Michael Allen v The Secretary of State for Work and Pensions

Lord Justice Miles : Introduction

1. Between October 2014 to October 2015 the appellant generated a gross income of at least £30,000 from the activity of buying and selling stolen bikes in a market and online. He was later convicted of handling stolen goods and sentenced to imprisonment. Between 1 October 2014 and 5 April 2016 he received employment and support allowance (“ESA”).

2. The respondent made a decision on 8 April 2016 that the appellant had no entitlement to ESA for the period 1 October 2014 to 5 April 2016, on the basis that throughout that period he had been in work which had not been declared. The respondent made a further decision on 19 April 2016 that the appellant was liable to repay £9,842.15 in respect of ESA paid to him for that period. The appellant successfully appealed both decisions to the First-tier Tribunal (“the FTT”), essentially on the basis that since the claimant’s bike dealing activities were criminal they were not “work” and his receipts were not “income” for the purposes of the relevant statutory regulations.

3. In a decision of 8 May 2024 the Upper Tribunal (“the UT”) allowed an appeal from the FTT’s decision. The UT held that the appellant’s activities of buying and selling bikes amounted to “work” and the receipts amounted to “income” under the relevant regulations notwithstanding that his activities were criminal.

4. The appellant now appeals against the decision of the UT. Statutory provisions

5. Part 1 of the Welfare Reform Act 2007 (“the WRA”) made provision for the introduction of ESA, a social security benefit. The appellant received income-related ESA, a legacy benefit replaced by Universal Credit. Contribution-related ESA remains in force. The references to statutes and regulations below are to the versions in force at the relevant times.

6. Section 1 provides materially as follows: “ 1 Employment and support allowance (1) An allowance, to be known as an employment and support allowance, shall be payable in accordance with the provisions of this Part. (2) Subject to the provisions of this Part, a claimant is entitled to an employment and support allowance if he satisfies the basic conditions and either— (a) the first and the second conditions set out in Part 1 of Schedule 1 (conditions relating to national insurance) or the third condition set out in that Part of that Schedule (condition relating to youth), or (b) the conditions set out in Part 2 of that Schedule (conditions relating to financial position). (3) The basic conditions are that the claimant— (a) has limited capability for work, […] (4) For the purposes of this Part, a person has limited capability for work if— (a) his capability for work is limited by his physical or mental condition, and (b) the limitation is such that it is not reasonable to require him to work.”

7. Section 9 of the WRA provides that whether a person’s capability for work-related activity is limited by his physical or mental condition and, if it is, whether the limitation is such that it is not reasonable to require him to undertake such activity shall be determined in accordance with regulations.

8. By section 17, in relation to a claim for ESA the income and capital of a person shall be calculated or estimated in such manner as may be prescribed.

9. Schedule 1, Part 2, paragraph 6(1) sets out the financial conditions that a claimant must meet under the income-related condition, including as follows: “The conditions are that the claimant— (a) has an income which does not exceed the applicable amount or has no income […] (e) is not engaged in remunerative work.” (Schedule 1, Part 2 has been repealed as part of the replacement of income-related ESA.)

10. Schedule 2 paragraph 1 provides materially that “[r]egulations may make provision (a) for a person to be treated in prescribed circumstances as having, or as not having, limited capability for work.”

11. The Employment and Support Alliance Regulations 2008 No. 794 (“the 2008 Regulations”) were made pursuant to the powers in the WRA.

12. Regulation 2 is an interpretation provision, which materially includes: “employed earner” is to be construed in accordance with section 2(1)(a) of the Contributions and Benefits Act; “employment” includes any trade, business, profession, office or vocation and “employed” has a corresponding meaning; “self-employed earner” is to be construed in accordance with section 2(1)(b) of the Contributions and Benefits Act.”

13. Part 5 of the 2008 Regulations (commencing with regulation 19) makes provision for the determination of the question whether a claimant’s capacity for work is limited by their physical or mental condition, and if it is, provides that, whether the limitation is such that it is not reasonable to require the claimant to work, is to be determined on the basis of a limited capability for work assessment of the claimant. Part 6 (commencing with regulation 34) makes provision for the determination of the claimant’s limited capacity for work-related activity.

14. Part 7 (commencing at regulation 40) makes provision for the effect of a claimant actually working on entitlement to ESA. Regulation 40 provides (materially) as follows: “ A claimant who works to be treated as not entitled to an employment and support allowance

40. —(1) Subject to the following paragraphs, a claimant is to be treated as not entitled to an employment and support allowance in any week in which that claimant does work. (2) Paragraph (1) does not apply to— (a) work as a councillor; (b) duties undertaken on either one full day or two half-days a week as— (ii) a member of the First-tier Tribunal … (c) domestic tasks carried out in the claimant's own home or the care of a relative; (d) duties undertaken in caring for another [specified category of] person … ; (da) duties undertaken in caring for another [specified category of] person; (e) any activity the claimant undertakes during an emergency to protect another person or to prevent serious damage to property or livestock; or (f) any of the categories of work set out in regulation 45 (exempt work). […] (7) In this regulation— “week” means a week in respect of which a claimant is entitled to an employment and support allowance; “work” means any work which a claimant does, whether or not that claimant undertakes it in expectation of payment; […]”

