Universal Credit childcare payment system indirectly discriminates against women
8 February 2021
R (Salvato) v Secretary of State for Work and Pensions  EWHC 102 (Admin)
As any working parent will tell you, childcare is expensive. Unlike in some other European countries, there is no universal provision of free or affordable childcare for school age children in the UK. This can create a barrier for parents, especially lone parents, returning to work.
There is some support in the system of universal credit, a means-tested benefits for families on low income. This provides for a childcare costs element (CCE), which allows eligible claiming parents to be re-imbursed up to 85% of the costs of childcare.
However, the system has a flaw. Unlike other parts of universal credit, such as the housing costs element (HCE), a claimant is entitled to be paid the CCE only if she has already paid the charges, rather than merely incurred them (the ‘Proof of Payment rule’). This means that a parent claiming the CCE (who is disproportionately more likely to be a woman) must first pay her childcare provider and then re-claim the costs several weeks afterwards. Some may not be able to afford to do so.
Ms Salvato is one such lone mother, who brought judicial review proceedings claiming that the differential method for reimbursing childcare costs constituted indirect discrimination against women contrary to Article 14 (read with Article 8 and/or Article 1 Protocol 1) ECHR and was irrational at common law. The Administrative Court agreed on both grounds.
The childcare trap
The Claimant, who has an 11-year-old daughter, took a full-time job working 37 hours per week. Her net monthly take-home pay was around £1,900, but the cost of after school childcare was £377.40, increasing significantly in the summer holidays. As she could not afford to pay this up front, she entered into a “cycle of debt” and eventually had to reduce her hours, increasing her universal credit claim to cover the gap in her income. She told the Court:
Although the decision to reduce my hours in the summer brought an enormous relief because I no longer worried about childcare costs on a daily basis, it is also very frustrating because I want the opportunity to further my career and to increase my earnings and ultimately I would be less reliant on the welfare state if only I could get support for childcare costs in advance.
Differential payment method
The Claimant’s legal argument focused on the difference between the methods for calculating the HCE and the CCE. While the CCE is payable only in respect of childcare charges which the claimant has paid, the HCE is payable in respect of housing costs which the claimant is liable to pay.
The Claimant argued that the rule indirectly discriminates against women, who are disproportionately dependent on state-funded childcare to access the labour market (around 80% of those claiming the CCE are women) and are generally less able to afford childcare costs upfront. This discriminatory effect was particularly difficult to justify given the central aim of universal credit to encourage people into work.
The Secretary of State denied that the Claimant’s financial difficulties could be attributed solely to the need to pay childcare before being reimbursed by universal credit. She argued that the CCE was a benefit that was advantageous to women, largely taken up by women and designed to assist them into work. The Proof of Payment Rule flowed from the “architecture” of the scheme, which relied on a simple accurate system of monthly payments to mimic work and avoid fraud and error.
Chamberlain J found that the Proof of Payment rule indirectly discriminated against women. He accepted the Claimant’s evidence that it had contributed to making her materially worse off, both financially, psychologically and “ultimately in terms of her ability to realise her ambition to work full-time.” The Claimant had also presented credible evidence from “a broader range of informed sources than is seen in some other challenges of this kind” as to the prejudicial effects of the policy on women generally.
As to justification, the Proof of Payment Rule lacked a rational foundation. It was not obvious why a system of awards based on liability to pay (evidenced by an invoice) would be any more likely to result in error or fraud than a system based on actual payment (evidenced by a receipt). In both cases, the claimant had incurred a contractual liability to pay and the amount of that liability was fixed. The only difference was that, in the former case, the liability had not been discharged.
The system for housing costs showed that it was conceptually possible to have a system based on liability to pay (rather than actual payment) which is consistent with the universal credit principle of monthly payment in arrears, without disruption to the architecture of the scheme or additional cost to the Secretary of State. Childcare providers might be more willing to wait for payment if the CCE could cover charges incurred but not paid, because that would provide a greater assurance that the charges would be paid.
It was no answer to say that the CCE was “advantageous to women”, since women already suffer significant structural disadvantage in the extent to which their access to the labour market depends on being able to pay for childcare. The most that could be said is that the system went some way to address that structural inequality. However, that provided no justification for the Proof of Payment Rule, which was an unnecessary barrier to lone parents accessing the labour market, placing them at a “particular disadvantage.”
Accordingly, the Proof of Payment Rule was incompatible with Article 14 ECHR and irrational at common law.
This case is the latest in a series of successful judicial review challenges to various aspects of the payment rules for universal credit (see e.g. here and here), which highlight the inevitable difficulty in designing a radically new social security system from scratch. The Administrative Court has taken a relatively interventionalist approach to its scrutiny of the legislation under the Human Rights Act 1998 and at common law. In doing so, it has helped to iron out glitches in the system, and to ensure that it is broadly able to operate according to its stated aims and without disproportionate discriminatory effects.