Executive Summary

Freelance Confidence Index Q4 2019

  • Freelancers’ confidence in their own business performance for the next 12 months has dropped because of concerns about the state of the UK economy and Government taxation policy. This is likely specifically because of the changes to IR35 that are due in the private sector. 
  • Freelancers’ business confidence over the next three months has dropped to -14.7, the lowest on record.
  • Confidence in the wider economy has risen as a result of the expected reduction of Brexit uncertainty – although it still remains in negative territory. 
  • Freelancers’ average quarterly earnings have dropped by six per cent since last quarter. This was driven by a significant drop in SOC1 freelancers’ day rates (SOC2 and 3 freelancers’ rates rose) and a drop in capacity utilisation. 
  • 71 per cent of freelancers expect their business costs to rise in the coming 12 months – by an average of 8.5 per cent. 
     

 

 

Executive summary

This quarter’s results show a drastic decline in freelancers’ confidence in their own business performance and the wider economy – driven by the impact of the COVID-19 health and economic crisis. Freelancers’ confidence in their 3-month and 12-month business performance has reached record lows. Their confidence in the economy is also now at 3- and 12-month lows.

 

 

Remarkable in all these areas is also the sharpness of the decline. Last quarter, there were signs of a recovery in freelancers’ confidence in the UK economy after it reached historic lows because of Brexit. This quarter, however, their 3-month confidence in the economy suddenly dropped by over 100 per cent and their confidence in their businesses for the same period fell by more than 300 per cent.

Freelancers’ confidence in their businesses for the next three months fell from -14.7 in Q4 2019 to -62.6 in Q1 2020. This is the lowest level it has reached since surveys began in 2014. Their confidence in their businesses for the next 12 months has also fallen to by far the lowest level on record: from -23.2 to -57.3.

Confidence in the economy over the next year fell from -39.3 last quarter to -77.8. Meanwhile, confidence in the economy over the next three months fell even lower, from -36.8 last quarter to -86.6. It therefore seems freelancers believe the COVID-19 crisis will have the worst effect on the economy in Q2 2020.

Added to the drop in confidence, freelancers have seen a fall in pay and the amount of work they are doing. Their spare capacity (the amount of weeks they are not working) rose from 2.6 last quarter to 3.3 weeks in Q1 2020.

Although freelancers’ average day rates remained relatively stable at £430 (down just £3 on last quarter), the fall in the amount of work drove their quarterly earnings down by 8.4 per cent. Freelancers are also extremely pessimistic about the coming year, with two thirds predicting a fall in their rates – with the average predicted drop at 20.1 per cent.

Freelancers’ pessimism is clearly driven by their concerns about the impact of the COVID-19 crisis on the economy. All groups surveyed (Standard Occupational Classifications 1, 2 and 3) said the top factor driving down their business performance is – by a substantial margin – “The state of the UK economy”.

 

 

*Freelancers were asked to rate the importance of 14 different factors affecting the performance of their business in categories ranging from significantly positive and slightly positive, to no impact, slightly negative and significantly negative impact.

Economist perspective

The coronavirus worldwide pandemic is a near-unprecedented global health crisis. These results, showing the lowest confidence on record in the freelance sector, reflect a corresponding economic crisis.

Freelancers’ confidence in their businesses and in the wider economy – both over the next 3 months and the next 12 months – are the worst we have seen. Welfare support applications in the UK and the US are through the roof. Inflation has begun to slide back towards only one per cent. The stock market is incredibly unstable.

Some sectors of the freelance economy have been affected more than others. Areas such as the arts and events have felt the impact of the crisis almost immediately, but other areas such as construction and goods sales could be next.

Even freelancers who are able to work from home as consultants, designers and writers have reported a drying up of work as bigger businesses seek to control spending and suspend projects. The creative sector, from films and TV to theatre and music production, is predominantly made up of freelancers – often registered as limited companies – and they have seen work cancelled as far ahead as the end of 2021.

The government has outlined a package of support for the economy – including measures targeted at the self-employed. It postponed the changes to IR35 – which had driven down freelancer confidence significantly – for a year. After consultation with IPSE, the government also announced the Self-Employment Income Support Scheme (SEISS) for sole traders. However, the government has still not created provisions specifically to support limited company contractors (who make up most of our SOC1 and SOC2 respondents) and the newly self-employed.

