Universal Credit ‘stifling’ self-employed start-ups

The Government’s controversial Universal Credit programme is ‘stifling’ the entrepreneurship of the self-employed, according to a group of MPs.

A report published today by the work and pensions select committee claims the flagship welfare has been ‘designed with little regard for the reality of self-employed work’ and could crush potentially viable businesses.

Around five million people – 15% of the total workforce – are now registered as self-employed in Britain.

But in order to continue to quality for Universal Credit, while they are getting a business off the ground, the rules state self-employed people must show they are earning a minimum amount – known as the Minimum Income Floor – after just one year.

The report warns that many businesses take more than one year to get going and the Department for Work and Pensions’ short period could create an ‘insurmountable barrier’ to many self-employed people getting their business up and running, and ultimately getting off credits.

Instead the report recommends the start-up period be extended to three years.

Commenting on the report, the founder of the smoothie business start-up Pack’d, Luke Johnstone (pictured), said Universal Credit’s current design is a ‘false economy’ and ‘discourages social mobility’.

‘A one-year deadline does not reflect the many nights it takes to become an overnight success and the odds in business remain firmly stacked against those that cannot afford to start,’ said Mr Johnstone.

‘The recommendation to extend Universal Credit to three years is a positive move towards providing a genuine foundation for success. Rather than stifling entrepreneurs with get rich quick pressure that can encourage recklessness, it gives them a platform to demonstrate progress over a more realistic period and should provide the Government with a greater return on their investment.’

Committee chair, Frank Field, added: ‘Universal Credit was not designed with self-employment in mind and it shows.

‘Its current set-up for people starting and running their own business risks crushing potentially viable, productive enterprises. At the same time, it risks throwing away the significant investment of taxpayer’s money in them to that point.

“The Department for Work and Pensions should give people longer to get going, and not punish them for the income volatility that is in the nature of self-employment. This would give a boost to the entrepreneurship that is so vital in a dynamic economy. It would also offer good value for taxpayers and a fillip to the Department’s beleaguered flagship policy.’

Last month, New Start reported on a report by the think-tank Demos and commissioned by the Association of Independent Professionals and the Self-Employed (IPSE) which called for a ‘new deal’ to help the growing number of self-employed people in Britain.

In particularly, it called on the Government to ‘comprehensively reform’ how Universal Credit works for self-employed workers.