Freelancers’ confidence in their businesses and the UK economy
Table indicates outlook for the next 12 months.
Confidence in the UK economy
for the next 12 months
Confidence in their business
for the next 12 months
Top factors lowering business
performance in Q1 2022
Top factors enhancing business
performance in Q1 2022
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.
In the first quarter of 2022, the UK is contending with rising inflation – peaking at 9 per cent in April1 – alongside rising food and energy prices which have combined to bring about a sharp cost of living crisis and fears of an impending economic recession. As such, freelancers could be expected to be less confident in their own businesses in Q1 2022.
In fact, freelancers’ confidence in their own businesses for the next three months has increased to positive levels for the first time since Q2 2021, increasing from -11.0 in Q4 2021 to 2.2 this quarter.
Looking at freelancers’ confidence in their own business over the next three months more closely reveals that all three SOC groups have experienced increases.
SOC1 managerial freelancers experienced the largest increase to confidence in their own businesses over the next three months, increasing from -11.5 in Q4 2021 to 22.2 in Q1 2022.
SOC2 professional freelancers reported the second largest increase, increasing from -15.7 in Q4 2021 to -9.7 this quarter, but remaining in negative territory.
SOC3 associate professional and technical freelancers also experienced an increase in confidence from last quarter, increasing from -6.3 in Q4 2021 to 0.7 in Q1 2022, returning to positive levels after two successive quarters of negative territory.
Overall, freelancers are now more confident in their own business for the coming three months compared to last quarter, largely as a result of SOC1 managerial freelancers reporting a significant increase in their confidence for their businesses.
Freelancer confidence indices for their businesses over the next three 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 size of freelancers in the labour market in 2021.
Freelancer business confidence for the next 12 months decreased last quarter, falling from -2.6 to -1.9 between Q3 2021 and Q4 2021, driven by a sharp decline in confidence from SOC1 managerial freelancers. This quarter, however, average 12-month business confidence has increased from -10.5 in Q4 2021 to -1.9 this quarter, reverting the decline reported between Q3 2021 and Q4 2021.
Looking at the SOC groups more closely reveals that all three SOC groups experienced increases in their confidence levels since Q4 2021 – in line with the three-month business confidence levels reported by freelancers.
SOC1 managerial freelancers experienced the largest increase in confidence for the next 12 months, increasing from -13.0 in Q4 2021 to 12.5 this quarter.
SOC2 professional freelancers also experienced an increase in business confidence for the next 12 months – albeit a small increase and remaining in negative territory – increasing from -17.6 in Q4 2021 to -14.3 this quarter.
In addition, SOC3 associate professional and technical freelancers reported an increase in confidence in their businesses for the next 12 months, increasing from -2.3 to 0.7 between Q4 2021 and Q1 2022.
Overall, our findings on freelancer confidence in their businesses for the next 12 months closely aligns with our findings on three-month confidence, with freelancers now more confident in their businesses compared to the last quarter as a result of SOC1 managerial freelancers reporting a significant increase in confidence.
Freelancer confidence indices 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 size of freelancers in the labour market in 2021.
Top factors which lower freelancers’ business performance
Freelancers were asked to rate the importance of 15 factors which can affect the performance of their business in categories from significantly positive, slightly positive, no impact, slightly negative, significantly negative.
We now move on to explore the factors that freelancers identify as having a negative influence on their business performance. This quarter, freelancers have altered their negative business determinants compared to Q4 2021, with the state of the UK economy now ranked as the top factor negatively affecting freelancers’ business performance, cited by 64.7 per cent of freelancers this quarter.
This can be largely attributed to the current cost of living crisis engulfing the UK as a result of rising inflation, the war in Ukraine, Brexit and rising energy and goods prices combining to heighten fears of an economic recession.
Government tax policy relating to freelancing was the second most selected factor across all freelancers, cited by 62.1 per cent of freelancers and driven by SOC2 professional freelancers (81.9%) reporting this as the greatest factor negatively affecting their business and SOC1 managerial freelancers (50.0%) reporting it as their third most detrimental factor.
Government regulation relating to hiring freelancers was the third most selected detrimental factor for freelancers, with 62.1 per cent of freelancers citing this factor as a negative determinant this quarter. This was largely driven by the fact that SOC1 managerial freelancers (53.8%) cited this as their greatest negative determinant whilst SOC2 professional freelancers (77.8%) cited it as their second most negative factor.
