Treasury select committee flags up gaps in state aid for new starters and freelancers
The Treasury should act to help more than a million people who have fallen through the cracks in the government’s Covid-19 income support schemes, according to a report by an influential group of MPs.
The all-party Treasury select committee said large numbers of people are enduring financial hardship and are unable to benefit from the chancellor’s schemes for salaried employees and the self-employed.
The committee said the chancellor, Rishi Sunak, needed to make good on his promise to “do whatever it takes” to protect individuals and businesses from the impact of the pandemic. The MPs called on Sunak to address the gaps in his coronavirus job retention scheme (CJRS) and self-employment income support scheme (SEISS).
Employers across Britain face a deadline this week to make job cuts, as the furlough scheme is gradually wound down from August.
The MPs said they recognised that Sunak’s costly financial support packages had been welcome to many of those unable to work due to the lockdown of the economy, but found that “rolling out financial support at pace and scale has inevitably resulted in some hard edges in policy design and some critical gaps in provision”.
The job retention scheme is designed to give employed workers 80% of their salaries up to a cap of £2,500-a-month if they are furloughed, while help for the self-employed is designed to pay 80% of their average monthly trading profits over the last three years. About 8.9m jobs have been furloughed at a cost of £19.6bn, and 2.6m claims costing £7.5bn had been made under the SEISS.
The committee said five specific groups were being harshly treated:
Those newly in employment. The MPs said hundreds of thousands of people were suffering financial hardship through no fault of their own, often due to unfortunate timing in starting a new job or their employer’s choice of timing in submitting paperwork to HMRC. They said the government should find a way to extend eligibility criteria to all new starters.
Those newly self-employed. Many people who have started a business in the last year don’t qualify for support from the SEISS as they cannot fulfil the eligibility criteria.
Self-employed people with annual trading profits in excess of £50,000. The committee said hundreds of thousands of people were potentially suffering hardship because of the arbitrary £50,000 cut-off for the SEISS. It said the government should remove the cap and allow those with profits just over this cap access to some financial support, up to £2,500 a month.
Directors of limited companies who take a large part of their income in dividends. The committee said the government had failed to take action to help the hundreds of thousands of limited company directors missing out on support because they pay themselves in dividends, often on the advice of their accountants. The MPs said HMRC should request additional information about the proportion of dividends that had come from company profits and from other sources.
Freelancers or those on short-term contracts. The committee said that in industries such as TV and theatre, where short-term PAYE contracts were the norm, many workers are not entitled to support under the CJRS or SEISS.
Mel Stride, the chair of the treasury committee, said that overall Sunak had “acted at impressive scale and pace. However, the committee has identified well over a million people who – through no fault of their own – have lost livelihoods while being locked down and locked out of the main support programmes.
“If it is to be fair and completely fulfil its promise of doing whatever it takes, the government should urgently enact our recommendations to help those who have fallen through the gaps.”
The MPs said it was unfair that in one household, a self-employed single-parent earning just above the £50,000 cap received nothing while next door, a couple who were either both self-employed and earning profits below the cap, or salaried employees with full entitlement to CJRS, received up to £5,000 a month.
The Treasury said: “Our wide-ranging support package is one of the most comprehensive in the world – with generous income support schemes, billions paid in loans and grants, tax deferrals and more than £6.5bn injected into the welfare safety net.
“All our support is targeted to make sure we use public funds responsibly, helping those who need it most as quickly as possible, while minimising fraud risk.”
The committee’s report comes at a key moment for the furlough scheme as the Treasury prepares to scale back the support it provides from 80% to 60% of workers’ wages from the start of August. Firms will be expected to contribute 20% to continue furloughing their staff.
Employers across the country face a crunch decision this week to either accept making contributions or to cut jobs if they are unable to do so. Firms looking to make more than 100 job cuts must run a 45-day consultation period, giving them a deadline of mid-June if they will be unable to top-up furloughed workers’ wages come August.
A survey of 1,200 firms by banking industry body UK Finance found that seven in 10 UK businesses have been negatively impacted by the coronavirus crisis, and that one in five have less than one month worth of cash reserves left. Around 18% of firms warned they could cease trading altogether and may not survive the fallout from the pandemic.
October is expected to mark the first big wave of company failures. That is when business loan repayment holidays – granted for up to six months – will come to an end, just as government support for employee wages through the coronavirus job retention scheme is expected to wind down.