The Upper Tribunal
(Administrative Appeals Chamber)

Upper Tribunal Case No: CIB/3071/2007

Parties
LS
and
the Secretary of State for Work and Pensions

Order of Reference of Questions to the European Court of Justice for a Preliminary Ruling

Upper Tribunal Judge: Edward Jacobs

Order of the Upper Tribunal
(Administrative Appeals Chamber)
The following questions are referred to the European Court of Justice for a preliminary ruling:
1.	Is a benefit with the characteristics of short-term incapacity benefit in youth a sickness benefit or an invalidity benefit for the purposes of Regulation 1408/71?
2.	If the answer to question 1 is that such a benefit is to be treated as a sickness benefit:
 (a)	Is a person, such as the claimant’s mother, who has definitively ceased all employed or self-employed activity by virtue of retirement nevertheless an ‘employed person’ for the purposes of Article 19 by reason of their former employed or self-employed activity, or do Articles 27 to 34 (pensioners) contain the applicable rules?
(b)	Is a person, such as the claimant’s father, who has not undertaken an employed or self-employed activity since 2001, nevertheless an ‘employed person’ for the purposes of Article 19 by reason of their former employed or self-employed activity? 
(c)	Is a claimant to be treated as a ‘pensioner’ for the purposes of Article 28 by virtue of the award of a benefit acquired pursuant to Article 95b of Regulation 1408/71, notwithstanding the facts that: (i) the claimant in question has never been an employed person under Article 1(a) of Regulation 1408/71; (ii) the claimant has not reached state retirement age; and (iii) the claimant only comes within the personal scope of Regulation 1408/71 as a family member?
 (d)	Where a pensioner falls within Article 28 of Regulation 1408/71, can a family member of that pensioner who has at all times resided with and in the same State as the pensioner claim, pursuant to Article 28.1, as read with Article 29, a cash sickness benefit from the competent institution determined by Article 28.2 where such benefit is (if due) payable to the family member (and not payable to the pensioner)?
(e)	If applicable (by reason of the answers to (a) to (d) above), is the application of a condition of national social security law limiting the initial acquisition of entitlement to a sickness benefit to those having completed a requisite period of past presence within the competent Member State within a defined prior period compatible with the provisions of Articles 19 and/or 28 of Regulation 1408/71?
3.	If the answer to question 1 is that such a benefit is to be treated as an invalidity benefit, does the wording in Article 10 of Regulation 1408/71 referring to benefits ‘acquired under the legislation of one or more Member States’ mean that Member States remain entitled under Regulation 1408/71 to set conditions of initial acquisition to such invalidity benefits that are based upon residence in the Member State or upon demonstration of requisite periods of past presence in the Member State, such that a claimant cannot first claim entitlement to such benefit from another Member State?
Since these questions were drafted, I have been informed that the Commission has begun infraction proceedings against the United Kingdom in respect of the past presence condition in respect of the export disability benefits that are classified as sickness benefits. I have not amended the questions to take account of those proceedings.
Reasons for Reference
1.	The claimant has Downs Syndrome and has been represented in these proceedings by her mother, who is naturally concerned to make her daughter’s financial position as secure as she can for the future.
A.	The facts
2.	These are not in dispute. 
3.	As to the claimant, she was born on 20 November 1989 and is British. She moved with her parents to Spain in August 2000 and they have lived there since. She has (retrospectively) been awarded disability living allowance from its inception in April 1992 and probably received attendance allowance before that. This has been paid to her in Spain under Article 95b of Regulation 1408/71. She has never worked and, realistically, she will never be able to do so. 
4.	As to the claimant’s parents, her father last worked in Great Britain in the 2000/2001 tax year. He has an occupational pension and will receive a retirement pension from October 2009. Her mother received a retirement pension from 25 July 2005 and previously received incapacity benefit. 
B.	The claim for incapacity benefit 
5.	The claimant’s mother, as her appointee, made a claim for incapacity benefit for her daughter from her 16th birthday (20 November 2005). That was the first date on which she could qualify. 
