David Kirkby is Senior Research Fellow at Bright Blue.
Self-employment is on the rise. Since 2008, there has been a boom in people becoming self-employed – up by 732,00 between 2008 and 2014. It has been forecast that the number of individuals who are self-employed will soon overtake the number of individuals working in the public sector.
The economic significance of this is clear. Self-employment is re-shaping Britain’s labour market, and the performance of the national economy is increasingly bound up with the performance of this burgeoning class of workers.
The self-employed are also of growing political significance. Jeremy Corbyn has made overtures with his declaration that Statutory Maternity Pay should be extended to the self-employed. A few weeks ago, the Government-commissioned review of self-employment by Julie Deane recommended new policies to support them. There is a clear imperative for the Conservatives to develop a coherent policy offer for this group which fits with their needs and aspirations.
Earlier this week, Bright Blue published its report Standing Alone? which focuses on self-employed individuals who are in low income households, households with income below 60 per cent of the median. We all know that self-employment is great for those who go on to make a fortune, but what about those at the lower end of the income spectrum, often struggling to make ends meet? What are their experiences and challenges and how can they be better supported?
The self-employed are particularly likely to be living in low income households. Our analysis reveals that 20 per cent of self-employed individuals reside in a low income household, compared to only 10 per cent of employees. As such, we estimate that approximately 900,000 individuals in the UK are self-employed in a low income household.
We find that this group work considerably longer hours on average than employees in low income households (38 per week compared to 26 per week), and marginally longer hours than self-employed individuals in higher income households. Despite this, self-employed individuals in low income households are overwhelmingly satisfied with their job (80 per cent). Indeed, they are more likely to be satisfied than employees in low income households (74 per cent). This group work hard and, overwhelmingly, are happy doing so.
But they do face challenges, particularly relating to financial resilience. Self-employed people experience significant income volatility and fluctuations, and for those in low income households in particular, coping can be difficult. The most widely cited challenge amongst self-employed individuals in low income households is monthly income fluctuations (55 per cent), followed by the lack of holiday pay (37 per cent) and saving for a ‘rainy day’ (36 per cent). They also have lower savings rates than employees with similar financial means.
Accessing advice and training is also a key type of challenge for this group. Advice is needed when starting out in self-employment, but also once self-employed individuals are more established and seeking to expand their business. We found that the source of advice most valued by self-employed people in low income households is other self-employed individuals and local business owners, with 24 per cent saying that this is the most important source, and 35 per cent saying that it is the most effective. Take-up of formal training amongst the self-employed is low, particularly amongst those in low income households. 64 per cent of this group have not accessed formal training in the past 12 months. Whereas employees can often rely upon support and guidance from employers, the self-employed have to identify and pay for their own training.
It is important to focus on addressing these two types of challenges – low financial resilience and poor access to advice and training – to boost individual and national prosperity. The policies we propose stem from three fundamental principles. First, recognising fiscal reality: considering ongoing fiscal constraints, proposed policies should not be too costly for government. Second, ensuring progressive impact: policies involving government expenditure on the self-employed should benefit those on low income the most. Third, having a sound empirical basis: policies should stem from the attitudes and priorities of self-employed people. We propose new policies to better support self-employed individuals in low income households.
- The Government should establish new personal welfare accounts for self-employed individuals which they would be required to pay into as a new form of National Insurance, with the balance accruing through payments. Funds would be accessible in times of need such as on low income, during unemployment, and during parental leave. Beyond this compulsory rate, further voluntary contributions should be possible. For those in low income households, contributions should be encouraged through some match funding from the state to ensure that they benefit more. This new ‘welfare settlement’ will serve to boost the financial resilience of self-employed individuals in low income households without relying merely upon increased government spending, boosting the personal responsibility they have for insuring themselves against times of hardship.
- Local Enterprise Partnerships (LEPs) should be financially incentivised to develop local advice networks for self-employed individuals and business owners. Funding for LEPs should be, in part, dependent upon them demonstrating that they are organising effective local advice networks for self-employed individuals, and in particular, dependent upon them demonstrating that these networks will help those on low income. Through strengthening social networks, this will boost the advice available to self-employed individuals.
- There should be a requirement for a certain proportion of LEP board members to be self-employed. There is currently evidence that LEPs are failing to sufficiently engage with small businesses. Having self-employed representation on LEP boards is important for ensuring that LEPs engage with self-employed people and establish local advice networks.
The number and proportion of self-employed people in the UK economy continues to rise. Policymakers now need to understand in detail the circumstances, experiences and challenges faced by those who are in low income households. Our report does that and offers policy recommendations that are fiscally realistic and progressive to better support them.