Introduction
John Rawls famously observed that according to his theory of justice ‘those who surf all day off Malibu must find a way to support themselves and would not be entitled to public funds’.Footnote 1 The ‘Malibu surfer’ has since become an emblematic figure in political philosophy for discussions around a basic income: is everyone, regardless of their occupational status and availability for work, entitled to an unconditional income, including idle surfers who fail to support themselves?Footnote 2 Little known, the tax credit system gave rise to a phenomenon that might be called the ‘self-employed surfer’, with people able to engage indefinitely in self-employed work of very low or even no renumeration, whilst receiving the full amount of tax credits, housing and other benefits. The attraction of such self-employment was two-fold: on the one hand, recipients could escape the increasingly stringent conditionality attached to unemployment benefit, and on the other, they could engage in forms of ‘work’ more enjoyable and fulfilling – teaching some surf lessons, artistic pursuits or sometimes neighbourhood dog-walking – than the menial minimum wage work so prevalent in the UK. Indeed, until 2015 there were minimal checks that ‘self-employed’ tax credit recipients engaged in any form of self-employment.Footnote 3
Such practices were seen as a ‘loophole’ by the Coalition government, which created a Minimum Income Floor (MIF) for self-employed claimants when introducing Universal Credit (UC).Footnote 4 The MIF means that, after a one-year start-up period, all self-employed UC recipients are treated as receiving an income that is at least the equivalent of the minimum wage each month, regardless of their actual earnings, with their UC entitlement adjusted accordingly. The inevitable consequence is that for anyone earning significantly below the floor, self-employment is very unlikely to be viable, with such individuals unable to meet their basic needs and better-off financially unemployed, claiming UC as an unemployed person.
Although the MIF has been subject to minimal public debate and no academic discussion, including, perhaps surprisingly, in the social policy literature, it was estimated in 2016 that 39% (or over 190,000 families) of self-employed tax credit recipients had earnings below the floor.Footnote 5 The number of people potentially affected by the MIF, even discounting the effects of the Covid-19 pandemic, will now be much larger, as the eligibility net for UC, which also replaced housing benefit, is broader than for tax credits, whilst self-employment has continued to increase. The minimum wage has also risen quite significantly since 2015, now rebranded the ‘living wage’ and with the aim to reach two-thirds of the median by 2024, which in turn raises the level of the MIF.Footnote 6 This rise, combined with the MIF, will only intensify the disproportionate concentration of low-pay and poverty in the self-employed sector, with pre-pandemic estimates that approximately half of the UK's almost five million full-time self-employed workers earn less than two-thirds of the median wage compared with one-fifth of employees.Footnote 7 It is likely that many of these people, if they applied, would have some UC entitlement and that many would also be affected by the MIF.
However, as a result of the pandemic, the government has temporarily removed the MIF, whilst the number of individual UC recipients has increased sharply to six million at the start January 2021: a 98% increase from 12 March 2020.Footnote 8 This is now an important moment to consider the legality and ethics of the MIF in the wider context of the social security system for working-age adults. The MIF was only one element of a general intensification of conditionality introduced as part of the UC reform. As is well-known, UC created a harsh sanctioning regime for the unemployed, powerfully captured in the film I, Daniel Blake, and the subject of a sizeable social policy literature.Footnote 9 Less well-known, the government also promised to introduce a step-change in conditionality for low-paid employees, with in-work benefits for the first time made contingent on search for higher pay and/or more hours. This extension of welfare conditionality was described by the Work and Pensions Select Committee, with some justification, as no less than ‘a radical policy departure… potentially the most significant welfare reform since 1948’.Footnote 10 However, as this paper will show, there has been a considerable gap between the rhetoric and reality in respect of conditionality for low-paid employees, which except in several pilot study areas has been limited to individuals who earn very low amounts: less than £5 above the amount of Jobseekers Allowance.Footnote 11 Perhaps unexpectedly, so far UC has improved the position of many low-paid employees, since under the previous tax credit system they were excluded from support unless they met quite steep working-time thresholds.
Cumulatively, these changes have led to the creation of social security system that diverges significantly from the previous scheme: harsher conditionality for the unemployed; far harsher treatment of the self-employed, but a considerable improvement for low-paid employees, who work relatively few hours or in ‘mini-jobs’. This paper critically evaluates the latter two changes, which have both been neglected in public debate and the academic literature. It particularly highlights the impact of these changes on the availability of real choices for the poor to limit or escape from wage labour, which are discussed in the context of wider debates around a basic income. It also examines the likelihood that the current favourable treatment of low-paid employees will continue or whether a strict conditionality regime akin to the system for the unemployed will be introduced.
Evidence is derived from a number of sources, including the social policy literature on UC and tax credits; ‘thinktank’ and Department of Work and Pensions (DWP) reports; and a DWP-conducted trial on in-work conditionality. Given the surprising dearth of empirical research on the experience of self-employed tax credit and UC recipients, this paper also makes use of discussion of welfare conditionality in the media and internet chat forums, as well as Administrative Upper Tribunal cases. In particular it employs the recent High Court case, R (Parkin) v Secretary of State for Work and Pensions,Footnote 12 as a ‘case study’ through which to explore the public policy rationale of UC and its impact on the life choices of the poor. The claimant, an actor, producer and director, with a degree in theatre, had worked as a self-employed person in theatre since graduation. The effect of the MIF was that she would have been financially better-off if either employed with equivalent earnings or unemployed, which she challenged as unlawful discrimination under Article 14 of the European Convention on Human Rights (ECHR).
