The Institute for Fiscal Studies (IFS) has accused the government of injustices in a report into the government’s deliberate exclusion of over 1.3 million self-employed people from its Self Employment Income Support Scheme (SEISS).
The report, ‘Who is excluded from SEISS and what could the government do about it?’, argues that the cost of including those who have fallen through the net would have added only 5 percent to the total cost of SEISS to date and less than 1 percent of the total cost of SEISS and the furlough scheme. This would be around £5 billion added to the expected £91.5 billion spent on furlough and SEISS by April 2021.
While stressing that SEISS has been generous to the 2.6 million who have received payments to date, the IFS argues that some have benefitted who probably shouldn’t have. For example, because the system is calculated on past profits, two people having the same profits in 2019 receive the same amount even if one of them has only marginal falls in their income fall during lockdown. This has allowed some to increase their profits at taxpayers’ expense. The same inequities have occurred through the furlough scheme in which furloughed worked have been able to earn freelance income while furloughed from their usual jobs.
On the other hand, hundreds of thousands of self-employed people, for example musicians who earn from both invoiced and PAYE methods, found themselves falling through the gap between furlough and SEISS schemes, leaving them with nothing.
The report mentions five groups who have been adversely affected by the pandemic but found themselves ineligible for SEISS payments. 1.8 million of these are self-employed workers and another 700,000 are owner-directors of limited companies.
These comprise: people who reported self-employed profits over £50,000 per annum in the previous three years, self-employed people earning less than 50 percent of their income from self-employment, those making losses in the previous three years, those who became freelance after April 2019, and company owner-managers.
Although the report admits that helping those who have yet to file self-employed tax returns and those who choose to pay themselves dividends would require a major change in policy and risks increased fraud, is says the 50 percent threshold on self-employed income and the hard £50,000 profit cap ‘are a source of clear unfairness’. A company employee earning well over £50,000 after tax can still expect £7500 per quarter on the furlough scheme, while a freelance touring musician who did well for three years and now faces a total loss of income gets nothing from SEISS.
For those who are taxed at source for over half their income, the situation is even more unfair. The IFS says over half of them earn under £25,000 per year and over a quarter file profits of under £5,000. The report concludes, ‘Because most people in this group actually have very low profits, we estimate that extending the scheme to this group would cost between £500 million and £800 million per quarter, a tiny fraction of the cost of the whole scheme. A cut-off at, say, 25% of income coming from self-employment would ensure that nearly all those whose business has been seriously affected by the pandemic would be supported, and would avoid unnecessary administrative complexity by bringing very large numbers with small incomes into the scheme.’
Music industry bodies have praised the report for highlighting a problem they have been campaigning about since last March.
Incorporated Society of Musicians Chief Executive Deborah Annetts said, ‘This report clearly demonstrates that it is financially viable to support excluded musicians, many of whom are having to turn their backs on their careers and talents to avoid extreme poverty. With over 40% of musicians not having received any financial support, and many more considering leaving the profession, it is imperative that the Government acts now to protect our world-leading arts sector.’