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[2008] UKSSCSC CCS_289_2008 (07 August 2008)


DECISION OF THE CHILD SUPPORT COMMISSIONER

1. The parent with care's appeal to the Commissioner is allowed. The decision of the Middlesbrough appeal tribunal dated 5 November 2007 is wrong in law, for the reasons given below, and I set it aside. The case is referred to a differently constituted appeal tribunal for determination in accordance with the directions given in paragraphs 29 to 31 below and further directions to be given by a district chairman under paragraph 30 (Child Support Act 1991, section 24(3)(c)).
2. In the language of the child support legislation as it applies to the present case, the appellant to the Commissioner is the parent with care of the qualifying child (Hannah) and the second respondent is the non-resident parent. From now on I shall refer to them as the mother and the father respectively.
3. I refuse the mother's request for an oral hearing, as I am satisfied that the appeal to the Commissioner can properly be determined without a hearing. The mother wanted the hearing for a full examination of all the evidence after full disclosure from both parents of the information she considered relevant. That sort of examination of the evidence is best undertaken at a rehearing by a new appeal tribunal after I have given directions on the law and a district chairman has considered what further evidence should be produced. At that rehearing the mother will have the opportunity to make afresh all her arguments in favour of agreeing variations on various grounds relying on the existing or additional evidence. There has been no need for a hearing for me to decide on the papers that the decision of the appeal tribunal of 5 November 2007 should be set aside.