C.	Appointees
6.	As the claimant is unable to act on her own behalf, her claim for incapacity benefit was made by her mother as her appointee under regulation 33 of the Social Security (Claims and Payments) Regulations 1987 (SI No 1968). This confers on her mother power ‘to exercise, on behalf of the person who is unable to act, any right to which that person may be entitled and to receive and deal on his behalf with any sums payable to him’ (regulation 33(1)). This is for administrative purposes only. It does not affect the nature of the claim, of the award or of the benefit awarded. The benefit is that of the claimant, not the appointee. I do not consider that, if incapacity benefit were awarded, the mother would ‘receive such benefits for himself and for members of his family’ for the purposes of article 28(1) of Regulation 1408/71. 
D.	Contributory benefits and the national insurance fund
7.	Sections 20 and 63 of the Social Security Contributions and Benefits Act 1992 classify some benefits as contributory or non-contributory. This classification is not exhaustive of all benefits. Incapacity benefit is a contributory benefit (section 20(1)(b)).
8.	Payment of benefits is governed by section 163 of the Social Security Administration Act 1992. Benefits that are classified as contributory are paid from the National Insurance Fund (section 163(1)(a)). Benefits that are classified as non-contributory are paid out of money provided by Parliament (section 163(2)).
9.	The funds required for paying out of the National Insurance Fund are provided by means of contributions payable by earners, employers and others (section 1(1) of the Social Security Contributions and Benefits Act 1992). Contributions are paid into the Fund (section 162 of the Social Security Administration Act 1992).
10.	Lord Hoffmann considered the nature of the National Insurance Fund in R (Carson) v Secretary of State for Work and Pensions [2006] 1 AC 173:
‘25.	… from the point of view of the citizens who contribute, national insurance contributions are little different from general taxation which disappears into the consolidated fund. The difference is only a matter of public accounting. …’
E.	Incapacity benefit 
11.	Incapacity benefit is a benefit payable to those who are unable to work because of illness or disability. It is payable at a flat rate, although: (i) the rate varies (see below); (ii) there may be additions for adult or child dependants; (iii) there may be an age-related addition; and (iv) the amount may be reduced in respect principally of pension payments to which the claimant is entitled.
12.	Entitlement to incapacity benefit is governed by section 30A of the Social Security Contributions and Benefits Act 1992. Short-term incapacity benefit is payable for a maximum of 364 days (section 30A(4)). Thereafter, the claimant becomes entitled to long-term incapacity benefit (section 30A(5)). The short-term incapacity benefit is payable at two rates. The lower rate is payable for 196 days. Many claimants will be entitled to statutory sick pay for this period and so not entitled to incapacity benefit. Thereafter, the higher rate is payable. The basic rate of long-term incapacity benefit is higher than the higher rate of the short-term incapacity benefit.
13.	Entitlement to short-term incapacity benefit is essentially conditional on a record of contributions. Claimants who do not satisfy the contribution conditions, but who are unable to work, may qualify for income support, which is an income-related benefit. Additionally, those who are incapable of work in their youth are entitled to incapacity benefit without a record of contributions. This is the basis on which the claimant would be entitled to incapacity benefit if she satisfied the residence and presence conditions. 
14.	As the claimant has no contribution record, her entitlement to short-term incapacity benefit is governed by section 30A(2A), which was introduced from 6 April 2001:
‘(2A)	The conditions mentioned in subsection (1)(b) above are that-
(a)	he is aged 16 or over on the relevant day;
(b)	he is under the age of 20 or, in prescribed cases, 25 on a day which forms part of the period of incapacity for work;
(c)	he was incapable of work throughout a period of 196 consecutive days immediately preceding the relevant day, or an earlier day in the period of incapacity for work on which he was aged 16 or over;
(d)	on the relevant day he satisfies the prescribed conditions as to residence in Great Britain, or as to presence there; and
(e)	he is not, on that day, a person who is receiving full-time education.’
This entitlement replaced severe disablement allowance, which was a separate benefit that was less favourable to someone in the claimant’s position. Incapacity benefit on the basis of this parcel of conditions is often referred to as ‘incapacity benefit in youth’. However, there are not two separate benefits (one based on contributions and the other not), merely separate ways of qualifying for the same benefit. 
