Unlawful and nonsensical – test case on approach to income calculation in Universal Credit

11 January 2019

Unlawful and nonsensical: Court rules against government in test case on approach to income calculation in Universal Credit

• Monthly paid employees should not be treated as having double income if a pay packet arrives a day or two early [§68]
• Ruling may affect tens of thousands of working households on UC
• Hundreds of millions IT cost of fixing unlawfulness cannot justify DWP acting unlawfully [§59]

In R (Johnson and Ors) v SSWP [2019] EWHC 23 (Admin) (11 January 2019), the Divisional Court has decided that the Secretary of State has been unlawfully misapplying regulation 54 of the Universal Credit Regulations 2013, which assesses UC entitlement for working claimants. The Court rules that ‘the amount of the 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’: §68.

This is a vital judgment for working claimants paid monthly on fluctuating days, such as those in Johnson, and may affect others. Prior to Johnson, the Secretary of State generally took regulation 54 to mean that any amount recorded as received during an assessment period had to be treated as income for that period, regardless of the period of work to which it actually related.

The claimants in Johnson, who were paid on the last working or banking day of the month and had their assessment period set at the end of the month, experienced occasions when two months’ salary fell within the same assessment period. The Government’s approach caused their UC payments to fluctuate dramatically even though they were paid on a regular pattern. It caused them serious cashflow problems with rent, household bills and other expenditure. It also reduced their entitlement to the work allowance part of UC, to which they were entitled as working parents. Each of the claimants suffered significant distress and hardship.

The court found:

[55] … the method of calculation that the defendant says regulation 54 requires [results] in a calculation of a claimant’s earned income in a way that does not reflect the actual facts and, indeed, could be said to lead to nonsensical situations, for example that a person does not have any earned income during a period when in fact he or she clearly is working and is being paid.

The Government had told the Court that fixing the problem at this stage ‘would require an IT system build costing additional hundreds of millions of pounds’. The Court responded:

[59] … We do not belittle the administrative inconvenience or the cost involved but the language of the regulations cannot be distorted to give effect to a design which may have proceeded on a basis which is wrong in law.

The Government has not yet told the Court whether it wishes to seek permission to appeal.

Anyone affected by the issue in this case and unsure what to do should now seek welfare benefits advice, for example from a CAB. It may be necessary to apply for a revision of UC decisions which this judgment shows to be incorrect; it may also be possible to seek compensation.

Tom Royston acted for Ms Johnson, led by Jenni Richards QC and instructed by Tessa Gregory at Leigh Day. Other claimants were represented by Jenni Richards QC, Steve Broach and Carla Clarke at CPAG.

A report on the case from BBC News can be found here.