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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Pantellerisco & Ors v The Secretary of State for Work And Pensions (Rev2)  EWCA Civ 1454 (08 October 2021)
Cite as:  WLR(D) 513,  EWCA Civ 1454,  PTSR 1922
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MR JUSTICE GARNHAM
Strand, London, WC2A 2LL
B e f o r e :
(Vice-President of the Court of Appeal (Civil Division))
LORD JUSTICE HADDON-CAVE
LADY JUSTICE SIMLER
| SHARON PANTELLERISCO and others
|- and -
|THE SECRETARY OF STATE FOR WORK AND PENSIONS
Edward Brown and Stephen Donnelly (instructed by the Treasury Solicitor) for the Respondent
Hearing date: 15 June 2021
Crown Copyright ©
Lord Justice Underhill:
(1) By regulation 21 of the 2013 Regulations, UC is calculated (subject to some immaterial exceptions) by reference to monthly "assessment periods", running from the date that the claimant makes their first claim. The month in question is a calendar month. Since the Claimant first made her claim on 4 February 2019, her assessment period was from the 4th of one month to the 3rd of the next.
(2) Entitlement in respect of any assessment period is arrived at by taking a "maximum amount", calculated by reference to the claimant's particular circumstances, and then deducting any unearned income and a prescribed proportion of any earned income: the paradigm of such earned income – though of course far from the only case – is income from regular employment.
(3) By regulations 79-81 a claimant's entitlement in any assessment period is subject to the so-called "benefit cap", which is set at an amount varying according to the characteristics of the particular claimant, but which in the Claimant's case was £1,666.67 per month.
(4) In order to encourage claimants to work, regulation 82 provides for the disapplication of the benefit cap in cases where their earned income in an assessment period is equal to or exceeds a minimum amount. This is generally referred to as "the earnings-related threshold", though that is arguably not the most apt label – see para. 16 below.
(5) The threshold amount is the amount of earned income that the claimant would receive if they worked for sixteen hours a week during that period at the NLW rate. That reflects the general rule under the Regulations that "earned income" is "based on the actual amounts received in the period" (regulation 54). The fact that the threshold is defined by reference to income received rather than to income earned (in the sense of accrued) is also central to this case.
"… [T]he calculation required by regulation 82 (1) (a) read together with regulation 54 of the Universal Credit Regulations 2013 is irrational and unlawful in so far as employees who are paid on a four weekly basis (as opposed to a calendar monthly basis) are treated as having earned income of only 28 days' earnings in 11 out of 12 assessment periods a year."
THE RELEVANT PROVISIONS
"7. Basis of award
(1) Universal credit is payable in respect of each complete assessment period within a period of entitlement.
(2) In this Part an 'assessment period' is a period of a prescribed duration.
(4) In subsection (1) 'period of entitlement' means a period during which entitlement to universal credit subsists.
8. Calculation of awards
(1) The amount of an award of universal credit is to be the balance of—
(a) the maximum amount (see subsection (2)), less
(b) the amounts to be deducted (see subsection (3)).
(2) The maximum amount is the total of [various elements specified in sections 9-12].
(3) The amounts to be deducted are—
(a) an amount in respect of earned income calculated in the prescribed manner …, and
(b) an amount in respect of unearned income calculated in the prescribed manner ….
"Prescribed" means prescribed by regulations made by the Secretary of State: see sections 40 and 42 (1). The effect of section 43 (3) is that the Regulations in their original form were subject to the affirmative resolution procedure.
(1) Regulations may provide for a benefit cap to be applied to the welfare benefits to which a single person or couple is entitled.
(2) For the purposes of this section, applying a benefit cap to welfare benefits means securing that, where a single person's or couple's total entitlement to welfare benefits in respect of the reference period exceeds the relevant amount, their entitlement to welfare benefits in respect of any period of the same duration as the reference period is reduced by an amount up to or equalling the excess.
(3) In subsection (2) the 'reference period' means a period of a prescribed duration.
(4) Regulations under this section may in particular—
(a) make provision as to the manner in which total entitlement to welfare benefits for any period, or the amount of any reduction, is to be determined;
(b) make provision as to the welfare benefit or benefits from which a reduction is to be made;
(c) provide for exceptions to the application of the benefit cap;
"Welfare benefits" is defined in paragraph (10): it covers not only UC but a wide range of legacy benefits. Paragraph (10) also defines "prescribed" as meaning prescribed by regulations.
"An assessment period is a period of one month beginning with the first date of entitlement and each subsequent period of one month during which entitlement subsists."
Schedule 1 to the Interpretation Act 1978 defines "month" as "calendar month" (though it would in fact be clear in any event from the other provisions of regulation 21 that a calendar month was intended).