The Office for Budget Responsibility (OBR) believes the cost of the crisis could be an increase of over £200bn in borrowing (as the state has to absorb the cost of replacing millions of incomes while tax revenue inevitably drops off), as well as a 35 per cent drop in GDP. This is a bigger drop than during the 2008 financial crisis and the largest in a century. Given the sheer scale of the fall, it is also probably the sharpest decline in history. The effect of such a huge drop in demand and supply may take time to filter through the economy.

Many of the effects of this economic crisis will take months to filter through into discernible statistics. ONS employment figures, for instance, lag by three months. Freelancers may not feel the real pinch until June. This may lead to even worse statistics in this confidence index.

There are also longer-term concerns for freelancers. Mortgage holidays of up to 3 months have been guaranteed by the government, which may allow short-term access to cash. However, the stress on international markets might lower people’s pensions, ISAs and other investments. People are therefore likely to draw on assets and use credit including overdrafts. This may drive insolvencies further down the line.

A lack of demand in everything apart from technology and food, and a lack of supply through labour shortages, could result in an “L” shaped recession. A deep contraction followed by a long depression waiting for the global economy to catch up with where it once was.

This has been seen before, in the 1930s after the Great Depression. Then, as now, economic orthodoxy was dumped for radical measures. What we are seeing bears comparison with that depression and is likely to have serious and not yet fully understood effects on our economy for years to come.

Introduction

Introduction

The 3-month freelancer business confidence index has fallen to its lowest level on record indicating that freelancers expect their business performance to decline over the first quarter of 2020.

Freelancers’ business confidence plummeted after the outcome of the 2016 EU referendum result was announced and has not recovered since then. Throughout this period, it was assumed that uncertainty surrounding Brexit, as well as the negative economic consequences caused by it, were the main driving forces for the fall in freelancers’ confidence in both their businesses and the UK economy.

Therefore, it could be expected for confidence to pick up in the latest quarterly survey when the uncertainty surrounding Brexit dissipated following the pro-Brexit Conservative party winning an overall majority in the December general election.

Freelancer confidence index for their businesses over the next three months

 

*Freelancers were asked to identify their confidence levels for the future, relative to current performance in one of five categories: more confident, slightly more confident, as confident, slightly less confident, and a lot less confident. The confidence index was created by scoring each of the five answers with 100, 50, 0, -50 and -100 respectively, and then taking the weighted average score for the sample. The weighted average is based on the relative proportion of freelancers in the labour market in 2019.

 

While most of the survey period took place before the election outcome was announced, it was fairly clear from opinion polls and movement of the UK sterling exchange rate in the currency markets that a Conservative Party win with an overall majority is the most likely outcome. Despite this reduction in uncertainty, freelancers’ business confidence remains low, indicating that the prospect of UK leaving the EU itself is still viewed as a major constraint on economic performance.  

 

The 3-month freelancer business confidence index has fallen to its lowest level on record indicating that freelancers expect their business performance to decline over the first quarter of 2020. This fall in confidence arises from freelancers in Standard Occupational Categories (SOCs) 1 and 2 relating to managers, directors and senior officials and professional freelancers respectively. SOC3 freelancers in technical and associate professional occupations actually experienced an increase in business confidence, with their index score rising from -13.0 to 1.6.

 

Freelancer confidence index for their businesses over the next 12 months

 

*Freelancers were asked to identify their confidence levels for future relative to current performance in one of five categories comprising: more confident, slightly more confident, as confident, slightly less confident, and a lot less confident. The confidence index is created by scoring each of five answers with 100, 50, 0, -50 and -100 respectively and then taking the weighted average score for the sample. The weighted average is based on the relative number of freelancers in the labour market in 2019.

 

The pattern for the 12-month freelancer business confidence index is fairly similar except that the index scores are more emphatically negative. The overall index score shows confidence falling from -20.8 to -23.2, indicating a fairly strong expectation among freelancers that their businesses performance in 2020 will be lower than it was in 2019.

