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 Q2 2022
Top factors enhancing business
performance in Q2 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 second quarter of 2022, heightened fears of an impending economic recession amidst rising inflationary pressures have resulted in freelancers’ confidence in their own businesses declining.
For instance, freelancers’ confidence in their own businesses for the next three months has decreased from 2.2 in Q1 2022 to -11.4 this quarter, the lowest recorded level for this indices since Q1 2021 – a time where freelancers were contending with continuing Coronavirus restrictions and the planned implementation of the changes to IR35 in the private sector in April 2021.
Looking at freelancers’ confidence in their businesses over the next three months in more detail reveals that there were decreases in confidence across all three SOC groups, with all three groups now in negative territory. SOC1 managerial freelancers reported the largest decrease in confidence, falling from 22.2 in Q1 2022 to -11.4 this quarter. SOC2 professional freelancers’ confidence decreased from -9.7 to -16.7 in the same period whilst SOC3 freelancers working in associate professional and technical occupations reported a decrease in their confidence from 0.7 in Q1 2022 to -6.4 this quarter.
Overall, freelancers’ confidence in their own businesses for the next three months has fallen since Q1 2022, returning to negative levels after a small increase in confidence reported between Q4 2021 and Q1 2022.
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.
In our quarterly report for Q1 2022, freelancer business confidence for the next 12 months had slightly increased from -10.5 in Q4 2021 to -1.9 in Q1 2022. Perhaps unsurprisingly with the increasing impact of the cost of living crisis affecting businesses across the UK, freelancer business confidence for the next 12 months has now fallen from -1.9 in Q1 2022 to -18.5 in Q2 2022 – representing the lowest indices score for business confidence over the next 12 months since Q3 2020.
This quarter, SOC1 managerial freelancers reported the largest decrease in confidence for the next 12 months, decreasing from 12.5 in Q1 2022 to -11.4 in Q2 2022. Similarly, both SOC2 professional freelancers and SOC3 associate professional and technical freelancers reported decreases in confidence compared to the last quarter, falling from -14.3 in Q1 2022 to -29.0 in Q2 2022 and from 0.7 in Q1 2022 to -13.3 this quarter respectively. This represents the lowest indices score for SOC3 associate professional and technical freelancers since Q3 2020.
Overall, our findings reveal that business confidence for the next 12 months closely aligns with our findings for business confidence for the next three months, with freelancers now significantly less confident in their business compared to the last quarter which is driven by sharp decreases in confidence to all three SOC groups.
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 an influence on their business performance. In terms of negative determinants, freelancers have not changed their view regarding the top three factors. This quarter, freelancers continue to cite the state of the UK economy as the top factor negatively affecting freelancers’ business performance, with 77.8 per cent of freelancers citing this factor. This can be largely attributed to the current cost of living crisis engulfing the UK as a result of rising inflation heightening fears of an economic recession.
Government tax policy relating to freelancing was the second most selected factor for freelancers, with 69.8 per cent of freelancers citing this factor in Q2 2022 and driven by SOC1 managerial (78.3%) and SOC2 professional freelancers (84.7%) reporting this as their greatest factor negatively affecting their businesses.
Government regulation relating to hiring freelancers continues to be the third most selected detrimental factor for freelancers, with 65.1 per cent of freelancers citing this factor as a negative determinant this quarter. This was largely driven by SOC2 professional freelancers (81.9%) citing this as their second greatest negative determinant and SOC1 managerial freelancers (73.9%) reporting this factor as their third greatest negative determinant.
Further analysis of SOC groups reveals that the state of the UK economy was cited as the greatest negative determinant by SOC3 associate professional and technical freelancers (75.3%), as the second greatest factor for SOC1 managerial freelancers (77.3%) and the third greatest negative determinant for SOC2 professional freelancers (80.9%).
Interestingly, Brexit was cited by SOC3 associate professional and technical freelancers (57.1%) as their second greatest negative determinant and representing an increase on last quarter, where this SOC group ranked it as their third greatest negative factor.
The Coronavirus pandemic was also selected by SOC3 associate professional and technical freelancers as their third greatest negative factor, with 56.4 per cent citing this determinant.
Overall, with the UK engulfed in a cost-of-living crisis amidst rising inflation and no end in sight to rising energy and goods prices, it is perhaps unsurprising that the state of the UK economy is now cited as the most detrimental factor for freelance businesses.
