual income, 37 pence is lost in child tax credit.

42.	Once the point on the income scale has been reached where Step 7 takes effect, the claimant’s entitlement to the family element (whether that be the usual amount or the double amount payable in the child’s first year) remains static until their annual income exceeds £50,000 a year.  This has been referred to by policy-makers as the “plateau effect”.  Once £50,000 a year is exceeded, the family element is reduced on a sliding scale by the second more gradual taper of 6.67 pence in the pound (see Steps 8 to 10 of regulation 8), until the point comes when that component is also extinguished, which occurs at about £66,000 p.a.  At this point, having understood the structure of child tax credit, it is important to return to the specific terms of the eligibility criteria for a Sure Start Maternity Grant.

The qualifying benefit criterion for eligibility for Sure Start Maternity Grant

43.	As explained above, the claimant was only entitled to a Sure Start Maternity Grant if she had been awarded “child tax credit payable at a rate higher than the family element” within regulation 5(1)(a)(v) of the 2005 Regulations.  Regulation 3(1) of the same 2005 Regulations defines the term “the family element” as follows:

“ ‘family element’ means—

(a) in a case where any child in respect of whom child tax credit is payable is under the age of one year, the amount specified in regulation 7(3)(a) of the Child Tax Credit Regulations 2002, or
(b) in any other case, the amount specified in regulation 7(3)(b) of those Regulations,
but subject to calculations of that amount made in accordance with the Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002.”
44.	The statutory origins of this definition have been the source of some confusion both in this case and in CSG/607/2004.  I find the position to be as follows. The 2005 Regulations replaced the Social Fund Maternity and Funeral Expenses (General) Regulations 1987 (SI 1987/481).  When the April 2003 tax credit reforms were brought into force, regulation 3 of the 1987 Regulations was amended by regulation 6 of, and paragraph 2(a)(ii) of Schedule 4 to, the Social Security (Working Tax Credit and Child Tax Credit) (Consequential Amendments) Regulations 2003 (SI 2003/455).  That amendment inserted the following definition of “family element” into the 1987 Regulations:

“ ‘family element’ means in a case where any child in respect of whom child tax credit is payable is under the age of one year, the amount specified in regulation 7(3)(a) of the Child Tax Credit Regulations 2002 or in any other case, the amount specified in regulation 7(3)(b) of those Regulations”.

45.	Shortly afterwards that definition was amended in turn by regulation 6(6) of the Social Security (Working Tax Credit and Child Tax Credit) (Consequential Amendments) (No. 3) Regulations 2003 (SI 2003/1731), which added the statutory caveat “but subject in any case to calculations of those amounts made in accordance with the Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002”.  Rather confusingly, that amendment was stated to be made to the earlier amending regulations, rather than directly to the 1987 Regulations.  This further amendment was not picked up at the time by the editors of Volume II of the annual annotated series Social Security Legislation and has also led to rather confusing submissions on behalf of the Secretary of State both in CSG/604/2004 (see paragraph 11 of Mrs Commissioner Parker’s decision) and in the present case.

46.	Be that as it may, the statutory caveat was included in the consolidating set of regulations in 2005 governing entitlement to the Sure Start Maternity Grant.  I accept Mr Edwards’s submission that the inclusion of those words was designed to make it clear that the amount of the family element of child tax credit as set out in regulation 7(3) was always subject to the further calculations required by the Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002.  In my view those further calculations or adjustments are primarily of two types.  The first is to make provision for awards for part-years, not just for a full tax year.  The second is to accommodate the operation of the means-test, which allows both the individual child elements and the family elements to be reduced as the claimant’s income increases, albeit starting at different thresholds.

What is meant by “child tax credit payable at a rate higher than the family element”?

