UC: escaping the benefit cap and pay cycles

Introduction

The Court of Appeal issued its judgment in R (Pantellerisco and others) v Secretary of State for Work and Pensions [2021] EWCA Civ 1454 on 8 October 2021. The court allowed the Secretary of State’s appeal and overturned the High Court’s previous finding that the application of the benefit cap to a claimant who was paid four-weekly and working 16 hours per week at the national living wage hourly rate was irrational.

See R (Pantellerisco and others) v Secretary of State for Work and Pensions [2020] EWHC 1944 (Admin) for previous consideration of the High Court’s judgment.

Earnings exemption from the benefit cap

The incentivisation of paid work outside the home and the ability of people to escape the cap by undertaking work for not less than the specified number of hours are key aspects of the benefit cap scheme (see paragraph 8 of DA and others v Secretary of State for Work and Pensions [2019] UKSC 21).

The claimants in Pantellerisco contended that the exception to the application of the benefit cap set out in regulation 82(1)(a) of the Universal Credit Regulations 2013 (the ‘UC Regs’) must retain a rational connection to the number of hours worked by the claimant seeking to rely on it. They contended it is unfair – and irrational – to not exempt from the cap those working 16 hours per week and paid four-weekly, when they are working the same number of hours which allows a monthly paid claimant to escape the cap by meeting the earnings threshold in regulation 82.

The Secretary of State’s primary argument before the Court of Appeal in Pantellerisco was that it is a ‘fundamental feature’ of UC that entitlement is assessed by reference to actual receipts in a monthly assessment period (the ‘actual receipts principle’). Further, and crucially for this case, she contended that the earnings-related threshold for disapplication of the benefit cap should be set by reference to those same features. The court therefore found it was necessary to consider whether this principle could be ‘modified without doing unacceptable damage to the integrity of the system’ (paragraph 78).

The Court of Appeal’s approach

Unusually for an appellate court, Underhill LJ, giving the sole judgment of the unanimous Court of Appeal, considered that it was appropriate to address – for a second time – the substance of the challenge to the lawfulness of the threshold set out in regulation 82(1)(a) of the UC Regs. In doing so, Underhill LJ noted that one of the ‘problems’ of viewing the issue through the lens of Garnham J’s reasoning in the High Court was that his reasoning had been so closely based on Rose LJ’s reasoning in R (Johnson and others) v Secretary of State for Work and Pensions [2020] EWCA Civ 788, whereas the issues in this case needed to be addressed in their own right. As such, an essentially fresh consideration of the issue was undertaken by the Court of Appeal.

The claimant’s initial challenge when bringing the judicial review was framed in terms of whether the calculation of the exemption threshold as set out in the legislation itself was irrational, and the Court of Appeal recognises (paragraph 16) that this was also the subject of the declaration made by Garnham J in the High Court. However, the court decided that the key question for it to answer was whether it was irrational for the Secretary of State for Work and Pensions (SSWP) not to modify the earnings-related exemption to the benefit cap to address the issue faced by the affected claimants, ultimately concluding that the claimants failed to establish that it was irrational for the SSWP not to have taken steps to resolve the problem, once it was identified.

A ‘straightforward solution’?

Continuing its focus on whether the SSWP should now modify the exemption, rather than on whether the legislation was irrational when introduced, the court considered that ‘if it were established that there was a straightforward solution which it was irrational for the Secretary of State not to have pursued’ then the court ‘could and should nevertheless intervene’ (paragraph 80). But in the same breath, it went on to conclude that, in this instance, ‘that is not the case’.

Interestingly, the Secretary of State’s evidence in this case acknowledged that real-time information returns include pay cycle data. That is to say that, as things stand, the DWP already receives information about the pay patterns of every employed UC claimant who has an employer who uses real-time information for each and every assessment period, as part of the submissions which are made by their employers to HM Revenue and Customs and then shared with the DWP.

However, under the DWP’s current arrangements, only certain DWP staff can access claimants’ pay cycle information, and it is not routinely fed through into the UC calculator, for the purposes of the automated calculation of UC entitlement.

If, under a new approach, the DWP was willing and able to take account of that existing pay cycle data for each claimant in each assessment period, one way of solving this issue faced by the affected claimant group would be to fix the threshold for the benefit cap exemption differently for those paid on a one-, two- or four-weekly cycle in any given assessment period, compared to those paid monthly.

At first glance, this approach would appear not disturb the ‘actual receipts principle’ and does not require a departure from taking into account income received over the set period of a calendar month, which the SSWP views as a ‘cornerstone’ of the system.

Rather, it would simply set a slightly lower numerical earnings threshold for those paid other than monthly, at the amount earned through four weeks’ work of 16 hours per week at the national living wage, instead of the monthly equivalent which the current formula in regulation 82(1)(a) reaches by multiplying the weekly amount (16 hours x the national living wage) by 52 and dividing by 12. See the table below.

It is unusual for a court to ask claimants in a judicial review to do the Secretary of State’s job by proposing how the SSWP should operate its complex systems, and details of this possible solution were not before the Court of Appeal. Garnham J’s High Court judgment did not go into a possible alternative approach in detail but did, however, consider that using ‘pay cycle data’ – as the possible solution above does – would ensure that the calculation ‘accurately represents actual receipts’.

It would be interesting to know whether the Secretary of State could present good reasons for not using the possible formula identified above, or in what way the alternative could be said to present any unacceptable conceptual or administrative difficulty for the UC system.

Can claimants do anything?

Following the Court of Appeal’s decision, the current state of the law is that UC claimants paid either weekly, fortnightly or four-weekly, who are working 16 hours per week at the national living wage but who are nevertheless being subjected to the benefit cap, are not being treated unlawfully. However, at the time of writing, CPAG is seeking permission to appeal to the Supreme Court. So such claimants can seek a mandatory reconsideration and lodge an appeal with the tribunal, requesting that their appeal be stayed behind any onward appeal in Pantellerisco to the Supreme Court. A template to request a mandatory reconsideration is available on CPAG’s website.

In light of the DWP’s stated commitment to review this area and the ‘test and learn’ approach in UC, advisers are encouraged to report difficulties faced by claimants in this position to CPAG’s Early Warning System, so that this evidence can be used to encourage the DWP to take action for this group of claimants, irrespective of whether or not the courts ultimately find the current approach to be unlawful.