Published:

4 comments

Ryan Shorthouse is the Chief Executive of Bright Blue.

The Government has made a hugely impressive and welcome intervention to support individuals and businesses in sectors where demand is collapsing as a result of the coronavirus crisis. It will cost billions and require – in the years ahead – another round of deficit reduction, just as the public and politicians were welcoming the end of the last age of austerity.

By adapting the Statutory Maternity Pay system, which is a tried-and-tested model for keeping people on the payroll and subsidising both employers and employees when there is a temporary withdrawal of labour, the Chancellor’s Coronavirus Job Retention Scheme will improve the lives and livelihoods of thousands of people.

The alternative was to allow mass unemployment, causing deep distress to millions of people and ultimately more expensive for business who in the long-term would have to go through a costly redundancy and rehiring process. The Government is rightly trying to keep the economy on hold so it can bounce back immediately once the Great Isolation ends. Capitalism will be salvaged through a short and sharp dose of socialism.

There are fears, however, that the generosity of the Treasury could be taken advantage of. Company bosses could furlough all or part of their workforce, even themselves, whilst actually working and achieving a healthy turnover. Well, in this national emergency, we’re going to have trust that bosses act in good faith. And, though the payment of VAT has been temporarily suspended, the quarterly reporting has not. HMRC could check VAT reporting to ensure companies with usual or strong sales are also not taking advantage of the compensation for furloughing.

The Chancellor’s package, nonetheless, is much more generous to employees than self-employed in sectors where demand has collapsed. This mirrors what happens with Statutory Maternity Pay. In the first six weeks, employees are entitled to a minimum of 90 per cent of their gross pay, before receiving a base rate amount of around £150 a week. The self-employed on maternity leave, meanwhile, only ever have access to the base rate amount through a Maternity Allowance.

Why does the Treasury give much less to the self-employed through both the Maternity Pay Scheme and the Coronavirus Job Retention Scheme? There could be lots of reasons. The self-employed have more volatile incomes than employees, meaning it is difficult to ascertain accurately earnings to judge a proportionate compensation.

Equally, as a result of annual self-assessment, HMRC can only validate earnings on an infrequent and dated cycle. Nonetheless, a government-commissioned review on self-employment by Julie Deane in 2016, concluded “I have not been able to find a compelling explanation for this difference in treatment” on maternity pay.

In response to the coronavirus crisis, the very least the Government could do is increase the amount awarded to the self-employed who are furloughing. At the moment, if their work is lost, the Government is expecting them to claim Universal Credit and receive the full amount they are eligible to, equivalent to Statutory Sick Pay, which is £94.25 per week. Since the Government has now suspended the Minimum Income Floor, all self-employed will receive the full Universal Credit award they are entitled to, regardless of how long they have been self-employed.

But this is still not enough. And, for many, it represents a substantial fall in income which employees will not face because of the Treasury’s intervention. As an initial and urgent first step, the amount the self-employed who are furloughing receive should be equivalent to the Maternity Allowance, which is around £150 per week.

There will, sadly, still be people who will lose their jobs. There will now be a spike in people naturally migrating on to the nascent and controversial benefits regime – Universal Credit. The significant increase in the amount of Universal Credit claimants can receive is very welcome, especially as out-of-work benefits have been deeply and disproportionately cut over the past decade.

However, politicians should not just be concerned with the amount of Universal Credit, but the speed in which it is first received. The Government is seeking to help the cash flow of businesses, but it also urgently needs to do so for individuals newly out of work, by reducing the initial five-week wait for Universal Credit. Admittedly, this problem precedes the current crisis: many on low incomes have no savings and have to turn to their friends and family to get through this period, while others rely on assistance through foodbanks or even on short-term loans.

As Bright Blue has argued previously, all new claimants should be able to receive 25 per cent of their first Universal Credit award upfront as a helping hand payment. That will help new claimants a little with immediate cash flow problems.

In addition, all new claimants should be aware they can take out a Universal Credit Advance Payment. With these, a payment up to the size of their first award is made at the start of the five-week wait, but it must be repaid through future Universal Credit awards. The maximum possible deduction is 25 per cent of each Universal Credit award and the maximum period of repayment is 24 months.

A majority of claimants actually take these Advance Payments up, proving the five-week wait is a design fault, but they are not universal: some claimants not even aware of this option, while others are potentially concerned about having to repay their advance.

Repayment of these Universal Credit advances should now be frozen until at least the current social isolating period ends. This would mirror the mortgage payment holiday announced for homeowners. Existing repayers of these Universal Credit Advance Payments should also benefit from this repayment freeze. The impressive Chancellor has made a bold start, but there is more to do.

4 comments for: Ryan Shorthouse: Next steps for the Chancellor in helping to support the self-employed

Leave a Reply

You must be logged in to post a comment.