Universal Credit: supporting self-employment Contents

Conclusions and recommendations


1.The Department’s ability to adapt Universal Credit for the large and growing self-employed workforce will be a key determinant of its success. But UC was not designed with the self-employed in mind, and the Department’s new rules are uncharted territory. Their impact is highly uncertain. They could affect the cost of Universal Credit substantially—in either direction. They are, therefore, an ideal opportunity to make use of the “test and learn” philosophy underpinning Universal Credit. It is remarkable that the Department has no plans to produce any analysis of the effects of the changes (bar a tiny qualitative study) until at least late 2019. If they do not test, then they cannot hope to learn. We recommend the Department commission and publish ongoing evaluation of the effect of the new self-employment rules on Universal Credit claimants. In light of its previous research the first such evaluation should be commissioned when there are sufficient claimant numbers to permit a sample of around 1,000. This research should examine how claimants are responding to the Minimum Income Floor, including whether claimants who have opted to close their business have been successful in finding other work. (Paragraph 11)

Income volatility and the Minimum Income Floor

2.The Minimum Income Floor does not deliver parity of treatment between the self-employed and employees. It is designed with little regard for the reality of self-employed work. Self-employed people risk missing out on important support not because their income is inadequate, but because it is volatile—varying from month to month. The Government aspires to support entrepreneurship and economic dynamism. The Minimum Income Floor, as currently configured, is a very real risk to both. (Paragraph 17)

3.In sticking rigidly to a monthly reporting period for self-employed Universal Credit claimants, the Department risks attempting to force square pegs into round holes. At worst, it could lead to viable, successful businesses collapsing. This is the antithesis of the entrepreneurial, dynamic economy that the Government wants to support. The Department must not let an unyielding commitment to monthly reporting undermine the laudable goals of Universal Credit: supporting claimants to stay in and progress in work. Its own Surplus Earnings Rules show that a more flexible approach is possible. (Paragraph 24)

4.We recommend the Department allow reporting periods of up to a one year for self-employed claimants who receive irregular monthly pay. The decision on whether to allow a longer reporting period should be made on a case-by-case basis by Jobcentre Plus’s self-employment specialist Work Coaches. It should be based on evidence of need: for example, production of Universal Credit records, invoices or accounts demonstrating irregular or seasonal payment schedules. (Paragraph 25)

5.Self-employed people, like employees, pay tax on their annual incomes. Longer reporting periods will give some claimants more money than they would otherwise have. This will help them manage and meet their tax obligations. Many more could benefit, however, from expert, proactive advice on their individual finances, including tax arrangements and alternative payment options. DWP and HMRC should take a joined-up approach to enabling this and to ensuring tax and reporting arrangements do not become unduly complex for claimants. We recommend the Department require Work Coaches, during the Gainful Self-employment test, to discuss with claimants the relationship between tax and Universal Credit. This should include asking if they would like to set up a Budget Payment Plan, signposting towards further information, and if necessary referring them to specialist advice on whether a plan would be appropriate and how to apply. In the longer term, HMRC and DWP should explore how they can harmonise their approaches to collecting data from the self-employed. This might include, for example, exploring how data already submitted to DWP could be used in pre-populating their tax self-assessment forms. (Paragraph 30)

Supporting new businesses

6.The introduction of the Minimum Income Floor could greatly increase demand for Jobcentre Plus’s self-employment support services. Its Work Coaches have an important role to play: determining eligibility for self-employed Universal Credit, checking progress, and referring to external support. The Department must ensure it has sufficient internal expertise on self-employment to deliver these functions effectively. But Work Coaches—even with expertise—are no substitute for dedicated mentors with experience in the claimants’ business areas. In many cases, this can be the difference between business success and failure. (Paragraph 34)

7.We recommend the Department continue to offer specialist support for self-employed claimants earning below the Minimum Income Floor when the current NEA contracts end in 2019. As part of this, it should commit to providing access to specialist mentors with direct experience in their area of work for claimants assessed as having potentially viable businesses who are earning below the Minimum Income Floor. It should also commit to expanding its own internal nucleus of expertise in Jobcentre Plus, ensuring it has sufficient numbers of self-employed Work Coaches to meet the demand for their skills. (Paragraph 35)

8.The Start-up Period should give newly self-employed claimants time and space to focus on making the best of their new business and reaching the Minimum Income Floor. But the evidence underpinning the Department’s belief that just one year is long enough is inadequate. Viable, ultimately successful businesses frequently take more than a year to get going. For many claimants the short Start-up Period could create an insurmountable barrier to getting up and running, and getting off benefits. This is not only detrimental to claimants; it is a questionable use of the Department’s resources. Specialist and Jobcentre Plus-commissioned support costs public money. The Department should not undermine its own investment by cutting off support to potentially viable businesses before they have had the chance to get off the ground. Doing so flies in the face of the entrepreneurial spirit the Government wants to nurture, presenting a barrier to economic growth, job creation and increased tax receipts. We recommend the Department permit extensions to the Start-up Period of up to three years. This should be accompanied by a tapered introduction of the MIF beginning at the end of year one and rising to the full amount at the end of the extended start-up period. As with extensions to Minimum Income Floor reporting periods, this should be offered on a case-by-case basis. In making the decision, Work Coaches should check for evidence of progression and viability, including achieving expected increases in earnings each year. Work Coaches should then ensure during each reporting period that the claimant is continuing to demonstrate business growth and progress. (Paragraph 44)

Published: 10 May 2018