IPSE proposal: a fund for the self-employed facing Coronavirus

There must be a dedicated source of direct income support to compensate the self-employed for the amount they might reasonably expect to earn, were it not for the COVID-19 crisis. IPSE has been calling on the government for a temporary Income Protection Fund specifically for the self-employed.

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As a result of the coronavirus crisis, large sections of the UK economy have slowed to a halt. The government has so far unveiled a number of funds, schemes and guidance to help individuals and businesses access loans, defer payments and replace their incomes. For employees, the government has pledged to deliver grants that will cover 80% of the salary of retained workers up to a total of £2,500 a month.

In the case of the self-employed, the postponement of IR35 and the removal of the minimum income floor for Universal Credit were especially welcome. However, we are yet to see a bespoke solution to replacing the incomes of the self-employed in the same way employees are being supported through the crisis. We are concerned that improving the accessibility and generosity of the welfare system – where Universal Credit has been increased to a rate equivalent to Statutory Sick Pay, around £94.25/week – will not be enough to cover the dramatic losses in freelancers’ incomes.

IPSE’s proposal for a temporary income protection fund

The basic principle behind IPSE’s proposal is that all people – whether employed or self-employed – should receive the same level of support from government. For the self-employed this will mean some kind of assessment of their expected earnings will need to be made. IPSE’s believes this should be based on previous earnings of the individual – evidenced by tax returns.

Inevitably, given the volatile, sometimes seasonal nature of many self-employed people’s incomes and the impact that taking time off for children may have had had on earnings in past years, this will not necessarily be comprehensive. However, it is the best way to find a ‘rough and ready’ number that will ensure a broad level of coverage. Where there is no previous tax return to refer to, alternative checking procedures could be used such as income history evidenced by bank statements.

This scheme would be available to all self-employed people including sole traders and those who operate through their own limited company (sometimes referred to a Personal Service Companies).

Other European countries have put in place similar schemes, e.g. Norway has guaranteed temporary income protection of 80% of average self-employed earnings from the past 3 years up to NOK 600,000 (£48,000).

How the fund could work

We propose a government fund of £15bn[1] to provide all self-employed workers a monthly income matching their average existing earnings over the past three years:

  • The minimum monthly income to be the Real Living Wage after the basic rate of income tax (£1100 a month approx.)
  • The maximum monthly income to be average UK earnings after the basic rate of income tax (£2000 a month approx.)

It is possible that consideration in the calculated amount could also be given for those who have had to take leave (e.g. maternity) and provisions for those who have also been employed to make a full and fair claim.

This fund would operate as follows:

  • Backdated to start of crisis period – March 1st
  • With the self-employed submitting tax-records, where available
  • For an initial period of 3 months with the potential of extension and further money if necessary
  • The amounts payable should be subject to ongoing review to maintain the most appropriate level of support for freelancers at this difficult time

How this could be delivered

We recognise there are significant administrative and technical challenges to delivering this income protection assistance to the self-employed.

There are different views as to how the delivery of money to self-employed people could be achieved. One view is that this could be done through the payment on account system, set up for bi-annual business reporting. This is worth exploring but we are concerned it will take time and resources that we do not currently have.

A more straightforward option might be for each individual to apply for a grant, administered by the DWP and BEIS.

This would involve some basic eligibility criteria and forms of certification/verification (e.g. evidence of business activity, previous tax self-assessments and NI contributions, Unique Taxpayer Reference etc.) as part of the application process. We would stress these must, necessarily, be brief if the scheme is to have full effect.

One risk of adopting this approach is that some self-employed people may not be aware of the grants. But with aggressive promotion – particularly if it is flagged at the outset to potential Universal Credit applicants who are self-employed – and awareness-raising by government and industry bodies such as IPSE, we believe this has a good chance of reaching those most in need.

We understand that given the current systems in place, the method for administering income support for the self-employed may harbour operational difficulties. However, given that 15% of the workforce is self-employed, adding £305bn to the UK economy last year alone, there are 5 million people out there who need support through this though period.

IPSE look forward to working with government to draw up a system which can support the self-employed, and be easy to implement for the government in this unprecedented period. We remain at the service of government for any help they may need in setting up, overseeing and delivering the scheme.


[1] This is an estimate predicated on 3 million self-employed taking out an average of £5,000 over 3 months, or around £1,600 per month. From the 5 million self-employed in the UK, it is reasonable to assume that a sizable proportion may not need access to the grant, due to a combination of other government provision and their own finances. Some self-employed people may also still be able to work. With amounts likely to vary greatly between the minimum and maximum, this initial figure should be subject to ongoing review.

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