As with the 3-month quarterly outlook, this result is driven by SOC1 and SOC2 freelancers whose business confidence has fallen since last quarter. In the case of SOC2 professional freelancers, the 12-month business confidence index has fallen to the lowest level since records began (-50.8). By contrast, SOC3 freelancers’ business confidence has increased from -9.5 last quarter to 2.6 this quarter, illustrating that by a very small margin they expect their business performance to improve in 2020.

Factors affecting performance

Factors affecting business performance

Top factors lowering business performance in Q4 2019

The main causes of freelancers’ lack of business confidence seem to be macroeconomic and public policy-related, as these comprise the top three negative influences on their business performance over the last 12 months – all cited by more than 60 per cent of freelancers.

The state of the UK economy is the most commonly cited factor having a detrimental effect on freelancers’ business performance. This is closely followed by Government taxation and regulatory policies relating to freelancers.

The main change from last quarter is that the outcome of the EU referendum is no longer in the top three negative influences. However, as this event occurred over three years ago, many of the resulting negative influences of the uncertainty and impending impact of Brexit have filtered through to the economy and are already reflected by the UK economy variable.

This could potentially explain why over 60 per cent of all three SOC groups identify the state of the UK economy amongst the top three negative influences on their business performance.

There is some variation among the negative influences affecting each occupational group. SOC1 and SOC2 freelancers cite the same top three detrimental factors as the overall weighted average but in a different rank order. The only occupational group to deviate from the overall weighted average ranking are SOC3 freelancers who seem to be more sensitive to competition and international trade as noted in previous surveys.

SOC3 associate professional and technical freelancers are also the only group to cite the outcome of the EU referendum (2nd most negative influence and identified by 57.6% of this group) and competition from other freelancers (48.2%) in their top three negative factors. 

*Freelancers were asked to rate the importance of 14 different factors affecting the performance of their business in categories ranging from significantly positive and slightly positive, to no impact, slightly negative and significantly negative. The list of factors was updated in Q3 2019.
 

Top factors enhancing business performance in Q4 2019

While the factors having a negative influence on freelancers’ business performance are all external to the business, the forces that have a positive effect are all internal. This has been a common finding across previous surveys.

The top two positive influences on freelancers’ business performance are the same as last quarter. Brand value and reputation is chosen as the most important positive influence – cited by 61.5 per cent of freelancers. Innovation in services offered is the second most important factor cited by 56.4 per cent of freelancers.

The main change from last quarter is that innovation in operations and processes has now become the third most important positive influence on business performance, displacing collaboration with other freelancers or businesses. This shows that if freelancers’ businesses are to overcome the negative external environment, they must rely on the success of their innovation and brand building strategies.

This generally applies across all three occupational groups with the exception of SOC2 freelancers, who identify collaboration with other freelancers or businesses as their third most important positive effect. SOC3 freelancers selected targeting new markets as their second most important positive factor.

Again, positive business performance relies not on external factors but on self-determined business strategies. 

*Freelancers were asked to rate the importance of 14 different factors affecting the performance of their business in categories ranging from significantly positive and slightly positive, to no impact, slightly negative and significantly negative. The list of factors was updated in Q3 2019. 

 

Confidence index

Freelancer UK economy confidence index

Freelancers’ 3-month outlook on the UK economy remains extremely negative at the fourth lowest level since records began.

The high level of uncertainty surrounding Brexit has led to stalled investment by businesses as they are unsure of the external economic environment in which they will be operating in the foreseeable future. It is therefore expected that as soon as this uncertainty is removed a significant backlog of business investment will be released.

The Q4 2019 survey was conducted during a period when this level of uncertainty was greatly reduced but not removed completely. The currency markets had already responded positively to the reduction of uncertainty as the prospect of a hung parliament dissipated and the prospect of an overall Conservative majority became more likely. 

Looking at the Q4 2019 Confidence Index results, however, there is some evidence that the drop in uncertainty is cutting through and improving confidence. 

Despite this small boost, however, overall confidence in the economy remains in strong negative territory, indicating that they expect economic performance to decline in Q1 2020. 

The low confidence index score is consistent across all three occupational groups. It has, however, risen from the all-time low of the previous quarter. 

 

Freelancer confidence index for the UK economy over the next three months

 

*Freelancers were asked to rate their confidence for the future in one of five categories: more confident, slightly more confident, as confident, slightly less confident, and a lot less confident. The confidence index was created by scoring each of the five answers with 100, 50, 0, -50 and -100 respectively, and then taking the weighted average score for the sample. The weighted average is based on the relative number of freelancers in the labour market in 2019.

