ON APPEAL FROM THE QUEEN'S BENCH DIVISION
LORD JUSTICE SINGH and MR JUSTICE LEWIS
CO/1643/2018 and CO/1552/2018
Strand, London, WC2A 2LL
B e f o r e :
(Vice President of the Court of Appeal Civil Division)
LORD JUSTICE IRWIN
LADY JUSTICE ROSE
| SECRETARY OF STATE FOR WORK AND PENSIONS
|(1) DANIELLE JOHNSON
(2) CLAIRE WOODS
(3) ERIN BARRETT
(4) KATIE STEWART
Jenni Richards QC and Tom Royston (instructed by Leigh Day) for the First Respondent
Jenni Richards QC and Stephen Broach (instructed by Child Poverty Action Group) for the
Second to Fourth Respondents
Hearing dates : 19 and 20 May 2020
Crown Copyright ©
Lady Justice Rose:
(a) The legislation
"7 Basis of awards
(1) Universal credit is payable in respect of each complete assessment period within a period of entitlement.
(2) In this Part an "assessment period" is a period of a prescribed duration.
(3) Regulations may make provision-
(a) about when an assessment period is to start;
(b) for universal credit to be payable in respect of a period shorter than an assessment period;
(c) for the amount payable in respect of a period shorter than an assessment period.
(4) In subsection (1) "period of entitlement" means a period during which entitlement to universal credit subsists."
"8 Calculation of awards
(3) The amounts to be deducted are —
(a) an amount in respect of earned income calculated in the prescribed manner (which may include multiplying some or all earned income by a prescribed percentage), and
(b) an amount in respect of unearned income calculated in the prescribed manner (which may include multiplying some or all unearned income by a prescribed percentage)."
"21 Assessment periods
(1) An assessment period is a period of one month beginning with the first date of entitlement and each subsequent period of one month during which entitlement subsists.
(2) Each assessment period begins on the same day of each month except as follows—
(a) if the first date of entitlement falls on the 31st day of a month, each assessment period begins on the last day of the month; and
(b) if the first date of entitlement falls on the 29th or 30th day of the month, each assessment period begins on the 29th or 30th day of the month (as above) except in February when it begins on the 27th day or, in a leap year, the 28th day.
(2A) But paragraphs (1) and (2) are subject to regulation 21A (assessment period cycle to remain the same following change in the first date of entitlement)."
"22 Deduction of income and work allowance
(1) The amounts to be deducted from the maximum amount in accordance with section 8(3) of the Act to determine the amount of an award of universal credit are—
(a) all of the claimant's unearned income (or, in the case of joint claimants all of their combined unearned income) in respect of the assessment period; and
(b) the following amount of the claimant's earned income (or, in the case of joint claimants, their combined earned income) in respect of the assessment period—
(i) in a case when no work allowance is specified in the table below (that is where a single claimant does not have, or neither of joint claimants has, responsibility for a child or qualifying young person or limited capability for work), 63% of that earned income; or
(ii) in any other case, 63% of the amount by which that earned income exceeds the work allowance specified in the table.
(2) The amount of the work allowance is—
(a) if the award contains no amount for the housing costs element, the applicable amount of the higher work allowance specified in the table below; and
(b) if the award does contain an amount for housing costs element, the applicable amount of the lower work allowance specified in that table."
"52 Meaning of "earned income"
"Earned income" means —
(a) the remuneration or profits derived from—
(i) employment under a contract of service or in an office, including elective office,
(ii) a trade, profession or vocation, or
(iii) any other paid work; or
(b) any income treated as earned income in accordance with this Chapter."
"54 Calculation of earned income - general principles
(1) The calculation of a person's earned income in respect of an assessment period is, unless otherwise provided in this Chapter, to be based on the actual amounts received in that period.
"61 Information for calculating earned income - real-time information etc
(1) Unless paragraph (2) applies, a person must provide such information for the purposes of calculating their earned income at such times as the Secretary of State may require.
