Self-employed people and gig economy workers face losing £344 a MONTH from Universal Credit, a report warns today.
The cut is due to a ‘Minimum Income Floor’, part of the new benefit, which blocks the self-employed from getting higher welfare payments when their profits drop below minimum wage.
Ministers argue the floor, which kicks in a year after a firm is set up, will “incentivise” Universal Credit claimants to stay in profit - and stop the state subsidising a failing business.
But critics say it'll mean entrepreneurs who fall on hard times would be better off jobless.
The Office for Budget Responsibility has already said it expects 432,000 people to lose out on £2,927 a year by 2023, when Universal Credit is fully rolled out.
Now the benefits consultancy firm Policy in Practice has completed a survey that claims to show the shocking extent of that cut.
The firm's project looked at claimants of the new six-in-one benefit Universal Credit, which is being rolled out across the country, in 19 London boroughs.
Of the 573,000 households involved in the sample, 43,000 were said to be self-employed households on low incomes.
According to Policy in Practice, a staggering 91% of self-employed households current report earnings below the floor.
On average, 78% of self employed low-income households would be £344 a month worse off under the new system, the study said.
This would come to £4,128 per year, significantly more than the figure highlighted by the OBR (see above).
A blog by Policy in Practice added: "Some people have little choice but to become self-employed.
"The growing flexibility required in many jobs, for example, is perhaps best highlighted by the booming gig-economy in many cities around the country.
"In rural areas, farmers and fishermen may work as self-employed with no real employment alternative."
According to the Observer, the Resolution Foundation called for the one-year grace period before the MIF kicks in for a new firm to be doubled.
But a Department for Work and Pensions spokesman told the newspaper: "Universal Credit supports self-employed people for up to a year while they establish their business.
"However, it is not designed to prop up unviable businesses."
Work and Pensions Minister Alok Sharma last month said the change is "likely to prompt behavioural responses".
He added: "We expect that some self-employed claimants will respond to this by increasing their monthly earnings from self-employment. Some will choose to work as an employee, and others will combine the two.
“All are potentially good outcomes for them, their families and the taxpayer.”