The case as presented to the appeal tribunal of 5 November 2007

4. As so often, the Child Support Agency's (CSA's) written submission to the appeal tribunal on behalf of the Secretary of State left a good deal of confusion about the history of how the decision under appeal came to be made and evaluation of the substance of the issues in dispute is in danger of being swamped by the technicalities of the legislation on decision-making, revisions and supersessions. Indeed, the parents might well want to skim-read this and the following six paragraphs and resume at paragraph 11. The appeal tribunal was told that the mother's appeal was against the decision dated 7 June 2007, which was that the father was liable to pay £5 per week from 6 September 2006. That decision replaced a decision apparently made on 21 May 2007 agreeing a variation of the ordinary rules on maintenance calculations on the ground of diversion of income and making the father liable to pay £31 per week from 11 October 2006. I think, with the assistance of the further information provided in Mr Wilson's submission dated 27 March 2008 on behalf of the Secretary of State, that that was fundamentally correct. However, when the case goes back to a new appeal tribunal for rehearing a good deal more explanation will be needed. Accordingly what I set out below must be regarded only as provisional. It is based mainly on the CSA's description of what happened, rather than copies of original documents.
5. A maintenance calculation was in effect, apparently dating back originally to 5 April 2004, when the father on 26 June 2006 informed the CSA that his pension contributions were going to increase to £1,050 per month from 1 July 2006. The amount of the premium, to be collected by direct debit, is confirmed by a copy of letter dated 25 June 2006 from the company concerned, so far as the photocopying allows (page 74). The premium was paid to a stakeholder plan, a form of personal pension scheme. On 1 August 2006 a decision-maker superseded the existing decision and decided that with effect from 28 June 2006 the father was liable to pay £5 per week. That was the result of applying the ordinary rules and deducting 100% of the premium from the father's earnings to reach the figure of net weekly income. I come back to that calculation below.
6. Meanwhile, on 11 July 2006 the mother made a telephone application for a variation of the ordinary calculation rules on the grounds of lifestyle inconsistent with declared income and diversion of income. I do not know what prompted that application and there is no copy of a note of the telephone call in the papers before me. The mother probably heard of the increase in the pension contribution and possibly of the father's application for supersession. The CSA has said that the application for a variation was made under section 28A of the Child Support Act 1991, but that only applies when an initial application for a maintenance calculation has not yet been decided, so that the application for a variation must have been made under section 28E, so that it was to be treated as an application for revision or supersession of the existing decision. It seems to me that the application was properly and fairly to be regarded as an application somehow in suspense until the maintenance calculation was altered, which then took effect as an application to revise the decision making that alteration. Alternatively, it could have been regarded as an application for a supersession on the ground of an anticipated change of circumstances, as submitted by Mr Wilson.
7. In any event, on 19 December 2006 the mother's variation application was rejected at the preliminary application stage for lack of evidence. She then, on 18 January 2007, appealed against the decision of 1 August 2006. That would have been correct, if the variation application were treated as an application to revise that decision, because the appeal would then lie against the decision as not revised. No copy of the appeal is in the papers before me. On consideration of that appeal, so the appeal tribunal was told, a decision-maker on 21 May 2007 revised the decision dated 7 June 2007. That obviously cannot be right. The power in regulation 3A(cc) of the Social Security and Child Support (Decisions and Appeals) Regulations 1999 (appeal against decision not yet determined) could only have authorised revision of the decision of 1 August 2006, as the decision under appeal. The revised decision was to agree a variation on the ground of diversion of income, so that the father was liable to pay child support maintenance of £31 per week from 11 October 2006. No explanation was given to the appeal tribunal of the choice of that effective date or of why the father's liability was apparently allowed to remain at £5 per week from 28 June 2006 to 10 October 2006. The effect of that revision in the mother's favour was that her appeal against the decision of 1 August 2006 lapsed, but that she had a fresh right of appeal against that decision as revised (Child Support Act 1991, section 16(6), and Decisions and Appeals Regulations, regulation 30).
8. On 24 May 2007 the father telephoned the CSA to dispute the revised decision. The decision-maker noticed that, since the variation application had originally been rejected at the preliminary consideration stage, the father had never been invited to make representations on it as required by regulation 9 of the Child Support (Variations) Regulations 2000. He therefore revised the decision of 1 August 2006 as revised on 21 May 2007, on the ground of official error. The revised decision, apparently given on 7 June 2007, was in effect that the decision of 1 August 2006 should not have been revised on 21 May 2007, so that the supersession carried out in that decision should have been put back into effect. However, for some reason, the resulting decision was described as that the father was liable to pay £5 per week with effect from 6 September 2006. Mr Wilson has discovered that the child support computer records indicated that a supersession decision was given on 6 September 2006 increasing the maintenance to calculation to £6 per week with effect from that date (not included in the sequence of events given to the appeal tribunal). However, the decision should not have been limited to that effective date. The first issue was whether the decision of 1 August 2006, as to the maintenance calculation with effect from 28 June 2006, should or should not have been revised by way of the agreement of a variation. But the express consideration of the position as from 6 September 2006 brought that within the scope of the decision of 7 June 2007.
9. On 8 June 2007 an appeal by the mother was received by the CSA. This has been treated as an appeal against the decision of 7 June 2007, but the merest consideration of the dates shows that that could not directly have been the case. The first appeal form, stamped received on 8 June 2007 (pages 37 and 38), gave 21 May 2007 as the date of the letter telling her about the decision she was appealing about. A typed letter dated 6 June 2007 (pages 40 and 41) also plainly appealed against the decision of 21 May 2007. Technically, those appeals were against the decision of 1 August 2006 as revised on 21 May 2007. Then, the further revision on 7 June 2007 or whenever it was would not affect that appeal, as the further revision was not to the mother's advantage. The appeal would continue as if it had been brought against the decision of 1 August 2006 as further revised (Decisions and Appeals Regulations, regulation 30(3)). There was also a fax dated 9 June 2007 from the mother (page 39) saying that she wanted to appeal against a decision dated 30 May 2007 on the grounds of her previous appeal letter. I do not know what decision that was. It may have been the decision later said to have been made on 7 June 2007. But it does not really matter, as the mother's appeal has properly been treated as continuing against the decision of 1 August 2006 as further revised on 7 June 2007. It must also be treated as including an appeal against the decision of 6 September 2006 as revised and then further revised.
10. Following the receipt of the mother's appeal an officer of the CSA wrote to the father giving him the opportunity to comment on the mother's variation application, which he did on 23 June 2007. Accordingly, so far as the appeal tribunal was concerned, regulation 9 of the Variation Regulations was no longer an obstacle to agreeing to a variation on any of the grounds put forward by the mother. Finally, on 28 June 2007 a decision was issued saying that there was insufficient evidence to grant the mother's variation application, but that the appeal would continue. That decision seems to have been redundant and of no effect. This was not a case where a parent with care's appeal against a maintenance calculation needed to be treated as including an application for a variation. There was already a separate variation application and the decision on that application and on the maintenance calculation with effect from 28 June 2006 was already encompassed by the mother's appeal.
11. The CSA's submission to the appeal tribunal was first that, applying the ordinary maintenance calculation rules as at 6 September 2006, on the basis of the father's wageslips for 23 June 2006, 30 June 2006, 7 July 2006 and 14 July 2006 and of weekly personal pension contributions of £242.31, left him with a net weekly income of £104.41 (not £85.52 as originally calculated because of an error in transcribing one week's earnings), leading to a maintenance calculation of £6 per week. The submission then set out the mother's contentions about variation grounds and the father's representations in reply and effectively left it to the appeal tribunal to sort out if it had been right not to agree a variation.
12. Following the issue of the CSA's written submission, the mother sent in a lot of documents relevant to the father's financial position, also showing that she had been challenging the status of his pension contributions before the increase in July 2006. A district chairman directed the father to produce details of various bank and credit card accounts, tax returns, property transactions and assets, including a statement of expenditure of his household showing the full cost of his lifestyle at 11 October 2006. The mother sent some further documents. The father sent only a lifestyle questionnaire prepared on 5 November 2007 (showing minimal expenditure apart from his pension contributions) and brief answers to some points raised in the direction, plus a copy of his P60 for 2006/07. This showed total taxable earnings of £31,392.23, income tax deducted over the year of £5,513.36 and employee's national insurance contributions (but only in the current employment) of £772.62. The earnings were broken down between £11,406.24 in the current employment and £19,985.99 in previous employment in the tax year. The name of the employer on the P60 was different from that on the wageslips mentioned above.

