The High Court judgment of R (Johnson, Woods, Barrett and Stewart) v SSWP EWHC 23 (Admin) involved a judicial review challenge to the method of calculating universal credit. The claimants successfully demonstrated that the DWP’s method of calculation was an incorrect interpretation of the Universal Credit Regulations 2013 (the Regulations) as it failed to account for circumstances where workers’ pay dates do not converge with the fixed assessment periods under the universal credit scheme.
The Regulations stipulate that where an individual is working, they may retain a certain amount of their income and then a proportion of the remaining income is deducted from the amount of the universal credit for a particular assessment period.
The four claimants were paid monthly, usually on or around the last working day of the month. They had experienced occasions where two pay days had fallen within one fixed assessment period. This resulted in fluctuating amounts of universal credit payable to them causing serious cash flow problems and financial hardship. It was argued that, had the defendant attributed each of the two months' salary to different assessment periods, the claimants would have been able to retain more of each month's salary before their universal credit was reduced.
The judicial review challenge was based on the method of calculation being irrational and/or ultra vires as it failed to promote the policy and objectives of the underlying statute, the Welfare Reform Act 2012.
The Court however first considered whether the DWP’s approach in treating the combined salaries received in one assessment period as earned income for the purposes of calculating the amount of universal credit for that period despite the salaries relating to separate months’ work. The Court found that the DWP had incorrectly interpreted the Regulations. The proper interpretation of the Regulations is that the amount of the earned income of a claimant in respect of an assessment period is to be based on, but will not necessarily be the same as, the amount of earned income actually received in that assessment period. There will need to be an adjustment where the claimants actually received two months' salary in one assessment period but the combined salaries do not, in fact, constitute earned income in respect of the period of time included in that assessment period.
The Court said circumstances where claimants are treated as having ‘earned’ twice as much if they happen to be paid twice within one monthly assessment period is “odd in the extreme”, but did not go so far to say that it would be unfair or irrational. The Court stressed that the DWP’s interpretation of the Regulations could lead to “nonsensical situations”. The DWP had therefore incorrectly interpreted the Regulations and the claim for judicial review succeeded on this basis. The Court did not therefore need, or believe it would be helpful to, go on to consider if the approach was irrational or ultra vires. Such a rigid interpretation of the Regulations was simply incorrect.