A notable feature of Britain’s highly flexible labour market is the high number of people who are self-employed. More than five million people work for themselves – and the number has been rising steadily since the financial crisis just over a decade ago.
Some self-employed workers are extremely highly paid but the majority are by no means coining it in. Many of them have just seen their income disappear after the government quarantined vast chunks of the economy as a result of Covid-19.
So when Rishi Sunak announced last week his plan to subsidise the wages of employed workers it was inevitable that the chancellor would have to come up with something comparable for the self-employed as well.
To be sure, a self-employed scheme presents more challenges, because some workers have more than one job and are both employed and self-employed. The Treasury wanted to make sure it had a mechanism for delivering financial help and ensure that any plan was fair to both the employed and self-employed.
In the end, the scheme for the two groups looks quite similar. Any self-employed person affected by the government shutdown will be able to claim a direct cash grant worth 80% of their profits averaged over the past three years up to a maximum of £2500 a month. Those with profits of more than £50,000 a year will not be eligible.
If every self-employed person claimed the grant it would cost the exchequer in the region of £16bn but not everyone will lose their livelihood. The Resolution Foundation think tank estimates that the price tag will be around £10bn – relative small change in the context of the £100bn-plus of spending pledges the chancellor has already announced over the past two weeks.
When the crisis is over, the chancellor served notice that the self-employed can expect to pay the same tax and national insurance as employed people. Equal treatment now means equal treatment later, he strongly hinted.
Sunak is aware that the scheme, drawn up in haste, has its faults. Among them is the length of time it will take for people to get the grant – June at the earliest – the lack of support for those who have only recently become self-employed and the real possibility of fraud. But in the light of the sharp rise in the number of claimants for universal credit and the horrendous jump in jobless claims in the US, the chancellor could not afford to let the best be the enemy of the good.
The chancellor was candid about the challenging times ahead. The economy was softening even before the Covid-19 pandemic. Even with an unprecedented amount of financial support from the state, jobs are going to be lost. For many, it is already too late.