"The calculation of a person's earned income in respect of an assessment period is, unless otherwise provided in this Chapter, to be based on the actual amounts received in that period."
"(1) Unless regulation 82 or 83 applies, the benefit cap applies where the welfare benefits to which a single person or couple is entitled during the reference period exceed the relevant amount determined under regulation 80A (relevant amount).
(2) The reference period for the purposes of the benefit cap is the assessment period for an award of universal credit."
"The benefit cap does not apply to an award of universal credit in relation to an assessment period where –
(a) the claimant's earned income … is equal to or exceeds the amount of earnings that a person would be paid at the hourly rate set out in regulation 4 of the National Minimum Wage Regulations for 16 hours per week, converted to a monthly amount by multiplying by 52 and dividing by 12; or
It is thus paragraph (1) (a) of regulation 82 which provides for the earnings-related threshold and which is the subject of the Claimant's challenge and Garnham J's declaration. At the risk of repetition, I emphasise that because of the definition of "earned income" in regulation 54 (1) the threshold refers to earnings actually received, not earnings accrued. That is why the label "earnings-related threshold" is potentially misleading: it might be more accurate to refer to it as "payments-related".
(1) She herself made two witness statements explaining her circumstances and the impact on her of having her UC capped, which it is clear was very substantial. She also explains how it was in practice impossible for her, in her particular circumstances, to avoid the 28-day cycle effect either by increasing her hours or her earnings or by persuading her employer to pay her by the calendar month.
(2) Ms Carla Clarke of the Child Poverty Action Group ("CPAG") gave further details of the working of the 28-day cycle effect in the Claimant's case and about the interactions between her and CPAG on the one hand and the DWP on the other when the problem first arose.
(3) Mr Thomas Lee, a policy analyst at CPAG, gave figures showing that in the third quarter of 2019 the hours worked by parents earning at the NLW rate (or less) tend to cluster around certain multiples, such as sixteen and twenty. 124,000 parents earning at that rate work sixteen hours per week. The figures involve an element of estimation, but there is no challenge to their broad accuracy.
(4) Ms Helen Hargreaves, at that time the Associate Director of Policy at the Chartered Institute for Payroll Professionals ("the CIPR"), made a witness statement dealing with "payroll frequency" – that is, the intervals at which employees are paid. Her evidence, based on responses to a survey of employers carried out by the CIPR annually, is to the effect that payment by the calendar month has for many years been the most common pay frequency, being used by no fewer than 96% of employers. Payment on a 28-day cycle is the next most common, being used by 14.5% of respondents to the survey (and 20% among employers in sectors traditionally associated with low pay). (The reason why those figures come to more than 100% is that some employers use both cycles for different employees.)
"14. UC was designed as a measure with a far-reaching social purpose. In particular, it was intended to bring about significant behavioural changes, incentivise work and increased earnings and to make the system simpler and fairer. It was designed to address both the complexity and perverse incentives inherent in the legacy benefit system, which had arisen as a result of its piecemeal development over a number of years.
15. Therefore, the policy objectives of UC included:
(a) developing a system that was affordable, rewarding work and personal responsibility;
(b) establishing a fairer relationship between benefit recipients and those who pay for them, particularly between out-of-work benefits and those receiving low pay;
(c) targeting financial support more efficiently, by supporting those invulnerable circumstances;
(d) establishing a simpler system for individuals to understand and for the Government to administer;
(e) designing a system that will operate for all classes of case, straddling in work and out of work cases, which is essential if the system is to have strong work incentives."
"21. The calculation of UC in each monthly assessment period is a cornerstone of UC policy. All changes that occur in the assessment period are applied to the whole assessment period, and each policy consideration is looked at across the assessment period – such as the inclusion of disability elements, child elements, childcare costs, carer's element, conditionality
arrangements, the treatment of income, capital, deductions, etc.
22. The assessment period is calculated as a calendar month. A calendar monthly basis is used as it is considered to best reflect the most common payment cycles (whether in terms of income, such as salary, or outgoings, such as bill payments).
23. The objective of workability and efficiency requires the same structure to operate for the whole population, notwithstanding that there are, of course, different types of payment cycles (such as irregular pay or weekly or lunar monthly pay).
24. The calendar month structure reflects the general position in modern working life, where individuals, even in more precarious employment, are usually paid monthly. Where claimants are unemployed, monthly assessment and payment of UC creates the discipline of budgeting and managing money on a monthly basis, which is considered to help improve skills which would reduce poverty whether in work or not. The same approach is applied whether a claimant is employed, unemployed or self-employed. This allows UC to be calculated on the same basis whether a person moves in and out of work or whether their earnings are composed of mixed employed and self-employed earnings."
