What's behind the 367,000 new self-employed people?

It could be an outbreak of entrepreneurism, tax avoidance, or maybe just plain old unemployment

The strength of the UK labour market has been an on-going puzzle. Despite a 4 per cent drop in GDP, employment has risen, and more people are in work than in 2008. Yet the rise hasn’t been in full-time employee jobs. Part-time work has accounted for some of the increase, but most of it has been a result of self-employment. New figures released today (6 Feb) by the ONS show self-employment has grown by 367,000 since 2008, with the trend most pronounced amongst males and older workers.

So what’s behind this trend? There are a number of possible explanations. Ministers will no doubt claim it as a resurgence of entrepreneurialism, with new companies emerging from the ashes of the old economy. Yet this is unlikely, and few of the newly self-employed will be starting the Facebooks of tomorrow: 66,000 fewer self-employed workers are actually employing staff.

A second potential culprit is the Work Programme. Long-term unemployed jobseekers may be encouraged into self-employment by providers who are incentivised to get them off Jobseekers Allowance. However, this effect is unlikely to be significant enough to explain the overall trends: ERSA estimate that only 10% of those who have found work have entered self-employment. Assuming around 300,000 job starts, only 30,000 will be self-employed (even if all survive in self-employment).

A third explanation may be more significant: firms are shifting workers onto self-employed contracts to avoid paying National Insurance, holiday pay and benefits. Yet while such contracts are increasingly used in construction, the explanation doesn’t quite fit with the characteristics of many of the newly self-employed. Research by the TUC shows that the biggest rise in self-employment has been in professional occupations.

This leaves a fourth culprit looking increasingly guilty: the weak economy is pushing workers into self-employment. The evidence fits. Underemployment amongst the self-employed has increased from 6.4 per cent in 2008 to 10.8 per cent in 2010, and is now slightly above the rate for employees. So while some will find self-employment a good way to earn a living, for others the situation is decidedly bleaker. Professionals don’t want to be unemployed, so they become “self-employed” as a way of saving face.

The rise has been most pronounced for older workers, which is perhaps not all that surprising since this is the group with the most contacts, experience and start-up costs to move into work on their own. Some will also be deferring retirement to avoid the low value of pensions. Others will find self-employment an attractive alternative to a tough formal labour market.

So why does the rise in self-employment matter? Surely self-employment is better than unemployment?

Yet self-employment can be tough – many will be building up debt as they scrape along. And later this year, Universal Credit will be introduced. It will assume that the self-employed earn a certain amount, regardless of whether this is actually the case. Those with low incomes in self-employment will find they lose benefits. For many workers now, self-employment is tough. But it is likely to get tougher in the future.

Photograph: Getty Images

Neil is the Senior Economist at The Work Foundation

 

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Is Labour really as doomed as it seems? The polls have got it wrong before

Pollsters often overrate Labour's performance. But in two elections, the opposite happened. 

Few moments in the Labour Party’s history can have felt as gloomy as this one. Going into a general election that almost no-one expects them to win, their overall opinion polling is appalling. Labour seems becalmed in the mid-20s; the Conservative Party has rocketed into the mid- to high-40s, and has even touched 50 per cent in one survey.

The numbers underlying those voting intention figures seem, if anything, worse. The Conservatives have huge leads on leadership and economic competence – often even more reliable indicators of election results than the headline numbers. High turnout groups such as the over-65s have turned against Labour in unprecedented numbers. Working-class Brits have swung towards the Conservative, placing once-safe Labour seats in danger. There are limited, but highly suggestive, hints among the data that the swing against Labour is higher in its own marginal seats – a potentially toxic development for any party seeking to hang on to MPs, as Conservatives defending apparently impregnable majorities under John Major in 1997 would attest.

All the while, Labour seems confused about what it is really for. Try as he might, Keir Starmer’s term as Labour’s shadow Brexit secretary has been marred by a fatal confusion and indecision about the extent of the UK’s future engagement with the European Union’s single market. Labour seems neither the party of Brexit nor of Remain, but one determined to irritate as many voters as possible. A similar situation reigns in Scotland, where nationalists under Nicola Sturgeon face Conservative Unionists led by Ruth Davidson, and Labour struggles even to gain a hearing.

