The Bank of England, looking specifically into the growth of self-employment in 2015, said:⁵

“While the recession may have pushed some workers into self-employment where they otherwise might have been unemployed, there is little evidence to suggest this was a major factor in the rise of self-employment: across different sectors, job losses have not been not well correlated with subsequent increases in self-employment. Moreover, most self-employed workers are not looking for a job.”

Although they suggested the growth in this area could be due to long-term trends from before the 2008 financial crisis, such as an ageing workforce or hidden underemployment, they concluded that self-employment wasn’t growing because of excess slack in the economy. More women than ever have entered the workplace including into self-employment. In fact, IPSE’s research highlights that the number of female freelancers increased by 69 per cent between 2008 and 2019.⁶

There has also been a growth over a similar period in the number of disabled people becoming self-employed.⁷ According to IPSE research most disabled freelancers value the flexibility and control offered by this working pattern, similarly to the general self-employed population.⁸ Both trends are drivers in the growth of self-employment to over 5 million in the UK in 2019.⁹

The need for flexibility in the workplace has become more prescient as technology and new working practices have taken hold. Freelancers value their flexibility, with IPSE research showing that people are moving into freelancing for overwhelmingly positive reasons: more flexibility (88%), the freedom to choose where they work (83%), when they work (84%) and for improved work-life balance (73%).¹⁰

Productivity growth is traditionally linked to wage growth and is one of the great puzzles of the UK economy. In January 2020 we saw the highest level of employment on record.¹¹ In turn annual growth in UK productivity has only averaged 0.3 per cent over the last decade,¹² and wages have been similarly supressed. The UK is not on its own in this problem. Most OECD¹³ countries have seen little productivity growth since the crash in 2008.

We have seen both record employment and self-employment in this time whilst wages have stagnated. Similar to employees, freelancers’ day rates haven’t changed markedly over the last seven years. However, they continue to earn more money than employees in similar roles, which could be one of the reasons why more and more people are becoming self-employed.

The Resolution Foundation think tank expressed in its July 2019 earnings outlook that, contrary to their estimations, self-employed earnings have moved roughly in line with the minimum wage, and are not a response to it.¹⁴

IR35 encompasses measures set out by the government aimed at stopping “off-payroll” employment or false self-employment. Changes to how the liability for a determination of whether one is considered inside or outside IR35 are due to be implemented in the private sector. The rollout of these changes, meaning that the decision falls with the end-client rather than the contractor, came into force in the public sector in 2017. This led to increased uncertainty for freelancers, many of whom had to move to umbrella companies or increase their day rates to adjust for their financial loses.¹⁵

Trade, economic confidence and business investment have all been affected by the delays and uncertainty caused by the political deadlock in agreeing a way of leaving the EU. This was also reflected in freelancers’ responses in IPSE’s Confidence Index.

Brexit  is also a driver behind the weak pound which in turn affects other trends, such as the low levels of capital investment.¹⁶ In fact, the end of 2018 saw the first four consecutive quarters of falling capital investment since the 2008 financial crisis. This inevitably has an impact on the business opportunities for freelancers and slows down business activity.

The onset of coronavirus and the subsequent government rules around social distancing, the shutting down of events and a huge move for the majority of people who could, to work from home, has fundamentally changed the economy in a short space of time. Unemployment is now predicted to reach levels unseen since the 1980’s by the end of 2020¹⁷ and several industries with a high number of self-employed people have been particularly affected, such as the creative industries. The long-term effect of the virus on the UK’s freelancers is yet unknown, but our data, as we explore later in this report, has shown a huge immediate impact on freelancers' working hours and earnings.

Freelancers’ short-term business confidence was predominantly in positive territory throughout 2014 and 2015 until the outcome of the EU referendum was announced in Q2 2016 when it first dipped to negative levels (-11.5).

Since then freelancers have remained mostly positive about the prospects for their businesses in the short-term, excluding quarters when major political and economic events caused significant disruptions to the operation of their freelance businesses.

Freelancers’ 12-month confidence index was also in strong positive territory throughout 2014 and 2015 until the results of the EU referendum were announced in Q2 2016 when it dipped to -24.2.

Unlike freelancers’ short-term confidence, however, the 12-month confidence index never fully recovered and mostly remained entrenched between -3 and -10, dropping even further in periods of increased political and economic uncertainty.

We have surveyed freelancers’ sentiment time and again throughout the Brexit process. When asked about their preferred deal, freelancers indicated a preference for remaining closely aligned with the EU. In fact, 81 per cent of the freelancers surveyed were against a ‘no deal’.²²

This could perhaps explain why Brexit held its place in the top three negative factors impacting freelancers’ businesses throughout most of the period following the referendum and also led to drops in confidence in the years after, as will be explored in the section below.