15. Regulation 41 provides materially as follows: “ Meaning of “remunerative work” for the purposes of paragraph 6(1)(e) of Schedule 1 to the Act

41. —(1) For the purposes of paragraph 6(1)(e) of Schedule 1 to the Act (conditions of entitlement to an income-related allowance), “remunerative work” means any work which a claimant does for which payment is made or which is done in expectation of payment, other than work listed in paragraph (2) of regulation 40. (2) Subject to paragraph (3), a claimant who was, or who was being treated as— (a) engaged in remunerative work; and (b) in respect of that work earnings to which regulation 95(1)(b) and (d) applies are paid, is to be treated as being engaged in remunerative work for the period for which those earnings are taken into account in accordance with Part 10 of these Regulations.”

16. Regulation 44 provides materially as follows: “ Claimants who are treated as not entitled to any allowance at all by reason of regulation 40(1) are to be treated as not having limited capability for work

44. —(1) Where a claimant is treated as not entitled to an employment and support allowance by reason of regulation 40(1), subject to paragraph (2), the claimant is to be treated as not having limited capability for work. (2) Paragraph (1) does not apply where the claimant remains entitled to a contributory allowance, but is not entitled to an income-related allowance by reason of regulation 40(1). (3) Paragraph (1) applies even if— (a) it has been determined that the claimant has or is to be treated as having, under any of regulations 20 (certain claimants to be treated as having limited capability for work), 25 (hospital in-patients), 26 (claimants undergoing certain regular treatment) or 29 (exceptional circumstances), limited capability for work; or (b) the claimant meets the conditions set out in regulation 30(2) for being treated as having limited capability for work until a determination is made in accordance with the limited capability for work assessment.”

17. Regulation 90 provides materially as follows: “ Calculation of income

90. —(1) For the purposes of paragraph 6(1) of Schedule 1 to the Act (conditions of entitlement to an income-related allowance), the income of a claimant is to be calculated on a weekly basis— (a) by determining in accordance with this Part, other than Chapter 7, the weekly amount of the claimant's income; and (b) by adding to that amount the weekly income calculated under regulation 118 (calculation of tariff income from capital). (2) For the purposes of paragraph (1) “income” includes capital treated as income under regulation 105 (capital treated as income) and income which a claimant is treated as possessing under regulations 106 to 109 (notional income).”

18. Regulation 91 provides materially as follows: “ Calculation of earnings derived from employed earner's employment and income other than earnings

91. —(1) Earnings derived from employment as an employed earner and income which does not consist of earnings are to be taken into account over a period determined in accordance with the following provisions of this regulation and at a weekly amount determined in accordance with regulation 94 (calculation of weekly amount of income).”

19. Regulation 92 provides materially as follows: “ Calculation of earnings of self-employed earners

92. —(1) Except where paragraph (2) applies, where a claimant's income consists of earnings from employment as a self-employed earner the weekly amount of the claimant's earnings is to be determined by reference to the claimant's average weekly earnings from that employment— (a) over a period of one year; or (b) where the claimant has recently become engaged in that employment or there has been a change which is likely to affect the normal pattern of business, over such other period as may, in any particular case, enable the weekly amount of the claimant's earnings to be determined more accurately.”

20. Regulation 97 provides materially as follows: “ Earnings of self-employed earners

97. —(1) Subject to paragraph (2), “earnings”, in the case of employment as a self-employed earner, means the gross receipts of the employment …”

21. Regulation 104 provides materially as follows: “ Calculation of income other than earnings

104. —(1) For the purposes of regulation 91 (calculation of earnings derived from employed earner's employment and income other than earnings) the income of a claimant which does not consist of earnings to be taken into account will, subject to paragraphs (2) to (7), be the claimant’s gross income and any capital treated as income under regulation 105 (capital treated as income). (2) There is to be disregarded from the calculation of a claimant's gross income under paragraph (1), any sum, where applicable, specified in Schedule 8.”

22. As noted above, some of the definitions used in the 2008 Regulations incorporate definitions from section 2 of the Social Security Contributions and Benefits Act 1992 (“the SSCBA”). The relevant definitions are as follows: “employed earner” means “a person who is gainfully employed in Great Britain either under a contract of service, or in an office (including elective office) with earnings”; and “self-employed earner” means “a person who is gainfully employed in Great Britain otherwise than in employed earner’s employment (whether or not he is also employed in such employment)”.

23. Section 3 of the SSCBA (to which cross-reference is also made in the 2008 Regulations) contains the following relevant provisions: “(a) “earnings” includes any remuneration or profit derived from an employment; and (b) “earner” shall be construed accordingly.”

