[2024] UKUT 131 (AAC)

Mr Yetman made a number of submissions as to both the narrower issue of the construction of the ESA Regulations 2008 and the wider context of the policy goals of the overall ESA scheme. As to the former, there is no warrant for reading in a qualification that ‘income’ means ‘income acquired from legitimate sources’. As to the latter, those submissions on behalf of the claimant did not address the elephant in the room, being the purpose of the means-test under the ESA regime. At its simplest, the means-test is designed to ensure that only those individuals with income and/or capital below certain set limits receive assistance from the State. None of Mr Yetman’s submissions dealt satisfactorily with what Mr Castle described as “the unanswerable question”, namely why a claimant engaged in criminality should in effect be exempt from the means-test and so entitled to benefit when a person undertaking precisely the same activity but in a lawful fashion should be excluded from benefit.

In this context it is also relevant to go back to two fundamental principles about the assessment of an individual’s resources for the purposes of the legacy means-tested benefit schemes (including ESA). The first such principle is that money resources are subject to a binary classification as being either capital or income – thus, there is nothing in between and so no ‘third way’ (see Social Security Commissioner decisions R(IS) 3/93 at paragraph 20 and R(IS) 9/08 at paragraph 23). The second such principle is that the category of unearned income in the ESA scheme (and in the schemes for the other means-tested legacy benefits) encompasses all forms of a person’s income which do not count as the income of an employed or self-employed earner. This all-embracing inclusionary approach stands in stark contrast to the newer state pension credit (SPC) and universal credit (UC) regimes, which specify what types of income are to be included as unearned income (see sections 15 and 16 of the State Pension Credit Act 2002 and regulations 15, 16 and 18 of the State Pension Credit Regulations 2002 (SI 2002/1792) as well as regulation 66 of the Universal Credit Regulations 2013 (SI 2013/376)). It follows that if a type of income is not listed as included within the ambit of either scheme then it is ignored and does not affect entitlement to either SPC or UC. For ESA, however, as for the other legacy benefits, all forms of income count in the application of the means-test, unless they are subject to a specific statutory disregard.

In the present case there are therefore arguably two alternative ways in which the DWP could take into account the claimant’s cash receipts for selling stolen bikes as income for the purpose of the ESA means-test.

The first way is as the earnings of a self-employed earner. Regulation 92(1) provides for an assessment “where a claimant's income consists of earnings from employment as a self-employed earner”. As to whether the claimant in this case was a ‘self-employed earner’ the same considerations apply as in the discussion above relating to ‘work’. ‘Earnings’ here “means the gross receipts of the employment” [as a self-employed earner] – see regulation 97(1). As noted above, regulation 98 then deals with the calculation of net profit for self-employed earners while regulation 99 concerns the deduction (where paid) of tax and national insurance contributions for self-employed earners. But as Mr Castle submitted, in principle at least this is not a complex calculation in the claimant’s case – on one side of the equation sat the gross receipts from sales of stolen bikes, while on the other side was the cost of acquiring such unlawfully-sourced bikes. Deducting the latter amount from the former sum provided a figure for the net profit generated by this criminal trade. I acknowledge such a calculation may undoubtedly prove evidentially challenging to undertake, but the principle is clear enough.

The second way, if there is some reason as to why assessment as a self-employed earner is inappropriate, is by way of an assessment of ‘income other than earnings.’ As Mr Castle submitted, regulation 91(1) distinguishes between “earnings derived from employment as an employed earner” and “income which does not consist of earnings”. Given other statutory definitions, the latter category can be reformulated as “income which does not consist of any remuneration or profit derived from any trade, business, profession, office or vocation”. There is no express or implied limitation on such a broad category. The question ultimately is whether the cash receipts in issue have the quality of being income as opposed to being capital – and, as noted above, they must logically be either one or the other. Regulation 104(1) then provides that “the income of a claimant which does not consist of earnings to be taken into account will … be the claimant's gross income”, subject to any applicable disregards in Schedule 8 (not that any would appear to be relevant).

I simply interpose here that (in theory at least) it might potentially be to the claimant’s advantage for his receipts to be regarded as earnings from self-employment rather than as income other than earnings. This is because earnings from self-employment are based on net profits (see regulations 92 and 98) whereas the assessment of income other than earnings is premised on gross income subject to any applicable disregards (see regulation 104 and Schedule 8). However, this may be a distinction without a difference if the principle in Parsons v Hogg [1985] 2 All ER 897, reported as an appendix to R(FIS) 4/85, applies in this context (namely that expenditure necessary to produce income is to be deducted to produce a figure for gross income).

Ground 2 of the Secretary of State’s appeal accordingly succeeds.