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


Photo: Getty Images
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It's time for the government to think again about Hinkley Point

The government's new nuclear power station is a white elephant that we simply don't need.

Today I will welcome Denis Baupin, Vice President of the French Assembly, to Hinkley.

His own choice to come and visit the site of the proposed new nuclear power station reflects his strong desire to prevent the UK disappearing up a dangerous dark alley in terms of energy policy. It also takes place as France takes a totally different path, with the French government recently adopting a law which will reduce nuclear energy in the country.

Greens have opposed Hinkley ever since the government announced its nuclear strategy. Hinkley, with its state aid and an agreed strike price of £92.50 per megawatt, has always been financially and legally suspect but it is now reaching the level of farce. So much so that George Osborne is required to be economical with the truth in front of a House of Lords committee because he cannot find anything honest to say about why this is a good deal for the British people.

Mr Baupin and I will join hundreds of protestors – and a white elephant – to stand in solidarity against this terrible project. The demonstration is taking place under a banner of the triple risks of Hinkley. 

First, there are the safety and technological risks. It is clear that the Pressurised Water nuclear reactor (EPR) – the design proposed for Hinkley C – simply does not work. France’s nuclear safety watchdog has found multiple malfunctioning valves that could cause meltdown, in a similar scenario to the 1979 Three Mile Island nuclear accident in the US.  The steel reactor vessel, which houses the plant’s nuclear fuel and confines its radioactivity, was also found to have serious anomalies that increase the risk of it cracking. Apart from the obvious safety risks, the problems experienced by the EPR reactors being built at Flammanvile in France and Olkiluoto in Finland have pushed the projects years behind schedule.

Secondly, Hinkley poses risks to our energy security. Hinkley is supposed to produce 7% of the UK's energy. But we now know there will be no electricity from the new nuclear plant until at least 2023. This makes power blackouts over the next decade increasingly likely and the only way to avoid them is to rapidly invest in renewable energy, particularly onshore wind. Earlier this week Bloomberg produced a report showing that onshore wind is now the cheapest way to generate electricity in both the UK and Germany. But instead of supporting onshore wind this government is undermining it by attacking subsidies to renewables and destroying jobs in the sector. 

Thirdly, there is the risk of Chinese finance. In a globalised world we are expected to consider the option of allowing foreign companies and governments to control our essential infrastructure. But it is clear that in bequeathing our infrastructure we lose the political control that strengthens our security. The Chinese companies who will be part of the deal are part owned by the Chinese government and therefore controlled by the Chinese Communist Party. What a toppy-turvy world globalisation has created, where our Conservative British government is inviting the Chinese Communist party to control our energy infrastructure. It also seems that China National Nuclear Company is responsible for the manufacture of Chinese nuclear weapons.

Of course it is the Chinese people who suffer most, being at the hands of an oppressive government and uncontrolled companies which show little respect for employment rights or environmental standards. By offering money to such companies from British consumers through their energy bills our government is forcing us to collude in the low human rights and environmental standards seen in China.  

Research I commissioned earlier this year concluded we can transform the South West, not with nuclear, but with renewables. We can generate 100 per cent of our energy needs from renewables within the next 20-30 years and create 122,000 new quality jobs and boost the regional economy by over £4bn a year.

The white elephant of Hinkley looks increasingly shaky on its feet. Only the government’s deeply risky ideological crusade against renewables and in favour of nuclear keeps it standing. It’s time for it to fall and for communities in the South West to create in its place a renewable energy revolution, which will lead to our own Western Powerhouse. 

Molly Scott Cato is Green MEP for the southwest of England, elected in May 2014. She has published widely, particularly on issues related to green economics. Molly was formerly Professor of Strategy and Sustainability at the University of Roehampton.