Benefits and Mortgage Payments

– in the House of Commons at 9:35 pm on 7th May 1992.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. Arbuthnot.]

10 pm

Photo of Simon Burns Simon Burns , Chelmsford

I am grateful to have the opportunity so early in the life of this Parliament to raise an issue of particular importance to two of my constituents—the income support system and mortgage payments. I congratulate my hon. Friend the Member for Bury, North (Mr. Burt) on his elevation to office and on his first Adjournment debate as a Minister. I am not sure whether this is the right thing to say, but I hope that he enjoys this one and goes on to answer many more in the Chamber over the coming years.

The problem that has been highlighted by the case brought to my attention by two constituents—I do not want to name them—illustrates an aspect of policy that I do not believe Parliament envisaged or would want to perpetuate.

The income support system as constituted means that claimants who are repaying mortgages may have an additional amount to cover their mortgage interest paid on top of their usual personal allowance. Obviously, it is paid only for the house-related element of a loan, not for any other items for which a mortgage, rightly or wrongly, has been raised, such as the purchase of a car.

I appreciate that when housing costs are considered "excessive" they may not be met in full; for instance, when a house is unnecessarily large or in an unnecessarily expensive neighbourhood, or when costs are higher than the costs of other suitable accommodation in the same neighbourhood.

I also appreciate that since late last year the Government have legislated to alleviate income support and housing problems, to limit the number of repossessions of the homes of people unfortunately caught in this sad predicament.

Nevertheless, the problems highlighted by my constituents' case raise important issues that must be examined. When there are disputes between the Department of Social Security and claimants over mortgage payments or related matters, they are dealt with by an appeals system established by Parliament. This is the nub of my case and I should like to suggest that individuals are penalised and that the system is stacked against those caught by this problem.

Parliament has created the social security appeal tribunal to adjudicate cases of dispute. Quite rightly, it is immune to political interference, but is the system working as well as it should and as envisaged by Parliament when it established that system?

Although an adjudication officer may refer a claim or question to an SSAT, only the income support applicant has the right to appeal to an SSAT, but the law allows both the applicant and the adjudicating officer the right of appeal against a decision given by an SSAT to the social security commissioners, with leave and on a point of law. That is where the problems arise and cause undue hardship and unfairness to constituents such as mine.

To explain what that means, I shall elaborate a little on the problems still faced by my constituents. Unfortunately, both the husband and wife became unemployed as a result of the economic climate of the past year or so. They had a mortgage of £30,000. To many people, such a mortgage would be relatively small and those who are thrifty would welcome it. However, the house is valued at the current market price of not less than £210,000. I suspect that four years ago it was worth noticeably more.

The adjudicating officer took the view when my constituents claimed for income support that with such a small mortgage vis-a-vis the value of the property, they should sell their house and buy a cheaper one. As they did not do that, the adjudicating officer decided that they should not receive help to pay the interest on their mortgage. That raises important issues which I shall discuss later.

My constituents appealed to the tribunal and won. The tribunal, in its reason for the decision, said: Effectively this house includes an element of capital which has always been intended to be used when freed by a move down market to buy an annuity or to augment the pensions available to the couple. This is a perfectly prudent and reasonable decision by a married couple and in the view of the Tribunal effectively to force the couple to move at this juncture by selling at a value lower than that which they are satisfied is the proper and reasonable market value would be totally unreasonable. I wholeheartedly share the tribunal's view, as will every reasonable person. To strengthen its decision, the tribunal added that it sees nothing in the regulations which compels them"— my constituents— to take this view". To add insult to injury, the adjudicating officer has now decided to appeal to the social security commissioner against the tribunal's decision in favour of my constituents. He has been given that right by Parliament, and that raises serious issues which the Minister should address. The system is unfairly loaded against people such as my constituents.

First, people who are desperately seeking jobs will not usually be out of work for long periods vis-a-vis their total working life. Why should they be expected to sell their homes and move down market during what will, one hopes, be a small part of their working life? Surely the benefits system and the mortgage payment regime are designed to help tide over people who have temporarily fallen on hard times or are in difficulties. They are safety nets to provide such people with badly needed financial help when they are seeking jobs and seeking to re-establish their finances.

Secondly, why should my constituents and, I suspect, other people be expected to sell property at a time when there are serious problems in the housing market and property would probably have to be sold at much less than its market value in normal times?

Thirdly, does my hon. Friend the Minister accept that people such as my constituents find it extremely difficult to understand why they should find themselves in such a predicament when a Mr. Peter Julien of Hampstead is able to have his £1,700 a week mortgage paid by the Department of Social Security because he has a £630,000 mortgage, unlike my constituents who have an extremely modest mortgage of £30,000?