The appeal tribunal's decision

13. Both parents attended the hearing on 5 November 2007, which plainly became quite fraught. The father indicated that he would not disclose the information required in the direction. The appeal tribunal rejected the mother's case on variations on the ground that on the balance of probabilities, given the lack of corroborative documentary evidence for many of the assertions on both sides, she had failed to show that the conditions in the legislation were satisfied. It said this in its statement of reasons about the pension contributions:

"8. In relation to the question of diversion of income and particularly the contentious issue of [the father's] investment of substantial monies into pensions after much evidence and various documentation, the Tribunal accept that [the father] has utilised a provision within Child Support legislation which enables him to contribute substantial monies into his pension without flouting the legislation or creating a situation which is tantamount to diversion of income. His explanation that the substantial payments of pension were to boost the fund so as to enjoy a good retirement was unconvincing. Put very simply he said that he earned approximately £350 per week and contributes £250 per week into the pension fund leaving him with about £100 per week. Whilst the Tribunal was sceptical as to the purpose of such substantial pension payments nevertheless as advised by the Presenting Officer the legislation permits this and [the father] confirmed that he had verified that from the [CSA] before entering into that arrangement. The Tribunal's conclusion as a matter of fact was that [the father's] main purpose in investing such amounts in pension was to reduce and defeat the maintenance assessment. Nevertheless as the legislation stands at the moment this is not diversion of income."

14. However, the appeal tribunal did decide that the maintenance calculation on the ordinary rules should be recalculated with effect from 6 September 2006 using the evidence of the father's P60, which it thought would lead to a liability to pay £35 per week, later corrected to £36. Paragraph 11 of the statement of reasons was as follows:

"The only area in which the Tribunal was able to make a finding which would support the appeal was in relation to the newly disclosed P60. This indicated that [the father] had had a net weekly income of £482.81. It was not known how the [CSA] had obtained the figure upon which they had based [the father's] income but the Tribunal concluded that an assessment of maintenance from the effective date of 6 September 2006 should be done using a figure of £482.81. The previously used figure did not truly reflect [the father's] income at the relevant time. From that net income there had to be deducted (in accordance with Child Support legislation) the full pension paid by [the father] at the relevant time namely £242.31 leaving a net income of £240.50."

