The Department for Work and Pensions has abandoned its lengthy legal battle to avoid fixing a “perverse” design feature in universal credit that has left thousands of working claimants hundreds of pounds a year out of pocket. The minister for welfare delivery, Will Quince, told MPs he accepted that the DWP must correct the feature, which has resulted in serious budgeting problems for some claimants who are paid at the end of the month. The issue currently affects claimants whose wages are paid two days earlier than usual when the month ends on a weekend or bank holiday. The system assumes they have been paid twice in a single universal credit assessment period, and none in the next, meaning their benefit payments fluctuate wildly. The appeal court ruled on Monday, in a case brought by four single mothers, that the DWP had acted irrationally and unlawfully in refusing to allow affected claimants to change their assessment period dates to avoid a problem that had the effect of leaving them £500 a year worse off. The four women had been forced into rent arrears, borrowed money and used food banks to make ends meet. One of the mothers was so exasperated by the system that she gave up work to look for another job with a different pay date that would allow her to avoid the problem. The DWP had argued that to change the system would cost at least £7.5m, would undermine the principle of universal credit, and would result in huge numbers of claim having to be processed manually – but it now accepts that it must find a solution. Conceding a legal fight that has lasted nearly two and a half years, Quince told MPs: “We do recognise the budgeting issues that this may have caused and we are now assessing remedial options.” Although the court accepted that 85,000 people were affected, Quince said that the DWP was aware of just 1,500 people who had reported the problem. There were no straightforward solutions and the system could not be changed at “the flick of a switch,” he added. The Labour chair of the Commons work and pensions select committee, Stephen Timms, said: “Nobody will dispute the view of the appeal court that this policy is irrational.” Tessa Gregory, a solicitor for Leigh Day, which represented one of the mothers, said: “Urgent steps must now be taken to remedy this absurd situation to ensure that no other hard-working individuals are treated irrationally and to also ensure that those who have lost out financially are recompensed.”