Read more: Why self-employment is the future of work
It is a little early to start the celebrations, but if, like me, you are one of the UK’s growing number of self-employed people it looks as though the moment is finally arriving when a government feels it is worth acknowledging your existence. You could do worse than turn to page 47 of this year’s Budget, where you will find six paragraphs under the heading “Supporting the self-employed.” That is the first time a whole section has been given over to a group that now makes up roughly 15 per cent of the UK’s working population. It’s a sign that a political constituency is achieving critical mass.
This cameo appearance by the self-employed in the biggest political set piece of the year marks the high point so far of a long march to relevance in a system still set up for and dominated by employers and employees.
One of the first clear signs that political attention was turning to the self-employed came on National Freelancers Day in November 2014, when the coalition government appointed David Morris as its first self-employment ambassador. The Conservative MP for Morecambe and Lunesdale since 2010, Morris was self-employed for more than 25 years, first as a musician and later as the owner of a chain of hairdressing salons. The focus on self-employment sharpened further just after the general election, when the House of Commons Library published a briefing on key issues facing members of the new parliament including a section on “the self-employment boom.” Then, on 1st July, the government announced a review of self-employment in the UK to be carried out by Julie Deane, founder and Chief Executive of The Cambridge Satchel Company.
The government said the Deane Review, which appeared in February, would “look at what can be done to provide more security and peace of mind, for example, when juggling self-employment and having a family, buying a home or saving for retirement.” For a group that was long ignored by politicians of all parties, but now numbers around 4.6m workers, this was a change of tune.
Self-employment has been an ambivalent term for decades: claimed by some with pride as a badge of independence, uttered by others with an undertone of shame as if the label risks identifying them as a discarded former employee incapable of breaking back into the salaried classes. Data compiled by the Office for National Statistics makes it clear that large proportions of the self-employed are still drawn from traditional blue-collar occupations. Around one million are involved in some way in the building trade, more than 230,000 are shopkeepers and about 210,000 drive taxis and minicabs, for example. Depending on their line of work, people might refer to themselves as freelance, self-employed, a consultant, a contractor or say that they run their own business. An interim finance director will probably wince if you refer to them as a freelance; an electrician might laugh; a journalist would recognise the term immediately (while secretly wishing you had called them a writer instead).
But whichever of these overlapping and competing labels they choose to wear, one thing is clear: the number of people who no longer fit the mould of salaried employment is growing fast in the UK and as a group they are becoming more diverse in all sorts of ways.
In the years since the financial crisis the acceleration in self-employment has been dramatic, with 800,000 joining the ranks in the past seven years. This means that almost half the total increase in employment in the UK since the financial crisis has occurred within this small corner of the economy. Nigel Meager, Director of the Institute for Employment Studies, points out that this is part of a longer-term structural shift towards greater self-employment in the UK, the numbers having risen steadily through boom and bust since about 2000. Over that period, the self-employed population has climbed by about 1.4m people and its share of the workforce has gone up from 12 per cent to about 15 per cent today.
Within the long-term upward trend, Meager identifies two important changes. First, fewer people who enter self-employment are leaving again, which helps to push up the total numbers. Second, a clear difference has emerged between the make-up of the self-employed population before the financial crisis and after it. “During the [Tony] Blair years, a lot of the growth in self-employment was in pretty traditional areas,” he says, “so there was a big increase in construction and craft self-employment. In the post-2008 period, craft self-employment has hardly gone up at all, construction self-employment has actually fallen and the occupations and sectors in which the self-employed have been found have become much more diverse.”
The Deane Review agrees. It found that 60 per cent of the overall increase between 2009 and 2014 was accounted for by “higher skilled managerial, professional and associate professional jobs”—the spread of self-employment beyond its traditional trade strongholds is gathering momentum as people in a wider range of white-collar occupations move out of permanent jobs to go freelance. Equally, it’s clear that self-employment among older workers is growing strongly as part of a broader trend that has made those aged 60-plus the fastest expanding group in the workforce. Some 43 per cent of the self-employed are aged 50 or over.
But arguably two other shifts in the make-up of the post-crisis population of self-employed represent the most significant changes to have emerged. Simon McVicker, Policy Director at the Association of Independent Professionals and the Self-Employed (IPSE), points to significant growth in the numbers of women becoming self-employed, particularly those returning to work after having children. The Deane Review found that more than half of those who had become self-employed since 2009 are women. The opportunity to work flexibly and accommodate family commitments more easily is generally thought to be fuelling this trend.
