Universal Credit (UC) includes a concept called the Minimum Income Floor (MIF) which is the minimum income that will be used when calculating a benefit. If one earns below this amount … tough cookie. The idea behind it is that the state should not be supporting people whose income is low due to being involved with a failed or failing business. That would appear to be a reasonable goal if the government wants to save some money, but the problem is that the MIF is a jack-boot of an instrument, which is causing real-life hardship to many people who should not be on the government’s money-saving hit-list.
The best way to illustrate this is through a worked example:
Let’s take someone who is 25+ and is on Minimum Wage (as many people are) and working an average 30hrs a week.
The Minimum Wage is £8.21 ph. So for a 30hr week this is £246.30 and allowing for holidays this is about £12,000 per year or on average £1000 per month.
The Minimum Income Floor for 30 hrs @ £8.21 ph = £246.30
If our individual is part of a couple and with one child, with a stable salary of £12,000 a year, they would earn £1,000 a month from employment, topped up with approximately £500 of in-work benefits, bringing their household income to £18,000 .
However, if our individual was self-employed, with similar circumstances and also earning £12,000 a year but taking home a different amount from month-to-month, they could potentially lose all their benefits as follows:
Earning an extra £200 in a given month would reduce their entitlement by £90, while taking home £200 less in another month would increase their entitlement by just £5. This is because the MIF effectively restricts their entitlement in months where earnings are lower than a full-time worker on the minimum wage.
So, if for 6 months of the year they earn £1200 per month and for the other 6 months they earn just £800 then they would get 6*(1200+90) + 6*(800+5) = £12,570 . They have lost virtually all their benefit.
I have two questions:
- How did the government not foresee this obvious issue when this idea was first mooted in some committee room in Whitehall ?! When designing any system part of the process is to walk-through so called ‘use cases’. The self-employed make up over 15% of the work force according to the Office of National Statistic, so they are an obvious use-case.
- If the government wants to save money why is it targeting the most vulnerable in our society? The MIF is a dreadful concept that is designed to target the poorest workers. How on earth did it ever pass muster, even on simple moral grounds?
A phrase that has entered the language is “trial and learn”. This now seems to the standard excuse from the public sector for a complete screw-up … “Sorry, but we are still in a trial and learn phase”. In the meantime people’s lives are blighted while government learns to tie its shoe-laces.
The government is full of very clever highly motivated people. So how does this kind of thing happen time and time again? I wish I knew the answer.
As one might expect, the MIF has come in for a lot criticism. For instance, the Federation of Small Businesses say it is stifling entrepreneurship. A good review article is here . Even Central Government is now reviewing the MIF … they are now in a “learning to recognise the bleedin’ obvious phase”.
SHDC Council Tax Reduction
Despite the well documented problems with MIF, South Hams District Council decided to introduce a new Council Tax Reduction (CTR) scheme from April 2019 that includes a MIF when assessing eligibility, with some predictable results. This decision was taken by the previous Council. The reason cited is to bring CTR inline with UC. But why would one want to align with such a simple-minded iniquitous and obviously flawed methodology as MIF? I suspect the only number of relevance to the Councillors that voted for this was the amount of money that could be saved. SHDC are not alone, but only 20% of Local Authorities have done this.