RJCA/CW/IW/1
THE SOCIAL SECURITY COMMISSIONERS

				Commissioner’s Case No:	CIS/5110/1999

SOCIAL SECURITY ACTS 1992- 1998

APPEAL FROM DECISION OF SOCIAL SECURITY APPEAL TRIBUNAL ON A QUESTION OF LAW

DECISION OF THE SOCIAL SECURITY COMMISSIONER

MR COMMISSIONER R J C ANGUS

1.	The decision of the Social Security Appeal Tribunal dated 8 June 1999 is erroneous in law.  I set that decision aside and, as empowered by section 14(8)(a)(i) of the Social Security Act 1998 I give the decision which the tribunal should have given which is:-

	The claimant’s entitlement to Income Support in respect of the period from 14 October 1996 is to be recalculated on the basis that his income from commissions is disregarded in full in the calculation of his income and that his housing costs include interest on a loan of £50,470 taken out on 14 March 1990.

2.	The claimant appeals, with the leave of the chairman and the support in part of the Secretary of State’s representative, against the tribunal’s decision to confirm an adjudication officer’s determination of 29 January 1997 that the claimant was not entitled to Income Support for the period from 11 November 1996 because his weekly income exceeded his applicable amount for Income Support purposes.  

3.	The claimant was in receipt of Income Support from 12 February 1996 to 6 August 1996.  Following exchanges of correspondence and interviews between the claimant and Benefits Agency officials the claimant was informed in a letter dated 9 October 1996 from the Agency that he was not entitled to Income Support from 10 July 1996 (documents 234 and 257C of the appeal bundle).  After further dealings with the local office of the Benefits Agency the claimant made a claim for Income Support which was received in the local office of the Agency on 11 November 1996.  The adjudication officer’s decision referred to in paragraph 2 above was made in response to that claim.

4.	The claimant appealed the adjudication officer’s decision of 29 January 1997 to the Social Security Appeal Tribunal on the grounds that his situation had not changed since he was first awarded Income Support, a Benefit’s Agency visiting officer had told him that his income from commissions on sales of insurance policies and on renewal premiums would not affect his entitlement to benefit, his insurance agency through which he had earned those commissions had been closed down, he had done no work since and the commissions would be of a decreasing amount each year, the amounts of the commissions received had been incorrectly calculated and his income was insufficient to support himself and his shared responsibility for 3 children.

5.	In his written submission to the tribunal the adjudication officer then concerned conceded that although the claim to Income Support had been received in the local office on 11 November 1996 the date of claim should be taken as 14 October 1996, the date on which the claimant had asked for the claim form, and that the calculation of his applicable amount should include an amount of housing costs with the effect that from 4 December 1996 the claimant was entitled to Income Support of £3.69.  The adjudication officer requested the tribunal to substitute a decision to that effect for the decision under appeal to the tribunal.

6.	The hearing of the claimant’s appeal by the tribunal was adjourned twice because the tribunal required clarification of the calculation of the claimant’s entitlement from the adjudication officer.  As well as contending that his commissions income should be ignored the claimant argued that his housing costs should be based on the interest payable on a loan of £50,450, not the £49,000 on which the adjudication officer had based his calculation.  That was because, the claimant argued, he had financed the purchase of his house with a loan of £49,000 from  building society A but he had refinanced the purchase with a loan of £50,470 from a home loans company which loan had, in turn, been replaced by a loan of £50,450 from building society B. 

7.	The tribunal confirmed the adjudication officer’s decision of 29 January 1997.  Its reasons for doing so were stated to be that the claimant’s income from commissions had to be taken into account in the period of assessment because although the claimant was not doing any work to earn those commissions in the period of assessment he was “passively self employed” when receiving the renewal commissions.  Secondly, the loan of £50,470 secured on the claimant’s house represented the original loan of £49,000 taken out in March 1989 with building society A and £1,470 which had been included in the loan from the home loans company used to discharge the loan from building society A.  The interest on the £49,000 constituted “existing housing costs” within the meaning of schedule 3 to the Income Support (General) Regulations 1987 and, as such, were eligible housing costs but the interest on the balance of £1,470 fell to be disregarded.  

