Benefit-capped working mother wins test case against DWP's irrational universal credit rules for assessing earnings | CPAG

Benefit-capped working mother wins test case against DWP's irrational universal credit rules for assessing earnings

Published on: 
20 July 2020
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A working single mother on universal credit (UC) has today won a test case against the DWP's approach to calculating earnings in UC which left her benefit-capped – and up to £5,000 worse off per year – purely because her employer paid her four-weekly rather than monthly.

The DWP's approach to calculating earnings for claimants who are paid 4-weekly is irrational and unlawful the High Court held. The decision means the DWP must adjust the way that the UC system assesses earnings so that claimants who are paid 4-weekly rather than per calendar month, are not at risk of having the benefit cap applied to them solely on the basis of their pay frequency and being left out of pocket as a result.

The case is the second Child Poverty Action Group-led case in a month in which the DWP's rules for assessing UC claimants' earnings have been found to be unlawful and operating in a way that 'no reasonable Secretary of State for Work and Pensions (SSWP)' would allow them to.

UC claimants are exempt from the benefit cap* if they earn the equivalent of working 16 hours per week at the so-called national living wage calculated as a monthly amount (currently £604.59 a month).

Sharon Pantellerisco was working 16 hours a week for the 'national living wage', but for eleven months of the year she failed to meet the earnings exemption because the UC system took account only of her 4 weekly take home pay to determine her earned income in a monthly assessment period which was just under the earnings exemption threshold – essentially four weeks' earnings was 'stretched' over the calendar-month assessment period in UC .

Under UC, Ms Pantellerisco's income from work, if taken as the amount she received in a calendar-month assessment period (rather than the amount she earned or worked for over a calendar month), fell slightly short of the earnings threshold for avoiding the cap when calculated on a monthly basis (£525.44 compared to £569.23 for 2019/2020). In other words, Sharon earned or worked for more in a calendar month than she received in her four-weekly pay packet, but UC takes account – for the calendar month long assessment period – only of what she received in that defined period.

If she had had identical annual earnings but been paid monthly rather than four-weekly, Sharon would have been recognised as earning at the level of the earnings exemption threshold. The application of the benefit cap to Sharon has seen her UC award reduced by as much as £463 a month.

Ms Pantellerisco, who has always worked since leaving school at 16, other than for short periods of maternity leave, has been forced to use food banks and to ask her children's school for food vouchers and for help with school uniform costs because the benefit cap left her struggling to make ends meet.

In his judgment today High Court judge Mr Justice Garnham said the DWP's failure to adjust UC so that claimants in Ms Pantellerisco's situation receive the same amount of UC as people earning the same amount but paid on a monthly basis was unreasonable:

"I cannot see how any reasonable Secretary of State could have struck the balance in the way the SSWP has done in this case."

The Judge agreed that the DWP's approach to earnings in UC is inconsistent with its aim of incentivising work and making work pay:

"… the impact of the regime contained in the Regulations discourages work when the work available is paid on a lunar month basis. In such cases, for the majority of months the Regulations subject the First Claimant to the benefit cap, as if she were not working, resulting in her receiving an arbitrarily reduced overall UC award. The scheme is said to be designed to be responsive to changes in earned income, and to make work pay to the fullest possible extent. But in these circumstances, it is neither."

The up to 20% monthly drop in UC Ms Pantellerisco's income when the benefit cap was applied was, the Judge said:

"… self-evidently, a very significant reduction for somebody of modest means. …the First Claimant is treated as if she were not working enough, when in fact she is."

Noting that the problem affects "…a great number of claimants to UC…" the judge acknowledged that Ms Pantellerisco and others in her situation could not necessarily find a way to resolve the problem themselves:

"It is difficult for the First Claimant, and many in her position, to remedy the situation. Not all will be able to arrange their employment and their other responsibilities as to enable them to work the additional hours and avoid the cap. Fewer still can require their employers to change their payment pattern. The idea of choosing employment based on the pay cycle operated by the employer seems absurd. The consequence is to give the UC scheme an appearance of arbitrariness."

In reaching his decision Mr Justice Garnham applied the principles established in the CPAG-led Court of Appeal case last month. In that earlier case (Johnson), four single mothers, three represented by CPAG and one by solicitors Leigh Day, had successfully challenged the lawfulness of the DWP's system for calculating earnings in UC in respect of monthly paid employees who were sometimes paid slightly earlier than normal by their employers to avoid otherwise being paid on a non-banking day. They initially won in the High Court in 2019 and last month gained a further victory when the DWP's appeal against the initial High Court decision was dismissed in the Court of Appeal.

The four mothers all had monthly paydays that 'clashed' with the dates of their monthly UC assessment periods, with the result that if they were paid early some months, because their normal payday fell on a weekend or bank holiday for example, they were treated as receiving two monthly wages in one assessment period which in turn dramatically reduced their UC award – and as receiving no wages at all the next month.

The problem for these parents was that their earnings appeared to be more (rather than less as in Ms Pantellerisco's case) than they actually earned in some calendar months. The mothers regularly lost the benefit of work allowances – amounting to several hundred pounds each year – and suffered severe cash flow problems. None of the mothers could get their pay dates or assessment period dates altered to avert the problem. Dismissing the DWP appeal against the 2019 High Court ruling, the Court of Appeal last month found that it is irrational for the Secretary of State not to change the system to solve the 'non-banking day shift' problem and make an exception for claimants who experience oscillations in their UC income and the loss of the work allowance for no reason other than the coincidence between the date of their salary payment and the date they first claimed UC.

