Mulvey v Secretary of State for Social Security

The House of Lords dismissed the appeal and held that the Secretary of State was entitled to continue to make statutory deductions under section 78(2) of the Social Security Administration Act 1992 from income support payable to the appellant after her sequestration. The court treated the statutory power of deduction as distinct from common-law set-off or compensation in bankruptcy and therefore not caught by the rule against post-sequestration set-off. The inalienability of income support (section 187(1) Administration Act and section 32(1) Bankruptcy (Scotland) Act 1985) reinforced that the permanent trustee had no entitlement to the benefit and that continued deduction was not an exercise of diligence under section 32(5).

The appellant had received repayable awards from the social fund and, prior to sequestration, had income support from which the Secretary of State made deductions to recover those awards. The appellant's estate was sequestrated on 3 February 1993 but the respondent continued deductions from income support. The Lord Ordinary held the deductions were not permissible after sequestration but the First Division of the Inner House reversed that decision. The appellant appealed to the House of Lords.

The issues were (i) whether the respondent’s statutory power to recover repayable social fund awards by deduction from prescribed benefits (section 78(2) Social Security Administration Act 1992) could continue after sequestration, and (ii) whether common-law rules of set-off/compensation in bankruptcy or provisions of the Bankruptcy (Scotland) Act 1985 (notably section 32) prevented such deductions.

The House of Lords analysed the statutory framework (Part VIII of the Social Security Contributions and Benefits Act 1992, the Administration Act and the Bankruptcy (Scotland) Act 1985). The court emphasised that income support is rendered inalienable by statute and does not, in practice, vest in the permanent trustee (section 32(1); section 187(1) Administration Act). The court concluded that the statutory power of deduction exercised by the Secretary of State was not an instance of diligence or of common-law set-off and was therefore not barred by the rule against post-sequestration set-off. Section 32(5) did not apply because the deductions were never received as income by the debtor and because the respondent was exercising a statutory deduction, not diligence such as arrestment or poinding. The court agreed with the First Division and dismissed the appeal, affirming the interlocutor of 25 October 1995.

Appeal dismissed. The statutory power to recover repayable social fund awards by deduction from prescribed benefits (section 78(2) Social Security Administration Act 1992), when operating in respect of income support, is not displaced by the sequestration of the beneficiary and does not amount to common-law set-off or impermissible diligence under the Bankruptcy (Scotland) Act 1985. The permanent trustee has no realistic interest in such benefits and section 32(5) is inapplicable.

Lord Ordinary: held deductions were not permissible. First Division of the Inner House: allowed the respondent (interlocutor of 25 October 1995). House of Lords: appeal dismissed [1997] UKHL 61, affirming the First Division.