Why can’t policymakers recognise that not every business wants to scale up?
- 25 May 2023
- Joshua Toovey
Back in January, Chancellor Jeremy Hunt used a speech before some of the UK’s most successful tech entrepreneurs to outline plans to make it easier for businesses to access capital in order to scale-up. Of course, this shouldn’t be knocked. Providing additional investment to businesses seeking to grow will only aid the UK’s economy.
But why does public policy and government rhetoric consistently fail to recognise that not every business wants to scale up?
Below, we use recent IPSE research to demonstrate that the very meaning of growth varies from business to business – effective public policymaking for the small business sector should reflect these variances and cater for those aiming to grow in alternative ways.
What growth means for the self-employed
To understand what growth looks like for those who work for themselves – and to counter the notion that every small business simply wants to scale up – we asked contractors what growth means to them as a self-employed individual.
For 65 per cent of contractors, growth is being able to charge higher day rates whilst for 61 per cent, it was achieving greater profits year-on-year.
Other interpretations of self-employed growth included expanding their portfolio of clients (60%), achieving higher turnover year-on-year (59%), personal development in knowledge and skills (59%) and becoming more efficient in their work (42%).
It’s clear that these perspectives on growth all relate to improving the delivery and performance of their current business, rather than necessarily wanting to scale-up. In fact, just 15 per cent of contractors viewed growth as becoming an employer.
For many who choose to work for themselves, their current freelance business provides them with everything they need, and these individuals have little interest in scaling up their business by taking on additional employees or expanding their operation.
Often, these self-employed individuals are experts in their field and enjoy their work and the benefits afforded to them by self-employment; namely, greater flexibility and control over their work-life balance.
Government policy towards the self-employed is the greatest barrier to growth
We also asked contractors what is currently preventing them from growing their business in the ways they outlined above.
Notably, 46 per cent of contractors cited government policy towards the self-employed – a damming indictment on this current government and its imposition of tax policy on the sector.
Another 18 per cent cited other responsibilities such as caring or childcare as the reason for not currently being able to grow their self-employed business.
A further 18 per cent identified risk of failure as holding them back from achieving growth for their self-employed business and 18 per cent reported it was due to the fact they were close to retirement.
IPSE’s proposals that would support self-employed careerists
Firstly, government must look at IR35 – the introduction of the changes in 2017 and 2021 continue to plague both contractors and clients alike and it’s telling that nearly half of contractors are now citing government policy towards the self-employed as a barrier to growth for their freelance business.
Freeing contractors from the burdens of IR35 would undoubtedly allow freelancers to direct more of their focus towards their business and personal development, and at IPSE we will continue to impress this very point to Ministers, backbenchers, officials and opposition parties (look out for brand-new IR35 research coming out in the next few weeks).
Secondly, whilst offering capital to businesses seeking to expand should be applauded, the greatest threat to our smallest businesses is cashflow. We believe government should seriously consider making 30 days the UK’s standard commercial payment term. This would alleviate many of the concerns around late payment for self-employed businesses whilst also getting large-sized clients to re-think the imposition of excessively long payment terms.
Thirdly, when over half of freelancers (51%) have not undertaken any professional or work-related training in the last 12 months, it’s imperative that we incentivise training in new skills and government should consider making this tax-deductible. We know that many self-employed individuals see growth as being able to charge higher day rates and gaining knowledge and skills, so why not embrace this?
With the increase of Artificial Intelligence also now posing a threat to traditional roles, we should only be seeking to encourage training in new skills.
Fourthly, discrepancies in the way that maternity pay is distributed between the employed and the self-employed and exorbitant childcare costs are hindering freelance mothers, deterring women considering self-employment and ultimately preventing mothers from returning to the labour market. With our research now showing that childcare responsibilities are holding self-employed businesses back from growing, we want to see government remove barriers for self-employed parents.
At IPSE, we’re campaigning for Maternity Allowance to be brought in line with Statutory Maternity Pay so that freelance mothers can benefit from the initial six-week payment.
For more information on growth as a self-employed business, we’ve put together a new advice section on growing your self-employed business.
Meet the author
Senior Research and Policy Officer
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