No, hobbyists shouldn’t get Universal Credit

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”.

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.

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.