Child benefit: the wrong residence test?

Issue 234 (June 2013)

A Northern Ireland Social Security Commissioner has held that the right-to-reside test cannot lawfully be applied in child benefit cases. The successful claimant was represented by Patricia Carty of the Law Centre Northern Ireland. Martin Williams discusses the case.

The Chief Social Security Commissioner of Northern Ireland, Kenneth Mullan, gave judgment in AS v HMRC (CB)[2013] NICom 15, on 25 March 2013. The written judgment runs to some 45 pages. However, the reasons for allowing the appeal are confined to paragraphs 30 to 73.

The Commissioner’s reasons are based on finding that, unlike the finding by the Supreme Court in Patmalniece v SSWP [2011] UKSC 11, concerning the residence rules for state pension credit, the right-to-reside test, in the context of child benefit, directly discriminated against non-British EEA nationals and was therefore unlawful. In other words, the decision is based on distinguishing the lawfulness of the right-to-reside test for child benefit from the way the courts have considered the lawfulness of the right-to-reside test for pension credit.

Patmalniece: a reminder

As the decision of the Commissioner depends upon distinguishing his decision from that of the Supreme Court, in Patmalniece it is worth reminding ourselves of what was decided in that case.

Ms Patmalniece challenged the lawfulness of the right-to-reside test in the context of pension credit. Her case can be summarised as follows.

  • Pension credit is a ‘special non contributory benefit’ within the context of the rules on the co-ordination of benefit systems across the EEA (at that time, Regulation 1408/71, but now Regulation 883/2004).
  • Article 3 of Regulation 1408/71 (now Article 4 of Regulation 883/2004) prohibits discrimination on the grounds of nationality in respect of entitlement to benefits which it covers (such as pension credit).
  • No British person could fail the ‘right-to-reside test’ and hence it constituted direct discrimination against non British EEA nationals.
  • As such, the discrimination could not be justified and was unlawful.

The Court rejected these submissions. The basis for it doing this was its decision that the residence test in question was only indirectly discriminatory (see box below). As such it was potentially capable of justification if its purpose pursued a legitimate aim and it did not go beyond what was necessary to achieve that aim.

The judgments follow the European Court of Justice’s (ECJ) decision in Case C-73/08 Bressol v Gouvernement de la Communauté française. In that case, the issue was the lawfulness of a two-stage residence test for entry into certain university courses in Belgium. One way of meeting one part of the composite test, a right of permanent residence in Belgium, could be automatically satisfied by all Belgian nationals. The other, addressed to residence in Belgium, could potentially be satisfied by all foreign nationals, including the French nationals who brought the case. The ECJ found this cumulative test to be indirectly, as opposed to directly, discriminatory.

The Court noted the similarity between the residence requirement in Bressol and the habitual residence test taken as a whole. They are both composite two-stage tests. For pension credit and other means-tested benefits, the first stage is whether the claimant is in fact habitually resident in the UK. This test is not automatically satisfied by UK or Irish nationals, but is nevertheless more favourable to them. The second stage in pension credit, the right-to-reside test, is automatically satisfied by UK and Irish nationals. The Supreme Court felt bound to hold that, even though the second stage of the test constituted direct discrimination, taken as a whole, the habitual residence test constituted indirect discrimination, which was therefore capable of justification. In short, a UK national could fail the habitual residence test and be excluded from benefit.

The Court then went on to find that the test was justified as it was a proportionate way of achieving the legitimate aim of protecting the UK’s social assistance system.

Does not apply to child benefit

The right-to-reside requirement for child benefit is not part of a compound habitual residence test. It is on that crucial difference that the Commissioner distinguishes the situation as regards child benefit from that for pension credit. The residence requirement for child benefit is that the claimant is in Great Britain'(or Northern Ireland in the context of the case before the Commissioner). Regulation 23 of the Child Benefit (General) Regulations 2006 (SI No.223) provides that a person is to be treated as not in Great Britain if s/he is not ordinarily resident and/or does not have a right to reside. The Commissioner finds that given the ordinary residence test is so ‘neutral’, (by which it appears he means easy to satisfy) and as such the ‘right-to-reside’ test is ‘in effect, the effective and sole residence test for entitlement to [child] benefit’. The Supreme Court had observed in Patmalniece that ‘[h]ad a right to reside in the United Kingdom or elsewhere in the Common Travel Area been the sole condition of entitlement to pension credit, it would without doubt have been directly discriminatory on grounds of nationality’. Having found that in effect the right-to-reside test was the sole residence condition for entitlement to child benefit, the Commissioner was therefore able to hold that it was directly discriminatory and thus illegal, as it was not capable of justification.

The Commissioner goes on to hold that if he is wrong in the above, then there is a separate route by which the claimant should succeed. He finds that it emerges from Patmalniece that there is an exception to the application of the right-to-reside test for those who have achieved a sufficient degree of economic or social integration but no right to reside. On the facts, he is satisfied that the claimant had achieved such economic and social integration (the claimant had been resident for 30 months in total during two periods separated by six months and had worked for all but three of those months).

