Almost one million lower earning freelancers could both be ‘financially hit’ and face a “huge bureaucratic burden” under Universal Credit, a think-tank is warning.
The new benefits system, due to be phased in, means that more than 800,000 self-employed people will have to report their income every month, not every year as they do currently.
As well as this “red tape burden”, these freelancers risk a financial fallout, as their UC entitlement will be based on monthly earnings, which vary significantly for such workers.
David Finch, a senior economist at the think-tank, the Resolution Foundation, hinted that on the one-hand, simplifying the benefits system is a reform that should be welcomed.
Indeed, rather than receiving a medley of different benefits, such as Jobseeker’s Allowance, Working and Child Tax Credits or Housing Benefit, claimants will just get one – UC.
But on the other hand, Mr Finch warned: “Almost a million self-employed workers moving onto Universal Credit will for the first time need to report their income every month.
“Many will receive less support than employees earning the same amount, just because what they take home varies from month to month.”
He says the solution is to bring the reporting requirements on the self-employed into line with their annual tax return, and apply the ‘minimum income floor’ on an annual basis.
It is this monthly ‘minimum income floor’ that threatens to hurt such freelancers because it determines UC’s value, which (as proposed) will not rise or fall in line with earnings.
The foundation said: “The minimum income floor restricts their [freelancers’] entitlement in months where earnings are lower than a full-time worker on the minimum wage.”
As a result, a self-employed worker earning £12,000 a year who earns an extra £200 in a given month would see their UC entitlement fall by £90, while if they took home £200 less in another month, it would increase their UC entitlement by just £5.
Mr Finch reflected: “The treatment of the self-employed in Universal
Credit is at odds with the government’s support for business and should be
changed before workers start moving onto the new system.”