8.	In his statement of grounds for appealing the tribunal’s decision to a Commissioner, in subsequent written submissions and in his oral submissions to me the claimant reiterates his argument that his commission income should be disregarded and that his eligible housing costs include the interest paid on the loan of £50,470 and should not be restricted to the interest on the amount of the original loan of £49,000.  He further argues that the recalculation of his entitlement to Income Support should be from February 1996 when Income Support was first awarded to him because the adjudication officer’s calculation of his income and his housing costs had been erroneous from that time.  He refers to document 218A.  That is a copy of an Appeals Service letter incorporating a paragraph from a letter from the tribunal chairman.  In his letter the chairman had said that he had been unhappy about the way in which the claimant’s case had been handled by the Benefits Agency and that he had told the claimant that he thought that there was a question as to the correct period of assessment which should be considered by the Benefits Agency.  

9.	The first error which I see in the tribunal’s decision is that the decision confirms the adjudication officer’s decision of 29 January 1997 which dealt with entitlement from 11 November 1996.  However, as I have narrated above, the adjudication officer conceded to the tribunal that the correct period of assessment was from 14 October 1996 and that taking into account housing costs the claimant was entitled to Income Support of £3.69 per week from 4 December 1996.  In merely confirming the adjudication officer’s decision under appeal the tribunal has overlooked the adjudication officer’s correction of that decision and has made a decision which is not based on the evidence.  That is an error in law on account of which the tribunal’s decision has to be set aside.  

10.	The functions of the adjudication officer have been transferred by section 1 of the Social Security Act 1998 to the Secretary of State.  The Secretary of State’s representative supports the claimant’s argument that his commission income should be disregarded.  In his written submission of 30 November 1999 he says that it is not in dispute that when the claimant was running his insurance agency he was self employed.  Regulation 38(2) of the Income Support (General) Regulations as read with paragraph 3 of schedule 8 to those regulations provides that where a claimant who has been self employed and has ceased to be so employed any earnings derived from that employment from the date of the cessation shall be disregarded.

11.	In this case there is some confusion as to the date of cessation of the claimant’s self employment.  It is stated by the adjudication officer to be 9 January 1996 whereas the insurance company which pays the commissions states it to be March 1996.  I agree with the Secretary of State’s representative that the actual date of cessation is immaterial to my decision on this appeal because both suggested dates precede the period relevant to the appeal.  The Secretary of State’s representative invites me to make the decision which he considers the tribunal should have made in the light of its findings in fact and of the provisions of the General Regulations.  That decision would be that the claimant’s commission income should be disregarded in the calculation of his entitlement to Income Support.  I agree that regulation 38(2) of the General Regulations applies and my decision includes that suggested by the Secretary of State’s representative.

12.	The Secretary of State’s representative does not support the claimant’s contention that his eligible housing costs include the whole of the interest on the loan of £50,470.  He agrees with the adjudication officer and the tribunal that the eligible housing costs are restricted to the interest on the original house purchase loan of £49,000.  He refers to document 56 of the appeal bundle which is a copy of a letter from the current lender, building society B, stating that £1,470 of the current loan of £50,470 was considered to be “penalty interest” payable to building society A on the remortgage and that the £1,470 did not qualify for MIRAS whereas, subject to the £30,000 limit, the £49,000 did.  The Secretary of State’s Representative regards document 56 as extremely strong evidence that the interest on £1,470 cannot be considered as an eligible housing cost because the mortgage lender has obviously seen it as a sum outside the definition of money borrowed to acquire an interest in the dwelling which the claimant occupies as his home.

13.	The statutory provisions which are relevant to this part of the claimant’s appeal are paragraphs 1(1) and paragraph 15 of schedule 3 to the General Regulations.  Schedule 3, as read with regulations 17(1)(e) and 18(1)(f), specifies the housing costs which are eligible for inclusion in a claimant’s applicable amount in the calculation of his entitlement to Income Support.  Paragraph 1(1) of the schedule states:-

	“Subject to the following provisions of this Schedule, the housing costs applicable to the claimant are those costs – 

		(a)	which he or, where he is a member of a family, he or any member of that family is, in accordance with paragraph 2, liable to meet in respect of the dwelling occupied as the home which he or any other member of his family is treated as occupying and 

		(b)	which qualify under paragraphs 15 to 17.

