Jobseekers and the self-employment trap


Yesterday’s outburst against Esther McVey and her innovative way of interpreting the benefit claimant statistics proved very popular as readers clamoured to suggest alternative reasons why people who deserve benefits are no longer getting them.

One of these deserves an article of its own, because it really is ‘The One That Got Away’ – and doesn’t deserve to. As the commenter who raised it pointed out, it could be a huge scandal.

We refer, of course, to the fact that people on Jobseekers’ Allowance are being, let’s call it, ‘persuaded’ to go self-employed and start new businesses.

How are these businesses funded? Do these people get a share of a different DWP budget? Do they get loans? Do they get tax relief to support them while they are setting up these firms?

Meanwhile, some believe the DWP officers who force jobseekers to go self-employed get a commission for doing so – an extra payment on top of their salaries. Or is it a bounty, for taking one more name off the books?

Can anyone shed light on this? Do they get paid for creating, in effect, fake jobs?

Some of these new firms will succeed. Current statistics mean around 10-20 per cent of new small businesses last more than three years. But this means at least 80 per cent will go under.

Our commenter who mentioned the issue raised fears that funding will be withdrawn, right around the time of the 2015 general election.

Wouldn’t that be shocking – if Labour took office only to be faced with headlines that the new government was sending businesses to the wall and unemployment through the roof in its first year of government?

My commenter wondered if this was “another Tory elephant-trap for Labour”. Good question.

If so, it will be time to remind everyone that, since the Coalition came into office, 52,701 firms have been declared insolvent and 379,968 individuals.

Even with ‘help’ from the Coalition, it would take a lot of effort for Labour to equal that dismal record.

49 thoughts on “Jobseekers and the self-employment trap

  1. James

    With the introduction of universal credit and it’s minimum income threshold of £200 lots of self employed will go under. DWP under UC will insist that if you are self employed, you are earning £200 a week and only pay you any benefits after the £200 disallowance. This means, on a slow sales month, lots of self employed people will not be able to claim housing benefit or working tax credit to pay the bills and they will be forced to close their self employed businesses. People may argue get a part time job, yes if you can find one, and its tricky to build up your own business whilst doing another job, you are supposed to be on duty to answer phone calls etc. If governments had ensured housing supply met demand, therefore lowering rents across the board, most of us self employed would not need to claim Housing Benefit and Tax Credits anyway. A self employed business takes time to build up customer relationships etc, but when built up can provide a lifelong steady job. Governments should be supporting and encouraging the self employed, not just saying you have 6 months to get to £200 a week then we are withdrawing benefits. The best thing governments can do to sort out this economic mess we are in – in the UK is build houses.

      1. john

        Easy. If you build affordable housing then it puts builders into work. Then in turn it will generate work for electricians, plumbers, plasterers, roofers etc. These people will then have more disposable income and other local businesses benefit. When these housing schemes are completed then residents can enjoy the benefits that fair rent brings, more disposable income. This extra money can then be spent to the benefit of local businesses. When these schemes become normal and widespread then there could be only one outcome. Overpriced homes from private landlords would lay empty until they brought the rents down to reasonable levels, result, more disposable income to benefit the wider community.

      2. Big Bill

        And if we’re gong to wonder where the money can come from, let’s not forget we have a central bank which can create as much as we need. If it’s used to create proportionate wealth, there’d be no inflation. That’s the great boon of having fiat currency as opposed to commodity-backed currency, which those lying bastards in government are still trying to pretend is what we have. There’s no such thing as not having the money when you’re a sovereign nation with its own central bank. When idiots like Byrne and Osborne try to suggest there’s no money left or the country’s run out of it, they illustrate their own ignorance and/or dishonesty.

      3. Florence

        John – the main flaw in your logic is that private housing will stay empty. This is surely the crux of the matter – there just isn’t enough housing around to meet demand, ergo it will not stand empty. The ludicrous rental valuations – fixed between landlords and letting agents – are simply a reflection of the complete lack of housing to meet demand in many areas. In SW London, Balham, which used to be a cheap, mixed, working class sort of place, the standard rent for a 3 bed property is now £2500 pcm – Yep, £30,000 a year, even for little 3 bed ex-council estate places. Rent control is the only way forward.

      4. Florence

        Sorry, missed the reply to the main point. Building houses will put many trades back to work, will be inward investment, ie cheap to finance by the government (obviously not THIS govt) and will put money back in the economy for real growth.

