“Small businesses are the backbone of the UK,” prime minister Theresa May said just over a year ago.
But she failed to reveal just how broken this backbone would be under government plans for the self-employed, many of whom face having to shut their businesses as the controversial Universal Credit programme rolls out throughout the country.
The government has said Universal Credit – which rolls six benefits such as housing benefit, working tax credit, child credit and others into one payment – was designed to ensure that work pays.
But just tell that to Sarah, a single mother of two who has run a successful if modestly earning childminding business for over a decade — but now risks losing it all.
With the help of limited benefits support such as tax credits and housing benefit to top up her income, she’s been able to make ends meet while working an average of 40 hours a week and caring for her six-year-old child and teenager.
But under Universal Credit, the government will assume that Sarah earns the equivalent each month of a minimum wage worker working full-time and will peg her UC payments to this rate, called the ‘minimum income floor’.
The only problem is she and millions of self-employed people like her often earn substantially less in some months, even if their business is successful.
And the government has so far refused to make up the shortfall in benefits for these lower-earning self- employed as the current system does.
Because of the way Universal Credit is designed, some self-employed people earning exactly the same as employees could receive thousands of pounds less in support.
“The government has failed to understand the reality of running a childminding business, or any other small business for that matter,” Sarah notes. “If these changes go through, I will be forced to give up everything I’ve worked so hard for.”
She explains that her earnings fluctuate each month based on many different factors – for example in August, children may go on holiday and so she has less business. Or sometimes, children may be poorly and stay home.
Childminding is highly regulated in the UK, with strict adult-child ratios, so she couldn’t substantially “grow her business” – as the government has instructed self-employed people on Universal Credit to do – even if she wanted to.
In other months, Sarah will earn less because her expenses are higher – each year she must pay Ofsted fees and insurance, in the summer she pays for outings for the children, and every few years she must pay for various courses such as first aid that government regulators require.
Far from making work pay, the reality of Universal Credit for millions of self-employed people will mean that it makes more financial sense to be unemployed than it is to continue running their business.
Sarah is far from alone – a recent Huffington Post investigation found that government advisors have specifically told claimants they’d be better off on the dole under Universal Credit than continuing in their trade.
“The government says it wants to support small business owners, but it’s doing the exact opposite,” Sarah says. “For tax purposes, our earnings are calculated over the year with the understanding that money fluctuates, but for claiming Universal Credit, our earnings will be assessed each month – it makes absolutely no sense.”
“My childminding business means everything to me – it means independence for my family; it means my self-esteem as a single working mother being able to provide for my children and be there for them; it means setting a good example for my kids.
“I’m proud of the work I do – I often work more than 40 hours a week and the parents whose children I look after rely on me. I hate being on benefits and I wouldn’t be if I didn’t have to be – it enables me to make ends meet while caring for my children and providing a service in need,” she adds. “I don’t know what I will do if I have to shut my business.”
Sarah notes that in the part of the UK where she lives, there are very few jobs available which utilise her skills. And if she were to look for employment, she may even end up claiming more government support in childcare costs and job seekers allowance while she looks for a job.
A recent report from the Low Income Tax Reform Group highlighted all the different ways that self-employed Universal Credit claimants would be hit – some self-employed people earning the exact same each year as employees will be more than £2,000 a year worse off.
A Work and Pensions Committee meeting last week debated the impact of Universal Credit on the self-employed, but for hundreds of thousands of people, change must happen now.
“The only reason I found out about this issue is because it was brought up in a conversation with a friend,” Sarah explains. “My biggest fear is for those who will find out just as they are forced on to Universal Credit. In my area, I’ve been told it will roll out in the next two years, but for others it might be too late. People will be evicted from their homes; families will go hungry and it will be children who are most harmed by all of this.”
That’s why Unite is actively lobbying for Universal Credit to be stopped and fixed immediately – last week, Unite Community staged a national day of action in towns and cities across the UK.
This, Unite Community co-ordinator Liane Groves said, was not the beginning nor the end of Unite’s offensive against Universal Credit.
“Sarah’s heart-breaking story is one among the many we have heard from at Unite which show the real human cost of this government’s botched Universal Credit plans,” Groves said.
“It is scandalous that the entire system is designed to punish people who just want to get on in their lives – to care and provide for their families; to earn a decent and respectable living; to live with dignity.
“We at Unite are calling for Universal Credit to be halted immediately so that it can be fixed, and we are actively campaigning to achieve this aim. We need a fair and humane benefits system that understands the realities of work in modern Britain today.”
Find out more on how you can get involved in the fight against Universal Credit here.