Salvato, R (On the Application Of) v The Secretary of State for Work And Pensions

Factual and Procedural Background

The Welfare Reform Act 2012 introduced Universal Credit ("UC"), replacing various benefits with a single, monthly payment system designed to simplify welfare and encourage work. UC includes a childcare costs element ("CCE"), payable only after claimants have paid for childcare, known as the "Proof of Payment Rule". The claimant, a single mother, challenged this rule as indirectly discriminatory on grounds of sex and irrational, arguing it forced claimants to incur debt before receiving reimbursement, thereby hindering work. The initial judge found the rule indirectly discriminatory and irrational. The Secretary of State for Work and Pensions appealed against this decision on five grounds, focusing primarily on whether the Proof of Payment Rule was objectively justified as proportionate to legitimate aims such as reducing fraud and simplifying administration.

Legal Issues Presented

1. Whether the Proof of Payment Rule constitutes unlawful indirect discrimination on grounds of sex contrary to Article 14 read with Article 8 and/or Article 1 of Protocol 1 to the ECHR.
2. Whether the Proof of Payment Rule is irrational.
3. Whether the Proof of Payment Rule falls within the ambit of the relevant Convention rights to engage Article 14.
4. Whether the judge erred in his approach to objective justification and proportionality of the Proof of Payment Rule.
5. Whether the judge erred in his comparison of the Proof of Payment Rule with other elements of UC, particularly the housing costs element.

Arguments of the Parties

Appellant's Arguments (Secretary of State)

• The Proof of Payment Rule is a legitimate socio-economic policy aimed at reducing fraud and error and simplifying the UC system.
• The rule is rationally connected to its objective and proportionate, given the complexities of childcare costs and the structure of UC payments.
• The judge applied an unduly strict scrutiny level and mischaracterised the measure by requiring the Secretary of State to justify rejection of hypothetical alternatives that were never considered by Ministers.
• The evidence did not support a finding that the rule disproportionately prejudices women in a way that could not be objectively justified.
• The claim that the rule is irrational is misplaced; the rule fits within the overall scheme of UC and no reasonable Secretary of State would have taken a different decision.

Appellee's Arguments (Claimant)

• The Proof of Payment Rule indirectly discriminates against women, particularly single mothers, by requiring upfront payment of childcare costs which many cannot afford.
• The rule creates a "Catch-22" situation, forcing claimants to incur debt to pay for childcare before receiving reimbursement, undermining the objective of encouraging work.
• The rule is irrational because it fails to justify why payment must be made only after actual payment rather than on proof of liability to pay.
• The judge was correct to find the rule disproportionate and lacking objective justification.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by confirming that the Proof of Payment Rule falls within the ambit of Article 8 of the ECHR, as it concerns a benefit supporting family life, thereby engaging Article 14. It was more doubtful whether Article 1 of Protocol 1 was engaged, but this was unnecessary to decide. The court analysed whether the rule constituted indirect discrimination on grounds of sex, focusing on whether it disproportionately prejudiced women.

The judge below had erred by using an incorrect comparator group and by conflating different welfare elements (childcare costs element versus housing costs element). The correct comparator group is men eligible for the childcare costs element. The evidence showed that most claimants receiving the childcare costs element are women, primarily single mothers, but the court found insufficient robust evidence to conclude that women were less able to meet the Proof of Payment Rule due to their sex. While median earnings data suggested women earn less than men broadly, this did not necessarily apply within the claimant cohort, and Universal Credit is designed to supplement lower earnings, mitigating disparities.

The court found that the judge had mischaracterised the nature of the measure when assessing objective justification, expecting the Secretary of State to justify the rejection of a proof of liability rule, which was never considered by Ministers. The actual issue was whether the Proof of Payment Rule itself was a proportionate means of achieving legitimate aims such as reducing fraud and error and maintaining simplicity. The court concluded that the rule was rationally connected to these aims and that no less intrusive, equally effective alternative had been demonstrated.

The court rejected the argument that the rule was irrational, distinguishing the present case from previous cases where irrationality was found due to arbitrary or unaddressed harms. The Proof of Payment Rule fits within the overall architecture of Universal Credit, which pays benefits in arrears, and there was no evidence that no reasonable Secretary of State could have adopted it.

Holding and Implications

The court ALLOWED the appeal and dismissed the claimant's case.

The Proof of Payment Rule requiring prior payment of childcare costs before reimbursement under Universal Credit does not unlawfully discriminate on grounds of sex and is not irrational. The decision affirms the deference courts must afford to socio-economic policy choices made by Ministers and Parliament in welfare benefit schemes. The ruling does not establish new precedent beyond confirming the application of established principles of indirect discrimination, objective justification, and rationality in the context of welfare benefits administration. The direct effect is to uphold the current operation of the childcare costs element within Universal Credit.