Court of Appeal: Underhill VP, Andrews and Warby LJJ, [2021] EWCA Civ 1482, 13 October 2021

This was an appeal from the decision of the High Court discussed in a previous post. In brief, the High Court (Chamberlain J) ruled that the requirement that the childcare element (CCE) of Universal Credit (UC) could be paid to applicants only after they had actually paid for childcare, rather than becoming liable so to do (“the proof of payment rule”), was unlawful because it discriminated indirectly against women contrary to Article 14 ECHR read with Article 8 and/or A1P1, also because it was irrational. Andrews LJ, with whom Underhill VP and Warby LJ agreed, allowed the Secretary of State’s appeal on both grounds, despite having followed the approach of the Supreme Court in R (SC) v Secretary of State for Work and Pensions [2021] UKSC 26, [2021] 3 WLR 428 (see associated post) to the question of justification. Having stated at §11 that “Much of the Judge’s legal analysis is exemplary”, Andrews LJ concluded nonetheless that “the Judge did fall into material error when he sought to apply the principles he identified to the evidence in this case, and … there are deficiencies in the reasoning which led him to conclude that the Rule was indirectly discriminatory and irrational.”

At §25 Andrews LJ referred to the judgment of Lord Reed with which the other members of the Supreme Court agreed) in R (SC) v Secretary of State for Work and Pensions, §37 as “[t]he most recent authoritative statement of the nature of indirect discrimination in the context of Art 14. She acknowledged the shift in approach to justification of the Supreme Court in SC (namely, the retreat from the “manifestly without reasonable foundation” approach in cases concerning economic and social issues), though she also emphasised the statement of Lord Sumption in Bank Mellat v HM Treasury [2013] UKSC 38, [2014] AC 700 §44, specifically endorsed by Lord Reed in R (SG and others) v Secretary of State for Work and Pensions [2015] UKSC 16, [2015] 4 All ER 939 §94, that “When a statutory instrument has been reviewed by Parliament, respect for Parliament’s constitutional function calls for considerable caution before the courts will hold it to be unlawful on some ground (such as irrationality) which is within the ambit of Parliament’s review. This applies with special force to legislative instruments founded on considerations of general policy.”

Andrews J rejected the argument put for the Secretary of State that Chamberlain J had erred in finding that the treatment in issue fall within the scope of Art 8 and A1P1, stating that it was “always an ambitious submission, at least so far as Art 8 was concerned, in the light of the analysis of Leggatt LJ in the Court of Appeal in R (SC) v Secretary of State for Work and Pensions [2019] EWCA 615, [2019] 4 All ER 787, particularly at [57], which the Judge had carefully followed [and] … impossible to sustain in the light of Lord Reed’s observations on that issue” at §41 of SC. Andrews LJ was, she acknowledged at §44 “more doubtful than the Judge was that the alleged discrimination fell within its ambit” though it was “unnecessary to reach a firm conclusion about this matter, because he was undoubtedly right about Art 8”. She found, however, that he judge had erred in accepting that the claimants (women in receipt of CCE) were in a relevantly similar position to those in receipt of the Housing Costs Element (HCE) of UC (to which the proof of payment rule did not apply), and that the proof of payment rule therefore had a disproportionately negative impact on women. The correct comparators were, she stated at §49, “men who were eligible to receive the CCE… not all claimants of UC, let alone claimants of the HCE”. And at §52 “Even if one takes the more generous approach to comparators that has been adopted in Strasbourg, people claiming the HCE are not in a ‘relevantly similar’ situation to people claiming the CCE. This is not just because the terms which apply to those disparate elements of UC are different. Housing costs are not directly comparable to childcare costs… Housing costs reflect a need which is basic, continuous and broadly the same… The evidence demonstrated that the element of fluctuation in childcare costs is inevitably far greater, with more scope for error if payment is made when a liability is incurred rather than after it has been discharged”.

Andrews LJ went on to rule, though with reservations, that Chamberlain J had been entitled on the evidence to find in the alternative that if the correct comparator group comprised men in receipt of the CCE the proportion of women who were able to comply with the Proof of Payment Rule was bound to be substantially lower than the proportion of men who could (see §§59-77). In reaching this conclusion she expressed doubts about the reliance which could be placed on evidence that parents claiming UC had difficulties in paying childcare providers out of their own resources, (because it “did not explain why they were having such difficulties. Nor did it suggest that female claimants were less able to afford the payment than male claimants”). She was of the view that evidence that single mothers’ median earnings were substantially lower than those of single fathers (just over £8 and £13 per hour respectively) did not materially assist because an upper earnings limit applied to all UC claimants and because lower earners benefitted more from UC payments than those on higher hourly rates (§65). She had “grave doubts” about Chamberlain J’s view that some reliance could be placed on the general gap between male and female wages, despite the fact (§68) that he “did not fall into the trap of assuming that the same discrepancy would be shown by the data for single parent UC claimants, if that data had been made available”. She stated at §75 that “A person’s take-home pay is only one factor” in determining “whether an individual can or cannot afford to pay for something out of their own resources”, though at §76 she accepted that it was “probably the most substantial one”. Having noted at §75 that “The question for the Court of Appeal is not whether we would have drawn the same inference as the Judge, but whether the inference that he drew was one that was open to him she concluded at §77 “not without some hesitation, that looking at all the evidence in the round … the Judge was entitled to reach the conclusion that he did. Whilst a broad comparison of earnings between male and female single parents eligible to claim the CCE did not provide all the information necessary to enable him to conclude how many females within that group would be unable to afford to make the initial childcare payment, when all the evidence was taken in the round, there was just enough information to support the inference that significantly fewer women than men are likely to be able to afford to do so, and that was enough to raise a prima facie case of indirect discrimination”.

