The Cost of Living Crisis
The cost of living crisis is being well-articulated at present – fuel is a larger proportion of their spend and so the rise in fuel costs had a bigger impact; basic foods like rice, fruit and vegetables have increased in price more than other more higher spend foods etc. In this blog, I want to highlight one of the issues which traps people in poverty and suggest a very straight forward solution which would cost Government nothing and make a fundamental difference to many on low incomes.
If you are on benefits, you are not allowed to have savings above a pretty low threshold and you can’t earn anything without it having an impact on your benefits. This means firstly that there is a great disincentive to save, even if it were possible whilst on benefits, and it means that those on benefits have no cushion of money to fall back on when things get even worse, like now.
More significant than this is the issue around earnings. The rules are different depending which benefit you are on. If you are on straight forward Universal Credit and you get a low paid job or you start your own business, benefits cut away at a rate of 57p for every £1 earned after a really low threshold of around £200 per month. This ensures that the person in the low paid job is never better off, and the one who goes into self-employment is surviving on a tiny income and is unable to build up reserves in their new business. If the business and the owner can make it through the first year or two and build their income, then they are in a better place but during those 1-2 years, their business is vulnerable to crises and failure because there is no spare money.
If you are on one of the benefits related to short or long-term illness or disability (excluding PIP – personal independence payments – which are unaffected by earnings), you are able to earn around £100 per week and work 16 hours without losing anything – although it could trigger a review of your benefits and their potential loss if the review decides that you are fit to work. As well as this, if you’re recovering from a long-term illness or have a long term condition that won’t improve but you’d like to work if you are able but aren’t sure if you can manage it, the risk of trying is too great because you would end up in a worse position than you were before if you found you couldn’t manage it (benefits lost, months to get them back if at all etc).
If people on benefits and in low paid jobs were allowed “side hustles” – temporary jobs, one-off jobs, very small businesses which just earned some money. Without all the above impacts on benefits, they could improve their income and be in a better position to cope with this current crisis. This would cost Government nothing. In fact they might gain funds if people moved forward from side hustling into full-time work. The current system prevents people from trying. It has the opposite effect to the one the Government would like – it stifles entrepreneurship instead of encouraging it. It is one of the reasons why I have such respect for our clients because they risk all this hardship to start their businesses. For some, their financial situation remains precarious for many months – but they keep going.
So – one simple thing to help people hardest hit by the cost of living crisis – allow them to earn without jeopardising or reducing their benefits.