Further analysis of SOC groups reveals that the state of the UK economy was cited by SOC3 associate professional and technical freelancers (64.4%) as their greatest negative determinant. Similarly, SOC1 managerial professionals (53.8%) also cited it as their second greatest factor lowering their business performance and SOC2 professional freelancers (72.3%) cited it as their third most detrimental factor.
Interestingly, the Coronavirus pandemic was the second most detrimental factor for SOC3 associate professional and technical freelancers (60.3%). Despite the removal of coronavirus-related restrictions, it is clear that the pandemic continues to impact on freelancers’ business performance, especially for those operating in lower skilled freelancing occupations.
In line with our findings from Q4 2021, this quarter SOC3 associate professional and technical freelancers (56.2%) continue to cite Brexit as their third most detrimental factor affecting business performance and likely linked to the implementation of new customs rules in January 20222.
Overall, it is perhaps unsurprising that freelancers are now citing the state of the UK economy as their most detrimental factor on their business performance given the rising cost of inflation and price rises facing businesses across the UK. This factor is also perhaps more likely to negatively impact the business performance of those freelancers in lower skilled occupations, with this SOC group citing the state of the UK economy as the greatest negative determinant to their current business performance.
Turning to the positive influences on business performance, this quarter reveals that whilst all the negative factors were external, the factors enhancing freelancers’ business performance remain largely internal.
In line with our findings from last quarter, the top three factors enhancing freelancers’ business performance remain unchanged this quarter.
Brand value and reputation in the market continues to be the top factor positively influencing freelancers’ business performance, with 61.9 per cent citing this in this quarter compared to 63.9 per cent in Q4 2021.
Innovation in terms of the services offered to clients remains as the second most positively enhancing factor for freelancers’ business performance this quarter, with 54.0 per cent of freelancers citing this factor this quarter compared to 54.8 per cent last quarter.
In addition, the adoption of flexible working practices by organisations was cited as the third most enhancing factor for freelancers’ business performance, with 50.1 per cent of freelancers citing this factor this quarter compared to 52.8 per cent last quarter.
In terms of breakdown across SOC groups, SOC1 managerial and SOC2 professional freelancers both cited the importance of brand value and reputation in the in the market as the most enhancing factor for their business performance (54.2% and 67.6% respectively).
SOC2 professional freelancers cited the adoption of flexible working practices as their most enhancing factor, with 63.0 per cent selecting this factor.
Half of SOC1 managerial freelancers (50.0%) selected growth of the sector in which they work – their second most enhancing factor for business performance – whereas 59.2 per cent of SOC3 associate professional and technical freelancers cited innovation in terms of the services they can offer clients – their second most enhancing determinant.
SOC2 professional freelancers (60.9%) cited the importance of brand value and reputation in the market as their second most enhancing factor whilst SOC3 associate professional and technical freelancers (53.5) selected collaboration with other freelancers and business to secure more work as their third most enhancing determinant.
Both SOC1 managerial freelancers (50.0%) and SO2 professional freelancers (51.0%) selected innovation in terms of the services they offer to clients as their third most enhancing factor.
Overall, the top three factors enhancing freelancers’ business performance remain unchanged compared to Q4 2021, with freelancers continuing to rely on brand value and reputation in the market to enhance their business performance.
Top factors which enhance freelancers’ business performance
Freelancers were asked to rate the importance of 15 factors which can affect the performance of their business in categories from significantly positive, slightly positive, no impact, slightly negative, significantly negative.
Confidence in the UK economy is ultimately being impacted by concerns around the rising cost of living brought about by the war in Ukraine, rising inflation, Brexit and increasing energy and goods prices and have ultimately heightened fears of an economic recession.
These fears have already been revealed across our findings for both Q3 2021 and Q4 2021, with confidence in the UK economy for the next three months falling quarter-on-quarter.
It is therefore perhaps unsurprising that freelancers’ confidence in the UK economy for the next three months has remained relatively stable since last quarter, increasing only slightly from -23.7 in Q4 2021 to -23.1 this quarter.
The small increase in confidence in the UK economy for the next three months is driven by a sharp increase in confidence from SOC1 managerial freelancers, increasing from -25.9 in Q4 2021 to -5.4 this quarter.
