No, hobbyists shouldn’t get Universal Credit

published 27 March 2018

180327-self-employed-b — Self-employment should be "organised, developed, regular and in expectation of profit."

"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.

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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.

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.