Secretary of State for Work and Pensions v Danielle Johnson
|England & Wales
|Lady Justice Rose,Lord Justice Irwin,Lord Justice Underhill
|22 June 2020
| EWCA Civ 778
|Court of Appeal (Civil Division)
|Case No: C1/2019/0593
|22 June 2020
 EWCA Civ 778
Lord Justice Underhill
(Vice President of the Court of Appeal Civil Division)
Lord Justice Irwin
Lady Justice Rose
Case No: C1/2019/0593
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
LORD JUSTICE SINGH and MR JUSTICE LEWIS
CO/1643/2018 and CO/1552/2018
Royal Courts of Justice
Strand, London, WC2A 2LL
Edward Brown (instructed by the Treasury Solicitor) for the Appellant
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
This appeal raises an important issue arising from the implementation of the new system of universal credit providing social security benefits. Universal credit is described in the evidence before this Court as marking a fundamental move away from previous policies for supporting the poorest and most vulnerable members of our society. It has been a central platform of the Government's social policy reform agenda since 2010 and will be the most significant welfare reform in the past 70 years. It is intended to make social entitlement provision fairer, more affordable and better able to tackle poverty, worklessness and welfare dependency.
The Secretary of State for Work and Pensions (‘SSWP’) appeals against the order of the Divisional Court (Singh LJ and Lewis J) following the judgment of that court handed down on 11 January 2019. Permission to appeal was granted by Hickinbottom LJ on 5 November 2019. The case concerns the application of the provisions of the Universal Credit Regulations 2013 (SI 2013/376) (‘the Regulations’) which set out how a claimant's earned income is calculated for each monthly assessment period within that claimant's period of entitlement to universal credit. The amount of earned income in an assessment period is an important element when working out how much benefit the claimant will be awarded for that assessment period. The dispute arises because, broadly, the system for identifying the income earned by a claimant in a particular assessment period does not accommodate the fact that people who are usually paid their salary on a particular day each month, such as on the last day of the month, will in fact be paid on a different day if their usual payment date falls on a weekend or bank holiday. In certain circumstances this leads to two monthly salary payments falling within one of the monthly assessment periods applicable for that claimant. The claimant's universal credit award in respect of that assessment period is then greatly reduced in response to the apparently high level of income received. In the next assessment period they will typically receive no monthly salary payment. In response to that apparent sudden drop in income, they will subsequently get a much higher universal credit award. I shall refer to that problem in this judgment as caused by “the non-banking day salary shift”.
Although one might think that this would even itself out over time, there are two reasons why the Respondents argue that that is not a sufficient answer and why they have brought these proceedings to challenge this aspect of how the scheme operates. The first is that the great fluctuations in income each month, aggravated by the fact that universal credit is paid in arrears, make it very difficult for claimants to budget for their stable monthly outgoings. This causes them to incur additional costs such as overdraft fees, high interest on short term loans or unpaid bills, and in some instances court fees to prevent landlords evicting them if they fall behind with their rent. Even more concerning is that claimants affected by this problem irrevocably lose money over the course of a year because they lose the opportunity to receive the work allowance for the assessment period when they appear to have nil income. The work allowance is the amount of salary that a universal credit claimant can earn before their award of benefit is reduced.
The Divisional Court held that the problem had arisen because the SSWP had wrongly construed regulation 54 of the Regulations which sets out the general principles for calculating earned income. They held that the wording of the provision did not, as the SSWP had argued, require that all earned income received in a particular assessment period be included in the calculation of the claimant's universal credit award in respect of that period. The wording of the regulation indicated that an adjustment has to be made where, as here, some of the income received in fact relates to a different assessment period. The SSWP appeals to this Court arguing that the Divisional Court was wrong to construe regulation 54 in that way. Such a construction, she says, throws the whole operation of the universal credit system approved by Parliament into confusion because the calculation of the appropriate award for each assessment period for the millions of claimants each month is an automated process requiring clear, easily identified inputs. This is achieved by basing the award on the actual amount of income received in the assessment period without considering whether it relates in some subjective way to that period or to another period. The Regulations cannot achieve what Parliament intended to achieve when setting up the scheme if the SSWP has to perform the kind of evaluative exercise of working out which income received relates to which assessment period that the Divisional Court's construction seems to mandate.
The Respondents seek to uphold the Divisional Court's construction of the regulation largely for the reasons given by that Court. They have also served a Respondents' Notice raising two challenges on which they rely if the SSWP is right about how to construe the Regulations. They argue that the result of the SSWP's construction for these claimants and the many thousands of other claimants in the same position is so arbitrary and contrary to the aims of the universal credit reforms that the Regulations should be struck down on grounds of irrationality in so far as they mandate that result. Secondly, the Respondents assert that the Regulations discriminate against them contrary to Article 14 of the European Convention on Human Rights (‘ECHR’), in conjunction with Article 1 of Protocol 1.
(a) The legislation
The Welfare Reform Act 2012 (‘WRA’) is an open-textured statute which lays down the building blocks of the universal credit regime but leaves the definition of each element to be enacted in regulations made by the SSWP. Universal credit is payable to those who meet the basic conditions set out in section 4 WRA and the financial conditions set out in section 5 WRA. Section 7 WRA provides:
“ 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.”
Section 8 WRA provides that the amount of an award of universal credit is to be the total of the four elements that go to make up an award less the amounts to be deducted. The four elements that make up the maximum amount are the standard allowance, an amount included for a claimant who has responsibility for children and young persons, housing costs and an amount for other particular needs or circumstances including disability or caring for a severely disabled person. As to the amounts to be deducted from that maximum amount, section 8(3) provides:
“ 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).”
The power to make regulations is granted by a series of powers set out in Schedule 1 to the WRA. Paragraph 4(1) of that Schedule states that regulations may provide for the calculation or estimation of a person's earned and unearned income and also of a person's earned and unearned income in respect of an assessment period. The regulation-making power was drafted widely to cover potential policy choices that were not in fact adopted. For example, paragraph 4(2) allows for the calculation to be made by reference to an average over a period.
Part 3 of the Regulations contains provisions for the purposes of sections 7 and 8 WRA. Assessment periods are fixed to start on the date of presentation of the claim since that is when entitlement starts. Universal credit awards are paid within seven days following the end of the assessment period. In relation to assessment periods, regulation 21 provides so far as relevant as follows:
“ 21 Assessment periods
(1) An assessment period is a period of one month beginning...
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