On the other hand, both SOC2 professional freelancers and SOC3 associate professional and technical freelancers reported a decrease in confidence in the UK for the next three months (falling from -28.9 in Q4 2021 to -34.7 in Q1 2022 and decreasing -17.4 in Q4 2021 to -23.4 this quarter respectively). This represents the lowest recorded index score for both groups since Q4 2020 – the height of the pandemic and lockdown restrictions.
Overall, freelancer confidence in the UK economy for the next three months has remained stable – albeit at negative levels. Despite SOC1 managerial freelancers reporting a significant increase in their confidence in the UK economy for the next three months, this increase has been offset by decreases in confidence for both SOC2 professional and SOC3 associate professional and technical freelancers.
Freelancer confidence indices for the UK economy over the next three months
Freelancers were asked to identify their confidence levels for future relative to current performance in one of 5 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 size of freelancers in the labour market in 2021.
Now looking at freelancers’ confidence in the UK economy over the next 12 months reveals a decrease in confidence, with confidence falling from -19.1 in Q4 2021 to -27.4 this quarter and driven by decreases in confidence reported by SOC2 professional and SOC3 associate professional and technical freelancers.
SOC3 associate professional and technical freelancers experienced the greatest decrease in confidence, decreasing from -6.8 in Q4 2021 to -22.7 this quarter.
Similarly, SOC2 professional freelancers also experienced a decrease in confidence for the next 12 months, falling from -20.4 in Q4 2021 to -36.1 this quarter.
On the other hand, SOC1 managerial freelancers experienced a small increase in their confidence, increasing from -37.0 last quarter to -22.2 in Q1 2022.
Overall, freelancers’ confidence in the UK economy for the next 12 months has seen a more profound decrease in confidence compared to confidence levels for the next three months which have remained relatively stable.
Freelancer confidence indices for the UK economy 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 size of freelancers in the labour market in 2021.
After two successive quarters of day rates rising to record levels in Q3 2021 and Q4 2021, freelancer day rates have now fallen for the first time since Q2 2021, with the average amount charge by freelancers over the last three months decreasing from £584 in Q4 2021 to £516 this quarter.
This is driven by decreases to both SOC1 managerial and SOC3 associate professional and technical freelancers’ day rates.
In particular, SOC3 associate professional and technical freelancers have experienced a significant drop in average day rates charged, falling from £452 in Q4 2021 to £308 this quarter.
SOC1 managerial freelancers also experienced a decrease in their average day rate charged over the last three months, decreasing from £798 in Q4 2021 to £711 this quarter.
On the other hand, SOC2 professional freelancers actually reported a small increase in the average day rates, increasing from £582 in Q4 2021 to £609 this quarter. This represents the highest average day rate charged by this group since the establishment of the Confidence Index in 2014.
Overall, the average day rates charged by freelancers over the last three months have decreased compared to Q4 2021, after a period of two successive increases in Q3 2021 and Q4 2021.
In terms of quantifying the expected change in day rates, the majority of freelancers (67%) expect an increase in their average day rates for the next 12 months whereas a further 21 per cent expect a decrease and 12 per cent expect no change. This compared to 58 per cent of freelancers that forecast an increase in their day rates in Q4 2021.
SOC3 associate professional and technical freelancers were more likely to forecast an increase in their day rates over the next 12 months, with 75 per cent predicting an increase compared to 67 per cent of SOC1 managerial freelancers and 60 per cent of SOC2 professional freelancers.
In terms of quantifying this expected increase in freelancer day rates, freelancers now expect their day rates to increase by an average of 13.5 per cent over the next 12 months. This represents a significant increase from Q4 2021, where freelancers anticipated an increase of just 3.6 per cent and is likely linked to freelancers now anticipating the need to pass on the costs incurred from the cost of living crisis amid concerns of further rises to inflation expected later in the year.
This expected increase in day rates is driven by SOC1 managerial and SOC3 associate professional and technical freelancers forecasting significant increases in their day rates (anticipating increases of 24.8% and 16.5% respectively).
SOC2 professional freelancers predicted a small increase in their day rates, anticipating an increase of just 2.6 per cent.
Overall, the majority of freelancers now expect day rates to increase in the coming year, with the expected change in day rates increasing compared to Q4 2021 as freelancers expect the cost of living crisis to worsen.
