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The rise and rise of self-employment

POSTED: 17th November 2014
IN: Personal Guides
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Among the many significant financial and labour market trends that have emerged in the UK in recent years, one of the most noteworthy is the substantial growth in self-employment.

More and more people are working for themselves in the UK.

According to data released by the Office for National Statistics (ONS) in August, self-employment has risen to its highest level in 40 years.

So just how prevalent has this way of working become, and what are the ramifications for the economy, the labour market and the UK as a whole?

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How much has self-employment increased?

The ONS report revealed that the overall growth in employment in the UK since 2008 - the start of the financial crisis - has predominantly been among the self-employed. One of the key factors in the trend is that fewer people are leaving self-employment than in the past.

Some of the agency's more specific findings showed that the number of over-65s working for themselves has more than doubled in the past five years, reaching nearly half a million.

Men continue to dominate self-employment overall, but the number of women choosing to work in this way is increasing at a faster rate.

Another report released in August 2014, from the Institute for Public Policy Research (IPPR), posited that the UK is becoming Western Europe's 'self-employment capital'.

The IPPR said the proportion of independent workers in the UK had been low by international standards for a number of years, but the country has now caught up with the EU average.

Between the first quarters of 2013 and this year, the number of self-employed people rose by eight per cent, faster than any other western European economy, according to the analysis.

Is this a good or a bad thing?

Spencer Thompson, senior economic analyst at the IPPR, noted that the government responded to the rise in self-employment by celebrating the UK's "entrepreneurial zeal" and promoting independent working as an option for the unemployed.

However, some commentators have argued that many workers newly classed as self-employed are simply "employees by another name", while the Bank of England has taken the trend as a possible sign of weakness in the labour market. 

One thing that is certain, according to Mr Thompson, is that the self-employed "come in all shapes and sizes".

"Some are entrepreneurs, driven by high-growth ambitions, innovation and disruptive business models, but many are sole-traders simply looking to get by or small businesses happy to stay at their current level," he said.

In October 2014, ONS figures showed that the number of people choosing self-employment had increased by 6.6 per cent, surpassing the 1.9 per cent growth in traditional jobs.

The Association of Independent Professionals and the Self Employed (IPSE) responded by claiming that this "fundamental shift in the way Britain works" is "here to stay".

Chief executive Chris Bryce said: "People from all walks of life are choosing to leave the 9-5 behind and take control of their own destiny. From young people straight from university to parents who want to balance work around family life, being your own boss has never been more popular."

Earlier this year, the Trades Union Congress (TUC) expressed concern that the growth in self-employment has come at the expense of more secure jobs.

The body argued that many newly self-employed workers do the same work as regular staff but without the same assurances and benefits.

TUC general secretary Frances O'Grady said: "Self-employment accounts for almost half of all the new jobs created under this government.

"But these newly self-employed workers are not the budding entrepreneurs ministers like to talk about. Only a tiny fraction run their own businesses, while the vast majority work for themselves or another employer - often with fewer rights, less pay and no job security."

Does the government need to act?

A recent article in the Guardian explored the growth in self-employment in context of the government's economic policies and tax revenue.

Robert Chote, chairman of the Office for Budget Responsibility, quoted figures showing that more than a third (35 per cent) of people going into self-employment since 2008 earn less than £10,000 and therefore pay no tax. Many more can reduce their tax bill by offsetting their expenses and claiming capital allowances.

According to the Guardian, the Treasury relied on the growth in self-employment to boost its tax income even thought it had no clear idea of what independent workers were earning or how.

IPSE has urged the government to make a number of changes to reflect the growing self-employed population, including the introduction of a dedicated minister for this portion of the workforce.

It also called for the simplification of "unnecessarily complicated" tax laws like IR35 and action on problems such as late payments to small businesses, insufficient broadband infrastructure and a lack of affordable office space to work from.

Writing in the Huffington Post, Tim Farron, Liberal Democrat MP for Westmorland and Lonsdale, said he differed from many politicians in his view that the rise in self-employment could be a positive thing.

He also said more needs to be done to help independent workers, who face problems including impenetrable "reams of paperwork".

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