She goes on to quote from the speech of the responsible minister, Lord Freud, in the House of Lords during the passage of the bill that led to the 2012 Act. I need not reproduce the quotation here, but it makes clear that the choice of a calendar monthly assessment period was a matter of deliberate government policy, for the reasons summarised by Ms Krahé in the passage quoted above; and she says that the same point was made on other occasions in the same debate and in the debate on the approval of the Regulations. At para. 28 she says:
"The Secretary of State decided to use the monthly assessment period … as the central component of UC. Accordingly, all entitlements are calculated on this basis, including, for present purposes, the application of the benefit cap. Other periods were considered, but resulted in other issues regarding entitlement which were likely to be detrimental to individuals and to undermine the social policy objectives of UC."
"Taking earnings into account in the assessment without averaging or attribution – As a first principle we want to reflect the cash flow into the household by taking into account the amount of earnings received in the assessment. For the majority of straightforward cases this will mean there is no need to apply complex averaging or attribution rules."
That recommendation was accepted, and we have seen that it is reflected in the definition of "earned income" in regulation 54. The insistence on basing entitlement on actual receipts in the assessment period – which in the case of RTI employers can be taken straight from their returns – is of course linked to the fact that the entire UC system is, so far as possible, automated, which, as Ms Krahé says at para. 31, removes "error, potential fraud and attribution rules which would result in over and under payments". This point is amplified in para. 77 of the judgment of Rose LJ in the case of Johnson which I discuss below.
"(a) It is based upon an assessment period, as is the case for all other aspects of the calculation.
(b) It supports a fundamental principle of UC by reflecting the cash-flow of the household in the assessment period rather than the number of hours that a person is working.
(c) It uses RTI, which allows for an automatic calculation and is therefore efficient. UC is not designed to collect information regarding number of hours worked.
(d) It provides for additional flexibility where, for example, a person might be able to secure employment at a higher rate and therefore choose to work fewer hours.
(e) A fixed amount can be changed in future with minor adjustments.
(f) The original fixed amount (described below) was a clear comparison with the level at which lone parents could access Working Tax Credit. It was recognised that the benefit cap would apply to lone parents to a greater extent and as such this approach would assist with smooth transition between the old and new systems."
At para. 51 she exhibits a submission to the Minister identifying various options for defining the earnings threshold. The option chosen, as we have seen, was defined by reference to the amount that would be earned by a claimant working sixteen hours per week at the NLW rate.
"Accordingly, the DWP's position is that the current calculations are correct and in compliance with the law. The DWP is however always considering possible changes (consistent with the 'test and learn' philosophy) and this is one issue under consideration."
"12. It is not therefore possible with the current arrangements to process the 'pay cycle' data as part of the UC award. As I indicated in my first statement, the DWP is considering reforms in relation to pay cycles. However, this requires considerable input from policy, legal and technical stakeholders. It is not realistic to rely on the fact that HMRC is able to capture pay cycle data to conclude that UC decision makers can approach the calculations in the way suggested by the Claimants (i.e. by assuming that any salary payment which is paid with a 28-day 'indicator' will inevitably be paid in the same way on an ongoing basis).
13. The fundamental problem remains the need to maintain the integrity of the monthly Assessment Period structure which underpins UC and the need to base calculations upon actual data rather than predictions as to future earnings (which, in this context, are notoriously uncertain). Any reform needs to have regard to the complications of fluctuating pay patterns, multiple employment arrangements (with different patterns), and other forms of earnings and income."
"We need to consider [A] what are the disadvantages of deciding not to 'fine-tune' the Regulations thereby allowing the non-banking day salary shift problem to persist unresolved; [B] what are the disadvantages of adopting a solution to the non-banking day salary shift problem; [C] would a solution be consistent or inconsistent with the nature of the universal credit regime; and [D] has a reasonable balance been struck by the SSWP - or rather [D (1)] is it possible to say that no reasonable Secretary of State would have struck the balance in the way the SSWP has done in this case?"
(I have inserted the letters in square brackets for ease of reference.) Rose LJ structures her dispositive reasoning broadly by reference to those questions, though her headings depart from them to some extent.
"… [T]he choice of monthly assessment periods was based in part on the increasing prevalence of that salary cycle amongst the working population and because many household bills are payable monthly. Indeed, the alignment of the duration of the assessment period with household outgoings is intended to encourage responsible budgeting by low income claimants."
