How stigma, fear and the UK welfare system harm women in informal self-employment

Self-employment is often championed as a route out of poverty^[1] for the unemployed and those on low incomes, offering independence, flexibility and financial autonomy. However, for informally self-employed women in the UK, the reality is very different to these kinds of entrepreneurial success stories.

These women, working for themselves and “off the books”, can find they are trapped in a grey area – neither fully unemployed nor officially self-employed. And as such, they can struggle against a welfare system that both stigmatises and penalises their efforts to make a living.

My recent research^[2] along with my co-researcher Sara Nadin, sheds light on these often overlooked women, who work informally while claiming state benefits. It shows the precarious and gendered nature of informal self-employment and the difficulties of transitioning into formal work.

Informal self-employment is not an entrepreneurial aspiration but a necessity for the women in our study. Domestic responsibilities, a lack of formal qualifications and limited job opportunities can force these women into work that fits around their caregiving roles. From cleaning and childcare to sewing and catering, these women engage in work that remains invisible and unrecognised.

Their earnings – often meagre and inconsistent – help cover basic necessities, yet they live in constant fear of exposure and “getting caught by the taxman”.

The UK’s welfare system^[3], with its strict and punitive conditions, places them in an impossible situation. If they declare their income, they risk losing benefits essential for survival. If they continue working informally, they face criminalisation and stigma as “benefits cheats”.

Angela (not her real name) is an unregistered child minder. She told us she recognises the drawbacks for everyone involved. She said: “I think it’s a shame that people have to go to these lengths to be able to cope financially. There should be better laws regarding employment, pay and conditions, so people choose that option instead of doing it unregistered or make a living on benefits. It is not good for anyone, the person doing it is under stress of being caught and the government and the country lose out on money.”

There is a paradox of visibility here too. On one hand, these women need to remain hidden to avoid welfare sanctions. On the other, they rely on word-of-mouth to attract business. This delicate balancing act forces them into an in-between space, where they can neither fully integrate into the formal economy nor retreat into unemployment.

And this is no short-term situation. The women we interviewed had been informally self-employed for an extended period – one for more than ten years.

While some women did say they wanted to formalise and grow their businesses, they felt the risks were too high. The unpredictability of their earnings, coupled with the loss of benefits, can make it financially unviable.

As one woman put it: “I’d like to make a proper go of it, but it’s really scary. What if I can’t get enough clients?”

Successive UK governments have promoted self-employment as a route out of poverty and worklessness^[4], yet welfare policies^[5] often work against women trying to become financially independent. The introduction of Universal Credit^[6] has exacerbated the issue, imposing strict minimum-income thresholds that self-employed workers can struggle to meet. This primarily affects women^[7], who are less able to work full-time and more likely to be found in low-paid sectors of self-employment.

In fact, it has been argued that the UK’s Universal Credit welfare scheme actively limits^[8] claimants’ ability to get into formal self-employment. Instead of supporting entrepreneurship, the system has been found effectively to discourage it.

Policy changes could help break this cycle. Introducing an “earnings disregard”, where informal workers can earn a set amount without affecting their benefits, would provide a crucial safety net. And supporting women transitioning from informal to formal self-employment – through grants, tax breaks and accessible business education – could empower them to grow their businesses formally and sustainably, without fear of financial ruin.

Rather than criminalising those struggling to make ends meet, policymakers should recognise the valuable role these women play in their communities. Whether they’re caring for children, cleaning homes or helping busy families with their ironing, their services provide affordable options for other low-income families. This creates a grassroots support network for the formally employed that is overlooked and undervalued.

For real change to happen, the conversation around informal self-employment must shift. Instead of treating this work as a problem to be eradicated, it should be acknowledged as part of the broader economic fabric – one that deserves protection and support.

The women in this study are not merely informal workers. They are survivors navigating an unforgiving system. Their experiences challenge the simplistic notion that self-employment is a solution to poverty. Without changes to both welfare and self-employment policies, they will remain in the shadows – enterprising but invisible, offering valuable local services but criminalised.

It’s time for a policy rethink that values and supports all workers, regardless of where they fall on the economic spectrum.

References

1. ^{^} route out of poverty (academic.oup.com)
2. ^{^} research (www.tandfonline.com)
3. ^{^} welfare system (www.gov.uk)
4. ^{^} route out of poverty and worklessness (academic.oup.com)
5. ^{^} welfare policies (www.google.co.uk)
6. ^{^} Universal Credit (www.bbc.co.uk)
7. ^{^} women (www.google.co.uk)
8. ^{^} actively limits (www.cambridge.org)