Johnson & Ors, R (On the Application Of) v Secretary of State for Work And Pensions

The Divisional Court determined that the Secretary of State misinterpreted the Universal Credit Regulations 2013 when treating two monthly salary payments received within a single assessment period as earned income solely "in respect of" that one assessment period. The court held that regulation 54 requires the calculation of earned income for an assessment period to be based on actual amounts received in that period but adjusted so as to reflect the period of time in respect of which the earnings were paid. The court therefore concluded that where monthly salaries relate to distinct monthly periods, the Secretary of State should attribute earnings to the assessment periods to which those months relate rather than mechanically aggregating payments received in the same assessment period.

The court applied and construed regulations 22, 54 and 61 of the 2013 Regulations in the context of sections 7 and 8 of the Welfare Reform Act 2012, and concluded that the Department for Work and Pensions erred in law in the decisions challenged. The claimants' public sector equality duty challenge under section 149 of the Equality Act 2010 was rejected on the material before the court. Remedies and consequential applications were adjourned for further hearing.

Background and parties:

• The claimants are four employees paid monthly who each received two monthly salary payments within a single universal credit assessment period because pay dates fell on or around the last working or banking day of the month.
• The defendant is the Secretary of State for Work and Pensions. The claimants sought judicial review of the Department's decisions to treat combined payments received in one assessment period as earned income for that assessment period and to allow only one work allowance (£192 at the relevant time) against the combined payments.

Nature of the claim and relief sought:

• The claimants sought judicial review of decisions calculating their universal credit entitlement for particular assessment periods and argued that the Department had misapplied the Universal Credit Regulations 2013. They also advanced alternative grounds that the challenged method of calculation was irrational or ultra vires the Welfare Reform Act 2012 and that it gave rise to unlawful discrimination contrary to Article 14 read with Article 1 of Protocol 1 to the European Convention on Human Rights. One claimant additionally alleged failure to comply with the public sector equality duty in section 149 of the Equality Act 2010.

Issues framed by the court:

1. Whether regulation 54 of the Universal Credit Regulations 2013, read with regulation 22 and regulation 61, required the Department to treat two monthly salary payments received in one assessment period as earned income solely in respect of that one assessment period.
2. If the Department's interpretation was correct, whether the regulations were unlawful as irrational or ultra vires, or incompatible with Convention rights.
3. Whether the Department complied with the public sector equality duty under section 149 of the Equality Act 2010.

Court's reasoning and decision:

• The court analysed the statutory framework in the Welfare Reform Act 2012 (notably sections 7 and 8) and the drafting of regulations governing assessment periods and deduction of earned income (regulations 21, 22, 54 and 61 of the 2013 Regulations).
• The court emphasised that regulation 54 states that calculation of earned income "is to be based on" actual amounts received in the assessment period but is an assessment "in respect of an assessment period". "Based on" does not mandate mechanical aggregation of payments received in that period irrespective of the period to which the payments relate.
• Read in context with regulation 22 (work allowance and percentage deduction) and regulation 61 (use of real time information and power to treat payments as received in different assessment periods), the proper construction requires attributing earnings to the period in which the earnings were earned where actual receipt in one assessment period would otherwise distort the attribution and the purpose of the monthly work allowance.
• Accordingly the Department erred in law in treating combined two-month payments as earned income solely in respect of one assessment period; the claimants’ judicial review claims on this ground succeeded.
• The court did not decide the alternative ultra vires and Convention arguments because they were unnecessary on the correct interpretation. The section 149 Equality Act 2010 challenge was not made out on the evidence.

Remedy:

The court allowed the claim but adjourned the question of remedies and consequential applications for a further oral hearing at the Secretary of State's request.

The claimants' judicial review claims succeed. The Secretary of State erred in law by interpreting regulation 54 of the Universal Credit Regulations 2013 as requiring aggregation of two monthly salary payments received in a single assessment period as earned income solely in respect of that assessment period. The proper construction requires attributing earned income to the assessment periods to which the earnings relate. The public sector equality duty challenge under section 149 of the Equality Act 2010 failed on the evidence. Remedies were adjourned for further hearing.