Executive summary

Freelance Confidence Index Q1 2020

  • In Q1 2020, freelancers’ 3-month confidence in the economy dropped by over 100 per cent and their confidence in their businesses for the same period fell by more than 300 per cent because of the COVID-19 health and economic crisis.
  • Freelancers believe that the crisis will have a prolonged negative effect on both the economy and their businesses, which will be most severe 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.
  • Freelancers’ earnings have fallen by 8.4 per cent over the first quarter of 2020.
  • They 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.

 

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.

Business confidence

Business confidence

Freelancers’ business confidence has been low since the outcome of the 2016 EU referendum was announced, but the current COVID-19 health emergency and economic lockdown have caused business confidence indices to fall to their lowest levels on record. The IPSE Coronavirus Report published in April 2020 also indicated the scale to which the COVID-19 crisis has caused major concern about business prospects in the sector.

The 3-month freelancer business confidence index was already negative at the end of 2019, with most freelancers predicting a decline in business performance in Q1 2020. However, the 3-month business confidence index has fallen even further from -14.7 in Q4 2019 to -62.6 in Q1 2020.

This large fall in confidence occurred across the whole highly skilled freelancer sector. The index score for managerial and senior executive freelancers (SOC1) fell from -14.0 to -58.2. Similar to this, professional freelancers (SOC2) saw a fall from -32.6 to -64.9 and technical freelancers (SOC3) - a fall from 1.6 to -63.4.
 

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.

 

The 12-month freelancer business confidence index shows that freelancers expect the deterioration of their business performance to continue over the next year. In Q1 2020, the 12-month business confidence index fell substantially from -23.2 to -57.3.

 

 

The fall may not seem as sharp as with the 3-month confidence outlook, because freelancers were already expecting government policies, such as the changes to IR35 and Brexit, to have a negative effect on their businesses in Q4 2019. The COVID-19 crisis seems to be having a further compounding negative impact on the sector, with confidence levels dropping across all three freelancer occupational groups in Q1 2020. 

Both the 3-month and 12-month confidence index scores illustrate the extent to which the phrase ‘we are all in this together’ applies to the freelance sector. The effect of the COVID-19 crisis this quarter has eliminated the diversity in freelancers’ business confidence indices observed last quarter.

In Q4 2019, SOC3 technical freelancers expected their business performance to improve slightly over the next 12 months (with an index score of 2.6), while SOC2 professional freelancers (-50.8) had far less confidence than SOC1 managerial freelancers (-22.5). By contrast, in Q1 2020 all three groups expect a deterioration of their businesses, reporting index scores in the very narrow range of -62.2 to -57.2.

 

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.

 

 

Factors affecting performance

Factors affecting business performance

Top factors lowering business performance in Q1 2020

The top three factors which have a negative influence on freelancers’ business performance have remained unchanged since Q4 2019. The state of the UK economy is still listed as the top negative factor, but the percentage of freelancers citing it has increased from 67.2 per cent in Q4 2019 to 82.2 per cent in Q1 2020.

In fact, this is now the top negative influence across all three occupational groups of freelancers, in comparison with last quarter when SOC2 did not cite it as a top factor.

As mentioned above, the big change since Q4 2019 is the COVID-19 health emergency, which has a huge contracting effect on the economy through lockdown and restrictions on businesses. This involves both supply-side restrictions on business operations and demand-side restrictions on consumers’ reduced ability/willingness to purchase in a period where lockdown, social distancing, wage reductions, layoffs and financial uncertainty have occurred.

As an ‘on-demand’ workforce, freelancers are at the front line of cuts to labour costs – with the exception of those involved in helping the economy to get through this emergency (e.g. freelancers working in healthcare, the medical sector and some key hi-tech sectors). However, the overall results of the survey indicate that COVID-19 is creating an unambiguous negative business shock on the freelance sector.    

Against this tough environment, the other negative influences on business performance in the freelance sector have not gone away. Freelancers still cite government fiscal (60.5%) and regulatory polices (56.0%) relating to self-employment as having a detrimental effect on their sector. Government taxation policy is cited as a negative influence by three-quarters (75.2%) of SOC2 professional freelancers and by two-thirds (66.7%) of SOC1 managerial freelancers.

As with the last quarterly survey, SOC3 technical freelancers do not cite government taxation policy amongst the top three negative influences on their business performance. Instead, they identify high levels of competition from other freelancers as the second most important negative influence on their businesses and the outcome of the EU referendum as the third most detrimental influence. As noted before, SOC3 technical freelancers appear to face significant levels of international trade and competition for their services.

Government regulations relating to the hiring of freelancers is cited as the second most constraining influence on business performance by SOC1 freelancers and the third most detrimental effect by SOC2 freelancers; albeit that a higher proportion of SOC2 than SOC1 freelancers cite this negative influence.

*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 Q1 2020

Turning to the positive influences on business performance, the order of the top two factors is the same as last quarter. Building a brand and reputation is now the top positive driver of business performance for all three freelancer groups, compared to last quarter where all but SOC1 returned this result.

