Rishi Sunak, chancellor, has announced a £3bn-a-month package of support for up to 3.8m self-employed workers hit by the fallout of coronavirus, but higher earners making profits above £50,000 will lose out.
The scheme will pay a cash grant worth 80 per cent of average monthly trading profit over the past three years capped at £2,500 a month, benefiting 95 per cent of people who receive the majority of their income from self employment.
Mr Sunak said it was “reasonable, proportionate and fair” to exclude those with taxable profits above £50,000, including law partners, freelance journalists and other professionals. The chancellor said this group had average incomes of about £200,000.
Mr Sunak said the new scheme could end up costing “tens of billions” of pounds, suggesting he thinks it may have to last much longer than the scheme’s initial projected lifespan of three months.
The package brings the total cost of direct government interventions to protect companies and workers from the coronavirus outbreak to £60bn over the next three months.
The chancellor admitted that the scheme had been “difficult” to design and its many flaws will be exposed in the coming days, but he was under intense pressure from Tory MPs to support the self-employed.
The Treasury has struggled to design the scheme only to cover those self employed that were hit by the Covid-19 crisis. So long as their profits were in the right range, eligible people would not have to show they suffered a loss and get the money or they could sit out the crisis at home, not work, and claim the grant.
One person close to the design of the scheme said it would even be possible for a self-employed person to become a delivery driver while the crisis lasts and still get the grant.
The package for the self-employed mirrors the scheme announced by the chancellor last Friday to rescue employees, offering to pay companies up to 80 per cent of their wage bills, providing they don’t make staff redundant.
But Mr Sunak admitted that the plan might not be up and running until early June, raising concerns for many who will have seen their earnings plummet after Boris Johnson ordered shops and businesses to shut and people to stay home to stop the spread of the deadly virus.
The chancellor's generous package for the self-employed came with a large sting in the tail, however, with Mr Sunak suggesting he would raise national insurance contributions for the self-employed once the crisis is over, saying it was “harder to justify” their special tax treatment now the state had treated them as generously as employees.
Attacking the special national insurance treatment of the self-employed has been perilous ground for former Tory chancellors including Philip Hammond who had to withdraw a previous attempt in 2017 after a public backlash.
The Institute for Fiscal Studies has estimated that if the self-employed were treated exactly the same as employees and had to pay a payroll tax, this could raise an extra £5bn a year for the exchequer.
Stephen Doughty, a Labour MP, criticised the delay in setting up the scheme: “What are millions of people supposed to do until June, not least when there’s a five-week wait for universal credit?” he said, referring to the government’s previous announcement to extend benefits to self-employed workers. “How do they put food on the table and pay their bills?”
Mr Sunak said the government had worked with unions and business leaders to come up with the support package. Small businesses were already benefiting from interest-free loans, business rate holidays and a hardship scheme providing grants of up to £25,000 for companies, he said.
“I know many self-employed people are deeply anxious about the support available for them. Musicians, sound engineers, plumbers and electricians . . . hairdressers and childminders and many others . . . losing their livelihoods,” he said.
The Treasury said the scheme would be open to those with a trading profit of less than £50,000 in 2018-19 or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19.
To qualify, more than half of their income in these periods must come from self-employment. To minimise fraud, only those who are already in self-employment and meet the requisite conditions would be eligible to apply, officials said.
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