R(IS) 18/95

Mr. D. G. Rice	CIS/598/1992
17.6.94
Capital - shares - whether valuation in accordance with prices quoted in newspapers permissible
The claimant owned a considerable quantity of shares and declared them as capital when he claimed income support. The adjudication officer valued them in accordance with the prices shown in the Financial Times for the date of claim. These are based on the average of the best bid and best offer price available on the Stock Exchange at close of business the previous day. The valuation produced a figure in excess of £8,000 and the adjudication officer disallowed the claim. The claimant appealed to a social security appeal tribunal, contending that the method of valuation was incorrect. The tribunal rejected the appeal and the claimant appealed to a social security Commissioner.
Held that:
1.	where a precise valuation of shares is not necessary, it is permissible to use prices quoted in newspapers (para. 11);
2.	where a precise valuation is necessary, the method used by the Inland Revenue should be adopted. To do this:
(a) 	look at the prices obtained in all the transactions relating to the relevant share on the Stock Exchange on the previous day;
(b) 	take the lowest figure:
(c) 	add to this a quarter of the difference between the highest and the lowest figure (para. 10).
The Commissioner allowed the appeal.

DECISION OF THE SOCIAL SECURITY COMMISSIONER
1. 	My decision is that the decision of the social security appeal tribunal given on 26 February 1992 is erroneous in point of law, and accordingly I set it aside. I direct that the appeal be reheard by a differently constituted tribunal who will have regard to the matters mentioned below.
2. 	This is an appeal by the claimant, brought with the leave of the Chief Commissioner, against the decision of the social security appeal tribunal of             26 February 1992. The appeal raises the question of how shares in public companies should be valued for the purposes of determining the extent of a claimant’s capital in computing his entitlement to income support. I directed an oral hearing in order to have the benefit of argument on this issue. In the event, the claimant was not present nor was he represented, although both he and his solicitors had previously presented written argument, but the adjudication officer appeared by Mr. George Roe of CAS, who assisted me greatly with his submissions. He had thoroughly investigated the whole question and was able by way of evidence to give me the results of his researches.
3. 	On 19 January 1991 the claimant applied for income support. On 15 February 1991 the adjudication officer disallowed the claim on the basis that at that stage the claimant had capital in excess of the statutory limit of £8,000. The adjudication officer took the view that at 9 January 1991 the claimant had the following assets:
Premier Consolidated Oilfields PLC 15,000 shares @ 62p each 	£9,300
Berisford Int PLC 20,000 shares @ 21p per share	£4,200
Bank of Scotland PLC [bank account in credit] 	£4,542.24
The claimant had an overdraft at Lloyds Bank in the sum of £1,408.64, but as it is well established that unsecured liabilities cannot be offset against capital in income support claims, that was an irrelevant consideration. However, the claimant also owed £8,045.85 to Paul E. Schweder, Miller and Co. for his purchase of the Premier Consolidated Oilfields shares, a debt which incidentally he discharged on 11 January 1991 by applying the sum in his account at the Bank of Scotland and by increasing his overdraft at Lloyd’s Bank. The adjudication officer decided that the value of the shares, totalling £13,500 should be reduced by 10% by way of expenses of sale pursuant to regulation 49(a)(ii) of the Income Support (General) Regulations 1987, SI 1987 No. 1967. The cost of selling shares is far less, but the regulation clearly allows this generous discount from the market value of shares. Accordingly, the claimant had shares worth £ 12,150, and when the bank account of £4,542.24 was added to this, the total of £16,692.24 clearly exceeded the limit of £8,000 and in the light of this the adjudication officer disallowed the claim.
4. 	In due course, the claimant appealed to the tribunal, who in the event upheld the adjudication officer. The claimant challenged, at that hearing, the method of calculating the value of the shares, and, more significantly for the purposes of his appeal, complained that the sum due to Paul E. Schweder, Miller and Co., his brokers, for the Premier Consolidated Oilfields shares had not been deducted from their value. The tribunal rejected his contentions.
5. 	At this point it is perhaps helpful to explain more fully the nature of the transaction which gave rise to the problem of valuation. The claimant was in the habit of buying and selling shares on the London Stock Exchange. He did not do so with the object of investment. He operated short‑term with the object of obtaining a profit within each fortnightly trading period. He bought and sold within that period, and at the settlement which subsequently ensued in respect of that fortnightly period he received the profit, if he was successful, or paid the loss if he was not. He never normally intended actually to take delivery of and pay for the shares purchased; normally he sold them before the end of the trading period and was only concerned with the trading profit or loss arising out of the dealing. However, it would appear that, contrary to his usual practice, in this instance the claimant did take delivery of the shares purchased during the relevant trading period, and in consequence paid for them. As the shares had declined sharply during the trading period, presumably, he preferred to adopt this course, in the hope that the price would revive, rather than crystallise the loss. However, this course of action had, as will be explained in paragraph 12 below, important consequences for his claim to income support.
6. 	The claimant’s first contention before the tribunal was that his indebtedness to his brokers should have been offset against the value of the Premier Consolidated Oilfields shares. He argued that his brokers had a lien on the shares for the sums owed them, those sums representing the cost of acquisition and the brokers’ commission. His indebtedness to the brokers was secured by way of lien on the shares, and in accordance with regulation 49(a)(ii) the sum so secured was deductible from their value. The tribunal rejected that contention, and in so doing erred in point of law. I accept the claimant’s submission on this point. I should also say that Mr. Roe conceded that the claimant’s analysis correctly represented the position.