15.	The claimant satisfies all the conditions in paragraph (2A), except for subparagraph (d). The presence and residence conditions are prescribed by regulation 16(1) of the Social Security (Incapacity Benefit) Regulations 1994 (SI No 2946):
‘16	Conditions relating to residence or presence
(1)	The prescribed conditions for the purposes of section 30A(2A)(d) of the Contributions and Benefits Act as to residence or presence in Great Britain in relation to any person on the relevant day shall be that on that day–
(a)	he is ordinarily resident in Great Britain;
(b)	he is not a person subject to immigration control within the meaning of section 115(9) of the Immigration and Asylum Ac 1999 or he is a person to whom paragraph (5) applies;
(c)	he is present in Great Britain; and
(d)	he has been present in Great Britain for a period of, or for periods amounting in aggregate to, not less than 26 weeks in the 52 weeks immediately preceding that day.’
16.	These conditions only have to be satisfied at the time of the claim. This is the effect of regulation 16(6):
‘(6)	A person shall be treated as having satisfied the residence or presence conditions on any subsequent day of incapacity for work falling within the same period of incapacity for work where the residence or presence conditions specified in paragraphs (1) to (4) are satisfied on the first relevant day.’
17.	Of the four conditions in regulation 16(1), the claimant failed to satisfy three:
•	she did not satisfy the residence condition (paragraph (1)(a)), because she was ordinarily resident in Spain, not Great Britain;
•	she did not satisfy the presence condition (paragraph (1)(c)), because she was not present in Great Britain when she made her claim; and
•	she did not satisfy the past presence condition (paragraph (1)(d)), because she had been in Spain for the previous year. 
F.	The Secretary of State’s decision to refuse the claim
18.	The Secretary of State’s decision-maker refused the claim on 24 November 2005 on the ground (page 31) that the claimant ‘is not present in Great Britain.’ However, as she was informed (page 32), she would be credited with national insurance contributions that would be added to her national insurance account each week.
19.	Although the decision-maker refused the claimant on the ground that the claimant did not satisfy the presence condition, the claim could just as well have been refused on either the residence condition or the past presence condition.
20.	The claimant’s mother exercised her daughter’s right of appeal to an appeal tribunal, arguing that the decision-maker had failed to consider EU law. In accordance with standard procedure, a decision-maker reconsidered the decision. Having done so, the officer confirmed the decision, giving this justification (page 38):
‘To be entitled to Incapacity Benefit in Youth one of the conditions that has to be satisfied is that a person has to be present in Great Britain on the first day of entitlement. [The claimant] does not satisfy this condition as she has been resident in Spain for the past 5 years. European Community Regulations cannot assist in satisfying the foregoing condition.’
I understand the final sentence to mean that Regulation 1408/71 does not have any effect on presence, as opposed to residence, conditions. The Secretary of State accepts that, if the benefit is a sickness benefit, the domestic residence condition and presence condition (as defined above) do not apply. 
G.	The appeal to the appeal tribunal 
21.	As the decision had not been changed, the appeal proceeded. The hearing took place on 5 May 2007, when the tribunal dismissed the appeal. The chairman’s reasoning on Regulation 1408/71 was:
‘The appellant also referred the Tribunal to Articles 18, 19 and 28 of Regulation 1408/71. These do not assist the appellant as there is no period of insurance to be aggregated here nor employment. The issue of insurance/employment did not arise to assist the appellant because she was, in the Tribunal’s view, ordinarily resident in Spain at the date of claim and she had not been insured prior to the decision to make an award of insurance credits. Article 19 referred to employed or self employed person and their families. In this instance the appellant’s parents were not employed or self employed.
‘Article 28 does not assist because the appellant is not in receipt of a pension and the provision relating to family does not assist because of the residence test applied by the conditions of Entitlement Regulations.’
That reasoning is condensed and I do not find all of it easy to follow.
H.	The appeal to the Upper Tribunal 
22.	The claimant’s mother applied on her daughter’s behalf for permission to appeal to the Social Security Commissioner. Mr Commissioner Bano gave the claimant permission to appeal. The hearing took place before me in London on 22 July 2009. By that time, the jurisdiction of the Commissioner had been transferred to the Upper Tribunal under the Tribunals, Courts and Enforcement Act 2007. Nothing turns on this. The Secretary of State was represented by Mr Jeremy Heath, for the Solicitor to the Department for Work and Pensions. He had already made a detailed written submission and produced a skeleton of his analysis for the hearing. The claimant and her mother travelled from Spain for the hearing. Her mother had already made detailed written submissions on a range of matter and set out her key concerns for me.
