Work, limited capability for work and universal credit

Introduction

Universal credit (UC) rules allow claimants with limited capability for work (LCW) and claimants with LCW and limited capability for work related activity (LCWRA) to work without either automatically losing that status or the associated LCW and LCWRA elements.1 The stated reason for this was to improve the work incentives for this group.2 So how does work relate to LCW in a UC award?

Work and LCW

Unlike in employment and support allowance (ESA), there is no UC rule which provides that a claimant who works is, in general, to be treated as not having LCW. Because of this, there is no need for UC to have an equivalent to the ESA ‘permitted work’ rule under which LCW can be retained while certain work is undertaken. Instead, UC has a rule regarding the circumstances in which an assessment (ie, a work capability assessment (WCA)) as to whether or not a claimant has LCW, or LCWRA, may be carried out – set out in regulation 41 of the Universal Credit Regulations 2013 (the UC Regs).

Subject to a WCA?

Regulation 41(1) provides, in essence, that the DWP may carry out a WCA in two main situations: firstly, where it falls to be determined for the first time whether a claimant has LCW or LCWRA; and, secondly, where there has already been a determination that the claimant has LCW or LCWRA and the DWP wishes to determine whether there has since been a relevant change of circumstances as to the claimant’s physical or mental condition, or whether the earlier determination was based on ignorance of, or a mistake as to, a material fact. In essence, therefore, a claimant who works may be subject to the WCA. But certain restrictions apply here.

Claimants with earnings

Regulation 41(2) sets out a restriction on when a claimant with monthly earnings may be assessed. In practice, this complex provision is mainly likely to affect a claimant who works and has not yet been assessed as having LCW and LCWRA. If a claimant has monthly earnings exceeding their relevant threshold, then the DWP may not apply a WCA; but this is subject to various exceptions, one of which is where the claimant has already been assessed as having LCW or LCWRA.

‘Monthly earnings’ is defined at regulations 2 and 90(6) as either the person’s earned income for the current assessment period before any deduction for income tax, national insurance contributions or relievable pension contributions or, alternatively, where earned income fluctuates or is likely to fluctuate, an average over an appropriate cycle or over three months. The DWP may disregard earned income received in respect of an employment which has ceased. The ‘relevant threshold’ is (per regulation 41(3)) the adult national minimum wage for a 16-hour week, converted to a monthly figure.3

The exceptions (so that a WCA can be applied) are:

• where the claimant is entitled to attendance allowance, disability living allowance, child disability payment, adult disability payment or personal independence payment;
• where the assessment is for the purpose of reviewing an earlier determination that the claimant has LCW or LCWRA; or
• in any case where a claimant may be treated as having LCW, or LCWRA, in accordance with regulations 39(6) or 40(5) and Schedules 8 and 9.

The latter exception appears to be widely misunderstood by DWP staff. CPAG sees repeated examples of the DWP wrongly refusing to assess claimants as having LCW and LCWRA, even though they have recently ended employment (perhaps also indicating a failure to understand the power to disregard earned income in respect of an employment which has ceased), or are on sick leave in order to undertake chemotherapy. DWP failures to properly apply these rules mean that the DWP uses the wrong effective date for the supersession decision which includes the LCWRA element in the calculation of the claimant’s award, and claimants are having to challenge DWP decisions while undergoing, or recovering from, debilitating treatment.

The work allowance

Claimants with LCW or LCWRA have a work allowance applied to the calculation of their award. Although not a straightforward earnings disregard, this does mean that the earnings taper only applies to the earned income exceeding that work allowance (regulation 22).

In practice, it has remained unclear whether claimants assessed as having LCW, or LCWRA have the work allowance included in their award from the assessment period in which they reported their LCW (which is at least strongly arguable), or the later date in which the WCA was actually applied and the LCW determination was made.4

ESA permitted work and managed migration to UC

Income-related ESA recipients are expected to start being migrated to UC under the managed migration process from autumn 2024. Those in receipt of both income-related ESA and tax credits are to be issued with migration notices first, and all other claimants expected to be issued with migration notices by the end of 2025.

Given the absence of a permitted work rule in UC, how will those on income-related ESA and doing permitted work find that work is treated in the managed migration process? LCW and LCWRA itself should not be a problem, as transitional rules provide that the claimant is to be treated as having LCW or LCWRA at the point of transfer to UC.5 It is understood that claimants managed migrated to UC will not automatically be referred for a new assessment.6 But what about the earnings from the permitted work?

There has been a concern about the transitional protection calculation in such cases, where the claimant is not also in receipt of tax credits. This is because in this situation regulation 54 of the Universal Credit (Transitional Provisions) Regulations 2014 provides that the ‘indicative UC amount’ is calculated using the amount of earnings used in the income-related ESA calculation. Because permitted work earnings are disregarded in income-related ESA, they would therefore also be disregarded in the transitional protection calculation for UC. As a result, the transitional element will be lower (or even be nil), even though the actual UC award will be affected by the full amount of the earnings.

However, DWP ministers have stated that the significant number of ESA claimants doing permitted work will not be any worse off at the point of transfer to UC.7 Officials have also stated that people on ESA doing permitted work will not be any worse off at the point of transfer and have dismissed the concern about the wording of regulation 54, although they were not able to explain why a system which reflects the regulations, including regulation 54, would not leave these claimants worse off.

Reassessments and starting work

There is no provision requiring the DWP automatically to carry out a new WCA assessment in the event that a claimant with LCW, or LCWRA, takes up work. However, as we have seen, regulation 41 provides a power for this to happen if the DWP thinks fit.

It would be sensible for a claimant with LCW or LCWRA to be prepared for the possibility of a new WCA upon taking up work. The DWP Advice for Decision Making (ADM) guidance states that:8

‘G1035: If a claimant in work has already been assessed as having LCW or LCWRA, whether for the purposes of UC or ESA, a further WCA may be carried out in order to consider again whether the claimant has LCW or LCWRA. If already included, the LCWRA element continues to be included in the UC amount unless and until it is determined that the claimant does not have LCWRA.’

But note that the ADM guidance also states that a new assessment is not required in all cases:

‘G1036: The DM [decision maker] may consider that a further WCA is not required, for example where the claimant’s work does not give rise to a doubt as to whether they still have LCW. In this case the claimant is not treated as not having LCW and G1034 does not apply.