The second major change is the recent rise of part-time self-employment. “Traditionally, all the evidence tells us that the self-employed work very long hours and so the average working time of the self-employed is much higher than the average working time of employees,” says Meager. “But one of the things we’ve noticed since 2007-08 has been this massive growth in part-time self-employment. That’s very new and it’s not quite clear how many of them are second-jobbers or people with multiple jobs and how many are students delivering pizzas in their spare time, but there does seem to be a growth in ‘smaller jobs’ among the self-employed, which is something we haven’t seen before.”
These trends chime with my own experience. As a parent with young children, the ability to move easily between work and family commitments at short notice is incredibly important. So much so that I am happy to accept a lower income than when I was employed in return for greater freedom and the control I now have over my own time. Some days and weeks I work a lot, others much less. The choice is mine and there is no way I would give up what I have in order to go back to a salaried post with fixed hours.
I used to think this was due to the kind of work I do and that many other self-employed people might not feel the same. In the years immediately after the financial crisis, when self-employment began to grow quickly, commentators suggested that people were turning to it as a last resort, having lost their job and failed to find another. But the evidence for this is weak. A survey by the Department for Business, Innovation and Skills, published alongside the Deane Review in February, found that 84 per cent of self-employed workers felt their life was better overall than it would be as an employee, and even among those who were worse off financially 80 per cent had no plans to leave self-employment in the next three years. Most who did plan to leave said they would retire.
The first big challenge to policymakers is that data on this group is patchy and raises a lot of questions. The paper published by the House of Commons Library in May 2015 touches on the lower average earnings of self-employed people: “Data from the Family Resources Survey shows that in 2012/13, the average (median) income for all people with income from self-employment sources was around £11,000. Incomes for the self-employed have also fallen faster in recent years than for other sorts of worker: adjusting for inflation, average income from self-employment fell by 22 per cent between 2008/09 and 2012/13.
”But top-level data like this fails to take account of many factors. For a start, if more people are now part-time self-employed, their earnings will be lower and so drag down any average for self-employed people as a whole. Second, many self-employed people have income from other sources. Part-timers may also have wages from employment while others will have investment and rental income. IPSE found that 33 per cent of independent professionals invest in property and 29 per cent in stocks and shares: higher proportions than the population at large.
Similarly, figures suggest that more than 700,000 self-employed people have incorporated and are, in effect, one-person limited companies. For tax reasons, most choose to pay themselves a small salary and take most of their income in dividends, which poses several problems for those trying to understand the self-employed. First, their earnings will show up as a salary from an employer, rather than income from self-employment. Second, if you count only the salary shown on their tax return, their income will seem a lot lower than it actually is. And third, no one can be sure from looking at the raw data on incorporated companies how many of them are actually self-employed individuals. The figures quoted are simply educated guesses, based on an assumption that a limited company with one director and no other employees is more likely than not to be a freelancer in disguise. That’s a relatively safe bet but hardly a robust statistical basis for policymaking. IPSE has recently been arguing for a separate form of incorporation for freelance workers—the Freelancer Limited Company—which could help to make the data more transparent and useful.
At its root, the problem is that policymakers and statisticians are used to understanding the economy using information derived from employers and employees, especially from sources such as tax returns and labour surveys. “Believe it or not, the government doesn’t have criteria to define what self-employment is,” says Morris. He argues that there should be a minister with responsibility for self-employment.
Whether or not that plea is answered, it is clear that as more people move away from the traditional model of employment the limited information that policymakers must rely on is becoming a bigger issue.
The [self-employment] numbers aren’t big enough to explain the extent to which UK productivity has diverged from trend in the last few years,” says Meager, “but I think it’s part of the story.” The suggestion is that because so much of the overall increase in employment since 2008 has comprised self-employed workers generating relatively lower economic output—either because they choose to work less or because they cannot earn as much as an employee however many hours they work—the rise in self-employment is therefore contributing to the UK’s poor productivity performance. “It’s a compositional effect possibly in the short term,” he says, “but you suspect that over the longer term it’s going to contribute to us being stuck on this slightly lower productivity path.”
If this thesis is correct, then governments are going to need to focus much more closely on the role that the self-employed play in the economy and there are signs this is starting to happen. Glaring problems caused by a one-dimensional view that work equals employment are starting to be addressed and recent moves should help give self-employed people stronger incentives to save and provide for their retirement.