Now looking at the factors which enhance freelancers’ 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 Q1 2022, the top three factors positively enhancing freelancers’ business performance remain unchanged this quarter.
Brand value and reputation in the market continues to be the top factor positively enhancing freelancers’ business performance, with 63.7 per cent citing this in Q2 2022 compared to 61.9 per cent in Q1 2022. This is driven by the fact that all three SOC groups ranked their brand value and reputation in the market as their top enhancing factor.
Innovation in terms of the services offered to clients remains as the second most positively enhancing factor on freelancers’ business performance in Q2 2022, with 53.2 per cent of freelancers citing this factor this quarter compared to 54.0 per cent in Q1 2022.
The third most enhancing factor for freelancers’ business performance this quarter remains the adoption of flexible working practices by organisations, with 52.0 per cent of freelancers citing this factor this quarter compared to 50.1 per cent last quarter.
Looking more closely at SOC groups reveals that innovation in terms of services they offer clients was selected by SOC3 associate professional and technical freelancers (56.4%) as their second greatest enhancing factor whilst SOC1 managerial freelancers (59.1%) and SOC2 professional freelancers (45.7%) cited this factor as their third greatest enhancer.
Interestingly, collaboration with other freelancers and businesses to secure more work was selected by SOC1 managerial freelancers (60.9%) as their second greatest enhancer on business performance whilst SOC3 associate professional and technical freelancers (54.5%) cited this factor as their third greatest enhancing factor.
In addition, SOC2 professional freelancers (58.1%) cited the adoption of flexible working practices by organisations as their second most enhancing determinant.
Overall, the top three factors enhancing freelancers’ business performance remain unchanged compared to Q1 2022, 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.
Our previous findings revealed that confidence in the UK economy for the next three months had fallen quarter-on-quarter for Q3 2021, Q4 2021 and Q1 2022. It is perhaps unsurprising with the current cost of living crisis engulfing the UK and predictions that inflation is set to hit more than 18 per cent by the beginning of 2023, that freelancers’ confidence in the UK economy for the next three months has fallen sharply from -23.1 in Q1 2022 to -46.2 this quarter. This represents the lowest indices score for confidence in the UK economy over the next three months since Q3 2020.
The sharp decrease in overall confidence is driven by a decrease in confidence across all SOC groups and in particular, a significant decrease in confidence from SOC1 managerial freelancers, decreasing from -5.4 in Q1 2022 to -32.6 this quarter. This represents the lowest indices score for this SOC group since Q3 2020.
Similarly, SOC2 professional freelancers also reported a drop in confidence in the UK economy for the next three months, falling from -34.7 in Q1 2022 to -54.5 this quarter – representing the lowest indices score for SOC2 professional freelancers since Q1 2020.
In addition, SOC3 associate professional and technical freelancers have also experienced a decrease in confidence compared to last quarter, falling from -23.4 in Q1 2022 to -46.9 this quarter – representing the lowest score for this SOC group since Q3 2020.
Overall, with freelancers contending with the current cost of living crisis and rising costs, freelancer confidence in the UK economy for the next three months has sharply dropped to its lowest level since Q3 2020 – the height of the pandemic and lockdown restrictions.
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 for the next 12 months reveals a sharp decrease in confidence, falling from -27.4 in Q1 2022 to -56.7 this quarter and driven by decreases in confidence reported by all three SOC groups and representing the lowest overall indices score since Q1 2020.
SOC3 associate professional and technical freelancers reported the largest decrease in confidence in the UK economy for the next 12 months, falling from -22.7 in Q1 2022 to -56.3 this quarter – representing the lowest score for this SOC group since Q1 2020.
Similarly, SOC1 managerial freelancers also experienced a sharp decrease in confidence for the next 12 months, falling from -22.2 in Q1 2022 to -52.2 this quarter. This represents the lowest score for SOC1 managerial freelancers since Q1 2020.
In addition, SOC2 professional freelancers also reported a significant decrease in confidence, falling from -36.1 in Q1 2022 to -60.3 in Q2 2022 – representing the lowest score for this SOC groups since Q1 2020.
