Freelancers’ confidence in their businesses and the UK economy

*Table indicates outlook for the next 12 months


*Freelancers were asked to rate the importance of 15 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.


While freelancers’ business confidence has been low since the outcome of the 2016 EU referendum was announced, the COVID-19 health emergency and economic lockdown, that began in Q1 2020, caused business confidence indices to fall to unprecedented lows.
In Q1 2020, the 3-month freelancer business confidence index fell by almost 50 points to its lowest level on record (-62.6). This quarter, there has been a substantial recovery of the index to -20.4, indicating that freelancers believe that the severe impact of the crisis on their businesses will improve in the next quarter of the year.
However, the value of freelancers’ 3-month confidence index in Q2 2020 is still the second lowest on record, showing the greater extent of the impact of the crisis on their businesses in comparison to other political and economic events of the last seven years.
The large fall in confidence that occurred across the whole skilled freelancer sector in Q1 2020 drove 3-month confidence to very similar levels for all the three Standard Occupational Categories (SOCs). In Q2 2020, this is no longer the case with SOC2 professional freelancers (-27.5) being substantially more negative about the prospects for their businesses for the next three months, in comparison with SOC1 managerial (-15.6) and SOC3 associate professional and technical freelancers (-17.0).
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.

As with their 3-month confidence index, freelancers’ business confidence for the next year recovered from the unprecedented lows recorded in Q1 2020 (-57.3) to –30.5 in Q2 2020. However, the index remains in deeper negative territory than the 3-month one, showing that freelancers feel more negative about the prospects for their business in the next year in comparison with the next three months.
This could potentially illustrate not only the compounding effect of the COVID-19 crisis and an expectation for it to continue over the next year, but also sensitivity to other policy changes coming in the next 12 months around Brexit and the introduction of IR35 in the private sector as will be discussed in the next section of the report.
While the effect of the COVID-19 crisis last quarter eliminated differences between the three freelancer occupational groups, in Q2 2020 those differences are back in place with SOC2 professional freelancers (-44.8) being most negative about the prospects for their businesses in the next year, followed by SOC1 managerial (-28.0) and SOC3 technical freelancers (-18.7).
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.
Top factors lowering business performance in Q2 2020
The top factor negatively influencing freelancers’ business performance changed since the last quarter with the introduction of the coronavirus pandemic as an option in the Freelancer Confidence Index survey.
The coronavirus pandemic (81.1%) is now not only the top negative influence on freelancers’ businesses, but it is also selected as a top factor by all three freelancer occupational groups. This is hardly surprising given that a recent report by the University of Edinburgh Business School in association with IPSE found that the pandemic has led to an 80 per cent increase in freelancers’ stress levels, 74 per cent of them losing income and 69 per cent having cashflow problems.[1]
The second key factor having a detrimental effect on freelancers’ businesses this quarter is the state of the UK economy, selected by four-fifths of freelancers (79.6%), and cited as the second most detrimental factor by all three freelancer occupational groups.
As mentioned in the last quarter, the COVID-19 health emergency had a huge contracting effect on the economy through lockdown and restrictions on businesses. This involved 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 occurred.
Previous IPSE research showed that freelancers were at the front line of cuts to labour costs in many sectors and the COVID-19-related economic crisis has created a negative business shock for them, with 69 per cent of freelancers saying the demand for the freelance work they do has decreased as a result of the crisis.[2]
In this tough external business and economic environment, other negative factors affecting freelancers’ businesses have not gone away. The third most detrimental factor affecting the sector is government tax policy, selected by three in five freelancers (60.9%). Therefore, even though the changes to IR35 in the private sector have been delayed until April 2021, they still seem to be a key concern for freelancers, especially those working in SOC2 professional occupations (76.1%).
Looking at the other two occupational categories, SOC1 freelancers working in managerial occupations (68.0%) cite Brexit as a third most detrimental factor on their businesses, while SOC3 professional freelancers (59.1%) cite competition from other freelancers.
[1] University of Edinburgh Business School in association with IPSE, Falling through the Cracks: the economic costs of the coronavirus pandemic for the UK’s freelancers, June 2020.
[2] IPSE, Coronavirus report, April 2020.
*Freelancers were asked to rate the importance of 15 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 Q2 2020.