For example, the centrepiece in that section of the Budget was the new Lifetime Isa, which will allow people aged between 18 and 40 to contribute up to £4,000 a year and receive up to £1,000 a year in top-ups from the state until they reach 50. That gives the self-employed a financial product that provides the same kind of top-up that they would get from putting money into a pension and receiving basic-rate tax relief, but one that lets them access their savings early if they have to.
If this encourages more self-employed people to save for their retirement ministers will breathe a sigh of relief. “There is a concern that if a larger proportion of the workforce is self-employed or spends significant proportions of its working life in self-employment that pensions coverage is going to be badly affected,” says Meager. “One thing we do know from all the evidence about self-employment is that a significant proportion of them don’t save and don’t put enough by for their retirement.” In a pension system that clearly favours those with an employer to help them save, why would they? Even among IPSE’s relatively high-earning white-collar members, 37 per cent do not pay into a pension fund and 54 per cent are worried about their finances after they retire.
The self-employed are also among the major winners from the introduction of the new flat-rate state pension. Up to now, they have generally received a lower state pension than people who had been in employment but once the new system is fully implemented everyone who has paid National Insurance for 35 years will receive the same, regardless of how they earned those contributions. If Deane’s recommendations on maternity pay for the self-employed are implemented, self-employed mothers would also receive the same deal as everyone else.
These steps are, according to Morris, “the start of a long journey in the right direction.” Although big issues remain unaddressed—such as how to ensure a self-employed workforce is properly trained and has up to date skills—perhaps the shift to self-employment has at last become too big to ignore. “The growth in recent years has been so rapid that the government has to take a serious look at it,” argues McVicker, Head of Policy at IPSE. “They know this is an underlying change in the way our economy operates and it’s not going to reverse—people are working in this way because, by and large, they want to work in this way and the government is starting to recognise that.” If he is right, that would be something for the self-employed to celebrate.
It is a little early to start the celebrations, but if, like me, you are one of the UK’s growing number of self-employed people it looks as though the moment is finally arriving when a government feels it is worth acknowledging your existence. You could do worse than turn to page 47 of this year’s Budget, where you will find six paragraphs under the heading “Supporting the self-employed.” That is the first time a whole section has been given over to a group that now makes up roughly 15 per cent of the UK’s working population. It’s a sign that a political constituency is achieving critical mass.
This cameo appearance by the self-employed in the biggest political set piece of the year marks the high point so far of a long march to relevance in a system still set up for and dominated by employers and employees.
One of the first clear signs that political attention was turning to the self-employed came on National Freelancers Day in November 2014, when the coalition government appointed David Morris as its first self-employment ambassador. The Conservative MP for Morecambe and Lunesdale since 2010, Morris was self-employed for more than 25 years, first as a musician and later as the owner of a chain of hairdressing salons. The focus on self-employment sharpened further just after the general election, when the House of Commons Library published a briefing on key issues facing members of the new parliament including a section on “the self-employment boom.” Then, on 1st July, the government announced a review of self-employment in the UK to be carried out by Julie Deane, founder and Chief Executive of The Cambridge Satchel Company.
The government said the Deane Review, which appeared in February, would “look at what can be done to provide more security and peace of mind, for example, when juggling self-employment and having a family, buying a home or saving for retirement.” For a group that was long ignored by politicians of all parties, but now numbers around 4.6m workers, this was a change of tune.
Self-employment has been an ambivalent term for decades: claimed by some with pride as a badge of independence, uttered by others with an undertone of shame as if the label risks identifying them as a discarded former employee incapable of breaking back into the salaried classes. Data compiled by the Office for National Statistics makes it clear that large proportions of the self-employed are still drawn from traditional blue-collar occupations. Around one million are involved in some way in the building trade, more than 230,000 are shopkeepers and about 210,000 drive taxis and minicabs, for example. Depending on their line of work, people might refer to themselves as freelance, self-employed, a consultant, a contractor or say that they run their own business. An interim finance director will probably wince if you refer to them as a freelance; an electrician might laugh; a journalist would recognise the term immediately (while secretly wishing you had called them a writer instead).
But whichever of these overlapping and competing labels they choose to wear, one thing is clear: the number of people who no longer fit the mould of salaried employment is growing fast in the UK and as a group they are becoming more diverse in all sorts of ways.
In the years since the financial crisis the acceleration in self-employment has been dramatic, with 800,000 joining the ranks in the past seven years. This means that almost half the total increase in employment in the UK since the financial crisis has occurred within this small corner of the economy. Nigel Meager, Director of the Institute for Employment Studies, points out that this is part of a longer-term structural shift towards greater self-employment in the UK, the numbers having risen steadily through boom and bust since about 2000. Over that period, the self-employed population has climbed by about 1.4m people and its share of the workforce has gone up from 12 per cent to about 15 per cent today.
