What part could the self-employed play in easing labour shortages?

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The CBI are holding their annual conference this week and it stands as the biggest moment of the year in terms of measuring the government’s relationship with business. The attention surrounding this is vast, particularly after the Autumn Statement, and as we await the outcome at the end of the week, all eyes are firmly on the CBI and their view on how government can get Britain’s economy moving.

The ongoing labour shortage

Debate around the difficulties businesses are facing as a result of an ongoing labour shortage has been central to this year’s conference.

Last month, the CBI reported that three quarters of UK companies have been hit by labour shortages and nearly half (46%) of those affected are unable to meet output demands. Three quarters of businesses believe that access to labour (75%) and staff (72%) threatens labour market competitiveness. With UK vacancies outstripping the number of available workers, the CBI have urged government to boost immigration to help fill labour and skills shortages.

Whilst there is no single cause of this shortage – and therefore no single solution – it is vital that we don’t overlook another key contributor to a shortage of talent; barriers to engaging flexible freelance workers.

Clients are facing new barriers to hiring freelancers

We know that businesses value the skills and expertise that freelancers and contractors bring to an assignment, with 76% of medium and large-sized businesses we surveyed agreeing, and 49% saying they could not achieve the same results without them.

But IR35 reforms have created a headache for businesses – particularly large companies – seeking to recruit self-employed talent on a flexible basis. More than one in three (37%) clients with more than 1000 employees reported that IR35 reforms had made it more difficult to attract freelancers, and 32 per cent said the number of contractors they engage had decreased since the changes. Overall, 47 per cent of clients reported that IR35 compliance had become an administrative burden.

For those that warned against the reforms before they were introduced, today’s difficulties have not come as a surprise. Ahead of the extension of the reforms to the private sector, 32 per cent of freelancers we surveyed told us they planned to stop contracting in the UK, whilst 50 per cent said they would only accept outside IR35 roles. It’s likely that very many of these freelancers have since left the labour market altogether.

We also know that the IR35 reforms have had unintended knock-on consequences for major industries in the UK, contributing to the deeply damaging shortfall in road haulage drivers and within the NHS where GP locums have been impacted.

Despite government recognising that the IR35 reforms have “added unnecessary complexity and cost to many businesses” just ten weeks ago, the devastating reforms continue to hamper recruitment for businesses whilst simultaneously disincentivise former freelancers from re-joining the UK’s labour market.

Financial support during the pandemic

Gaps in pandemic financial support schemes led to a significant drop in the self-employed population, falling from 5 million in Q4 2019 to 4.3 million in Q3 2022. Whilst many will have since become employees or operating via an umbrella company (due to IR35), many others could still be out of work and out of the labour market.

Indeed, we know from previous IPSE research that approximately 1.6 million of the 5 million people who were self-employed at the start of the pandemic were excluded from support.

This was largely due to the rigid eligibility criteria established by the Self-Employment Income Support Scheme (SEISS), which meant those deemed ineligible were unable to access any support.

Despite IPSE presenting an alternative proposal to the Treasury on SEISS – where corporation tax returns could be used to identify directors’ earnings – Treasury officials refused to engage with the idea which devastatingly left limited company directors without a support net during the pandemic.

Embracing the freelance workforce

Self-employment grew by 29 per cent between 2008 and 2019, arguably driving the UK out of its economic crisis in the aftermath of the financial crisis.

If the government is serious about getting the UK’s economy moving by tackling the ongoing labour market shortage, embracing the UK’s 4.3 million-strong freelance workforce would go far in alleviating our shortfall of labour whilst drive our economic growth.


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Meet the author

Elizabeth Seymour

Communications Adviser