Secretary of State for Work & Pensions v SM

In these reasons:

Proceedings on this appeal were put in abeyance to await the decision of the Court of Appeal in Pantellirisco v Secretary of State for Work & Pensions [2021] EWCA Civ.

Once Pantellirisco had been decided, the case file for this appeal could not be found despite an extensive and time-consuming search at the Upper Tribunal’s London offices. This is only an informed guess, but it is possible that the file was mistakenly sent to be archived, or even marked for destruction, when it should have been kept in a cabinet in the London office used to store files while a case is stayed. Nowadays, this could not happen because the Upper Tribunal’s Administrative Appeals Chamber now uses electronic case files.

Whatever the reason for the case file’s disappearance, I apologise to the parties on behalf of the Administrative Appeals Chamber of the Upper Tribunal both for the disappearance of the file and the delay in deciding this appeal.

I am grateful to the Department for Work & Pensions for providing copies of their case papers, which has allowed a partial Upper Tribunal bundle to be recreated. The recreated bundle does not include all documents that must have been in the First-tier Tribunal’s bundle, such as the Secretary of State’s initial decision awarding universal credit. However, that does not prevent me from deciding this appeal. The First-tier Tribunal’s statement of reasons for its decision provides sufficient information about SM and her universal credit award to enable me to decide this appeal fairly.

In July 2024, case management directions gave SM the opportunity to provide a written reply to the Secretary of State’s appeal, including supplementary written arguments provided with reference to Pantellirisco. SM has not provided a written response to the Secretary of State’s appeal.

SM had an award of Universal Credit whose assessment period ran from the 27^th day of one month to the 26^th day of the next month. For the first nine months of her award, SM had the benefit of a ‘period of grace’ during which the social security benefit cap did not apply.

SM’s grace period ceased at the end of the assessment period 27 February 2020 to 26 March 2020. During the following assessment period, she had Covid-19 and was self-isolating. This depressed her earnings; normally she worked at a care home for 16 hours per week at a wage was £9 per hour. The benefit cap was applied to SM during her self-isolating assessment period, but she did not dispute that decision.

On 21 May 2020, SM received an earnings payment of £594, which the First-tier Tribunal said was her pay for working at the care home for four weeks. At that time, the monthly earnings required to remove a claimant from the benefit cap were £604.59 (or more).

For SM’s next assessment period, 27 April 2020 to 26 May 2020, the benefit cap was applied to SM, and £318 was deducted from the Universal Credit payment made to her on 2 June 2020. SM appealed to the First-tier Tribunal. She argued that, as a person working 16 hours per week for a wage just above the national living wage, should not have been subjected to the benefit cap.

Section 96(1) of the 2012 Act authorises regulations to provide “for a benefit cap to be applied to the welfare benefits to which a single person or couple is entitled”. The list of welfare benefits in section 96(1) includes universal credit. Section 96(4) authorises regulations to be made for a range of purposes connected to the benefit cap including provision for exceptions to the application of the benefit cap.

“Applying a benefit cap to welfare benefits” means securing that, where entitlement to welfare benefits in respect of the “reference period” exceeds the “relevant amount”, entitlement to welfare benefits is reduced “by an amount up to or equalling the excess” (section 96(2) of the 2012 Act).

For benefit cap purposes, “reference period” means “a period of prescribed duration” (section 96(3) of the 2012 Act). “Prescribed” means prescribed in regulations (section 96(10)). For the relevant regulations, see below.

Section 96(5) of the 2012 Act authorises regulations to provide for determination of the “relevant amount” for the applicable reference period, but this must be done by reference to the “annual limit applicable”. The annual limit is set out in section 96(5A), rather than in regulations. For persons resident outside Greater London, as was SM so I believe, the annual limit was “£20,000 or “£13,400”.

Section 8(1) of the 1998 Act provides that, subject to the provisions of Chapter II of Part I of the Act (sections 8 to 39), it shall be for the Secretary of State to decide any claim for a relevant benefit and, subject to section 8(5), to “make any decision that falls to be made under or by virtue of a relevant enactment”.

For the purposes of section 8 of the 1998 Act, universal credit is a relevant benefit.

Section 12 of the 1998 Act is headed “Appeal to First-tier Tribunal”, and it applies to any decision of the Secretary of State under section 8 of the Act which “is made on a claim for, or on an award of, a relevant benefit and does not fall within Schedule 2 to this Act” (section 12(1)(a)). A claimant has a right of appeal in the case of a decision to which section 12 applies (section 12(2)).

Schedule 2 to the 1998 Act was amended by section 96(7) of the 2012 Act. The amendment added the following entry in Schedule 2:

For the purposes of universal credit and the benefit cap, the “reference period”, mentioned in section 96 of the 2012 Act, is “the assessment period for an award of universal credit” (regulation 79(2)).