        We also need to be building other things, too, ie manufacturing. It still does employ more people than the City / Financial Sector. We need to make supporting the manufacturing industries a priority.

    1. Chris Griffiths

      My son became self employed…..he was told by the Job Centre after 6 months of still receiving a little help that he was ‘now on his own’….he had no funding….no grant….no business start up….or anything else!…the advisor however did NOT tell him he may be entitled to ‘Working Tax Credit’….he struggled on for another year!….then someone told him about Working Tax Credit’….he went to the job centre and enquired and they said he could have been receiving it from the start!… he gets a little bit of Working Tax Credit….but he had a fight on his hands because they said prove how many hours you are working!….how?….no clocking in clock….no signing in book….so they said he couldn’t claim unless he could prove he was working 40 hours…..after a long battle he got somewhere!….but the stress and distress it caused him was unreal….going to food banks when he had no work in a week…he took in lodgers to make ends meet and he only has a two bed flat…he gave up his bedroom and sleeps in the lounge….doing babysitting and dog sitting….anything to make a few quid!….still he is off the unemployment register so that suits them doesn’t it?

      1. Big Bill

        They may well make the effort of establishing that very expensive which would have the same effect, to put you (and others) out of business.

  2. Peachy

    We have a small business, started as a little enterprise alongside study after my husband’s redundancy a few years back. He qualified in June so he set up a hire company in his field. We were assured the system supported this, and certainly ahve beaten the three year limit. However, setting up a hire company involves buying equipment to hire out. It’s still profitable, not yet enough to be independent. Housing doubted our accounts and we haven’t had a payment since July, we could well end up homeless with 3 disabled children by the end of November- all the time whilst being a working family. Housing are not answering our enquiries, and there is a waiting time even on queries of over a week I have been told. The business insurance bounced today, so unless we solve it this week we will in all likelihood lose the business just as we start to get a customer base.

    We currently make just below the £200 UC threshold so should just cling on (seasonally though which is a UC no-no), but it’s just not enough. We ame rent this month without HB but the lease is due for renewal and without that £60 we are potentially out of the game.

    1. ireallymeanthis

      Cameron should love you,in theory : a hard-working family of ”strivers” ,risk-taking, ”trying to do the right thing and get on” etc.
      It’s a crime if the system doesn’t support you.

      1. Big Bill

        I think the aim of this and other policies like workfare is to create a permanent underclass who have no hope ever of getting out of it, fodder for Grayling’s super-prisons run by the private sector.

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  4. jeffrey davies

    yes aself employed cleaner now being payed less by his contractor another ploy by greedie torys

  5. ghost whistler

    If people are encouraged to claim tax credits under the illusion of self employment they may well be asked to pay that money back if their business doesn’t succeed. This is criminal levels of negligence from the DWP imo.

      1. Jase

        Not sure about the DWP getting commission for giving such advice but I know for a fact that the various ‘work programmes’ jobseekers are placed on certainly do. My claimant advisor recently revealed this was the case: they get something like £7,000 if a jobseeker is off the books as a result of their ‘advice’, which then goes up to £15,000 if that person is still in work after six months. Nice work if you can get it!

        The claimant advisor actually used this situation as proof that any advice I’d previously been given as regards starting my own business – working tax credits, continuation of housing benefit, etc – shouldn’t be trusted. I reminded her that it was Job Centre Plus that sent me on the work programme in the first place…

        The Enterprise Allowance Scheme was then dangled in front of me… then withdrawn as I was apparently ineligable (the claimant advisor didn’t exactly explain why). It eventually transpired that she didn’t actually know anything about what was available and suggested I pop over to the DWP and ask them instead.

  6. Kerry Davies

    It isn’t that simple.
    DWP transfers claimants from DWP budgets onto HMRC budgets by encouraging self-employment and claiming of WTC and other in-work benefits. That is fine until RTI and UC come into full operation.

    Under UC the claimant will need to show profits of at least 35 hours a week, every week, at NMW rates or face being declared “unsustainable businesses.” Those businesses will be faced with the possibility of being told to close down and seek other employment. The least that will happen is that those not earning sufficient profits will be told to seek extra work and sign on to Universal Jobmatch.

    The combination of RTI, UC and UJ appears to be designed to radically reduce in-work benefits claims including HB, WTC and CTC. The first effects of RTI locally have been some small businesses sacking all the workforce and using them as self-employed sub-contractors on a casual basis, especially in firms with a seasonal business.