I.	The decision to refer
23.	After the hearing, I issued a direction asking the parties for their views on a reference to the European Court of Justice. Neither party opposed a reference and Mr Heath made detailed submissions on the scope of the reference. I gave the parties a chance to comment on my draft reference. Mr Heath made some suggestions for minor amendments, which I have incorporated, albeit not always in his precise words. The claimant’s mother made some remarks that suggest she now objects to the making of a reference. However, I remain of the view that a reference is essential in order to obtain answers to the difficult questions raised by this appeal. Mr Heath also drew to my attention that the Commission has begun infraction proceedings against the United Kingdom in respect of the past presence condition in respect of the export disability benefits that are classified as sickness benefits.  
J.	Regulation 1408/71
24.	The claimant can only establish entitlement to incapacity benefit with the assistance of EU law. A number of issues arise, which are set out below. The Secretary of State has accepted that the claimant is within the personal scope of this Regulation as a family member and has not raised any issue arise on the applicable legislation.
K.	Issue 1 – sickness benefit or invalidity benefit?
25.	In order to apply the Regulation, I need to classify short-term incapacity benefit in youth. The two possibilities are that it is a sickness benefit (Article 4(1)(a)) or an invalidity benefit (Article 4(1)(b)). The difference was considered by Mr Commissioner Mesher in R(IB) 1/02:
‘17.	There is no definition of sickness or invalidity benefit in Regulation 1408/71, but those terms must have a Community meaning. I take the essential difference to be between a benefit which is designed to replace income during an interruption of earnings caused by sickness which is or may be temporary and a benefit which is designed to replace income where there is a permanent or long-standing diminution in earning capacity due to invalidity.’
26.	I do not find it easy to classify short-term incapacity benefit in youth. It is unlike a sickness benefit, because it does not replace income during an interruption of earnings. The claimant has never worked; most claimants who qualify for this type of incapacity benefit will not have worked. There is, therefore, no interruption of earnings and no income to replace. Nor will the claimant’s incapacity be temporary. This is also likely to be a regular feature of claimants who qualify for short-term incapacity benefit on this basis. However, it is also unlike an invalidity benefit, because it is a short-term benefit. It is payable for a maximum of 364 days. After that, the claimant becomes entitled to long-term incapacity benefit just like any claimant who qualified for short-term incapacity benefit on a contribution record. However, incapacity benefit is a single benefit, despite its internal structure, and the claimant would, as will many in her circumstances, inevitably move to long-term incapacity benefit. The different rates of benefit payable for short-term and long-term incapacity reflect the fact that it evolved from separate benefits. 
27.	This difficulty of classification is a feature of this Regulation. The types of benefit that exist have developed over the years since it was made, with the result that some benefits do not easily fit into the categories around which the Regulation is structured. 
28.	As a sickness benefit, two Articles may apply in the claimant’s case: Article 19 and Article 28.
L.	Issue 2 - does Article 19 apply?
29.	The Article only applies to employed and self-employed persons and the members of their families. In this case, the claimant has not been employed or self-employed. Neither were her parents at the time of her claim. However, the European Court of Justice has held that this Article can apply to persons who have previously been employed. 
30.	The Article applies if the claimant satisfies two conditions: (i) she is residing in a different State from the competent State; and (ii) she is entitled to a benefit under the legislation of the competent State. In her case, the competent State is the United Kingdom. 
31.	However, the effect of satisfying these conditions is that the claimant is entitled to receive the benefit ‘in accordance with the legislation which it [the competent State] administers.’ In this case, that legislation requires the claimant to satisfy the presence conditions, which operate as initial connecting factors with this country. 
M.	Issue 3 – does Article 28 apply?
32.	The first issue is: is there a pensioner in the claimant’s family? The Regulation does not define ‘pensioner’. Mr Heath made detailed written submissions on its meaning. The claimant’s mother was certainly a pensioner by virtue of her retirement pension. It is also possible that the claimant was a pensioner by virtue of her disability living allowance. Upper Tribunal Judge Mesher said that this might be so in CDLA/2078/2005, although he did not have to decide the point.