Within the long-term upward trend, Meager identifies two important changes. First, fewer people who enter self-employment are leaving again, which helps to push up the total numbers. Second, a clear difference has emerged between the make-up of the self-employed population before the financial crisis and after it. “During the [Tony] Blair years, a lot of the growth in self-employment was in pretty traditional areas,” he says, “so there was a big increase in construction and craft self-employment. In the post-2008 period, craft self-employment has hardly gone up at all, construction self-employment has actually fallen and the occupations and sectors in which the self-employed have been found have become much more diverse.”
The Deane Review agrees. It found that 60 per cent of the overall increase between 2009 and 2014 was accounted for by “higher skilled managerial, professional and associate professional jobs”—the spread of self-employment beyond its traditional trade strongholds is gathering momentum as people in a wider range of white-collar occupations move out of permanent jobs to go freelance. Equally, it’s clear that self-employment among older workers is growing strongly as part of a broader trend that has made those aged 60-plus the fastest expanding group in the workforce. Some 43 per cent of the self-employed are aged 50 or over.
But arguably two other shifts in the make-up of the post-crisis population of self-employed represent the most significant changes to have emerged. Simon McVicker, Policy Director at the Association of Independent Professionals and the Self-Employed (IPSE), points to significant growth in the numbers of women becoming self-employed, particularly those returning to work after having children. The Deane Review found that more than half of those who had become self-employed since 2009 are women. The opportunity to work flexibly and accommodate family commitments more easily is generally thought to be fuelling this trend.
The second major change is the recent rise of part-time self-employment. “Traditionally, all the evidence tells us that the self-employed work very long hours and so the average working time of the self-employed is much higher than the average working time of employees,” says Meager. “But one of the things we’ve noticed since 2007-08 has been this massive growth in part-time self-employment. That’s very new and it’s not quite clear how many of them are second-jobbers or people with multiple jobs and how many are students delivering pizzas in their spare time, but there does seem to be a growth in ‘smaller jobs’ among the self-employed, which is something we haven’t seen before.”
These trends chime with my own experience. As a parent with young children, the ability to move easily between work and family commitments at short notice is incredibly important. So much so that I am happy to accept a lower income than when I was employed in return for greater freedom and the control I now have over my own time. Some days and weeks I work a lot, others much less. The choice is mine and there is no way I would give up what I have in order to go back to a salaried post with fixed hours.
I used to think this was due to the kind of work I do and that many other self-employed people might not feel the same. In the years immediately after the financial crisis, when self-employment began to grow quickly, commentators suggested that people were turning to it as a last resort, having lost their job and failed to find another. But the evidence for this is weak. A survey by the Department for Business, Innovation and Skills, published alongside the Deane Review in February, found that 84 per cent of self-employed workers felt their life was better overall than it would be as an employee, and even among those who were worse off financially 80 per cent had no plans to leave self-employment in the next three years. Most who did plan to leave said they would retire.
"For a parent with young children, the ability to move easily between work and family commitments at short notice is incredibly important"So my experience is not unusual. For a lot of people, self-employment is a positive choice that brings more than enough non-financial benefits to offset any issue with lower earnings and security of income. But the lifestyle benefits that I and millions of others individually reap have a flipside. Viewed from the level of policymakers, a growing section of the working population is deciding to accept a less secure income and forgo the financial benefits of salaried employment, such as pension contributions and private health cover. This trend represents a series of challenges that will only grow as more and more people decide that the self-employed life is right for them.
The first big challenge to policymakers is that data on this group is patchy and raises a lot of questions. The paper published by the House of Commons Library in May 2015 touches on the lower average earnings of self-employed people: “Data from the Family Resources Survey shows that in 2012/13, the average (median) income for all people with income from self-employment sources was around £11,000. Incomes for the self-employed have also fallen faster in recent years than for other sorts of worker: adjusting for inflation, average income from self-employment fell by 22 per cent between 2008/09 and 2012/13.
”But top-level data like this fails to take account of many factors. For a start, if more people are now part-time self-employed, their earnings will be lower and so drag down any average for self-employed people as a whole. Second, many self-employed people have income from other sources. Part-timers may also have wages from employment while others will have investment and rental income. IPSE found that 33 per cent of independent professionals invest in property and 29 per cent in stocks and shares: higher proportions than the population at large.