(2) Where a person is, or has been, engaged in an employment in respect of which their employer is a Real Time Information employer—
(a) the amount of the person's employed earnings from that employment for each assessment period is to be based on the information which is reported to HMRC under the PAYE Regulations and is received by the Secretary of State from HMRC in that assessment period; and
(b) for an assessment period in which no information is received from HMRC, the amount of employed earnings in relation to that employment is to be taken to be nil.
(3) The Secretary of State may determine that paragraph (2) does not apply—
(a) in respect of a particular employment, where the Secretary of State considers that the information from the employer is unlikely to be sufficiently accurate or timely; or
(b) in respect of a particular assessment period where—
(i) no information is received from HMRC and the Secretary of State considers that this is likely to be because of a failure to report information (which includes the failure of a computer system operated by HMRC, the employer or any other person); or
(ii) the Secretary of State considers that the information received from HMRC is incorrect or fails to reflect the definition of employed earnings in regulation 55, in some material respect.
(4) Where the Secretary of State determines that paragraph (2) does not apply, the Secretary of State must make a decision as to the amount of the person's employed earnings for the assessment period in accordance with regulation 55 (employed earnings) using such information or evidence as the Secretary of State thinks fit.
(5) When the Secretary of State makes a decision in accordance with paragraph (4) the Secretary of State may —
(a) treat a payment of employed earnings received by the person in one assessment period as received in a later assessment period (for example where the Secretary of State has received the information in that later period or would, if paragraph (2) applied, have expected to receive information about that payment from HMRC in that later period); or
(b) where a payment of employed earnings has been taken into account in that decision, disregard information about the same payment which is received from HMRC.
(6) Paragraph (5) also applies where the Secretary of State makes a decision under regulation 41(3) of the Universal Credit, Personal Independence Payment, Jobseeker's Allowance and Employment and Support Allowance (Decisions and Appeals) Regulations 2013 in a case where the person disputes the information provided by HMRC.
(7) In this regulation "Real Time Information Employer" has the meaning in regulation 2A(1) of the PAYE Regulations."
(b) The evidence before the Divisional Court
(c) The judgment of the Divisional Court
"(1) The calculation of a person's earned income in respect of an assessment period is, unless otherwise provided in this Chapter, to be based on the actual amounts received in that period."
"50 Regulation 54 of the 2013 Regulations does not provide that the amount of earned income "is to be the actual amounts" received "in" the assessment period. Rather, the amount of earned income is to be "based on" the actual amounts received. Furthermore, the purpose of the calculation is, as appears from the opening words of the calculation, to calculate the amount of a person's income "in respect of an assessment period".
51. Similarly, where information is supplied by the employer in accordance with Regulation 61, the amount of "the persons' employed earnings from that employment for each assessment period is to be based on the information provided". Again, the amount is not to be, for example, "the amount specified in the information provided". Rather, it is "to be based" on the information provided. That, again, reinforces the view that the amount of earned income to be deducted is not necessarily the amount actually received in an assessment period but is to be based on those amounts. There is intended to be some other factor, not the mere mechanical addition of monies received in a particular period, which the calculation has to address.
52. That other factor is the period in respect of which the earned income is earned. It is the earned income in respect of the period of time included within the assessment period that is to be calculated. That is to be based on the actual amounts received in the assessment period. There may, however, need to be an adjustment where it is clear that the amounts received in an assessment period do not, in fact, reflect the amounts of earned income received in respect of the period of time included within that assessment period."
"54 … It would be odd in the extreme if the calculation method in regulation 54 meant that a claimant would in respect of one month's salary be prevented from retaining the amount of the work allowance for that month because the salary happened to have been paid in the same assessment period as another month's salary, with the consequence that the two months' salary were combined and only one amount of work allowance could be deducted."
