Bright Blue, the independent think tank for liberal conservatism, has today released a new report, entitled Work in progress? Supporting the self-employed after the pandemic, which unearths the experiences of self-employed individuals from low- and middle-income households during the pandemic, before suggesting new policies to better support them with the current cost of living and future individual and national crises.
The report is based on new and extensive analysis of 43 semi-structured depth interviews with a broadly reflective sample of self-employed people in gross equivalised low and middle-income UK households and public polling of a sample of 1,583 self-employed UK adults in equivalised gross low and middle income households.
Sam Robinson, Senior Research Fellow at Bright Blue and lead author of the report, commented:
“With the cost of living crisis coming right on the heels of COVID-19, the self-employed have arguably never faced a tougher economic backdrop. Now more than ever, creative policies are needed to avoid an implosion in self-employment in the UK.
“The Government needs to act in the short term by improving Universal Credit and doing more to protect self-employed people from sickness, late payments and emergency expenses. In the long term, the Government must seize the opportunity to build financial resilience and entrepreneurial opportunities for the self-employed by widening access to financial products and helping low income self-employed people to build their savings.”
Mark Pawsey MP, Member of the Business, Energy and Industrial Strategy Committee, commented:
“With a difficult winter approaching, it is important that the necessary support is provided to those who need it, including self-employed workers. Therefore, I welcome this report by Bright Blue into the effect of the pandemic on self-employed workers. Its findings and recommendations provide some thoughtful and insightful suggestions which could potentially extend self-employed workers’ safety net and widen their access to financial support.”
Bright Blue’s main findings on the impact of the pandemic from our fieldwork include:
- A majority of self-employed individuals from low and middle income households changed the type of work they do as a result of the pandemic. Almost one in five (18%) of self-employed individuals in low and middle income households reported that they had ‘completely’ changed the type of work they do, while a further 50% (25% for each option) reported that ‘most’ or ‘some’ of their work had changed.
- More self-employed individuals from low and middle income households experienced a decrease in their standards of living than an increase during the pandemic. 35% of self-employed workers reported a decline in their standard of living during the pandemic compared to 16% who reported an increase.
- The most common negative impacts on the general lives of self-employed people in low and middle income households were difficulty connecting with friends and family, and worsened personal finances. Both were cited by 26% of those polled. Almost one in five (19%) also cited deteriorating mental health as the single biggest negative impact of COVID-19 on their life.
Bright Blue’s fieldwork also revealed the views of self-employed individuals from low- and middle-income households on governmental, commercial and personal financial support during the pandemic:
- A majority of self-employed individuals in low and middle income households used governmental financial support during the pandemic. Such governmental financial support comprised the Self-Employed Income Support Scheme (SEISS, used by 22% of respondents), Universal Credit (UC, used by 25%), business grants (used by 12%), the Coronavirus Business Interruption Loan Scheme (CBILS, used by 11%), Bounce Back Loans (used by 10%) and deferred self-assessment (used by 8%).
- There were issues with newly self-employed workers accessing support during the pandemic. 14% of low to middle-income households in our polling reported wanting governmental financial support during the pandemic but being unable to access it. The top two reasons for wanting but being unable to access governmental financial support were being too newly self-employed (33%) and being ineligible due to savings or income (32%).
- The self-employed from low and middle income households are divided on the taxes they pay and benefits they receive. A significant minority (41%) were in favour of raising taxes on self-employed people in exchange for more state support, whilst 32% of self-employed workers want taxes and state support to remain the same. Just 16% wish to see taxes decrease in exchange for less state support.
- Most self-employed people in low and middle income households used their savings during the pandemic. 51% cited this. 30% also relied on family financial support and 16% relied on friends.
Bright Blue recommends the following policies to better support self-employed people through future crises:
Support and encourage flexible savings
Introduce flexible auto-enrolment for the self-employed.
Government should extend private pension auto-enrolment to the self-employed. The overall contribution rate should be lower than for employees, starting at 1% of qualifying earnings before rising to 4% after four years. The self-employed should pay annually through their tax return, or quarterly through Making Tax Digital. Above and beyond such contributions being tax-free, low-income self-employed should receive a top-up from the state for their contributions.
Strengthen the safety net for self-employed workers
Introduce a ‘Business Crisis Loans’ (BCL) scheme available for self-employed people eligible for UC who experience a week or more of illness, late business payments, or an urgent one-off expense.
Government would underwrite these loans to reduce risk to lenders. Claimants would, over time, have to pay the BCL back. The specific repayment terms should be subject to review, but government could allow repayments to be interest-free for a certain period, for example the first six months after claiming, after which interest would accrue on the loan.
Financial incentives for Local Enterprise Partnerships (LEPs) to set up local community peer-to-peer finance networks for the self-employed.
These kinds of networks exist in Europe, particularly the Netherlands, in the form of ‘bread funds.’ Should LEPs demonstrate that they have successfully facilitated bread funds in their local area, and that this has helped self-employed people on low incomes or from other marginalised groups, a small amount of additional governmental funding could be awarded to them.
Widen and ensure access to financial support
Create a fund to provide starting £10,000 of starting capital for self-employed mutual insurance schemes.
Mutual guarantee societies (MGSs) are groups of small businesses that support each other to access low-interest loans from banks by using their cash assets as collateral to guarantee each other’s loans. Government should create a fund for small businesses and sole traders – explicitly including self-employed people as well as SMEs – to access £10,000 of starting capital to set up a mutual insurance scheme. To strengthen confidence in MGSs, the scheme could be delivered by established Community Development Financial Institutions (CDFIs). A trial could be delivered using the Financial Conduct Authority’s regulatory sandbox. This fund would be open for a five year trial period and limited to 100 successful applicants only.
Government should allow self-employed people on low incomes to pause repayments on their Start Up Loans (SULs) for up to six months across the lifetime of the loan.
It should also regularly review the effectiveness of the SUL scheme by regularly monitoring and reporting longitudinal data on outcomes for self-employed people on low incomes. The government should work with key stakeholders that have access to the newly self-employed to design and enable greater mentoring support through the SUL programme. SULs should also not count towards the surplus earnings rule for self-employed people on UC.
A government-backed ‘finance portal’ for self-employed people and other workers
Government should develop a central online hub where self-employed people can review their financial pots. Self-employed people would be able to see the status of their assets – in particular, their auto-enrolled pension, as well as its linked ISA or savings account, and their liabilities: their outstanding balance for products such as Start-Up Loans and BCLs. The finance portal could also signpost self-employed people to support providers such as their Local Enterprise Partnership as well as commercial financial options, in particular invoice factoring and invoice discounting.
Richard King, Director of Corporate Communications at Provident Financial Group, said:
“Provident Financial Group welcomes this research and insight it provides into how best to extend and enhance support to the self employed. As a leading specialist bank focused on underserved markets, PFG has a keen interest in supporting a better understanding of groups, such as the self employed, who could benefit from better-tailored financial products, advice and public services.”