I should also note that at para. 46 she observed that "the happenstance of the date on which [the claimants] applied for universal credit results in them losing, several months each year, the entitlement to the work allowance which the Regulations clearly intend to confer on them".
"(i) that the supposed irrationality is based on a misconception because it aligns the assessment period with the period of a calendar month; (ii) there is a need for bright lines to ensure that the universal credit system operates in a coherent way; and (iii) it is important to ensure that the calculation of the monthly award of universal credit can take place in an automated way …".
She assesses those disadvantages in turn and (broadly) does not find them to be cogent. I need not summarise her detailed analysis. I should, however, quote para. 77, where she explains the importance of the calculation of UC being automatable:
"The witnesses on behalf of the SSWP emphasise the importance of the fact that benefit awards made each month are not calculated manually by DWP officers but are generated by a computer programmed to take the many and varied inputs about the claimant's family and financial circumstances and work out the award each month. The automation of the process is an important advantage of the universal credit regime over the legacy benefits system for a number of reasons. First, it generates substantial savings in the costs of administration thereby releasing more money to be paid out in benefits. Secondly, it enables the amount awarded to respond immediately to changes in circumstances; a payment made seven days after the end of the assessment period can take into account any changes reported by the claimant during that assessment period. Thirdly, the overall move to digitisation prompts claimants to develop skills which enable them to access other online services which they might previously have been reluctant to use. This may itself be a way of reducing poverty, for example enabling access to cheaper online services offered by utilities. In order to achieve that objective it requires simple and automatic processes."
It is clear that she accepts that evidence, although she goes on to find that adjustments could be made to accommodate non-banking-day salary shift within the automatic processes.
"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."
It will be noted that what was held to be unlawful was not the making of the Regulations themselves but the Secretary of State's refusal to put in place a solution to the problem caused by non-banking day salary shift once it was appreciated.
"113. I start by saying that I recognise, as does Rose LJ, the extraordinary complexity of designing a system such as universal credit, and that it necessarily involves a range of practical and political assessments of a kind which the Court is not equipped to judge. I also accept that in order to be workable any such system may have to incorporate bright-line rules and criteria which do not discriminate fully between the circumstances of different individuals. … For those reasons I fully accept that a Court should avoid the temptation to find that some particular feature of such a system is 'irrational' merely because it produces hard, even very hard, results in some individual cases.
114. However, for the reasons which Rose LJ gives, that is not a sufficient answer in this case. 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. … That impact is not the inevitable consequence of the application of some fundamental principle of the legislation. I of course understand that it is a fundamental principle that entitlement should be based on monthly receipts, however much a claimant's income may vary from month to month. But an adjustment specifically to address the non-banking day salary problem would not in any real sense undermine that principle: indeed it could be said to vindicate it, since the receipt of salary in the 'wrong' month because of the mechanics of bank payment is purely factitious (unlike other kinds of irregular payment discussed in argument). … If anything, the present operation of the scheme runs positively counter to its declared purpose, as Rose LJ points out at paras. 100-101. It follows that I cannot accept that there is no way in which an appropriate adjustment can be made without prejudicing the overall statutory purpose; and I agree with Rose LJ that there is nothing in the evidence to justify the conclusion that no solution can be devised without causing unacceptable cost or problems elsewhere in the system."
THE JUDGMENT OF GARNHAM J
(1) The first is the basic effect which I have outlined at para. 5 above. As he puts it at para. 52:
"… [T]he First Claimant is in continuous and regular employment, earning regular amounts of money throughout every assessment period. However, in 11 out of 12 assessment periods the Regulations treat her (and others in her position) as having earned less income for that period than is in fact the case, because of the dates on which she was paid. The result is that she receives substantially less UC, perhaps some £400 per month or 20%, less, than would be the case if she was paid monthly. That is, self-evidently, a very significant reduction for somebody of modest means. As Mr Drabble correctly puts it, the First Claimant is treated as if she were not working enough, when in fact she is. Then, once a year, the Regulations treat her as having almost double the income she has actually earned in that period."
(2) The second is that, contrary to the avowed legislative policy of encouraging work, the result of the 28-day cycle effect "discourages work when the work available is paid on a lunar month basis". He says at para. 53:
"The scheme is said to be designed to be responsive to changes in earned income, and to make work pay to the fullest possible extent. But in these circumstances, it is neither."
(3) The third is that the result of the 28-day cycle effect is that it "causes the First Claimant's household income to fluctuate dramatically once a year, making it difficult to budget": see para. 54. He notes that what he describes as "a similar phenomenon" was caused by the non-banking day salary shift and was part of the basis of the decision in Johnson.