 

A similar pattern can be found for freelancers’ 12-month outlook on the UK economy with all freelancer occupational groups expecting the economy to underperform in 2020 in comparison with 2019 levels.

Again, there is a slight positive interpretation in that the current deep negative UK economy confidence index score is an improvement on the record low score recorded last quarter.

 

 

This could potentially be explained by the reduction in uncertainty surrounding Brexit, but it is too early to tell given that much of the survey was completed before the election result was known.

Equally, it could be expected that the challenges posed by the UK leaving the EU are now only becoming a reality and that these negative influences may not yet be factored in or are already offsetting some of the positive influences expected from reduction in uncertainty. In this regard,
a lot will become much clearer in the next survey
which will be conducted in Q1 2020.

 

Freelancer confidence index for the UK economy over the next 12 months
 
*Freelancers were asked to rate their confidence in the future of the UK economy in one of five categories: more confident, slightly more confident, as confident, slightly less confident, and a lot less confident. The confidence index was created by scoring each of the five answers with 100, 50, 0, -50 and -100 respectively, then taking the weighted average score for the sample. The weighted average is based on the relative number of freelancers in the labour market in 2019.
Capacity utilisation

Capacity utilisation

 

In terms of business volume, freelancers have experienced an overall decline since last quarter.

In fact, spare capacity rose slightly from 2.5 to 2.6 weeks in Q4 2019 - from 19.2 per cent to 20 per cent.

This overall fall in business volume is entirely driven by SOC3 associate professional and technical freelancers whose spare capacity rose from 2.7 to 3.4 weeks since last quarter (from 20.8% to 26.2%).

By contrast, both SOC1 and SOC2 freelancers experienced a rise in business volume with spare capacity falling in each case, but not enough to generate an overall rise in business volume for the entire freelance sector. 

 

Freelancers’ spare capacity: Number of weeks not working per quarter
 
*The weighted average is based on the relative number of freelancers in the labour market in 2019.
Rates

Freelancers’ day rates and quarterly earnings

Freelancer day rates declined by three per cent from £447 to £433 since last quarter. This decline is entirely attributable to SOC1 managers, directors and senior officials as both SOC2 and SOC3 freelancers experienced an increase in their day rates.

However, compared to 12 months ago, freelancer day rates have declined across all three freelancer occupational groups. Therefore, 2019 has been a deflationary year for freelancers who are now charging less than they were a year ago.

Freelancers don’t expect the situation to improve in 2020. Despite more freelancers expecting their day rates to rise (50%) rather than decline (41%) over the next 12 months, overall they expect a net fall in day rates by 1.1 per cent across 2020.

This is mainly driven by SOC1 and SOC2 freelancers who expect their day rates to decline by 6.6 per cent and 10.8 per cent respectively. SOC3 freelancers are more upbeat, expecting their day rates to rise by 11.8 per cent in 2020. 

The combination of lower day rates alongside a reduction in the volume of business have contributed to a six per cent fall in quarterly earnings.

In Q4 2019 freelancers’ quarterly earnings fell by £1,397 from £24,139 to £22,742. This is a significant fall of eight per cent since the same quarter last year. However, despite this decline in business performance in 2019, freelancers are still earning more than twice the earnings of equivalent employees.

Not all freelancers experienced a fall in quarterly earnings, with SOC2 and SOC3 freelancers achieving a seven per cent and three per cent rise respectively.

Therefore, it is the large 21 per cent fall in SOC1 freelancers’ quarterly earnings that gave rise to the overall decline in business performance since last year. However, compared to the same quarter of 2018 all three freelancer occupational groups experienced a fall in their quarterly earnings.

 

Freelancers’ day rates and quarterly earnings
 
*The weighted average is based on the relative number of freelancers in the labour market in 2019.
 

 
 
Costs

Freelancers' business costs

In terms of input prices to their businesses, freelancers are anticipating significant inflation and a squeeze on their profit margins as a result. A hefty majority of 71 per cent of freelancers expect that input prices will rise over 2020 with just 13 per cent expecting input prices to fall.

