Decision of the Upper Tribunal
(Administrative Appeals Chamber)

This decision is given under section 11 of the Tribunals, Courts and Enforcement Act 2007:
The decision of the First-tier Tribunal under reference SC228/13/02069, made on 4 September 2014 at Newcastle, did not involve the making of an error on a point of law. 

Reasons for Decision
A.	History and background
1.	This appeal concerns the child support maintenance payable in respect of Joe and Amy. Their father, who is known as their non-resident parent under the relevant legislation, is the appellant. The respondents are the Secretary of State for Work and Pensions and their mother.
2.	The issue is straightforward, but it has generated some detailed argument about the interpretation and application of the legislation that applies: regulation 12 of the Child Support (Variations) Regulations 2000.
3.	While the non-resident parent was still living with the parent with care and their children, debts were incurred for the benefit of the family. Subsequently, those debts were consolidated in the form of a secure loan, for which he remains liable. The only issue is whether the non-resident parent is prevented from benefiting from a variation reducing his child support liability for his children on account of the loan being secured. Nothing else is in dispute. 
4.	The Secretary of State refused to agree to a variation and the non-resident parent exercised his right of appeal to the First-tier Tribunal. The tribunal dismissed his appeal, but its decision was set aside and a new hearing held. This tribunal also dismissed the appeal, but gave permission to appeal to the Upper Tribunal. Upper Tribunal Judge Wikeley gave directions for submissions, which are now complete. 
B.	Regulation 12 of the Child Support (Variations) Regulations 2000
5.	This provides:
12	Special expenses – prior debts
(1)	Subject to the following paragraphs of this regulation and regulation 15, the repayment of debts to which paragraph (2) applies shall constitute expenses for the purposes of paragraph 2(2) of Schedule 4B to the Act where those debts were incurred— 
(a)	before the non-resident parent became a non-resident parent in relation to the qualifying child; and 
(b)	at the time when the non-resident parent and the person with care in relation to the child referred to in sub-paragraph (a) were a couple. 
(2)	This paragraph applies to debts incurred— 
(a)	for the joint benefit of the non-resident parent and the person with care; 
(b)	for the benefit of the person with care where the non-resident parent remains legally liable to repay the whole or part of the debt; 
(c)	for the benefit of any person who is not a child but who at the time the debt was incurred— 
(i)	was a child; 
(ii)	lived with the non-resident parent and the person with care; and 
(iii)	of whom the non-resident parent or the person with care is the parent, or both are the parents; 
(d)	for the benefit of the qualifying child referred to in paragraph (1); or 
(e)	for the benefit of any child, other than the qualifying child referred to in paragraph (1), who, at the time the debt was incurred— 
(i)	lived with the non-resident parent and the person with care; and 
(ii)	of whom the person with care is the parent. 
(3) Paragraph (1) shall not apply to repayment of— 
…
(h)	amounts payable by the non-resident parent under a mortgage or loan taken out on the security of any property except where that mortgage or loan was taken out to facilitate the purchase of, or to pay for repairs or improvements to, any property which is the home of the person with care and any qualifying child; …
…
(5)	Where an applicant has incurred a debt partly to repay a debt repayment of which would have fallen within paragraph (1), the repayment of that part of the debt incurred which is referable to the debt repayment of which would have fallen within that paragraph shall constitute expenses for the purposes of paragraph 2(2) of Schedule 4B to the Act. 
C.	Analysis 
6.	Despite the detail of the reasoning present for the non-resident parent, there is a short answer because the reasoning contains a flaw. 
7.	The answer lies in the correct analysis of what happened. What happened was this. The non-resident parent incurred debts. As so often, it became sensible for those individual debts to be consolidated and, as part of the finance package, for them to be secured on the family home. The legal analysis of what happened is important. Although it is common parlance to talk of debts being consolidated, what happens in legal terms is that a new (secured) loan is taken out and the proceeds of that loan are used to discharge the existing debts. In other words, the original debts cease to exist and are replaced by a new debt (the secured loan). Despite the impression given by the language of consolidation, there is no continuity of the debts. What happens in law is that one debt replaces another. 
8.	Some examples may help. Suppose a father takes out some loans for the benefit of himself and his family. They may be for a washing machine, a holiday and for general living expenses. He finds himself paying a high rate of interest to different lenders on short term loans. His bank recommends that he take a single, longer term loan that, being secured on his property, can be at a lower rate of interest. The result is that he can pay off the original loans and make lower repayments, albeit perhaps for a longer period. Overall, his finances, and so the family’s finances, are now more manageable. 
9.	This is how regulation 12 would apply in a straightforward case like that. If the father left the family before the consolidation took place, regulation 12 would apply to the three separate debts, which would still exist after the non-resident parent left. They would have been taken out while he was a member of the family and for the benefit of the whole family. They would not come within any of the exclusions in regulation 12(3). 
10.	Now suppose that the non-resident parent only left after the consolidation had taken place. The original debts would have been repaid and no longer existed. Regulation 12 would not apply to them. There would now be a new debt, the loan, which would still exist after the non-resident parent left. That was taken out while he was a member of the family and for the benefit of the whole family, like before. But this time there would be a difference: the new debt is secured and therefore excluded by regulation 12(3)(h). 
11.	The argument for the non-resident parent tried to avoid this outcome by relying on regulation 12(5). On its face, as the tribunal noted, it only applies to a debt that is taken out for different purposes. To continue my example from the previous paragraphs, suppose the father took out a new, but this time unsecured, loan in order (i) to repay the debts on the washing machine, the holiday and general living expenses, but also (ii) to raise money to buy expensive presents for his mistress. The latter would not be for the benefit of the family and, as such, it would be outside the scope of regulation 12. The effect of regulation 12(5) would be to split the loan between (i) and (ii). Only the part represented by (i) would be within regulation 12. To put it into legal terms, regulation 12(5) operates as an apportionment provision. 
12.	It is now possible to see why regulation 12(5) only applies if the loan was for a dual purpose. There is no need for special provision if a new loan is taken out that replaces other loans that would all fall within regulation 12. As I have shown, in those circumstances the replacement loan will be for the benefit of the family and can itself qualify under regulation 12, provided that it does not come within any of the exclusions. The key is to identify which loan survives the separation of the family and to ask how regulation 12 applies to it. Regulation 12(5) cannot be used to effect the resurrection of debts that have already been discharged. 
13.	For those reasons, the First-tier Tribunal came to the correct decision and I have dismissed the appeal. 

Signed on original
on 20 July 2015	Edward Jacobs
Upper Tribunal Judge