Similarly, figures suggest that more than 700,000 self-employed people have incorporated and are, in effect, one-person limited companies. For tax reasons, most choose to pay themselves a small salary and take most of their income in dividends, which poses several problems for those trying to understand the self-employed. First, their earnings will show up as a salary from an employer, rather than income from self-employment. Second, if you count only the salary shown on their tax return, their income will seem a lot lower than it actually is. And third, no one can be sure from looking at the raw data on incorporated companies how many of them are actually self-employed individuals. The figures quoted are simply educated guesses, based on an assumption that a limited company with one director and no other employees is more likely than not to be a freelancer in disguise. That’s a relatively safe bet but hardly a robust statistical basis for policymaking. IPSE has recently been arguing for a separate form of incorporation for freelance workers—the Freelancer Limited Company—which could help to make the data more transparent and useful.
At its root, the problem is that policymakers and statisticians are used to understanding the economy using information derived from employers and employees, especially from sources such as tax returns and labour surveys. “Believe it or not, the government doesn’t have criteria to define what self-employment is,” says Morris. He argues that there should be a minister with responsibility for self-employment.
Whether or not that plea is answered, it is clear that as more people move away from the traditional model of employment the limited information that policymakers must rely on is becoming a bigger issue.
"The growth in self-employment in recent years has been so rapid that the government has to take a serious look at it"Take the much-discussed “productivity puzzle” that has affected the UK since the financial crisis. Productivity growth has persistently refused to return to its pre-crisis trend—the latest data shows that economic output per hour for UK workers fell between the third and fourth quarters of 2015 by the largest amount since the last three months of 2008. This has been largely put down to very low levels of business investment in equipment that would make their employees more productive. That’s doubtless true, but are people like me partly to blame as well? If I decide to take two days over an article rather than one so that I can spend time with the children during the school holidays, am I contributing to the worrying sluggishness of the UK economy? “
The [self-employment] numbers aren’t big enough to explain the extent to which UK productivity has diverged from trend in the last few years,” says Meager, “but I think it’s part of the story.” The suggestion is that because so much of the overall increase in employment since 2008 has comprised self-employed workers generating relatively lower economic output—either because they choose to work less or because they cannot earn as much as an employee however many hours they work—the rise in self-employment is therefore contributing to the UK’s poor productivity performance. “It’s a compositional effect possibly in the short term,” he says, “but you suspect that over the longer term it’s going to contribute to us being stuck on this slightly lower productivity path.”
If this thesis is correct, then governments are going to need to focus much more closely on the role that the self-employed play in the economy and there are signs this is starting to happen. Glaring problems caused by a one-dimensional view that work equals employment are starting to be addressed and recent moves should help give self-employed people stronger incentives to save and provide for their retirement.
For example, the centrepiece in that section of the Budget was the new Lifetime Isa, which will allow people aged between 18 and 40 to contribute up to £4,000 a year and receive up to £1,000 a year in top-ups from the state until they reach 50. That gives the self-employed a financial product that provides the same kind of top-up that they would get from putting money into a pension and receiving basic-rate tax relief, but one that lets them access their savings early if they have to.
If this encourages more self-employed people to save for their retirement ministers will breathe a sigh of relief. “There is a concern that if a larger proportion of the workforce is self-employed or spends significant proportions of its working life in self-employment that pensions coverage is going to be badly affected,” says Meager. “One thing we do know from all the evidence about self-employment is that a significant proportion of them don’t save and don’t put enough by for their retirement.” In a pension system that clearly favours those with an employer to help them save, why would they? Even among IPSE’s relatively high-earning white-collar members, 37 per cent do not pay into a pension fund and 54 per cent are worried about their finances after they retire.
The self-employed are also among the major winners from the introduction of the new flat-rate state pension. Up to now, they have generally received a lower state pension than people who had been in employment but once the new system is fully implemented everyone who has paid National Insurance for 35 years will receive the same, regardless of how they earned those contributions. If Deane’s recommendations on maternity pay for the self-employed are implemented, self-employed mothers would also receive the same deal as everyone else.
These steps are, according to Morris, “the start of a long journey in the right direction.” Although big issues remain unaddressed—such as how to ensure a self-employed workforce is properly trained and has up to date skills—perhaps the shift to self-employment has at last become too big to ignore. “The growth in recent years has been so rapid that the government has to take a serious look at it,” argues McVicker, Head of Policy at IPSE. “They know this is an underlying change in the way our economy operates and it’s not going to reverse—people are working in this way because, by and large, they want to work in this way and the government is starting to recognise that.” If he is right, that would be something for the self-employed to celebrate.
