Tuesday, 24 March 2020

Economics of Covid-19 – how should we help the self-employed?

Since the Chancellor announced the Job Retention Scheme (JRS) to protect regular employees during the current crisis there have been widespread calls for him to offer support to other groups of workers, notably the UK’s more than 5 million self-employed people. An announcement is expected soon, the Chancellor this morning said that preparations were moving ahead 'at pace'.

I understand the concern – I’ve been self-employed for most of the past decade. But I also think we need to be careful in our response. While some self-employed people are de facto employees effectively pushed toward this status by gig economy bosses, for most it is a lifestyle choice conveying a mix of advantages but also carrying considerable risk.

Self-employed incomes are generally relatively low and often uncertain. Many of us are grateful to make the annual equivalent of the statutory minimum wage (to which we are not entitled). Financial risk is an everyday reality. Yet if opinion surveys are to be believed self-employed people are on average happier than employees, enjoying flexibility of hours and not having to put up with overbearing employers. 

Given these accepted pros and cons, it seems inappropriate to expect too much financial support from government – i.e. the general taxpayer, mostly employees – during times of crisis. The state should not underwrite the risks associated with self-employment and with the public finances under severe strain ought to provide only what to some will seem like fairly limited support.

My proposal is fairly straightforward, to avoid the complexity associated with relating support to data on individual self-employed incomes. Any person who has been registered self-employed for the past two years and earned enough in the tax year 2018-19 to have to complete a self-assessment tax return would be entitled to a flat rate tax credit payment. This would be set at £1,500 per month, equivalent to the likely average level of wage support for employees under the JRS, for as long as the Covid-19 crisis persists. All other self-employed people would apply for any unemployment related benefits which they are assessed as being entitled to.

This would represent a particularly substantial hit to the incomes of high earning self-employed people, and might seem unfair to low earners or normally high earners who received an unusually low income in 2018-19. Many of the low earners will be amongst the 40% of self-employed people who work part time, including a lot of older people, a group in the vanguard of the sharp rise in self-employment in recent years. A mitigating factor for these people is that freelancing is often a top-up to available savings and any equity they have acquired from rising house prices which would dampen the hardship they experience.

I guess this suggestion won’t appeal to a lot of self-employed people and I’ll be interested to see what the Chancellor decides to do. Either way, a considerable amount of financial pain seems inevitable. 

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