    If DWP has encouraged anyone reading to become self-employed, then start planning now. If you are reliant on in-work benefits of any kind try to research what will happen under UC. Be prepared, the sick, disabled and unemployed are just the tip of the iceberg and the self-employed sole traders are next on the list for attacks. There are half a million families due to be affected in this way, make sure yours isn’t one of them.

    1. AM-FM

      I’d agree, there must be at least 500,000 ‘self-employed’ working 35+ hours a week and earning/declaring ~£150 after expenses, and relying on top-ups, They’ll have no option but to go unemployed.

      1. Debbie E.

        Surely they will have lots of choices? They could maintain the status quo and take the hit to their income, or work harder/longer hours and make up the shortfall.

    2. Debbie E.

      “Under UC the claimant will need to show profits of at least 35 hours a week, every week, at NMW rates or face being declared “unsustainable businesses.”

      That is an incorrect statement. Under UC, if the DWP agree you are in gainful employment, it won’t matter how little you earn – your award will just be based on the higher of your actual profits or the NMW for the hours you are required to work. Such people will be in the “no work related requirements” group. There is no chance that the people running such businesses will be encouraged to close down and seek other employment. The last thing the government will be wanting is a spike in the unemployment figures, as self employed people are forced back to the working for someone else world. If anything, they fear this outcome.

      The attitude is more likely to be “Oh well, you’re preared to work for 50p an hour, that’s your perogative, but we are only going to pay you a top up as if you earned the NMW, because you are choosing to work at something that pays you a pittance. ”

      But there certainly are pitfalls for the self employed with marginal incomes. Under the current regime, a family need only work 24 hours a week between the two of them to qualify for WTC, HB, CTC and CTB. If their children are over 13 years old, then come UC, that work requirement would go up to 35 hours a week each. If you are deemed to be gainfully self employed in that situation, you could have a UC award based on deemed “earnings” of £433 a week, (70 hours at £6.19 NMW across two people) even if your 24 hour a week business only brings in, say, £150 a week.

  7. nebulasblood

    I tried to setup a business through the permitted work scheme that the Job Centre uses to sell the idea of going into self employment. Firstly this option is very risky, it doesn’t sound it but its full of flaws and again just isn’t fit for purpose. I tried this option out and this is what I found. Firstly if you want to start up a professional business then forget it on this option. It only caters for those who wish to start really small. Okay for those who don’t look into things financially you will soon find that your thrown out into a dangerous area, you can still claim all of your benefits but this is where is a catch … you can only really get £20 pounds a week profit and £90 a week but when I did this option they expected any more than £20 to get paid into the council for rent and council tax. So lets say you want to become a freelance photographer and only have a few potential clients then earning a good sum just lands you without any money coming in because if you were to earn anything more than £20/£90 your going to end up on Income Support. The job centre put you in touch with various groups that offer business start up advice, this advice put me off the whole idea with being patronized by certain advisors. I didn’t need a bank loan or grant because of the non existent overheads oh but this is where it gets even more crazy. When I asked the Job Centre what I could call and use as business expenses it was like trying to get blood out of stone, non of the staff there understood what I was asking for and eventually told me that I could use bus transportation has an expense, food wasn’t included or anything else so it was impossibly strict. After the tester year of being on the permitted work scheme I submitted my expenditure and income report only to have lost my money for about a month and a half while they checked out my finances, it felt like they wanted to make me loose benefits. All of this even through I have Aspergers a mild form of autism. I tried to get out of the trap but it was doomed not to work. Its almost as if they only way to get out of the trap is to do something dis-honest and illegal. The whole system promotes corruption and dishonesty.

      1. Sandra Martin

        I think Its the private work providers that get the money for getting people back to work including self employment. They get paid extra if the person concerned is long term unemployed.

  8. Ian Cropper

    Don’t know what happens in DWP but the work programme do get a payment for self employment as it’s a person in a job.

  9. Thomas M

    I would like to be a bookseller and certainly have books to sell, but it is too expensive to start and too risky to try anything in case I lose my benefits.

  10. chippy

    Jobcentre staff or any DWP staff do not get commission for anything whatsoever. It makes no difference whatsoever.

  11. Sandra Martin

    A friend of mine went on a work training scheme to get her back to work. all they could find was self employed telesales working from home which she took because she suffers from agoraphobia. months later she was told that she had to go self employed in order to get her money. (she was on DLA and Incapacity Benefit prior to this). She really had no choice but to go self employed at that stage or would have lost her housing benefit even though she was earning hardly anything. She now gets £190 Working tax credit and still is earning hardly anything. The stress factor of all this has made her mental health far worse, They took advantage of her vulnerability and although she gets extra money she wishes she had never agreed to it.