7. 	However, even if the £8,045.85 owed to the brokers were deducted from the value of these shares, the claimant would still have, if the valuation adopted by the adjudication officer and the tribunal were right, capital assets slightly in excess of the £8,000 limit. Accordingly, it was a crucial issue before the tribunal as to whether or not the valuation had been correctly carried out. The adjudication officer had simply taken the figure appearing in the Financial Times on 9 January 1991, whilst the claimant put forward a somewhat different method of valuation. In the event, the tribunal did not make any specific finding as to which method was right, but considered that, even on the basis that the claimant’s method, as they understood it, was correct, the shares were still worth far in excess of £8,000. But, of course, they reached that conclusion on the footing that the claimant’s indebtedness to his brokers was not to be offset against the value of the shares, and as that approach was erroneous, the correct method of valuation was crucial, and the tribunal had simply not dealt with this issue. Their omission constitutes an error of law. Accordingly, I must set aside their decision.
8. 	I have considered whether I might myself substitute my own decision. Mr. Roe presented the results of his researches, by way of evidence to me, as to how valuations were arrived at in the newspapers and elsewhere, and as to the practice of the Inland Revenue. In support he produced photocopies of extracts from The Whittaker’s Financial Almanack, the Stock Exchange Year Book and Volume 5 of Halsbury’s Laws. I am satisfied that I do not have the information myself to carry out a valuation of the shares in the present case, and that accordingly I must remit the appeal to a new tribunal for rehearing. However, I can conveniently give guidance as to how they should approach the matter.
9. 	Mr. Roe explained that the valuation figure appearing against a particular share in the Financial Times or The Times represented the average of the best bid and best offer price at 4.30 pm at close of business the previous day, as appearing in the Stock Exchange list. Apparently, the best bid and best offer price were ascertained from the figures simultaneously appearing on the screen from the relevant market‑makers. The bid price is, of course, the price at which a trader would buy the shares, and the offer price the price at which he would sell them. Naturally enough, the offer price is invariably higher that the bid price. For general purposes, the mean figure appearing in the Stock Exchange list at 4.30 pm is a reasonable method of valuation, and that figure is adopted by the newspapers. Admittedly, it relates to 4.30 pm the previous day, and there could be transactions carried out thereafter, which are in practice regarded as having taken place on the following day. But, from a practical standpoint, the figure at 4.30 pm is a reasonable one to take as being the applicable figure immediately before the commencement of business on the following day.
10. 	However, the claimant’s contention was that the relevant figure for social security purposes was the bid price, and not the average of the bid and offer price. He was only concerned with what he could get for his shares, and that was inevitably less than the mean between the bid and offer price. The figure appearing in the Financial Times, or for that matter the Stock Exchange list, did not represent the bid price. Moreover, as Mr. Roe pointed out to me, it was not possible to ascertain the bid price from a figure which was a mere average. Mr. Roe explained that the Inland Revenue had to face this problem frequently, particularly in dealing with capital gains tax and inheritance tax, and in order to be fair to the tax payer or estate had devised the practice of looking at all the transactions relating to the relevant share, during the previous day, taking the lowest figure and adding to this a quarter of the difference between the lowest and highest figure. I do not see why the same method should not be adopted in social security matters. It is undesirable in the case of share valuations that there should be any difference between that adopted by one Government Department and another, unless, of course, there are special reasons for there being a divergence of practice. But in the present case, I see no grounds for a different course to be adopted.
11.	I am aware that, if an adjudication officer is required to ascertain, with reference to any particular share, details from the Stock Exchange of the dealings in that share, he is inevitably put to considerable trouble. It is far easier to look up a valuation appearing in one of the newspapers. However, I think this consideration is more theoretical than real. First, in income support cases share holdings do not normally feature extensively in the capital resources of claimants, but if they do in any particular instance, an approximate valuation can easily be obtained simply by looking at the valuation contained in the newspapers. In many cases, it will be clear that the claimant has assets well over £8,000 or below £3,000 (assets between £3,000 and £8,000 will give rise to tariff considerations) and no problem will arise. If, however, a completely accurate valuation is crucial, then the adjudication officer will simply have to carry out the necessary investigation.
12. 	In the present case, the new tribunal will value the shares as at 9 January 1991 in accordance with the principles set out above, and will deduct from their value what was owed to the brokers and secured by their lien. They will then go on to determine whether the claimant was at that date eligible for income support, and if so, determine the amount thereof. However, the tribunal will be concerned not only with the position as at 9 January 1991 but with the entire period of the claim, which, Mr. Roe informs me, extended up to 27 January 1991. I mentioned earlier that the claimant did in fact on 11 January 1991, contrary to his usual practice, take delivery of the shares he had purchased during the trading account period and paid for them. In so doing, he extinguished his indebtedness to his brokers and increased his overdraft with Lloyd’s Bank. In those circumstances, he must be regarded as possessed of capital representing the shares without any offset for liabilities incurred in consequence thereof. There would also appear to be evidence that the claimant resumed trading on or about 25 January 1991, and the capital position will also have to be considered afresh by the tribunal as at that date. Manifestly, considerable evidence will have to be presented to the tribunal to enable them to deal properly with the whole period.
13. 	Accordingly I allow this appeal.

Date: 17 June 1994	(signed) Mr. D. G. Rice
	Commissioner