Many Labour policy offers – free primary school meals for all, the promise of free university tuition, nationalising the railways, upholding the triple lock of pensions, opposing National Insurance rises for the self-employed – are pleasingly universal, while in isolation appealing to different electoral groups. But together, they represent a massive shift of resources to higher-income Brits that would take huge tax rises to offset. Labour is dangerously close to offering a regressive package under the guise of left-wing radicalism. This is pretty much as far from the British people’s electoral sweet spot as it is possible to imagine.

It is therefore little wonder that Labour lags so far behind Theresa May’s Conservatives. Even some Labour strongholds appear likely to fall - regional polls from London and Wales suggest that many Labour seats will be lost in the party’s remaining citadels. Brutal stories are already coming in from the campaign trail. Rumours fly of truly epochal losses - though it is important to note that other anecdotes seem much less dramatic.

Still, there are other indicators – all too easily missed in the heat of the moment – that point in the other direction. Labour’s performance in local by-elections has been dire for the main opposition party, but the swing towards the Conservatives has been running at "only" just over 2 per cent. The party has certainly suffered some big swings against it, and it has lost wards to the Conservatives in local authorities as varied as Hertfordshire, Harrow and Middlesborough. But there is no evidence that its vote has collapsed on the scale that some of the polling suggests.

Relatively recent history should also give us pause before we write Labour off altogether. Consider the last two general elections in which Labour had near-death experiences, in both 1983 and 2010. Britain’s third party - first the Liberal-SDP Alliance, and then the Liberal Democrats - seemed about to overtake Labour in the popular vote, and steal scores of seats from the bigger progressive party. On both occasions, Labour was able to draw on hitherto unguessed-at wells of cultural identity and strength to pull away right at the campaign’s end. These are in fact the only elections in recent times when the polls have underrated, rather than overestimated, Labour’s likely score. It might be that the same phenomenon emerges this time.

The Conservatives’ huge lead right now has not resulted from a sudden collapse in Labour support, but rather from the United Kingdom Independence Party’s well-publicised implosion. If anything, after about a year of steady decline, the last week or two has seen Labour’s twelve months of slow deflation grind to a halt. Labour’s numbers have even ticked up a point or two as some voters appear to rally around "their" flag. It might be that, as you squeeze the Labour vote down, it becomes more resilient to further shrinkage.

As the Conservatives try to push into Labour’s heartlands, they might find it harder and harder to persuade voters across, from Ukip as well as from Labour. The Conservatives’ image is still far from good in such communities, whatever the underanalysed and separate appeal of PM May as a strong, considered leader in need of a negotiator’s mandate in Europe. Voters might be attracted to May, and repelled by Corbyn - that does not necessarily mean that they will actually vote Conservative. There is little evidence, so far, of any realignment in how voters see themselves – whether they "are" Labour or Conservative, rather than the more ephemeral question of whether they will simply vote for those parties.

Humans always look for patterns. Experts are no exception, while journalists and commentators can always jump to rapid – but wrong – conclusions in the overexcited heat of an election campaign. So it is with the threat of a Labour catastrophe on 8 June. The danger of just such a result is definitely there. But some of the data points we already have, and two recent elections at which Labour walked close to an abyss, cast a little bit of doubt on the inevitability of such an outcome. There are still just over six weeks to go. A Conservative landslide is still quite likely. But it is not certain. We should keep an eye out for the many hints that May’s gamble might end in a rather less crushing victory than we have been led to expect.

Glen O’Hara is Professor of Modern and Contemporary History at Oxford Brookes University. He blogs, in a personal capacity, at Public Policy and the Past. He is the author of a series of books about modern Britain, including The Politics of Water in Post-War Britain (Palgrave Macmillan: forthcoming, May 2017).

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