24. By section 122 of the SSCBA, ““employment” includes any trade, business, profession, office or vocation and “employed” has a corresponding meaning”.

25. The appellant’s counsel referred the court to paras 7.1 to 7.3 of the explanatory memorandum for the 2008 Regulations: “7.1 The Government set out its strategy for helping those with a health condition or disability in its Green Paper ‘A new deal for welfare: Empowering people to work’ (Cm 6730) published in January 2006. The measures proposed were intended to tackle three key areas: increasing the number of people who remain in work when they fall sick or become disabled; increasing the numbers leaving benefits and finding employment; and better-addressing the needs of all those who need extra help and support. 7.2 The Government’s view is that: • making a reality of employment opportunity for all supports the national economy, builds local communities and improves prospects for families and individuals over their whole lives; • work is the best route out of poverty. It strengthens independence and dignity, builds family aspirations, fosters greater social inclusion and can improve an individual’s health and well-being; • there is a clear link between benefit dependency and hardship. As many as half of the most severe pockets of deprivation in Britain are contained within the hundred parliamentary constituencies that have the largest numbers of people claiming incapacity benefits. 7.3 The Government was particularly concerned that, currently, those claiming incapacity benefits are usually described as ‘incapable of work’ when, in the majority of cases, this is not the case.” The decisions of the FTT and the UT

26. The FTT (Judge Vine) gave its decision on 3 May 2022. In its decision notice the FTT summarised the issue as being whether the appellant’s admitted criminal activity was considered as “work” for benefit purposes. In para 5 the FTT stated: “[the appellant] was illegally buying and selling stolen bikes. He knew that they were stolen and accepted as much in his oral evidence today. He explained however that whilst he sometimes made over a £1,000 weekly, all his money was then spent on funding his drug and alcohol addiction. During this period he was in supported accommodation with a support worker and was a vulnerable person. The Tribunal decided that this was not “work” and whilst all “income” is considered for means tested benefit purposes, the Tribunal concluded this was not “income” in the normal sense of the word, rather it was criminal activity for which he has served time in prison.”

27. The FTT gave a further statement of reasons for its decision on 16 June 2022, which included the following findings: i) During the autumn of 2014, after a period of abstinence, the appellant relapsed. He started to fund his addictions, including cocaine use, by engaging in criminal activity. He knowingly handled and sold stolen bicycles as part of a criminal conspiracy involving others. He sold the bikes at Nine Elms market, as well as selling them online. The market is not a regulated one subject to local authority licencing laws. ii) The appellant was engaged in significant criminal activities. He was not selling the odd stolen bicycle, but rather had some £30,000 passing through his accounts between October 2014 and October 2015. iii) The appellant was not fit to do anything other than feed his addiction. He was not fit to work.

28. The FTT recognised that the decision would allow a claimant to benefit from criminal activity without suffering any adverse financial consequences and that this might be perceived as perverse. However, the FTT concluded at para 16 that: “whatever else it might be, selling bikes illegally is not “work”. Rather it is criminal activity, plain and simple. Criminal activity is not “work”.”

29. The FTT then turned to the question whether the appellant had received “income” for the purposes of the 2008 regulations. At para 20 the FTT concluded that: “[the appellant] has committed serious criminal offences, he has obtained money illegally, and served over 2 years in prison. Evidently he is not entitled to ESA whilst he is imprisoned, but during the period in issue, as well as engaging in criminal activity, he is also suffering from addictions and depression, claiming PIPs and is a vulnerable person provided with sheltered accommodation and a support worker. He is totally incapable of work. He receives cash for his stolen bikes, spends it immediately on his addictions, rendering him that much more vulnerable. Such illegal cash payments are not currently defined in the ESA regulations as income.”

30. The FTT accepted at para 21 that this was a “contentious appeal” and that “the scenario” might require further legal clarification.

31. The UT (Judge Wikeley) allowed the respondent’s appeal. It concluded that the activities which the FTT had found the appellant to have engaged in constituted work for the purposes of the 2008 Regulations and did not cease to be work because they were criminal. The UT decided that the FTT’s finding that the appellant was incapable of work was based on legal misdirection, as the FTT had focused exclusively on the appellant’s impairment and the criminal nature of his activities when considering whether he was working and had failed properly to apply the regulations to those activities. The UT held that there was an inherent contradiction between the FTT’s factual finding that the appellant had made £30,000 in a year from buying and selling bikes and the conclusion that he was not fit to work.

32. In para 29 the UT said: “I therefore agree with [counsel for the respondent], subject to one necessary proviso, that ‘work’ must be given a meaning that includes both legal and illegal activity for the purposes of the ESA scheme. The proviso is that the activity in question must still be capable of being characterised as a form of ‘work’. So, for example, a pickpocket is not doing ‘work’ (although in principle their illicit takings would presumably count for the purpose of the ESA means test as income other than earnings).”

