R (Johnson) v Secretary of State for Work and Pensions

This appeal concerned the interaction between regulation 54 of the Universal Credit Regulations 2013 (calculation of earned income) and the practical problem of monthly salary payments being shifted where a pay-day falls on a non-banking day (the "non-banking day salary shift"). The Court of Appeal held that regulation 54 is correctly read as requiring calculation of earned income for an assessment period to be based on actual amounts received in that period subject only to the specific adjustments provided elsewhere in the Regulations (for example regulation 55 and regulation 61), and the Divisional Court was wrong to infer a general attribution/averaging duty. However, the Secretary of State was unlawfully unreasonable in failing to address the predictable, repeated and adverse effects of the non-banking day salary shift on a substantial cohort of claimants (notably loss of work allowance and severe monthly income oscillations). The Secretary of State's refusal to implement or legislate for a focused mitigation was Wednesbury-irrational and the Secretary of State was required to consider a remedy.

This case concerned judicial review challenges to the way universal credit earned income is calculated for monthly assessment periods where a claimant's contracted monthly pay-day falls on a weekend or bank holiday. The respondents were single parents paid monthly by RTI employers whose universal credit assessment periods coincided with their pay dates so that, in some months, two monthly salary payments fell within one assessment period while other assessment periods recorded no salary. The Divisional Court had declared that regulation 54 required attribution or adjustment so that earned income should reflect the income "in respect of" the assessment period rather than simply the actual receipts in that period. The Secretary of State appealed.

Nature of the claim: judicial review of the Secretary of State's application of the Regulations; respondents sought declarations and relief on grounds of interpretation, irrationality and discrimination under Article 14 ECHR in conjunction with A1P1 (and other grounds raised at first instance).

Issues framed:

• Proper construction of regulation 54(1) of the Universal Credit Regulations 2013: whether earned income in respect of an assessment period must be attributed/adjusted to reflect income "in respect of" the time covered by that assessment period rather than being the actual amounts received in that period.
• If the Secretary of State's construction was correct, whether the resulting effect (notably loss of work allowance and extreme month-to-month oscillations) was irrational (Wednesbury) or discriminatory under Article 14 read with A1P1.

Court’s reasoning: the Court analysed the statutory scheme (Welfare Reform Act 2012 and the Regulations), the drafting of regulation 54 and related provisions (notably regulations 22, 55 and 61) and the practical need for an automated monthly calculation. It concluded that regulation 54, properly read in context, directs that calculation is to be based on actual amounts received in the assessment period, subject to the specific adjustments spelled out elsewhere in the Regulations; the Divisional Court’s reading would introduce open-ended evaluative adjustments incompatible with an automated system and with the breadth of the definition of "earned income". Having reached that conclusion, the Court nonetheless proceeded to consider the respondents’ alternative challenge. The Court accepted the respondents’ evidence of severe, predictable and recurring adverse consequences (extreme payment fluctuations, irreversible loss of periodic work allowance, and secondary effects such as risk of cap outcomes or loss of other means-tested support) affecting a substantial cohort. The Secretary of State had considered administrative convenience, automation and cost, but had not given adequate or rational weight to the predictable injustice and distortions to the policy aims of universal credit; the refusal to introduce a targeted mitigation was irrational. The Court therefore upheld the respondents’ challenge on irrationality and proposed replacing the Divisional Court’s broad declaration with a narrower declaration requiring the Secretary of State to consider and adopt an appropriate remedy.

The Court did not need to determine discrimination given success on irrationality.

This is an appeal by the Secretary of State against the Divisional Court’s declaration. The Court of Appeal held that the Divisional Court was wrong to construe regulation 54 as requiring a general attribution or averaging exercise; the calculation of earned income is to be based on actual amounts received in an assessment period subject to the adjustments explicitly provided elsewhere in the Regulations. Nonetheless, the Secretary of State’s continuing refusal to correct or to make a narrowly tailored provision to mitigate the predictable adverse consequences of the non‑banking day salary shift was Wednesbury‑irrational. The Court would therefore dismiss the appeal overall and replace the Divisional Court’s declaration with a declaration focused on the Secretary of State’s duty to address the specific problem identified, leaving the precise remedy to the Secretary of State.

Appeal from the Divisional Court (Singh LJ and Lewis J) (administrative court proceedings CO/1643/2018 and CO/1552/2018), Divisional Court judgment handed down 11 January 2019. Permission to appeal granted by Hickinbottom LJ (5 November 2019). The appeal was heard in the Court of Appeal and judgment delivered 22 June 2020 ([2020] EWCA Civ 778).