The self-employment boom … a challenge for government?

By Heather Cameron

There are around 4.5 million self-employed people working in the UK – 1 in 7 of the total workforce. And based on the current rate of growth, it is expected that the self-employed will outnumber public sector employees by 2020. But what impact is this shift in the labour market having on the economy and on government policy?

Growth

Earlier this year we wrote about the rise in female self-employment and entrepreneurship. And generally, jobs recovery in the UK following the recession has undoubtedly been helped by self-employment, which accounts for over a quarter of the growth in employment since 2010.

While the recession has accentuated the growth in self-employment, it is a trend that predates the downturn and it is the significant drop in the numbers leaving self-employment that has been the main driver of growth over the last five years.

Also, as people are living longer and healthier lives, many don’t want to give up working at the traditional retirement age. There has been a 46.5% increase in freelancers over 50 since 2008, an age group that now accounts for 72% of all self-employed people.

This could be seen as a positive outcome of growing entrepreneurialism, contributing to economic growth.  On the other hand, some see it as a move towards more risky, insecure work.

Why self-employment?

There is a definite attraction to being able to work for yourself and organise your own working hours. Most self-employed workers have chosen this path and there is evidence to suggest that job satisfaction is high among self-employed workers.

The freelancing model can also be beneficial to firms as it provides flexibility in access to expertise, helping them to manage peaks and troughs in demand for their services and enabling them to test new ideas with less risk.

A recent study of freelance workers found that a number of factors affect their wellbeing. When working hours are higher than their normal working pattern, freelance workers were found to be calmer and more enthusiastic. However, when the demands they face are difficult or conflicting, then anxiety increases and enthusiasm declines, potentially leading to depression.

Self-employment is therefore not without its drawbacks.

Challenges

Self-employment is often associated with a lack of stability in terms of income and employment benefits such as holiday/sick pay and pensions, and difficulties in accessing financial products and housing.

A particular issue recently has been ‘bogus self-employment’ where workers who would normally meet the legal definition of an employee are registered as self-employed, therefore not receiving any of the employee benefits afforded to registered employees. The government also loses tax revenue and responsible businesses can be undercut.

Access to training is another big challenge for the self-employed as they can only treat training that improves existing skillsets as tax deductible, meaning training for new skills is not covered. As a recent report by Demos argues, this contradicts the aspiration of policy makers to promote entrepreneurial behaviour.

Worryingly, the number of self-employed people receiving training in the UK has fallen in recent years while other European countries have seen a rise. Limited access to training could become a real concern and contribute to the problem of low pay and poor progression rates for self-employed workers and across the wider labour market.

A recent report by IPPR highlights data suggesting that the earnings of the self-employed across Europe are falling relative to employee earnings, and many are looking for more hours or another job, raising concerns over living standards among this group.

As the UK is unique in its self-employment led recovery, this may be of particular concern. According to IPPR, the growth in self-employment could be driving a rise in in-work poverty alongside the jobs recovery.

Support

With a record number of self-employed people now working in the UK, it has been argued that the government needs to better support this growing section of the workforce.

Self-employment has surpassed growth in permanent employment by 3 to 1 in the last decade, but, as Demos has recently reported, government policy has yet to catch up with this structural shift.

There have been moves towards providing support for self-employment, such as the New Enterprise Allowance (NEA), set up by the previous government, which provides people on certain benefits with support to start their own business. Figures published at the end of 2014 show that the NEA has helped to set up over 60,000 new businesses.

Nevertheless, more needs to be done to bring policy in line with the current situation.

The report by Demos makes 18 recommendations for policy to protect the flexibility that self-employment offers, while addressing power imbalances within the marketplace. These include:

  • reducing red tape for firms and the self-employed;
  • providing greater certainty over employment status;
  • creating a tailored pension scheme for the self-employed;
  • aligning the tax treatment of training for employees and the self-employed;
  • and protecting the self-employed from loss of earnings.

In July, the government launched an independent review of self-employment which will consider how those who want to work for themselves can be better supported.

Due to be published in early 2016, perhaps the outcome of this will herald a shift in policy which is in line with the shift in labour market structure.


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The Idox Information Service can give you access to a wealth of further information on labour market policy. To find out more on how to become a member, contact us.

Further reading*

Neither one thing nor the other: how reducing bogus self-employment could benefit workers, business and the Exchequer

Self-employment and ethnicity: an escape from poverty?

Policy brief on sustaining self-employment: entrepreneurial activities in Europe

Business start-ups and youth self-employment in the UK: a policy literature review

Making sense of self-employment in late career: understanding the identity of olderpreneurs, IN Work, Employment and Society, Vol 29 No 2 Apr 2015, pp250-266

Self-employment: what can we learn from recent developments?, IN Bank of England Quarterly Bulletin, Vol 55 No 1 Q1 2015, pp56-66

The changing workforce (increased self-employment and flexible working practices), IN Business Voice, Jun/Jul 2014, pp20-24

*Some items may only be available to members of the Idox Information Service

One thought on “The self-employment boom … a challenge for government?

  1. Thanks for this informative discussion. The boom in self-employment could be partly a form of ‘disguised unemployment’, in which, due to slow economic growth, more traditional formal full-time jobs are created at a slower rate or not at all, and since job-seekers allowance is quite low, a large number of people have no alternative but to try some kind of self-employment. While this may turn into success stories for some, others simply find themselves in insecure positions with no steady flow of income. I suppose the real test for this theory is when wages start to rise as part of the economic recovery, as they are now, and the self-employed are then able to find full-time employment. You would expect to see a reversal of some of the growth in self-employment, or at least a slowdown. It would be interesting to track these sorts of developments.

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