The new rules for self-employed people on Universal Credit are to set to be some of most complex ever designed and will prove devastating for the lowest earning workers. Self-employed people could find business ideas rejected by panels of government busy-bodies or face having to cancel organised work to attend workfare, all whilst attempting to battle unprecedented levels of red tape.
Under current rules, low paid self-employed people who work 30 hours a week can claim Working Tax Credit. This is a lower amount of benefit than Jobseekers Allowance and is removed at a lower rate when wages increase. Housing Benefit can also still be claimed, at a reduced rate dependent on earnings. This has meant that self employed workers can take work, or develop a business, without being forced to sign on and off unemployment benefits everytime they earn anything. Much like Working and Child Tax Credits, which are payable to those with children working a certain number of hours a week, this ended the situation for parents and the self-employed which left some people better off on benefits than on taking up low paid work.
A removal of the 30 hour limit would have been a cheap and swift way to ensure that everyone could benefit from Tax Credits. The payments could have functioned as a lower rate of benefits for those who are able to obtain some form of work, the stated aim of Universal Credit. This Government have done the opposite and in April removed the right to working tax credits for parents working part time, plunging tens of thousands of families into immediate poverty.
Some have claimed that the Tax Credits system has been abused, with people working 30 hours a week on businesses or self-employment which earn very little. This misses the point. By and large these are people who would be paid the higher rate of Jobseekers Allowance were their Tax Credits removed. As well as costing more, this would have meant it would be practically impossible for people to declare small amounts of income from self-employment without having benefits slashed or removed completely.
There are reports that Welfare to Work companies have been bullying people on the Work Programme to leave Jobseekers Allowance and claim Tax Credits instead. This may account for the recent fall in unemployment, which saw a huge rise in the number of people registering as self-employed during the same period. Welfare to Work companies can pick up large payments from the DWP for those they claim to have supported into self-employment. Should that self-employment turn out not to be genuine, then those claimants could face not just being stripped of Tax Credits, but also forced to repay any money they have previously received under the system.
Despite this potential abuse by private sector poverty pimps, Working Tax Credits have been a cheaper and less complex way to support those in self-employment than previous schemes. Those who have benefited are not just grasping entrepreneurs, – tradespeople, casual labourers, child minders and even artists, actors and writers are some of the sectors that depend on Tax Credits for survival.
This is all set to be brought to an end by Universal Credit, which will introduce a staggering amount of complexity into the system and will stifle the chances of both the self-employed and the entrepreneurial alike.
According to the recently published draft regulations: “claimants who declare that they have income from self-employment, or who are self-employed with no income, will be invited to a “Gateway” interview.”
This appears to be some form of Stalinist Dragon’s Den, whereby people will be forced to prove to the DWP that their business, or their trade is: “done with the intention of increasing the income received to the level we could expect the claimant to make if working full time”
Claimants will be expected to provide reams of evidence at these interviews which will no doubt be carried out by people with so much entrepreneurial know-how that they’ve ended up working in the Jobcentre.
Should the claimant pass this government test, then they will be granted a year’s start up period, during which they will be largely left alone. After that they will be subject to the ‘Minimum Income Floor’. This means that self-employed people will be expected to earn a certain amount a week, or lose eligibility for benefits or self-employed status. The Government are not telling us exactly what that Minimum Income Floor will be in the consultation documents, however it has previously been suggested that people will be expected to earn at least the minimum wage for any self-employed activity.
Under the new proposals self-employed people will be expected to work at least 18 hours a week. It is unclear whether those in self-employment working at this level will be expected to abandon self-employment to take up full time work, or workfare, should the DWP deem it appropriate. Those working part time are now to be forced to continually look for full time work, attend interviews at the drop of a hat and hand in their notice immediately should they be offered even a temporary full time job.
If these requirements are not inflicted on self employed workers, then for many people simply under reporting their hours will mean they are able to qualify for the full Universal Credit award. If this all sounds confusing that’s because it is. Once again a key piece of legislation, set to go before Parliament in Autumn, has not been thought through or adequately explained.
It is likely that the Minimum Income Floor will mean that self-employed people are expected to earn the equivalent of the minimum wage for 35 hours a week or face a cut in benefits. As Housing Benefits are now to be lumped in with Universal Credit, this may mean homelessness for some.
Another aspect of the new regime will punish people who invest in tools, stock or other business expenses in order to increase earnings. Self employed people will now be required to report all income and business expenditure on a monthly basis as opposed to annually as under the present system. Expenses will not be carried over to the next month. This will mean if someone spends a couple of grand on stock this will only be reflected in their earnings for that month. The new system will make it impossible for self-employed people to invest on any significant level to improve their earnings.
It will not just be businesses that have large outlays, such as small shops or tradespeople, that will be affected by the monthly reporting. A freelance journalist who spends a month writing a piece in anticipation of it being sold will be penalised for not earning minimum wage during that period. Self employed people will be punished for injecting both time and cash into their business. The harder you work, the less you get.
And these are the lucky ones who have passed their DWP Dragon’s Den.
People who fail to impress the Government with their self-employment plans will still be permitted to earn money from self-employment, and will face the same monthly requirement to report any earnings. They will also however be given a Claimant Commitment, meaning they will not be treated as self-employed. This will mean that there will be a requirement to attend Mandatory Work Activity or attend pointless courses and workshops with Welfare to Work companies like fraud ridden A4e any time the DWP sees fit.
This will destroy people’s ability to take on small amounts of work on a casual basis. Should someone be offered a few days work on a self-employed basis they will not be in a position to guarantee they can turn up. They could be sent to work in a charity shop with no pay that week instead. Far from the stated aim of making all work pay, short periods of self-employed work will be a commitment that claimants can no longer make under the new regime. The DWP will decide how you spend your time and if you fail to comply you could face sanctions for up to three years.
It is the subtle shift in the meaning of the minimum wage though which is perhaps the most revealing indicator of the direction of this toff Government. For too long greedy employers have forced people to work on a self-employed basis to avoid having to pay employees the minimum wage. Many cleaners, au pairs and child minders are paid less than minimum wage and registered as self-employed, as are people on building sites around the country along with people working in shady commission only sales jobs. Whilst in some cases this is illegal, it is common practice in many sectors.
Iain Duncan Smith is attempting to usurp the minimum wage by making it not an employers responsibility to pay it, but a workers responsibility to earn it. If someone is working on a self-employed basis on a building site for less than minimum wage, it will be the worker who is punished by the benefits system for not earning enough.
The sets the groundwork for the abolishment of the minimum wage, whilst retaining a requirement on those in receipt of vital benefits to earn it. It is obviously wild scare-mongering to suggest that the Tories want to do away with the requirement on employers to pay the minimum wage, however there is nothing in these new regulations that would prevent that.
The proposed regulations state: “In order to meet a given work availability requirement claimants must be available to immediately take up, (or attend an interview for) work/more work/better paid work.“
Were Tories to bow to pressure in their own party to scrap the minimum wage for certain groups, such as disabled people, there would be no need to amend Universal Credit legislation. If you don’t earn minimum wage it will be your own fault, not the fault of those paying you. For those in self-employment this is already to become a reality under the new regime. Whether this punitive arrangement is laying the groundwork for the minimum wage to be scrapped for everybody - whilst attempting to minimise the resulting cost of in work benefits – remains to be seen.
The draft regulation for Universal Credit have just been published and are open to consultation at: http://ssac.independent.gov.uk/consult.shtml
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