33. The UT turned to the issue of income. It referred to regulations 90, 92, 97 and 104 of the 2008 Regulations. The UT concluded that there was no reason to read down the concept of “income” as used in those provisions to exclude income from illegal activities. The means-test under the ESA regime was designed to ensure that only claimants with income and/or capital below the set limits should receive state assistance. There was no reason why a claimant whose income came from criminal activity should be exempt from the means-test and therefore entitled to the benefit, while a person whose income came from similar activities carried out lawfully should be excluded. The appellant’s income properly fell within the relevant 2008 Regulations either as “earnings of a self-employed earner” or as “income other than earnings”.

34. The UT set aside the FTT’s decision and remitted it to a differently constituted FTT for re-hearing given that entitlement to ESA had to be assessed on a week-by-week basis. The new tribunal would therefore have to assess whether the claimant was working and/or receiving income on a weekly basis over the relevant period. Grounds of appeal and the parties’ arguments in outline

35. There are four grounds of appeal: first, that the UT erred by interfering with a finding of fact of the FTT concerning the appellant’s inability to work; second, that the UT erred by including illegal activity within the meaning of work in regulation 40(1); third, that the UT erred by including monies illegally acquired within the meaning of “income” for the purposes of the 2008 Regulations; and, fourth, that the UT erred by failing to interpret “work” and “income” under the regulations in their statutory context and in the light of the intentions of Parliament.

36. In outline, counsel for the appellant submitted that a person engaged in criminal activity fuelled by substance abuse and addiction was not engaged in work for the purposes of regulation 40; and income arising out of those activities cannot be treated as income for the purposes of the 2008 Regulations. The natural and ordinary meaning of “work” is legal work and of “income” is legally acquired income. This is supported by one of the statutory purposes of the 2008 Regulations, namely, to assist disabled and vulnerable claimants to rejoin the legal work force. The statutory regime is properly to be read as referring to legal “work” and legally acquired “income” whenever it uses those words.

37. As to ground 1, the question whether a person was engaged in work was fact-specific. The FTT found that the appellant was not fit to do anything other than feed his addiction and that he was not fit to work. The FTT was entitled to conclude that the appellant’s impairment and personal circumstances in the context of his criminality did not amount to work. The UT was not entitled to disturb these findings of fact.

38. As to ground 2, the UT relied on unsupported factual conclusions about the appellant’s activities. Para 29 of the UT’s decision implied that there was a sliding scale for different kinds of criminality. This was not warranted by the statute and would lead to uncertainties in its application. “Work” in the 2008 Regulations connotes legal work because Parliament regulates lawful workplaces, not illegal ones. The UT accepted that “work” as used in the Regulations is a proxy for the ability of people to participate in the labour market; but if so that must mean the lawful labour market. The 2008 Regulations do not properly admit of a wide reading so as to include criminal conduct. Parts of those Regulations, such as regulation 95, use terms (such as “bonus or commission”, “payment in lieu of notice”, “retainer”) which are only relevant to the legal workplace. When calculating self-employed earnings under the 2008 Regulations, the language of many of the provisions shows that they are concerned with legal self-employed work. The UT did not explain how its conclusion can be reconciled with the statutory scheme.

39. As to ground 3, the appellant submitted that monies derived from illegal activities cannot constitute the earnings of a self-employed earner for the purposes of regulations 97-99. Equally, illegally earned monies cannot be treated as “income other than earnings”. On a proper reading of the 2008 Regulations “income” refers to legally acquired income.

40. As to ground 4, the appellant submitted that if Parliament had wished to include illegal activities within the meaning of “work” it would have said so expressly. The UT should have considered the rival constructions of the statute without a predisposition towards the inclusion or exclusion of legal work. The UT should, in approaching the statutory context and purpose of the 2008 Regulations, have given weight to the explanatory memorandum. This shows that the rationale for the regulations included increasing the number of people who remain in work when they fall sick or become disabled; increasing the number leaving benefits and finding employment; and better addressing the needs of those who need extra help and support. Excluding entitlement for those in need of rehabilitation – claimants with criminal records and substance dependency – would be contrary to these objectives. It would impede the re-entry of disabled people into work. That would be a perverse interpretation considering the ESA’s purposes (as to which see Iman Alhashem v The Secretary of State for Work and Pensions [2016] EWCA Civ 395 ) and may in fact expose individuals to further criminality. The statutory purpose of helping disabled individuals return or remain in work is in the public interest.

41. The respondent submitted in outline as follows. As to ground 1, the question whether the appellant’s activities and receipts were “work” and “income” for the purposes of the relevant parts of the 2008 Regulations were mixed ones of fact and law. The FTT had misdirected itself in law when reaching its findings, by concluding that, in principle, criminal activities could not be work and illegal receipts could not be income. The UT was therefore right to set aside the FTT’s decision.