47.	In CSG/607/2004 Mrs Commissioner Parker held that, on the facts of that case, “The total sum paid and payable to her is such that she only ever received a daily rate equivalent to the family element and without inclusion of any money relating to an individual child element.  The family income is thus not at a level which makes her eligible for a maternity grant” (at paragraph 23, original emphasis).  Her analysis was approved and followed by Mr Commissioner Pacey in CIS/2303/2008.  I have reached the same conclusion in the present case.  I therefore agree with Mr Edwards’s primary submission for the Secretary of State (if not his argument on Steps 1 and 2 of regulation 8) – namely that the claimant’s award of child tax credit was not one payable at a rate higher than the family element.  Rather, her award comprised only the family element and included no sum which was attributable to an individual element of the child tax credit.

48.	The word “rate” is a protean term.  It takes its meaning from its context.  I agree wholeheartedly with Mrs Commissioner Parker’s observation in CSG/607/2004 (at paragraph 21) that “the regulations cause confusion because they use the words ‘amount’ and ‘rate’ interchangeably; the latter though can be either a synonym for the former or it may denote the ratio of one quantity to another.”

49.	In other words, in the benefits and tax credit system, the word “rate” can have at least two meanings.  The first is a cash amount; for example, “statutory sick pay is paid at the rate of £79.15 a week”.  The second is by reference to a particular level of benefit entitlement when compared with another; for example, “she only qualified for the lower rate of attendance allowance”.

50.	In regulation 8 of the Income Thresholds and Determination of Rates Regulations 2002 the term “rate” is used frequently and apparently in the former sense as a particular cash sum – the whole purpose of regulation 8 is to find “the rate for each relevant period” and where necessary aggregating those rates (or amounts) over a tax year. 

51.	In regulations 5(1)(a)(v) of the Social Fund Maternity and Funeral Expenses (General) Regulations 2005, however, the term “rate” is being used primarily in the latter sense – as referring to someone who has been awarded child tax credit at a level beyond the family element.

52.	It will be recalled that the structure of child tax credit is such that entitlement is based on two elements: “a family element”, which must be included in the case of all persons who are entitled, and one or more “individual elements” (see section 9(2) and (3) of the 2002 Act). That division of entitlement into two broad levels or categories of entitlement is reinforced by regulation 7(2) of the Child Tax Credit Regulations 2002, stipulating that a claimant’s maximum rate is the aggregate of the family element and any applicable individual child element(s).

53.	The position is straightforward in the case of a benefit such as attendance allowance, where the term “rate” can be used interchangeably to refer both to the cash figure and the class of beneficiary.  The position is more complex in child tax credit because of the operation of the means-test.  The rate in terms of the cash amount will vary according to personal circumstances, such as the number and age of children, the claimant’s income and the period for which the award is made.  However, the assessment of the rate in terms of the category of child tax credit award will always be binary – some successful claimants will only be awarded the family element (at whatever cash figure) whilst others will be awarded both the family element and one or more individual elements (at whatever cash figure).

54.	In my judgment, where regulation 5(1)(a)(v) of the Social Fund Maternity and Funeral Expenses (General) Regulations 2005 refers to an award of “child tax credit payable at a rate higher than the family element”, it is referring to this second sense of rate.  I reach that conclusion for two main reasons.  

55.	First, the wording of the definition of “family element” in the 2005 Regulations – and in particular what I referred to above at paragraph 46 as the “statutory caveat” – points to the conclusion that ultimately it is not the specific cash amount stated in regulation 7(3) of the Child Tax Credit Regulations 2002 that prevails, but that figure as adjusted by the provisions of the Income Thresholds and Determination of Rates Regulations 2002, and especially regulation 8.   In that context, there will be an almost infinite number of different “rates” in the sense of a specific cash amount, given the multiplicity of different people’s circumstances.  That strongly suggests that what matters is the “rate” in the second sense outlined above, namely whether only the family element is in payment or the family element plus the individual child element. 

