Social security: Universal credit

The claimant single mother, who received universal credit, successfully challenged the ‘proof of payment rule’ pursuant to the Universal Credit Regulations 2013, SI 2013/376, the effect of which was that recipients had to find ways of paying childcare costs from their own funds, and only be reimbursed several weeks afterwards. The claimant wished to work, but she was unable to do so without help to cover childcare charges. The Administrative Court held that the proof of payment rule discriminated indirectly against women in the enjoyment of their rights under art 8 of, and/or art 1 of the First Protocol to, the European Convention on Human Rights. Further, the court held that insofar as the proof of payment rule lacked a reasonable foundation and was, therefore, not objectively justified, it was incompatible art 14 of the Convention, amounting to unlawful indirect discrimination on the ground of sex. The court also ruled that the maintenance of the proof of payment rule, insofar as it precluded a system where eligibility was based on liability to pay, was irrational.

The claimant was a single mother who received universal credit (UC), under the Welfare Reform Act 2012 (WRA 2012). She wished to work, but she would be unable to do so without help to cover childcare charges.

WRA 2012 s 12 provided that the calculation of an award of UC was to include amounts in respect of ‘such particular needs and circumstances of a claimant as may be prescribed’. The Universal Credit Regulations 2013 (the UC Regulations), SI 2013/376, prescribed the needs and circumstances, including ‘the childcare costs element’ (CCE). The mechanism used monthly ‘assessment periods’ and, in general, made payments in arrears. The effect of the UC Regulations was that a claimant was entitled to be paid the CCE as part of her UC award only if she had already paid the charges, rather than merely incurred them. Accordingly, claimants had to find ways of paying the charges from their own funds and they would only be reimbursed several weeks afterwards (the proof of payment rule). There was no such rule in relation to another element of UC (the housing cost element).

The claimant sought to work full-time, However, she contended that, because of the proof of payment rule, she could not afford to pay the fluctuating costs of childcare and, as a result, she had become indebted and ultimately had to reduce the number of hours she worked. The claimant brought a claim for judicial review against the defendant Secretary of State for Work and Pensions, challenging the decision to apply the proof of payment rule.

(1) Whether the proof of payment rule discriminated indirectly against women in the enjoyment of their rights under art 8 of, and/or art 1 of the First Protocol (A1P1) to, the European Convention on Human rights, thereby amounting to unlawful indirect discrimination on the ground of sex, contrary to art 14 of the Convention.

The question was not whether the claimant’s difficulties were attributable solely to the proof of payment rule, but whether that rule had had ‘prejudicial effects’ on her. That question had to be answered by comparing her actual position to the position she would have been in if the CCE had been payable on proof of liability to pay childcare charges. The claimant’s evidence established that the proof of payment rule was one of the operative reasons why she had to find other sources from which to pay childcare costs to the extent that the providers were unwilling to offer latitude. In that case, those other sources sometimes included interest-bearing loans. That meant that the proof of payment rule contributed materially to making her financially worse off than she would have been had advance payment of the CCE been available; and that it contributed materially to the ‘cycle of debt’ and the associated psychological effects she described (see [149] of the judgment).

The decision to apply the proof of payment rule had disproportionately prejudicial effects on women in two ways: first, the decision to make eligibility for the CCE (but not the housing costs element) dependent on proof of payment, adversely affected all those, in principle, entitled to the CCE, of whom more than 80% were women. Second, within the group who were, in principle, eligible for the CCE, the proof of payment rule was bound to have a greater adverse effect on women, than on men, because women, as a group, earned substantially less than men, as a group. It followed that women were substantially more likely than men to be denied access to the CCE because they did not have enough money to pay childcare charges out of their own funds before being reimbursed (see [159] of the judgment).

It was no answer to those points to say, as the Secretary of State did, that the CCE was ‘advantageous to women’. It would be more accurate to say that it went some way towards addressing a significant structural inequality: that women accounted for the great majority of the group whose access to the labour market depended on being able to pay for childcare (see [160] of the judgment).

By the same token, it did not assist the Secretary of State to point to the fact that the lone parent employment rate had steadily increased over the course of a decade. The court had no way of knowing to what extent that increase was attributable to the CCE. However, if the CCE was responsible for a significant part of the increase, that only served to emphasise its importance to lone parents seeking to access the labour market and, by extension, the likely impact of any rule which operated as a barrier to accessing it (see [161] of the judgment).

Applying settled law, the test was not whether the denial of the benefit had a direct and real effect on family life, but whether the benefit was a ‘modality of the exercise of the right guaranteed by art 8’. That, in turn, depended on whether it was ‘a way in which the state shows respect for children and the life of the family of which they are a part in circumstances where securing the family life of children is among the principal values protected by art 8’. The CCE was indeed a way in which the state showed respect for children and the life of the family of which they were a part. Discrimination in the way the benefit was paid was, therefore, discrimination within the ambit of art 8. It was too simplistic to regard the CCE as serving only economic interests. The purpose of the benefit was to break the cycle of worklessness, which blighted the life chances of children, as well as their parents (see [162]-[164] of the judgment).

