Court of Appeal rules criminal earnings count as income for ESA purposes

The Court of Appeal has definitively settled that criminal activities can constitute "work" and generate "income" for employment and support allowance (ESA) purposes, upholding an Upper Tribunal decision that rejected the notion that illegal earnings should be disregarded in benefits assessments.

Between October 2014 and April 2016, Michael Allen received income-related ESA whilst simultaneously generating at least £30,000 from buying and selling stolen bicycles through markets and online platforms. Following his conviction for handling stolen goods, the Department for Work and Pensions revoked his ESA entitlement and demanded repayment of £9,842.15.

The First-tier Tribunal initially sided with Allen, concluding that his criminal activities could not constitute "work" and his proceeds were not "income" within the regulatory framework. Upper Tribunal Judge Wikeley reversed this decision, holding that the criminality of activities does not prevent them from being classified as work or income under the Employment and Support Allowance Regulations 2008.

The statutory framework

The 2008 Regulations establish that claimants doing "work" are treated as not entitled to ESA. Regulation 40(7) defines work broadly as "any work which a claimant does, whether or not that claimant undertakes it in expectation of payment". Crucially, the specific exemptions in regulation 40(2)—covering activities such as domestic tasks and caring duties—contain no exclusion for criminal conduct.

For income-related ESA, claimants must satisfy financial conditions including that their income does not exceed applicable thresholds. The regulations define "earnings" for self-employed earners as "gross receipts of the employment", whilst "income" encompasses both earnings and other receipts.

The Court of Appeal's analysis

Lord Justice Miles, delivering the leading judgement with which Lords Justices Coulson and Moylan agreed, held that nothing in regulation 40's language suggested activities should be disregarded merely because they involved criminality. Using a practical example, he compared two traders—one selling legitimate goods, another identical stolen goods. Both were clearly engaged in trading activities demonstrating capacity to work.

The court rejected arguments that "work" should be read as implicitly limited to lawful activities. Such an interpretation would create perverse incentives, allowing criminal traders to continue profitable enterprises whilst claiming ESA, whereas legitimate traders would be excluded. Parliament could not realistically have intended a regime incentivising illegal over lawful work.

Lord Justice Miles dismissed concerns about the Upper Tribunal creating an unworkable "sliding scale" of criminality. The relevant question was whether the activity itself constituted work, not its legal characterisation. Where activities involved both legitimate and illegitimate elements, tribunals should assess conduct holistically rather than attempting to parse legal from illegal components.

Application to income calculations

The court similarly rejected attempts to read "earnings" and "income" as excluding illegal receipts. The statutory purpose of means-testing ESA claimants demanded that all income be considered, regardless of source. Allowing claimants to disregard criminal earnings whilst legitimate earners faced disqualification would fundamentally undermine the benefits system's integrity.

The First-tier Tribunal's finding that Allen was "not fit to work" contradicted its acceptance that he had generated £30,000 from trading activities. This contradiction stemmed from legal misdirection about whether criminal conduct could constitute work and income.

The appeal was dismissed, with the factual question of whether Allen worked or received relevant income on a weekly basis remitted for redetermination by a differently constituted First-tier Tribunal, properly directed on the applicable legal principles.

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