56.	Second, the focus on the precise terms of Steps 1 and 2 of regulation 8, and the extent to which rounding is required and in what manner, is in one sense missing the point.  A person’s child tax credit entitlement is governed by the whole process of all the steps in regulation 8.  In the present case the claimant’s child tax credit award does not appear to have been appealed.  To place undue emphasis on one particular step in that process is to reopen a decision by HMRC which has not been appealed.  The correct approach is to look at the bigger picture: to identify the end product of the child tax credit award and to see which elements have been awarded as part of that award.  The First-tier Tribunal erred in law by considering only Steps 1 and 2 of the calculation process prescribed by regulation 8.

57.	There is a third reason which supports this conclusion, and it relates to the underlying policy intention of the legislation.

The overall policy intention

58.	It is important not to lose sight of the overall policy intention behind the Sure Start Maternity Grant.  The other qualifying benefits listed in regulation 5(1)(a) are all benefits, such as income support, subject to relatively stringent means-tests.  As Mrs Commissioner Parker explained in CSG/607/2004:

“20.	It will thus be seen that, taking a broad view, a claimant who only receives the family element of child tax credit has a higher income than one who receives a child element in addition.  This is why eligibility to the maternity grant is restricted to those who are awarded child tax credit involving both an ‘individual child element’ as well as a ‘family element’.  It demonstrates that the claimant’s income is very low and on a par with other categories listed in regulation 5(1)(a) of the maternity regulations.”

59.		Before the implementation of the Tax Credits Act 2002, working families’ tax credit (WFTC) was confined to claimants in work on low incomes.  In those circumstances it was sufficient for the qualifying benefits for Sure Start Maternity Grants to list simply “working families’ tax credit”, rather than any particular sub-category of WFTC claimant.

60.	That approach was no longer possible after April 2003.  The introduction of child tax credit meant that entitlement to the new tax credits went much further up the income scale than WFTC.  Some form of words therefore had to be devised to indicate that only those child tax credit claimants on low incomes could qualify for a Sure Start Maternity Grant.  This accounts for the formula which confines entitlement to those who have an award of “child tax credit payable at a rate higher than the family element”.

61.	It might arguably have been better if regulation 5(1)(a)(v) had been drafted so as to refer instead to an award of “child tax credit which includes an individual element referred to in regulation 7(4) of the Child Tax Credit Regulations 2002”.  A rather more restrictive variant of such a formula, being confined to children with disabilities, is used in regulation 1A(1)(ic) of the Social Fund Cold Weather Payments (General) Regulations 1988 (SI 1988/1724) as amended. 

62.	It would also assist if HMRC decision letters on tax credit awards were to make it absolutely clear whether the actual award included just the family element or whether payment was also made in respect of individual child elements.  It is quite understandable in the present case, given the wording of the particular letter that she received (see paragraph 4 above), that the claimant thought that she qualified for a Sure Start Maternity Grant.

63.	Although the precise issue does not arise for determination in this case, the same approach should presumably apply to the identical statutory phrase “child tax credit payable at a rate higher than the family element” which appears in regulation 7(4)(a)(v) of the Social Fund Maternity and Funeral Expenses (General) Regulations 2005, governing eligibility for funeral payments.

Official guidance and commentaries on the legislation

64.	In CSG/607/2004 there was reference to the Department’s notes for the guidance of those applying for a maternity grant.  At that time the notes mentioned the requirement that the claimant had been awarded Child Tax Credit at a rate higher than the family element and continued: “From April 2003 to April 2004 this means a Child Tax Credit rate of more than around £10.45 a week, or £20.90 a week if you have a baby under one….”  Mrs Commissioner Parker described those guidance notes as “badly worded”, observing that the Secretary of State had conceded as much and that the notes had since been redrafted (CSG/607/2004 at paragraph 22).

65.	Anecdotally, welfare rights organisations have reported continuing confusion over the meaning of this particular eligibility criterion.  This is demonstrated in the present case.  In this appeal the claimant understandably relied on a copy of the departmental SF100 guidance notes “Sure Start Maternity Grant from the Social Fund”, which stated:

	“Can you get a Sure Start Maternity Grant?