As to A1P1, the test was whether, but for the condition of entitlement about which the applicant complained, he or she would have had a right, enforceable under domestic law, to receive the CCE. The condition of entitlement complained of was the proof of payment rule. The question, therefore, was not whether the claimant had a right to receive the CCE in advance of making payment herself, but whether, but for the proof of payment rule, domestic law would have given the claimant an enforceable right to receive the CCE. The answer to that question was ‘yes’. Unlike some other benefits, which depended, to a greater or lesser extent, on the exercise of discretion, both eligibility for the CCE and the amount of benefit payable were fixed by law by reference to the cost of the childcare, the number of children and the earnings of the claimant. Domestic law conferred on the claimant an entitlement to receive the benefit, subject to the proof of payment rule. If, as the court had found, the proof of payment rule was discriminatory, the discrimination was, therefore, within the ambit of A1P1 (see [165] of the judgment).

Thus, the proof of payment rule discriminated indirectly against women in the enjoyment of their art 8 and A1P1 rights. In those respects, it engaged the prohibition in art 14. It was therefore necessary to consider whether the rule was objectively justified (see [166] of the judgment).

Rutherford v Secretary of State for Trade and Industry [2006] UKHL 19 considered; DH v Czech Republic (Application 57325/00) 47 EHRR 59 considered; R (on the application of SC and others) v Secretary of State for Work and Pensions and others (Equality and Human Rights Commission Intervention intervening) [2019] EWCA Civ 615 considered; R (on the application of Adiatu and another) v Her Majesty’s Treasury [2020] EWHC 1554 (Admin) considered.

(2) Whether the proof of payment rule was objectively justified.

In a case where a measure had a differential effect as between protected groups, the question of objective justification depended on whether the measure which brought about the differential effect (i) had a legitimate aim; and (ii) was a proportionate means of achieving that aim. Assessing proportionality involved answering the four questions: (i) whether the objective of the measure was sufficiently important to justify the limitation of a protected right; (ii) whether the measure was rationally connected to the objective; (iii) whether less intrusive measures could have been used without unacceptably compromising the achievement of the objective; and (iv) whether, balancing the severity of the measure’s effects on the rights of the persons to whom it applied against the importance of the objective, to the extent that the measure would contribute to its achievement, the former outweighed the latter. In the field of welfare benefits, as in other areas turning on judgments of socio-economic policy, the test to be applied was whether the measure was ‘manifestly without reasonable foundation’. When the state put forward its reasons for having countenanced the adverse treatment, it established justification for it, unless the complainant demonstrated that it was manifestly without reasonable foundation. Where the ‘manifestly without reasonable foundation’ standard applied, the intensity with which the court would review the asserted justification for the measure depended on the context (see [167] of the judgment).

In the present case, the measure in question was the proof of payment rule or, more accurately, the decision to apply it to the CCE without exceptions (see [167] of the judgment).

Drawing the threads together, the decision not to deliver the CCE by direct payment to the childcare provider had been made by Ministers. By contrast, there was no evidence that the decision to make payment of the CCE dependent on proof of payment (rather than proof that the charges had been incurred) had ever been directly considered by Ministers. In considering whether that decision was manifestly without reasonable foundation, it was, therefore, not appropriate to apply a particularly wide discretionary area of judgment. However, the fact that the decision had been given effect in an instrument approved by Parliament, and the amended version had been laid before Parliament, had to be recognised when applying the test (see [172] of the judgment).

Applying settled law to the facts, having proactively examined the asserted justification for the proof of payment rule, and according the Secretary of State the discretionary area of judgment that was appropriate in the circumstances, insofar as the proof of payment rule lacked a reasonable foundation and was, therefore, not objectively justified, it was therefore incompatible with art 14 of the Convention(see [168]-[174] of the judgment).

Bank Mellat v Her Majesty’s Treasury [2013] UKSC 39 applied; Re an application by Denise Brewster for Judicial Review [2017] UKSC 8 applied; R (on the application of SC and others) v Secretary of State for Work and Pensions and others (Equality and Human Rights Commission Intervention intervening) [2019] EWCA Civ 615 applied; Langford v Secretary of Defence [2019] EWCA Civ 1271 applied; R (on the application of Drexler (by her father and litigation friend)) v Leicestershire County Council [2020] EWCA Civ 502 applied; R (on the application of the Joint Council for the Welfare of Immigrants) v Secretary of State for the Home Department (Residential Landlords Association and others intervening) [2020] EWCA Civ 542 applied.

(3) Whether the proof of payment rule was irrational.

The key question was whether a reasonable balance had been struck by the Secretary of State or, rather, whether it was possible to say that no reasonable Secretary of State would have struck the balance in the way the Secretary of State had done in the present case (see [175] of the judgment).

Applying settled principles to the facts, the maintenance of the proof of payment rule, insofar as it precluded a system where eligibility was based on liability to pay, was irrational (see [176]-[178] of the judgment).

The claim would be allowed (see [179] of the judgment).

Secretary of State for Work and Pensions v Johnson and others [2020] EWCA Civ 778 applied.

Chris Buttler and Jessica Jones (instructed by Leigh Day Solicitors) for the claimant.

Clair Dobbin (instructed by Department Work and Pensions Legal Services) for the Secretary of State.

Carla Dougan-Bacchus Barrister.