    So the unemployment figures go down, the taxpayer is still funding her and the poor girl is near to a breakdown due to all the stress.

    1. Lucy

      If you are in a rented home, intending to become self employed working from home, be very careful.

      The lease may state that you may not run any kind of business from the property. My lease contains a whole paragraph concerning this.

      I have looked into self employment from home, as my ability to get out of the house or work on a regular basis is utterly kaput.

      My landlady’s agent told me that if I did take on any kind of self employment from home (including any kind of phone only work) I would have broken the conditions of my lease and I would be asked to leave. I contacted my landlady direct and asked her, she told me that what was written in the lease and confirmed by the agent was what would happen.

      We just can’t win and I am so tired of it.

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  13. Kate Frost

    As an ex-civil servant I find it impossible to believe that DWP staff get any perks, or as it’s put, commission from ‘persuading’ individuals to go self employed. Regrettably, we’ll never know as civil servants are not allowed to comment on their work, for fear of losing their jobs.

    1. Mike Sivier

      From what the article has stirred up, it seems most likely that the person who told me this was (only very slightly) mistaken, in that it is Work Programme providers who get the commission on this.

    2. Florence

      But we already know about targets for sanctions. I would not be surprised if there were no *actual* bonuses, but instead a performance target as part of their individual and office work performance plans, with this as one of many ways they have to shuffle people off the books.

      Miss the work plan target = loss of bonus, major drubbing from on high etc. So it may be an equivalent of a commission by a different route. We know there is money in the system for the DWP office “celebrations” for making people starve, suicidal, turn to crime to feed their kids, so the place of money in internal transactions is less clear cut, but still very important driver of behaviours (including lying, bullying, sanctioning, etc)..

      As for the WP providers, well there is no honour among those thieves.

      They have a contracted guaranteed profit for this activity, as long as it can by some stretch of the imagination be called *Employment*.

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  15. Bluecat

    Back in the 80s there was the Enterprise allowance scheme: a few people I know used this to start up businesses – in one case a friend wrote a novel, which actually got published, and started his career.
    It was risky of course but there were a number of safeguards – for instance you had to have £1000 in the bank already, to show you could cover capital outlays like equipment. I don’t know what the statistics were on the success of the businesses – but then, the DWP counts a win if they get someone into a job that lasts no more than a week anyway.
    This sounds more like pushing people off the books… and there certainly are incentives for that.

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  17. whitenightf3

    The system is designed to benefit the 1% super rich elitists at the expense of everyone else. If any politician in government wanted to solve not just the welfare problem but all the other problems we face like the NHS and Crime, then it would stop allowing private individuals (the Rothschilds) from creating and controlling the money which they create out of thin air.
    The Treasury could bring back the Bradbury notes and give every adult in the country either a lump sum of 1 million pounds or 30k per month. This would end welfare and much of the crime and help with healing so reduce dependency on doctors and the NHS. People will be able to afford better food, buy goods that they need and stimulate the economy. Although we need to to be more eco friendly and stop buying much of the rubbish they do churn out. We could easily wipe out poverty but those who control the current system don’t want that they are psychopaths. So in politics and the police service in fact all public office people should be banned from serving if they fail psychiatric testing. We need to promote empaths who are altruistic to serve the greater good.

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  19. Eamonn Williams

    This is what most construction workers are forced to do just to work ? Then we have to pay between £15 -£30 just to get our wages paid to us to an umbrella company that can’t be traced so we can’t claim holiday or sick pay ?? Then when we get laid off with no notice we are told we can’t sign on because we’ve been self employed ??? It’s an absolute disgrace ??

  20. Aaron Goode

    Myself and my Brother both are on Job Seekers allowence, We both without suggestion from the job center wish to become Self-Employed. We went to our job centre to ask for aid. What they offered wasnt exactly appealing. They wanted us to go onto the Enterprise Scheme, which at first sound good. We would go to sessions to meet with successful self employed people and those who specialise in starting up your own business. We thought great, but we they didnt tell us was that Our job seekers would be reduced substantially and we would have no other aid finacially or otherwise, This includes travel fees to these sessions and workshops. So yet again a potentially good scheme, is being used by the job centre purely to palm you off to someone else.

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