More than three quarters (78%) of self-employed people – such as Deliveroo and Uber drivers – on a low income in London will be more than £4,000 a year worse off as a result of universal credit, according to a study by the Policy in Practice consultancy.
Serious problems have now emerged in the treatment of the self-employed because of the way their earnings are recorded under universal credit. The issues have arisen because a “minimum income floor” (MIF), based on the national living wage, is used to calculate universal credit payments each month.
Because self-employed workers’ earnings fluctuate from month to month, they sometimes fail to meet the minimum figure and lose out compared with salaried counterparts. They are also only given a year to get their businesses off the ground before the MIF kicks in. Using analysis of cases from 19 London boroughs over two years, Policy in Practice found that 78% of self-employed households on low-income in London are set to become £344 per month worse off under the new system.
David Finch, from the Resolution Foundation thinktank, said: “It is a key example of where the design of universal credit is failing to match the reality of self-employed people’s lives.
“That stems from the fact that they are expecting self-employed people to report their earnings on a monthly basis as if they were employees, when they are far more likely to have variable income over a year – and then applying a minimum income floor on a monthly basis. The two combined create these high losses.”
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