Data: The sinister surge in self-employment

While private job vacancies have grown and self-employment pay has plummeted, why is it that the number of people working for themselves has soared to its highest level since records began? Sally Nicholls finds out what the figures really tell us…

When the Office for National Statistics (ONS) released their latest employment figures in May this year, few of us could have anticipated what was to come. The number of people who had found work in the three months to March stood at 283,000, of which 183,000 were self-employed. It was the largest quarterly increase since records began in 1971, and it marked a continued rise in self-employment that has recently boomed.

Between July and December last year, the increase (172,000) amounted to almost three times that of employees (63,000). There are now more than 4.5 million people working for themselves in the UK, equal to 15 per cent of the total British workforce.

At the same time, self-employed people earn 40 per cent less than the average employed worker according to think tank The Resolution Foundation, and the number of employee jobs has risen by 351,000 since March 2013.

So why are self-employment figures higher than ever before?

“Britain has one of the more flexible labour markets,” says Resolution Foundation policy analyst Laura Gardiner. “It has meant that employment probably hasn’t fallen as much as it otherwise would have done.

“Employees typically lose their jobs in a recession whereas many of the self-employed hang on, work less and charge lower rates.

“So the flexibility boosts their chances of staying in the labour market in tough times, which may also explain the fall in their pay.”

The widespread use of zero-hour contracts and the number of sales representatives being encouraged to register as self-employed has not gone unnoticed either.

Two years ago, Her Majesty’s Revenue & Customs (HMRC) campaigned for direct sellers, including Avon representatives and Big Issue distributors, to register as self-employed, and disclose and pay tax on their earnings. Such workers take commission on the sales they make, and what was once seen as a means to top-up on earnings or fit around caring commitments became officially recognised as employment.

“We have definitely seen a rise in people taking on second jobs or working part-time to supplement their income,” says Laura. “It’s a mixture of people who have always taken that path and have done well, and people who are struggling along.

“But there are increasing levels of underemployment (people working less hours than they would like) among the self-employed, and people who have become self-employed because there aren’t many employee jobs around.”

Since the recession struck in 2008, two thirds of the rise in people becoming self-employed has been part-time. The total number of employee jobs has also fallen in 9 out of 12 regions between 2008 and 2013, despite the overall rise over the past 12 months. The statistics are in fact skewed by a concentration of new jobs in London, where 285,000 were uniquely created in that period. In contrast, figures have stayed relatively stable in other UK regions except for the East Midlands and Scotland, where employee posts dropped by 24,000 and 156,000 respectively.

But the part-time self-employment trend is changing.

Direct selling is the UK’s largest provider of part-time employment according to the Direct Sellers Association (DSA) which accounts for 60 per cent of all direct sellers (400,000) in the UK.

Around 82 per cent of its member companies’ sales forces work part-time. Yet the number of people working longer hours is increasing. Direct sellers who work over 30 hours per week – the equivalent to full time hours – have nearly doubled since 2010, the DSA claims.

“At the DSA we are witnessing a significant widening in the range of people looking to earn additional income through direct selling and also a considerable rise in the number of people increasing the hours they’re working in an industry that has always traditionally been seen as ‘part-time’,” says DSA spokeswoman Mary Worrall.

“Against a backdrop of high unemployment and reports of people being forced to take part time jobs because of the limited availability of full time opportunities, it’s interesting to see that direct selling is bucking the trend and allowing people to take more control over their own work and earnings.”

Meanwhile, it was reported in March that the number of people working under zero-hour contracts had seen a sharp rise since 2013. An ONS study revealed that almost 583,000 workers – more than double government estimates – had not been guaranteed minimum hours or pay by their employer, bringing the total figure to 1.4million.

Although the increase was partly due to a change in the way the ONS assessed such agreements, it signaled “a rising tide of insecurity” among the British workforce, Labour’s shadow business secretary Chuka Umanna said at the time.

And as if that was not bad enough, Debt charity StepChange has since warned that people who work for themselves typically face four times the level of debt of employed workers, on average.

But the number of people turning to self-employment has been increasing for more than a decade prior to 2008, and the number of people in work (30.43million) is at an all-time high thanks to the surge in self-employment.

And it is possible this shift in the labour market is here to stay.

“We don’t think the big increases we’ve seen in recent months are likely to continue,” says Laura, “and it’s likely that some self-employed people might transition into employee jobs as the economy improves. But a lot of the growth in self-employment doesn’t look to be connected to the recession, so there’s no reason to think that’s certainly going to reverse.”

Contrary to arguments that thousands are turning to self-employment out of desperation or necessity, a survey conducted by the Resolution Foundation between March and April found that an overwhelming majority still preferred being their own boss to the security of being an employee.

In fact, 72 percent of those surveyed said they preferred working for themselves, although those who had become self-employed during the previous five years were more likely to prefer working for someone else (28 per cent) compared to those who had been self-employed for five years or longer (11 per cent).

But the irregular and unpredictable income can have knock-on effects.

Another study published by The Resolution Foundation last month found that one in five of those surveyed had been prevented from getting a mortgage because they were self-employed, while 15 per cent said they could not secure personal credit or loans. One in twenty even had problems with finding a tenancy because of their employment status.

And under the universal credit scheme, the government can force self-employed persons who earn under £11,000 per year to seek paid employment instead.

“There is a certain amount of autonomy in people genuinely wanting to work for themselves,” says Laura. “But we have real concerns about what that means for security in work and their income.

“We are calling for more rights for workers who have been on zero hour contracts for a long time to be offered a fixed-term contract, and we’ve flagged self-employment pensions and access to housing and mortgages as areas where there needs to be more active protection for workers.

“There’s a statistical case that we need to be doing a lot better,” she says.

So while self-employment may be an attractive prospect for those who tire of the nine-to-five daily drudge, and while it may be the best option for those struggling to find work in times of austerity, it is important that people prepare for the financial insecurity and uncertainty it can entail.