(4) The fourth is that it will in the great majority of cases be impossible for UC claimants to persuade employers who pay on a 28-day cycle to shift to payment by the calendar month. Garnham J says, at para. 56:
"… [T]he idea of having to choose employment based, not on the nature of the work, but on the particular pay cycle operated by the employer seems to me absurd. The consequence is to give the UC scheme an appearance of arbitrariness."
He quotes a statement by Rose LJ, at para. 57 of her judgment in Johnson, that:
"It is … no part of the policy underlying universal credit to encourage claimants to base their employment choices on the salary payment date offered by a prospective employer. Yet that is what is happening for these Respondents."
(1) As regards the first disadvantage, at para. 59 he notes that payment on a 28-day cycle cannot possibly be described as "irregular".
(2) As regards the second, he quotes passages from paras. 73 and 75 of Rose LJ's judgment to the effect that although legislation often legitimately requires the drawing of "bright lines" that could not reasonably justify the "significant, predictable but arbitrary effects" resulting from non-banking day salary shift; and he says, at para. 62, that the same effects occur in the present case.
(3) As regards the need for systems to be automatic, he refers at para. 64 to a finding by Rose LJ that the computer programme employed for UC was sophisticated enough to be adjusted to accommodate non-banking day salary shift. At para. 65 he says:
"On the evidence in the present case, it is plain that some, at least, of the necessary computer software is in place and can readily be utilised. As noted above …, the data provided by employers to HMRC includes pay frequency. Presently, the DWP routinely receives only a subset of that data which does not include pay frequency; it is said that that information 'is not routinely accessible to operational delivery staff'. However, it is not suggested that other staff do not have access to that data or that it could not be made available."
"67. One important element of the UC regime was to align the assessment period with monthly payment and charging cycles. Rose LJ said at :
'… It is no part of the policy underlying universal credit to encourage claimants or employers to adopt a non-monthly salary cycle; on the contrary the choice of monthly assessment periods was based in part on the increasing prevalence of that salary cycle amongst the working population and because many household bills are payable monthly. Indeed, the alignment of the duration of the assessment period with household outgoings is intended to encourage responsible budgeting by low income claimants.'
68. I accept that accommodating a four-weekly salary cycle would not advance the behavioural change of encouraging people to plan their working lives around a monthly work and payment pattern, and that is a consideration in favour of the Secretary of State's present stance. But first, the weight to be attached to that consideration is somewhat reduced by the evidence discussed at  above to the effect that the data needed to manage four-weekly payments is already collected by HMRC. And second, that is not the only behavioural change in prospect. A solution to the lunar month problem would encourage people for whom the only employment available, or likely to become available, was paid four-weekly to take and keep such work, a central element in the UC regime.
69. I accept too that introducing a solution to the lunar month problem would make the UC process technically more complicated, although for the reasons discussed, it seems to me unlikely to be unmanageable. Furthermore, in my view, such a solution would make UC conceptually much simpler.
70. For the reasons discussed above, a solution to the lunar month problem would reduce disincentives to work, make the system fairer and reduce perverse incentives. In those respects, a solution of the lunar month problem would be consistent with the nature of the UC regime.
71. Ms Krahé says in her witness statement that the fundamental problem remains the need to maintain the integrity of the monthly assessment period structure which underpins UC and the need to base calculations upon actual data. But in my judgment the collection and deployment of the 'actual data' provided to HMRC would enable calculations to be made that not only respect the integrity of the monthly assessment period structure but enhance it by ensuring the calculation of income in each assessment period accurately represents actual receipts."
(1) After reviewing the evidence Garnham J concludes, at para. 74, that "there was no evidence that specific consideration was given to solving the lunar month problem as it is identified in the present proceedings".
(2) As to "size of the cohort" he finds that "payment in four-weekly periods is not uncommon", with "something like 13% of new UC claimants [being] in their last job paid 4-weekly (with a further 58% paid on other non-monthly but regular patterns which could be vulnerable to the same problem)": see para. 75.
(3) As to "the duration of the impact on the Claimants", he makes the point that the 28-day cycle effect arises in eleven out of every twelve months and will persist throughout a claimant's period of entitlement; see para. 76.
(4) As to the arbitrariness of the 28-day cycle effect, he says at para. 77 that "there is no evidence that the First Claimant was warned at the time she made her claim for UC of the potential effect of the fact that her employers paid her on a four-weekly basis" and goes on to quote a passage from her witness statement expressing how dismayed she was to discover that she was subject to the benefit cap despite working sixteen hours at national minimum wage and what a devastating impact that had and continued to have. (I note in passing that I am not sure that that point goes to arbitrariness.)
(5) As to the issue of disincentivising work, Garnham J notes at para. 78 that he has already addressed that.