42. As to ground 2, the relevant question is whether the appellant’s activities fell within regulation 40 so that he is to be treated as not being incapable of working. The material facts are that the appellant bought and sold stolen bikes, and did so at scale. This was work from which he derived income. Under regulation 40, including the specific exemptions in sub-paragraph (2), there is no exemption for criminal conduct. This accords with the purpose behind the ESA regime as a benefit targeted at impairments which prevent people from working. It would be unfair if a person engaging in legal activity was disentitled from ESA in full, while a person who profited from similar conduct which was criminal would be entitled. That would disincentivise work and reward illegality. Whether a particular activity amounts to work is a question of fact and degree, depending on the nature of the relevant activities and cannot depend merely on the legality of that conduct.

43. As to ground 3, the appellant’s argument amounts to no more than the bare assertion of a conclusion that “income” should only mean “legal income”. The UT’s reasoning about the meaning of income in the 2008 Regulations was correct. The appellant is wrong to say that his criminal activities arose out of circumstances, namely alcohol and drug addiction, that rendered him unfit to work. This muddies the line between the issue of “limited capability for work” and the nature of “work” under the Regulations. The purpose of income-related ESA is to provide financial support to those who cannot do so themselves, and this is embodied in its means-testing provisions. It would be absurd to allow a recipient of income from criminal activities to circumvent this. Reading in the appellant’s suggested qualification that income only includes legitimate income would indeed incentivise the earning of illegal income. In any event the appellant’s receipts fall into the category of “income which does not consist of earnings” in regulation 91(1). This expressly embraces all monies received except those explicitly excluded in Schedule 8, which does not apply.

44. As to ground 4, the respondent submitted that the appellant was seeking to rely on his own criminality in order to obtain ESA, while in fact he had worked and exceeded the incoming limits. That outcome cannot be justified on public policy grounds. On the contrary, Parliament does not generally intend to allow people to profit from their crimes. The purpose of income-related ESA is to provide disability benefits for those with limited capability to work and on low income and without capital. The high-level statements of policy relied on by the appellant do not support the conclusions for which he contends. Regulation 40 establishes that a person who is actually working is treated as not being unable to work. The purposes underlying the Regulations cannot sensibly allow such a person’s work and earnings from it to be disregarded on the basis that the activity was criminal.

45. The respondent accepted that the effect of the UT’s order was that the question whether the appellant had worked or been in receipt of relevant income in any given week had to be redetermined by the FTT, properly directed in law (i.e. by assessing the appellant’s activities and receipts without the gloss that those activities and income should be disregarded because of their criminality). The respondent submitted that the question for this court was whether the appellant’s activities and receipts were incapable of constituting work and earnings or other income (by reason of the appellant’s criminality); not whether, on the FTT’s findings, his activities and receipts did in fact fall under those descriptions on a weekly basis. The latter question had already been remitted. Analysis

46. As already explained, the arguments concerning ground 1 turn on whether the FTT’s factual findings were based on a misdirection about the proper construction of the statutory provisions. It is therefore logical to consider grounds 2 to 4 first. Moreover, counsel accepted at the hearing of the appeal that the matters covered by ground 4, viz. the purposes of the 2008 Regulations and their statutory context, are elements the court must consider in determining their proper construction and realistic application: see Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] UKSC 16 , [2022] AC 690 . These issues are the subject of grounds 2 and 3 and, in my judgment, ground 4 adds nothing of substance. I shall therefore start with grounds 2 and 3.

47. This court gave a general summary of ESA in Alhashem : “6. ESA was introduced by the Welfare Reform Act 2007 to replace incapacity benefit. It is aimed at promoting a change in attitudes to people with disabilities with regard to work. The impact assessment stated that the starting point for the assessment would be that the overwhelming majority of customers were capable of some work, given the right support. That would lead to better employment outcomes for people with disabilities. Treating people in line with their capabilities, instead of making assumptions based on their condition, would have a positive impact on the attitude of others to people with disabilities.

7. When claimants apply for ESA, they undergo a work capability assessment to see whether they have a limited capability to work and, if so, whether they also have a limited capability for work-related activity. Work-related activity depends on what it is reasonable for a claimant to do. Examples include attending workshops to learn how to write a CV, or basic skills training (it is said that this facility may make this benefit more attractive to some job seekers than JSA). I will call individuals who have made valid claims whose claims are being assessed "the WCA group". ….

8. If the individual has limited capability to work and also limited capability to undertake work-related activity, he or she is placed in a support group ("the Support Group"). If an individual has a limited capability to work but does not have limited capability to do work-related activity, he or she is placed in a separate group ("the Work Related Activity Group"). The individual is expected to engage in that activity as a condition of receiving benefits. This requirement is known as "work-related conditionality." I will call this group of claimants "the third group." Rules enable a person receiving ESA to do some specified types of work while receiving the benefit. … ”

48. Para 42 of Alhashem said: “It is clear from the history of ESA that it is primarily provided for those who cannot work or who are on the borderlines due to some disability or past episode in their lives. Some of these claimants will in future be able to work, and a further aim of the benefit is to provide facilities which will enable them to do so. That is at least partly a question of social policy inspired by an aim of treating individuals affected by disability with dignity and helping them to realise their maximum potential. But facilitating an entry into work is not the predominant function of the benefit.”