Fourthly, my constituents have been told by the officials handling their case that their £30,000 mortgage is too small in comparison with the value of their property and that if they had had a larger mortgage and had not been as thrifty or as financially wise as they have been, the problems that they are now having with the adjudicating officer would not have presented themselves. I suspect that if they had a mortgage of £80,000 or £100,000, the adjudicating officer would not be in the slightest bit interested in them and they would without question be receiving help with their mortgage interest, without appeals to tribunals and without the insult of an appeal against the appeal following the decision in their favour by the tribunal.

Why should my constituents be penalised for being careful and thrifty and having a relatively small mortgage? It is odd that those who are thrifty and minimising the amount of help that they need from the state are penalised. If they had been more foolish, as it were, or if they had not been fortunate enough to have such a small mortgage, they would be receiving moneys without question and without the problems that they have experienced. What justification is there for taking it out on my constituents —that is how it seems to them—because they have a relatively small mortgage?

Fifthly, why should those with larger mortgages find life so much easier under the DSS regime? Why is it that life for those people seems to be not as full of the hassles that face my constituents?

Sixthly, why is the adjudicating officer seeking to use my constituents in a test case when the tribunal to which they have already been has found in their favour? The DSS regime will have access to unlimited public funds and the best legal advice to pursue its appeal against my constituents before the commissioners. My constituents, who are on the income support system—in effect, they are battling to save the house in which they are living—will not have unlimited access to public funds in preparing their case.

It has been suggested that my constituents should go to their local citizens advice bureau for free legal advice and help. I accept that the Chelmsford CAB does a magnificent amount of good work to help individuals, but I do not think that it would seriously suggest that it can compete with the advice to which lawyers for an arm of the DSS will have access. My constituents could possibly seek legal aid, but there are ramifications within that system that are not as clear cut and simple as they might seem at first hand.

I appeal to my hon. Friend the Minister. My constituents are little people who are caught in a situation in which they are clearly out of their depth. Surely the system should not operate in this way. Surely they should not be penalised over and above being out of work against their wishes. They appealed to the tribunal and they won their case, and surely that should be enough. Why is it that an adjudicating officer under powers given to him by the House can take the matter a stage further to appeal against that decision? It seems that the entire system is being weighted in favour not of the applicant and the help that is provided by the state but of those who are meant to be giving the maximum amount of help within the rules and regulations that are provided by the state.

I accept that my hon. Friend the Minister cannot interfere because of the way in which Parliament has set up the system. The principle that we cannot have political interference must be right, but that does not stop Ministers who are responsible for the relevant policy re-examining matters to ascertain whether it is working and has been implemented in the way that Parliament decided that it should be, to provide what I believe should be the maximum amount of help for those who are probably having the most demoralising, debilitating and miserable time of their life while being out of work, and who on top of that are having to fight for the house in which they live.

Photo of Alistair Burt Alistair Burt Parliamentary Under-Secretary (Department of Social Security) 10:14 pm, 7th May 1992

I want to take this opportunity, Madam Speaker—it is my first opportunity —to congratulate you on your appointment. You have had slightly longer to settle into your position than I have had to settle into mine.

I congratulate my hon. Friend the Member for Chelmsford (Mr. Burns) on his good fortune on winning the ballot for the debate and I thank him for his kind remarks about my appointment. I am grateful to him. I also congratulate him on the way in which he explained the sensitive circumstances surrounding the case of his constituents. He did so with his usual care, consideration and clarity.

I welcome this opportunity to comment on my Department's policy on helping income support claimants with their housing costs. Before I do so, I should like to use the occasion of a new Session to tell the House about the provision the Government have made for income support recipients this year. As the House knows, the structure of income support consists of personal allowances, paid according to age and family status, and flat-rate premiums for groups recognised as having special needs, such as disabled and elderly people and families. That enables the Government to focus help most effectively on those groups that face the greatest pressure.

I make no excuse for reminding the House that in 1992 we will ensure that some 5 million people on lower incomes will have the advantage of an increase significantly higher than price increases as measured by the retail prices index. In addition, the uprating index on which the increase is based now better reflects the range of expenditure that income support recipients have to meet. The uprating this year includes items for water bills and miscellaneous items such as repairs and insurance. In fact, this year we have uprated income support by an index that is 2.9 per cent. higher than the RPI, which I am sure the House will agree demonstrates our commitment to helping people on low incomes. The total expenditure on income support will therefore increase by about £1 billion.

I now come to the specific subject matter of the debate —the question of mortgage interest and the benefit system. The purpose of income support help for mortgage interest is to ensure that home owners who are not in work and have suffered a drop in income have sufficient resources when they come on to benefit to meet their reasonable housing commitments without the benefit system being used to pay for a capital asset. Generally, that means that the full interest on loans taken out to buy, repair or make certain improvements to the home is included in the calculation of the claimant's weekly needs.

