Universal Credit and Self Employment / Sole Traders.

| posted in: Welfare Reform | 3 Comments

Dear Policy in Practice,

Thank you to you and your team for putting together the Universal Credit Calculator together. It will be very useful for many people.

However, I’m afraid it is lacking in the self-employed/sole trader department. I also find it hard to believe the calculations estimated. As they seem to show that the housing support element will cover the full cost of my current rent.

The Calculations were based on living in Wales, Couple, 2 bed, 1 Child aged between 5-15. Renting Cost per month £745. I am a little confused by the figure of £1498 in step 2 – our local housing allowance for my area in Cardiff for 2 bed is about £536 per month (although last month this was £465 reasons unknown).

It is difficult for me to understand the new policies as my husband and I are both self employed and there is only one paragraph Annex 3 point 5 of the http://www.dwp.gov.uk/docs/universal-credit-full-document.pdf that specifically talks about self employment and the paragraph seems to be unrealistic and vague in terms of what a sole trader can achieve on their profit and loss margins. I would love to take home a standard wage however in the middle of a recession it is very difficult.

Many business from all walks of life will be making a loss this year even falling into debt this does not mean they should not be counted, and then forced to plunder into mandatory work when they have a business to run.

I appreciate that welfare reform needs to take place however it is very difficult for me to get the full facts concerning our situation.

I am also concerned that-

“The large number of people affected by Universal Credit means that it could have a
significant impact on the labour market and consequently on the macro-economy.
For example, if Universal Credit significantly boosts labour supply it should put
downward pressure on wage growth, which could stimulate investment, growth and
equilibrium employment. The evaluation of impacts should therefore explore the
scope for measuring macro-economic impacts in the longer-term.”

page 11 of the- http://www.dwp.gov.uk/docs/universal-credit-evaluation-framework.pdf

I’d like to highlight “A downward pressure on wage growth”. This statement interests me since it would seem to contradict Annex 3 point 5 of the previous stated quote above. (which from my present situation this means an unrealistic wage growth, we struggle to make a profit as it is let alone a wage)

I welcome your response. I also look forward to reading the evaluations of the following the pathfinder program April 2013 in the North West of England.

Please can you enhance the Universal Credit Calculator to include self employment factors and please could you provide me with more information on Annex 3 point 5. Why is so little mentioned about it when this specifically will effect people the most?

Kind regards,

Penelope Rose

3 Responses

  1. Dear Penelope,

    Thank you for your comments.

    I have tested the calculator using the situation you describe and it correctly estimates both the monthly housing element (£414.49 – Average Welsh LHA for a two bedroom property). Your housing support may be lower than this if your rent is lower. The £1,498 figure is your total out of work entitlement, including, for example, child tax credits, and unemployment support.

    There have been a number of changes to self employment in the latest regulations. For example, new businesses will have twelve months before expecting to earn at least the equivalent of the minimum wage. They are given this opportunity once every five years.

    The point about “a downward pressure on wage growth” is interesting, and one that few have picked up on. The Universal Credit impact assessment expects an additional 300,000 households will move into work as a result of improved work incentives, and there will be an additional 1.5 – 2 million hours worked across the economy each year. This additional economic activity is surely a good thing, but higher supply (of labour) will tend to keep prices (wages) low.

    Lower wage costs make it cheaper to run some business, but it can increase increase competition for some other businesses, including sole traders.

    Fundamentally, this is a question about the legitimacy of the minimum wage – should business owners be allowed to earn less than the minimum wage if they want to. The government disagree if it means that their income is being topped up by state support.

    The blog below explains both sides of the argument concisely.
    http://policyinpractice.co.uk/policy/universal-credit-and-self-employment/

    Deven.

  2. Is the way forward for sole traders to transfer to a Limited Company? I am not sure of the position of payments to company directors so some clarification would be useful.

    • Dear Joanne,

      We don’t believe that transferring to a Limited Company will make a difference for Universal Credit’s conditionality and reporting requirements. At the time of writing, new and existing businesses will have twelve months before expecting to earn at least the equivalent of the minimum wage. Please reply to this comment with a bit more information about your business if you would like us to look into this issue further.

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