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Written Question
Universal Credit: Self-employed
Thursday 13th September 2018

Asked by: Stephen Lloyd (Liberal Democrat - Eastbourne)

Question to the Department for Work and Pensions:

To ask the Secretary of State for Work and Pensions, if she has made an estimate of the cost to the public purse of extending the start-up period for recipients of universal credit who are newly self-employed from 12 months to (a) 18 months and (b) 24 months.

Answered by Lord Sharma

The Government recognises the need for claimants who are setting up a business to be given time to establish themselves and develop their business and customer base. However, different businesses and individuals will take different periods of time to reach profitability. The intention of the start-up period is to give claimants the breathing space they need to work out how to support themselves while running their business - including identifying other sources of income or investment - while not subsidising claimants indefinitely to pursue unsustainable activities. This strikes a sensible balance between support for new business, not trapping claimants in welfare dependency, and protecting public funds.

Extending the start-up period beyond one year could diminish the incentive effect of the Minimum Income Floor (MIF), which is to encourage claimants to grow their earnings, whether through self-employment, combining that with other work, or moving to one of the over 800,000 current job vacancies. It would also add complexity, with no guarantee of better outcomes for either the claimant or the taxpayer. The government therefore has no current plans to reform the MIF or to extend the start-up period for self-employed claimants in Universal Credit.

In their January 2018 report, the Office for Budget Responsibility estimated the impact of the MIF on the public purse – their analysis is summarised in their welfare trends report http://obr.uk/wtr/welfare-trends-report-january-2018/

With regards to the estimate of the cost to the public purse of extending the start-up period for recipients of universal credit who are newly self-employed from 12 months to (a) 18 months and (b) 24 months, a formal assessment has not been made.

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