UK Edition
Hundreds of thousands of new start-ups could go bust due to gaps in the Government’s rescue package for the self-employed, academics have warned.
Anyone who started their business after April 2019 will not be eligible for help from the new self-employment income support scheme (SEISS), which pays 80pc of workers' earnings up to £2,500 a month.
Researchers and professors from Manchester Metropolitan University and the Enterprise Research Centre said the loophole threatens to decimate a whole generation of new entrepreneurs.
A report put together by the two organisations estimated that more than 750,000 sole traders – a fifth of those who are full-time self-employed – could miss out on support during the coronavirus pandemic.
Separate research by think tank the Institute for Fiscal Studies (IFS) put the figure far higher at almost 2.2 million.
The authors of the academic report called on Chancellor Rishi Sunak to expand his rescue package to include new businesses.
The Government’s scheme promises to pay freelancers and entrepreneurs grants covering up to 80pc of their profits if they have been hit by the coronavirus outbreak. This is calculated based on average earnings over previous years using tax return data, meaning that workers are excluded if they have filed a return.
As well as excluding the newly self-employed, the scheme also bars anyone who receives less than half their income from freelance work or has profits of more than £50,000.
Those who are not eligible for a grant will have to rely on the welfare system instead. The researchers warned that this could leave many self-employed people and their families suffering serious hardship.
Relying on benefits alone would mean a huge pay cut for most sole traders. The payment for Universal Credit has been temporarily increased to match the levels of statutory sick pay at £94.25 a week, but this is still just one-third of the average weekly earnings of a self-employed person.
New applicants have to wait for around five weeks to receive their first payment, putting them under heavy strain in the intervening period.
Karl Handscomb of think tank The Resolution Foundation said now that universal credit will be the main source of income for many self-employed workers, the Government must act quickly to get payments out to households as soon as possible.
Lara Robertson, 23, is one of the new entrepreneurs having to turn to benefits to stay afloat. She started her London-based dog-walking company, SW Paws, in May last year and so does not qualify for a grant to cover some of the £4,000-a-month income lost since the outbreak.
She said: “I have had to stop working in accordance with government guidelines and am making absolutely no money.
“I will be ok financially for the next month but after that I’m very worried. I am having to be extremely careful and only spend money on food and other essentials. It’s likely I’ll have to borrow money from my parents.”
Ms Robertson added that she is concerned about whether she will be able to survive any other setbacks after the business reopens, as all of her emergency savings will have been used up.
She has been trying to apply for universal credit, the only financial aid available to her.
Ms Robertson said: “It’s no mean feat. It’s impossible to even verify myself on the system due to high website demand, so who knows if I will ever get through.
The Treasury has previously said it is fully committed to supporting the self-employed, and that its support scheme is one of the most generous in the world.
As well as universal credit, self-employed people facing income shortages will also be able to apply for tax deferrals, a £1bn package aimed at renters and three-month mortgage payment holidays.