"56. For all those reasons, on a proper interpretation of regulation 54, read in context, the earned income of a claimant is the earned income he or she receives in respect of the assessment period, that is in respect of periods of time comprising the assessment period. The calculation will be based upon the actual amounts received. That will be the starting point and in many, perhaps in the vast majority of cases, may well be the finishing point of the enquiry that the legislation requires. However, there may need to be an adjustment where it is clear that the actual amounts received in an assessment period do not, in fact, reflect the earned income payable in respect of that period."
"The Claimants' applications for judicial review are allowed to the extent that it is DECLARED for the purposes of regulation 54 of the Universal Credit Regulations 2013 that for the reasons set out in the Court's judgment, the amount of earned income of a claimant in respect of an assessment period is to be based on, but will not necessarily be the same as, the amount of earned income actually received in that assessment period."
2. THE PROPER CONSTRUCTION OF REGULATION 54
(a) What is alleged to be irrational here?
"98 The second ground on which the Lord Chancellor's Decision is challenged encompasses a number of arguments falling under the general head of "irrationality" or, as it is more accurately described, unreasonableness. This legal basis for judicial review has two aspects. The first is concerned with whether the decision under review is capable of being justified or whether in the classic Wednesbury formulation it is "so unreasonable that no reasonable authority could ever have come to it": see Associated Picture Houses Ltd v Wednesbury Corp  1 KB 223, 233-4. Another, simpler formulation of the test which avoids tautology is whether the decision is outside the range of reasonable decisions open to the decision-maker: see e.g. Boddington v British Transport Police  UKHL 13;  2 AC 143, 175 (Lord Steyn). The second aspect of irrationality/unreasonableness is concerned with the process by which the decision was reached. A decision may be challenged on the basis that there is a demonstrable flaw in the reasoning which led to it – for example, that significant reliance was placed on an irrelevant consideration, or that there was no evidence to support an important step in the reasoning, or that the reasoning involved a serious logical or methodological error. …."
"113. We accept that in principle it was open to the Lord Chancellor to adopt a policy response which did not directly correspond to the problem which it was designed to meet. A policy-maker may reasonably decide that the disadvantages of a finely tuned solution to a problem outweigh its advantages and that a broader measure is preferable, even if the broader measure is both over- and under-inclusive in that it catches some cases in which there is no or no significant problem and fails to catch some cases in which the problem occurs. Such an approach is in any event consistent with the nature of the Scheme, which uses criteria such as PPE as proxies for the complexity of cases. It is inherent in the use of such proxies that they will result in under-compensation in some cases. But this does not cause unfairness if it is off-set by over-compensation in other cases. What matters is that overall a reasonable balance is struck."
(b) The allegedly perverse consequences of the present regime
i) the wide and frequent oscillation in monthly universal credit payments;
ii) the loss for several months each year of the work allowance;
iii) the potential effect on other aspects of the scheme which are triggered by the absolute value of earned income received in assessment periods, in particular the exception from the benefit cap in regulation 82.
(i) The oscillation of universal credit payments
i) Ms Johnson's second witness statement includes a table covering nine assessment periods between 31 December 2017 and 29 September 2018. The table shows how many salary payments fell within the period, the wages that were received and the universal credit award for that period and when it was paid. For assessment periods where there are no wages received, her award was over £900. For assessment periods where two salaries were recorded the award was about £480, for periods where one salary was received the award was about £750.
ii) Ms Woods' second witness statement included a table covering nine assessment periods from 30 November 2017 to 29 August 2018. She received well over £1,000 in each of the four months following a nil receipt assessment period, about £900 in other months and only £64 in one of the months following an assessment period in which two wages were counted.
iii) Ms Barrett's first witness statement includes a similar table covering eight assessment periods from 28 August 2017 to 27 April 2018. In respect of four of those assessment periods she received over £1,000 in universal credit following an assessment period in which she appeared to have no income, but in other months she received only £139 or £254 following an assessment period when she had two wage instalments counted. She provides an updated table in her second witness statement covering assessment periods from 28 August 2017 to 27 September 2018. Again, the payments range between over £900 in respect of assessments periods with nil receipt of wages to amounts of £55, £162 and £148 in respect of assessment periods where she received two instalments of salary.