This paper proceeds as follows. It first provides some background on the MIF and the UC system. It then discusses the Parkin judgment, highlighting an important flaw in the reasoning, with the judge failing to offer a justification for the difference in treatment between the self-employed and employed with equivalent earnings. The approach of the courts to human rights claims in the social security context is briefly discussed, it being argued that even if the courts were to employ a more stringent standard than the current manifestly without reasonable foundation test, it is still highly unlikely that the MIF would be found to be incompatible with the ECHR. The paper then focuses on a wider discussion of the MIF and conditionality, particularly the overlooked labour decommodifying aspects of tax credits and the ‘Administrative Earnings Threshold’, which allows UC recipients to limit the amount of wage labour they are, effectively, forced to engage in. Despite its well-documented flaws, UC, it is argued, contains some limited emancipatory potential so long as this threshold remains.
1. What is the MIF?
UC was heralded as ‘the biggest welfare revolution in over 60 years’.Footnote 13 It replaced six existing payments (Income-Based Jobseeker's Allowance, Employment and Support Allowance, Income Support, Working Tax Credit, Child Tax Credit and Housing Benefit) and aimed to simplify working-age benefits, ease the transition into employment, reduce fraud and increase incentives to ‘ensure that work always pays more than being on benefit’.Footnote 14 Introduced by the Coalition government, UC has been slowly rolled out across the UK, far behind schedule, whilst subject to increasing resistance and controversy, with the government forced to make a number of changes to some of its harsher features: the abolition of the seven-day waiting period in which no entitlement was accrued after a claim was made;Footnote 15 expensive phone call charges;Footnote 16 a reversal of some cuts to the taper-rate;Footnote 17 and a reduction in the length of the maximum sanction from three years to six months.Footnote 18 At present, all new welfare claimants must apply for UC, whilst the current plan is that recipients of legacy benefits will have all migrated onto UC by 2024.Footnote 19
In brief, UC consists of a set of ‘maximum amounts’, which are based on whether the claimant has a disability, children, childcare costs, their housing situation and age.Footnote 20 In a simple case, roughly approximating the situation of Parkin, a single claimant aged over 25 receives a standard allowance of £409.89 per month (£594.04 if part of a couple) – including a £20 per week post-Covid increase, which the government has claimed is a temporary measure, currently scheduled to end in September 2021.Footnote 21 If – like Parkin – they rent privately, their housing entitlement is the lower of the Local Housing Allowance for their area or the rent paid, with Parkin entitled to £859.07, as she was based in Brighton, a high-cost area. If they rent from the council or a housing association, then their rent will be paid, although subject to the ‘bedroom tax’ if the number of bedrooms in their home exceeds their bedroom entitlement. Using current allowances, for each child, now subject to the two-child limit, they are entitled to £235.83, along with up to 85% of childcare costs. If a claimant has responsibility for a child, then they are entitled to a ‘work allowance’ which allows them to earn a set amount, which is not tapered: this is currently £292 for those whose award includes housing costs (£512 without). Above this allowance their entitlement is tapered at a rate of 63% in addition to income tax and national insurance contributions once the respective thresholds are reached.
Perhaps the most significant feature of UC is the enhanced conditionality and the associated widespread use of sanctions. Recipients are placed in one of four ‘work-related requirements’ (WRR) groups: subject to no WRR; a ‘work-focused interview’ requirement; a ‘work preparation requirement’; and subject to all the WRR.Footnote 22 Recipients who meet their ‘individual earnings threshold’, defined as the applicable minimum wage for their assigned number of hours per week,Footnote 23 are placed in the no WRR group. Recipients who do not meet this threshold, are fit for work and either not looking after a child under three or a carer, will be placed in the default option, the all-WRR group.Footnote 24 All recipients must sign a ‘claimant commitment’,Footnote 25 which for those placed in the all-WRR group will generally mean, if unemployed, being available and searching for work for 35 hours a week, as well as attending training events as directed by their ‘work coach’, although the number of hours will usually be reduced if they have caring responsibilities for a child under 13.Footnote 26 Sanctions will be applied if the claimant commitment is broken.Footnote 27
A claimant who is self-employed and placed in the all-WRR group is subject to a different form of conditionality. First they must be assessed by a work coach in a ‘Gateway Interview’ as ‘gainfully self-employed’, which is defined as ‘organised, developed, regular, and carried on in the expectation of profit’ and is their main employment.Footnote 28 If successful, a 12-month start-up period is then applied in which the recipient is expected to meet quarterly with a work coach.Footnote 29 During this period there is no minimum income or earnings threshold, but the work coach can ‘terminate’ the start-up period if the recipient is judged not to be ‘taking active steps to increase their earnings from that employment to the level of the claimant's individual threshold’.Footnote 30 At the end of the start-up period, the MIF is applied.Footnote 31
The MIF assumes that recipients earn at least their individual earnings threshold (also called the ‘Conditional Earnings Threshold’) each month – if somebody receives more than the MIF in a given month, then their actual earnings are used. Parkin, as she was caring for a child under 13, was assigned 25 hours per week. Claimants who are self-employed but not placed in the all-WRR group are not subject to the MIF,Footnote 32 whilst those found not be ‘gainfully self-employed’ will be subject to the full work availability and search requirements. However, following the pandemic outbreak, the government has the power to waive the MIF,Footnote 33 which was initially described as ‘temporarily relaxed… for the duration of the outbreak’.Footnote 34 In the March 2021 budget, the government announced that the suspension of the MIF will continue until the end of July 2021. Thereafter, it ‘will be gradually reintroduced from August’, but ‘work coaches will be given discretion to not apply it on an individual basis where they assess that claimants’ earnings continue to be affected by Covid-19 restrictions’.Footnote 35 No guidance has been announced so far as to how this will be arranged or judged by work coaches.
