Compensation for workers losing their jobs or having hours cut is needed alongside action on the self-employed

The Chancellor should build on last Friday’s welcome and ambitious job support package with fresh measures to support both self-employed workers and employees who are still not getting the help they need, the Resolution Foundation said today (Wednesday).

In a new briefing note – Next steps for supporting family incomes – the Foundation considers who is not covered by the government’s unprecedented scheme to subsidise 80 per cent of the wages of employees whose work is affected by the current lockdown.

While the Government has been criticised for the fact that the self-employed are not part of the Coronavirus Job Retention Scheme, the report notes that we should take a broader view of those groups currently not covered by the scheme, including:

  • Workers who have their hours cut;
  • The many employees who already have or still will lose their jobs; and,
  • Low-paid employees who are sick or need to self-isolate.

Further support measures should focus on addressing these broad gaps in the Coronavirus Job Retention Scheme, and not just the self-employed, says the Foundation. It add that this must be done in a way that recognises the very real practical constraints the government faces in delivering such radical policies at speed.

The briefing note calls on the Government to make immediate changes to the social security system to ensure more people receive significant support if their income falls, recognising that means tests in the system currently prevent it providing much compensation at present. This could be done by:

  • Increasing non-means tested contributory Jobseeker’s Allowance (JSA) and Employment Support Allowance (ESA) by a £20 a week – in line with the new single adult rate in Universal Credit (UC) – to £95 a week, and giving the self-employed access to contributory JSA. A typical self-employed worker in the sectors most at risk from the latest lockdown measures (earning £210 per week), would maintain half of their net income after this change.
  • Turning off the savings means test which reduces support for those with over £6,000 of savings and prevents anyone with £16,000+ in savings from claiming UC. This would allow better-off households to access the benefit. Because the IT system underpinning UC cannot be adjusted swiftly, legislation should empower claimants and DWP to simply report zero savings.

The Foundation says the Government should replicate the support of the Coronavirus Job Retention Scheme via a compensation scheme for both the self-employed and employees losing their jobs. It should:

  • Pay 80 per cent of previous incomes, after netting off any benefits claimed ahead of the scheme being operational.
  • For the self-employed, be based on the average of taxable income over the past three years. To minimise administrative challenges, the self-employed should report their incomes to the compensation scheme along with details of the recent income falls, with HMRC carrying out fraud checks.
  • Employees losing their jobs should provide their previous pay slips to claim compensation from the scheme.

The Foundation calculates that if one million self-employed people moved onto this scheme, the cost would be £3.6 billion over the first three months. Given that average self-employment earnings are lower than average employees, but there are also some very high income self-employed people, a lower compensation cap could be applied. This would also reduce the incentive for self-employed people to discontinue economic activity that could be continued with.

Finally, the Foundation says the Government should extend the existing retention scheme to those employees experiencing hours cuts, or moving onto Statutory Sick Pay, to cover the proportion of earnings lost, rather than just protecting those whose pay falls to zero.

This is crucial to ensuring economic activity does not fall further than is necessary by avoiding workers having the incentive to ask to do no work rather than just shorter hours, says the Foundation.

Mike Brewer, Deputy Chief Executive at the Resolution Foundation, said:

“The Chancellor’s unprecedented package of measures to subsidise wages should reassure firms that they do not need to lay off workers. They should now heed that call while the support arrives.

“But millions of workers lie outside the scope of these measures. With fresh support due to be announced, the Chancellor must ensure he focuses not just on the self-employed, but also those employees who have had their hours cut or already lost their jobs.

“He should start by further strengthening our social security safety net by allowed more better-off households to claim Universal Credit.

“The Chancellor should also match his Coronavirus Job Retention Scheme with a compensation scheme for the self-employed and those employees that are still losing their jobs. The retention scheme itself should also be extended to cover those who have their hours cut but continue to work.

“Together, these new measures would complete a package of measures to limit the living standards hit from a huge economic shock.”