April has seen the publication of new reports from the Citizen’s Advice Bureau (CAB), one of which suggests that with the introduction of Universal Credit, those working for themselves will be considerably worse off compared to an employee on the benefit. The CAB has calculated that this could be by as much as £630 pa, which can have a huge impact on the self-employed and their families, especially in the vital early months, as the business becomes established. This figure is calculated on the basis that by the year end their earnings will have been identical.
The report highlights issues with the Minimum Income Floor, which is the rule that assumes all claimants who have been self-employed for a year or more earn the equivalent of the National Minimum Wage (NMW). Earnings often fluctuate, but Universal Credit won’t recognise this; if money is short one month, the benefit won’t make up the difference, and if the next their earnings are higher, the payment will be reduced. The CAB rightly points out that the self-employed often see earnings fluctuate, so they will be particularly hard-hit; in one family the father was forced to give up his computing business and stop work altogether, while the mother cut short her maternity leave to return to work.
This seems particularly unfair, as many of those who become unemployed, or who are looking for their first job, are encouraged to consider self-employment as a way into work.
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.’
It is to be hoped that the Government undertakes a review to ensure this inequality is ended swiftly, otherwise the incentive to start a business will be severely reduced.