There is also homogeneity amongst the second most important positive factor selected by all three freelancer groups – innovation in the services offered to clients. Therefore, freelancers are tackling this tough business environment by building their own brand and undertaking innovation.

The only variety in the range of positive influences affecting business performance is observed in the third most important factors cited by freelancers. SOC2 professional freelancers are benefiting from the increased trend in remote working - necessitated by the social distancing and lockdown effects of the COVID-19 health emergency.

SOC1 and SOC3 freelancers cite the business tactic of engaging in more collaboration with other freelancers and businesses in order to find more work as the third most positive influence on their business performance. This is enough to push ‘collaboration’ as the overall third most positive influence on business performance in the freelance sector.

As observed in previous surveys, freelancers are driving their business performance in adverse external conditions by taking their own initiative in brand building, innovation and strategies, which in Q1 2020 also involve collaboration and exploiting the increase in remote working.

*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 in the economy

Freelancer UK economy confidence index

 

Prior to the COVID-19 pandemic freelancers’ confidence in the UK economy was already low. This was mainly driven by concerns about the impending economic impact of Brexit. However, this quarter freelancers’ confidence in the economy has plummeted even further and for the first time has entered the lowest 10 percentile of index scores in the range from -100 to +100.

In Q1 2020 freelancers’ 3-month UK economy outlook fell from -36.8 to -86.6. This collapse in confidence occurred across all three freelancer occupational groups (SOC1-3), indicating once more the lack of variation in freelancers’ confidence with index scores for the three groups being in the narrow range of -89.0 to -84.9.

These results most likely reflect a common view across freelancers that there are extreme economic costs from the lockdown and the subsequent social distancing measures introduced by the government to combat the spread of the COVID-19 virus. Freelancers believe that these measures will have the strongest negative impact on the economy in Q2 2020.

 

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.
 
 
 

Beyond Q2 2020 freelancers express a little more confidence in the outlook for the UK economy but still expect UK economic performance to deteriorate over the next 12 months. The results show that there was a large fall in the 12-month UK economy confidence index from -39.3 in Q4 2019 to -77.8 in Q1 2020.

The large drop in confidence in the UK economic performance over the next year occurs across all three freelancer occupational groups. Both the 3-month and 12-month economic outlook scores reach record lows for all SOC1-3 groups and by consequence the weighted average scores.

In short, a tough year ahead is expected as the direct (ill health, lockdown, movement constraints and social distancing) and indirect (a shock of business closures, global economic downturn and liquidity constraints) effects of the COVID-19 pandemic, alongside the underlying concerns freelancers have about the impact of Brexit, will be significant impediments to economic growth.

 
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

 

Freelancer capacity utilisation fell in the first quarter of this year. IPSE’s Coronavirus Report showed that 69 per cent of freelancers have already experienced a fall in the demand for the work they do as a result of the COVID-19 health emergency crisis which is likely also the cause for the subsequent fall in their volume of business.

Freelancers’ spare capacity amounts to 3.3 weeks in Q1 2020, compared to 2.6 weeks in Q4 2019. This is equivalent to a rise in spare capacity from 20.0 per cent to 25.4 per cent. Along with Q1 and Q2 2019, this is the second highest level of spare capacity that freelancers have experienced since surveys began.

The rise in spare capacity utilisation occurs across all three SOC occupational groups, which are now in the range of a high of 29.2 per cent spare capacity for SOC1 managerial freelancers to a low of 22.3 per cent for SOC2 professional freelancers. 

 

 
 
*The weighted average is based on the relative number of freelancers in the labour market in 2019.
Rates

Freelancers’ day rates and quarterly earnings

While freelancers’ business volumes have declined in the first quarter of 2020, their average day rates remained almost unchanged across all three freelancer occupational groups. In Q1 2020, freelancers’ weighted average day rates are £430, which is just £3 less than the day rates secured in Q4 2019.

However, there has been a lot of variation across the different occupational groups. SOC1 managerial freelancers managed to secure a 6.2 per cent increase in their day rate since Q4 2019, with a rise of £34 from £550 to £584. However, SOC2 and SOC3 freelancers underwent a fall in their day rates since last quarter by 4.8 per cent and 3.7 per cent respectively.

Therefore, so far, there has been little impact of the reduction in the demand for freelancers’ services on their day rates.

Declining capacity utilisation alongside a slight fall in day rates have led to a relatively large 8.4 per cent fall in quarterly earnings in the first quarter of this year. Quarterly earnings now stand at £20,821 and are still more than twice those of equivalent employees before any COVID-19 reductions have been factored into the latter (£10,169).

The fall in quarterly earnings is likely to continue and be relatively deep over the next year given the extremely negative freelancer confidence index scores returned in Q1 2020, alongside the predicted 20 per cent fall in day rates.

