New research by IPSE (the Association of Independent Professionals and the Self-Employed) shows that after a surge at the start of the year, freelancers’ average quarterly earnings have slumped by over £2,100 – to £18,652.
IPSE’s Confidence Index shows the driving force behind this is not a reduction in the amount freelancers are working, but freelancers themselves slashing their day rates. Freelancers cut their day rates from an average of £445 last quarter to £397 in Q2 – which is lower than during the pandemic and the lowest overall since 2018.
This seems to be caused by freelancers having to compete for fewer contracts as work levels still fail to return to pre-pandemic levels. Freelancers’ spare capacity (the number of weeks per quarter freelancers were not working) stayed at 3.7 weeks in Q1 and Q2 – still far from the 2.6 weeks of Q4 2019. One key factor in this may be the changes to IR35 self-employed taxation, which came into effect in April and which have led many businesses in the private sector to cease engaging freelancers.
This is supported by the fact that it was SOC1 managerial and SOC2 professional freelancers who were most likely to slash their day rates and these two groups are also the most affected by the changes to IR35.
It is also supported by the fact that SOC1 and SOC2 freelancers were the most likely to say government tax policy relating to freelancers was one of the biggest factors negatively affecting their business (60.0% of SOC1 freelancers cited this, just below the 61.4% who cited the pandemic; among SOC2 freelancers it was by far the biggest factor, picked by 71.8% - followed by government policy relating to hiring freelancers, which was cited by 67.4%).
Despite the short-term problems, however, freelancers’ confidence is rising. Freelancers’ confidence in the economy is now higher than it has been since 2014, when the Confidence Index began. They are also more optimistic about the long-term prospects for their businesses. While their confidence in the performance of their businesses over the next three months has risen to its highest since 2018, their 12-month business confidence has reached its highest level since 2015.
Derek Cribb, CEO of IPSE (the Association of Independent Professionals and the Self-Employed), said: “After a surge in the first quarter of 2021, freelancers’ average quarterly earnings have now dropped by over £2,000. This is because, just as the rest of the economy is firing up and wages are rising across the employee job market, freelancers are having to slash their own day rates. Why? The contractors’ bugbear: IR35.
“It is now clear – as we feared – that the changes to IR35 were introduced into the private sector at the very worst time: just when they were most likely to hamstring the freelance recovery. Now just when there should be a surge in freelance work to support the wider economic recovery, many freelancers are finding themselves competitively slashing their day rates to fight it out over fewer contracts.
“It is not all bad news though: it is promising that there is so much optimism among freelancers about the economy and their businesses’ long-term prospects. Clearly, freelancers see a brighter future when the post-IR35 chaos settles. This also shows a path for government: stepping in to regulate umbrella companies and clear the mess after IR35 would not only boost the freelance sector, but also unleash its potential to drive a faster and fuller economic recovery.”
Visit our IR35 News page to keep up with the latest updates, and you can find more support and useful information with our IR35 guide.
IPSE’s Confidence Index is a quarterly report that tracks the business performance and economic outlook of freelancers across the UK. It is the only established index of its kind, using rigorously tested methodology and a representative sample of the freelance sector.
IPSE is at the forefront of research into freelancing and self-employment. We work with our members, leading academic institutions and research agencies to to shed light on the needs and interests of freelancers so we can champion them in government and across industry.
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