This view is fairly uniform across all three occupational groups, with the percentage of freelancers expecting an input price increase being in the range of 68 per cent to 78 per cent.

These translate into an expected input price increase of 8.5 per cent over the next 12 months, which is over 5.7 times the latest available rate of inflation (at the time of writing inflation is 1.5%: ONS, November 2019).

In fact, all three freelancer occupational groups expect input price inflation throughout 2020 to exceed the current rate by multiples in the range 4.3 to 7.5 (or input price inflation from 6.5% to 11.2%).  

 

Summary

Summary

The final quarter of 2019 has proven to be a challenging period for the freelance business sector. There has been a decline in quarterly earnings compared to both the previous quarter and the same quarter last year. Day rates have also fallen since last quarter and are lower than they were 12 months ago in Q4 2018. They are also expected to fall further in 2020.

At the same time, input prices are expected to rise by 8.5 per cent over the next 12 months, so freelancers’ profit margins are expected to tighten in 2020. This occurs in a business environment where freelancers have serious concerns about the health of the UK economy. Therefore, it is hardly surprising that the latest freelancer confidence index scores indicate that freelancers expect their business performance in 2020 to underperform the levels achieved in 2019. A major factor in this could be the expected changes to IR35.

However, all is not doom and gloom as freelancers’ confidence in the economy is slightly higher than last quarter and freelancers continue to earn more than twice the earnings of equivalent employees.

The results of the survey indicate that their future business performance depends very much on whether a new Government can introduce a more conducive fiscal and regulatory environment for freelancers and whether freelancers themselves can continue to derive their business performance through successful business strategies, particularly in the areas of innovation and brand building. 

 

Appendix

Appendix

Mission statement

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. 

The index was created both to inform policy on freelancers and to ensure that their vital contribution is understood and recognised. The aim is for the Confidence Index to be the authoritative indicator used by policymakers at the heart of industry and government.

The sample

The quarterly Confidence Index report for Q1 2020 was compiled from 939 IPSE and PeoplePerHour members who replied to an online survey. The survey is conducted every quarter. In Q1 2020, the survey composition of respondents was: 38 per cent female and 59 per cent male, an average age of 45, have been freelancing for an average of 10.1 years and are highly educated – 32 per cent have a highest qualification at the postgraduate degree level while 56 per cent have a highest qualification at the undergraduate degree level.

Defining freelance status

Freelancers are a sub-section of the wider self-employed workforce. For the purposes of this report, the category ‘freelancer’ includes the groups with the highest skill levels, the Standard Occupational Classification (SOC) Major Groups 1 - 3: 

Managers, directors and senior officials

Individuals who have a significant amount of knowledge and experience of the production processes and service requirements associated with the efficient functioning of organisations and businesses (e.g. managers and proprietors in agriculture related services; transport and logistics; and health and care services). 

 

Professional occupations

Individuals who have a degree or equivalent qualification, with some occupations requiring postgraduate qualifications and/or a formal period of experience-related training (e.g. professionals in science, research, engineering and technology; health; teaching and education; business, media and public service). 

 

Associate professional and technical occupations

Individuals who have a high-level vocational qualification, often involving a substantial period of full-time training or further study. Some additional task-related training is usually provided through a formal period of induction (e.g. health and social care associate professionals; protective service occupations; culture, media and sports occupations).

 

Authors and acknowledgements

Professor Andrew Burke
Dean of Trinity Business School, Trinity College Dublin & Chair of the Centre for Research on Self-Employment

Dr Samuel Vigne
Assistant Professor, Queen’s Management School, Queen’s University Belfast

Ryan Barnett
Economic Policy Advisor, The Association of Independent Professionals and the Self-Employed

Inna Yordanova
Senior Researcher, The Association of Independent Professionals and the Self-Employed

About PeoplePerHour

PeoplePerHour is the UK’s leading freelance marketplace. Founded in 2007 the site boasts over 2m users across 150+ countries, and has paid out in excess of £100m to freelancers since. Since its inception PeoplePerHour has become an invaluable resource for small businesses in the UK and outside, allowing them to hire expert talent as and when needed, 'on-demand' thereby staying lean and flexible while they grow. The company's mission is to empower people worldwide to live their work dream, building their business from the ground up and becoming financially and professionally independent.