The fall in quarterly earnings is driven by SOC1 managerial and SOC2 professional freelancers who respectively experience a 11.9 per cent and a 10.2 per cent drop in earnings since last quarter. By contrast, SOC3 technical freelancers experience a very modest increase of nearly one per cent.

 
 
*The weighted average is based on the relative number of freelancers in the labour market in 2019.
 

Looking ahead over the next 12 months, it is clear that freelancers expect a very significant fall in their day rates. Close to two-thirds (65%) of freelancers expect their day rates to fall over the next year, compared to a quarter (25%) who expect them to rise. This translates into a net expected fall in day rates by 20.1 per cent. It also marks a significant change from last quarter when freelancers expected their day rates to fall by just 1.1 per cent.  

This perspective is shared by all three freelancer occupational groups, which report values in the range between 59 per cent and 70 per cent expecting a decline in day rates over the next year. In terms of the average expected net fall in day rates over the next 12 months, SOC1-3 freelancers expect them to fall in the narrow range between 22.8 per cent and 19.0 per cent.

Therefore, there is a very high degree of convergence in the expectations of these diverse occupational groups of freelancers. The scale of the fall is consistent with a view that the COVID-19 health emergency will have a year-lasting and strong negative effects on achievable day rates for freelancers. In short, there is likely to be a lot more competition among freelancers for a lower volume of available business by clients who will have reduced ability to pay. 

 

Costs

Freelancers' business costs

Freelancers’ outlook for the cost of inputs to their businesses has changed dramatically since Q4 2019, when they expected a net increase in input prices of 8.5 per cent over 2020. In Q1 2020, freelancers expect prices to fall by a fractional per cent over the next 12 months.

This quarter, 54 per cent of freelancers expect input prices to increase which is a fall from the 71 per cent who expected this outcome last quarter. The percentage of freelancers who expect input price deflation has risen from 13 per cent last quarter to 30 per cent in the current quarter.

The net effect this quarter is a forecast of -0.1 per cent change in input prices over the next 12 months. The likely cause of this outlook is freelancers feeling that the COVID-19 lockdown, social distancing and general negative health effects will trigger an economic downturn with a deflationary effect. As noted earlier, freelancers expect their own day rates to decline over the next 12 months (constituting an input price decline for businesses who engage independent contractors).

These expectations about input price change are not uniform across the three highly skilled freelancer occupational groups.  Both SOC1 senior executive and SOC3 technical freelancers expect input price deflation of 3.8 per cent and 2.3 per cent respectively. By contrast, SOC2 professional freelancers expect input prices to increase by 4.9 per cent.

If the expectation of a fall in input prices is driven by the COVID-19 triggered economic slump, inflationary expectations are probably driven by Brexit and the negative productivity effects of COVID-19, such as lockdown and social distancing, which will make it more expensive to deliver personal services and hamper international supply chains to the point of causing price increases.

 

 

 

Summary

Summary

The COVID-19 health emergency has caused a huge fall in freelancers’ confidence in their businesses and the UK economy more generally. Both indices have reached record low levels. Given that the government’s COVID-19 lockdown occurred on March 23, which was just half-way through the survey period for the Q1 2020 report, it is likely that the business confidence index scores actually underestimate the fall in confidence.

Freelancers’ business confidence has already experienced two negative shocks over the last four years in the form of the gradual impact of Brexit, as well as the effects of government fiscal and regulatory policies, such as the IR35 private sector changes postponed and yet to come.  

Freelancers’ earnings have fallen by 8.4 per cent over the first quarter of 2020 and freelancers are anticipating that things will worsen by forecasting a 20 per cent decline in day rates over the next 12 months. They do not expect any real relief in the form of lower input prices as these are expected to remain largely flat; albeit with marginal deflation of 0.1 per cent.

Therefore, there is little doubt that the next 12 months will be tough for freelancers (as indeed it will be for the employed sector as well). It is likely that all or most of this period will take place in an environment where the COVID-19 health concerns persist, while social distancing and potential further lockdowns (e.g. if a second wave of the virus occurs) cause major impediments to normal business.

However, beyond the period of the next 12 months, it is likely that things may improve significantly for the freelance sector. Economic lockdown has imposed remote working and online business methods on huge swathes of organisations who previously never made use of these approaches.

A significant proportion of organisations may discover the business performance benefits of remote working and will continue to use it in the future. In the long term, we are likely to experience an increased receptiveness to outsourcing work to freelancers who are the ‘core remote workforce’ (SOC2 freelancers provided some early signs that this is already happening in their labour market segment).

This is also likely to be further bolstered as cash flow and liquidity will remain big constraints on businesses whose cash reserves will be depleted during the COVID-19 emergency. Client organisations will, therefore, find the freelancer ‘pay as you go’ workforce model more appealing, given it requires much less upfront cash to fund than the comparable employee model.

Therefore, while the outlook for the next year is tough for freelancers, it is also likely that those of them that can last the pace will benefit from a very positive growth in demand for work in the period beyond the COVID-19 health crisis.

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.