49. The second ground of appeal turns on the construction of regulation 40. The issue is whether the appellant’s activities in buying and selling stolen bikes are capable of amounting to the appellant having done work within the meaning of the regulation.

50. The court’s task is to understand the meaning and legal effect of the language of the provision in its context; the words chosen to express the provision being the primary source for determining its meaning.

51. The concept of “work” is not defined in the 2008 Regulations (other than stating that it is to include any work which a claimant does, whether or not that claimant undertakes it in expectation of payment). Schedule 2, para 1 of the WRA explains that regulations may prescribe circumstances in which a person is not entitled to ESA because of his doing work. Regulation 40(1) identifies cases where the claimant “does work”. This is followed by the exclusions in paragraph (2). There is no exclusion for criminal conduct. Regulation 40(7) includes within it “any work which a claimant does, whether or not that claimant undertakes it in expectation of payment”. Again the statutory concept is one of “doing” or “undertaking” work as an activity. The same idea is found in regulation 41 which defines “remunerative work” as any work which “a claimant does for which payment is made or which is done in expectation of payment, other than work listed in paragraph (2) of regulation 40”.

52. I agree with the respondent’s submission that some of the excluded activities listed in paragraph (2), such as domestic tasks carried out in the claimant’s own home, show that the concept of work is used broadly in regulation 40.

53. The purpose of regulation 40 is to identify the effects of a claimant in fact doing work on their entitlement to ESA. Where a person has done work for the purposes of regulation 40(1) he is treated as not having limited capability for work: see regulation 44(1). Because he is doing work in the relevant sense, he does not come within the scope of the Regulations, which are designed to assist those whose capacity to work is limited in the prescribed sense. In short, a person cannot both do work and claim the benefit on the basis that his capacity to do so is limited.

54. The activity of buying and selling bikes is (without more) clearly capable of being “work”. Where it is done for payment or in the expectation of payment it is “remunerative work”. The question is whether, for the purposes of the 2008 Regulations, the activity of trading in bikes should cease to be regarded as “work” merely because the bikes being bought and sold have been stolen. I can see nothing in the language of regulation 40 which would lead to the claimant’s activities of dealing in bikes being disregarded merely because those activities are a criminal enterprise.

55. It may help to take an example. Suppose there are two traders who run websites and market stalls, the first (A) offering legitimate goods for sale and the second (B) offering identical but stolen ones. A and B are both trading in goods. Both have to source the goods and market them. A is clearly working. As a matter of language there is no reason for saying that B is not working.

56. This reading of the text, which is indifferent to the illegality or criminality of the conduct, also gives effect to the purpose of regulation 40. Its purpose is apparent from its words, ie., to exclude from entitlement claimants who are actually doing work (see paragraph (1)). Such claimants are treated as not having limited capability to work and are therefore not entitled to claim ESA. This purpose is served by considering the nature of the claimant’s activities and does not require consideration of the further question whether such activities involved illegality or criminality. In the example given above, A and B are both trading in goods. The carrying out of these activities shows in each case that they do not have the relevant incapacity to work. Their capacity to work is demonstrated by their actions.

57. The appellant contended that the broader purposes of regulation 40 included assisting claimants to participate in lawful labour markets. As Alhashem shows at para 42 this is indeed one, but only one, of the purposes of the 2008 Regulations. But the identification of this broad purpose does not lead to the conclusion for which the appellant contends. On the appellant’s reading of the concept of “work”, all unlawful (or possibly criminal activity) must automatically be disregarded. On that view, a person would be able to make earnings from criminal activities and continue to claim ESA. The payment of ESA to that person would do nothing to assist or incentivise the claimant to participate in the lawful labour market. It would indeed disincentivise lawful working, by allowing the claimant to carry on their criminal conduct and claim the benefit.

58. I agree with the respondent that the high-level aspirations set out in the explanatory memorandum (see para ‎‎25 above) do not materially assist with the interpretation of the relevant parts of the 2008 Regulations. The purpose of income-related ESA is to provide disability benefits for those (but only those) with limited capability to work and on low income and without significant capital. The wording of the specific regulations must be construed purposively in the light of their context, and there is no substitute for a close analysis of the wording of the provisions themselves.

59. It is also necessary to compare the consequences of the rival readings. In my view the appellant’s proposed reading of regulation 40 would have perverse consequences which cannot have been intended by Parliament. Returning to the earlier example, claimant A would not be able to claim ESA but claimant B, the criminal trader, would be allowed to carry on the activity of buying and selling goods and claim ESA. Parliament cannot realistically be taken to have intended to create a regime which would incentivise a person to carry on a profitable business or trade and continue to be paid ESA on the basis that his trading activities should be disregarded since he was breaking the law.