Chamberlain J had directed himself at §167 on the basis of Bank Mellat and gone on to rule (while making explicit reference to the “manifestly without reasonable foundation” threshold that the intensity with which the Court would review the asserted justification for the measure depended on the context (§167), identifying as relevant to determining the appropriate intensity of review (i) the nature of the ground of differential treatment, (ii) whether and to what extent the matter involved a real socio-economic policy choice present to the mind of the decision-maker, and (iii) whether and to what extent the measure had been approved by Parliament. The respondent challenged his approach to justification on the basis that he had applied an unduly strict standard of scrutiny (despite having referred to the “manifestly without reasonable foundation” threshold); he had impermissibly examined whether the decision-maker had confronted the problem and considered solutions; and he had not been entitled to consider whether an alternative rule existed which would have solved or ameliorated the problem.

At §85 Andrew LJ characterised Chamberlain J’s approach to the relevant legal principles as “prescient. It epitomises the ‘balanced approach’ to justification subsequently articulated by Lord Reed in SC. He rightly recognised that this was a case where the requirement for ‘convincing and weighty reasons’ by way of justification remained, notwithstanding the degree of deference to be afforded to the decision-maker, because the measure under challenge was an aspect of a welfare benefit”. She ruled at §89, however, that he had erred in his approach to the second “intensity” question: “All that the evidence needed to show in order to establish that factor was that Ministers expressly considered and decided to adopt the Proof of Payment Rule as part of the structure of the CCE”. Andrews LJ was satisfied on the evidence (§91) that “Ministers were … aware of issues that had been raised about the proposal that payment of the CCE would be made in arrears as part of the UC award, and that claimants would have to find the money for initial payments from their own resources. They adopted the model for delivery of the CCE, including the Proof of Payment Rule, notwithstanding those concerns”. It was not, she said, necessary that ministers had considered and rejected “all alternatives for delivery of the CCE, including a proof of liability rule”. The judge had misdirected himself on the basis that this was the choice presented to ministers at the time whereas no such selection had in fact been made (§§92-93), nor had it been suggested at any point prior to the claimants’ skeleton argument below that it had.

 “99. That error led the Judge to apply a greater degree of intensity of review than was actually warranted. In fact, this was a classic example of a case in which a substantial degree of deference should have been afforded to the judgment of the decision-maker, especially as the impugned measure had been subjected to Parliamentary scrutiny, notwithstanding that this deference would be tempered to some extent by the fact that the ground of discrimination complained of was on the basis of sex, which would require more cogent reasons to justify it than if the differential treatment were on the basis of some other non-suspect ground”.

At §100 Andrews LJ concluded that the answer to the second Bank Mellat question “was plainly yes”. Chamberlain J had not dealt with the second to fourth questions separately but in Andrew LJ’s view the third question was (§101) “the key question in this case. It is an objective question, but the Judge did not address it, because he focused instead on whether there was justification for a hypothetical (and non-existent) subjective decision to choose one system over another. He made no finding that a proof of liability rule would be as simple, easy to understand or as good at avoiding fraud or errors of over- or under-payment, simply observing that it was “not obvious” why a system of awards based on liability to pay would be any more likely to achieve those aims than a system based on proof of liability to pay. That placed an unwarranted burden on the Secretary of State to demonstrate why an alternative system was not chosen, rather than to justify the system that was.”

Her Ladyship stated at §102 that there was “a self-evident simplicity and certainty about a system of reimbursement for childcare that has already been paid for” and at §103 that “a rule based on proof of liability to pay would [not] be as simple, or as good at avoiding errors, as a rule based upon proof of what was actually paid”. At §§105 to 107 she concluded that the Judge had fallen into speculation as to the possible shape of a system based on proof of liability but “reached no conclusion on the question whether such a system would make a difference in terms of achieving the objective of getting people back to work. At most, he found that such an alternative measure might be capable of addressing the problem identified by the claimant, but only if the market reacted favourably to it. There was no basis for concluding on the evidence that the postulated alternative measure would achieve a different practical outcome for single mothers, and the Judge did not reach that conclusion. Indeed, such evidence as there was about the attitude of the market providers suggested that they would not react favourably to the idea of waiting for payment (even though payment by the State reduces the credit risk)…”. At §§109-110 she concluded that “the third Bank Mellat criterion was not met” and that “the broad-brush nature of the inference drawn by the Judge that substantially more female claimants than male claimants would be unable to afford to meet the Proof of Payment Rule made it that much harder to condemn that Rule as disproportionate.  In circumstances in which there was no evidence that a significant number of claimants were even affected, and there was no means of gauging how severe the impact was on them, it would have required compelling evidence to justify a conclusion that the third Bank Mellat criterion was satisfied… On a proper analysis of the evidence there was only a slender and improbable prospect that single female claimants of CCE might be any better off under a proof of liability rule. A measure cannot be impugned as a disproportionate interference with a protected right on the basis of such a conditional and speculative finding.”

Claimant: Chris Buttler QC and Jessica Jones, instructed by Leigh Day

Respondent: Clair Dobbin QC and Ruth Kennedy, instructed by the Government Legal Department