It would, however, be wrong for the taxpayer to meet an open-ended commitment to pay the full interest on a home loan without regard to the essential nature of home ownership, the type of accommodation occupied as the home and the circumstances of the individual claimant and family. There are, therefore, a number of measures to help to provide a balance between taxpayer, lender and claimant which ensures that the responsibility and burden of home loans are equitably placed. The first of those measures is that the amount allowed for mortgage interest in income support is restricted to 50 per cent. during the first 16 weeks of a benefit claim for someone under the age of 60. That affected 40,000 out of 310,000 claimants receiving help with mortgage interest in May 1990.

The reason for that restriction is that we consider it reasonable to expect lending institutions and borrowers to carry some responsibility for house purchase in the short term, and that restriction is now commonly accepted and is workable. The Council of Mortgage Lenders, which represents more than 90 per cent. of mortgage lenders, has recently renewed assurances given when the rule was introduced that it would not expect anyone to lose his home as a result.

We also think it reasonable to restrict help where the accommodation is not considered to be appropriate for full support by the taxpayer. For the majority of claimants, such a restriction is not applicable and the interest on their mortgages is met in full for as long as their circumstances remain unchanged. However where, for example, the home is expensive compared with others in the same area, where the home is located in an expensive area, or where the size of the accommodation is clearly larger than the requirements of the household, we consider it right to limit the charge to the taxpayer. My hon. Friend made the same point in his opening remarks.

I must stress that such a restriction will apply only if it is reasonable to expect the claimant to move. If it is not reasonable, mortgage support will continue for as long as there is the need. But it would clearly be wrong to put claimants who are able to move into a more privileged position than those who are not on benefit who change their homes when necessary in response to a change in their financial circumstances. For claimants able to move we therefore consider it reasonable to restrict the amount allowed in income support to the amount needed to obtain suitable alternative accommodation. Provided, however, that the claimant was able to afford the mortgage commitment when it was taken on, the restriction is deferred for the first six months of a claim, and for a further six months so long as the claimant is using his or her best endeavours to obtain cheaper accommodation. I believe that the House will agree that a total period of one year in those particular circumstances to find more suitable accommodation provides a reasonable balance between the claimant and the taxpayer. It also puts people who are receiving benefit and those who are not on the same footing, in that similar circumstances will provoke broadly similar reactions.

As my hon. Friend said, he has a constituent caught up in the regulations governing those restrictions, and he makes two particular points on the way that the regulations operate. First, he refers to the case of the Secretary of State for Social Security v. Peter Julien, in which judgment was given recently in the Court of Appeal. As is plain from the judgment, the point at issue was whether the social security commissioner was wrong in law in deciding that Mr. Julien could afford the mortgage commitment when it was entered into and whether, as a consequence, the amount allowed for mortgage interest should be restricted from the outset of the claim, rather than from a later date. My right hon. Friend the Secretary of State is giving that judgment careful consideration, but it clearly has no bearing on the circumstances described by my hon. Friend when he outlined the issues raised by the case of his constituents. They have received full mortgage interest, subject to the restriction to 50 per cent. for the first 16 weeks, taken into account for the full 12-month period allowed by the regulations, and there is no question of a restriction from the outset of their claim.

The second issue raised by my hon. Friend was the treatment of a claimant's equity in the home when a restriction is made. In the circumstances that I have previously outlined, the intention is to restrict the amount allowed in income support to the amount that would be needed if the claimant were to obtain cheaper, suitable, alternative accommodation.

For those claimants who have large mortgages almost equal in value to the value of their property, are in inappropriate accommodation and choose not to move, we consider it reasonable to reduce the burden on the taxpayer by restricting the amount allowed to the amount that would be needed to pay for more appropriate accommodation.

For those with smaller mortgages who have some equity in their homes, we consider it reasonable to assume that such equity should be used to help provide that alternative accommodation. In some cases, the equity would not be enough to provide alternative accommodation without a mortgage. The interest on the smaller mortgage that would be needed to secure that accommodation is included in income support. But in other cases, including the case raised by my hon. Friend, a mortgage would not be needed, and no amount for mortgage interest is allowed.

It has never been the intention of the legislation to drive people from their homes. On the contrary, the scheme provides full help with the costs of appropriate accommodation without restriction. Even where the accommodation is considered inappropriate for the taxpayer to provide indefinite support, in the circumstances that I have previously described, the workings of the scheme, with its allowance of up to 12 months to enable claimants to find more appropriate accommodation, still provides that bridge of support needed by some in difficulties. As to whether it is reasonable to consider whether the home is an investment, I sympathise with those selling in the present housing market, but it would be unfair to alter the income support rules specifically to take account of that. It would be unfair both to those who are not on income support and have to move in a difficult market and to those who have chosen to save money in other ways who are unable to receive any income support at all while their savings are more than £8,000. It is also helpful to remember that lower property prices cut both ways—less is realised on sale, but, equally, less is needed to buy.

