Universal credit ‘flaws’ mean thousands will be worse off

Thousands of self-employed, agency, and zero-hours contract workers will be potentially hundreds of pounds a year worse off under universal credit, according to research.

Analysis by Citizens Advice claims that flaws in the new benefit mean self-employed workers whose earnings fluctuate monthly could receive far less over the course of a year than employees in “traditional” jobs who earn the same amount.

The charity says that unless the basic decade-old design of universal credit is updated it risked “creating or exacerbating financial insecurity for the rising sector of the workforce in non-traditional work”.

Its analysis shows that a self-employed worker earning £9,750 a year would be £630 worse off under universal credit than an employee with an identical annual income but paid a regular monthly salary.

The anomaly will affect people who have set up their own business, as well as those working in seasonal occupations such as agriculture and hospitality, and workers who are dependent on fluctuating overtime pay.

The charity estimates that about 4.5 million people in the UK hold down jobs which vary in hours or earnings each month, while a further 4.8 million are self-employed, the majority being eligible for in-work benefits.

“Our in-work benefit system now needs to be able to support labour market diversity, not penalise or increase risk for people whose work and earnings patterns no longer fit traditional models of employment,” the report says.

The problems are caused by the minimum income floor of universal credit, a complex rule that assumes claimants who have been self-employed for a year or more earn the equivalent of at least 35 hours at the national minimum wage each month. If they earn less than this threshold – perhaps because their work is seasonal or they are contracted to work fewer hours – their universal credit payment will not make up the difference. However, if their monthly earnings exceed this level, their benefit payment is reduced accordingly.

The minimum income floor is designed to weed out claimants with bogus or non-viable businesses. The government expects to save £1.5bn a year by 2022 by applying the rule. The Office for Budgetary Responsibility recently estimated that 400,000 claimants would experience losses as a result.

Gillian Guy, chief executive of Citizens Advice, said ministers needed to ensure workers in non-traditional jobs were not left at a financial disadvantage. “Despite the labour market changing significantly in the last decade, including a rapid rise in self-employment, universal credit is still better suited to those with regular jobs.

A DWP spokesperson said: “The minimum income floor encourages people who aren’t earning enough through self-employment to grow their business or take on more hours in other employment.

“Universal credit is a flexible benefit that supports people in and out of work, those on low incomes and the self-employed, and it’s succeeding. We know that people on universal credit are moving into work quicker and staying in work longer than under the old system.”