2. Judicial review
Parkin's case very helpfully highlights the impact of UC on the low-income self-employed. She claimed that the MIF discriminated against her contrary to Article 14 of the Convention, on the grounds of her status as a self-employed person. Since both the employed and unemployed were unaffected by the MIF, she argued that she would have been better off with either of these statuses, with no justification for this differential treatment. It was accepted that, over a 20-month period, she would have received £5,318.65 more if she had been employed with equivalent earnings and £610.86 more if she had been unemployed and in receipt of UC. There was also no reduction in her council tax liability due to the policy in Brighton and elsewhere of using the level of UC entitlement as the basis for calculating council tax reduction support. No figures are provided but it would be surprising if this would not have amounted to, certainly if unemployed with the full means-tested reduction (now usually capped at 80% for working age adults), at least £1,000 a year.Footnote 36
Anybody who has had contact with a ‘work coach’, read some of the academic literature, or simply watched I, Daniel Blake, might be expected to react with some scepticism to the thrust of the claimant's argument that ‘the MIF… is more draconian than the regime of sanctions which applies to the unemployed, and to employed claimants’.Footnote 37 Although Parkin may have been financially better-off if unemployed, this would have been conditional on avoiding sanctions, which have been notoriously common, with nearly a quarter of all Jobseeker's Allowance claimants affected between 2010 and 2015.Footnote 38 The sanctioning system has been described as ‘cruel, inhuman, and degrading’Footnote 39 and found to induce ‘profoundly negative personal, financial, health and behavioural outcomes’.Footnote 40 Philip Alston, UN Special Rapporteur on Extreme Poverty and Human Rights, identified ‘the imposition of draconian sanctions, even for infringements that seem minor’ as ‘instilling a fear and loathing of the system in many claimants’.Footnote 41 The severity of the system has led many claimants to disengage, leading to destitution or survival through crime.Footnote 42 Nor, on a practical basis, did Parkin have to endure the frequent stress-inducing meetings, or attend training events (often described by claimants as a ‘waste of time’), or apply for jobs which she knew were unsuitable to keep her work coach content.Footnote 43
Such a sceptical perspective was taken by the judge. Laing J was prepared to accept that the circumstances of the case fell within the ambit of both Article 1 of Protocol 1 and Article 8 of the ECHR and that ‘self-employment’ was a status for the purposes of Article 14. A difference in treatment on the ground of status was also accepted with no equivalent to the MIF for the unemployed and employed. However, the judge rejected the argument that the situation of the self-employed was analogous to the other two statuses and also held that the difference in treatment could be justified. For Laing J, a ‘work requirement imposed on an employee has an immediate, predictable and measurable effect’; that is, making UC entitlement conditional on searching for higher earnings will incentivise such search and lead, in many cases, to an increase.Footnote 44 However, ‘there is no directly effective practical equivalent in the case of a self-employed claimant’, since the introduction of some kind of work requirement ‘would not necessarily make his business more profitable’.Footnote 45 Hence, to achieve the aim of encouraging less reliance on benefits for the self-employed ‘a different mechanism had to be designed in order to influence their behaviour’.Footnote 46 It followed that ‘employed and self-employed claimants are not in relevantly analogous situations for the purposes of this scheme’ and, in addition, that the difference in treatment could be justified.Footnote 47
Laing J's approach to the analogy test is arguably in tension with the inclusive approach taken by both the Supreme Court and Strasbourg,Footnote 48 but her argument regarding justification – that the work requirements, work coach and sanctioning system would not function adequately for the self-employed – appears sound. If somebody runs a business that is struggling to turn a profit, then it seems extremely unlikely that making them accountable to a street-level bureaucrat will lead to any improvement. However, the fundamental problem with her analysis is that no work requirements are actually imposed on employees if they earn above £79.35 per week. Thus, even if the judge is correct that an effective direct equivalent to the work requirements for the self-employed is unavailable, work requirements cannot establish a disanalogy or justify a difference in treatment if employees are not subject to them. However, this claim – that Parkin was discriminated against compared with the employed with equivalent earnings, as a result of the non-existent roll-out of ‘in-work’ conditionality – received brief attention from the judge, seemingly because it was only argued in a ‘post-hearing note’.Footnote 49
(a) In-work conditionality
At this point, before addressing what should have been the substance of the case, it is important to set out the reality of the situation in respect of conditionality for low-paid employees. Despite talk about UC extending conditionality to those in work, so far this has been very limited except for recipients in pilot areas, where the DWP has been undertaking a trial in which low-income in-work UC recipients are exposed to different levels of conditionality.Footnote 50 Under the Universal Credit Regulations, reg 99(6), for single employed recipients earning more than £5 above the amount of Jobseeker's Allowance per week – called the ‘Administrative Earnings Threshold’ (AET) – ‘a work-search requirement or work availability requirement should not be imposed’.Footnote 51 In DWP guidance this is described as a ‘light touch regime’.Footnote 52
In the pilot, participants were recruited whose earnings fell below the their individual earnings threshold (ie their designated number of hours multiplied by the applicable minimum wage).Footnote 53 Participants were then divided into three groups: ‘Minimal Support’, in which claimants only had an initial telephone appointment and a follow-up call eight weeks after starting the trial; ‘Frequent Support’ and ‘Moderate Support’, in which claimants met with their work coach to receive ‘support’ and review agreed actions fortnightly and every eight weeks respectively. Both Frequent and Moderate Support group participants would be sanctioned if they failed to meet agreed actions and search for a higher income. Those in the Minimal Support group could be sanctioned if they missed the initial phone contact in which they would be told that they were expected to increase their earnings, but crucially also that they could not be sanctioned if they did not do so and any agreed activities were voluntary. However, outside the trial, there has not been any conditionality imposed on in-work claimants who meet the AET, even at the level of the Minimal Support group, with ‘claimants in Light Touch receiv[ing] 0 interviews’.Footnote 54 Guidance for work coaches as to how recipients earning the AET or more a month, but less than their CET, are to be treated describes support as purely ‘voluntary’. For claimants:
who pro-actively seek support from DWP to increase their earnings. In these cases support can be provided. The support provided will depend on what would best address the individual request and the claimant's specific needs. Any activities agreed with the claimant are voluntary and failure to complete the activities will not lead to a sanction.Footnote 55
Nonetheless, there have been some reports in the media of in-work recipients being sanctioned for taking holidays, with their work coach claiming that they should be looking for extra hours, or being required to apply for jobs which are unsuitable given their family commitments and so on.Footnote 56 Presumably, these are reports from people in the pilot or who (despite appearances) are not meeting the AET, although there may be some rogue work coaches who fail to follow the legislation and guidance. This may be a particular problem when claimants move from unemployment to a ‘mini-job’, with some work coaches perhaps unaware – or even reluctant to accept – that this means that the claimant is no longer subject to the work requirements and that, as a result, the coach no longer has any control over the claimant's life.
