A clause in the Universal Credit benefit will leave self-employed people more than £600 worse off each year, new research has revealed.
The findings, published by the Citizens’ Advice Bureau, shows that a self-employed worker who receives Universal Credit could be worse off compared to an employee on the benefit, even if their earnings are identical.
The Minimum Income Floor (MIF) rule, which is written in to Universal Credit, requires claimants who are self-employed to prove they are earning at least the equivalent of the full-time minimum wage consistently throughout the year.
Critics say the MIF means traders whose income fluctuates – due to weather, Christmas, or other peaks and troughs in the financial year, lose out.
Now a Citizens Advice analysis has found that the self-employed could be worse off by £630 due to the rule, which has previously been described as “inherently unfair”.
HuffPost UK reported last year how one self-employed Universal Credit claimant was told by an official he was “better off” unemployed as a result of the MIF.
Welder Andrew White was told by an official he “would not have a sanction applied” if he chose to end his trade and became unemployed.
White said the MIF rule meant his family needed to rely on handouts and food banks to survive.
Citizens Advice, famous for its nationwide network of bureaux, says the government must act to ensure those choosing to work for themselves are not disadvantaged.
It comes as a separate reduction in the work allowance for those claiming Universal Credit threatens to cause further misery.
A YouGov poll for Citizen’s Advice asked 877 people receiving in-work benefits how they would cope with a £100 drop in their monthly income, the average amount households stand to lose.
Some 26% of respondents said they would not be able to take on more work to make up for the fall in payments, with one-in-three of those people saying it is due to being in full-time work.
Millions more people are due to transfer onto Universal Credit before its rollout completes in 2022. The reform brings together six existing “legacy” benefits into one monthly payment, but it has been beset by problems, and is said to have led to an increase in the use of food banks and loan sharks.
Ministers have already acted to cut a six-week wait for first payments and to end rip-off fees to a special telephone helpline.
Gillian Guy, chief executive of Citizens Advice, said: “Despite the labour market changing significantly in the last decade, including a rapid rise in self-employment, Universal Credit is still better suited to those with regular jobs.”
Guy added that the government “needs to look again at the design of the benefit to ensure self-employed and agency workers aren’t left at a financial disadvantage.”
A Department for Work and Pensions spokesperson said: “These reports don’t take into account the numerous improvements already made to Universal Credit.
“The Minimum Income Floor encourages people who aren’t earning enough through self-employment to grow their business or take on more hours in other employment.
“Universal Credit is a flexible benefit that supports people in and out of work, those on low incomes and the self-employed, and it’s succeeding. We know that people on UC are moving into work quicker and staying in work longer than under the old system.”
How a self-employed worker could lose out
A self-employed worker could in theory find themselves worse off compared to an employee with the same annual earnings and family characteristics.
An employee in a couple with one child, with a stable salary of around £12,000 a year, would earn £1,000 a month from employment, topped up with approximately £500 of in-work support.
But a self-employed worker also earning £12,000 over the course of a year may take home a different amount from month-to-month. For instance, earning an extra £200 in a given month would reduce their entitlement by £90, while taking home £200 less in another month would increase their entitlement by just £5. This is because the minimum income floor restricts their entitlement in months where earnings are lower than a full-time worker on the minimum wage.
Source: Resolution Foundation