Freelancer’s spare capacity has increased slightly since Q4 2021, increasing from 3.0 weeks without work per quarter in Q4 2021 to 3.2 weeks this quarter.
This increase in freelancers’ spare capacity is driven by increases reported by both SOC2 professional freelancers and SOC3 associate professional and technical freelancers.
SOC professional freelancers experienced the greatest increase in their spare capacity, increasing from 2.3 weeks in Q4 2021 to 2.8 weeks this quarter.
SOC3 associate professional and technical freelancers reported the second biggest increase in spare capacity, increasing from 3.4 weeks to 3.8 weeks.
On the other hand, SOC1 managerial freelancers experienced a decrease in their number of weeks without work in Q1 2021, decreasing from 3.3 weeks in Q4 2021 to 2.6 weeks this quarter. This now represents the lowest number of weeks without work for this SOC group since Q4 2019 – prior to the pandemic.
Overall, freelancers are now working slightly less compared to last quarter, with only SOC1 managerial freelancers reporting a decrease in their spare capacity since Q4 2021.
Freelancers’ spare capacity: Number of weeks not working per quarter
The weighted average is based on the relative size of freelancers in the labour market in 2021.
After two successive quarters of increases in quarterly earnings and freelancers reporting record high levels in Q4 2021, freelancers’ average quarterly earnings have now fallen from £29,574 in Q4 2021 to £26,916 this quarter.
The decrease in quarterly earnings is driven by decreases across all three SOC groups but notably amongst SOC3 associate professional and technical freelancers who experienced the biggest drop to average quarterly earnings, falling from £21,413 in Q4 2021 to £15,002 this quarter.
SOC2 professional freelancers also experienced a decrease in their quarterly earnings, falling £31,676 in Q4 2021 to £31,349 this quarter.
Similarly, SOC1 managerial freelancers reported a small drop in their average quarterly earnings, decreasing from £39,512 in Q4 2021 to £39,400 this quarter.
Overall, after reaching record-high levels of quarterly earnings in Q4 2021, average quarterly earnings have fallen for freelancers this quarter as SOC3 associate professional and technical freelancers report a considerable reduction in their earnings for this quarter.
Freelancers’ average quarterly earnings
Employee earnings are based on ONS data on gross weekly earnings by employees. The weighted average is based on the relative size of freelancers in the labour market in the corresponding year. *Employee earnings are based on Office for National Statistics (ONS) data on gross weekly earnings by employees from the provisional 2021 Annual Survey of Hours and Earnings, October 2021 the revised 2020 Annual Survey of Hours and Earnings, October 2021, the revised 2019 Annual Survey of Hours and Earnings, October 2020, the revised 2018 Annual Survey of Hours and Earnings, October 2019, the revised 2017 Annual Survey of Hours and Earnings, October 2018, the revised 2016 Annual Survey of Hours and Earnings, October 2017 and the revised 2015 Annual Survey of Hours and Earnings, October 2016 respectively.
The majority of freelancers (86%) now expect their input costs to increase over the next 12 months – rising from 81 per cent in Q4 2021 – and which can be attributed to the rising costs experienced throughout the UK and the expected rise in inflation and prices to come later in the year.
The overwhelming majority of SOC1 managerial freelancers (93%) and SOC2 professional freelancers (87%) forecast an increase in their input costs for the next 12 months. This represents an increase for both SOC groups compared to Q4 2021, with 79 per cent of SOC1 managerial freelancers and 80 per cent of SOC2 professional freelancers anticipating an increase in Q4 2021.
Similarly, the majority of SOC3 associate professional and technical freelancers (80%) also anticipated an increase in their input costs for the coming year which represents a slight decrease on Q4 2021, where 82 per cent forecast an increase.
A further ten per cent of freelancers forecast no change in their input costs for the next 12 months whereas four per cent actually predict a decrease in their input costs for the next 12 months.
Looking at the expected change of input costs for the next 12 months, freelancers are now predicting an average increase of 18.8 per cent in their input costs. This represents a slight increase on Q4 2021, where freelancers anticipated an increase of 14.2 per cent in their input costs for the coming year. This is largely driven by the fact that SOC1 managerial freelancers anticipate an increase of 29.3 per cent in their input costs over the next 12 months.
Overall, more freelancers are now expecting an increase in their business costs for the next 12 months compared to our findings from Q4 2021. Freelancers are also now reporting a much higher expected increase in their business costs compared to last quarter due to the potential for rising prices to worsen and impact on businesses.
