Self-employment delivers a rare good news story for the economy

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There hasn’t been much good news about the economy for quite some time. In the past week alone, we’ve been treated to headlines about how inflation is expected to last longer than previously thought, payrolled employment has decreased slightly, and the number of people out of work due to long-term sickness is at a record high. 

But one source of good news this week is that self-employment is growing again – here’s why that’s a good thing and why government must take notice. 

Why this week’s figures matter

New economic figures published this week by the Office for National Statistics (ONS) suggest that the UK’s self-employed headcount achieved year-on-year growth last quarter, with a total of 4.4 million self-employed individuals now operating in the UK – 154,000 more than this time last year. 

This is especially significant in today’s context. Since the onset of the pandemic, the self-employed population fell from a record high of more than 5 million, to 4.2 million by mid-2021. Despite small flickers of growth since then, a consistent trend has never materialised.

However, this week’s figures are the third consecutive quarter of year-on-year growth in overall self-employed numbers – the most notable and sustained increase we have seen for two years.

Is the upward trend here to stay?

We know from previous ONS stats that there is a regular churn of people entering self-employment whilst others leave it – what economists call ‘inflows’ and ‘outflows’. 

Self-employment is experiencing a net inflow – but this trend is not so much down to a surge of new entrants into the sector, but a fall in the number of people leaving it. 

In the three-month period from January to March 2023, and the two preceding such periods, outflows from self-employment were lower than 300,000 – the last time this happened was 2019. This is significant as it suggests we have reached the end of the extraordinary surplus of outflows caused by the impact of Covid-19 and reforms to IR35. 

In another sign that things may be getting somewhat ‘back to normal’, two thirds of the increase in the self-employed population was driven by women. This is reminiscent of what we saw throughout the 2010s, where the number of women in self-employment surged. Indeed, according to IPSE’s 2022 Landscape report, the number of women in self-employment increased by 57 per cent between 2008 and 2021 – the number of men increased by 11 per cent over the same period. 

In fact, such is the significance of self-employment’s recent return to growth that it (just) saved the UK’s employment rate from declining.  

In short, more and more people are finding a sustainable career in self-employment, and a government interested in reaping the benefits of a thriving self-employed sector ought to take notice. 

Appetite for self-employment is high – but can the UK’s systems cope? 

Despite the dramatic decline and prolonged stagnation of the UK’s self-employed headcount since 2020, we have long expected self-employment to return to growth. I wrote about just this in December, highlighting IPSE research published last summer which found that two in five (39%) of UK employees were considering working for themselves one day, whilst 46% could see themselves launching a part-time freelance venture.  

We know that people enter self-employment for overwhelmingly positive reasons, and if the figures suggest that more people are opting to work for themselves for longer periods of time, we believe this should be celebrated. 

But IPSE has also warned that, too often, public policymaking fails to adequately account for the self-employed. Whether its tax hikes on the dividends of company owners (or “unearned income” as the Chancellor has described it), flawed IR35 reforms that funnel tens of thousands of contractors into umbrella companies, or the repeated can-kicking of the crisis in self-employed pensions inadequacy, which IPSE has published new research into this week. 

At the same time, government’s payment and cashflow review does show some promise of making much needed progress on the issue of late payment and long payment terms. Proposals include a tightening of statutory rules on the reporting of payment practices and the possibility of a broader remit for the Small Business Commissioner. But as the number of people working for themselves begins to rise again, the need for definitive measures to bring the UK’s average commercial payment term to 30 days – as IPSE has called for – grows further.

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Meet the author

Fred Hicks

Senior Policy and Communications Adviser