Top factors enhancing business performance in Q2 2020
Turning to the positive factors influencing business performance, the major change this quarter is the emergence of ‘adoption of flexible working practices by organisations’ as a new entrant, cited as the third key positive factor overall and selected by almost half (49.2%) of freelancers.
This factor has displaced ‘collaboration with other freelancers’, which remained the third highest positive influence only for SOC3 technical freelancers (52.2%). The survey shows that both SOC1 managerial (64.0%) ad SOC2 professional (51.5%) freelancers have started to benefit from new trends in more flexible and remote working that have emerged as a result of the COVID-19 crisis, citing ‘adoption of more flexible working practices’ as their second most positive business influence.
The importance of building a brand/reputation (59.1%) is still viewed as the most important business strategy albeit down slightly in comparison with last quarter (61.0%). The second most important positive factor also remains unchanged since last quarter and is the innovation in terms of services offered to clients, selected by over half (57.1%) of freelancers.
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 Q2 2020 also involves exploiting the increase in remote working.
Because of this increased trend in remote working, it can be expected that a significant proportion of organisations will discover the business performance benefits of hiring freelancers and the sector will benefit from that structural change in the long run.
*Freelancers were asked to rate the importance of 15 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 Q2 2020.


Freelancers’ confidence in the UK economy has been in negative territory since Q2 2016 when the outcome of the EU referendum was announced, only to reach even more unprecedented record lows in Q1 2020 with the outbreak of COVID-19. However, in Q2 2020 the 3-month freelancer economy confidence index recovered from the record lows recorded in Q1 2020 (-86.6), although it remains in strong negative territory at -37.5.
These results reflect a prediction freelancers made last quarter that the 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 would be felt most heavily in Q2 2020. Therefore, freelancers predict the economic situation to improve over the summer with the ease of the lockdown measures to levels similar to the ones at the end of last year (Q4 2019).
Looking at differences between the three freelancer occupational categories, SOC3 technical freelancers who were the most optimistic about the prospects for their businesses for the next year, are the most negative about the prospects for the UK economy for the next three months, returning an index score of -41.3. SOC2 professional freelancers (-38.6) are slightly less pessimistic about the prospects for the UK economy for the next three months, followed by SOC1 managerial freelancers (-30.4).
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 Q3 2020 freelancers expect the UK economy to deteriorate even further, with a 12-month UK economy index score of -53.4. While this marks an improvement since last quarter (-77.8), it illustrates freelancers’ belief that some of the most negative consequences of the COVID-19-related economic crisis will be felt in the long-term, over the next year.
All three freelancer occupational groups returned an improved 12-month economic confidence index score in comparison with Q1 2020. However, the index values for all groups remain in deep negative territory in the range between -48.0 for SOC3 technical freelancers to -59.5 for SOC2 professional freelancers.
Overall, freelancers remain negative about the prospects for both their businesses and the UK economy for the next year, predicting the negative effects of the COVID-19 pandemic to continue to have an influence on the sector, alongside the underlying concerns they have about the impact of Brexit, and its 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.

