8 days ago
U.K. Offers Self-Employed $11 Billion in Coronavirus Cash squib
(Bloomberg) -- The U.K. government offered to pay self-employed workers cash grants of as much as 2,500 pounds a month in a bid to stem the economic fallout from the coronavirus.Chancellor of the Exchequer Rishi Sunak announced the three-month plan, which the Treasury expects will cost about 9 billion pounds ($11 billion), after his offer last week to pay a portion of citizens’ wages for the first time was widely criticized for omitting millions of self-employed workers ranging from cleaners to hairdressers.About 3.8 million workers, or about 95% of self-employed workers earning less than 50,000 pounds a year, will be eligible for the grants, Sunak said.“You have not been forgotten,” Sunak said in a televised briefing from Downing Street on Thursday. “We will not leave you behind. We will all stand together.”Sunak is racing to protect businesses and workers as the pandemic brings normal economic activity to a halt. The package is the fourth set of emergency measures he has announced in a little more than two weeks. In that time, the government has pledged more than 60 billion pounds of direct aid. At about 3% of gross domestic product, that’s a significantly bigger stimulus than the one the government deployed in the financial crisis a decade ago.The key points of the latest plan are:Self-employed workers earning less than 50,000 pounds a year will be eligible for a taxable grant worth 80% of their average earnings over the past three years, up to a maximum of 2,500 pounds a monthPayments will be in lump sums, covering three months, and will start to be paid in early JuneThe measures will benefit 95% of the self-employed, according to SunakThere is “really nothing” the government can do for those who entered into self-employment in the past year, Sunak said, directing them to the welfare systemThe self-employed will be able to access a business interruption loan program, delay their tax payments and access universal credit benefitsWhile Sunak initially said the measure would cost tens of billions of pounds, the Treasury later clarified it would cost about 3 billion pounds a month for three months.What Bloomberg Economists Say:“By providing support to the self-employed, Sunak has plugged another gap in government’s economic response to the coronavirus. Like all the other programs that have been announced in recent weeks, it will be costly - the Treasury’s estimate of 3 billion pounds a month looks in the right ballpark – but it’ll be money well spent if it succeeds in preventing a recession becoming a depression.”\--Dan Hanson, Bloomberg Economics Senior U.K. EconomistTax experts questioned whether the intended recipients will get the money fast enough. Self-employed workers won’t be able to access the cash until the start of June.“This will leave many of the self-employed, whose business has diminished as a result of Covid-19, with little money to live on over the next two months,” said Tom Evennett, head of personal tax at accounting firm EY.There was another setback for the self-employed, with Sunak suggesting that once the coronavirus crisis is over, he may re-examine taxation rules that mean the self-employed currently pay less than employees.“There is an observation that there is currently an inconsistency in contributions by self-employed and employed,” Sunak said. By treating them the same when doling out coronavirus assistance, “it does just throw into light that question of inconsistency and whether that is fair to everyone going forward,” he said.The coronavirus crisis has transformed the fiscal landscape at a stroke. Britain was on course for a budget deficit of 55 billion pounds in the fiscal year starting April. Now, according to the Institute for Fiscal Studies, borrowing could be as much as 200 billion pounds as an economy on course to shrink at least 5% this year hammers tax revenue and drives up spending on welfare.That could leave the deficit just below the 10% reached in the aftermath of the financial crisis and push up already elevated debt levels.The chancellor announced his first economic package to deal with the outbreak when delivering the budget on March 11, unveiling 12 billion pounds of measures to mitigate the effects of the outbreak on the economy.As evidence mounted that the crisis was snowballing, he followed up with a 350-billion pound stimulus package comprising government-backed loans, grants and tax cuts for struggling companies.Then, on Friday, he said the government would pay 80% of salaried employees’ wages up to a maximum of 2,500 pounds a month and announced a package that also included 7 billion pounds of extra welfare spending.“We are all in this together,” he said at the conclusion of Thursday’s news conference.(Updates with details in 10th paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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