Chancellor spends £10 billion to fill self-employment gap in his crisis response, but warns National Insurance rises are to come

New measures announced by the Chancellor today (Thursday) will provide significant grants to the self-employed, going beyond the estimated 1.7 million self-employed workers who face major income losses as a result of the government’s lockdown, but exclude those on high incomes or who own their own firm, the Resolution Foundation says.

The Chancellor’s announcement of cash grants worth 80 per cent of previous income, up to £7,500 over three months, to self-employed workers is an important addition to existing plans to support employees whose work is temporarily not needed.

The Foundation notes that the scheme is more generous in some ways than that for employees, with self-employed workers able to claim a grant irrespective of whether their income has actually fallen in the face of the current crisis. While the costs of operating such a scheme are highly uncertain, the Foundation estimates it could cost around £10 billion if everyone entitled to it claimed.

These costs should have been reduced by focusing support on those facing income falls during this crisis, says the Foundation, noting that the far wider employee is scheme is estimated to cost £4.2 billion if it is used by one million workers.

While the self-employment scheme is generous for many workers it also has some rough edges to contain costs. Those earning over £50,000 are excluded, as are the self-employed who have incorporated as businesses and receive the bulk of their income via dividends or employment.

As well as setting out support for self-employed workers, the Chancellor hinted that tax rises are coming later down the line, including the welcome – and long overdue – equalisation of National Insurance contributions for self-employed workers.

A self-employed worker on £25,000 currently pays £1,550 in National Insurance contributions, compared to £1,850 for an employee earning the same amount (whose employer also pays £2,230).

The Foundation notes that while many self-employed workers will be anxious that this scheme will not be making payments until June, delivering this support is far from straightforward. This reinforces the need to ensure swift claims and payments of Universal Credit (UC) to avoid hardship.

Even more critically, the Foundation notes with almost half a million people making new UC claims in the past nine days alone, workers who have already lost their jobs will now be facing much bigger income hits than either the self-employed or those employees keeping their jobs.

The Chancellor should extend his compensation scheme to those employees losing their jobs, as well as ensuring the retention scheme protects employees who have experienced a large income hit from reduced hours at work.

Torsten Bell, Chief Executive at the Resolution Foundation, said:

“Today the Chancellor has filled a big hole in his crisis response by extending support to the vast majority of self-employed workers.

“While some high earners or company owners are excluded, this is in fact more generous support for the self-employed than that set out for employees, with cash grants even for those not seeing big income hits from the current crisis, at a cost of around £10 billion.

“This reinforces the case for the Chancellor’s announcement that he will move to equalise the tax treatment of employees and the self-employed once this crisis is over.

“The groups that now stands out as being much less generously treated in this crisis are employees unlucky enough to lose their jobs, or see their hours cut during this crisis. Their lack of support stands out in stark contrast to a very significant package for the self-employed today.”