iv) Ms Stewart's table covers 14 assessment periods between 28 June 2017 and 27 August 2018. Her universal credit awards range from £1,418 in respect of the assessment period 28 August to 27 September 2017 when she received no wages to £219 for the assessment period 28 June to 27 July 2018 when she received pay on both 28 June and 27 July because 28 July, her contracted pay date was a Saturday. The amounts in the other months appear entirely random.
i) For Ms Johnson her maximum universal credit amount was the same, £953.85 in each of the three periods. The amount of benefit awarded in respect of the period when she received two wages was £386.80 and the total income in respect of that period was £1,415.94. For the month where she received one salary, her universal credit award was £849.92 and total income was £1,206.89; in the assessment period when she received no salary, her universal credit award was £916.08 and the income received by the household was therefore £916.08.
ii) For Ms Woods her maximum universal credit amount was the same in two of the assessment periods and less in one where no childcare cost element was included. The amount of benefit awarded to Ms Woods in respect of the period when she received two wages was £64.91 and the total income in respect of that period was £1,978.39. For the month where she received one salary, her universal credit award was £913.76 and total income was £1,692.36; in the assessment period when she received no salary, her universal credit award was £1,281.19 and the income received by the household was therefore also £1,281.19.
iii) For Ms Barrett the amount of her maximum award was almost the same in all three periods. The amount of benefit awarded in respect of the period when she received two wages was £148.95 and the total income in respect of that period was £1,578.30. For the month where she received one salary, her universal credit award was £370.53 and total income was £1,448.05; in the assessment period when she received no salary, her universal credit award and total household income was £880.81.
iv) For Ms Stewart her maximum universal credit fluctuated by about £120 over the three periods. The amount of benefit awarded in respect of the period when she received two wages was £308.57 and the total income in respect of that period was £2,044.43. For the month where she received one salary, her universal credit award was £928.43 and total income was £1,796.36; in the assessment period when she received no salary, her universal credit award and total income received was £1,313.55.
"12. This might be thought to be unproblematic as it could be said that over several months a combination of lower and higher UC awards balance themselves out. However, as somebody managing on my own with a young boy on a tight budget this is simply not the reality. As a result of receiving very little or even no UC in some months, I have fallen into arrears with my rent by about £1800; I was taken to court in April  for non-payment of my council tax; and have been forced to rely on the food bank on 3 to 4 occasions and a charity called Christians Against Poverty who provided me with £70 of supermarket vouchers to ensure that my son and I have at least enough to eat. I have also had to borrow money from my family and friends: I owe my dad about £1500, my mother £200, my brother £100 and friends £50-£60. I have even had to take out a credit card to try and tied me over but have then just found myself unable to pay off my credit card and so getting further into debt. I currently have about £680 credit card debt.
13. Things became so desperate just before Christmas that I attempted suicide and did so again in March. As a result, a social worker has become involved with me and my son."
"11. While I am obviously frustrated at being in positions that do not stretch me and in no way build on my studies, I cannot describe what a relief it is to have a stable and predictable income coming in each month from the combination of my wages and Universal Credit. Moreover, working locally means that I save considerably on travel and childcare costs and so I am in fact financially better off than doing a better paid and more fulfilling job with real prospects of progression and so coming off benefits altogether further away".
