Universal credit, earned income and monthly pay | CPAG

Universal credit, earned income and monthly pay

Date: 
22 November 2020
Issue: 
R (Johnson, Woods, Barrett & Stewart) v SSWP [2019] EWHC23 (Admin); SSWP v Johnson, Woods, Barrett & Stewart [2020] EWCA Civ788

R (Johnson, Woods, Barrett & Stewart) v SSWP [2019] EWHC23 (Admin); SSWP v Johnson, Woods, Barrett & Stewart [2020] EWCA Civ788

Current status: Court of Appeal judgment handed down 22 June 2020. Read the Court of Appeal judgment. Implementing regulations are due to come into force on 16 November 2020. PDF iconView the regulations  

Overview

This case successfully challenged the rigidity of the monthly assessment period regime under universal credit (UC) and the way that earned income is calculated for certain claimants. The case concerned four single working mothers whose regular monthly pay dates for their wages fell close to the start/end of their assessment periods, resulting in them sometimes having two paydays in one assessment period. This issue caused them to experience fluctuations of their income and significant cash losses.    

The Court of Appeal found that SSWP’s failure to resolve the problem for such claimants was irrational. SSWP accepted the Court of Appeal's findings and has laid amending regulations to rectify the issue faced by the claimants. The changes are due to come into force on 16 November 2020.   

Background facts

The claim was originally brought on behalf of three single working mothers, represented by CPAG, and was joined with a similar case brought by Leigh Day solicitors representing another single working mother.

Each claimant:
i)    was paid a monthly salary towards the end of the month (eg. on the 28th of each month or the ‘last banking day of the month’); and
ii)   had a UC assessment period which started and ended close to the end of the month.

As is the case for many employees, the claimants’ actual pay dates were occasionally brought forward to take account of weekends and bank holidays. On the other hand, the start/end date of their UC assessment periods remained fixed. The result of the ‘clash’ between their monthly paydays and start/end of their assessment periods, was that the claimants were sometimes paid twice in one assessment period. For example, in November - December 2017 one claimant, whose assessment period ran from 30th of one month to 29th of the following and who was paid on the last working day of the month, was paid on Thursday 30 November and Friday 29 December, thereby receiving two salary payments within that assessment period.

Impact on the claimants

Whenever this issue outlined above arose, the claimants were treated as having earned twice their usual salary in one assessment period and so received a significantly reduced UC award, causing obvious cash flow problems for somebody managing on a very tightly balanced budget.

Further, as the claimants were working parents, they were entitled to a work allowance. Whenever they were treated as receiving two months' wages in one assessment period, only one work allowance was applied to those earnings. They therefore lost out on the benefit of one work allowance against one month’s salary. This cash loss was not compensated for by the fact that the following assessment period they were treated as receiving no wages and so received the maximum UC allowance.

Between them, the claimants 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.

Legal issues

High Court

The Divisional Court hearing took place on 27 - 28 November 2018 and judgment was given on 11 January 2019, finding in favour of the claimants.

Although the claimants originally advanced their claims on different grounds, more of which below, the court found that SSWP had incorrectly interpreted her own regulations regarding "earned income" (namely regulation 54 Universal Credit Regulations 2013) and "wrongly assumed that where salaries for two different months were received during the same assessment period, the combined salaries from the two months were to be treated as earned income in respect of that assessment period."  Read the High Court judgment.

Court of Appeal

Following the SSWP’s application to appeal the Administrative Court’s judgment, the Court of Appeal hearing took place on 19 – 20 May 2020 and judgment was handed down on 22 June 2020 again finding in favour of the four claimants.

Read the Court of Appeal judgment.

PDF iconView the Court of Appeal order.
 

Irrationality

After considering arguments made on behalf of the claimants that had been raised in the original application for judicial review, the Court of Appeal unanimously found in favour of the claimants on the ground 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. The court noted:


“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.” (paragraph 108)


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.

In her judgment, Rose LJ observed that the changes to the claimants UC awards that occurred as a result of the timing of their paydays “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.” (paragraph 59).

Further, the court rejected the SSWP’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).

The SSWP’s argument that the UC computer programme could not easily be modified to solve the problem similarly did not find favour with the court.

