Features

No, hobbyists shouldn’t get Universal Credit

It is only right that the self employed should get Universal Credit, says Merryn Somerset Webb. But only if they actually are self employed.

180327-self-employed-b

"Universal Credit to slash benefits for the self employed." So claimed a headline in The Observer at the weekend. True or not true? That rather depends on how you define self employed.

You are able to claim Universal Credit (UC) if you are "gainfully self employed". This means that your main income is self employment, you earn something from that self employment and your work is "organised, developed, regular and in expectation of profit." If all this is so, you are not required to look for formal employment and you can "concentrate on growing your business and earnings".

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

The catch, however, is that at some point your business has to actually make you some money.

During the first year of being self employed, the assumption is that you might not make as much as you would if you were working for someone else in a low paid job wage (striking out alone can be tough) so you get your income topped up to the appropriate UC levels with no trouble. However in year 2, things change.

Advertisement
Advertisement - Article continues below

The system assumes that you are making as much as you would on the national living wage and only tops you up to UC levels beyond that amount (known as the minimum income floor or MIF). You are effectively assumed to be making at least the minimum wage.

This makes sense. It's good (and quite right) that the taxpayer is prepared to step in to help people setting up new businesses for a year. But, as a spokesperson from the DWP points out, the system is "not designed to prop up unviable businesses". I suspect also makes sense to most other people.

If, after many months of effort, you aren't able to make as much from your self employed work as you would working for someone else, is your business viable and are you gainfully self employed? And if it isn't, and you aren't, why should the taxpayer continue to top up your income to levels much higher that they would if you were classified as unemployed with a great hobby?

You can argue about the timeframe (would two years be better as a start-up period?) and about how UC can work in the long term with the gig economy, but not really with the principle. There is a difference between being self employed and being gainfully self employed.

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/516758/beyond-the-brexit-talk-the-british-economy-isnt-doing-too-badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Visit/economy/600666/money-minute-tuesday-21-january-uk-labour-market-data
Economy

Money Minute Tuesday 21 January: UK labour market data

In today's Money Minute we get the latest unemployment figures for the UK, plus wage growth data and a host of company updates.
21 Jan 2020
Visit/economy/uk-economy/600645/take-a-punt-against-businesses-with-remainer-ceos
UK Economy

Take a punt against businesses with Remainer CEOs

Prominent EU supporters’ faulty reasoning is a liability for their businesses, says Matthew Lynn. Sell their shares short.
19 Jan 2020

Most Popular

Visit/investments/stocks-and-shares/share-tips/600636/class-acts-going-cheap-buy-into-europes-best
Share tips

Class acts going cheap: buy into Europe’s best bargains

Value investing appears to be making a comeback, while shares on this side of the Atlantic are more appealing on metrics such as price/earnings ratios…
16 Jan 2020
Visit/currencies/600665/currency-corner-new-zealand-dollar-kiwi-vs-us-dollar
Currencies

Currency Corner: how is the New Zealand dollar doing against its US counterpart?

The New Zealand dollar has been doing well against the US dollar in recent months, but has started to wobble a little. Is it still a buy? Dominic Fris…
20 Jan 2020
Visit/investments/stocks-and-shares/share-tips/600641/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Visit/investments/property/house-prices/600638/uk-house-prices-may-be-heading-for-a-boris-bounce
House prices

UK house prices may be heading for a Boris bounce

The latest survey of estate agents and surveyors from the Royal Institution of Chartered Surveyors is "unambiguously positive" – suggesting house pric…
16 Jan 2020