The appeal to the Commissioner

15. The mother now appeals from the appeal tribunal's decision with my leave. Mr Wilson for the Secretary of State supported the appeal in his careful and detailed submission of 27 March 2008. The father did not make observations in reply, documents having been sent to the address he wished to be used for CSA purposes. The mother's reply focused on the father's failure to comply with the direction for disclosure.
16. I have concluded that the appeal tribunal did not make any errors of law that affected the result in relation to variations. I come back below to the particularly difficult issue of diversion of income. However, the appeal tribunal did go wrong in law in its decision about the application of the ordinary rules on the maintenance calculation, in some ways that disadvantaged the mother and in some ways that disadvantaged the father, at least in the short term.
17. The first error of law was only to direct a recalculation of the father's liability with effect from 6 September 2006. For the reasons explained in paragraph 8 above, the appeal tribunal was properly concerned with the position as from that date. However, it was also concerned, and primarily concerned, with the position as from 28 June 2006 under the decision of 1 August 2006. The information on the course of the decision-making is particularly confusing here. The net effect of the two revising decisions of 21 May 2007 and 7 June 2007 appears to have been to leave the original form of the decision of 1 August 2006 in effect, setting liability at £5 per week. If the appeal tribunal was right in concluding that, taking into account the evidence of earnings over the whole of the tax year 2006/07, the father should be regarded as receiving net weekly income of £240.50 with effect from 6 September 2006, the same conclusion should have been applied to the period from 28 June 2006 to 5 September 2006. Instead, the appeal tribunal left the liability at £5 per week for that period or, at best, left the proper liability for that period undetermined. In either case there was an error of law.
18. However, there are doubts about the process of reasoning by which the appeal tribunal came to use the father's P60 to determine his earnings and net income throughout the tax year 2006/07. At the very least there was a failure to give adequate reasons. The legal powers that the appeal tribunal no doubt had in mind are in paragraph 6(1) and (4) of the Schedule to the Child Support (Maintenance Calculations and Special Cases) Regulations 2000 ("the MCSC Regulations") as it applies to employed earners:

"(1) Subject to sub-paragraphs (3) and (4), the amount of earnings to be taken into account for the purpose of calculating net income shall be calculated or estimated by reference to the average earnings at the relevant week having regard to such evidence as is available in relation to that person's earnings during such period as appears appropriate to the Secretary of State, beginning not earlier than 8 weeks before the relevant week and ending not later than the date of the calculation, and for the purposes of the calculation or estimate he may consider evidence of that person's cumulative earnings during the period beginning with the start of the year of assessment (within the meaning of section 832 of the Income and Corporation Taxes Act 1988) in which the relevant week falls and ending with a date no later than the date when the calculation is made.

(4) Where a calculation would, but for this sub-paragraph, produce an amount which, in the opinion of the Secretary of State, does not accurately reflect the normal amount of the earnings of the person in question, such earnings, or any part of them, shall be calculated by reference to such other period as may, in the particular case, enable the normal weekly earnings of that person to be determined more accurately, and for this purpose the Secretary of State shall have regard to--

(a) the earnings received, or due to be received from any employment in which the person in question is engaged, has been engaged or is due to be engaged; and

(b) the duration and pattern, or the expected duration and pattern, of any employment of that person."