	You may be able to get a Sure Start Maternity Grant if

•	you or your partner are getting
		…

	—	Child Tax Credit at a rate higher than the family element.
From April 2008 to April 2009 this means a rate of £548 a year or more, or £1095 a year or more if you have a baby under one.  These figures are for a whole year and will be less for part-years.  Your tax credits award will include a breakdown of your award.  If your Child Tax Credit total is greater than the amounts shown as the family elements you may qualify for a Sure Start Maternity Grant.”

66.		The claimant and her representative have understandably seized on the reference to £548 or £1,095 a year or more.  Those figures are potentially misleading in that they do not appear in the legislation, but rather refer to the rounded figures used in the HMRC computer calculations.  The proper figures, they argue are £545 and £1,090 a year, and the claimant’s award on an apportioned basis was just above that limit.  However, in doing so they have overlooked the further qualification in the guidance notes that “If your Child Tax Credit total is greater than the amounts shown as the family elements you may qualify for a Sure Start Maternity Grant.”  In the present case the child tax credit total (£858) was exactly the same as “the amounts shown as the family elements” (namely the ‘two’ family components of £429).

67.	Given the structure of child tax credit as described above, this means that the claimant and her husband were on the “plateau” of child tax credit entitlement.  In other words, on the overall scale of income distributions, they fell in between the first threshold and the higher threshold.  They were beyond the point at which Step 7 of regulation 8 had operated to extinguish any entitlement to individual child element, leaving them with the family element of child tax credit alone. It would, of course, be rather odd if, barring exceptional circumstances, a couple with a joint income in excess of £36,000 were to be treated as broadly on a par with claimants in receipt of income support and other means-tested benefits.

68.	The claimant’s representative also relies in part on the expert commentary in Volume II of the annotated series Social Security Legislation 2009/10 (at p.1288)   The commentary refers to the annual amounts of the family element and continues:

“Under reg. 5(1)(a)(v), CTC must be payable at a rate higher than this in order to count as a qualifying benefit for a maternity grant.  In practice, CTC will only be payable at a rate at or below the level of the family element if the family’s income (calculated in accordance with the Tax Credits (Definition and Calculation of Income  Regulations 2002) is over £50,000 per annum (see reg. 8(3) of the Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002, particularly Steps 8-10).”

69.	That passage, of course, is intended to be an expert commentary and cannot override the meaning of the legislation.  However, as is apparent from the discussion above, this particular passage does not reflect the “plateau effect” in terms of the distribution of child tax credit awards, focussing instead on the second taper after £50,000 p.a.  The passage would be more accurate, if perhaps more long-winded, if it read:

“Under reg. 5(1)(a)(v), CTC must be payable at a rate higher than this in order to count as a qualifying benefit for a maternity grant.  In practice, CTC will only be payable at a rate above the family element (i.e. including at least some individual child element) where the family’s income (calculated in accordance with the Tax Credits (Definition and Calculation of Income  Regulations 2002) is either below or at least (and depending on the precise circumstances) not very far above the initial threshold of £16,040 per annum, given the impact of the first taper of 37 pence in the pound (see reg. 8(3) of the Tax Credits (Income Thresholds and Determination of Rates) Regulations 2002, and particularly Steps 3-7).

Conclusion

70.		For the reasons explained above, the decision of the tribunal involves an error of law.  The Upper Tribunal therefore allows the appeal and sets aside the decision of the First-tier Tribunal (Tribunals, Courts and Enforcement Act 2007, section 12(2)(a)).  The underlying facts are not in dispute.  The Upper Tribunal remakes the decision in the terms as set out above (section 12(2)(b)(ii) of the 2007 Act).  Its effect is that the claimant was not entitled to a Sure Start Maternity Grant.

Signed on the original			Nicholas Wikeley
on 23 September 2010			Judge of the Upper Tribunal