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Bright Blue: Chancellor’s package hugely impressive and welcome, but will require looking again at tax contributions

By March 26, 2020No Comments

Commenting on the Chancellor’s initial measures in response to COVID-19, Ryan Shorthouse, Director of Bright Blue, said:

“The Government has made a hugely impressive and welcome intervention to support individuals and businesses in sectors where demand is collapsing as a result of the coronavirus crisis. By adapting the Statutory Maternity Pay system, which is a tried-and-tested model for keeping people on the payroll and subsidising both employers and employees when there is a temporary withdrawal of labour, the Chancellor’s Coronavirus Job Retention Scheme will improve the lives and livelihoods of thousands of people.

“However, this package is much more generous to employees than self-employed in sectors where demand has collapsed. The amount awarded to self-employed should be equivalent to Maternity Allowance, which is around £150 per week, which is the sister of Statutory Maternity Pay, rather than Statutory Sick Pay, which is £94.25 per week.

“Increasing the amount of Universal Credit and Working Tax Credit claimants can receive is welcome, especially as out-of-work benefits have been deeply and disproportionately cut over the past decade. But it is not just about the amount of Universal Credit, but the speed in which it is first received. The Government is seeking to help the cash flow of businesses, but it also urgently needs to do so for individuals newly out of work, by reducing the initial five-week wait for Universal Credit. As Bright Blue has argued previously, all new claimants should be able to receive 25% of their first Universal Credit award upfront as a helping hand payment. Also, all new claimants should be aware they can take out a Universal Credit Advance Payment and the repayment of this should now be frozen until at least the current social isolating period ends. This would mirror the mortgage payment holiday announced for homeowners. Existing repayers of these Universal Credit Advance Payments should also benefit from this repayment freeze.”

Commenting on the measures subsequently announced for the self-employed, Ryan Shorthouse, Director of Bright Blue, said:

“The Chancellor has announced an astoundingly generous but absolutely welcome subsidy for those who are self-employed and facing a collapse in their income as a result of the coronavirus crisis. There are strong safeguards in place, restricting eligibility to those with profits less than £50K and to those who are primarily self-employed. In addition, people who have claimed all sorts of expenses in their self-assessment to minimise their tax bill will not gain much from this new subsidy scheme. However, it will be difficult to ensure this scheme does not subsidise the income of the self-employed whose work has not really been affected by the current circumstances.

“The Chancellor has rightly indicated that, in future, the Treasury needs to look again at equalising the tax contribution of employees and the self-employed, especially as the benefits they receive from the state are now largely similar. At nearly every point on the income scale, the self-employed pay less in National Insurance contributions than employees on the same gross income. In addition, the self-employed are allowed to claim for a range of expenses which employees cannot to reduce their Income Tax.

“But this is all for another day. And doing it will be difficult. When he was Chancellor, Philip Hammond tried to equalise National Insurance contributions by raising the rate of Class 4 National Insurance contributions that the self-employed pay. This ultimately failed because of the resistance and rebellion from many MPs, including Conservatives ones.”

In 2016, Bright Blue published a report, Standing alone? Self-employment for those on low income, which showed the differing National Insurance contributions from – and the benefits from the state for – employees and the self-employed.

Image: Ministry of Housing, Communities and Local Government