Hence, returning to Parkin's case, what needed to be justified is not the imposition of a different type of conditionality from the full work-search requirements and sanctioning system imposed on the employed, but why the employed with earnings above the AET are not subject to any meaningful form of conditionality, whilst the self-employed with equivalent earnings are subject to the MIF.
(b) Manifestly without reasonable foundation
In R(DA and DS) v Secretary of State for Work And Pensions the Supreme Court was clear that that the test for justification for human rights claims involving welfare benefits is whether the interference is manifestly without reasonable foundation (MWRF).Footnote 57 In Langford v Secretary of Defence Footnote 58 it was further clarified that at least in the Article 14 social security context the test was not to be applied at each stage of a four-fold proportionality test, but simply required consideration of whether the differential treatment was MWRF.Footnote 59
There is no space in this paper for a full discussion of the test, which has been central to the failure of human rights law to significantly ameliorate the harsh welfare reforms, summarised by the UN Special Rapporteur on Extreme Poverty and Human Rights as inflicting ‘great misery… unnecessarily’,Footnote 60 introduced since 2010.Footnote 61 However, put shortly, there is a very strong argument that the use of the test as a uniform standard in the social security context by the domestic courts, particularly when applied in claims involving subsistence needs and marginalised groups, is inappropriate. The ‘MWRF’ phrase was first used by Strasbourg in James v UK, concerning the compatibility of leasehold enfranchisement with Article 1 of Protocol 1,Footnote 62 whilst in the social security context the test was endorsed in three Article 14 cases concerning pensions policy: Stec v UK,Footnote 63 Runkee v UK Footnote 64 and Carson v UK. Footnote 65
However, over the last decade the domestic courts have applied the MWRF test in the very different context of ‘austerity’ litigation brought in response to cuts to subsistence benefits, affecting most prominently the disabled, victims of domestic violence, single parents, and children generally.Footnote 66 Politically, welfare recipients, especially during the Cameron premiership, became, in Lord Bingham's words, ‘subjects of public obloquy’Footnote 67 and an unpopular minority group, with frequent front-page attacks on ‘benefits scroungers’ in the media and rhetoric from the most senior politicians, which arguably sought to demonise and scapegoat.Footnote 68 Morally, as some judges have acknowledged, like the UN Special Rapporteur, these policies have caused ‘real misery’.Footnote 69 One distinguished social policy professor has described the two-child limit as ‘the worst social security policy ever’,Footnote 70 and which O'Brien has also judged as ‘the most significant violation of human rights’ that has been introduced into the UK social security system.Footnote 71 Equally unforgiving judgments could be made about the benefits cap and bedroom tax. It is often claimed that the purpose of human rights law is to protect the interests of such marginalised groups and that the ‘more substantial the interference with human rights, the more the court will require by way of justification’.Footnote 72 Yet by adopting such a lax proportionality test, the domestic courts appear to have been attempting to provide as little protection as possible compatibly with the Convention.
Jurisprudentially, the MWRF test was developed by Strasbourg to reflect the margin of appreciation that was appropriate for it, as an international court, to accord to national authorities when considering ‘general measures of economic or social strategy’ due to their ‘direct knowledge of their society and its needs’.Footnote 73 Yet, the domestic courts have simply imported the test into social security law, even though this has been acknowledged to be incorrect elsewhere, with the Supreme Court willing to go beyond Strasbourg, rejecting the mirror principle, in an array of other contexts from adoptionFootnote 74 to civil partnerships.Footnote 75 Moreover, the recent Strasbourg case, JD v UK, involving a challenge to the bedroom tax, highlights that generic use of the MWRF test in this context may lead to decisions outside the margin provided by the Convention, with cases involving discrimination on grounds of disability or gender requiring ‘very weighty reasons’ to justify differential treatment.Footnote 76 Overall, it is striking that the domestic courts, unlike Strasbourg, appear to have singled out social security as an area of extreme deference, employing a laxer proportionality test than is used in cases involving the property rights of firms under Article 1 of Protocol 1Footnote 77 and in areas – abortion,Footnote 78 assisted suicideFootnote 79 – that were once at least considered to raise the type of deeply controversial ethical questions, which in the UK system were better left to Parliament.
