Self-employed worse off than employees on Universal Credit, charity finds
Citizens Advice has warned about the financial security of low-paid workers as they move onto the flagship piece of welfare reform.
Universal Credit could leave low-paid workers’ financial security hanging in the balance, with the self-employed potentially hundreds of pounds a year worse off, according to new research.
Major new reports by the Citizens Advice charity found that self-employed workers on Universal Credit could receive far less than employees earning the same amount.
The charity has also called for a rethink over cuts to the work allowance element of the benefit, given the risk of financial insecurity for Universal Credit claimants.
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.
“The Government has shown it is prepared to act to improve Universal Credit as new facts come to light – an approach we strongly support.
“It now needs to look again at the design of the benefit to ensure self-employed and agency workers aren’t left at a financial disadvantage.”
The first of two reports by the charity highlights issues with the minimum income floor, a rule that assumes everyone claiming Universal Credit who has been self-employed for a year or more is earning the national minimum wage (NMW).
If they earn less than the NMW one month, their Universal Credit payment will not make up the difference.
However, if their monthly earnings go over the NMW, their benefit payment will be reduced accordingly.
The charity says this design flaw is unfair and risks causing financial hardship as self-employed workers often earn different amounts from one month to the next.
Its analysis shows that a self-employed worker who earned £9,750 a year would be £630 worse off under Universal Credit than an employee with exactly the same circumstances.
One family helped by Citizens Advice had to visit a food bank as a result of having less money to pay their bills because of the policy.
In order to get more money through Universal Credit, 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.
The second report found that employees could also be at risk of financial insecurity when they move to Universal Credit.
One of the largest of a series of cuts to Universal Credit announced in 2015 was to the work allowance, reducing the number of hours people can work before their Universal Credit payment starts to decrease.
Citizens Advice asked 877 people receiving in-work benefits how they would cope with a £100 drop in their monthly income, roughly the average amount affected households stand to lose from the reduced work allowance.
Some 26% said they would not be able to top up their income through employment even though they might need to, with a third of those saying this is because they work full-time already.
Caring responsibilities (23%) and having a disability (18%) were other reasons workers gave for not being able to make up the £100 shortfall through work.
Ms Guy said the Government should also review the work allowance reductions “to ensure workers who can’t increase their income through employment aren’t left struggling to make ends meet”.
She added: “A failure to do this risks undermining two of the core purposes of Universal Credit – to incentivise people to move into and progress in work, and provide low-income families with financial security.”
A Department for Work and Pensions spokeswoman said the reports did not take into account improvements already made to Universal Credit.
She said: “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 Universal Credit are moving into work quicker and staying in work longer than under the old system.”