Paragraph 15 states:-

	“(1)	A loan qualifies under this paragraph where the loan was taken out to defray monies applied for any of the following purposes –

	(a)	acquiring an interest in the dwelling occupied as a home; or

	(b)	paying off another loan to the extent that the other loan would have qualified under head (a) above had the loan not been paid off.

	(2)	- - - - -.

	(3)	Where a loan is applied only in part for the purposes specified in head (a) and (b) of sub-paragraph (1), only that portion of the loan which is applied for that purpose shall qualify under this paragraph.”.

14.	When I heard this appeal the claimant was present but was not represented.  The Secretary of State was represented by Miss M. McDonagh of the Office of the Solicitor to the Secretary of State for Social Security.  I am obliged to both the claimant and Miss McDonagh for their assistance.

15.	Miss McDonagh adhered to the written submission for the Secretary of State.  She agreed that the commission income should be disregarded.  In supporting the Secretary of State’s representative’s contention that the interest on £1,470 of the current loan did not constitute an eligible housing cost she relied for authority on the Court of Appeal’s decision of 2 April 1998 in Guest v. Chief Adjudication Officer.  That decision is now reported in the reports of the decisions of the Social Security Commissioners as case R(IS)2/99.

16.	Miss McDonagh argued that the £1,470 included in the £50,470 loan was an administrative charge made by the home loans company and was not a loan to defray monies applied for the acquisition of an interest in the claimant’s home.  He had acquired no further interest in the home after its purchase in March 1989.  Further, it was not a qualifying loan under paragraph 15(1)(b) because under that paragraph a loan qualifies only to the extent that the original loan qualified as being a loan to defray the cost of acquiring an interest in the home.  In this case the original loan qualified to the extent of £49,000.  She referred to document 251 of the appeal bundle which is a copy of page 12 of the transcript of Lord Justice Hirst’s judgment in Guest where he agrees with Commissioner’s decision CIS/563/91 and the conclusion that the loans which qualify under paragraph 15(1)(a) are limited to loans for the purpose of effecting the actual purchase of the dwelling house itself.  Miss McDonagh said that on the facts of the present case the £1,470 was not used for the actual purchase of the claimant’s home.  That was done in 1989 by utilising the loan of £49,000 from building society A.  She disagreed with the claimant’s view that the expenditure of the £1,470 was necessary for the purchase of the house.  It was not an incidental of the purchase such as stamp duty.  

17.	The claimant said that there was no element of interest in the £50,470 which he used to pay off the £49,000 loan from building society A.  The loan from the home loans company included a “fixed option fee” of £1,470.  It represented 3% of £49,000.  Building society B lent £49,000 plus £1,470, the latter sum being placed on a separate account for administrative reasons, mainly the non eligibility for MIRAS.  However, the whole of that loan is to defray housing costs.  It had been used to pay off another loan which other loan included the cost of acquiring that other loan.  He submitted that the tribunal’s decision was wrong and that I should decide that the whole of the interest on the total loan of £50,470 is an eligible housing cost.

18.	I have come to the conclusion that the claimant is correct.  The circumstances of this case are not on all fours with those of the Guest case.  In that case the claimant had purchased a house by means of a substantial loan secured on the house.  He then sold that house and purchased a smaller one.  The price received for the first house was not sufficient to discharge the whole of the loan secured on it.  That problem was resolved by his building society lending him the amount required to purchase the second house plus the amount by which the price received for the first house fell short of the sum required to discharge the loan secured on that house.  The new loan was secured on the new house.  The Court of Appeal rejected the claimant’s argument that the part of the loan secured on the new house which was used to discharge the outstanding balance of the loan on the old house qualified under paragraph 7(3)(b) because it was being used to discharge a loan which was a qualifying loan under head (a) of paragraph 73 when the interest on that loan was being paid by the claimant because at that time the old house was the house normally occupied by the claimant and his family as home.  The Court decided that to qualify under head (b) a loan had to be used to discharge another loan which qualified under head (a) and which was secured on the house currently occupied by the claimant and his family as home.  In this case all three of the loans in question are or were secured on the dwelling occupied as home by the claimant and his family at the relevant times.