Overall, freelancers’ confidence in the UK economy for the next 12 months has dropped sharply compared to the last quarter, with the overall indices score and the individual scores for all three SOC groups representing the lowest level since Q1 2020 – when freelancers were contending with the onset of the Coronavirus pandemic and beginning of lockdown restrictions.
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 our report in Q1 2022 revealed that day rates had dropped from £584 in Q4 2021 to £516 to Q1 2022, day rates have now slightly increased with the average day rate charged by freelancers over the last three months standing at £528, increasing from £516 in Q1 2022.
The increase in day rates this quarter is largely driven by a significant increase in the average day rate charged by SOC3 associate professional and technical freelancers, with the average rate charged increasing from £308 in Q1 2022 to £420 this quarter.
On the other hand, both SOC1 managerial and SOC2 professional freelancers reported decreases in their day rates for the last three months, falling from £711 in Q1 2022 to £600 this quarter and from £609 in Q1 2022 to £595 this quarter respectively. This represents the lowest average day rate charged by SOC1 managerial freelancers since Q2 2021.
Overall, whilst average day rates have slightly increased compared to the last quarter, this is driven entirely by the significant increase in day rates charged by SOC3 associate professional and technical freelancers, with this increase offsetting the significant decrease in average day rates charged by SOC1 managerial freelancers.
Average day rates charged by freelancers over the last three months
The weighted average is based on the relative size of freelancers in the labour market in 2021.
In terms of quantifying the expected change in day rates, the majority of freelancers (62%) expect an increase in their average day rates for the next 12 months whereas a further 22 per cent expect no change and 16 per cent forecast a decrease. This compares to 67 per cent of freelancers that forecast an increase in their day rates in Q1 2022.
SOC1 managerial freelancers were more likely to forecast an increase in their day rates over the next 12 months, with 70 per cent predicting an increase compared to 60 per cent of SOC3 associate professional and technical freelancers and 59 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 8.6 per cent over the next 12 months. This represents a slight decrease on the expected increase predicted in Q1 2022, where freelancers anticipated an increase of 13.5 per cent.
This expected increase in day rates is driven by SOC1 managerial freelancers and SOC3 associate professional and technical freelancers forecasting an increase in their day rates (anticipating increases of 14.8% and 11.7% respectively).
In addition, SOC2 professional freelancers anticipated a small increase in their day rates, forecasting an increase of just 1.1. per cent.
Overall, the majority of freelancers now expect day rates to increase in the next 12 months, in line with concerns around the cost of living crisis revealed in our business and economic confidence indices.
Freelancers’ spare capacity has decreased slightly since Q1 2022, falling from 3.2 weeks without work per quarter in Q1 2022 to 2.8 weeks this quarter.
This decrease in freelancers’ spare capacity is driven by decreases reported in both SOC2 professional freelancers and SOC3 associate professional and technical freelancers (falling from 2.8 weeks in Q1 2022 to 2.2 weeks this quarter and falling from 3.8 weeks in Q1 2022 to 3.2 this quarter respectively). This now represents the lowest number of weeks without work for SOC2 professional freelancers since Q4 2019 and the lowest number of weeks without work for SOC3 associate professional and technical freelancers since Q3 2019.
On the other hand, SOC1 managerial freelancers reported an increase in their spare capacity since Q1 2022, reporting an increase from 2.6 weeks last quarter to 2.9 weeks this quarter.
Overall, freelancers are now working slightly more compared to last quarter, with only SOC1 managerial freelancers reporting an increase in their spare capacity since Q1 2022.
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 prior to last quarter, our report last quarter revealed a decrease in quarterly earnings from £29,574 in Q4 2021 to £26,916 in Q1 2022. This quarter, freelancers now report a small increase to their quarterly earnings, returning towards the average figure earned in Q4 2021 (£29,574), with average quarterly earnings now standing at £27,486 this quarter compared to £26,916 in Q1 2022.
This increase in quarterly earnings is driven by increases in SOC2 professional freelancers (increasing from £31,349 in Q1 2022 to £32,027 in Q2 2022) and SOC3 associate professional and technical freelancers (increasing from £15,002 in Q1 2022 to £22,020 this quarter).
However, SOC1 managerial freelancers reported a significant decrease in their average quarterly earnings, falling from £39,400 in Q1 2022 to £29,491 this quarter.
