Work and Pensions Committee - Universal Credit implementation: meeting the needs of vulnerable claimantsWritten evidence submitted by Fiona Nicholson

1. I am a self employed home education consultanti and I have benefited greatly from Working Tax Credit in setting up and running my business over the past few years. I made the transition to self employment following an extended period of voluntary work with the home education support charity Education Otherwise.ii Since becoming self employed I have also engaged in a voluntary capacity with the Spartacus Group of disability activists and I am credited as co-author of the Spartacus submission to the Department for Work and Pensions’ (DWP) consultation on Personal Independence Descriptorsiii published in April 2012. I also collaborated with Dr Sarah Campbell on Past Caring,iv published in July 2012, which is an analysis of Worcestershire Council’s proposals for a Maximum Expenditure Policy.

2. This memorandum is narrowly focused on the implications of Universal Credit for self employed people and I have taken my information from the Draft Regulations for Universal Credit;v the Explanatory Memorandum on Universal Credit Regulationsvi prepared for the Social Security Advisory Committee, both published in June 2012 and; the Note on Transitional Protectionvii published in July 2012.

3. Paragraph 160 of the Explanatory Memorandum, which is a 59 page document, confirms that the Government intends to implement the Minimum Income Floor proposal, originally put forward in the White Paper on Universal Credit, which will limit the amount of Universal Credit a claimant can receive while declaring themselves to be self-employed on low income.

4. Paragraph 162 of the Explanatory Memorandum goes on to explain that 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 where they will be asked to demonstrate that they are in “organised, developed self-employment carried out in the expectation of profit.”

5. Paragraph 163 of the Explanatory Memorandum states that: “types of appropriate evidence will be set in guidance, but examples may include diaries of appointments, lists of customers and suppliers, proof of tax registration with HM Revenue and Customs (HMRC), marketing materials to secure new business, a business plan, receipts for stock purchased, order and sales records and bank statements.”

6. According to paragraph 162 of the Explanatory Memorandum, the claimant will be required to demonstrate that self-employment is: “taking up the majority (ie at least half) of the claimant’s work week—this would be 18 hours a week for claimants with no limits on their working time, but lower for claimants with caring responsibilities or disabilities, for example” and also that the self employment is: “done with the intention of increasing the income received to the level we could expect the claimant to make if working full time (for their circumstances).”

7. Paragraph 164 of the Explanatory Memorandum states that where the claimant is accepted as being in gainful self employment for Universal Credit purposes and has been in gainful self employment for less than a year he/she will be granted a start up period, otherwise he/she is to be subject to the Minimum Income Floor.

8. The Minimum Income Floor is explained in paragraphs 166 to 169 of the Explanatory Memorandum on Universal Credit, where we learn that the level has not yet been set—despite publicity elsewhere about the notional income’s being derived from the minimum wage—and that as of June 2012 Department for Work and Pensions is: “working with other government departments to determine what the optimum design will be so that claimants become less reliant on benefits.”

9. Paragraph 168 of the Explanatory Memorandum on Universal Credit 168 recognises the limits some claimants who are able to work have on the amount they can be expected to work, for example if they are the lead carer for a school-age child or have a physical impairment. The Department of Work and Pensions states that: “in setting the final design of the Minimum Income Floor, we will carefully consider these tailored easements.”

10. Paragraphs 169–170 of the Explanatory Memorandum on Universal Credit set out the expected provisions for the “Start-Up Period” whereby claimants who satisfy the Gateway checks on their self employment and are within one year of starting out in self employed activity, will be eligible for the “Start-Up Period”, covering one year from the date of claim within which the Minimum Income Floor will not be applied, and where the claimants’ Universal Credit award will be calculated based on their reported income, even if that is £0 in any assessment period. Paragraph 169 states that claimants will be eligible for only one Start-Up period in their working lives.

11. Paragraphs 171–188 of the Explanatory Memorandum on Universal Credit set out the proposed requirements for reporting self employed income on a monthly basis—ie “the assessment period”—with paragraph 173 giving further details of the simplified “cash income” basis which asks for the total income from receipts into the business and the details of payments out of the business under defined categories in the assessment period.

12. Unsurprisingly the proposals for monthly reporting require much explanation and appear designed to discourage the majority of claimants. Paragraph 186 states that: “claimants will receive messages towards the end of each assessment period [ie every month] warning them that they will need to make an income report once the assessment period has finished.” It would seem that the current plan is for the amount of the monthly subsidy to be automatically recalculated based on allowable income fluctuations worked out by the claimant and submitted via an online claim form within seevn days every month.

13. In the Draft Regulations for Universal Credit, which is a 92 page document, self employment is dealt with in pages 29 to 31. Gainful self employment is defined in paragraph 57 and the Minimum Income Floor is mentioned in paragraph 58-(1) as follows: “Where, in any assessment period, a claimant is in gainful self employment and their earned income in respect of that period is below £... [amount/s to be determined], the claimant is assumed to have earned income equal to that amount.” Once again, the amount is left blank, though media reports have suggested that it will be based on the minimum wage.

14. The Transitional Protection Note explains that transitional protection will be calculated by comparing the total household monthly benefit and tax credit receipt at the point of migration with the total first household Universal Credit entitlement. Where the Universal Credit entitlement is lower, Transitional Protection will be awarded as a cash amount to make up the difference.

15. However, we are told that transitional protection will: “not be offered to self employed claimants against the effects of the Minimum Income Floor. In these cases, the Transitional Protection calculation will be carried out prior to the Minimum Income Floor being applied. Once the Minimum Income Floor is applied the household will retain their Transitional Protection amount, but no further protection will be provided. This will ensure that claimants’ circumstances other than those related to earnings are protected. “

16. My view is that the proposals for self employment and Universal Credit do not take into account the full range of circumstances in which people move into self employment and the time it takes to establish a self sustaining business. In addition, the monthly online reporting requirements are virtually impossible to explain, let alone to understand.

17 August 2012

References

i http://edyourself.org/

ii http://edyourself.org/articles/EO.php

iii http://wearespartacus.org.uk/wp-content/uploads/2012/02/wearespartacus-pip-submission-30-4-12.pdf

iv http://wearespartacus.org.uk/wp-content/uploads/2012/07/Past-Caring-full-report.pdf

v http://www.dwp.gov.uk/docs/uc-draft-regs-2012.pdf

vi http://www.dwp.gov.uk/docs/uc-draft-regs-2012-memorandum.pdf

vii http://www.dwp.gov.uk/docs/ucpbn-transitional-protection.pdf

Prepared 21st November 2012