19. Those provisions give decision-makers and appeal tribunals a good deal of freedom of action, but far from unlimited freedom. In particular, paragraph 6(1) does not on its own allow the use of cumulative earnings within the tax year beyond the date of the calculation. Since appeal tribunals are prohibited from taking into account circumstances obtaining after the date of the decision under appeal (Child Support Act 1991, section 20(7)(b)), the date of calculation in the present case would have to be taken as 1 August 2006 and then 6 September 2006. Paragraph 6(2) allows a broader period to be looked at in considering whether the ordinary calculation accurately reflects normal earnings as at the date in question. Without going into all the technical issues involved where a P60 comes into existence well after the date of the decision under appeal, as a matter of the proper interpretation of evidence a P60 cannot simply be taken as establishing the normal level of earnings throughout the tax year to which it relates. There should be consideration of whether the employment was in its nature one that would produce relatively stable earnings throughout the year or was one where there might be fluctuations (eg according to levels of overtime available) and of whether anything changed during the year to indicate that normal earnings might have been different.
20. In the present case, it was obvious that the father changed employers during the tax year 2006/07, but it was not known at what date that happened or if the new job was better paid than the previous one. It also looked from the fluctuations among the four wageslips produced that the amount of overtime varied considerably and, from the P60, that earnings in the employment in existence at the start of the year might have been higher after the dates covered by those wageslips. But there had been no enquiry by the appeal tribunal about those matters. In those circumstances, it seems to me that the appeal tribunal had failed to lay the groundwork in findings of fact to justify taking average weekly earnings from the P60 as normal as at 28 June 2006, 1 August 2006 or 6 September 2006 and failed to give an adequate explanation of what it had done. It therefore went wrong in law. It might easily have been justified in using the cumulative earnings down to week 16 of the tax year shown in the wageslip of 14 July 2006. But that on my arithmetic would only show earnings net of income tax and national insurance of £315 per week on average, a long way short of the figure of £482.81 adopted by the appeal tribunal.
21. There was also a straightforward error of calculation in the appeal tribunal's use of that figure. As pointed out in paragraph 12 above, the P60 showed the total earnings in all employments in 2006/07 and the total income tax deducted in all employments, but only showed the employee's national insurance deductions made in the employment current at the end of the tax year. It did not show the deductions that would have been made in the previous employment and which had already got cumulatively to £553.11 by 14 July 2006. However, following through the arithmetic shows that the appeal tribunal produced its figure of weekly earnings net of income tax and national insurance by simply deducting the amounts shown on the P60 from the total earnings for the year. Therefore, too little was deducted for national insurance contributions and the net earnings figure was too high, even if its use for earlier dates was justified.
22. Those are errors of law suggesting that the appeal tribunal's decision was less favourable to the father than it ought to have been. However, it seems to me that, whatever the ultimate outcome of this case, the CSA should now seek further information from the father about the changes in his employment and his earnings in 2006/07 and 2007/08 and could, as necessary, give superseding decisions to take account of that information for whatever periods appear appropriate. The father has been prepared to provide wageslips and the one P60 and I do not see why he should not be prepared to provide further evidence of the same kind.
23. I raised when granting leave to appeal the question of whether paragraph 5(1) of the Schedule to the MCSC Regulations allowed the deduction of contributions to a personal pension scheme paid directly by an employee rather than deducted at source by an employer in the same way as PAYE income tax and national insurance contributions. The rule requiring deduction of 100% of pension contributions, free of any upper limit, in calculating the net weekly income of an employed earner is part of what the appeal tribunal regarded the father as having deliberately taken advantage of. Paragraph 5(1) was set out in Mr Wilson's submission and I do not repeat it here. I agree with him that the reference in the opening part of paragraph to any amount deducted from earnings does not restrict head (c) to employees' contributions to schemes that are deducted by an employer at source. The special provision about pension mortgages would never apply if that were so, and it would make an unintended and unjustifiable difference from the approach in paragraph 1(3) of Schedule 1 to the Child Support (Maintenance Assessments and Special Cases) Regulations 1992. Thus, as accepted by the appeal tribunal, for the purposes of the ordinary maintenance calculation, whatever contributions are in fact made by a parent who is an employed earner to an occupational or personal pension scheme must be deducted in calculating net weekly income. There is no provision in the "reformed" child support scheme for cases beginning in or after 2003 for a parent to be treated as still possessing income of which he has unreasonably deprived himself.
24. In relation to variations, the main point of law to be considered is whether regulation 19(4) of the Variations Regulations could apply to an unreasonable level of contribution to a pension scheme. Regulation 19(4) provides:

"(4) A case shall constitute a case for the purposes of paragraph 4(1) of Schedule 4B to [the Child Support Act 1991] where--

(a) the non-resident parent has the ability to control the amount of income he receives, including earnings from employment or self-employment, whether or not the whole of that income is derived from the company or business from which his earnings are derived, and

(b) the Secretary of State is satisfied that the non-resident parent has unreasonably reduced the amount of his income which would otherwise fall to be taken into account under the Maintenance Calculations and Special Cases Regulations or paragraph (1A) by diverting it to other persons or for purposes other than the provision of such income for himself."

