The Department for Work and Pensions (DWP) is facing renewed pressure to overhaul the Universal Credit Minimum Income Floor (MIF) for self-employed claimants, with a leading think tank calling on the government to adopt a fairer calculation method. The proposal, directed at Prime Minister Andy Burnham and the Labour Party, would see the MIF based on a rolling average of the last 12 months' earnings rather than a fixed monthly threshold.
What is the Minimum Income Floor?
The MIF is an assumed level of monthly income used by the DWP to calculate Universal Credit for self-employed people. If a self-employed individual's business earns less than this set floor, their benefit payment is worked out using the higher floor amount instead of their actual low earnings. This means that during months of low or no income, self-employed claimants may receive less Universal Credit than an employed person on the same annual earnings who experiences a similar dip.
Under the current system, self-employed people can claim Universal Credit during periods of low pay, but their monthly payment is calculated on the assumption that they earn at least the Minimum Income Floor – what an employed person on minimum wage would expect to earn in similar circumstances. If actual earnings fall below this floor, the UC payment is reduced accordingly, often leaving self-employed workers with volatile incomes at a disadvantage.
The Proposed Change
The think tank's report, addressed directly to Mr Burnham, urges the DWP to "base the Universal Credit minimum income floor on a rolling average of the last 12 months’ earnings, after the start-up period." This would mean that self-employed claimants whose earnings fluctuate month-to-month but who, on average, earn above the MIF over any 12-month period would no longer have the floor applied in months when their income dips.
Under the proposed change, these workers would receive higher UC payments in months where their earnings are below the monthly MIF, and annually, they would receive a level of support through UC equal to that of employees on the same gross income. In high-earning months, where they earn above the floor, their financial support would remain unchanged from the current system.
Impact on Claimants
The report explains the two scenarios in detail. For self-employed UC claimants with volatile earnings who average above the MIF over 12 months, the floor would not be applied, resulting in higher payments in low-earning months. For those whose average earnings over 12 months are below the MIF, the floor would always be applied, meaning they would receive the same amount of UC each month as they do now in low-earning months. However, in high-earning months, they would receive more UC because the calculation would assume they earn exactly the MIF, and the taper would not reduce their payment by the difference between the floor and their actual earnings – a change from the current system.
This adjustment would particularly benefit self-employed people in sectors with seasonal or irregular income, such as construction, creative industries, and gig economy work, where earnings can vary significantly from month to month. The think tank argues that the current system penalises these workers unfairly compared to employees, and the proposed change would align support more closely with annual earnings.
Context and Next Steps
The call comes amid broader discussions about self-employed support, following proposals for sick pay and parental leave for self-employed workers under Mr Burnham's leadership. The think tank's report highlights the need for the welfare system to adapt to modern working patterns, where self-employment and flexible work are increasingly common.
No official response from the DWP or the Prime Minister's office has been published yet, but the proposal adds to growing pressure on the government to reform Universal Credit rules that critics say are outdated and punitive for self-employed people. If adopted, the change would require legislative amendments and adjustments to the DWP's computer systems, but it could provide a significant boost to hundreds of thousands of self-employed claimants across the country.
According to the report, the current system fails to reflect the reality of self-employment, where income is often irregular. The rolling average approach would smooth out these fluctuations, ensuring that support is based on actual annual earnings rather than a single month's performance. This, the think tank argues, would make Universal Credit fairer and more responsive to the needs of modern workers.
