Low-income self-employed London households '£344 per month worse off under Universal Credit'

By agency reporter
March 26, 2018

Using administrative data collected from 19 London Boroughs, and following their incomes over two years, Policy in Practice has found that:

  • 78 per cent of self-employed households on low-income in London report earnings below the National Living Wage, and are set to become £344 per month worse off under Universal Credit’s  Minimum Income Floor (MIF)
  • 91 per cent of London households currently report earnings below the MIF. 78 per cent have been reporting earnings from self-employment for 13 months or more – longer than the proposed grace period – and would thus be affected by the MIF should UC be rolled out today
  • The average gap between their level of earnings and the MIF threshold is £845 per month, the equivalent of an additional 26 hours per week, at the hourly rate of £7.50 (minimum wage).

Current benefit system rules compensate for reported earnings below the national minimum wage through Tax Credits and/or Housing Benefit. Under Universal Credit’s MIF, earnings are assumed to be at the National Living Wage or above. This means that self-employed people who report earnings below the minimum wage will lose out.

Deven Ghelani, Director of Policy in Practice, said, "Self-employed people should aspire to earn at least the National Living Wage, but this can be the only valid route into work for some people.

"This policy could deter some people facing high barriers to work from taking their first steps into work, undermining the overall aim of Universal Credit."

The DWP argue that the measure is designed to encourage people to increase their earnings and move into gainful employment. Companies in the 'gig economy' that contract self-employed people should pay them at least the National Minimum Wage. However, some people who have little choice other than self-employment, including those with high barriers to work, could be worse off in work, undermining the aim of Universal Credit. 

The research is supported by the Trust for London, as part of a project tracking the living standards of over 574,000 low income households across London over two years, including around 45,000 people who were self-employed.

The Office for Budget Responsibility's welfare trends report finds that 436,000 people nationally will be affected by the Minimum Income Floor, 65 per cent of all self-employed claimants.

* Read the report Low income Londoners and welfare reform here

* Policy in Practice http://policyinpractice.co.uk/


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