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IFS report: greater sick pay benefits for self-employed should be up for discussion

By Katherine Steiner-Dicks Last updated Jan 12, 2024

Jenny Blyth, owner of gift business Storm in a Teacup

An IFS report is calling for policymakers and stakeholders to address the growing vulnerabilities faced by self-employed workers by considering greater unemployment and sick pay benefits for this growing and vital segment of the economy. Self-employed workers offer their views on the topic

The number of people going freelance and starting businesses is growing in the UK. More people aged 50 years and older are making up a good chunk of this worker segment. Therefore, we asked three self-employed workers of various ages and business backgrounds to offer their points of view when it comes to having greater government support for the self-employed when it comes to sick pay and pensions.

While we here at The Freelance Informer are all about independent working and the freedom to work for yourself, we understand the inherent risks that can bring to a household’s finances. However, we also believe that self-employment is vital to any economy’s financial standing, innovation and future. What happens when the UK’s 4 million self-employed workers cannot work? Cannot support their families and the economy at large?

Devastation, according to John Lamerton, a business coach and self-investor:

If all 4 million-plus small-business owners stopped working for two weeks, our entire nation would grind to a halt…there’d be suffering, starvation, and, soon, rioting in the streets.

Op-Ed: tax grab or genuine support?

As it stands, when you are self-employed and you get sick, you’re stuffed. Perhaps now is the time for something more systemic to be put in place that meets the mutual benefits of the economy, the self-employed and the tax man.

However, when this IFS report first came to our attention, we were a bit cautious about its intentions or its agenda. Perhaps we fear this report (see key findings below) would only push for a new tax grab for independent workers but with no direct benefits. The IFS is partly government-funded so things may not be as unbiased as we’d like should any policy talk come out of this.

If more benefits were offered to the self-employed would they be equal benefits to the salaried? Probably not, and if so, at what price? Would any extra taxes the self-employed pay directly benefit them when they get sick or help fund their retirement? Would the number of financial benefits match the amount paid in taxes?

The IFS report’s key findings

Here are the key findings (we have attempted to put in plain English) of the IFS report which investigated the job security risks of being self-employed, especially for those who are responsible for most of their family’s income.

This paper finds that the self-employed are subject to larger earnings fluctuations than employees and they frequently transition into unemployment.
Richard Audoly, IFS report author and Research Associate New York Fed

Income Rollercoaster: Self-employed folks have bigger ups and downs in their earnings than regular employees. This is because their income sometimes drops even while they’re working, and they’re also more likely to become unemployed. [Op-Ed: They also have more costs and losses than salaried workers such as self-employed insurance, accountancy fees, upfront product costs, and unpaid invoices].

Not Always Better Off: Despite the freedom, many self-employed people don’t make more money or have more savings than regular employees. This makes it harder for them to handle financial bumps.

Unemployment Insurance Impact: The paper built a model to see how self-employed people might use unemployment benefits like those offered to regular employees. It found that such benefits could significantly help them, especially by making them less likely to go from self-employment to unemployment.

Different Needs, Different Benefits: Different types of self-employed people would benefit differently from unemployment insurance. This suggests that policies need to be flexible to be effective.

What this all means according to the IFS report

These findings are relevant to the current discussion about “gig economy” jobs and how well traditional social safety nets, like unemployment insurance, work for people in these flexible jobs.

The model developed in this paper could be used to further study the job security risks of self-employment and potentially improve policies to help these workers.

More research required?

The paper acknowledges that it didn’t look at all aspects of running a business, especially how investments are made. This is an important area for future research to better understand how self-employed people manage their financial risks.

What happens when the self-employed get sick?

“If you don’t work, you don’t earn,” John Lamerton, an author, business coach and self-investor tells The Freelance Informer.

“That’s the perennial dilemma of the self-employed,” he continues.

“If all 4 million-plus small-business owners stopped working for two weeks, our entire nation would grind to a halt. Never mind supply-chain issues – there’d be suffering, starvation, and, soon, rioting in the streets,” says Lamerton, who co-runs a business coaching service and has authored the book Big Ideas… For Small Businesses.

John Lamerton, an author and podcast host specialising in small business coaching says “successive governments have viewed the self-employed as nothing but an easy target for tax grabs”

Lamerton, like many freelancers and contractors, feels HMRC sees the self-employed as easy targets.

“Successive governments have viewed the self-employed as nothing but an easy target for tax grabs,2 he says. “No support is available to help businesses get off the ground. No help is forthcoming should they struggle – or – heaven forbid – get ill and be unable to work. Yet the minute they turn a profit, the taxman is there, with his hand out. Never was the self-employed mantra of ‘if it’s to be, it’s up to me’ more true.”

The self-employed are not eligible for statutory sick pay so they must then look into employment and support allowance, but they are looking at only up to £84.80 per week if aged 25 or older. Many households could not support rent or mortgage payments, petrol, utility and food bills on that.

However, you will need to look into whether you have made enough national insurance contributions to qualify for New Style Employment and Support Allowance (ESA).

Jenny Blyth, business owner of Storm in a Teacup Gifts

“Being self-employed with a chronic health condition is a blessing and a curse,” says Jenny Blyth, the owner behind Storm in a Teacup Gifts, which she runs out of Barnet in London.

“I can give myself time off to go to appointments at short notice but when I really need to take time off, I simply can’t afford to,” she says.

“Without the benefits given to those in employment such as sick pay, I end up putting more pressure on myself to continue working whilst sick. This in turn has the knock-on effect of making my condition worse which in turn places more pressure on the NHS who have to treat me,” says Blyth.

She believes the government could do more when it comes to self-employed sick benefits. “The government really need to think of ways that will support the small business community financially. We are trying to fuel the British economy, the least we could get in return is some financial security when we’re sick.”

Blyth is actively future-proofing her retirement, which many self-employed have yet to do. However, she is not confident she will be able to support herself solely on this pension pot.

“I use an app called Penfold to manage my own pension but that’s only as much as I can afford each month so I’m not currently set up to have a pension I can rely on,” says Blyth.

Debbie Porter, MD, Destination Digital Marketing

Other business owners, like Debbie Porter, have similar concerns over supporting themselves in later life. Many of them are parents who took valuable time out from their successful careers to raise a family either working part-time or going freelance. Many are asking themselves did the juggle pay off?

Porter tells The Freelance Informer, “My business-owning journey started as a freelance Sole Trader. I’d had a corporate career for 15 years before deciding to have a family. I couldn’t see how I could continue in a senior management position and raise my children the way I wanted to, without farming them off to nursery care. I recognise it was a privileged choice that not everyone has the option to do, but it’s also one that’ll forever impact my financial standing and pension pot prospects.”

Debbie Porter, despite owning and leading a successful business still feels like she is catching up to make up her pension pot: “The financial consequences of spending 7 years working around the needs of our children make my retirement feel like a pipe dream.”

Juggling your own business and a family singlehandedly is a high price to pay and often adds to stress-related illnesses including ulcers, heart disease, diabetes, cancer – the list goes on.

When you are self-employed and sick you often do not have the luxury of taking time off work to rest. Future-proofing your finances as a business owner is therefore a daily job, as Porter explains:

As an unmarried mother of two, I have no legal rights to my partner’s pension. I gave up 7 years of serious career time to raise our two children to primary school age and have no regrets. However, the financial consequences of spending 7 years working around the needs of our children make my retirement feel like a pipe dream.

Now as a business owner, I’m having to push the pace as hard as I can to try and safeguard my future financial wellbeing. After the hard graft of raising kids, it feels the only reward is more graft.