Perhaps I should take the opportunity to remind the House that the income support scheme provides a substantial sum in support of mortgage interest. In May 1989, the last year for which figures are available, some £554 million went to some 310,000 claimants—an average of £34 a week for each claimant.

My hon. Friend raised two further issues about the adjudication officer and his role in the scheme. I remind the House that the adjudication officer acts independently of the Department. His role is to establish the facts of a case and to apply social security statute and case law to those facts. In his consideration of claims or questions arising under the mortgage interest regulations, his decision depends very much on the claimant's individual circumstances and on the circumstances of the type of mortgage he holds. That, as can be imagined, can get very complicated and allows scope for dispute. It is here that the appellate system—the social security appeal tribunal and the social security commissioners—plays a vital role, in that it allows a higher independent adjudicating authority to reconsider in full those cases where such a dispute has arisen.

My hon. Friend suggested nevertheless that in such disputes, the odds are stacked heavily in favour of the adjudication officer because of what he refers to as the machinery of the state. This is far from the truth. As I said, the adjudicating authorities act independently of my Department, and that is clearly evident in the manner in which they undertake their duties.

The adjudication officer is represented at all appeal tribunals by a presenting officer—but, and this point needs to be stressed, it is not the job of that representative to "win" the case. His role is to act impartially—he is known as "a friend of the court"; to help the tribunal to assess accurately the facts and relevant law. He is as likely to make a point in favour of an appellant as he is of the adjudication officer. The tribunal itself has an inquisitorial function, not an adversarial one, as is the case in the courts. It has an enabling role, in that it actively seeks to elicit the facts and to enable appellants, be they represented or not, to present their own cases.

The key for all tribunals is that they must at all times observe the rules of natural justice, thereby ensuring that both parties to the dispute are afforded a fair hearing. That policy of equal treatment extends also to the right of appeal to the social security commissioners, about which my hon. Friend expressed some concern.

As my hon. Friend is aware, such an appeal can only be made on a point of law and with leave of the chairman of the tribunal or a commissioner. Moreover, when contemplating applying for such leave, the adjudication officer will seek guidance from the chief adjudication officer. An adjudication officer on the chief adjudication officer's staff will usually make an application for leave only where there is a substantial amount of benefit at stake, either currently or potentially, or where it is felt that a commissioner's decision would contribute significantly to case law. It is important to have the law clarified. I assure my hon. Friend that it is a carefully considered response, based on a genuine belief that a tribunal decision is in error of law.

I am sure that the House understands that, in such circumstances, the doubts of the adjudication officer that the law had been incorrectly interpreted should have an avenue for redress. We see that means of seeking clarification of the law on behalf of us all as essential for ensuring the continuity and consistency of the law, and for safeguarding the correct expenditure of public funds.

We have to look also at the question of fairness. If my hon. Friend accepts, and I think that he does, that local tribunals operate independently, I hope that he will also accept that for the sake of equity, both parties—that is, the appellant and the adjudication officer—must be given the same right of appeal against their decisions. It would be against natural justice for that right to be given solely to the claimant.

I will say a few words about representation at tribunals, and before the commissioners. I accept that, in spite of the best efforts of the tribunal and the adjudication officer's representative, an appellant can feel exposed and inadequately equipped in such a situation. For that reason, my Department actively encourages appellants to obtain advice and representation before attending any tribunal hearing. With legal aid not being available for representation, appellants are directed towards the local advice agencies—for example, the citizens advice bureaux, who provide their services free of charge. Over the years, such organisations have built up a wealth of expertise in social security matters and have represented thousands of appellants before local tribunals and the commissioners.

With regard to the commissioners, although my hon. Friend believes that the advice provided by such lay organisations would be inadequate when faced with the Department's lawyers, experience suggests that is not necessarily the case, and that argument also fails to take account of the commissioners' independent role and legal expertise. In view of that, I can reassure my hon. Friend that his constituents need have no reservations about approaching their local CAB.

I thank the House for its patience in listening to my speech on this complex yet important subject. I hope that I have been able to reassure my hon. Friend on the issues that he very properly raised. I fully appreciate the very difficult decisions that now face the constituents to whom he referred, but I hope that he agrees that the Government provide very substantial help for mortgage interest through the income support scheme, that the rules under which that help is given place the burden of home ownership equitably between claimant and taxpayer and that the way in which we try to ensure the balance of decisions has been properly considered.

Question put and agreed to.

Adjourned accordingly at half-past Ten o'clock.