Discrimination

At the Court of Appeal stage, the court heard arguments on behalf of both parties as to whether the Universal Credit regulations are discriminatory, contrary to Article 14 of the European Convention on Human Rights (the ‘Convention’) when taken in conjunction with Article 1 of the First Protocol. This issue had originally been raised by the claimants in their initial application for judicial review. However, ultimately, the court did not find it necessary to make further findings on this point in light of its dismissal of SSWP’s appeal on the grounds of irrationality.

Interpretation

The Court of Appeal found in favour of the claimants on a different basis from the Administrative Court, rejecting the lower court’s approach to the interpretation of regulation 54 of the Universal Credit Regulations 2013. Whilst it was in principle open to the court to consider the interpretation of regulation 54 in the context of section 3 of the Human Rights Act 1998, which requires the courts to read legislative provisions in a way which is compatible with Convention rights, so far as is possible, the court chose not to address this in its judgment.

Accordingly, regulation 54, as it is currently drafted, means that a person’s earned income is that income actually received in an assessment period irrespective of when the money was actually earned.

Changes to Universal Credit Regulations following the judgment


SSWP has laid regulations before Parliament which, once in force, should mean that claimants will avoid facing the same issue in the future.  
PDF iconThe Universal Credit (Earned Income) Amendment Regulations 2020 (2020/1138) come into force on 16 November 2020. The amending regulations make changes to regulation 61 of the Universal Credit Regulations 2013, which governs how SSWP calculates earned income. The Johnson issue is addressed by creating a power for SSWP to treat one of two wage payments received/reported in the same assessment period as earnings in respect of a different assessment period (regulation 61(6), once amended). This only applies to claimants who are paid on a regular monthly basis. In circumstances where such a reallocation has been made, SSWP also has the power to make consequential adjustments that are needed “to avoid duplication or to maintain a regular payment pattern” (regulation 61(7), once amended). 


What can a claimant in a similar position do? 

Individuals facing the Johnson issue may have to take different steps depending on when the assessment period(s) in which they receive two lots of wages falls. 

Claimants who are facing this issue on an ongoing basis cannot rely on the revised regulation 61 until after 16 November 2020. The new powers contained in the amended regulation take effect in accordance with paragraph 32 of Schedule 1 of the Universal Credit, Personal Independence Payment, Jobseeker’s Allowance and Employment and Support Allowance (Decision and Appeals) Regulations 2013 (2013/381). Paragraph 32 provides that for existing universal credit awards, where a change in the legislation results in a change of circumstances requiring a superseding decision, that decision will take effect from the first day of the next assessment period after the change in legislation. In practice, this means that it is only when two monthly wages are received in an assessment period which starts on or after 16 November 2020 that the revised legislation can be relied upon. 

For all assessment periods beginning before 16 November 2020 in which two monthly wage payments have been received, we would encourage advisers to request a mandatory reconsideration and subsequent appeal of decisions. Such appeals will need to rely directly on the irrationality finding in the Johnson Court of Appeal decision and can additionally raise Article 14 non-discrimination arguments and the fact that given the finding of irrationality in Johnson there can be no justification for treating those monthly paid earners who happen to have a pay day which is on or around their UC assessment period start and end dates less favourably than those monthly paid earners who have no such clash and so experience no fluctuation in their UC payments or loss of the work allowance. 

It is not yet clear what remedy tribunals will award for those who have faced the Johnson issue prior to the legislative power to reallocate wages coming into force. However, the Court of Appeal decision is clear that the pre-16 November 2020 method of calculating earned income is unlawful and therefore in CPAG’s view decisions applying this method should not be upheld by tribunals.   

Filemandatory reconsideration request template for claimants who are paid monthly and have lost out on work allowance as a result of receiving two wage payments in one assessment period is available.  

Filemandatory reconsideration request template for claimants who have faced the same issue as the claimants in Johnson and have additionally been subjected to the benefit cap as a result of being treated as receiving no wage payments in an assessment period is also available.

Where a client’s pay situation is similar to but not on all fours with that of the claimants in Johnson, for example, paid fortnightly or paid four weekly rather than monthly, a mandatory reconsideration should still be sought. For cases paid four-weekly, advisers may wish to visit our test case page ‘Benefit cap and those paid 4 weekly’ for further information on a related case.

PDF iconThis table sets out how the Johnson and Pantellerisco judgments might be applied to UC claimants in similar positions.