Introduction

The Minimum Income Floor (MIF) under Universal Credit is failing self-employed people across the UK. This policy assumes that self-employed claimants earn at least the equivalent of the minimum wage for a set number of hours each week, regardless of their actual earnings. As a result, the MIF unfairly penalizes those who earn less, often pushing them into financial hardship.

Key Points

1. Unrealistic Earnings Assumptions

The MIF assumes self-employed individuals are earning a stable income equivalent to minimum wage, but in reality, many self-employed people experience fluctuating incomes due to seasonal work, market conditions, or economic downturns. This assumption doesn’t reflect the true nature of self-employment and places undue financial strain on those struggling to make ends meet.

2. Lack of Support During Hardship

During tough times, such as economic recessions or personal hardships, self-employed people often see their income plummet. Unlike employees who might receive furlough pay or redundancy packages, self-employed individuals receive no extra support, and their UC payments remain based on an assumed income that doesn’t match reality. This policy fails to provide a safety net when it’s needed most.

3. Examples of Under- and Over-Earnings

Under-Earnings Example:

Imagine a self-employed person, Sarah, whose MIF is set at £1,579.16 per month (based on 35 hours per week at the minimum wage rate). One month, Sarah's actual earnings are only £300 due to a slow season. Instead of her UC being calculated on her actual earnings of £300, it’s calculated as if she earned £1,579.16. Here’s how the math works:

- MIF Earnings Used: £1,579.16.

- Taper Rate Applied (55%): £1,579.16 × 55% = £868.54 deduction from her Universal Credit.

- UC Allowance: £368.74.

- Result: £368.74 - £868.54 = -£499.80.

Despite her low earnings, Sarah receives £0 in Universal Credit, leaving her worse off and forcing her to rely on other forms of support like food banks or loans.

Over-Earnings Example:

Now, consider if Sarah has a good month and earns £2,000. Her earnings exceed the MIF, so her actual income is used in the calculation.

- Actual Earnings Used: £2,000.

- Taper Rate Applied (55%): £2,000 × 55% = £1,100 deduction from her Universal Credit.

- UC Allowance: £368.74.

- Result: £368.74 - £1,100 = -£731.26.

Again, Sarah receives £0 in Universal Credit, illustrating that even when her earnings exceed the MIF, she gets no additional support.

4. Better Off Unemployed

The MIF creates a scenario where many self-employed people find themselves financially better off being unemployed rather than working for themselves. Universal Credit payments are often higher and more stable for those who are unemployed than for self-employed individuals whose earnings fall below the MIF. This discourages entrepreneurship and self-reliance, going against the government’s stated goal of 'making work pay.'

5. Unsustainable Living Standards

The current system does not provide a sustainable way of living for self-employed individuals who fall below the minimum wage threshold. They are forced to rely on food banks, charity support, or even consider giving up their business dreams simply to receive the financial support they need to survive.

Highlighting Charmaine Parkin's Case

Charmaine Parkin, a self-employed actor and director, challenged the MIF in court after it left her worse off than if she were unemployed. Her case highlighted how the MIF doesn’t account for fluctuating incomes. In one month, she earned just £96, but her Universal Credit was calculated as if she had earned £788.26, resulting in a drastically reduced benefit. Despite her efforts, the court dismissed her challenge, stating that while the MIF treated self-employed and employed individuals differently, it was not unlawfully discriminatory.

Other Legal Challenges

Multiple legal challenges against the MIF have consistently been rejected by the courts, which argue that the policy has a reasonable foundation. The government claims the MIF is intended to incentivize self-employed individuals to reassess their business models if their earnings fall below expected levels. However, this approach fails to consider the real-world challenges of self-employment, particularly during times of economic hardship.

Call to Action

We urge the government to revisit the MIF and develop a more flexible approach that reflects the realities of self-employment. Policies should consider actual earnings rather than assumed incomes, providing fair and adequate support for self-employed people during times of low income. We need a welfare system that encourages work and self-employment rather than one that penalizes those striving to make a living independently.

Conclusion

Sign this petition to demand a fair reassessment of the Minimum Income Floor policy. Let’s ensure that self-employed individuals receive the support they deserve in times of need.