The UK Offers Aid to Self-Employed During Coronavirus Crisis
On Thursday, UK Chancellor of Exchequer Rishi Sunak announced that self-employed workers undergoing financial difficulty would get 80% of their monthly wages covered by the government.
To curb the spread of the coronavirus, Boris Johnson and his parliament issued a UK lockdown, but reducing the economy’s activity has had a harsh effect on the self-employment sector.
Having lost access to income, workers within this group are now facing new financial challenges, and many are worried about staying afloat without government support.
It has taken the UK government longer to produce aid for self-employed workers due to the complexities of the sector. Sunak stated that these new emergency measures would provide the much-needed support to many during the crisis, albeit the aid won’t be available until June.
What does the self-employed aid package include?
Sunat declared that the new Self-Employed Income Support Scheme covers 95% of self-employed people earning up to £50,000 a year and who rely on self-employed work for the majority of their income.
At least half of these earnings must come from self-employed work registered in the 2018-19 tax year, which was a condition introduced to minimise the chances of fraud. Anyone who missed that submission deadline has four weeks to file their tax return to qualify for the scheme.
Those who are eligible for the scheme will be able to:
- Apply for a grant worth 80% of their average monthly profits over the last three years, capped at £2,500 a month
- Apply for a three-month extension to file accounts with the government’s Company House agency
- Receive financial support from the scheme while working simultaneously
- Access the business interruption loan program, delay tax payments and claim universal credit self-employed benefits
However, the grants will be taxable, and self-employed workers who receive the aid will need to declare it on their tax returns by 2022. The scheme will not cover company owners who pay themselves dividends or individuals who have only recently become self-employed. The remaining 5% of self-employed workers, whose average yearly earnings amount to £200,000 will also not be eligible.
The grants, which will be backdated to March will not arrive in bank accounts until June as the government will need to assess the applications before delivering the coronavirus self-employed aid.
What kind of impact will delaying aid until June have?
The UK government has received mixed responses on the aid package announced by Sunak.
The BBC outlined that the Federation of Small Business (FSB), which represents many self-employed workers, supports the measure, stating: “Although the deal is not perfect, the government has moved a very long way today.”
Others worry that the aid will come too late and that many self-employed workers will struggle to support themselves between now and June financially. Labour MP John McDonnell, who has been contacted by numerous self-employed people, voiced his concerns on Sky News:
“Some of them are really struggling.” John McDonnell says that while he is “relieved” by the income support package for the self-employed, there are many workers now being hit by big utility bills and council tax.
Effects of self-employed packages on Pound Sterling
The pound has significantly benefited from the aid package for the self-employed, making extensive recoveries against both the US dollar and the euro.
The GBP to USD exchange rate erased almost all of last week’s losses, and the pair is now trading at around 1.2406 (at time of writing). Dollar weakness is a significant theme this week, and with the return in investor risk appetite, GBP/USD could extend towards 1.25.
After Sunak unveiled the self-employment support package, the pound rallied further against the euro as the move renewed trader confidence. Investors believe that the emergency measures being introduced by the UK government are softening the economic damage caused by the coronavirus.
As a result, the pound to euro exchange rate reached a new weekly high of 1.1227 today (at time of writing) and is attempting to push through to the 1.13 mark.
Is the UK on the brink of a recession?
According to the Office of National Statistics (ONS), in the three months leading up to January, unemployment levels in the UK had been at historically low-levels, and now the coronavirus threatens to reverse this. If there is not enough financial stimulus pumped into the economy, the pandemic is likely to cause a UK unemployment crisis. Economists have already warned that the UK economy is heading towards a recession.
The economic shock caused by the coronavirus has been the main driver of falling employment rates in the UK, which has reached its highest level in five years.
The UK government is taking draconian measures to prevent the damage from the coronavirus being long-term, but the future outlook remains uncertain.
The Bank of England (BoE) also made the decision yesterday to freeze interest rates at 0.1% for a year to offset the possibility of the UK entering a recession.
If the UK is following China’s trajectory, analysts have estimated that the UK could hit the peak of the virus on April 5th. While this would rattle currency markets, it also signals that the worse may soon be over for the UK and the British economy can begin to recover.