openDemocracyUK: Investigation

Revealed: Coronavirus self employment grant could cost you months of universal credit

A flaw in the Universal Credit system could "clobber" people receiving the government's coronavirus self-employment grant, costing them months' worth of benefit payments, openDemocracy can reveal.

Chaminda Jayanetti
3 June 2020, 2.49pm
Chancellor of the Exchequer Rishi Sunak
Downing Street

The Self-Employment Income Support Scheme is a key plank of the government's economic response to coronavirus, providing 80 percent of a claimant's average income. 

However, the grant rolls three months' worth of income into one single payment of up to £7,500, meaning recipients get all the money in one go. 

This creates a sting in the tail for self-employed people on Universal Credit – including many who will have started claiming benefits as a result of the lockdown.

Under Universal Credit, the more money a claimant earns, the less they receive in benefits. Above a certain level of monthly income – which varies according to individual circumstances – Universal Credit claimants receive no benefit payment at all. 

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Because the Self Employment Income Support Scheme grant rolls three months' income into one month's payment, it will take many people above the monthly income level beyond which they no longer receive benefits. 

This could cause problems for claimants who have not been able to cover their living costs during lockdown, and have spent their grant clearing debts and rent arrears. 

Moreover, the 'surplus income' rule means they may not get any money for months to come. 

Under this complicated rule, if someone's monthly income is at least £2,500 above the level at which a claimant no longer receives benefits, then that 'surplus' – above the £2,500 leeway – is counted as income when calculating benefits the following month. This would potentially cut their Universal Credit payment to zero. 

Normally very few claimants are affected by this rule. But given that a self-employed person who normally earns £20,000 a year would receive £4,000 under the COVID-19 self employment scheme, they may receive no benefits for two months, and potentially reduced benefits the month after that. 

"People are going to be affected by it because they may have very little money coming in the following month, and then they're going to get substantially less [benefits]," said David Samson, welfare benefit specialist with advice agency Turn2us.

"I think it's a difficult system for people to understand. And it can obviously clobber people, particularly if they don't understand the rules.

"People are going to have to know that they're probably going to get no Universal Credit or substantially less Universal Credit, not just in the month they receive the grant, but also in one or two months afterwards."

In May, the Social Security Advisory Committee (SSAC), which advises the government on welfare policy, wrote to the government warning that: "For some self-employed [Universal Credit] claimants, the grant is likely to trigger the surplus earnings rules and it may well be triggered in other cases as a result of the current situation, as the period of economic turmoil is likely to be associated with greater instability in assessed incomes. 

"The result is that the policy is likely to be triggered by a far larger number of claimants than originally envisaged."

The committee did not call for the surplus income rule to be suspended, focusing instead on the need for better communication. The government has moved to ensure people affected by the rule won't have to reapply for benefits afterwards – previously, if someone earned too much in a month, their benefit claim would be shut down and they would have to submit a new application.

But Ryan Barnett, of the Association of Independent Professionals and the Self-Employed, warned the surplus income rule itself would cause problems: "It is a regrettable kink in the otherwise largely welcome Self-Employment Income Support Scheme that payments from it are affecting many self-employed people’s ability to access Universal Credit.

"In many cases, freelancers’ first [Self Employed Income Support Scheme] payment – covering them for several months of lost income at once – is pushing them over the threshold for the surplus earnings rule in Universal Credit. This means they may then receive reduced Universal Credit payments for the rest of the year – or not be able to access the benefit at all in some months.

"The self-employed are a vital and substantial part of the UK workforce. By introducing [the scheme], the government took a significant and welcome step to support them. Now, however, it must not only extend this invaluable support as long as the self-employed need it, but also rectify technical hitches like these to make sure its measures are working as well as they can."

The government has decided to extend the scheme further, with a final payment in August.  

A statement from the Department for Work and Pensions said: “Universal Credit is providing vital support for all those who need it during the Covid-19 outbreak. The system has stood firm in the face of the unprecedented demand and our dedicated staff have gone above and beyond to help process more than 2 million new Universal Credit claims in less than two months."

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