Last October, Money Saving Expert founder Martin Lewis tweeted a warning about the ‘huge sink hole awaiting many self-employed’ people when the suspension of universal credit’s minimum income floor ended. While the government extended the suspension, it now ends this week. Self-employed workers up and down the country will start to be affected (with some possible concessions) after 31 July, and may face huge financial difficulties as a result.
The minimum income floor (MIF) reduces the amount of universal credit some self-employed workers get because it assumes they are earning a certain amount, even if their actual earnings are far less. This doesn’t affect all self-employed universal credit claimants of course. Some may have sufficiently high earnings, which mean the MIF is not applied and actual earnings are used in universal credit calculations. And some will be exempt from the MIF, at least temporarily. There is a 12-month ‘business start-up’ grace period for example.
As a welfare benefits adviser, advising people about the MIF can be an uncomfortable experience: for the self-employed workers affected, it can cause misery and hardship. It prompts much soul-searching about the best way forward to provide for themselves and their families.
It’s difficult to find data from the Department for Work and Pensions about self-employed workers previously affected by the MIF rules. But we’ve seen in evidence given to the House of Lords’ Economic Affairs Committee inquiry by groups including CPAG, the TUC and the single-parent charity Gingerbread what problems it causes. Lone parents, for example, might think self-employment initially looks like the better option as it’s likely to be more flexible than regular employment and therefore easier to manage childcare needs.
Gingerbread told the inquiry:
“The UC minimum income floor has a detrimental impact on the low-income self-employed, especially on single parents who need longer than one year to build up their business due to being the sole or primary carer for their children.”
In their evidence, the Women’s Budget Group stated:
“Women are increasingly likely to become self-employed, and to be part-time and have lower self-employed income than their male counterparts. This means that potentially women could be more affected by UC rules around self-employment.”
In their subsequent report, Universal Credit isn't Working: Proposals for Reform, the Committee recommended that the Department for Work and Pensions ‘…should measure the impact of [the MIF’s] suspension on self-employed claimants and publish the results’.
We would welcome greater transparency from the government about the impact of the MIF, and of its absence over the course of the pandemic. But we already know that this unforgiving policy puts huge financial pressure on self-employed workers. The government can and should avoid the sink hole opening after 31 July and simply scrap it.