Court of Appeal upholds Universal Credit childcare rules

15 November 2021 by Michael Spencer

Salvato v Secretary of State for Work and Pensions [2021] EWCA Civ 1482 — read judgment

The Court of Appeal has allowed the Secretary of State’s appeal against a ruling that the system of calculating childcare for Universal Credit indirectly discriminates against women. The judgment below was reported in the blog here.

Childcare costs under Universal Credit

This is a case about the payment of childcare costs under Universal Credit. Universal Credit claimants can claim an element reimbursing them up to 85% of the costs of childcare while they go to work.

Ms Salvato, a lone parent, claimed that the system for calculating childcare costs indirectly discriminated against her on grounds of sex contrary to Article 14 when read with Article 1 Protocol 1 of the European Convention on Human Rights. Her complaint related to the way in which childcare costs are calculated. Unlike other elements of Universal Credit, such as the housing costs element, the childcare costs element is only payable after the claimant has already paid the costs of the charges, rather than merely incurred them (Ms Salvato’s legal representatives dubbed this requirement the ‘Proof of Payment’ rule). She maintained that the rule placed her (and other women in her position) at a disadvantage, because unlike many men she could not afford to pay the childcare costs upfront. 

In the Administrative Court, Chamberlain J accepted that the rule indirectly discriminated against women on the basis that they are disproportionately dependent on state-funded childcare to access the labour market and are generally less able to afford childcare costs upfront. He held that the discriminatory effects of the rule had not been justified, because there was no evidence that a system based on receipts would be any more likely to avoid error and fraud than a system based on invoices.

The Court of Appeal’s judgment

Andrews LJ accepted, “not without some hesitation”, that the judge below was entitled to reach his conclusion that the rule indirectly discriminated against women. There was evidence from “various different organisations” that the Proof of Payment Rule created a real practical difficulty for women. However, it was held that the judge had been wrong to conclude that women faced greater barriers to work due to the Rule, purely on the basis of a “broad comparison of earnings” between male and female single parents.  

As to justification, the judge had correctly applied the four-stage approach Bank Mellat v HM Treasury (No 2) [2013] UKSC 39. As this was a case in the social welfare context, he had also correctly considered whether the measure was “manifestly without reasonable foundation”, while recognising that “weighty reasons” will be needed to justify sex discrimination.

The judge took a “wrong turn” however in considering whether the policy was the result of a deliberate policy choice. In fact, it had never been suggested to the Secretary of State, either at the time of policy formulation or in the pleadings, that childcare costs should be calculated by any alternative method. The pleadings had themselves focused on whether there should be exceptions to the policy.

This led the judge to apply the wrong level of scrutiny to the Secretary of State’s justification for the rule, in an area where there should have been a “substantial degree of deference.”  In the Court of Appeal’s view, the system as formulated was rationally connected to the aim of reducing scope for fraud and error and had a “self-evidence simplicity and certainty.”  On its face, therefore, the rule had a reasonable foundation, even though some single parent mothers may find it harder than some single parent fathers to comply when they first claim.

In any event, switching to a proof of liability system would only make a practical difference if the Universal Credit payment was made in time to enable the claimant to pay the childcare provider before the childcare was provided. This would cut across the “fundamental architecture” of a system based on payment in arrears (even the housing costs element is payable in respect of accommodation which has already been provided). No workable alternative system had therefore been put forward: even a system of payments based on invoices, would only benefit the impecunious if the childcare provider were willing to wait until the end of the assessment period for payment.

Accordingly, the proof of payment rule had a reasonable foundation and was therefore justified.

Given the lack of any proposed alternative, it was held that the judge below had also been wrong to find that it was irrational of the Secretary of State not to provide a solution to the problem. The Court of Appeal had recently applied a more restrictive approach to rationality in Pantellerisco v Secretary of State for Work and Pensions [2021] EWCA Civ 1454, a similar case involving the 28-day payment rule for Universal Credit and the application of the benefit cap. In overturning the Administrative Court’s ruling in that case, Underhill LJ had highlighted the “extraordinary complexity” of designing a new system and commented 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.

Commentary

Writing about Chamberlain J’s judgment in Salvato, I commented that the Administrative Court has taken “a relatively interventionalist approach” in its scrutiny of the Universal Credit legislation and noted that this was generally a good thing for the health of a new system designed from scratch. If its recent judgments in Salvato and Pantellerisco are anything to go by, the Court of Appeal apparently does not share that approach. It follows in the footsteps of the Supreme Court, which has also gone out of its way to show greater deference in social welfare matters in recent judgments (see SC v Secretary of State for Work and Pensions [2021] UKSC 26, covered on the blog here). 

It remains to be seen whether this heightened deference is a permanent feature of the law in this area, or specific to the facts of these cases. In the meantime, it will have to fall to Parliament to correct deficiencies and injustices in the design of the Universal Credit system.

Michael Spencer is a barrister at Doughty Street Chambers. He tweets @MikeSpencerLaw.