Court of Appeal finds DWP's treatment of earnings under universal credit irrational in further victory for four single mothers
The Department of Work and Pensions has lost its appeal against an earlier victory for four working single mothers challenging the rigidity of the universal credit (UC) system for calculating their earnings.
The single mothers (three represented by CPAG and one represented by Leigh Day solicitors) went to the High Court in November 2018 to challenge the legality of the system that meant they all had experienced fluctuations of their benefit income and significant cash losses solely as a result of a 'clash' between their monthly paydays and their fixed monthly UC assessment periods.
Each was paid their regular monthly salary on a particular day towards the end of the month and had a UC monthly assessment period that ran from a fixed day, close to the date they were paid their salaries. Frequently they were paid early by their employers to take account of weekends or a bank holiday. Where this happened, they were treated as having earned two monthly salaries in one UC assessment period and nothing in the next assessment period – leading to fluctuating monthly UC payments and the loss of the work allowance they should have received to support them as working lone parents.
They were unable to fix the problem by changing their pay dates or assessment period dates and the DWP was unprepared to adjust the system to prevent the problem from occurring because it considered it entirely lawful. In January 2019, judgment was given in their favour by the High Court. The DWP sought permission to appeal to the Court of Appeal and the case was heard in May 2020.
In today's judgment the Court rejected the appeal, finding in favour of the mothers on the grounds that the variations in their UC awards and the loss of the benefit of the work allowance, purely as a result of being paid their salaries on a day close to the start/end of their assessment period, were perverse and irrational – "they lead to significant variations not only in the benefit award but in the income for the household from benefits and salary in a particular assessment period. They cause considerable hardship and they create perverse incentives affecting a claimant's employment choices, cutting across the policy of the overall scheme."
Between them, the mothers fell into rent arrears, defaulted on council tax, incurred bank overdraft charges, borrowed money and even become reliant on food banks to make ends meet. One of the mothers had to decline a promotion and put her professional aspirations on ice because of the way the UC system treated her earnings. Another felt compelled to give up her job to look for alternative employment where there was no clash between her pay date and UC assessment period.
The court rejected the DWP's argument that there was no real loss of the work allowances as the system was not designed to give them one when there was a pay-date 'clash.' The court noted that the loss is even greater in 2020 than it was in 2018 when the case began – for a claimant receiving support in their UC for housing costs, the work allowance was worth £192 at the time the case started rising to £292 when the appeal was heard (for those without housing costs in their UC award the work allowance was £397 and is now £512).
In the judgment, Lady Justice Rose said that she could not accept the DWP's argument that the UC computer programme could not be modified and ruled that it is irrational for the Secretary of State not to change the system to solve the problem and make an exception for claimants who lose UC income for no reason other than the coincidence between the date of their salary payment and the date they first claimed UC. Key factors considered in reaching this decision included the number of people affected, the duration of the impact on them, the arbitrary occurrence of the problem and the inconsistency between the effect of the problem and the aims of the UC regime.
Lady Justice Rose said:
The threshold for establishing irrationality is very high, but it is not insuperable. This case is, in my judgment, one of the rare instances where the SSWP's refusal to put in place a solution to this very specific problem is so irrational that I have concluded that the threshold is met because no reasonable SSWP would have struck the balance in that way.
Commenting on the result, CPAG's solicitor Carla Clarke said:
"Justice has been done and common sense has prevailed. The court has recognised that it's not enough to say 'the losses weren't real and the computer system can't be changed' when the losses were very real to the mothers in this case who are working hard to try and give their children a secure and stable income. No-one should be left unable to budget and in a precarious financial situation despite being in stable, regular paying employment simply because the DWP failed to design the UC system to take account of an entirely foreseeable situation, namely that many employers do not pay on a non-banking day. Ironically, the UC system itself pays early if the normal payment day is a non-banking day. It's a credit to these mothers that having exhausted everything they could do to try and address the situation themselves, they were prepared to go to court to get the situation corrected for themselves and to prevent others from experiencing the hardship, stress and humiliation that they experienced. The DWP now needs to take action to prevent this happening to the many thousands of working parents who find themselves in the same situation".
The judgment requires DWP to make adjustments to the way that the UC system assesses earnings when claimants' regular monthly pay dates fall close to the end of their assessment period, so as to avoid situations where they have two paydays in one assessment period.
Notes to Editors:
1) The judgment is here: https://cpag.org.uk/sites/default/files/files/C1.2019.0593-2020-EWCA-Civ...
2) More background on the case and how the universal credit assessment period affected CPAG's three clients in the case is here https://cpag.org.uk/welfare-rights/legal-test-cases/universal-credit-assessment-period-inflexibility and here https://cpag.org.uk/news-blogs/news-listings/high-court-finds-dwp-unlawf...
3) Universal credit assessment periods run for a calendar month, starting from the date Universal Credit is claimed. At the end of each month, claimants' circumstances and income are assessed to determine their entitlement to UC, with payment made a week later in arrears. But where a claimant's monthly payday is on or close to the first day of their assessment period and they are paid a day or two early some months, because their normal payday would fall on a weekend or bank holiday, they are then recorded as having had two paydays in one assessment period and none in the one after.
4) The work allowance, for claimants who have dependent children or an illness or disability, is the amount of earnings claimants can keep in full before universal credit is tapered away at a rate of 63p in each pound. It is currently worth £292 per month (£192 when the case was launched) if receiving housing costs, £512 if not (£397 when the case was launched). Only one work allowance can be applied per month so if claimants (with housing costs) are paid twice in one month, they will only retain £292 of their pay in the assessment period before it is subject to the taper. With no earnings income received in the following assessment period, they will lose the benefit of the month's work allowance entirely.
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