Professor Julia Rouse, Professor Ashwin Kumar and Rebecca Weicht analyse the UK government’s current approach
Support for the self-employed is under scrutiny
The UK Government has launched a package of support to small businesses to support the coronavirus crisis.
Small firms are facing unprecedented disruption to their markets, staffing and supplies and this creates two key financial difficulties: paying themselves and their staff and covering business costs. A third challenge is ‘pivoting’ to supply a digital service, which can involve new costs. And, many business owners are juggling business responsibilities with home schooling.
The self-employed are a sub-section of small businesses. It is a complex category that is defined differently under employment, tax and welfare law. Most are ‘solo self-employed’ without employees but some do employ others.
Self-employment plays a variety of roles in household economies: as a means of topping up employment or pension, a main job (whether that is full-time or part-time) or a means of managing investment (e.g. being a landlord). The self-employed typically earn much less than the employed and, while their ranks have been growing, their incomes have declined; the solo self-employed have particularly low earnings (IFS, 2019).
Yet there is a small sub-section of the self-employed who are highly paid (e.g. freelance IT contractors). In the past, this group has been the political voice, calling for lower taxes. The coronavirus crisis may well open up a much-needed debate on whether and how to extend social protection to the large – and rapidly growing – army of low-paid self-employed.
People in self-employment pay taxes and National Insurance contributions through HMRC’s Self-Assessment system and can be trading for months before their first Self-Assessment return is due. This means that start-ups are not easily identified or compensated through the Self-Assessment or National Insurance systems. This is a problem encountered by women who become pregnant during start-up: claiming Maternity Allowance depends on paying National Insurance. The Government developed a ‘work around’ allowing them to pay their National Insurance contributions in advance and it seems likely this will be necessary for Covid19 policy.
But should the State support the self-employed? Isn’t the whole point that they are risk bearers and profit takers? Well, it is worth noting that our welfare system and education systems have actively encouraged people to enter self-employment, without giving good information about how this affects welfare provision.
Self-employment has also grown massively since the recession, particularly among women and minority ethnic groups. Most of the self-employed are not ‘fat cat business owners’ but some of our most vulnerable workers, too often living in households in poverty, with few good employment options. Our view, then, is that the self-employed should be socially protected. And, of course, to manage a pandemic, we need to manage everyone’s behaviour – including entrepreneurs!
In this blog, we’re going to outline the support for the self-employed as it stands at lunchtime 24 March 2020. We will compare this with the relief package offered to small businesses and, indirectly, employees. We will then propose a policy fix. This is the first in a series of blogs on support for the self-employed under Covid19: next time we outline support packages in Germany and Denmark.
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