COVID-19 is already having a devastating impact on the UK economy. Sectors including hospitality, retail and travel have been particularly affected by the shifts in consumer behaviour following social distancing guidance. This blog, by the Work Foundation's Melanie Wilkes, explores the financial support offered by the Government.

Layoffs within the Scottish hotel industry last week and a spike in small businesses planning to shut up shop have triggered a swathe of new financial measures from the Government.

Recognising that our economy is essentially on hold for the short term, the Treasury has developed a programme to support people and businesses to get through the coming months, with the aim of laying the foundations for a smoother and faster economic recovery. For the first time, the Government will subsidise the wages of workers and freelancers in the UK. The scale of investment in this programme is unprecedented: the overall contingency fund is now at £266 billion, and spending on this rescue package as a proportion of GDP already exceeds funding allocated to recovery from the 2008 financial crisis.

Support for employees

Last week, the Chancellor announced a dedicated new Coronavirus Job Retention Scheme to prevent job losses through offering short-term funding for up to 80% of wages for workers who have been required to stop working temporarily as a result of the crisis. It’s positive to see guidance confirm this will be available to all employers and applies to all workers paid through PAYE, including people on zero hour contracts and agency workers.

The inherent challenge within this approach is that access to support is contingent on employers applying for the grant rather than making workers redundant. Workers aren’t able to formally request their employer considers the scheme, and don’t have recourse to challenge an employer’s decision if they don’t.

The scheme will be available to businesses by the end of April. In the meantime, Government is directing firms to apply for coronavirus business support, although early analysis suggests some mid-size and large businesses may fall through gaps in support available if they don’t meet the investment-grade criteria for the larger loan scheme, but their revenues are too large to be considered for small business grants.

Support for the self-employed

Yesterday, the Chancellor unveiled a new Self-Employment Income Support Scheme, a comprehensive package of support for freelancers and self-employed people struggling with the financial impacts of the crisis, recognising that a sudden drop in business brought about by the request that the public stay at home had left many self-employed people ‘deeply anxious’.

The scheme mirrors support offered to employees with a taxable grant to pay 80% of average earnings up to £2500. Crucially, individuals can continue to trade while they receive the grant. This is an unprecedented intervention, and stands to make a significant difference to many self-employed people who would have otherwise had difficulty keeping afloat through this crisis. It will leave 82% of self-employed workers better off than if they had claimed Universal Credit, according to analysis from Turn2Us.

The scheme will be available to those who completed a 2018-2019 tax return and will calculated on the basis of average earnings for the previous three years. This puts younger freelancers and those who have recently moved to self-employment at a disadvantage, with those in their first year of trading unable to access support. This is a sizeable group - between 2014-15 and 2015-16, 650,000 people set up as sole traders according to the IFS. Others may find that their earnings are much lower when averaged over three years and so will face a greater than 20% drop in income. Support will depend on the structure individuals are using to trade – self-employed workers who receive dividends rather than earnings won’t be eligible for the scheme.

The scheme isn’t up and running yet, and self-employed workers may have to wait until June before they can access support.

While the Treasury has been under pressure to deliver support to self-employed workers, it’s important to consider that a package of this kind will have been very difficult to develop. The UK’s 5 million self-employed workers are far from a homogenous group – from delivery drivers and tradespeople to artists and film crew or consultants and lawyers.

Support through welfare benefits

An uplift of £1000 per year in the value of Universal Credit (UC) standard allowance marks the end of a four year benefits freeze and will make a significant difference to people who are on low incomes or out of work.

Temporary changes to the operation of UC will see self-employed workers getting much higher payments through suspension of the Minimum Income Floor, and all claimants able to access support without the risk of sanctions for the first time through a short-term pause on conditionality.

While widened eligibility and increased rates could improve the financial resilience of many households on low incomes, the initial assessment period continues to present a challenge for those making new claims for UC. Applicants must either wait 5 weeks for their first payment, or request an advance, which would involve borrowing from later payments and getting in to debt.

Yesterday’s announcement could drive an influx of new claims from self-employed workers who set up over the 2019-20 financial year and so aren’t eligible for the new Income Support Scheme. It’s unclear whether the DWP is equipped to manage large volumes of new claims, having already received half a million claims over a 10 day period this month.

Taken together, this is a radical programme of support which reflects the scale of financial hardship caused by this crisis. While these temporary changes to our social security system will provide welcome relief for many workers and businesses, the response to COVID-19 has shed light on flaws within our social security safety net. Once the immediate crisis has subsided, we’ll need to address these collectively, re-thinking our approach to support during times of financial difficulty.