Secretary of State for Work And Pensions v Johnson & Ors

Under the Universal Credit Regulations 2013, earned income for an assessment period is ordinarily the amount actually received during that period, subject only to adjustments expressly authorised by the Regulations.

However, it was irrational to leave that rule unmodified where a regular monthly salary is paid early because the contractual payment date is a non-banking day. The resulting double-payment and nil-payment assessment periods arbitrarily cause severe fluctuations and permanent loss of work allowances. The problem is common, predictable, long-lasting and contrary to the policy of encouraging work. No reasonable Secretary of State could refuse to provide a solution where the evidence failed to establish that an adjustment would cause unacceptable cost or systemic difficulty.

The respondents were working universal credit claimants whose monthly assessment-period end dates coincided with their regular salary dates. When a salary date fell on a weekend or bank holiday, early payment caused two salaries to be recorded in one assessment period and none in the next. Their awards fluctuated sharply, and they permanently lost a work allowance whenever two salaries fell within one period.

The Divisional Court held that regulation 54 of the Universal Credit Regulations 2013 required income to be adjusted between assessment periods. It declared that earned income must be based on, but need not equal, income actually received in the period.

The Secretary of State appealed. By a Respondents’ Notice, the claimants maintained that, if her construction was correct, the failure to amend the Regulations was irrational and alternatively discriminatory under article 14 of the Convention with article 1 of Protocol No 1.

1. Appeal dismissed on the substituted ground. Regulation 54(1) of the Universal Credit Regulations 2013 required earned income ordinarily to be calculated by reference to amounts actually received during the assessment period. The phrases “in respect of” and “based on” did not authorise a general attribution of receipts to periods in which the work was performed. Such an approach would require undefined evaluative judgments across many forms of employment and would undermine the intended automated scheme. The permissible adjustments were those expressly contemplated by the Regulations, including regulation 55. Regulation 61(3) did not apply because the employers’ information was neither inaccurate nor untimely: paras 35–45.
2. The applicable irrationality question was whether the continuing refusal to address the non-banking day salary shift fell outside the range of reasonable decisions. A policy-maker may prefer a broad rule to a finely tuned solution, but must strike a reasonable overall balance between the disadvantages of leaving the problem unresolved and those of making an exception: paras 48–50.
3. The refusal was irrational. The salary shift was common, predictable and arbitrary. It caused extreme fluctuations, serious hardship, perverse employment incentives and permanent loss of work allowances for potentially many tens of thousands of claimants. Its effects persisted throughout entitlement and ran counter to the scheme’s objective of making work pay: paras 59–62, 92–107, 114.
4. Bright lines and automation were legitimate considerations, but did not justify the refusal. The Regulations already contained targeted exceptions, and the evidence did not establish that a suitably narrow adjustment was impossible or would entail unacceptable cost or wider systemic problems. The high threshold for irrationality was therefore met: paras 73–83, 107, 113–116.
5. The challenge was best characterised as Wednesbury irrationality rather than an application of the Padfield principle. It concerned the combined effect of the existing Regulations and the absence of an exception, rather than a specific exercise of a regulation-making power that frustrated its statutory purpose: paras 103–106, 115.
6. The discrimination ground did not require determination. The Divisional Court’s declaration on the meaning of regulation 54 was set aside and was to be replaced by a declaration directed specifically to the non-banking day salary-shift problem, leaving the Secretary of State to determine the appropriate solution: paras 108–110. Irwin and Underhill LJJ agreed.

1. Court of Appeal (Civil Division): The Secretary of State’s appeal was dismissed because the Respondents’ Notice succeeded on irrationality. The Divisional Court’s construction of regulation 54 was rejected and its declaration was set aside. A declaration directed to the non-banking day salary-shift problem was to be substituted: [2020] EWCA Civ 778.
2. Divisional Court, Administrative Court: Singh LJ and Lewis J allowed the judicial review claims to the extent of declaring that earned income under regulation 54 of the Universal Credit Regulations 2013 must be based on, but need not equal, income actually received in an assessment period. No neutral citation is stated in the judgment.