60. The appellant submitted that the language of the provisions of the 2008 Regulations concerning the calculation of self-employed earnings showed that the regulations were only concerned with legal earnings. The appellant referred specifically to the wording of regulations 97 to 103 and contended that the drafter used a number of concepts naturally concerning legal earnings (such as bonuses or commissions). I did not find this persuasive. It is natural that the statutory wording concentrates on calculation issues arising in relation to lawful activities. But the question is whether for the purposes of regulation 40 the term “work” is to be read down as being restricted only to lawful activities. There is nothing in those regulations which would prevent them from applying to activities of the kind the appellant undertook.

61. The appellant also contended that para 29 of the UT’s decision imported an unworkable sliding scale of criminality. I do not agree. The UT’s point was that the relevant activity must itself be a kind of activity which counts as “work”, and that some criminal activity may not fall under the description of work. The UT’s reasoning was that if the kind of activity is capable of being work, the criminality of the activity does not mean that it should be disregarded.

62. I also consider that the activities of buying and selling stolen goods are capable of falling within the definition of “remunerative work” in regulation 41, being work which a claimant does for which payment is made or which is done in expectation of payment, other than work listed in paragraph (2) of regulation 40. Again there is no warrant for reading into the provision the exclusion of remuneration from unlawful activities.

63. There are other problems with the appellant’s case that, for the purposes of regulation 40, a person’s activities which are illegal or criminal must be disregarded when determining whether they constitute “work”.

64. First, there is a problem of application of the provision to partially illegal activities. One may consider a variant on the earlier example of the two traders. Take another trader (C) who deals in goods, some of which are legitimate but some of which are stolen. On the appellant’s argument, it would appear that the lawful part of C’s activities would amount to work under regulation 40 while the unlawful elements would not. In my judgment the tribunal is required to consider a claimant’s conduct in the round and there is nothing in the wording of the regulation to suggest that those activities should be parsed into legitimate and illegitimate ones. The words are concerned with the fact that an activity has occurred, not with the legal characterisation of those activities as legitimate or not.

65. Second, the nature of the activities which on the appellant’s case would fall to be disregarded is unclear and inherently problematic. Counsel for the appellant initially submitted that any illegal activity would have to be disregarded. However, as the respondent argued, that would mean that the activities of a person who was running an unlicensed business would not constitute “work”, so that he would be able to carry on such business and claim the benefit, which would be a very surprising reading. The appellant then suggested that the touchstone was that the activities were criminal or somehow connected with criminality. But that would generate further issues of interpretation, including the proximity of the relevant connection and whether it would be necessary to show that the claimant had the requisite mens rea for the offence. While in the present case the appellant was convicted of an offence, if his arguments were accepted to be correct, the same interpretation would have to be given to the regulations in cases where the claimant had not been charged with a crime, let alone tried. The 2008 Regulations are designed to be capable of straightforward application by those charged with their administration. It is inherently improbable that Parliament would have intended that the application of the Regulations should turn on difficult questions of law and proof, including as to whether the claimant had the necessary guilty state of mind.

66. I am also unable to accept the appellant’s argument that the UT was wrongly predisposed towards reading the term “work” as including criminal conduct. The UT did not approach the question in that way. It considered whether the appellant’s activities of trading in bikes constituted work within regulation 40. It was the appellant’s argument that, merely by reason of their admitted criminal nature, those activities were to be disregarded when determining whether they amounted to work for the purposes of the regulation. The UT concluded that regulation 40 did not require that further step. In my judgment that was right.

67. In my judgment, the text, context and statutory purpose of the 2008 Regulations firmly militate against the appellant’s reading of regulation 40 and I would dismiss ground 2 of the appeal. I agree with the cogently expressed reasoning of the UT.

68. Ground 3 concerns the meaning and legal effect of the concepts of “earnings” and “income” for the purposes of the statutory regime. This turns on the construction of Schedule 1, Part 2, para 6(1) of the WRA (set out in para ‎‎9 above), and regulations 90, 91 and 92 (set out in paras ‎17, 18 and 19 above).

69. As already noted, Schedule 1, para 6(1) sets out conditions for entitlement. The conditions include, at sub-para (a), that the claimant has an income which does not exceed the applicable amount or has no income, and, at (f), that the claimant is not engaged in remunerative work.

70. “Earnings” are divided into earnings from employment and earnings from employment as a self-employed earner. Employment is expansively defined as “any trade, business, profession, office or vocation”. There is also a separate category of “income other than earnings”.

71. Counsel for the appellant raised an initial point of interpretation about the concept of “income other than earnings”. He noted that it appears in regulation 91 which is headed “calculation of earnings derived from employed earner’s employment and income other than earnings”. He suggested that the concept of income other than earnings may therefore properly apply only to an employed earner. I am unable to accept this suggestion. The term “income” includes income other than earnings (whether from employment or self-employment). This is shown by the following. First, regulation 90(1) and (2) are concerned with income generally. Second, income includes capital treated as income under regulation 105. Third, under regulation 105(2) any payment received under an annuity is to be treated as income. In my judgment, regulation 91 covers the treatment of two separate types of income, namely, “earnings derived from employed earner’s employment” and “income other than earnings”. A self-employed person may also have the second form of income.