Nonetheless, regardless of the dubious merits of the MWRF test, it is important to recognise that Parkin's claim was significantly weaker than those brought in the recent high-profile welfare cases decided in accordance with the test. The impact of the MIF is similar to the benefits cap, which also artificially limits the benefit entitlement of families, but by formally setting a limit to the total level of support, rather than, as with the MIF, treating individuals as earning a higher income than they actually do. From the perspective of people affected by the MIF, it may seem ‘unfair’ in comparison, since the MIF applies even if the overall benefit entitlement of the household is relatively low, whilst generally adults affected by the cap will not be in work and may be more likely to fit the negative stereotypes around welfare recipients than an artistic and entrepreneurial graduate like Parkin. However, from the perspective of human rights law, the crucial difference is that for a household to escape from the cap they must work a set number of hours (16 for single parents, 24 for couples with children) or now, under UC, earn the equivalent amount paid at the minimum wage. This applies even in the case of a single parent, with very young children, the focus of the litigation in DA, when it will often be extremely difficult to find work. Parkin, in contrast, could escape the MIF by ceasing to be gainfully self-employed, which would simply require her to inform a UC service centre that self-employment was no longer her main activity. This would then mean (unless she met the AET through wage labour) being subject to the work requirements. No doubt this would be an unpleasant experience for Parkin and others in her position. Yet, a single parent cannot escape the cap, and thereby gain full access to their subsistence needs benefits entitlement, by satisfying a ‘work coach’ that they are searching for work for 16 hours a week; they must actually work this amount, with no amount of effort or number of job applications sufficient. It should also be noted that the two-child limit, bedroom tax and benefits cap claims have been based on more suspect ‘statuses’ than self-employment: gender and disability, along with more fine-grained categories.
Moreover, there are plausible public policy considerations, even if not mentioned in the case, why the government would wish to treat differently the self-employed and those employed with the same income. These include that low profitability self-employment, where average hourly earnings are below the minimum wage, contributes to the low productivity problem in the UK; the self-employed do not enjoy the workplace protections and rights provided to employees; a different, generally lower, taxation regime applies for the self-employed; moving from unprofitable to profitable self-employment will almost certainly be more arduous, ceteris paribus, than moving from a ‘mini-job’ to full-time employment; and it is far easier for self-employed claimants to underreport and manipulate their earnings, which all UC recipients have a strong incentive to do given the very high taper-rate – it is noteworthy that Parkin earned close to her work allowance, whilst her revenues were quite high.Footnote 80 In contrast, whilst the political reasons for adopting the benefit cap were obvious – a policy considered so self-evidently popular with the public amongst political and media elites that the pre-Corbyn Labour party felt compelled to support itFootnote 81 – the primary justification accepted by the Supreme Court for the purpose of satisfying the ECHR was especially weak, even feeble: ‘the government's belief that there are better long-term outcomes for children who live in households in which an adult works’.Footnote 82 As the discussion above shows, UC entitlement is already conditional on meeting the work requirements: there simply are not any children growing up in households which receive UC where nobody is trying to find a job or engaging in work-preparation activity, unless they are a single parent with a child under the age of one.Footnote 83 The only difference that the cap makes is that children will suffer even if the parents are actually trying to find work at the required level. Yet, such is the extremely deferential approach of the Supreme Court, the cap was deemed proportionate even though the work-incentive justification is already (less unfairly) incorporated into the welfare system.
Hence, even if the Supreme Court were to recognise its error, perhaps prompted by JD, and reject the MWRF test in at least some social security cases, it is clear that as a matter of human rights law the justification for the MIF is much stronger than for other high-profile welfare measures. On the one hand, it is less harsh since it can easily be escaped from. On the other hand, there are plausible reasons why the government would be justified in attempting to discourage prolonged unprofitable self-employment. As such, even if a conventional four-stage proportionality test were to be employed in a Parkin-type case, with the court both recognising that employees earning above the AET are not subject to the work requirements and willing to assess the necessity and fair balance stages with some intensity, then the court would still almost certainly hold that the MIF is proportionate.
3. Conditionality in UC
Parkin's case also helpfully highlights wider significant issues concerning the ethics of the welfare system, which have been overlooked in the academic literature. For instance, in one of the very few studies of tax credits, Dean argues that they function as ‘a subsidy to low-paying employers and perpetuate essentially exploitative terms and conditions of employment’ and thereby serve to commodify labour.Footnote 84 However, such an account is only plausible if it ignores the position of the self-employed, for whom tax credits had the opposite effect: they decommodified labour, allowing people in Parkin's position to pursue their interests, with a limited but still quite sizeable amount of support from the state. Moreover, Dean's disregard of the decommodifying aspect of tax credits leads him to view UC as an ‘incremental measure’, the purpose of which is to ‘shore up a highly casualised low-wage labour market’ in keeping with the social policy trend of recent decades in the UK and elsewhere.Footnote 85 Yet, whilst this may be true for some groups, for the large number of low-earning self-employed people receiving tax credits, UC appears to turn their lives upside down, forcing them to give up self-employment and enter wage labour.
An example of what the different treatment of the self-employed means in practice can be provided by, albeit an unusual source for an academic paper, the channel 5 reality tv show, ‘Celebs on Benefits’.Footnote 86 Although arguably another regrettable addition to the exploitative ‘poverty porn’ genre, the programme does provide a reasonably sympathetic portrayal of how unpleasant and humiliating many people find claiming Jobseeker's Allowance and particularly the obligatory contact with the job centre. One of the recipients, Lisa Appleton (a former Big Brother contestant), responds to such feelings by claiming tax credits as a self-employed person after starting a dog-walking enterprise, which initially at least was far from remunerative – around £5 a day. Other examples can be found from people posting online about their experience as a self-employed person claiming tax credits and in the case law which has arisen, as discussed below, from the government in 2015 changing the rules on the definition of self-employment. One poster, for instance, concerned about a request from HMRC for details of their self-employment after the rule change, describes their situation as:
an artist, working many hours and often barely get by on the WTC [Working Tax Credits] I receive… researching a booklet I want to illustrate and publish – hence this brings in zero £'s at the moment, but I am passionate about it and feel it is worth the time and effort… For the past few years of receiving WTC I have made a loss of a few hundred pounds, but on my last year's accounts, I made a few hundred pounds profit.Footnote 87
Such alternatives to unemployment and wage labour will in many cases no longer be available under UC, with work coaches deciding that such activities do not count as ‘gainful self-employment’ even before the MIF applies.
