In a judgment handed down today (Monday, June 22) three judges
at the Court of Appeal ruled that "the failure of the
Secretary of State to ensure that the Regulations cater for the
phenomenon of 'non-banking day salary shift' is
unlawful".
In her lead judgment Lady Justice Rose
concluded:
"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."
The judges accepted that up to 85,000 universal credit claimants
may be affected by the ruling.
The Government went to the Court of Appeal after single mother
Danielle Johnson, along with three other mothers supported by the
Child Poverty Action Group (CPAG), won a High Court legal challenge
to the Government's interpretation of regulation 54 of the
Welfare Reform Act 2012 which meant some months she would receive
much less in universal credit than in others.
Danielle, a school-dinner lady is paid on the last working day of
each month and her benefit assessment period runs from the last day
of the month to the penultimate day of the following month. This
means in some months, due to a weekend being at the end of a month,
her wages are deposited in her bank account a day or so earlier
than in other months. The universal credit computer system
interpreted this as Danielle having earned twice as much in one
month and none in others, so her universal credit payment would be
calculated accordingly.
It resulted in extreme fluctuations in her income and, and in
several months she lost the work allowance part of the universal
credit payment, meaning she was around £500 per year worse
off.
Although the judges overturned the lower court's interpretation
of regulation 54, they agreed with Danielle and the three women
CPAG represents that it is irrational of the SSWP not to come up
with a system that accommodates universal credit benefit
claimants' regular monthly pay dates when they are paid early
because pay day falls at a weekend or bank holiday.
Lady Justice Rose said the Respondents' challenge "should
succeed on the grounds of irrationality" and said she entirely
agreed with the Divisional Court's description of the way that
regulations apply to the Respondents as being "odd in the
extreme".
The variation in Danielle's benefit award caused her severe
cash flow problems. Between them the four mothers 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
Lady Justice Rose commented that Danielle: "expresses her
doubts whether she will ever be able to get back on top of her
finances and worries that cash flow problems will mean she is
unable to pay her rent, jeopardising her tenancy."
In her judgment Lady Justice Rose described the situation faced by
Danielle and the others as "perverse" and in finding
against the Government she considered the tens of thousands it
would affect, the duration of the impact and the arbitrary nature
of the occurrence.
She said she did not accept the SSWP's argument that
"oscillations in universal credit payments are a central
feature of the universal credit scheme", that "it is set
up to respond immediately to changes in circumstances of claimants
as they move in and out of work" had merit in the
circumstances of this case.
She said: "The oscillations here are not a response to any
change in the Respondents' work patterns or family
circumstances. The oscillation is a response only to whether the
last day of the month falls on a non-banking day or
not."
She said: "The SSWP has put forward no reason why the date on
which these Respondents submitted their claim for universal credit
should result in them losing a considerable amount of money each
year for however long their entitlement lasts. In my judgment this
is the most egregious aspect of the way the system
works."
The SSWP had argued that to accommodate the changes needed, there
would need to be a wholesale move away from automation back to a
former method of manual calculation and that any change to the
computer system would cost at least £7.35 million.
Lady Justice Rose said:
"I cannot accept that the programme cannot be modified to
ensure that the computer can recognise that the end date of a
particular claimant's assessment period coincides with their
salary pay date so that if the latter date falls on a non-banking
day the receipt of two roughly equal payments is likely to be the
result of a salary payment being made a day early and the second
payment should be moved into the next assessment
period."
Lord Justice Underhill added:
"Non-banking day salary shift is common and entirely
predictable, and its arbitrary effect on entitlement to universal
credit is now well-recognised, whether or not it was actually
predicted when the scheme was being designed. That effect has a
severely harmful impact, which they can do nothing to avoid, on
very large numbers of vulnerable claimants."
He considered the fundamental question of "whether Parliament
can have intended the rule-making power to be exercised in a way
which produces so arbitrary and harmful an impact on the
Respondents and the very many other claimants who are in the same
position" and concluded: "I do not believe that it
can."
Following the judgment, Danielle Johnson
said:
"I get a regular monthly salary and the support I get from
universal credit should reflect that. I am relieved that the
judgment means that the Government must now act to ensure that I
and others affected will no longer lose out on money and will have
a steady cash flow. I find it unbelievable that the Government has
fought this case in the courts for so many years, it should not
have taken the Court of Appeal to tell them something which is just
a matter of common sense."
Leigh Day solicitor Tessa Gregory
said:
"We are delighted with the Court of Appeal's judgment
which is a complete vindication of our client's case. Universal
credit was designed to 'make work pay' yet our client, who
like millions of others is paid on the last working day of the
month, found herself facing severe hardship because the Secretary
of State made regulations which fail to take into account that the
date when someone is paid may vary because of non-banking
days.
"The Secretary of State committed to a "test and
learn' approach in rolling out universal credit yet she refused
to listen to these four hard working mums when they raised this
issue over two years ago. Our client hopes the Secretary of State
will now accept the ruling and take urgent steps to fix this
perverse situation which as noted by the Court only serves to
disincentivise work."
Danielle Johnson was represented by Lewis Hadler and Tessa Gregory
of Leigh Day Solicitors and Tom Royston of Garden Court North and
Jenni Richards QC of 39 Essex Street.
Originally published 22 June 2020
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