There was some good news for the business community in the Autumn Statement. The Chancellor promised to extend the Funding for Lending scheme, which channels low-cost finance to banks providing loans to small businesses. There was also a commitment to carry on with Small Business Rate Relief, as well as to scrap the National Insurance contributions employers have to pay for apprentices.
Yet these measures – as with many that have come before them – tend to focus on supporting businesses rather than the individuals behind those businesses. In other words, they are aimed at making businesses profitable, rather than making self-employed lives liveable. If the Chancellor wanted to give a real boost to entrepreneurship, he would have committed to strengthening social security for business owners – whether that be by helping with insurance, pensions or mortgages.
If anything, the proposal to deepen welfare cuts – which formed the centrepiece of the Autumn Statement – is likely to have as detrimental an impact on the self-employed as those in wage work. This is because many business owners are low-paid and therefore dependent on the state to top-up their income. Our research with the Joseph Rowntree Foundation, for example, has shown that 21 per cent of the self-employed are in receipt of Working Tax Credits, compared with 17.5 per cent of employees.
Moreover, the self-employed don’t have the luxury of falling back on employers to help them in times of need. Maternity pay, statutory sick pay and employer pension contributions are all things that people forgo when they strike out on their own. Ergo, they are more reliant on the state to be a buffer against shocks, and are therefore likely to be made more vulnerable as a result of the cuts imposed on the welfare system. A case in point is Universal Credit, which will apply harsh eligibility criteria for the self-employed (partly in a bid to cut down on welfare costs).
The RSA is working up several ideas for how to boost protection for the self-employed, including through a new collective insurance scheme. Any measures would of course need to be sensibly priced and paid for, and so one idea (promoted by Centre Forum among others) is to introduce a more progressive NIC system that levies higher tax rates upon people who work for themselves, but which kick in at higher thresholds (that's the progressive part).
In the meantime we need to make sure the self-employed are aware of the benefits they are already entitled to. As the chart below shows, our calculations indicate that only 60 percent of the self-employed claim the Tax Credits they are able to, compared with 85 percent of employees. Anecdotally, my experiences of talking with business owners also reveal that few are aware of benefits such as the new Maternity Allowance. These aren’t wildly generous schemes, but they are still important – particularly for low-income groups.
If you work for yourself, here are some of the benefits you could claim and schemes you might be able to access:
Working Tax Credits – WTCs are used to top-up the income of employees and the self-employed when earnings dip below a certain amount. The basic amount you can receive is usually up to £1,940 a year, but your entitlement could be higher or lower depending on your circumstances (e.g. being disabled or having children). Note that Universal Credit will replace WTCs in the coming years.
Jobseeker’s Allowance – JSA is paid to those who are currently looking for work, whether you were previously self-employed or employed. There are two types of JSA: income-based and contributory-based, and the self-employed are usually only able to access the first type. This is paid at £72.40 a week for the over 25s, but bear in mind that you may not be eligible if you have a partner earning above a certain amount.
Childcare Vouchers – Earlier this year the government increased the amount of childcare support that workers are entitled to. From Autumn next year the government will pay 20p for every 80p in childcare that parents pay for, up to the value of £2,000 in subsidies. Both employees and the self-employed are entitled to this scheme.
Maternity Allowance – The EU recently ruled that member countries should provide maternity pay for all workers. Fortunately, the UK was ahead of the game and had already introduced a Maternity Allowance for the self-employed, which partly makes up for the absence of Statutory Maternity Pay (SMP) that employers must offer their workers. The Maternity Allowance is usually worth £138 a week for up to 39 weeks.
New Enterprise Allowance – The NEA was introduced by the government to help unemployed people start up in business. Jobseekers who take part in the scheme are provided with an allowance worth £1,274 over 26 weeks. Participants also have access to a volunteer mentor, and can apply for a start up loan should they wish.
The Nest pension scheme – This isn’t a benefit as such, but more of a good-value pension scheme that the self-employed should be aware of. Nest is a government-backed independent pension provider that was set up to offer a default product for employees auto-enrolled on their employers’ pension programme. Despite also being eligible to sign up, only around 800 self-employed people have taken out a pension with Nest (compared to 1.7m employees).
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