The MIF, along with other changes to the treatment of the self-employed, can therefore be considered an important part of the ‘punitive turn’ which has been identified in the development of UC, with these policies both inflicting hardship on the self-employed and further restricting the ability of workers and the unemployed to avoid conditionality and wage labour.Footnote 88 The MIF also supports Grover's use of Offe's concept of ‘active proletarianisation’ to argue that contemporary conditionality polices in the UK aim to ensure that people are forced sell their labour power, with forms of subsistence outside of wage labour discouraged or ‘demolished’.Footnote 89 In addition, the MIF fits Wiggan's analysis of the Work Programme and Mandatory Work Activity, which he argues – drawing on Marxist autonomist theory – function as an integral part of a broader strategy of underdevelopment adopted by the UK state as the means to erode labour power's autonomy over waged work.Footnote 90 The MIF, as such, appears to be a central part of the government's strategy to enforce a choice on an ever-growing proportion of the adult population between wage labour, regardless of how menial, and destitution.
However, Parkin's case also highlights the limitations of such critical, Marxist influenced, accounts of UC. The reality is that even for Parkin, subject to the MIF, UC does not appear to have been particularly punitive since she could escape from both the MIF and the conditionality to which the unemployed are subject by meeting the AET and earning through wage labour (now) £79.35 a week. For a graduate who was already doing some part-time employment in addition to her self-employed activities in Brighton, an area, at least prior to the current pandemic, with low unemployment, this may not seem too burdensome, especially for claimants without children: at present, it equals around nine hours a week at the minimum wage. Indeed, one explanation for why an appeal was not pursued and the peculiar way in which the case was argued is that Parkin did not realise that this option was available to her and has now, since she was already doing some employed work, given up her status as ‘gainfully self-employed’ and is earning the AET to escape from the work requirements.
UC, therefore, whilst creating a single benefit for social security recipients – whether in or out of work – maintains the existing division between the low-paid employed, who previously received tax credits, and the unemployed, receiving Jobseeker's Allowance and subject to conditionality. As presently constructed, UC extends this relative generosity to all those who meet the AET, replacing the steeper hours thresholds, benefiting most those in ‘mini-jobs’ and without children. A good example of the type of person who potentially gains from this reform would be familiar to readers of this journal. For the vast majority at the bottom of the ‘academic precariat’Footnote 91 – those who have finished their PhDs and are engaging in limited amounts of hourly paid, piece-rate, teaching – tax credits would have been irrelevant, unless they had children, since in the unlikely event they met the hours threshold to potentially qualify, then almost certainly their income would be too high, given hourly pay levels for university teaching. With UC, however, somebody only teaching a few hours a week, but who met the AET would very likely receive some support. As for the self-employed in respect of tax credits, the AET might be what provides the financial space for someone to continue to pursue their chosen career or goals, rather than being immediately required to find full-time work. The MIF also creates a surprising, and undiscussed, dynamic in which increases in the minimum wage are not, in the short-term at least, in the interest of the low-income self-employed, since their UC entitlement – if they earn below the MIF – will be reduced with each rise.
(a) The ethics of the MIF
Assessing the ethics of such changes is not straightforward (as well as, of course, in respect of the MIF far from exhausted by the discussion above of its Convention compatibility). From any perspective that values autonomy and providing people, especially the poor, with choices other than between menial wage labour and destitution, then the shift to UC from tax credits is negative, independently of the intensification of sanctioning for the unemployed and other administrative problems. Tax credits were a far more radical reform than a mere low-wage top-up, combining with other benefits to function as a guaranteed minimum income scheme for those who self-designated as ‘self-employed’. Potentially this included some recipients who did not undertake any self-employment, given the minimal conditions required to receive tax credits, which initially were often no more than filling in an annual application form or making a renewal claim over the telephone.Footnote 92 How many, if any, UK equivalents of the ‘Malibu surfer’ the tax credit system gave rise to though is unknown due to the lack of research in this area.Footnote 93 This possibility was also probably largely foreclosed by changes in 2015 after which HMRC sought to ‘to tighten up the eligibility conditions for those claiming working tax credit on the basis of self-employment’.Footnote 94 The definition of a self-employed person for the purpose of determining tax credit entitlement was narrowed from the capacious – ‘engaged in the carrying on of a trade profession or vocation’Footnote 95 – to:
‘self-employed’ means engaged in carrying on a trade, profession or vocation on a commercial basis and with a view to the realisation of profits, either on one's own account or as a member of a business partnership and the trade, profession or vocation is organised and regular.Footnote 96
The changes included requiring new and existing self-employed tax credit claimants in some cases at least to provide evidence that they met this criteria, with guidance stating that ‘if their business activity is a hobby it is not likely to be considered commercial or have an expectation of realising a profit’.Footnote 97
Almost certainly far more typical than instances of ‘fake’ self-employment claims have been Parkin or dog-walking type cases,Footnote 98 where recipients engage in genuine self-employment, albeit at very low levels of renumeration. For such individuals, despite the 2015 changes, the case law has continued to be favourable, with the Upper Tribunal holding that the addition of the term ‘commercial’ does not imply any minimum requirement or expectation of reasonable profitability which, as in taxation cases, ‘realistically reflect the overheads and variable costs of the enterprise’ or means that it ‘is worth doing from a financial point of view’.Footnote 99 Rather, in the tax credits context, commercial simply means ‘engaged in buying and selling exchanges’.Footnote 100 In this case, the claimant, who had received tax credits since 2006, worked long hours producing novels and albums that he attempted to sell, with current profitability approximately £8 a week, which the Upper Tribunal held was sufficient to be in self-employment on a ‘commercial basis’.Footnote 101 The claimant is another very good example of a life, outside wage labour and conditionality, which is now impossible under UC for non-wealthy working-age people. In this respect, tax credits appear to have functioned similarly to Tony Atkinson's proposal for a ‘participation income’ in which citizens would be provided with a basic income if they engage in activity that makes a ‘social contribution’,Footnote 102 but with the key difference that the activity needed to be ‘commodified’– offering surf-lessons, dog-walking, artistic activity – even if unprofitable.
