The court found on Friday that the way the DWP has been assessing income from employment through its Universal Credit work assessment periods is unlawful.

Lord Justice Singh and Mr Justice Lewis ruled that the DWP has been wrongly interpreting the Universal Credit regulations. They said in their judgment that treating claimants as having earned twice as much as they do if they happen to receive two pay cheques in one monthly assessment period,  and as having no earnings in the next assessment period is “odd in the extreme” and “…. could be said to lead to nonsensical situations”.

They added that the DWP’s incorrect interpretation of the regulations had caused “…severe cash flow problems for the claimants living as they do on low incomes with little or no savings”.

The case came as work and pensions secretary Amber Rudd announced a raft of changes to the flagship policy including a decision to scrap the extension of a benefits cap to 15,000 families with more than two children.

The judicial review case, brought by solicitors Leigh Day and Child Poverty Action Group (CPAG) on behalf of four lone mothers, challenged the rigid, automated assessment system in Universal Credit which meant the mothers lost several hundreds of pounds each year and were subject to large variations in their universal credit awards because of the dates on which their paydays and Universal Credit ‘assessment periods’ happened to fall.

The mothers all had monthly paydays that ‘clashed’ with the dates of their monthly un Universal Credit assessment periods, with the result that if they were paid early some months, because their payday fell on a weekend or bank holiday for example, they were treated as receiving two monthly wages in one assessment period - which in turn dramatically reduced their Universal Credit award - and as receiving no wages at all the next month.

In addition to creating wildly fluctuating Universal Credit awards, when the mothers received two pay cheques in one assessment period, they lost the benefit of one month’s work allowance. The work allowance is the amount of earnings claimants with children or with limited capability for work can keep in full before Universal Credit is tapered away at a rate of 63p per pound, worth hundreds of pounds each year.  

Solicitors from Leigh Day said this flaw in the system has denied working parents the additional financial support that they are entitled to so as to help them in work and ensure that work always pays.

The DWP refused to adjust the mothers’ assessment periods or to attribute monthly wages paid early to the actual assessment period in which they were earned, so as to enable them to avoid varying awards and cash losses. During the court proceedings the Secretary of State argued that despite the hardship being caused, the way in which income was being assessed was lawful, it made sense given the automated nature of Universal Credit and that this was an issue which employers should remedy rather than the DWP.

All of these arguments were rejected by the Court who found that correctly interpreted, the regulations mean the DWP can and should adjust its calculation of universal credit awards when “it is clear that the actual amounts received in an assessment period do not, in fact, reflect the earned income payable in respect of that period”. In other words, wages are to be allocated to the month in which they were earned, rather than to the assessment period in which they were received.

Although the DWP also sought to justify its lack of action on the basis that there would be extra costs involved in making adjustments to its systems, the court was clear that it must nevertheless comply with the regulations as correctly interpreted, stating: “If the regulations, properly interpreted, mean that the calculation must be done in a particular way, that is what the law requires. We do not belittle the administrative inconvenience or the cost involved but the language of the regulations cannot be distorted to give effect to a design which may have proceeded on a basis which is wrong in law.”

Tessa Gregory, solicitor from Leigh Day who represented the first claimant, said: “My client is a hard working single mum doing her very best to support her family. She is precisely the kind of person Universal Credit was supposed to help, yet the DWP designed a rigid income assessment system which left her £500 out of pocket over the year and spiralling into debt due to a fluctuating income. Quite rightly the Court has found that the Secretary of State has been acting unlawfully and ruled that a correct interpretation of the regulations would not lead to such absurd results.

“It is extraordinary that when this issue was first raised, the Secretary of State did not act quickly to remedy the problem, instead choosing to fight these four women in court arguing that the system was fit for purpose despite the hardship being caused to working families. This is yet another demonstration of how broken Universal Credit is and why its roll out must be stopped.

“In light of the judgment, Amber Rudd must take immediate steps to ensure that no other claimants are adversely affected and she should also ensure all those who have suffered because of this unlawful conduct are swiftly and fairly compensated.”

Commenting on the judgment, CPAG’s solicitor Carla Clarke added: “This is a very welcome and common-sense judgment which clearly establishes that the DWP has been applying its universal credit regulations incorrectly. Working parents on low incomes should not lose out on the support that Parliament intended them to receive because the DWP has designed a rigid process that is out of step with both actual reality and the law.

“Our clients have been doing everything they can to support themselves and their young children through work but the rigid assessment system in universal credit has caused them untold hardship, stress and misery with them being forced repeatedly to manage on half of their usual total monthly income despite their fixed outgoings remaining the same. They have each ultimately questioned why they are even working.

“That it should have required them to go to court to challenge the DWP’s position is a testament to their commitment to bring up their children in a working household but it is a situation they should never have been put in. Today’s result should mean that in future no one will lose out on their universal credit awards or face the hardship that my clients have faced simply because of when their payday happens to fall.”

A DWP spokesman said: “We are carefully considering the court’s judgment.”