Universal credit, earned income and monthly pay | CPAG

Universal credit, earned income and monthly pay

Date: 
30 June 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

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 has indicated that she will not be appealing further. 

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

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.

What can a claimant in a similar position do?

SSWP has indicated, via a statement in parliament by the Under-Secretary of State, that she will not be appealing the Court of Appeal's decision.

The Court of Appeal will order SSWP to remedy the irrationality identified in its judgment but will likely allow SSWP to decide how best to resolve the issue by making changes to the legislation and Universal Credit system as she considers appropriate.  The requirement to amend the legislation means that such changes are unlikely to be immediate and are likely to be prospective only. (This is different from the situation with the Divisional Court’s judgment which did not require any changes to the legislation but simply to how the SSWP had been interpreting it).

Pending such changes, we would encourage advisers to request a mandatory reconsideration and subsequent appeal of decisions of the kind described above, citing the Johnson Court of Appeal decision and specifically raising 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. Please get in touch with us at testcases@cpag.org.uk if you have received an adverse mandatory reconsideration notice and are in the process of appealing to the first-tier tribunal.

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.