The literature on basic income and other schemes such as Atkinson's makes a persuasive case for some form of support which is not contingent on wage labour (or willingness to search), and in Parkin's case it should be emphasised that she was also engaged in the social reproduction of bringing up two children: work which itself should be supported and until relatively recently a minimum income was available unconditionally until the youngest child reached school-leaving age through income support.Footnote 103 Nonetheless, even if there are good arguments for Parkin and others to be provided with support on the condition of citizenship, residence, social reproductionFootnote 104 or, perhaps as with Atkinson's scheme, engaging in valuable activities which are not recognised or sufficiently remunerated by the market, it does not follow that there are good reasons to provide such support simply on the basis that somebody is self-employed. Providing such support beyond a reasonable start-up period is more difficult to justify, since it is far from clear what contribution prolonged unprofitable self-employment makes to the public good when the activity fails to provide the self-employed person with a minimal living standard. Of course, the market is not the sole arbiter of value, but the point is that engagement in self-employment alone, however unprofitable, does not appear to identify an alternative criterion of value, unlike, say, raising children. In some instances, at least, the lack of monetary return from self-employment will correctly identify the lack of social value of such activities. Alternatively, if the justification for unconditional support to self-employed individuals is that they should not be faced with a forced choice of destitution or wage labour, then this is essentially the argument for a universal basic or guaranteed minimum income for all residents or citizens.
Moreover, providing support to the self-employed in a way which resembles an unconditional minimum income scheme, but to some extent under ‘false pretences’, with relatively few people being aware of the existence of this alternative to wage labour, may have inegalitarian implications by being primarily utilised by those with sufficient savvy to successfully navigate the benefit system. It is sometimes observed – and this was part of the impetus behind a famous 1998 NME magazine front cover picturing Tony Blair, asking ‘Ever had the feeling you've been cheated?’ – that one effect of the introduction of Jobseeker's Allowance, and the conditionality it involves, has been to stifle the creativity of young people, especially from working-class backgrounds who can no longer simply ‘sign-on’ whilst they pursue creative pursuits in bands and so on (or ‘No dole, no rock ‘n’ roll’ as the NME succinctly put it).Footnote 105 It has not though, to my knowledge, been pointed out that this option was still available through tax credits, although due to the eligibility rules generally only for those aged over 25: support for ‘dad rockers’ rather than ‘angry young men’.Footnote 106 Indeed, as Branko Milanovic has observed, one of the most important developments in contemporary, ‘hypercommercialised’, capitalism has been the pronounced increase in the commodification of daily life.Footnote 107 People increasingly have manifold opportunities to utilise both their personal property (car, spare room, kitchen) through platforms such as Uber, and their ‘personality’ and daily life experiences – ‘influencers’ on social media – for commercial purposes. Whether a desirable social development or not, it is a further reason why providing preferential treatment in the welfare system on the basis of engaging in some form of commercial activity is unlikely to be an attractive social policy to government, particularly if coupled with harsh treatment of the unemployed.
(b) Importance of the AET
Parkin's case does highlight that UC also contains some limited emancipatory potential so long as the AET remains, providing the opportunity to reduce the amount of wage labour people are forced to engage in even if it cannot be entirely avoided. The AET rules, as an escape-route from full-time wage labour, are also more transparent than the self-employment rules under tax credits, since in principle the absence of work requirements for anybody earning above a set amount is straightforward, albeit so far there appears to be little public knowledge of the AET. From a public policy perspective, when the MIF and AET are considered in combination with other aspects of UC and recent social policy changes which incentivise wage labour, then potentially the outline of a new social contract or bargain can be discerned in which all those deemed ‘fit for work’ are in effect forced to engage in wage labour unless independently wealthy or able to make a reasonable return through self-employment, but there is also improved pay at the bottom and some real freedom to limit the amount of wage labour undertaken through the support provided by UC and in particular the AET. These other social policy changes include raising the minimum wage to a more decent level (with the aim to reach two-thirds of the median), the increase in the income tax and national insurance thresholds, pension changes including an increase to the basic state pension and automatic enrolment in private pension schemes, along with, less progressively, a laissez-faire approach to zero hours contracts. UC intensifies what might be called a ‘work first’Footnote 108 – or, in reality, a ‘wage labour first’ – approach to social policy by providing more generous support to low-paid childless workers than tax credits and incentivising mini-jobs through the AET (the carrot), with the strict work-search and sanctioning regime for the unemployed and the MIF providing the punitive aspect (the stick). The government's unwillingness to robustly regulate gig economy workers and this type of ‘sham’ self-employmentFootnote 109 – a much bigger social policy problem than the unprofitable self-employed receiving tax credits – does, though, undermine any focus on incentivising and fostering decently remunerated wage labour.
Moreover, the AET, which provides an important part of the progressive aspect of UC and this incipient social bargain, is very fragile. From the perspective of Iain Duncan-Smith, the main architect of UC who is generally considered to be in favour of intense and ubiquitous conditionality, the AET may still make some sense. If Britain is ‘broken’; a ‘country where worklessness had become engrained’ and is ‘taking root in families and starting to pass through the generations’, and this is a ‘national scandal’, then the AET as a mechanism to help break this cycle by incentivising even limited amounts of wage labour seems like a sensible policy.Footnote 110 It is difficult to imagine anybody, even someone with a strong aversion to menial work, who would find meeting the AET more stressful and burdensome than searching for work for 35 hours a week, with regular meetings with a work coach, various compulsory training events and the ever-looming threat of sanctions.
