The improved coronavirus support packages unveiled by chancellor of the exchequer Rishi Sunak last week have been branded “wasteful and badly targeted” by a leading economist.
Last Thursday, Mr Sunak announced that the furlough scheme for employees would be extended until March and that the next self-employed income support grant will be increased from fifty-five per cent of average profits to the original level of eighty per cent, capped at £7,500. The level of furlough payments will also increase to eighty per cent.
The announcement surprised analysts who had anticipated that, were the furlough scheme to be extended, it would only be extended until the end of the second English lockdown, set to end on December 2. Sunak had previously desired to wind up the support schemes altogether to prevent employers from keeping “zombie jobs” open.
Contractors and the self-employed community were also dismayed that the extension of the support schemes did not include any change to the terms: some 800,000 contractors and small business owners that operate through owner-managed companies have fallen through the cracks because they draw most of their earnings in the form of dividends.
Additionally, self-employed individuals with profits over £50,000 are excluded from the Self-Employed Income Support Scheme (SEISS). Critics argue that whilst these terms may have been deemed appropriate by HM Treasury in March, many people have now exhausted their savings. Meanwhile, the extension of the furlough scheme until next March means the government will have paid the salaries of millions of employed workers for an entire year.
The Treasury said that the cost of support for the self-employed would be up to £7.3 billion, £2.8 billion of which was newly announced money.
The extension of the furlough scheme until March also raises the prospect that the government may be anticipating the need to impose more lockdowns in the new year.
Paul Johnson, head of the Institute for Fiscal Studies, a think-tank, said that he was “taken aback” by the chancellor’s announcement and called the plans “wasteful and badly targeted”.
He said: “For the limited period of a national lockdown to return to an untargeted and generous scheme made sense. But to suggest that will continue all the way through to March, which could leave two million people furloughed on eighty per cent of pay for an entire year, is remarkable, particularly given that it looks like a large fraction of them are not in shutdown sectors.
“This is without question a remarkable shift from the chancellor’s position a week ago.
“We know that the self-employment scheme has overcompensated many while leaving others completely uncompensated. To continue with a scheme like that, which was dreamt up at speed, with no serious attempt to address its flaws is quite surprising.”
Research by the Resolution Foundation has found that one in six self-employed workers who have claimed SEISS grants did so despite not having experienced any loss of income throughout the crisis, equivalent to 435,000 workers, at a cost of around £1.3 billion. At the same time, 500,000 had received no SEISS support even though they were still without any work at all in September.
A recent case study in the Financial Times highlighted the plight of Ian Johnston, an electrician from Carlisle who operates as a one-man company: his work dried up in March but he is ineligible for either furlough payments or SEISS grants. “I’ve been sinking for the last six months. Any money that was in my business, it’s all gone just to live,” he told the newspaper. He has kept his business operating for the past six months with a £10,000 loan through the government’s bounce back loan scheme, a £3,000 grant from his local council, drawing on his pension savings and running up hefty credit card debts.
He told of deep resentment at the extension of the furlough payments “for sitting drinking in the garden”, whilst support for owner-managed companies remains limited.
The National Audit Office recently estimated that as many as 2.9 million people were not eligible for the coronavirus support schemes, with 1.4 million being ineligible for the SEISS due to most of their income not being derived from being self-employed.
Many self-employed individuals, contractors and small business owners are now growing increasingly concerned by the impending payment on account due to HM Revenue & Customs in January, with up to 1 million people facing a tax bill larger than their entire annual earnings for 2020.
“Most years, payment on account is not a problem, but this year so many people and their business have been so badly impacted — particularly those groups who haven’t been able to access the Self Employment Income Support Scheme,” said Andy Chamberlain, director of policy at IPSE (the Association of Independent Professionals and the Self-Employed).