25. Mr Wilson for the Secretary of State submits that in the circumstances of the present case the condition in sub-paragraph (a) cannot be met. I am somewhat reluctantly driven to agree. The father had the ability to control the amount of his net weekly income, as calculated under the MCSC Regulations, for the purposes of the ordinary maintenance calculation. But that is not the test in sub-paragraph (a). The reference there is to income, not to net weekly income, and to income received. The test therefore restricts the application of regulation 19(4), when earnings from employment are being considered, to cases where the non-resident parent has the ability to control the amount of earnings that are paid to him. That test is not satisfied by an ability to control the amount of the non-resident parent's own expenditure by spending it in a way that reduces the amount of his net weekly income, as was argued in this case. The appeal tribunal's findings would have indicated that sub-paragraph (b) was satisfied, because it found that the father had unreasonably reduced the amount of his income that would otherwise have been taken into account under the MCSC Regulations, ie his net weekly income, and had diverted the reduction into purposes other than the provision of income to himself, ie to the building up of a fund in his pension plan. However, that does not help the mother, because the necessary condition in sub-paragraph (a) is not met.
26. Accordingly, the appeal tribunal did not go wrong in law in concluding that its findings about the father's purpose in contributing the amounts he did to his stakeholder pension did not allow it to agree a variation under regulation 19(4). It should have explained in its statement of reasons why that was so, rather than merely referring to the advice of the CSA's presenting officer. Since the appeal tribunal's decision has to be set aside for other reasons, I need not decide whether that error alone would have justified setting aside the decision.
27. In relation to the other variation grounds that had been relied on by the mother, the appeal tribunal was in my judgment entitled to conclude that the evidence it had did not satisfy it that any grounds were made out. When I granted leave to appeal I raised a question about the reasons given on the ground of lifestyle inconsistent, but on reflection I think that in the light of what the appeal tribunal's other findings it was really a non-point. As noted above, the mother will have the opportunity to re-argue her case on all her variation grounds and to put forward additional evidence (although I remind her that so far as the present case is concerned evidence will have to be relevant to the circumstances around June to September 2006).

The Commissioner's decision on the appeal

28. For the reasons given above, the decision of the appeal tribunal of 5 November 2007 is set aside as wrong in law. The mother's appeal against the decisions of 1 August 2006 and 6 September 2006, as revised and further revised, is referred to a differently constituted appeal tribunal for determination in accordance with the directions given below.
29. Before the date for the rehearing is fixed, an officer of the CSA should make a fresh written submission to the appeal tribunal, which when received is to be copied to both parents. That submission is to say whether my provisional analysis in paragraphs 4 to 10 above about the course of the decision-making and the scope of the decisions under appeal is agreed and, if not, what the correct analysis is. Copies of all the actual decisions made from 1 August 2006 onwards should be supplied if at all possible. If a copy of a decision cannot be supplied, an explanation should be given and the best available evidence of its content supplied. The submission should also deal with question of how the father's net weekly income should be calculated as at 28 June 2006 and 6 September 2006, in the light of paragraphs 18 to 21 above and of the existing evidence about his cumulative earnings as at 14 July 2006 and for the whole of the tax year 2006/07 and any further relevant evidence about the father's employment and earnings in the CSA's possession. The CSA should also consider my suggestions in paragraph 22 above about the making of new decisions about dates after 6 September 2006.
30. When, as is routine, a district chairman considers the papers on receipt of the file back from the Commissioners' office, directions are to be given as to the date by which the CSA's submission is to be made and as to any additional matters that are to be covered. The district chairman is also to consider whether any further directions need to be given as to the disclosure of information by either parent or about anything else considered relevant.
31. There must be a complete rehearing of the appeal on the evidence presented and submissions made to the new appeal tribunal, which will not be bound in any way by any findings made or conclusions expressed by the appeal tribunal of 5 November 2007. I do not need to give any directions of law beyond those to apply the approach set out in paragraphs 23 to 26 above to the treatment of the father's contributions to his stakeholder pension plan. The evaluation of all the evidence will be entirely a matter for the judgment of the new appeal tribunal. The decision on the facts in this case is still open.

(Signed) J Mesher

Commissioner

Date: 7 August 2008