AXA IM's David Page - UK reaction: Chancellor Sunak completes support with package for self-employed

David Page, Head of Macro Research at AXA Investment Managers, comments on the UK government’s support scheme for the self-employed:

• The Chancellor has announced a Scheme to help the self-employed.
• Package was broadly analogous to the Scheme for employed workers, aiming to protect 80% of self-employed average profits.
• Scheme will not pay out until June, but the Chancellor pointed to other measures to provide short-term relief.
• Chancellor Sunak ignored a question asking how much this will cost. Over three months, the maximum figure should be £29 bn (1.3% of GDP), but in practice the figure should be far lower.

Chancellor Sunak returned to the podium this evening to deliver the latest in a series of supports to the economy. Despite wide-ranging support - the UK has already provided in around £100bn of stimulus and £330bn of loan guarantees - the UK’s 5m self-employed workers have been one group that have been more difficult to target with fiscal support. The Chancellor had previously said it would take time “to think” about this and today he announced a programme designed to do exactly that.

The Chancellor announced a package analogous to the Covid Jobs Retention Scheme (CRJS), which offers employers 80% of wage costs for workers furloughed, not laid off. Today’s self-employed package offers in principle the same protection, offering self-employed workers whose trading profits are below £50k/year 80% of their average monthly profits, up to £2.5k per month for up to 3-months – although this may be extended – as with the CRJS. The Chancellor stated that such a package was “difficult in practice”. The average would be based on the last three year’s accounts, where available. It was open to those that had filed Tax Returns for 2019 and the Chancellor announced that to facilitate late filers, the tax return deadline would be extended by four weeks this year. In part because of this extension to the tax deadline, this meant that payments were unlikely to be made before early June, at which point HMRC would pay this taxable grant into a bank account. Sunak stated that this scheme should cover 95% of self-employed, with the average income of the remaining 5% £200k.

In the ensuing press conference, the Chancellor was asked what self-employed could do until June when this payment would be made. He suggested that self-employed may be able to look into the business interruption scheme; would benefit from the deferred tax payment scheme to January from June; and would also now be eligible to claim Universal Credit, which he said would in most cases make an “advance payment” almost immediately.

The latest government package, again, attempts to take the majority of the expected cost of the coronavirus impact onto the government balance sheet, with this policy addressing one of the remaining groups in the UK that had been previously unaccounted for. As he did with the CRJS, Chancellor Sunak ignored a question asking for the running cost of this scheme. However, whereas the cost of the CRJS depend on the imponderable of how many workers could be furloughed in this manner, today’s self-employment scheme seems more likely to be tapped by the majority of the 5.033m self-employed currently estimated in the country. In that instance, if run for 3-months as currently suggested, the upper limit of the scheme’s cost would be £29bn (1.3% of GDP) – but in practice would be lower as not everyone would claim at the full £2.5k/month. More broadly, the cost of the government’s interventions is likely to outweigh the economic losses that the lost income and jobs would otherwise exact on the economy even as the virus faded in future quarters. However, Chancellor Sunak also “observed” that the current disparity between income earned from employed and self-employed would have to be considered after the shock. He described this future phase as one where we begin “chipping in together to right the ship”. However, with government’s spending ledger rising by some £120bn (5.5% of GDP), before any drawdown from the £30bn loan guarantee scheme, the UK will once again be faced with the question of how to reduce its indebtedness over the medium term – a problem that suggests a great deal of “chipping in”.

Gilt markets had closed before the Chancellor’s announcement today, but sterling currency markets were broadly unchanged on the announcement, with plenty more to digest. That said, sterling has continued to post some revival after a steep slump over the course of this month. Sterling is up nearly 6% from the lows against the US dollar last week, in part reflective of the easing in USD liquidity issues. However, the pound is also 3.5% above the recent lows to the euro.