"79. The consequence of the lunar month problem is that for 11 months out of 12 the First Claimant's earned income is treated as being her earnings for just 28 days. The result of that is that the benefit cap is applied, and her UC is reduced, by perhaps as much as 20%. As discussed above, the disadvantages of allowing the lunar month problem to persist are manifest and serious. By contrast, the principle [sic] suggested disadvantages cannot survive the analysis of the Court of Appeal in Johnson.
80. The importance of ensuring that the payment system can be automated is clear and not in dispute. During the hearing, much the most powerful consideration in favour of maintaining the status quo was the suggested difficulty in collecting and deploying the data necessary to enable the calculation of earned income in relevant assessment periods to be carried out automatically when payment had been made on a four-weekly basis. But that difficulty substantially disappeared when the further evidence was obtained from Ms Hargreaves and Ms Krahé [this is a reference to their second witness statements]. There was little evidence that the SSWP ever focused on the lunar month problem, as opposed to the general benefit of a universally applicable monthly assessment period, and nothing to suggest the possibility of solving that problem was ever considered and rejected.
81. In those circumstances, it seems to me that the outcome of the balance is obvious and irresistible. I cannot see how any reasonable Secretary of State could have struck the balance in the way the SSWP has done in this case."
"83. It is right to say that the Court of Appeal's conclusion in Johnson was expressly and deliberately confined to the specific problem of 'non-banking day salary shift'. Rose LJ said at  that 'the SSWP's refusal to put in place a solution to this very specific problem' was unreasonable. That conclusion was confined to the 'very specific problem' of 'non-banking day salary shift'. At  Rose LJ said, 'We are not concerned here with making an exception for people who are paid at frequencies other than monthly.'
84. In his concurring judgment Underhill LJ added, at ,
'…I regard this as a case which turns on its own very particular circumstances. It has no impact on the lawfulness of the universal credit system more generally.'
85. Mr Brown argues, against that background, that any extension of the Johnson approach to other pay cycles would reintroduce precisely the uncertainty which the Court of Appeal, in overturning the Divisional Court, were concerned to remove.
86. It is plain that the Court of Appeal was anxious, whilst correcting the unfairness and irrationality in cases such as Ms Johnson's, to preserve intact the structure and tenets of the UC scheme as approved by Parliament. But in my view, the principles the Court identified, and the essential logic of the argument they accepted, apply with equal force to cases of claimants paid on a four-weekly basis.
87. In fact, it can fairly be said that the logic applies with even greater force. First, four-weekly payments are genuinely and consistently regular; they do not incorporate the inevitable, if occasional, irregularity that comes with monthly payments as described by the Court of Appeal. Second, in monthly payment cases the difficulty arises in a few months each year; with lunar monthly cases such as the First Claimant's, it arises in 11 months out of 12. In those circumstances, it seems to me that the case for the Regulations making an exception for such claimants is even stronger than it was in Johnson. The one substantial ground on which a Secretary of State might reasonably decline to make such an exception is if the availability of data by RTI threatened the integrity of the automated processing of claims. And such evidence as there is points in the opposite direction on that issue."
THE TEST OF IRRATIONALITY
"The second ground on which the Lord Chancellor's Decision is challenged encompasses a number of arguments falling under the general head of 'irrationality' or, as it is more accurately described, unreasonableness. This legal basis for judicial review has two aspects. The first is concerned with whether the decision under review is capable of being justified or whether in the classic Wednesbury formulation it is 'so unreasonable that no reasonable authority could ever have come to it': see Associated Picture Houses Ltd v Wednesbury Corp  1 KB 223, 233-4. Another, simpler formulation of the test which avoids tautology is whether the decision is outside the range of reasonable decisions open to the decision-maker: see e.g. Boddington v British Transport Police  UKHL 13;  2 AC 143, 175 (Lord Steyn). The second aspect of irrationality/unreasonableness is concerned with the process by which the decision was reached. …"
Rose LJ observes that the challenge in Johnson was essentially of the first kind, and the same is true in this case.
"The common law no longer insists on the uniform application of the rigid test of irrationality once thought applicable under the so-called Wednesbury principle. The nature of judicial review in every case depends upon the context."
"[where a] … statute has conferred a power on the Secretary of State which involves the formulation and the implementation of national economic policy and which can only take effect with the approval of the House of Commons [my emphasis], it is not open to challenge on the grounds of irrationality short of the extremes of bad faith, improper motive or manifest absurdity".