However, this argument may not succeed at present, given the decision of the Court of Appeal in Mirga v SSWP [2012] EWCA Civ 1952 to the effect that there should be no individual proportionality review in every case of refusal of benefits on right to reside ground (paragraph 17). However, that decision itself may not stand given that the Advocate General in Brey (Case C-140/12) has arguably suggested there should be such a view and the European Court of Justice may follow that opinion.

Both of the above arguments, accepted by the Commissioner, were discussed by CPAG’s former solicitor, Graham Tegg, in Welfare Rights Bulletin 223. The latter argument should also apply to benefits other than child benefit to which a right-to-reside test applies.

One further argument, not considered by the Commissioner, but which could support his decision, concerns the nature of child benefit. The Court in Patmalniece was considering a residence requirement for pension credit, which is a special non-contributory benefit in EU law: a hybrid benefit which contained elements of social security-type entitlement conditions (ie, entitlement as of right) but also elements of social assistance – ie, means testing. Child benefit however, is pure social security – it contains no element of social assistance. It does seem clear from Patmalniece that it was only the social assistance elements of pension credit that allowed a residence condition such as the right-to-reside test to be imposed. This emerges most clearly from the Court of Appeal stage of the Patmalniece litigation. At para 50 that Court held:

50. Thus the fact that such benefits as State Pension Credit share features with social security benefit does not deprive them of their characteristics of social assistance. It follows that if social assistance may justifiably be restricted to those who have sufficient economic or social integration within the country of residence in which the institution responsible for payment is situated, so too may benefits which share the characteristics of social assistance. Mr Commissioner Rowland took the view that the justification upheld in Abdirahman applied to State Pension Credit because that benefit had ‘particularly strong characteristics of social assistance’ (§21). I do not think it is necessary to weigh the extent of a hybrid benefit’s social assistance characteristics. It suffices that the benefit falls simultaneously within the category of both social security and social assistance; such a benefit retains its place within the system of social assistance of the country of residence and restrictions on entitlement may be justified by reference to the need to protect the country’s public finances.

Implications for other benefits

The Northern Ireland Commissioner’s decision is expressly concerned with child benefit. However, it can be observed, as was set out in Bulletin 223, the right-to-reside test for child tax credit is similarly structured to that for child benefit. Furthermore, although it clearly involves a means test, child tax credit is not regarded as a hybrid benefit under EU social security legislation but as pure social security. Thus it is arguable, if this decision is followed in Great Britain, that the right-to-reside test is also unlawful in the context of child tax credit.

The parts of the decision concerning ‘economic and social integration’ arguably have application to all benefits where the right-to-reside test applies.

What should advisers do?

Decisions of Northern Irish Social Security Commissioners are not binding in Great Britain. However, a First-tier Tribunal in Great Britain should certainly find the decision strongly persuasive. HMRC has stated it intends to try to appeal against the decision. Previously GB Commissioners held that, although not bound by the Northern Irish Court of Appeal, they should follow its decisions concerning the interpretation of identical provisions (R(SB) 1/90, endorsed in SSWP v Deane [2010] EWCA Civ 699) and so, if HMRC’s appeal is dismissed, it may be followed in Great Britain.

That said, given the judgment is not formally binding in Great Britain, and also because HMRC has vowed to appeal, the best advice will be as follows.

  • In any case (regardless of benefit) where the right-to-reside test is at issue, advisers should always try to present arguments as to why the claimant does have a qualifying right-to-reside (see Chapter 70 of the Welfare Benefits and Tax Credits Handbook 2013/14 for an excellent summary of these rights).
  • If it not possible to present such arguments, or not clear that they will succeed then, in child benefit and child tax credit cases, advisers can refer to the decision in AS v HMRC (CB) and attempt to argue that it should be followed in Great Britain.
  • For appeals involving other benefits, again where it appears there is no solidly arguable right to reside, advisers should consider whether the claimant can argue s/he is economically and socially integrated into the UK. If s/he can, it may be worth arguing that in these cases an exception to the right-to-reside test exists.



Direct and indirect discrimination in European Union (EU) law:

Direct (or overt) discrimination occurs where someone is treated less favourably because of (in this case) her/his nationality. Indirect (or covert) discrimination occurs where the application of seemingly universal criteria puts nationals of other member states at a disadvantage compared with nationals of the host state. Crucially, if a measure is found to directly discriminate, it is incapable of justification; it is simply unlawful. If it is found to be indirectly discriminatory, then the difference in treatment is capable of justification. It is only if the difference in treatment is based on objective considerations independent of the per-sons concerned, and was proportionate to a legitimate aim pursued, that the difference in treatment can be justified.

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