August 4, 2014 by Benedict Dellot
Filed under: Enterprise
This week the RSA and the Joseph Rowntree Foundation launch a new project exploring the living standards of the self-employed. Over the course of the coming months our aim will be to pinpoint the particular economic and social challenges facing people who work for themselves, consolidate emerging thinking around how these might be addressed, and build up a network of support organisations willing to collaborate on the development of practical and policy interventions. The rationale for the project is unpacked below.
Self-employment in the UK is growing rapidly. Since the turn of the century there has been a 30 per cent increase in the number of people working for themselves, which equates to an extra 1.4m workers. The result is that 1 in 7 of the workforce are now self-employed – one of the highest figures in living memory. Nor does this trend show any sign of coming to an end. Over the last 6 months alone an extra 300,000 more people have turned to self-employment. Should these rates continue, the RSA predicts that the number of people who work for themselves will soon be greater than the size of the public sector workforce.
The fact that this community is growing is seldom contested. Where there is disagreement, however, is in what lies behind the boom and whether the growth in self-employment is a ‘good thing’ for those involved, as well as for the nation as a whole. For some, the increase witnessed in recent years is a sign of a fragmented labour market and a deeper malaise in the wider economy. For others, the trend is indicative of a resurgent entrepreneurial spirit in the UK, and as such should be welcomed and actively supported.
Whatever the viewpoint taken, it is clear that the labour market is unlikely to return to business as usual in the foreseeable future. Indeed, the RSA’s recent report on self-employment, Salvation in a Start-up?, argues that high rates self-employment should be seen as a permanent feature of our economic landscape rather than a fleeting phenomenon brought about by the economic downturn. The implication is that government and others should begin designing policies and interventions that go with the grain of this structural shift, whether that is in welfare, housing or education.
Currently, however, many of the self-employed believe they are overlooked by the state. Only 14 per cent of those surveyed in an RSA/Populus poll said that the government adequately supports people like them, and just 11 per cent that the welfare system is fair to the self-employed. Particular concerns have been raised that Universal Credit has been designed with little regard for those who work for themselves, since it requires the self-employed to reach a minimum income standard in a given period that few will realistically achieve. Similarly, the Mortgage Market Review has been called into question over its recommendations that are likely to make it more difficult for the self-employed to access mortgages.
These issues matter especially because the self-employed are one of the most vulnerable groups in the labour market. While polling by the RSA found that the vast majority (88 per cent) of the self-employed are happier working for themselves, their financial situation is typically worse than those in employment. Our analysis of the Family Resources Survey shows that median weekly earnings of the full-time self-employed are 20 per cent lower than their counterparts in conventional work, while research by the Resolution Foundation found that only 30 per cent are contributing to a pension, compared with over 50 per cent of employees. Indeed, it is likely that a large number of the self-employed will be part of the growing group of people in ‘in-work poverty’, as highlighted by JRF’s research.
In recent years the government has sought to support the business community through a number of measures, including the establishment of the StartUp Loans scheme and various tax and regulatory breaks such as National Insurance Contribution holidays. But these have overwhelmingly centred on the business entity rather than the person running the business. With multiple studies highlighting the precarious nature of self-employment, in future government policy and non-state interventions will increasingly need to focus on the latter – improving the living standards of the self-employed and enabling them to flourish as individuals. A key ambition should be to reduce poverty levels among this group, and to address the disadvantages faced by certain communities, for instance the self-employed in particular BAME groups.
The purpose of this project is to map the key challenges facing people who work for themselves, as well as to understand the nascent thinking around support that is developing in this area. Several research organisations and advocacy groups have begun to explore the issues facing the self-employed, and each will have their own views on which support mechanisms are best. The unions, for example, are likely to concentrate on addressing issues such as false self-employment, while think-tanks such as the Resolution Foundation will have ideas on how to adapt elements of the welfare system such as Universal Credit and pensions. The RSA is particularly interested in how the self-employed can act together to support one another, including through new co-operative models.
By bringing this emergent thinking together, we can ensure that the support community achieves more than the sum of its parts. The ambition of this project is not to generate fully-formed plans for policies and interventions, but rather to lay the groundwork for their development by mapping the landscape of challenges facing the self-employed – including those facing particular groups such as migrant communities and disabled workers. Future phases of the project will flesh-out in greater detail how our thinking might be turned into practical action.