(ii) Loss of work allowance
|Assessment period||Salary pay dates in assessment period|
|Sun 31.12.17 – Tues 30.1.18||None|
|Wed 31.1.18 – Tues 27.2.18||Wed 31 Jan|
|Wed 28.2.18 – Good Friday 30.3.18||Wed 28 Feb and Thurs 29 March|
|Sat 31.3.18 – Sun 29.4.18||None|
|Mon 30.4.18 – Wed 30.5.18||Mon 30 April|
|Thurs 31.5.18 – Fri 29.6.18||Thurs 31 May and Fri 29 June|
|Sat 30.6.18 – Mon 30.7.18||None|
|Tues 31.7.18 – Thurs 30.8.18||Tue 31 July|
|Fri 31.8.18 – Sat 29.9.18||Fri 31 Aug and Fri 28 Sept|
|Sun 30.9.18 – Tues 30.10.18||None|
|Wed 31.10.18 – Thurs 29.11.18||Wed 31 Oct|
|Fri 30.11.18 – Sun 30.12.18||Fri 30 Nov|
"Some people might consider that losing £500 over a year is not much but for me and my daughter that is a huge amount of money. I need that £500 to meet our minimum outgoings and to ensure that all of my daughter's basic needs are met."
(iii) Potential effect on other elements of the scheme
(b) The disadvantages of resolving the problem
i) The supposed irrationality is based on a misconception because it aligns the assessment period with the period of a calendar month.
ii) There is a need for bright lines to ensure that the universal credit system operates in a coherent way.
iii) It is important to ensure that the calculation of the monthly award of universal credit can take place in an automated way without the need for "manual intervention" by a DWP officer carrying out an individual calculation of the amount of the award.
(i) Assessment periods are not intended to be aligned with calendar months
"This approach is intended to reflect the world of work where around 75% of people receive their wages monthly. Paying in this manner will encourage and support claimants to budget on a monthly basis, which will help smooth the transition into monthly paid work."
(ii) The need for bright lines
(iii) The automated calculation of the amount of the monthly award
"There is no predictable way of identifying when a person is in receipt of monthly, weekly, biweekly or four weekly payments. This would rely entirely upon self-reporting, which would provide scope for fraud, and those with fluctuating income only reporting a double payment when it would advantage them. This could also create scope for people to manipulate their payments so that they use an averaging system overall. The use of RTI is, in part, designed to prevent this kind of abuse and improve faith in the system."
(c) Is it irrational for the SSWP not to enact a solution to this problem?
(i) Was the possibility of solving the problem considered and rejected when the Regulations were adopted?
"In these cases pay cannot move between assessment periods due to the pay date timing, provided that the employer reports the correct contracted pay date where it falls on a non-banking day".
"We are working with design colleagues to establish safeguards and options, including a system of thresholds which would act as a prompt to investigate any changes outside a set amount. This would enable us to treat the majority of earnings with modest increases or fluctuations in the most straightforward way, whilst preventing exploitation by those seeking to maximise their Universal Credit entitlement."
(ii) Other factors
"I have never been this financially unstable before, to the point of being unable to afford my rent and having to go into my overdraft when buying food. UC is supposed to be simpler and fairer, but my experience of it is the opposite. Nobody from the Jobcentre told me how the AP worked or that if I applied for UC on a different day I would be treated differently and would not lose out on my benefits entitlement.
I don't understand how I can receive so much less money than someone else in exactly the same position who applied for UC on a different day."
"27 … If I am completely honest though, my maximum UC award of around £1200 if I was not working is manageable financially and would enable me to avoid all the stress of fluctuating monthly income levels. However, I will find a job once my present contract comes to an end as I have always worked or been studying and it is not in my nature just to sit around. That though is me pushing myself to fulfil my potential. As far as I am concerned, the current situation I find myself in with my UC assessment periods is a disincentive to finding work"
"13. … I am trying to make the best of myself, despite the difficulties caused by being on UC but sometimes I feel like it would be easier if I was unemployed because at least then I would have a steady and predictable income. When I didn't work I was a lot more financially stable than I am now. It is maddening. I can't say the amount of times I have broken down in tears because I don't know how I'm going to get through the month. It shouldn't be like this."
"a discretion conferred with the intention it should be used to promote the policy and objects of an Act can only be validly exercised in a manner that will advance that policy and those objects. More pertinently, the discretion may not be exercised in a way that would frustrate the legislation's objectives."
Lord Justice Irwin:
Lord Justice Underhill: