• Freelancers’ average quarterly income fell by 25 per cent.
• This was driven by a historic increase in freelancers’ spare capacity from 3.3 weeks to 5.5 weeks out of 13.
• Freelancers’ confidence in their businesses for the next 12 months increased from last quarter, but remains at the second-lowest level on record.
• Freelancers’ confidence in the economy for the next 12 months also increased from last quarter, but remains at the second-lowest level on record.

In the second quarter (Q2) of 2020, freelancers’ average income dropped by 25 per cent from £20,821 to £15,709. This was driven by the historic decrease in the amount they worked this quarter because, while average day rates fell by just three per cent, their amount of spare capacity rose from 3.3 weeks out of 13 to 5.5 weeks.

As they did last quarter, freelancers expect this situation to worsen: 61 per cent expect to see a decrease in their day rates in the next 12 months, by an average of 11 per cent. This is slightly less pessimistic than last quarter, when they predicted an average fall of 20 per cent. This may be because they have already seen some of the feared decrease this quarter. Freelancers are also pessimistic about the cost of running their businesses: they expect an average increase of 6.1 per cent in business costs over the next year.

With this stark drop in income, freelancers are understandably pessimistic about their business performance over the next three months. Although this measure increased somewhat from the record low of -62.6 last quarter, at -20.4 it is still the second-lowest score since the Confidence Index began in 2014.

Freelancers were even more pessimistic about the performance of their business over the next 12 months. This score also increased from the lowest on record to the second-lowest on record: from -57.3 to -30.5. The score may be lower due to fears of a second wave and renewed lockdown later in the year, as well as freelancers’ concerns about the changes to IR35 due to take effect in April next year. Accordingly, freelancers cited the coronavirus pandemic and the resultant state of the UK economy as the two factors doing most harm to their businesses, closely followed by government tax policy relating to freelancing.

Freelancers’ confidence in the wider economy also recovered slightly but remained in deep negative territory this quarter. Confidence in the economy over the next three months recovered from the record low of -86.6 but remained in deep negative territory at -37.5. Similarly to business confidence, freelancers’ confidence in the economy over the next 12 months rose from a historic low of -77.8, but remained lower than confidence over the next three months at -53.4.

Looking at this quarter’s data, the key finding is how little highly skilled freelancers have been able to work, and therefore earn. In the last quarter, coronavirus and the lockdown led to a huge knock in confidence. It was apparent then, writing in March, that we would have to wait until now for an understanding of how badly earnings might be affected.

There are several different stories to focus on in this quarter’s data. In terms of the confidence figures, the bounce back to numbers closer to the post-EU referendum average suggests that the previous quarter’s record lows were due to uncertainty. 12-month economic confidence is, however, still the second lowest on record.

The dips in confidence around elections and the two main Brexit deadlines (March and October 2019) can be attributed to the same socioeconomic mechanism. Plainly, people cannot be confident in the economy or their businesses if they don’t know what is coming next. This changes a person’s economic behaviour and leads them to cut costs, change their prices and probably spend less. It goes for both businesses and the general public.  

An election provides some information on what to expect, so induces a small dip in confidence. A ‘no deal’ Brexit is perhaps a bit less predictable, so the dip in confidence might be larger. A global pandemic on a scale not seen for a century, accompanied by measures (both in terms of the lockdown and the government support packages) imposed to stop the spread of the virus induced a huge, sharp fall in confidence. Especially as many of the self-employed, such as limited company directors and those new to self-employment, have had no access to government support. Freelance business owners have therefore changed their behaviour to accommodate this.

Loan packages and industry grants have been set out to help soften the blow of coronavirus. However, with the government grant package, the Self-Employment Income Support Scheme, unavailable to directors of limited companies and the newly self-employed, many will have turned to their savings, often those set aside to pay their taxes. Loans will just add to the problem, baking in a further liquidity problem further down the line. However, take-up of government business loans has been lower than many predicted. Thousands of freelancers will have packed up their businesses, or suspended working instead.

If we turn to the earnings data, this last point is illustrated by the differences in each SOC group. The rates freelancers are charging have barely changed, with SOC2 freelancers actually charging more, but nearly exactly the same as in the last quarter of 2019. The real change comes in how much freelancers are working.

Each group is working at least two weeks less per quarter (out of 13 weeks). This is by far the largest ever jump in spare capacity, with SOC1 working two and a half weeks less. This is the key metric behind the 25 per cent drop in average earnings for all three groups. Though SOC1 in particular may be made up of higher earners in senior positions, this could be enough to tip their businesses into the red. Another quarter of depressed earnings on this scale will see many businesses fold.

SOC3 is the lowest earning group and people in it are most likely to be doing work connected to the media and culture industries. This group, however, has had the most stable earnings over the last year. SOC3 contains many people who will have been negatively affected by the lockdown, but also many who will have been able to work from home and source new opportunities. They are also more likely to benefit from a government grant as most of them are registered as sole traders rather than limited companies.

This recession is unprecedented. Since it is unusual and actually sanctioned to stop something else, economists, politicians and therefore freelancers, only have limited information about where we might be in several months. While this is uncertain, however, the roll-out of IR35 next year is likely to compound problems with finding work – especially for SOC1 and SOC2 freelancers.

There is some cause for optimism, however. Economic recessions generally lead to a surge in freelancing and a surge in opportunities for freelancers. The government is now pivoting its agenda on how to stimulate the economy after the coronavirus crisis. In every green job, in every aspect of their levelling-up agenda and in every regional infrastructure project, freelancers can provide their expertise, knowledge and passion to get Britain’s economy up and moving once again.