19.	It is true that the acceptance fee of £1,470 charged by the home loans company and added to the second loan was not an incidental of the purchase of the claimant’s home, that purchase having been effected before anything was borrowed from the home loans company.  That fact would be relevant to the question of whether or not the loan qualifies under head (a) of paragraph 15(1) of Schedule 3.  In this case we are concerned solely with whether or not the whole of the £50,470 loan qualifies under head (b).  There is no suggestion that building society A’s loan of £49,000 did not qualify under (a).  There is no question that the claimant applied monies amounting to £49,000 for the purpose of paying off building society A and that of the £50,470 borrowed from the commercial lender £49,000 was a loan taken out to defray those monies.  Did the £1,470 represent monies applied by the claimant for the purpose of paying off building society A’s £49,000?  To my mind it was.

20.	One of the papers produced to me by the claimant after the oral hearing is document 257A of the appeal bundle.  That is a copy of paragraphs 23519 and 23520 of the Adjudication Officer’s Guide, volume 4 First Issue, which gives guidance to adjudication officers as to what loans would qualify under paragraph 15(1)(a).  According to paragraph 23520 adjudication officers should accept as part of a qualifying loan under head (a) money lent to cover search fees, valuation fees, land registry fees, stamp duty, legal fees and bank charges.  To exclude from qualification under head (b) money lent to cover such incidentals as legal fees, brokerage fees or lender’s administrative fees seems to me to be inconsistent with what is accepted as the correct treatment of similar incidentals under head (a).

21.	The acceptance fee of £1,470 paid by the claimant to the commercial lender in this case was money which he had to pay to that lender in order to obtain the £49,000 which he needed to discharge building society A’s loan of that amount.  The £1,470 was, therefore, money applied for the purpose of paying off so much of building society A’s loan as qualified under head (a).  That loan qualified under paragraph (a) to the extent of £49,000.  Therefore the total sum applied for the purpose of discharging that loan to the extent of £49,000 was £50,470 and the loan of £50,470 provided by the home loans company was taken out to defray the monies so applied.

22.	What I say above is that the home loan company’s loan of £50,470 qualifies under paragraph 15(1)(b) of schedule 3 to the General Regulations.  However, the real question in this appeal is whether or not the loan of £50,470 provided by building society B to replace the home loan company’s loan qualifies under head (b).  It could be argued that it does not so qualify because it was taken out to defray money applied for the purposes of paying off a loan which itself qualified under head (b) and not under head (a) and it is only loans taken out to defray monies applied for paying off loans qualifying under head (a) which can qualify under head (b).  However, that has not been argued before me and I am unaware of any policy intention that claimants who have remortgaged their homes more than once should be disqualified from receiving assistance with the housing costs represented by interest on the loan current at the date of claim.  In the absence of any argument that I should do so I do not consider that I should interpret the regulations in a way which is more restrictive than any known policy intention.

23.	The claimant argued that any increase in the award of Income Support resulting from his appeal to me should run from the date when he was first awarded benefit in February 1996.  I cannot award benefit in respect of a period which is not in my jurisdiction.  I have jurisdiction in only those matters which have been the subject of the decision of an appeal tribunal.  The period to which the decision appealed to the tribunal relates and which should have been the subject of the tribunal’s decision runs from 14 October 1996 and that is the period which is within my jurisdiction.  Neither the decision awarding Income Support in February 1996 nor the decision refusing benefit on 9 October 1996 were appealed to an appeal tribunal and therefore, of course, there is no relevant decision of an appeal tribunal which is under appeal to a Commissioner.

24.	It seems from the history of the case that payment of benefit under the February 1996 award was suspended on some date before the disallowance in October 1996.  It may be that in the light of this decision the suspension of benefit and the subsequent disallowance of benefit were in incorrect but in the absence of an appeal against a tribunal decision in respect of any period before 14 October 1996 there is nothing that I can do about that.  No doubt the Secretary of State’s representative will now look at the case again to see if any underpayment of benefit in the period from February 1996 to 14 October 1996 can be remedied.  Also, I understand from some of the correspondence from the claimant that he has some matters outstanding with appeal tribunals.  It may be that the question of whether there has been any such underpayment is a matter for those tribunals.  

25.	For the foregoing reasons the claimant’s appeal succeeds and my decision is in paragraph 1 above.

					(Signed)	R J C Angus
							Commissioner

					(Date)	23 January 2001