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Have you heard of the Universal Credit?

It’s designed to make life simpler. Benefits are rolled into one, removing complexity for government departments and other agencies. Real-time reporting of income and tax deductions allows people to receive more accurate benefits, meaning work should always pay. And by making PAYE “quicker and easier” to administrate, HMRC estimate it will save employers some £300m per year.

In theory, everyone should be a winner. Yet in practice, it seems as though the universal credit is fraught with problems. The Joseph Rowntree Foundation has already pointed out that the Universal Credit is likely to have a detrimental impact on low income households, in part because of the complicated stipulations tied to aspects of the UC, and in part because of difficulties caused by switching to monthly benefits payments.

This much is well understood. Far less attention, however, has been paid to the implications of the UC for employers and employment practices. According to the Federation of Small Businesses, the implementation of real time reporting of wages and tax deductions is likely to put a significant strain on small firms, a third of whom are said to be unaware of the changes they need to make to comply with the new system. According to a recent Financial Times article, there is a concern that many small businesses simply won’t have the in-house expertise to manage the payroll changes.

This isn’t just an inconvenience and added time pressure for small businesses. It also raises the prospect that many self-employed workers will become reluctant to expand their business and hire new employees for fear of the impending complexity. Given that more unemployed people now find work in SMEs than in large firms, the impact of the UC could be very significant on overall recruitment practices.

Alongside this, there are worries that the new benefit changes may encourage the self-employed to cease trading entirely. Under the new system, those wishing to be classed as self-employed will need to attend a ‘gateway interview’ and earn the equivalent amount as someone working full-time on the minimum wage (the ‘minimum wage floor’). For the many self-employed workers whose business comes in peaks and troughs, whether that be a filmmaker, artist or start-up tech entrepreneur, this will mean the possibility of losing their eligibility for benefits. All in all, the Universal Credit may serve to discourage people from starting up their own business, or indeed push those who already have into the informal economy.

If the above has confused you, then think for a moment what it means for those who are new to starting a business, or who are already wavering on whether to hire in a new hand to help them with their work. Time will tell whether the Universal Credit is a help or a hindrance to business and employment growth, but the signs right now are ominous.

As is the case with the Work Programme, my sense is that the government has seriously underestimated the time and effort that is required to implement such a significant welfare change. However good the policy is in principal, the execution will always be a hatchet job if rushed through for political expediency.

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