IFS briefing: Self-employment income support and the second national lockdown

The targeting of support to the self-employed is a real challenge, and because the sizes of SEISS payments are unrelated to how negatively a self-employed worker is affected by the pandemic, they are a blunt tool for insuring against income losses. Moreover, many are left out of the scheme: 18% of those for whom self-employment makes up most of their income are ineligible. The timing of the payments is also important: there will be about a one month wait from the start of lockdown to claimants receiving the next grant. In the (two month) wait associated with the first grant, future SEISS recipients saw significant falls in spending and mortgage payments (which were largely undone when the money arrived). Getting the money out quickly should therefore be a priority for the government. Looking ahead, rather than having two grants covering three months each, it would make sense to have six payments covering one month each. As well as ensuring a smoother stream of income, this would fit also better with the monthly assessment period for UC (which matters since many low income self-employed people will be eligible for both SEISS and UC).

The MIF treats self-employed workers on UC as if they earn the full-time minimum wage if they report earning less (and so are eligible for less support than their reported earnings would suggest). It is, in part, meant to encourage self-employed workers to move into an employee job if it would pay them more. This makes little sense when there are so few job vacancies, so the MIF was suspended during the first lockdown, and there seems a similarly strong case for extending that suspension through the second lockdown – but on current plans it will come back on Friday 13^th November. Policy choices here are signfiicant: households affected by the implementation of the MIF on average lose over £3,000 per year.

In a new IFS observation, now available on the IFS website, we examine these policies. The full briefing can be found here: https://www.ifs.org.uk/publications/15157

Tom Waters, a Senior Research Economist at IFS and the author of this briefing, said:

“In the first national lockdown, the government used two main tools for supporting the self-employed. On current plans it is only going to renew one of those – the SEISS grants – for the second lockdown. The SEISS is significant in size but is a fairly blunt instrument – the amount you get doesn’t depend on how badly you’ve been affected by the pandemic, and a lot of self-employed workers aren’t eligible at all. It’s hard to see why the government shouldn’t also draw on the second tool – suspending the Minimum Income Floor for those claiming Universal Credit. The Minimum Income Floor on average cuts annual benefit entitlements for those affected by £3,000, and is a policy designed for times in which there are plentiful employee vacancies for self-employed people not making much money to move into; November is unlikely to be such a time.”