72. The issue is therefore whether the receipts of the appellant constituted “earnings from employment as a self-employed earner” (within regulation 92) or “income other than earnings” (within regulation 91). The respondent submitted that the appellant’s receipts were one or the other. The appellant submitted that the concepts of earnings and income other than earnings were restricted to lawfully acquired receipts.

73. I agree with the respondent that there is nothing in the text of the regulations to suggest that the concepts are to be read as excluding receipts from criminal or unlawful activities. The concepts of earnings and other income are given broad definitions. Moreover, the purpose of the provisions can be gathered from their text. Income-related ESA is means-tested and can only be claimed by those with no income or an income below the statutory threshold.

74. Returning to the example given above, A receives earnings from self-employment. He is carrying on a trade or business and making money from it. As a matter of ordinary language B would also be making earnings from a trade or business (albeit a criminal one). The purpose of these provisions, which is to test the means of a claimant, is served by including this income within the concept of earnings.

75. The position is plainer still when it comes to the concept of “income other than earnings”, which covers all income, whether earnings or not. It would to my mind be an inadmissible stretch of language to say that B’s receipts were not “income” simply because the goods he was selling were stolen. There is no hint in statutory language or scheme that his receipts must be disregarded merely because his underlying activity was illegal.

76. It would indeed be perverse if B could both carry on the profitable business of dealing in goods and (relying on his own criminality) claim ESA while A could not. That would reward the second claimant for his criminality compared with the position of the first.

77. The appellant relied on two lines of authority in support of its arguments. The first is that a person may in some cases be able to rely on rights arising under a statute despite his criminality. He relied on Best v Chief Land Registrar at first instance, [2016] EWHC 1370 (Admin) , at para 44 and in this court at [2015] EWCA 17, [2016] QB 23 . I have not found that authority to be of any assistance in resolving this appeal. The courts in that case concluded that, on the true construction of the relevant statutes, a squatter whose activities were criminal was not prevented from asserting adverse possession over the land on which he was squatting. The conclusions of the courts in that case were built on a painstaking analysis of the relevant statutory schemes, the legislative and common law history of adverse possession, and the purposes of the relevant limitation and criminal provisions. The issues of statutory construction in that case were remote from those arising on the present appeal.

78. The second case relied on by the appellant was Inland Revenue Commissioners v Aken [1990] 1 WLR 1374 . The taxpayer had practised as a (to use the language of the case) prostitute for many years. The Inland Revenue assessed her for income tax under Sch D, case 1. One of the taxpayer’s arguments was that her activities were not in the nature of a trade as this would involve activities such as advertising, forming partnerships and companies, renting premises, etc., which the taxpayer could not do legally. The Court of Appeal was referred to an Irish case, Hayes v Duggan [1929] IR 406. The Court of Appeal pointed out that it had not been followed by two English cases, Mann v Nash (Inspector of Taxes) [1932] 1 KB 752 ; and Southern (Inspector of Taxes) v AB Limited [1933] 1 KB 713 . Fox LJ dealt with the illegality argument at p. 1382. He concluded that since prostitution itself was not illegal the fact that some of the activities associated with it were illegal was not relevant. He referred to some of the earlier cases and concluded that it was not necessary to reach any conclusion as to whether illegal profits were assessable to tax under the present law of England. Parker LJ took a similar position at p. 1385. I do not think it is necessary for the purposes of this appeal to decide that question of law and would prefer to leave it to a case where it squarely arises. I do not consider that anything in Aken assists the appellant’s arguments on this appeal.

79. For these reasons I would dismiss grounds 2 and 3 of the appeal.

80. As noted above, statutes are to be read realistically and with a view to serving the purpose for which they are enacted. The determination of grounds 2 and 3 has therefore required consideration of the purposes of the 2008 Regulations. In addressing grounds 2 and 3 I have covered the various arguments about statutory purpose raised by the appellant under ground 4. Ground 4 does not raise a separate or independent ground for challenging the UT’s decision and I would dismiss it too.

81. That leaves ground 1. On this I agree with the UT that the basis for the FTT’s conclusion that the appellant was not capable of working was that his activities of buying and selling stolen bikes could not amount to work; and the basis for its conclusion that the income he derived from those activities should be disregarded was that it could not properly be taken into account under the statutory scheme. I agree with the UT that there is an inherent contradiction between the FTT’s finding that the claimant had sold some £30,000 of bikes in a year and his conclusion that he was not fit to work. The only explanation is the FTT’s erroneous conclusion of law that his criminal activities could not amount to work and his receipts could not count as income for the purposes of the 2008 Regulations. In my view the UT was entitled and, indeed, right to set aside the FTT’s decision. As explained above, the issues of fact have been remitted to the FTT. Disposal

82. For these reasons I would dismiss the appeal. Lord Justice Coulson:

83. I agree. Lord Justice Moylan:

84. I also agree.