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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Why the Labour rebels have delayed their leadership challenge

MPs hope that Jeremy Corbyn may yet resign, while Owen Smith is competing with Angela Eagle to be the candidate.

The Eagle has hovered but not yet landed. Yesterday evening Angela Eagle's team briefed that she would launch her leadership challenge at 3pm today. A senior MP told me: "the overwhelming view of the PLP is that she is the one to unite Labour." But by this lunchtime it had become clear that Eagle wouldn't declare today.

The delay is partly due to the hope that Jeremy Corbyn may yet be persuaded to resign. Four members of his shadow cabinet - Clive Lewis, Rachel Maskell, Cat Smith and Andy McDonald - were said by sources to want the Labour leader to stand down. When they denied that this was the case, I was told: "Then they're lying to their colleagues". There is also increasing speculation that Corbyn has come close to departing. "JC was five minutes away from resigning yesterday," an insider said. "But Seumas [Milne] torpedoed the discussions he was having with Tom Watson." 

Some speak of a potential deal under which Corbyn would resign in return for a guarantee that an ally, such as John McDonnell or Lewis, would make the ballot. But others say there is not now, never has there ever been, any prospect of Corbyn departing. "The obligation he feels to his supporters is what sustains him," a senior ally told me. Corbyn's supporters, who are confident they can win a new leadership contest, were cheered by Eagle's delay. "The fact even Angela isn't sure she should be leader is telling, JC hasn't wavered once," a source said. But her supporters say she is merely waiting for him to "do the decent thing". 

Another reason for the postponement is a rival bid by Owen Smith. Like Eagle, the former shadow work and pensions secrtary is said to have collected the 51 MP/MEP nominations required to stand. Smith, who first revealed his leadership ambitions to me in an interview in January, is regarded by some as the stronger candidate. His supporters fear that Eagle's votes in favour of the Iraq war and Syria air strikes (which Smith opposed) would be fatal to her bid. 

On one point Labour MPs are agreed: there must be just one "unity candidate". But after today's delay, a challenger may not be agreed until Monday. In the meantime, the rebels' faint hope that Corbyn may depart endures. 

George Eaton is political editor of the New Statesman.