The AET may, though, be perceived to clash with the wider aim of the government to end ‘welfare dependency’, which at least some in government appear to understand as involving entitlement to any welfare benefits. Lord Freud, also crucial to the development of UC,Footnote 111 described this as his ‘driving force… to give a clear route out of the benefits system and into independence’. Indeed, the MIF was an important part of Freud's concern with:
all kinds of nooks and crannies in our benefits system… the incapacity benefits, the lone parents, the people who are self-employed for year after year and only earn hundreds of pounds or a few thousand pounds, the people waiting for their work ability assessment then not going to it – all kinds of areas where people are able to have a lifestyle off benefits and actually off conditionality.Footnote 112
The AET from this perspective appears precisely such a ‘nook’ or ‘cranny’, with UC, given the far higher taper-rate than initially envisaged, in some ways incentivising people to simply earn the AET. In addition, the spectre of prolonged intergenerational unemployment so prominent in Duncan-Smith's rhetoric, which may from a broadly anti-welfare perspective partially justify the AET, is false, with little evidence to support such a view.Footnote 113 More clear-eyed anti-welfare politicians and policy-makers than Duncan-Smith, less concerned with non-existent social problems, are likely to see the AET as an obvious target to reduce welfare expenditure. Even more worryingly, Priti Patel, when employment minister, seemed to positively welcome a dystopian vision in which the state intrudes ever more into the lives of the working poor, in which the ‘work coach can pick up the phone… to an employer, and say, “This claimant has only been working X hours right now. He or she now feels they are ready to work more hours or develop or be supported into a new role”’. In this ‘three-way relationship’ the low-paid worker would be burdened with keeping both their employer and work coach content to maintain a basic living standard for their family.Footnote 114
It is also difficult to identify forces, political or legal, which may defend the AET and the freedom it provides to limit wage labour. The courts have been highly compliant with the government's welfare agenda, and the chance they would defend it on human rights or common law grounds appears non-existent.Footnote 115 In Reilly the Supreme Court accepted that workfare was compatible with ECHR rights and so it is extremely unlikely the courts wound find that making benefits conditional on work-search, even for those already in-work, is Convention incompatible.Footnote 116 The Labour Party 2019 Manifesto provided a robust defence of the welfare state and the party in general under Corbyn was much more willing to make a positive case for social security than his recent predecessors.Footnote 117 The party also expressed interest in labour decommodifying policies such as a basic income and a four-day week.Footnote 118 However, arguments against conditionality had very limited public cut through, with government concessions on other areas such as the seven-day waiting period. It is far from clear whether the current more cautious Labour party leadership would be prepared to defend the AET, albeit in the post Covid-19 environment they may be less fearful of being labelled as soft on ‘benefits scroungers’.
What appears to have delayed the introduction of in-work conditionality prior to the current pandemic is primarily a lack of administrative capacity for such a large extension in a period when UC is still slowly rolling-out,Footnote 119 with perhaps some wariness of political risk, which may be more acute now given the Conservative party's increased support amongst low-income voters in the 2019 general election (albeit this is more pronounced amongst the retired who would be unaffected by such policies).Footnote 120 Although many have wondered whether the current pandemic will lead to a less punitive welfare system, it may therefore have risks in the medium-term for in-work conditionality, given current plans to double the number of work coaches – if unemployment returns to previous lows, then the administrative capacity may exist for a sharp extension of the state's reach into the lives of the working poor.Footnote 121
The DWP trial, though, suggests that there is no economic or public policy rationale for such an extension, with in-work conditionality found to have a very small impact. At 52 weeks, the Frequent and Moderate Support groups, subject to conditionality, earned £5.25 and £4.43 more respectively than the Minimal Support group.Footnote 122 After 78 weeks, these differences had narrowed to £4.16 and £1.71 per week.Footnote 123 An earning difference of at best approximately £5 a week seems an extremely small sum to justify the hassle, stress and expense of regular meetings both for the UC recipient and job centre, along with the harm caused by the threat of sanctions. Moreover, at 78 weeks the Minimal Support group had still increased their earnings by £13.36 a week, whilst at week 52 (data not available for week 78) a larger proportion (72%) of the Minimal Support group were in permanent employment than for Frequent (67%) and Moderate (70%) groups, which may provide some weak evidence that the threat of sanctions and the need to justify their activity to a work coach led some recipients to prioritise higher earnings over permanent employment contracts.Footnote 124 Critics of ‘welfare reform’ have long argued that it owes more, as the UN Special Rapporteur put it, to an ‘ideological rather than economic motivation’,Footnote 125 but hopefully such meagre sums will give any government pause before expanding the UC ‘panopticon’ to in-work families.Footnote 126
Conclusion
The treatment of the ‘self-employed’ in the gig economy has emerged as one of the most discussed topics in legal academia.Footnote 127 The treatment of the self-employed in the benefits system has, though, received – like low-paid workers generally – minimal attention and surprisingly this extends to social policy scholarship, where the favourable treatment of the self-employed by the tax credit system has not been recognised and its implications considered. This paper has sought to fill this lacuna by highlighting the significant change in the position of the self-employed created by the move to UC, with the genuine alternative to wage labour for people who self-designated as ‘self-employed’ created by the tax credit system – effectively an unconditional minimum income guarantee – now removed.
Parkin's Article 14 claim, based on her status as a self-employed person, was always extremely unlikely to succeed, with the courts consistently upholding the legality of social security measures considerably harsher than the MIF. The case does, though, helpfully highlight the relatively favourable treatment under UC of workers employed in ‘mini-jobs’ meeting the AET, who are not subject to in-work conditionality or, as with the tax credit system, required to meet relatively steep hours thresholds. The AET has been one of the few positive developments under UC and is all that stands between a forced choice between destitution and full-time menial wage labour (or search) for the working-age poor. For this reason, it is likely to be seen as another ‘loophole’ by the current government and its medium-term survival is uncertain.