Overall, freelancers are now reporting an increase in their average quarterly earnings which is largely driven by increases in quarterly earnings reported by SOC2 professional and SOC3 associate professional and technical freelancers offsetting the significant decrease reported by SOC1 managerial freelancers since Q1 2022.
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 (83%) now expect their input costs to increase over the next 12 months – decreasing slightly from Q1 2022, where 86 per cent of freelancers forecast an increase.
A further 12 per cent of freelancers forecast no change in their input costs for the next 12 months whereas five per cent actually predict a decrease in their input costs for the next 12 months.
The majority of SOC2 professional freelancers (87%) anticipated an increase in their input costs for the coming year which represents an increase on Q1 2022, where 80 per cent forecast an increase and anticipate an increase of 12.8 per cent.
Similarly, the majority of SOC1 managerial freelancers (82%) reported that they expect an increase in input costs for the next 12 months and forecast an increase of 13.6 per cent.
In addition, the majority of SOC3 associate professional and technical freelancers (80%) also forecast an increase in their input costs and anticipate an increase of 18.1 per cent.
Looking at the expected change of input costs for the next 12 months, freelancers are now predicting an average increase of 15.1 per cent in their input costs. This represents a slight decrease on Q1 2022, where freelancers anticipated an increase of 18.8 per cent.
Overall, freelancers are expecting an increase in their business costs for the next 12 months with freelancers expecting the cost of living crisis to continue to impact on their freelance business.
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 2021.
Almost two-fifths of freelancers (37%) are now incurring business debt (slightly down from 39% in Q1 2022) with 15 per cent incurring debt via credit cards issued in the name of their self-employed business.
A further seven per cent are incurring debt via business loans from a commercial bank whilst four 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 three per cent are turning to a friend of family member for business loans.
On the other hand, 59 per cent of freelancers reported that they have no business debt which closely aligns with our findings from Q1 2022, where 58 per cent reported that they have no business debt.
Overall, freelancer business debt has remained largely unchanged from last quarter, with freelancers most likely to be incurring debt via credit cards issued in the name of their self-employed business.
Freelancer business debt
Our report from Q1 2022 revealed that job-related stress increased from 5.50 in Q4 2021 to 5.84 in Q1 2022 (on a ten-point scale where zero is not at all stressed and 10 is extremely stressed).
This quarter, job-related stress levels have slightly decreased from 5.84 in Q1 2022 to 5.70 in Q2 2022 driven by decreases to all three SOC groups.
SOC1 managerial freelancers have reported a decrease in job-related stress, falling from 6.35 in Q1 2022 to 6.09 this quarter whilst SOC2 professional freelancers have also reported a decrease in job-related stress, falling from 5.54 in Q1 2022 to 5.42 this quarter.
In addition, SOC3 associate professional and technical freelancers have reported a decrease in their job-related stress levels, falling from 5.81 in Q1 2022 to 5.58 this quarter.
Overall, job-related stress levels have decreased since the last quarter, driven by decreases to all three SOC groups.
Job satisfaction has decreased from 5.90 in Q1 2022 to 5.67 this quarter (on a 10-point scale where zero is not at all satisfied and 10 is extremely satisfied).
This decrease in job satisfaction is driven by decreases to both SOC3 associate professional and technical freelancers (falling from 6.06 in Q1 2022 to 5.85 this quarter) and SOC1 managerial freelancers (falling from 6.10 in Q1 2022 to 5.04 in Q2 2022).
On the other hand, SOC2 professional freelancers have reported a slight increase in their job satisfaction levels, increasing from 5.61 in Q1 2022 to 5.88 this quarter.
Overall, freelancers’ job satisfaction has decreased from last quarter, driven by decreases to both SOC3 associate professional and technical freelancers and SOC1 managerial freelancers.
Our quarterly report for Q1 2022 revealed that life for freelancers looked like it was on the up. Economic uncertainty surrounding the pandemic was gone and instead work, and confidence were growing, and stress was falling rapidly.
Three months on and last quarter’s confidence seems like a blip, rather than a return to pre-pandemic normality. Over the course of Q2 2022, confidence has fallen to levels not seen since the height of the pandemic due to the current cost of living crisis engulfing the UK and ultimately damaging freelancers and their businesses.
While day rates and quarterly pay are thankfully continuing to grow, inflation seeks to send self-employed workers back into the abyss. In fact, rising costs could completely derail 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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