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What does our Confidence Index tell us about how coronavirus is affecting the freelancing sector?

• 27 Aug 2020
• Inna Yordanova

In the first quarter (Q1) of 2020, IPSE’s Freelancer Confidence Index, a quarterly survey that tracks how freelancers feel about their businesses and the UK economy, showed freelancers’ confidence dropping to absolutely unprecedented record lows.

According to the most recent index, the situation doesn’t seem to be getting much better for freelancers three months later. In the second quarter of 2020, their average earnings decreased by 25 per cent and their spare capacity, the amount of time they spend not working per quarter, rose to a record high of 5.5 weeks out of 13.

These results illustrate that the coronavirus crisis is not only a health emergency, but also an economic one, strongly affecting freelancers’ income and business circumstances.

Freelancers’ businesses need short and long-term support due to coronavirus

In Q2 2020, freelancers were very pessimistic about their business performance in the short-term, over the next three months. Although this measure improved somewhat from the record low of -62.6 in Q1 2020 to -20.4, it is still the second-lowest score since the Confidence Index began in 2014. This demonstrates the greater extent of the impact of the crisis on their businesses in comparison to other political and economic events of the last seven years.

Freelancers are even more pessimistic about the performance of their business in the longer-term, over the next 12 months. However, this score also increased from the lowest on record in Q1 2020 to the second lowest on record in Q2 2020: from -57.3 to -30.5. This could potentially illustrate not only the compounding effect of the coronavirus crisis and an expectation for it to continue over the next year, but also sensitivity to other policy changes coming in the next 12 months around Brexit and the introduction of IR35 changes in the private sector.

Accordingly, freelancers cite the coronavirus pandemic and the resultant state of the UK economy as the two factors doing most harm to their businesses, closely followed by government tax policy relating to freelancing.

Coronavirus and IR35 changes put pressure on freelancers’ business

The coronavirus pandemic is now not only the top negative influence on freelancers’ businesses with 81 per cent of freelancers citing it as a factor, but it is also selected as a top factor by all three freelancer occupational groups. 

This is hardly surprising given that a recent report by the University of Edinburgh Business School, in association with IPSE, found that the pandemic has led to an 80 per cent increase in freelancers’ stress levels, 74 per cent of them losing income and 69 per cent having cashflow problems.

In this tough external business and economic environment, other negative factors affecting freelancers’ businesses have not gone away. The second most detrimental factor affecting the sector is the state of the UK economy (79.6%), followed by government tax policy (60.9%). Therefore, even though the changes to IR35 in the private sector have been delayed until April 2021, they still seem to be a key concern for freelancers.

The demand for freelance work has slowed down

Looking specifically at the impact of coronavirus on the sector, the Confidence Index shows that in Q2 2020, freelancers’ spare capacity reached an unprecedented record high of 5.5 weeks, increasing substantially since Q1 2020 when it was at 3.3 weeks. This means that this quarter, freelancers spent 42 per cent of their time without work.

This is in line with previous IPSE research showing that in March 2020 over two in three (69%) freelancers said that the demand for their work had decreased as a result of the coronavirus crisis, and over half (53%) said it had decreased substantially. Another 60 per cent also said that they had lost clients as a result of the crisis.

Freelancers’ earnings have dropped by 25 per cent 

The great decline in capacity utilisation alongside a slight three per cent fall in day rates led to a large 25 per cent drop in quarterly earnings from £20,821 in Q1 2020 to £15,709 in Q2 2020. In fact, this marks the lowest level of quarterly earnings recorded in the Confidence Index since 2014 when surveys began. It also marks a second consecutive quarter of negative growth in freelancers’ earnings, bringing the sector into recession.

Finally, the data shows that freelancers are not only operating in an extremely though external environment, but they are also expecting the situation to continue to worsen in the next 12 months. In fact, they expect a substantial six per cent net increase in their business costs, combined with an average 11 per cent decrease in their day rates.

There is good news for freelancers

Our Confidence Index shows that freelancers continue to drive their business performance in adverse external conditions by taking their own initiative in brand building and innovation, which in Q2 2020 also involves exploiting the increase in remote working.

Economic lockdown has imposed remote working and online business methods on huge swathes of organisations who previously rarely made use of these approaches.

A significant proportion of organisations may discover the business performance benefits of remote working and will continue to use it in the future. In the long term, we are likely to experience an increased receptiveness to outsourcing work to freelancers who are already known as the ‘core remote workforce’ in the UK.

Therefore, while the outlook for the next year is tough for freelancers, it is also likely that those of them that can last the pace may benefit from a positive growth in demand for work in the period beyond the coronavirus health crisis.

Read more about IPSE’s research and campaigning work here.