The general rule under the 2013 Regulations is that the benefit cap applies if the “welfare benefits” to which a person is entitled during the reference period (i.e. assessment period) exceed the “relevant amount” determined under regulation 80A, but the benefit cap is not applicable if regulation 82 or 83 applies (regulation 79(1)). Regulation 80 provides rules for determining total welfare benefit entitlement.

Regulation 80A(1) provides that the relevant amount is determined by dividing the applicable annual limit by 12. Regulation 80A(2) specifies different applicable annual limits for different categories of claimant. In 2020, these included:

“(c)

£13,400 for a single claimant not resident in Greater London who is not responsible for a child or qualifying young person;

(d)

£20,000 for—

(i)

joint claimants not resident in Greater London;

(ii)

a single claimant not resident in Greater London who is responsible for a child or qualifying young person.”

Where the benefit cap applies in relation to a universal credit assessment period, the general rule under regulation 81 is that the amount of the award reduced by:

“(a)

the excess; minus

(b)

any amount included in the award for the childcare costs element in relation to that assessment period”.

The meaning of “the excess” is defined by regulation 81(3) as the total welfare benefit entitlement for the reference period minus the relevant amount under regulation 80A.

Regulation 82 provides exceptions to the benefit cap by reference to earnings:

“(1)

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.

[…]”

At the date of the Secretary of State’s decision, regulation 4 of the National Minimum Wage Regulations 2015 provided as follows:

“The single hourly rate of the national minimum wage for the purposes of section 1(3) of the Act (“the national living wage rate”) is £8.72”

£8.72 x 16 x 52 / 12 = £604.59.

Regulation 54(1) provides the following rule:

“(1)

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.”

This case concerned a claimant who worked for 16 hours each week for the wage specified in regulation 4 of the National Minimum Wage Regulations 2015. She was paid four-weekly rather than monthly. The DWP applied the benefit cap / earned income provisions in the same way as in SM’s case. This meant that, over the course of a year, in only a single month were the claimant’s earnings sufficient to avoid the benefits cap.

The claimant brought judicial review proceedings in which she argued that the DWP’s decision in application of the benefit cap provisions of the 2013 Regulations, in particular regulation 82(1), was irrational and thus unlawful. The claimant succeeded in the High Court. The Court of Appeal allowed the Secretary of State’s appeal and set aside the High Court’s decision. The DWP’s earned income calculation was not irrational and unlawful in the case of employees paid on a four-weekly basis.

The Secretary of State for Work & Pensions applied for SM’s appeal to be struck out. The Secretary of State argued that the Tribunal lacked jurisdiction to hear the appeal because, in the Tribunal’s words, “a decision to apply the benefit cap is not an appealable decision”. The Tribunal rejected this argument:

“10…[SM] was not appealing against the decision to apply the benefit cap; instead she was appealing against the entitlement decision made on 27/05/2020, and specifically how her earnings had been calculated for the assessment period…the decision of 27/05/2020 was a decision made under s10 Social Security Act 1998. I therefore concluded that the Tribunal did have jurisdiction over the appeal.”

That aspect of the First-tier Tribunal’s is not challenged on this appeal.

The First-tier Tribunal went on to allow SM’s appeal. The Tribunal followed the High Court’s decision in Pantellirisco, ruled that the DWP’s earned income calculation in SM’s case, and consequent application of the benefit cap, was irrational and set it aside.

The First-tier Tribunal granted the Secretary of State permission to appeal to the Upper Tribunal.

Neither party requests a hearing before the Upper Tribunal decides this appeal.

The First-tier Tribunal adopted the High Court’s Pantellirisco analysis. That analysis was subsequently disapproved of by the Court of Appeal. The Secretary of State argues that the Court of Appeal’s decision is determinative, and the First-tier Tribunal’s decision cannot now stand. SM has not provided any counter argument. I agree with the Secretary of State that the First-tier Tribunal’s decision involved an error of law because it applied a legal analysis which the Court of Appeal subsequently held to be wrong. The First-tier Tribunal’s decision is set aside.

Given the Court of Appeal’s decision in Pantellirisco, SM’s appeal against the Secretary of State’s decision cannot succeed. There is no point in remitting this matter to the First-tier Tribunal. Instead, as set out above, I re-make the First-tier Tribunal’s decision and dismiss SM’s appeal against the Secretary of State’s decision.

This decision is not to be read as an approval of the First-tier Tribunal’s finding that it had jurisdiction to consider SM’s appeal. The point has not been argued before me, and I express no view on it.