UC and earned income: escaping the benefit cap

Introduction

Shortly before the previous Bulletin went to press, the High Court gave judgment in R (Pantellerisco and others) v Secretary of State for Work and Pensions [2020] EWHC 1944 Admin (20 July 2020), a judicial review challenge to the Secretary of State’s (SSWP’s) failure to apply the benefit cap earnings exemption to claimants working 16 hours per week at the hourly national living wage rate, on account of their being paid their wages on a pattern other than monthly.

Following hot on the heels of the Court of Appeal’s decision in Secretary of State for Work and Pensions v Johnson and others [2020] EWCA Civ 778, this is the second test case within the space of a month to find that aspects of the method of calculating earned income for UC is unlawful for certain claimants. In this latest case, Mr Justice Garnham, applying the Court of Appeal decision in Johnson, found that the application of the benefit cap to a four-weekly paid claimant who was working 16 hours per week at the national living wage, was irrational and unlawful.

What is the issue?

The issue faced by the claimant, explained in more detail in the case summary at p11 of this Bulletin, arose as a result of the interaction between the method of calculating the earned income of claimants under regulation 54 of the Universal Credit Regulations 2013, No.376 (the ‘UC Regulations’) and the operation of the ‘earnings exemption’ from the cap. The ‘earnings exemption’ is contained in regulation 82(1)(a) of the UC Regulations, which sets out a formula for calculating the minimum earnings threshold that claimants must meet, in order for the benefit cap not to be applied to a UC assessment period.

As a result of being paid four-weekly, in 11 out of 12 UC assessment periods each year, Ms Pantellerisco was treated by the DWP as not meeting the earnings threshold set out in regulation 82(1)(a), despite working 16 hours a week at the national living wage. In effect, the DWP took into account her wages for 28 days’ work rather than for the full month, when assessing whether she was earning enough to escape the benefit cap. Had Ms Pantellerisco worked exactly the same amount of hours, at exactly the same rate of pay, and her employer had instead paid her monthly, she would have qualified for the ‘earnings exemption’ and not have been subjected to the benefit cap.

Considering this outcome, Garnham J found that the ‘same “significant, predictable but arbitrary effects” are found here’ – ie, as had been present in Johnson. By finding a solution to the problem, the Secretary of State would ‘reduce disincentives to work, make the system fairer and reduce perverse incentives’, in line with the aims of the benefit cap. He therefore concluded that, again as in Johnson, he could not see ‘how any reasonable Secretary of State could have struck the balance in the way the SSWP has done in this case’.

It’s not over yet…

The judgment of the High Court may not be the final word from the courts on the issue. The Secretary of State applied to the High Court for permission to appeal the decision, and was refused. However, the Secretary of State has since renewed her application to the Court of Appeal, and a decision on whether or not her appeal can proceed is expected from the Court of Appeal in the autumn.

What can claimants do?

Claimants who are continuously working 16 hours per week (or more) at the hourly national living wage rate (or higher), are paid on a pay pattern other than monthly, and have been benefit capped, should take the following steps to protect their position.

Step 1: request a mandatory reconsideration for the assessment period(s) in which they have been capped, citing the High Court decision in Pantellerisco. A template request is available on our website.

Note on mandatory reconsiderations: it is likely that, until it is known whether the Pantellerisco appeal can proceed, the DWP will uphold the original decision to apply the cap. The DWP may also seek to rely on section 25 of the Social Security Act 1998 (‘SSA 1998’) to argue that it is not required to make a decision on ‘lookalike’ cases while the potential appeal is pending.

Step 2: if a mandatory reconsideration notice upholding the application of the cap is received, claimants should submit an appeal to the First-tier Tribunal.

Note on appeals: although there is technically no statutory appeal route available against the application of the benefit cap in UC, an appeal can be framed as against the decision not to apply the ‘earnings exemption’ in regulation 82(1)(a). Depending on timings, the respondent may ask for the appeal to be stayed, pending the outcome of the Pantellerisco permission to appeal application before the Court of Appeal.

Step 3: watch and wait! As indicated above, a decision on whether the Secretary of State can appeal the High Court decision is expected shortly. CPAG will update its test case webpage once this information is known (see link in Step 1 above).

Arguments before a tribunal

The primary argument in appeals made to the First-tier Tribunal will be that the reference in regulation 82(1)(a) to earnings being ‘converted to a monthly amount’ should be disapplied on the basis that it is irrational and so ultra vires.

Although the claimant in the test case was paid four-weekly, our view is that a good argument can be made that the judgment should be applied to all claimants working at least 16 hours per week at the national living wage or higher who have regular payment cycles other than monthly – ie, including weekly- or fortnightly-paid claimants. As such, these claimants should also appeal if they wish to protect their position.

As was the case in Johnson, the High Court declined to rule on the Article 14 European Convention on Human Rights discrimination arguments, with the consequence that it remains open to a tribunal to find in favour of an appellant on that basis. The discrimination argument would argue that the irrationality of the outcome, as found by the High Court, points to there being no justification for the differential treatment of those receiving wages on a pattern other than monthly.

Link with the Johnson decision

CPAG has published a table setting out how the Johnson and Pantellerisco judgments apply to UC claimants in similar positions to the claimants in both cases depending on: their wage patterns; the issues they are facing; and the circumstances of the individual. Although the Secretary of State has confirmed that she will be implementing the Johnson decision, there remains no update on how or when she will do so.