As is evident from the italicised words, the ministerial orders which were in issue in that case were required to be approved by resolution of the House of Commons; and Lord Bridge evidently attached weight to that fact when identifying the appropriate standard of review. Lord Sumption made the same point at para. 44 of his judgment in Bank Mellat v Her Majesty's Treasury (no. 2)  UKSC 39,  AC 700, where he said:
"When a statutory instrument has been reviewed by Parliament, respect for Parliament's constitutional function calls for considerable caution before the courts will hold it to be unlawful on some ground (such as irrationality) which is within the ambit of Parliament's review. This applies with special force to legislative instruments founded on considerations of general policy."
Those observations were endorsed by Lord Reed in R (SG) v Secretary of State for Work and Pensions  UKSC 16,  1 WLR 1449, at para. 94.
"I recognise, as does Rose LJ, the extraordinary complexity of designing a system such as universal credit, and that it necessarily involves a range of practical and political assessments of a kind which the Court is not equipped to judge. I also accept that in order to be workable any such system may have to incorporate bright-line rules and criteria which do not discriminate fully between the circumstances of different individuals. … I fully accept that a Court should avoid the temptation to find that some particular feature of such a system is 'irrational' merely because it produces hard, even very hard, results in some individual cases."
I would add that the very complexity and difficulty of the exercise is bound to mean that following the implementation of the scheme it may become clear with the benefit of experience that some choices could have been made better. But it does not follow that the legislation was in the respect in question irrational as made, or that it would be irrational not to correct the imperfections once identified: the court cannot judge the lawfulness of such schemes by the standard of perfection. Whether any errors or imperfections are of such a nature or degree as to impugn the lawfulness of the relevant regulations must depend on the circumstances of the particular case, having regard to the appropriate intensity of review.
"There is a compelling reason to her this appeal, namely to determine whether Graham J.'s careful analysis in his judgment has carried the effect of R (Johnson) v Secretary of State for Work and Pensions  EWCA Civ 778;  PTSR 1872 beyond its intended scope, see paragraphs 83 to 86 of his judgment. I grant permission on all grounds."
THE PARTIES' CASES
DISCUSSION AND CONCLUSION
(a) the adoption of a threshold for disapplication of the benefit cap by reference to a minimum level of earned income rather than a minimum number of hours worked (regulation 82 (1) (a));
(b) the adoption of a calendar month as the period for the calculation of that earnings-related threshold (again, regulation 82 (1) (a)); and
(c) the definition of earned income in terms of actual receipts (regulation 54).
"[CPAG] recommended using existing arrangements for averaging earnings, which are currently used to determine whether claimants are earning enough to exceed the threshold for in work conditionality – if they are in-work but below the threshold they may be required to look for more work in order to receive UC and face sanctions if they do not continue to seek additional work. The averaging, which is done to make sure the system does not unfairly penalise people, currently has to be done manually. CPAG recommended the system be applied immediately due to the 'serious financial losses for affected claimants'."
The Committee noted at para. 88 that the Department's response was that it was aware of the problem and was looking into it. That is confirmed by Ms Krahé in para. 63 of her first witness statement: see para. 27 above. The proposal as summarised by the Committee is decidedly opaque, at least to the uninitiated. It was referenced in the Claimant's skeleton argument in the High Court but not there developed in any way. It is not referred to in Garnham J's judgment nor in the Claimant's skeleton argument in this Court or Mr Drabble's submissions before us. But, whatever its details, the reference to "averaging" suggests some form of deemed receipt of the kind discussed above.
(1) The threshold of irrationality in this case is high. I have identified the proper approach of the Court at paras. 54-59 above. In the present case, the features of the scheme which result in the pay cycle effect reflect important policy decisions made by the Secretary of State. Those choices are explicit on the face of the Regulations, which were approved by both Houses of Parliament.
(2) Mr Brown is clearly right in principle to point out that it is often necessary in a complex scheme of this kind to apply general rules or principles which will sometimes produce harsh results in particular cases ("bright lines", in the jargon): both Rose LJ and I made this point in Johnson – see paras. 72-73 and 113. However the threshold is defined, there will inevitably be UC claimants who miss out by a narrow margin.
(3) The effect is suffered only by UC claimants with the very specific characteristics identified – working exactly sixteen hours per week, at exactly the NLW rate, and paid on a regular pay cycle other than the calendar month; and who cannot realistically avoid it in one of the ways noted at para. 30 above.
(1) At para. 46 of her judgment Rose LJ said that the claimants were losing a benefit "which the Regulations clearly intend to confer on them". That was a fair observation in the circumstances of Johnson but it has no application here. The Regulations clearly do not intend that the disapplication of the benefit cap should be calculated by reference to sums received in a period other than the calendar month. The Claimant's argument has to be that that is, as a matter of rationality, what they should have intended; but that is another matter.