In Q2 2020, freelancers’ spare capacity reached an unprecedented record high of 5.5 weeks, increasing substantially since Q1 2020 when it was at 3.3 weeks.
Spare capacity is measured by the number of weeks without work per quarter out of a maximum of 13 weeks. Therefore, this quarter, freelancers spent 42 per cent of their time without work, marking a 17 percentage points increase in spare capacity since Q1 2020.
This is hardly surprising with IPSE’s coronavirus report showing that over two in three (69%) freelancers said that the demand for the freelance work they do has decreased as a result of the coronavirus crisis, and over half (53%) said it had decreased substantially. Another 60 per cent also said that they had lost clients as a result of the crisis.[1]
The rise in spare capacity occurs across all three SOC occupational groups, even though SOC1 managerial freelancers report the highest spare capacity (6.3 weeks or 49%), followed by SOC3 technical freelancers (5.3 weeks or 41%) and SOC2 professional freelancers (5.0 weeks or 39%).
[1] IPSE, Coronavirus report, April 2020.
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.
While freelancers’ business volumes have declined substantially in the second quarter of 2020, their average day rates fell by just three per cent – from £430 to £416.
However, there has been a lot of variation across the different occupational groups. Similar to the wider sector, the day rates of SOC3 technical freelancers remained almost unchanged, with a rise of £1 from £262 to £263. SOC2 professional freelancers also managed to secure a minor four per cent increase in their day rates from £495 to £517.
However, SOC1 managerial freelancers who already experienced the highest drop in capacity utilisation, also experienced a 15 per cent decrease in their day rates from £584 to £498. Therefore, so far, only SOC1 managerial freelancers have felt the impact of the reduction in the demand for freelancers’ services on their day rates.
The great decline in capacity utilisation alongside a slight fall in day rates led to a large 25 per cent drop in quarterly earnings from £20,821 in Q1 2020 to £15,709 in Q2 2020. In fact, this marks the lowest level of quarterly earnings recorded in the Confidence Index since 2014 when surveys began. It also marks a second consecutive quarter of negative growth in freelancers’ earnings, bringing the sector into recession.
While the drop in quarterly earnings affected all three freelancer occupational categories, SOC1 managerial freelancers were most heavily affected with their earnings decreasing by 35 per cent from £26,616 to £17,380. SOC2 professional freelancers also experienced a 21 per cent drop in earnings (from £25,177 to £19,768), while SOC3 technical freelancers experienced a 16 per cent drop (from £12,730 to £10,720).
The fall in quarterly earnings is likely to continue and be relatively deep over the next year given the negative freelancer confidence index scores returned in Q2 2020, alongside the predicted 11 per cent fall in day rates, which is explored in the paragraphs below.
Looking ahead over the next year, freelancers expect a significant 11 per cent fall in their day rates, even though they are a bit less negative than last quarter when they predicted a 20 per cent fall. The reason behind that might be because some of the fall predicted last quarter already materialised in Q2 2020.
Well over half (61%) of freelancers expect their day rates to fall over the next 12 months, compared to just under a third (30%) who expect them to increase and one in ten (9%) expect them to remain the same.
There is a degree of divergence in the expectations of the three freelancer occupational groups when it comes to their day rates. SOC2 technical freelancers who managed to secure a minor increase in day rates this quarter expect this to balance out over the course of the next year and predict an 18 per cent decrease in their day rates over that period. SOC1 managerial freelancers and SOC3 technical freelancers are a bit less negative and expect a nine per cent and five per cent decrease in their day rates, respectively.
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, who are already experiencing a decreasing demand for the work they do and therefore higher competition for the products or services they provide.
Freelancers’ day rates and quarterly earnings

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

Freelancers’ outlook for the cost of inputs to their businesses has changed since Q1 2020, when they expected a net decrease in input prices of 0.1 per cent. In Q2 2020, freelancers expect a substantial 6.1 per cent net increase in the input costs to their businesses.
In Q2 2020, 61 per cent of freelancers predicted the input costs to their businesses to increase in the next year in comparison with just over half (54%) who predicted an increase in Q1 2020. A fifth (19%) of freelancers also predict their prices to decrease over the next year in comparison with two-thirds of freelancers (30%) predicting a decrease in Q1 2020.
The net effect this quarter is a forecast of 6.1 per cent change in input prices over the next 12 months. The likely cause of this outlook is freelancers feeling that the lifting of the COVID-19 lockdown and social distancing measures will trigger an economic recovery with an inflationary effect.
These expectations about input price change are not uniform across the three highly skilled freelancer occupational groups. Both SOC1 managerial and SOC2 professional freelancers expect a relatively high input price inflation of 10.8 per cent and 5.7 per cent respectively. By contrast, SOC3 technical freelancers expect input prices to increase by just 3.3 per cent.

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