33.	Disability living allowance is a benefit that is paid on account of difficulties with mobility or care. An award may be for a finite period (in practice, the minimum has to be six months) or indefinitely (that is, until there is a change of circumstances affecting entitlement). In the claimant’s case, her entitlement will be effectively for life. The allowance is paid as a fixed amount, depending on the nature and extent of the claimant’s difficulties and needs. It is not income-related. Nor is it directly related to the cost of any care that the claimant may require or receive. 
34.	The claimant’s mother believes that disability living allowance was originally a contributory benefit. That is not correct. It never has been. That is beyond dispute for two reasons. First, a contribution record is not one of the conditions of entitlement under sections 71-76 of the Social Security Contributions and Benefits Act 1992. Second, it is not included in the list of contributory benefits in section 20 of that Act. 
35.	I believe that the source of the confusion may be that disability living allowance has been listed as a special non-contributory benefit for the purposes of Regulation 1408/71. However, that does not mean that it was previously a contributory benefit. The category of special non-contributory benefit was introduced in the Regulation in 1992 in order to cater for benefits that have elements of social security and elements of social assistance. Non-contributory is a word of description, not a reclassification of the status of the benefit. 
36.	If the claimant is the relevant pensioner, she is entitled to benefits under Community law as if she were resident in Great Britain. Resident means habitually resident (Article 1(h)). However, that does not mean that she becomes entitled to incapacity benefit. As Mr Heath pointed out, the claimant was not entitled to incapacity benefit under domestic law for three reasons. Only one of them, the residence condition, related to her residence in Great Britain. The others, the presence and past presence conditions, related to her presence here. At the time of her claim, she satisfied neither. 
37.	If on the other hand the claimant’s mother is the relevant pensioner, the issue arises: is her daughter’s claim for incapacity benefit a benefit that her mother is entitled to receive for members of her family? Mr Heath argued that it was not. He argued that this was limited to benefits that the claimant’s mother could receive in her own right, albeit ones that were based on the circumstances of a member of her family. Incapacity benefit would be awarded to the claimant in her own right, not to her mother. This was not affected by the fact that the claimant happened to act through her mother as her appointee. That seems correct. The wording of Article 28(1) confers the right on the pensioner. It does not confer rights directly on members of the pensioner’s family in respect of benefit they claim in their own right, unlike Article 19. 
N.	Issue 4 – does Article 10 apply?
38.	The advantage of classifying short-term incapacity benefit in youth as an invalidity benefit, rather than a sickness benefit, is that Article 10 applies
39.	On its wording, this Article only applies once a benefit has been acquired. However, the European Court of Justice has decided that in some circumstances this Article prevents a State from imposing residence as a condition of entitlement. These authorities would assist the claimant if the effect of Article 10 is that the residence and presence conditions cannot be used to prevent the claimant acquiring short-term incapacity benefit in youth. Once acquired, she would not be required to satisfy the residence or presence conditions again (regulation 16(6)).
40.	The authorities of the European Court of Justice were considered by the Court of Appeal in Harris v Secretary of State for Social Security, reported as R(DLA) 2/99. They are, perhaps, not easy to reconcile. On the Court’s analysis in Harris, the circumstances of the claimant’s case do not come within those authorities and she cannot derive any benefit from Article 10. I notice that Harris involved a past presence condition, just like the one that applies to incapacity benefit.
O.	Equality of treatment
41.	Finally and for completeness, I have considered Article 3.
42.	The legislation governing incapacity benefit is the same in its terms for all nationalities. There is no direct discrimination. As regards indirect discrimination, the conditions in the legislation are, if anything, easier for a British national to establish than a national of another EU State. A national of any State can become ordinarily resident here and be present here sufficient to satisfy both presence conditions. It may be more likely that a British national will satisfy them and, perhaps, also easier. But the claimant cannot complain that she is treated more favourably than other nationalities. 

Signed on original
on 16 November 2009	Edward Jacobs
Upper Tribunal Judge