Chancellor Rishi Sunak has extended the emergency self-employed bailout scheme for another three months, thereby throwing an £8bn lifeline to millions of self-employed workers.
Although the package has been welcomed by campaigners, the cost to the taxpayer of the job support schemes is heading towards £100bn. Mr Sunak stated on Friday last week that workers will be able to make a second claim in August for up to £6,570 under the Self-Employment Income Support Scheme (SEISS), launched earlier this month to support struggling SMEs.
The extension is a significant boost for the 2.3m entrepreneurs whose livelihoods have been knocked back by the lockdown and who had already applied for £6.8bn of taxpayer handouts by the end of last week.
Nonetheless, at a time when debt is soaring due to the costs of the coronavirus, the move will heap more pressure on the public purse. It is estimated that the combined cost of the self-employed scheme and furlough support for employees could top more than £100bn.
According to worker campaign group Organise, as many as three-quarters of applicants were entirely dependent on the payments after their work evaporated during the pandemic. As support was due to end last week and self-employed workers unable to return to work had been facing a financial cliff-edge, the Treasury was under pressure to respond.
Second round less generous
Mike Cherry, national chairman of the Federation of Small Businesses (FSB), said that policymakers had recognised correctly that SME business owners working in many sectors, not only hair and beauty, travel and events, will be hugely impacted by the current downturn for weeks or months to come.
While the second round of SEISS payments will be a little less generous than the first, Mr Sunak explained that this would ensure equity between support for the self-employed and for companies which will be asked to bear part of the cost of furloughed workers’ wages from August.
Individuals such as consultants and freelancers will be able to claim a single payment in August equivalent to 70pc of their average monthly trading profits, capped at £6,570 over three months. The cap on the first round of payments was 80pc of trading profits up to a maximum of £7,500.
Some self-employed left high and dry
The Office for Budget Responsibility (OBR), estimated previously that the cost of the SEISS would reach £9bn over three months. Allowing for the reduced cap, the scheme could in theory cost another £7.9bn if there is similar take-up for the second round of the programme, taking the total cost of the scheme to a little short of £17bn.
Paul Johnson, director of the Insitute for Fiscal Studies (IFS) commented that the total cost of the extended furlough scheme and SEISS could easily exceed £100bn. However, the Government is facing calls to extend the scheme to even more of the UK’s 5m self-employed.
Andy Chamberlain, director of policy at self-employed lobby group Ipse, said that particular groups such as freelancers working through limited companies and the newly self-employed had been left high and dry. He added it was disappointing that there will still be two more months when employees can obtain support whereas the self-employed cannot.
Torsten Bell, chief of the Resolution Foundation think tank, reiterated that even though the extension of support will benefit those in greatest need whose incomes have dried up, the scheme is remarkably generous to others who have hardly been affected yet qualify for grants of over £14,000.
Mr Bell pointed out that the hundreds of thousands who have already lost their jobs are receiving far less support via Universal Credit.
Job creation scheme promised
As the latest jobs figures showed the number of people claiming unemployment benefit escalated to 2.1m in April, equivalent to a rate of 4pc of the working population, Jagit Chadha, director of the National Institute of Economic and Social Research (NIESR), expects unemployment to rise rapidly to around 10pc.
As businesses in tourism, leisure and hospitality are some of the hardest hit, he explained, there is still no plan as to when they will reopen or how enthusiastically the public will return to them.
At the Downing Street press conference on Friday, the Chancellor promised to address the looming unemployment crisis with a £100bn job creation scheme believed to be focused on infrastructure and the green energy sector.