The Money Advice Trust’s senior policy and communications officer, Harriet Dines, blogs on our new research on the impact of Covid-19 on people who are self-employed.
As our advisers at Business Debtline are hearing on a daily basis, Covid-19 has had an often devastating impact on people who are self-employed.
Back in May, we published findings on the experience of Covid-19 for recent callers to Business Debtline, and the picture was stark – a third had experienced a complete drop in income due to the outbreak, and the vast majority had little to no savings to help weather its impacts.
This week we have published our new Back to Business report – based on an Opinium survey of more than 2,500 self-employed people across the UK – which explores the full extent of the impact the pandemic on the wider self-employed population.
Significant impacts – and not just on finances…
Our findings make for grim reading. Almost one in three (29%) self-employed people we surveyed had fallen behind on at least one household bill, business bill or credit commitment as a direct result of the outbreak. The average debt accrued due to Covid-19 was £3,444. And personal finances are bearing the brunt – with almost twice as many falling behind on household bills than business bills.
Worryingly, more than half (55%) of people said that the financial worries caused by Covid-19 were having a negative impact on their mental health. Four in 10 told us they were losing sleep due to the outbreak’s impact on their business – and the same proportion said their personal relationships had been affected.
Access to support – and a lack of…
The Government’s raft of support measures – from the Self-Employment Income Support Scheme (SEISS) to government-backed loans – has provided welcome temporary relief for many self-employed people in the short term.
A quarter of the people we surveyed as part of this research received help through the SEISS, and many were positive about their experience of applying and the support it gave them. As has been widely discussed, however, an estimated 2 million self-employed people and a further 2 million owner/directors were not eligible – something borne out in responses to our survey.
“I haven’t been eligible for any help so I have had to use personal savings and help from family to keep my business going”
“As directors of our own business we have definitely fallen through the cracks, and it’s heart-breaking.”
“I didn’t qualify for any of the support offered to self-employed people because I hadn’t been in business long enough (was yet to submit my first tax return). This was very disappointing. I feel that this ultimately led to me needing to cease trading as I did not have the money to feel confident with re-launching the business once I was able to open again.”
Worryingly, 75% of people within our sample who were from low income households did not received help from the SEISS. Perhaps unsurprisingly, the impact of exclusion from the scheme on peoples’ finances was clear: the majority of self-employed people who anticipated needing debt advice in the coming year (77%) had not received help under the SEISS.
While the suspension of the Minimum Income Floor in Universal Credit has helped increase the amount of support self-employed people receive from the benefit, our research shows that many are struggling to get by on this alone. Almost half (47%) of the people surveyed in receipt of Universal Credit were behind on at least one household bill or credit commitment – compared to 21% of among those who were not receiving it.
Government-backed loans have formed a key component of the support available, but many of the self-employed people surveyed as part of our research expressed real concerns about their ability to pay these back long term. Almost a third (29%) of the people who accessed support for their business this way were not confident that they would be able to repay the loan when the time comes.
Looking to the future
The news that the first of three possible vaccines has started to be rolled out this week represents a light at the end of what has turned out to be a long and challenging tunnel for many. For some it means hopefully getting back to some resemblance of normality next year, but for many self-employed people, the road to recovery is likely to feel much longer.
Many people in self-employment are already struggling with mounting debts, and the uncertainty of what lays ahead means that they are understandably worried about what the next year has in store for their finances.
37% of the self-employed people we surveyed said that they expect it to take more than a year for their business income to return to normal, with 61% expecting another drop in income before that happens. It is worth noting that this poll was carried out before the implementation of the second lockdown across England so it is likely that for many the anticipated time it will take to recover is now even longer.
It is vital that we now take a more future-focused look at how best to support self-employed people to bounce back longer-term. This isn’t just crucial for their own recovery, but for the recovery of the economy as a whole.
Time for a Recovery Strategy
Our report outlines a series of recommendations about how this can be achieved, including calling for the Government to:
- Introduce a dedicated ‘Covid-19 Self-employment Recovery Strategy’ – including considering the role of training, the provision of accessible business advice, and financial support.
- Introduce a discretionary grant scheme specifically to support the millions of self-employed people excluded from the SEISS.
- Extend the suspension of the Minimum Income Floor, which has given self-employed people fairer access to Universal Credit, with a view to reform in the longer term – and extend the £20 per week uplift in Universal Credit.
- Increase the powers of the Small Business Commissioner to act on late payments, including the power to impose penalties for non-compliance with the Prompt Payment Code given the scale of this problem.
We cannot expect self-employed people to bounce back from this crisis without further support. Action is needed now to help them build back their businesses and increase their resilience against future financial shocks as we emerge from this crisis. With the vital contribution they make to our economy, support for people in self-employment and those running their own small businesses is needed now more than ever.
Read the Money Advice Trust’s ‘Back to Business’ report and the full list of recommendations to Government and creditors here.