It’s the uncertainty that gets to you. For all of us, but older and more vulnerable people in particular, uncertainty about the epidemiology of the virus is the over-riding concern. How many people will become ill? What effect will social distancing measures have? When will a vaccine be available?

But linked to uncertainty about the length and depth of the outbreak is economic uncertainty. How will household finances cope during an indeterminate period where, for many, the opportunity to earn a living is necessarily curtailed?

Now that the government has brought forward relatively generous support measures for employees, it is self-employed people who are particularly suffering economic uncertainty. However, as the government correctly points out, there are limited practical options for providing financial relief to self-employed people.

If we break it down, there are four kinds of approach. They are:

• Means-testing using the existing rules in the benefits system - self-employed people with a low enough income can claim Universal Credit (UC). This is the default position.
• Changing the rules in the benefits system so that a different mixture of existing benefits is provided to self-employed people.
• A new kind of benefit for the self-employed, mirroring the help now being provided to employees.
• Provision of relief using the tax system.

Universal Credit

The main issue with the first approach, as illustrated by this weekend’s outcry over the government’s perceived lack of support for the self-employed, is that UC is inherently designed for low-income households. Though the government’s increase of £20 a week is welcome, the level of benefit remains under £100 a week (excluding help with extra needs).

Most people think this is unacceptably low, at least for people who have recently been in work and grown accustomed to higher living standards. However, if UC were made substantially more generous it would mean expanding the reach of means-testing up the income scale and, because there is no way of stopping existing claimants also gaining, the cost would be very substantial.

Other existing benefits

A second approach is to use other parts of the existing benefits system to provide assistance to the self-employed. The aim is partly to ease administration of a large number of new claims and partly to make the system (slightly) more generous. The approach relies on a mixture of contributory benefits, which are easier to claim and (in some cases) paid at a higher level, and ‘legacy’ means-tested benefits like Housing Benefit.

This kind of pragmatic response is discussed in my blog from Thursday, when the duration of the outbreak appeared likely to be relatively short. In these circumstances tweaking the existing contributory benefits system to extend eligibility could be the best way to provide rapid assistance to self-employed people. Similarly, practical considerations suggest using existing systems (currently being phased-out in favour of UC) to help meet extra needs for rent or children.

However, while this approach is practical and promises to deliver help quickly, it similarly risks the criticism that it is insufficient to meet the scale of the current crisis. The level of support provided is too low for many, and while it would be possible to increase rates for contribution-based benefits only, the amount of help provided to people affected by coronavirus cannot be divorced entirely from benefit rates for all claimants.

Earnings-related benefits

A third approach is to create a new earnings-related contributory benefits system, so that the 80% replacement of previous earnings applied to employees is also applied to the self-employed. The association of Independent Professionals and Self-Employed (with other representative groups) have advocated a ‘temporary income protection fund’ along these lines.

Borrowing from the scheme Norway has introduced, the idea is that until movement restrictions are lifted the government would guarantee 80% of an individual’s average income over the last 3 years. Presumably the basis for measuring their income would be tax or National Insurance records, though accountants may be able to supply this information for verification later.

One obstacle to this approach is administrative. It is not possible to create a new social insurance system overnight - as we don’t know how long the economic freeze will last, it is difficult to assess whether the costs are worth the effort. Moreover, the principle of earnings-related benefits, which tend to replicate labour market inequality, has never taken root in the UK in the way it has in most European social security systems.

In the UK the state’s role is generally seen as being to provide a minimum income, either through targeted (means-tested) benefits or through more-or-less universal benefits like the state pension.

Using the tax system

The final approach to providing help to self-employed people is to use the tax system.

A very short term solution, which essentially brings forward an existing entitlement, is to use the personal tax allowance to deliver relief. The idea is that self-employed people would be able to claim the value of the tax allowance as an upfront benefit. In return they then pay tax on everything they earn when, and if, they get back to work.

The numbers work as follows:

The current income tax allowance of £12,500 means that someone who earns £20,000 pays 20% tax on £7,500 of their income, a tax bill of £1,500. So the effective value of the personal allowance is £2,500. For self- employed people this ‘benefit’ is normally taken in January following the end of the tax year, when tax is paid on the previous year’s income. Instead, self-employed people could claim their allowance upfront from 6 April and then pay tax on all their earnings.

As with all tax and benefit schemes, qualification rules would be important. Defining what constitutes self-employment is far from easy: while the National Insurance system recognises it through class 2 and 4 contributions, in practice many self-employed people pay themselves through dividends as a company director.

The only solution is to give everyone (or, perhaps, everyone who has earned more than the tax allowance in previous years) the choice of whether to receive the tax allowance upfront or when their tax bill is calculated.

For those receiving the money upfront all income received during the year would then be taxable in full, so the advantage is really about the timing of income rather than its amount. For the government, the advantage is that it buys time to agree a system that could work if the coronavirus outbreak lasts for longer than 2 or 3 months.

If restrictions on labour carry on for a long time then it would be possible to carry on making direct payments to self-employed people, perhaps at the rate of £2,500 every quarter. This would create a kind of basic income. One which is not universal but is instead better labelled a ‘participation income’. In particular, it would not change reliance on means-tested benefits for existing claimants. It could deliver a far higher level of income for self-employed people than is realistic if the benefits system is used as the principal means for providing assistance.

A generous scheme that paid out for a whole year would be extremely expensive. If the scheme provided £10,000 to all 5 million self-employed people then it would cost £50 billion (though a quarter of this would in effect just be the existing tax allowance).

The question of how to pay for this enormous sum could not be ignored. One option would be to see money received during the coronavirus outbreak as a loan from the state, to be paid back individually. Perhaps it could work like student loans and be paid back through an extra contribution on top of tax. At the other extreme, the price paid by self-employed people could be collectivised and take the form of higher taxes.

As we are seeing played out during the current crisis, at the moment self-employed people have few or no work rights and qualify only for means-tested benefits paid at a low rate. In return they pay less tax, because they pay lower National Insurance than employees if they are self-employed and none if they take dividends.

If self-employed people are now insured by the state in a way that is comparable with employees the argument for merging tax and National Insurance would grow stronger. If tax rates were held constant, considerable extra revenue would be raised - largely from self-employed people. But once implemented, merging tax and National Insurance would allow the burden of paying off debt to be spread fairly, according to individuals’ ability to pay rather than their employment status.