(2) A central part of the Secretary of State's case in Johnson was that the non-banking-day salary shift problem could only be solved by manual intervention on a case-by-case basis, which was contrary to the important principle that the calculation of entitlement should be automated. The Court rejected that contention not because it did not recognise the importance of automation but because it found as a matter of fact that the necessary adjustments could (at least in due course) be incorporated in the relevant software, given that the only relevant variable, i.e. the incidence of non-banking days, was wholly predictable – see paras. 81 and 82 of Rose LJ's judgment. Any revisions to the software to address the pay-cycle effect would have to be of a different character and would almost certainly be a good deal less straightforward. But the real point is that the problems identified by Ms Krahé go beyond difficulty of automation and are ultimately based on the difficulties of departing from the straightforward and fundamental principle of working on the basis of actual receipts.
Note 1 When this judgment was circulated in draft, counsel for the Claimant suggested that the Court might wish to record “that in comparison with monthly-paid workers, 4-weekly paid workers are likely also to experience reduced UC in the 12th month (albeit in that month because of artificially high income, rather than the benefit cap)”. Counsel for the Secretary of State did not accept that that was an accurate characterisation of the position. I need not explore the issue because it was common ground that the point does not affect the basis on which we have decided the case. [Back] Note 2 Ms Krahé does not directly address the question of why sixteen hours was chosen as the figure on which that calculation is based. Mr Brown told us that the same threshold was used for the hours-related threshold under Working Tax Credit, but he was unable to follow the trail further back (though he referred us to a rather opaque reference in a report from the Social Security Advisory Committee to “the design of labour market contracts”). Mr Drabble suggested that the sixteen-hour threshold might have its origins in the threshold between “full-time” and “part-time” work historically used for entitlement to employment protection rights. Fortunately, it was common ground that the explanation for the choice was not central to the issues before us. [Back] Note 3 Garnham J describes the statement as being “in response” to Ms Hargreaves’ statement; but I think this is a slip, since it was filed only a day later and she does not refer to it.
[Back] Note 4 Although she refers specifically to a 28-day cycle, the issue is the same in the case of claimants paid on a weekly or fortnightly cycle. [Back] Note 5 For the same reason I will not enter the debate about whether “unreasonableness” is a better label for the ground of judicial review with which we are concerned than “irrationality”, as has been suggested in some recent authorities. In truth, neither term is without its problems.
[Back] Note 6 For convenience I refer to the Secretary of State by the gender of the current incumbent. [Back] Note 7 There would be a single pay day if they were paid four-weekly, but four or two if they were paid weekly or fortnightly. Theoretically there could be regular pay cycles by reference to periods other than a week, but they will be too rare to justify consideration. [Back]
Note 1 When this judgment was circulated in draft, counsel for the Claimant suggested that the Court might wish to record “that in comparison with monthly-paid workers, 4-weekly paid workers are likely also to experience reduced UC in the 12th month (albeit in that month because of artificially high income, rather than the benefit cap)”. Counsel for the Secretary of State did not accept that that was an accurate characterisation of the position. I need not explore the issue because it was common ground that the point does not affect the basis on which we have decided the case. [Back]
Note 2 Ms Krahé does not directly address the question of why sixteen hours was chosen as the figure on which that calculation is based. Mr Brown told us that the same threshold was used for the hours-related threshold under Working Tax Credit, but he was unable to follow the trail further back (though he referred us to a rather opaque reference in a report from the Social Security Advisory Committee to “the design of labour market contracts”). Mr Drabble suggested that the sixteen-hour threshold might have its origins in the threshold between “full-time” and “part-time” work historically used for entitlement to employment protection rights. Fortunately, it was common ground that the explanation for the choice was not central to the issues before us. [Back]
Note 3 Garnham J describes the statement as being “in response” to Ms Hargreaves’ statement; but I think this is a slip, since it was filed only a day later and she does not refer to it. [Back]
Note 4 Although she refers specifically to a 28-day cycle, the issue is the same in the case of claimants paid on a weekly or fortnightly cycle. [Back]
Note 5 For the same reason I will not enter the debate about whether “unreasonableness” is a better label for the ground of judicial review with which we are concerned than “irrationality”, as has been suggested in some recent authorities. In truth, neither term is without its problems. [Back]
Note 6 For convenience I refer to the Secretary of State by the gender of the current incumbent. [Back]
Note 7 There would be a single pay day if they were paid four-weekly, but four or two if they were paid weekly or fortnightly. Theoretically there could be regular pay cycles by reference to periods other than a week, but they will be too rare to justify consideration. [Back]