Freelancers’ short-term confidence dropped in negative territory in quarters when snap general elections took place such as in Q2 2017 (-12.2) and Q4 2019 (-14.7). Therefore, political uncertainty in the country seems to be transferring into freelancers’ business outlook for the upcoming months.

The data also shows that freelancers’ short-term business confidence is sensitive to changes in legislation such as the roll-out of IR35 in the public sector in Q2 2017, and the roll-out of IR35 in the private sector which freelancers were concerned about in Q4 2019, but was later postponed due to coronavirus outbreak.

The pattern for the 12-month freelancer business confidence index is similar except that the index scores are more emphatically negative looking at the long-term trends.

Key dips in the 12-month business confidence index occurred around Brexit crisis points such as in Q3 2019 when the long-term index dropped to -20.8, as well as when general elections were taking place in Q2 2017 (-25.3) and Q4 2019 (-23.2).

The explanation for these is fairly simple - when an election takes place there is added uncertainty for everyone as the new government will likely bring about changes in the economy and business environment.

The same is true for the added Brexit uncertainty which led to reduced investment levels in the UK between 2017 and 2019, and also transferred into a reduced business confidence for freelancers, many of whom either take contracts in the EU or work in sectors in the UK affected by the negotiations.

For instance, IPSE data shows that in 2018 more than one in three (39%) freelancers had at least one project/contract based in the EU (excluding the UK) for that year, while just over one in four (28%) completed at least one trip to the EU as part of their self-employed work for the same period of time.²³

Most importantly, the coronavirus health emergency and economic crisis in Q1 2020 caused the business confidence indices to fall to unprecedented low levels: -62.6 for the short-term confidence and -57.3 for the long-term business confidence.

Even though business confidence recovered slightly in Q2 2020, it remained in strong negative territory for both the long and short term.

In Q2 2020, the coronavirus pandemic was also introduced as a factor influencing business performance in IPSE’s Confidence Index survey. It was not only the top negative influence on freelancers’ businesses that quarter (selected by 81.1% of freelancers), but it was also selected as a top factor by all three freelancer occupational groups.

This is hardly surprising given that the IPSE Coronavirus Report published in April 2020 indicated that the coronavirus crisis has caused major concern about business prospects in the sector.²⁴

As the country took necessary measures to shut down everyday activity in order to protect public health and the NHS, there was an immediate financial impact on freelancers, 45 per cent of whom said that they might end up with no money to cover basic living expenses as a result of the crisis.²⁵

Throughout March and April 2020, IPSE and other organisations that advocate for the self-employed also heard countless stories from those who had seen their future work and income being delayed, cancelled, or disappearing altogether.

These record low levels don’t necessarily mean that the sector won’t survive the crisis. In the past freelancers managed to prove their resilience by securing rates double those of employees working in equivalent roles, even when their business confidence was stable in the negative territory.

It does, however, indicate that the government should provide more support for this vital sector, especially the groups that were not able to access the support measures such as the Self-Employment Income Support Scheme (SEISS), namely the newly self-employed who started their business post April 2019, those with average profits above £50,000 and anyone operating via a Limited Company.

Finally, looking at differences between the three occupational groups overtime, the data shows that generally SOC3 technical freelancers report higher business confidence index values in comparison with SOC1 managerial and SOC2 professional freelancers.

In some quarters, this might be related to the fact that SOC3 are the only freelancer group that wouldn’t be heavily affected by the proposed changes to IR35 in the private sector, as these only apply to limited company directors while most SOC3 freelancers operate as sole traders.

According to IPSE research, the changes to IR35 in the public sector led to clients losing skilled contractors, project delays and increases in project costs. Many freelancers also had to move to umbrella companies or increase their day rates to adjust for their financial loses.²⁶ Changes were due to come into force in the private sector in April 2020 however have now been delayed until April 2021.

Business confidence also doesn’t seem to be related to the objective performance of the three freelancer groups. For example, SOC3 freelancers, while most positive, earn substantially less per quarter in comparison to the other two segments and find it more difficult to find work due to higher competition within their sectors.

Interestingly, however, the large fall in confidence which occurred in Q1 2020 because of the coronavirus outbreak was across the whole highly skilled freelancer sector, diminishing most previous differences. This shows the extent to which the crisis affected all freelancers regardless of their skill and income levels.

Brexit uncertainty and the coronavirus pandemic can explain a lot of the negativity around the economy, with both factors contributing to a perception of substantial downside risk in the future.

