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The Chancellor's missed opportunity as freelance confidence and rates falter
- 28 Mar 2024
Just three weeks ago, Jeremy Hunt rose at the despatch box in Parliament to deliver his Spring Budget. With IPSE’s research consistently highlighting the negative confidence levels amongst freelancers over the past two years, for the self-employed, this was a critical juncture.
It’s not just confidence in the wider UK economy either. Concerningly, confidence in their own businesses continues to nosedive.
The background to the budget: lower confidence and lower day rates
Confidence in the UK economy has fallen from -28.5 in Q3 2023 to -30.1 in Q4 2023. Concerningly, this now represents the 10th successive quarter where freelancers’ confidence in the UK economy has been in negative territory.
Similarly, freelancers’ outlook for their own businesses has also fallen from -12.9 in Q3 2023 to -16.0 in Q4 2023.
Taken together, these confidence indices undoubtedly paint a worrying picture for the outlook of the sector.
Compounding this is the fact that freelancers are not increasing their average day rates.
Unlike employee counterparts, that have seen their average earnings increase by 6.2% between October and December 2023, freelancers have actually seen day rates fall from £554 in Q3 2023 to £522 in Q4 2023.
What we did hear at the Budget
Before we outline how the Chancellor could (and should) have provided the self-employed with a shot in the arm, it’s important to reflect on what we did actually hear.
A small increase to the VAT registration threshold – from £85,000 to £90,000 – was welcome albeit smaller than IPSE’s ask of £100,000 as part of our budget submission.
The cut to National Insurance, likewise, will benefit some such as sole traders and umbrella company workers.
But we can’t lose sight of the fact that fiscal drag will now offset any benefit from these announcements. This is whereby the frozen tax thresholds – as has largely been the case since April 2021 – increases people’s taxable income without nominal tax rates actually increasing; with more taxpayers consequently dragged into paying tax, or into paying tax at a higher rate.
For more information, we’ve put a detailed explainer together outlining the key measures announced at the Spring Budget.
The missed opportunity
For much of the self-employed population, these changes will simply feel like the Chancellor is tinkering with a few of the economic levers at his disposal.
None of these are particularly substantial wins for the self-employed and it doesn’t feel like any of these changes will make one iota of difference in reality.
Some will also point to the fact that these measures seem like a cynical ploy to win back this cohort ahead of the forthcoming election.
If you’re going to try and do something to help the sector, these meaningful changes would have helped inject some impetus.
IR35 – a major stumbling block
Three years on from the introduction of IR35 reforms in the private sector, it’s frustratingly clear that these reforms are hindering labour market participation and thwarting clients the valuable flexible talent they require to grow.
If we are to unleash the true potential of this sector and restore confidence amongst those that take the brave decision to strike out on their own, these rules seem an obvious place to start.
Saving for later life remains challenging
Similarly, if you’re going to look at ISAs – as shown with the launch of the British ISA – look at the Lifetime ISA and make it work better for the self-employed.
Our research on saving for later life has exposed the fact that over half of the self-employed are not currently saving into a traditional pension. Other forms of savings therefore need to incentivised and made to work in a more flexible way to suit this way of working.
When the Chancellor has consistently focused on the need to get the economically inactive back into the labour market, we at IPSE believe that these two measures would have actually tackled the problem.
Instead, recent ONS figures are now showing that the number of economically inactive is actually on the increase…
We make a similar point in our immediate reaction to the budget which you can read below.
Read more
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