The Institute for Fiscal Studies has called on ministers to review the “arbitrary” constraints placed on its coronavirus support package for the self-employed and flagged options for expanding help to an additional 1.5 million businesses.
A new report from the think tank says the Self-Employment Income Support Scheme is forecast to cost £21bn up to the end of this month and a further £7bn to the end of April.
But it says that while the SEISS has been “generous” in helping the 2.6 million people who have received payments, a further 1.8 million self-employed people and 700,000 company owner-managers are not eligible for support and that some are victims of “clear injustices”.
The report follows a call last week from members of parliament’s Public Accounts Committee for HM Revenue and Customs to explain in detail why it was unable help taxpayers who are freelancers but not eligible for help from SEISS or other government schemes.
IFS report authors Isaac Delestre and Jonathan Cribb acknowledged that it was “technically very difficult” to provide targeted support for owner-managers of companies and the newly self-employed.
However, they said HM Treasury and HMRC could more easily provide support for people whose income from self-employment was less than half of their total income in 2018-19, or those who earned more than £50,000 during that tax year.
Both categories are excluded from SEISS, but around 1.3 million self-employed people fall into the first group and 225,000 fall into the second.
Delestre and Cribb said “ hard cut-offs” build into SEISS meant someone with an income of £49,999 could claim the maximum available support of £2,500 a month, while someone with £50,001 was entitled to nothing.
They added that, similarly, while someone with 51% of declared income from self-employment could claim the maximum, someone with 49% could again claim nothing. The IFS said most people whose income from self-employment was less than half of their total income had a total personal income of £25,000 a year or less.
Delestre and Cribb said extending SEISS on its current terms to people who earned a minority of their income from self-employment would be “relatively cheap” in comparison to other spending on government support schemes.
The IFS said the furlough scheme for employees was expected to cost £62bn for the current financial year.
Delestre and Cribb estimated that helping people who earned less than half of their income from self-employment would cost between £500m and £800m a quarter, with average quarterly payments of between £600 and £1,000 per person – based on the SEIS’s 80% of previous-year earnings standard.
They added that extending the SEISS to people earning more than £50,000 a year at the current £2,500-a-month cap would cost £1.3bn a quarter, while a tapered version of the scheme could cost just £325m a quarter.
Extending SEISS fully to this whole group would cost £1.3bn per quarter, with a payment of £7,500 per person. Providing a tapered form of support to those with profits between £50,000 and £90,000 would cost must less: around £325m per quarter.
IFS research economist Delestre said the combined cost of extending SEISS to both higher earners and those who derived less than half of their income from self-employment would be around £1bn a quarter, or just 5% of the cost of the scheme to date.
“Not all that money would be well targeted on those in need, but much of it would,” he said. “Indeed, there is no reason to believe it would be much less well targeted than the current SEISS which has, remarkably, been taken up by more than three-quarters of the potentially eligible population."
Senior research economist Cribb said the SEISS eligibility rules had caused hardship and widespread frustration.
“At relatively low cost the government could choose to extend the support scheme to both groups, particularly if the created a tapered support scheme for higher earners,” he said.
CSW sought responses to the IFS from HMRC and the Treasury.
HMRC said eligibility for SEISS and the wider policy underpinning it was a matter for the Treasury. The Treasury had not provided a response at the time of publication.