However, there is an argument that something broader was going on. Germany,²⁷ Italy²⁸ and several other countries experienced quarters of negative growth in 2019. The UK in fact experienced nearly zero growth in the autumn of the same year.²⁹

The changes in the strength of the pound were also noticed by freelancers. For instance, SOC3 technical freelancers ranked this quite highly as a problem for their businesses, possibly reflecting that they may have more exposure to imports and exports from Europe in comparison to the other two freelancer occupational groups.

When asked in 2018, SOC1 freelancers, working in senior and managerial occupations, consistently predicted higher increases in business costs over the following 12 months compared to the other two groups. SOC1 freelancers tend to be both from higher earning professions and from those overseeing major business decisions.

This might have encouraged them to believe that costs were likely to increase, with Brexit dominating the headlines, but the details of a potential agreement far from complete. However, the strong Conservative majority obtained in Q4 2019 seemed to have reduced some of the Brexit uncertainty, as SOC1 freelancers predicted only a seven per cent increase in business costs that quarter, compared to an average of 16 per cent predicted increase across 2018.

Interestingly, SOC3 technical freelancers predicted the highest rise in business costs throughout 2019 (in the range 10-14%), with their predictions especially high in quarters marking a Brexit deadline. This could be associated with the fact mentioned above that SOC3 freelancers are working in occupations such as design and media and are more likely to seek clients abroad, especially in the EU. Therefore, they are more likely to be sensitive to developments to the Brexit negotiations.

At the onset of the coronavirus pandemic in Q1 2020, freelancers predicted that their business costs would decrease for the first time on record. Even though the expected decrease was minor (-0.1%), it could be related to a general negativity about the economy and decreasing amounts of work: less business can mean less costs in the short to medium term. Alternatively, however, with a range of freelancers working from home after the introduction of a nation-wide lockdown, their predictions could simply reflect an anticipated fall in costs such as travel and commuting.

The second quarter of the year saw a return of business costs expectations to more traditional levels (6% increase) but still exceeding that of inflation. Similarly to the increase in business and economic confidence over the same period, this could reflect the easing of the lockdown measures creating a boost to the economy, as well as freelancers’ having a better picture of where the economy is going three months further down the line.

Brexit has been a key driver in the uncertainties plaguing the economy since 2016, with freelancers’ confidence stuck in negative figures since the referendum. Freelance businesses need a stable economic environment from which to operate and innovate, and this means knowing what Brexit means for them. 

Government should provide sound and accessible advice and support for the self-employed on the implications of Brexit, particularly in the absence of a trade agreement. Any deal should provide access to the Single Market across key sectors with high numbers of freelancers, such as manufacturing and financial services, and the easy movement of skilled professionals should be prioritised in negotiations.

The COVID-19 pandemic and subsequent lockdown have placed a huge burden on the self-employed. The government’s Self-Employment Income Support Scheme (SEISS) has provided a vital lifeline of financial support for over 2.7 million people but many self-employed people have been left out of government support. The SEISS also ended in August, two months before its counterpart furlough scheme for employees. 

As we enter the next phase of the pandemic and look to keep the economy going, we need a tailored solution for supporting the self-employed. Government should introduce a fair, flexible and focused support package which can support those who are ill or self-isolating, individuals such as the newly self-employed and company directors who did not benefit from the first round of support, and self-employed workers operating in sectors experiencing sustained economic distress such as the creative industries.

The update to IR35 rules in the public sector had a damaging effect on freelancers’ confidence in 2017. Though postponed due to coronavirus, the anticipated private sector changes are likely to cause similar disruption to freelancers and clients alike. These rules hold back innovative freelancers trying to make their way in the economy and are the symptom of an antiquated tax and employment system, which is also open to abuse by employers seeking to restrict the rights of workers through false self-employment.

The government should reverse its decision to introduce the IR35 legislation or, failing this, delay the roll out to the private sector until a full review of its implementation in the public sector has taken place, and the impacts of coronavirus are better understood. In the meantime, the government should commission a fundamental review of the UK’s outdated tax system and how it affects small businesses and the self-employed.

Skills development is often the silver bullet for improving business’ productivity and earning power. If freelancers had access to training, they could take on new skills and projects, making their businesses much better prepared for changes in the economy.

New skills and qualifications are a gateway to higher earnings and career progression for the freelancers, but finding the time and money to undertake training is difficult. The government’s skills and apprenticeships system has traditionally been overly focused on traditional employees and does not account for the training needs of the self-employed. Only 12 per cent of the UK’s solo self-employed have received job-related training in the last three months, compared to 26 per cent of employees.

IPSE has previously called for reform in several ways – we believe the most effective would be to make training for new skills tax-deductible for the self-employed. This would enable freelancers, particularly in sectors where demand has slowed or disappeared, to gain new skills and adapt their business offer to new markets.