Citing that earlier Court of Appeal finding in his judgment today, Mr Justice Garnham said:

"… in my view, the principles the Court [of Appeal] identified, and the essential logic of the argument they accepted, apply with equal force to cases of claimants paid on a four-weekly basis.

"In fact, it can fairly be said that the logic applies with even greater force. First, four-weekly payments are genuinely and consistently regular; they do not incorporate the inevitable, if occasional, irregularity that comes with monthly payments as described by the Court of Appeal. Second, in monthly payment cases the difficulty arises in a few months each year; with lunar monthly cases such as the First Claimant's, it arises in 11 months out of 12. In those circumstances, it seems to me that the case for the Regulations making an exception for such claimants is even stronger than it was in Johnson."

Commenting on today's judgment, Child Poverty Action Group's solicitor Carla Clarke said:

"This is an extremely welcome judgment which follows the principles established in our recent Court of Appeal success for single mothers who, like Ms Pantellerisco, lose out under universal credit due to circumstances largely beyond their control: for one group it is whether their usual monthly pay date happens to fall on or around their UC assessment period start date; for the other group it is whether they are paid 4 weekly rather than monthly. Today the High Court has recognised that universal credit's inability to take account of non-monthly pay cycles defies common sense. A system that determines the amount of social security low paid working claimants are entitled to on the arbitrary basis of whether they are paid monthly or 4-weekly can only be irrational, unjust and unlawful.

"Our client is a working single mother who has done everything she can to support her children but has been trapped by the absurd rigidity of universal credit rules which have penalised her for being paid four-weekly rather than monthly – a circumstance that was beyond her control.

"Far from making work pay, universal credit left our client humiliated and in financial misery – resorting to food banks to feed her children and completely dumbfounded by the fact that she was benefit-capped – even though somebody doing exactly the same work, for the same number of hours at the same rate of pay would be exempt because their employer happens to pay them monthly.

"While determined to fight the application of the cap to her, the family's immediate financial situation meant that in February of this year Ms Pantellerisco felt she had no choice but to leave her care job to look for something that, while still working 16 hours per week due to her own health and caring responsibilities, paid her on a monthly basis. She took up a support worker job, but shortly after she was furloughed because of the covid-19 crisis. Her furloughed pay is not enough to meet the earnings exemption threshold and so she remains 'capped'.

"We pay tribute to Ms Pantellerisco for pursuing this case in order to achieve justice not just for her own children but for many more whose parents lose out on UC because they happen to be paid on a non-monthly basis."

CPAG estimates that there are around 166,000** UC claimants who are paid four weekly, any one of whom could have the benefit cap applied if they are working 16 hours per week at national living wage.

 

Notes to editors:

Today's judgment is here:

https://cpag.org.uk/sites/default/files/files/resource/R%20%28Pantelleri...

The c​ase was brought on behalf of Ms Pantellerisco and her three dependent children. Anonymity orders are in place for the children.

Ms Pantellerisco may be available for interview via CPAG's press office on 07816 909302/07775656763

*The benefit cap was designed to limit how much social security support is paid to people out of work or with very low earnings and restricts total benefit awards for claimants who have earnings below £604.59 a month (April 2020 to March 2021 figure – equivalent to working 16 hours a week at the 'national living wage' for over-25s).

UC assessment periods run for a calendar month – the 'whole-month approach' – starting from the date on which UC is claimed. At the end of each month-long assessment period, claimants' circumstances and income are assessed to determine their entitlement to UC, with payment made a week later in arrears.

People who are paid four-weekly receive 13 pay packets in a year: for those on UC that means they have eleven monthly UC assessment periods in which they get one pay packet and one assessment period in which they receive two pay packets.

If UC claimants, like Ms Pantellerisco, earn at or just over the earnings exemption threshold for the benefit cap on a monthly basis, they will nevertheless be paid slightly under that threshold in eleven assessment periods each year, but well above the threshold in the one assessment period when they receive two pay packets. Therefore, they can be capped in eleven assessment periods out of twelve, while someone working the same hours for the same amount but paid monthly would be recognised as earning enough not to face the benefit cap in each monthly assessment period.

Further information on last month's Court of Appeal case R (Johnson, Woods, Barrett & Stewart) v SSWP [2019] EWHC23 (Admin); SSWP v Johnson, Woods, Barrett & Stewart [2020] EWCA Civ788) is here.

 

**CPAG's estimate of 166,000 working UC claimants who are paid four weekly is based on the following:

On 14 May 2020 there were 1.83m people in work on UC (Source: Stat-xplore https://www.gov.uk/government/statistics/universal-credit-statistics-29-...)

In 2017, 9.1% of employees were paid four-weekly (Source: Annual Survey of Hours and Earnings (ASHE) – Proportion of all employee jobs with weekly, fortnightly, four-weekly and monthly pay periods, UK, April 2017).

9.1% of 1.83m = 166,000 on UC and paid 4-weekly

 

 

More information from CPAG press office: 07816 909302/07775656763