Lockdowns and support gaps: Counting the cost of the pandemic on self-employment

  • Research
  • Two out of three freelance businesses (67%) were negatively affected by the pandemic
  • Three out of five freelancers (60%) saw a decrease in turnover because of the pandemic
  • Of those who had suffered a decrease in turnover, almost half (47%) have seen their turnover decrease by over 40 per cent
  • As a result of the gaps in support, two thirds of limited company directors (67%) and almost half of sole traders (48%) said they do not feel supported by government
  • One in four freelancers (25%) are now considering leaving self-employment or actively seeking employee roles.

Financial impact

The pandemic has had a long-term and severe financial impact on freelancers and self-employed people. Two out of three freelancer businesses (67%) were negatively affected by the pandemic, and this translated into a drop in turnover for three out of five of all self-employed people (60%). 

 

 

The degree of financial damage varied significantly across the sector. Although a small group (10% of the sector) said their businesses actually improved during the pandemic, overall, of those who had suffered a decrease in turnover, almost half (47%) have seen their turnover decrease by over 40 per cent. Almost one in ten freelancers (9%) even saw a devastating reduction of over 90 per cent in their turnover. 

Freelancers who managed to avoid the worst of the damage said they had adopted a range of strategies to boost their businesses during the pandemic: exploring new business concepts (32%), taking training to expand existing skills (24%) or learn new skills (22%) and expanding their client base (24%).

Impact by business structure, age and gender

The damage varied by business structure: three out of five sole traders (62%) saw a drop in turnover compared to just over half of limited company directors (55%). The scale of the damage seems to have been greater for those limited company directors who were affected, however: over half (56%) of limited company directors said their turnover decreased by more than 40 per cent compared to 46 per cent of sole traders. 

There were significant differences between age groups and genders too. Almost two-thirds (62%) of freelancers over 35 saw a decrease in turnover, compared to half of under-35-year-olds. Over two out of five male freelancers (43%) also said their turnover decreased a lot compared to 36 per cent of female freelancers. 

Long-term impact: government support and future freelancing

A key factor in the scale of the financial damage seems to have been the level of government support on offer. While the government’s Self-Employment Income Support Scheme (SEISS) offered substantial support to approximately 3.4 million people (the total the government has claimed are eligible after it extended support to newly self-employed people earlier this year), it left out between 1 million and 1.5 million freelancers. This has led to over half of freelancers (52%) saying they do not feel supported by government. Among limited company directors, who were entirely excluded from support, this rises to more than two out of three (67%). 

Another significant consequence is that many freelancers are considering alternatives to self-employment. Nearly one in ten (8%) are actively seeking alternatives to self-employment, while almost a fifth (17%) would consider leaving self-employment for a permanent position if the opportunity came up. Another 14 per cent said that while self-employment seemed to work now, they could imagine leaving it in the future. 

Of those who were considering alternatives to self-employment, two out of five (43%) said this was because they felt they could earn more as an employee. Another two out of five (40%) said they wanted the security of employment, while over a third (35%) said they now wanted access to employment benefits like sick pay.

One other key reason was the changes to IR35 self-employed taxation. One in ten (9%) said this was why they planned to leave freelancing, but this rose to 30 per cent among limited company directors who are most affected by the changes. 

 

Read the full report here

 

Meet the authors

Joshua Toovey

Policy and research officer

Joshua Toovey is the policy and research officer at IPSE.
Chloe Jepps

Head of Research