Freelancer input cost change over the next 12 months
The weighted average is based on the relative size of freelancers in the labour market in 2020. Due to rounding percentages may not total to 100.
Almost two-fifths of freelancers (39%) are now incurring business debt (slightly up from 38% in Q4 2021) with 16 per cent incurring debt via credit cards issued in the name of their self-employed business.
A further nine per cent are incurring debt via business loans from a commercial bank whilst five per cent indicated that they have loans from government agencies.
Concerningly, two per cent of freelancers are incurring debt via business loans from a non-bank financial institution whilst another two per cent are turning to a friend or family member for business loans.
On the other hand, 58 per cent of freelancers reported that they have no business debt which closely aligns with our findings from Q4 2021 (59%).
Overall, freelancer business debt has remained largely unchanged from last quarter (38% incurring business debt in Q4 2021), with freelancers most likely to be incurring debt via credit cards issued in the name of their self-employed business.
Freelancer business debt
After job-related stress levels fell to their lowest levels since Q3 2019 last quarter, job-related stress levels have now increased from 5.50 in Q4 2021 to 5.84 this quarter (on a ten-point scale where 0 is not at all stressed and 10 is extremely stressed).
The increase in job-related stress levels is driven by a significant increase in SOC1 managerial freelancers, increasing from 5.12 in Q4 2021 to 6.35 this quarter. This represents the highest average stress level for this SOC group since Q1 2021.
Similarly, SOC3 associate professional and technical freelancers also experienced a small increase in their job-related stress levels, increasing from 5.74 in Q4 2021 to 5.81 in Q1 2022.
SOC2 professional freelancers also reported a small increase in their job-related stress levels, rising from 5.51 in Q4 2021 to 5.54 this quarter.
Overall, a significant increase in job-related stress reported by SOC1 managerial freelancers has driven overall stress levels amongst freelancers to increase this quarter.
Job satisfaction increased last quarter from 5.68 in Q3 2021 to 5.81 in Q4 2021. We now see this trend continuing with a small increase in freelancers’ job satisfaction this quarter, rising to 5.90 this quarter (on a 10-point scale where 0 is not at all satisfied and 10 is extremely satisfied).
This increase in job satisfaction is driven by an increase in satisfaction levels amongst SOC3 associate professional and technical freelancers, with this group reporting an increase from 5.66 in Q4 2021 to 6.06 this quarter.
On the other hand, SOC1 managerial freelancers reported a small decrease in their overall job satisfaction, falling from 6.32 in Q4 2021 to 6.10 this quarter.
Satisfaction levels remained largely stable for SOC2 professional freelancers, decreasing slightly from 5.62 in Q4 2021 to 5.61 this quarter.
Overall, freelancers’ job satisfaction has increased slightly from last quarter, driven by a significant increase amongst SOC3 associate professional and technical freelancers.
After a mixture of pandemic uncertainty and post COVID-19 inflation, life for freelancers is finally starting to look up. Work is returning, confidence in their own business is growing, and stress is falling rapidly. In other words, the dynamism and energy of the self-employed sector is finally beginning to rear its head once more.
However, freelancer confidence should not be taken for granted. The cost-of-living crisis is still wrecking the UK economy and the government needs to ensure that self-employed workers aren’t pulled back into the abyss. In particular, the government must act, so that rising business debt and costs doesn’t impact the sector’s ability to bounce back and recover its position as one of the most innovative parts of the UK economy.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 Q3 2022 was compiled from 387 responses who replied to an online survey by IPSE and PeoplePerHour. The survey is conducted every quarter. In Q3 2022, the survey composition of respondents was: 28 per cent female and 70 per cent male, an average age of 46, have been freelancing for an average of 10.5 years and are highly educated – 37 per cent have a highest qualification at the postgraduate degree level while 49 per cent have a highest qualification at the undergraduate degree level.
References
- https://www.bbc.co.uk/news/business-62432568 Accessed 10/08/2022
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).
Acknowledgements
IPSE would like to thank Dr Samuel Vigne, Professor of Finance at LUISS University for their support in the data analysis. IPSE would also like to thank PeoplePerHour for their continued support of the FCI.
The report was written by Joshua Toovey, Senior Research and Policy Officer at IPSE.
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