Sunak’s self-employed support is welcome – but here’s five ways to improve it
After a wait that felt like an eternity, self-employed people finally got some clarity yesterday (March 26th) on how the Government intends to support them during the coronavirus pandemic.
Chancellor Rishi Sunak’s Self Employment Income Support Scheme (SEISS) was more generous than many expected. The headline is that self-employed people will be able to claim a taxable grant worth 80% of average profits (notably, not revenues) over the last three years, up to £2,500 per month. Three months’ worth will be paid as a lump sum and the Chancellor hasn’t ruled out extending the scheme. It creates an ostensible equivalence with employed workers whose jobs are furloughed under the Coronavirus Job Retention Scheme.
But it’s unlikely to kick in before June, meaning those struggling right now from a collapse in custom will need to plan carefully – and may have to fall back on the benefits system in the meantime.
Another snag is that only those self-employed people who’ve submitted a Self-Assessment tax return for 2018-19, and whose main income is derived from self-employment, will be eligible. This was touted by Sunak as a guard against abuse – but it means new start-ups are excluded.
As noted here, the UK’s approach is in fact far more stringent and exclusionary than policies enacted in Germany and Denmark in the past week. Germany’s €50bn grant scheme, for instance, specifically covers business costs such as rent, as well as lump sums for sole traders and micro-businesses. And in Denmark, firms that see a 30%+ loss of revenue can claim up to 23,000 DKK (£2,740) per month. Both schemes therefore factor in the costs that self-employed people are still having to pay at the moment – not just profits, which for many self-employed people can be a low proportion of turnover.
So, how could the UK’s scheme be improved? Here are five ideas that could stop the most vulnerable falling through the cracks:
1. Send a lifeline to start-ups
A simple change would be to allow the newest self-employed to file a Self-Assessment return for the 2019-20 tax year early during the month 6 April – 5 May, and use this to establish their eligibility for the SEISS so they can also be paid 80% compensation for three months of lost earnings in June 2020.
We believe this measure would deter people fraudulently claiming to be self-employed, as they would have to meet the other criteria of the SEISS.
Start-ups are a key driver for innovation and creativity in our economy who’ve been encouraged to embrace entrepreneurship through policy and welfare decisions in recent years. This would stop them being stifled at birth.
2. Dovetail the SEISS and Universal Credit
As Universal Credit provides a ‘top up’ to low income assessed on a monthly basis, we’re concerned that a concentrated payment under the SEISS may make Universal Credit claimants ineligible for support in June. A mechanism to smooth how the lump sum payment is accounted for under Universal Credit will be necessary and claimants will need information about how the two programmes will dovetail.
3. Invest locally to support seasonal traders
Less than a month ago, all the talk was of ‘levelling up’ poorer regions of the UK. But many self-employed folk in our coastal towns and other tourism and hospitality hotspots rely on a peak in earnings during the summer months. Compensation of 80% of average monthly earnings will disadvantage them and, with no end in sight to the restrictions on travel that have so disrupted holiday plans, protecting them from a slump in summer trade is going to be crucial.
4. Remain mindful of the ‘precariat’
Portfolio workers – such as cleaners – who combine insecure employment with part-time self-employment are likely to fall outside of both the Job Retention Scheme and the SEISS. The extra income provided by both activities can be critical to relieving poverty and giving women (especially) independent income. Desperation may lead people to defy social distancing. So please keep thinking creatively about how to protect part-time and insecure workers and traders.
5. Ensure that high earners excluded from the scheme are able to defer mortgage payments
For the self-employed on £50,000 who are family breadwinners and live in areas with high cost housing, budgeting may still be very difficult if they are unable to trade. Universal Credit excludes those with savings and does not support mortgage payments. The option to defer mortgage payments may prevent indebtedness or business failure and be vital to sustaining social distancing.
In his address yesterday, Rishi Sunak made clear that in future the self-employed should pay more taxes in order to receive better social protection. We fully support this principle – but policymakers need to remember that many of the self-employed are on low incomes and don’t qualify for the same holiday, parental leave and sickness provisions employed people take for granted.
Many self-employed people need a safety net more than tax breaks. So any changes to taxation need to go hand-in-hand with a new social contract for the 5 million self-employed people who form the bedrock of our entrepreneurial economy.
By Professor Julia Rouse, Principal Lecturer in Entrepreneurship, MMU Business School, and ERC Research Associate
