Demos Daily: Free Radicals

Many of the self-employed in the UK will be facing an uncertain future as the lockdown eases and the government grant that has been supporting them ends. Many work in areas that are struggling and may not bounce back, such as transport, arts and leisure, or they were already low earners. In 2019, they consisted of over 15% of the UK workforce, and with this number increasing every year, it’s vital we are able to maintain the viability of self-employment. 

In 2018, Demos produced Free Radicals, a report looking at ways the government could make the economy more friendly for the self-employed. We made recommendations to increase financial inclusion, ensure the tax system is fair and promote effective market regulation.

Read the full report here, or the executive summary below.

Executive Summary

The steady rise of self-employment since the turn of the millennium is arguably the most significant labour market trend of the past two decades. There are now some 4.77m self-employed workers plying their trade in the British labour market – nearly 15 per cent of the total workforce, up from around 12 per cent in 2001. Moreover, given self-employment’s resilience in a variety of economic circumstances – before, during and after the Financial Crisis – there is little doubt now that its rise represents a structural rather than cyclical transformation. As such, the public policy debate about self-employment should no longer be confined to the margins: it is a mainstream employment arrangement and deserves a level of political attention that befit its status.

This report aims to assist that process. More importantly, it seeks to respond to a matter of public policy urgency. Because the truth is that policy has not reacted adequately to self-employment’s extraordinary rise. Indeed, the dominant ethos of the relevant public policy systems – employment legislation, tax and benefit, education and training – are still consistent with a time when self-employment was markedly less central to British society and its economy. In fact, at times this ethos can even seen as if it encourages a tacit ‘corporatist bias’ towards a labour market model that favours, implicitly or explicitly, employment by large firms.
Remarkably, it is still not hard to find policymakers discuss self-employment as an ‘irregular’ or even ‘abnormal’ employment arrangement. In an era where self-employment approaches the size of the public sector, this instinct is no longer tenable – Britain’s self-employed millions urgently need a ‘new deal’.

Across six key public policy themes – savings, the platform economy, tax, education, working conditions and support for vulnerable workers – this report makes thirty recommendations that aspire to suggest what that new deal might look like in practice. Furthermore, these recommendations are grounded in a research project that also explored three distinct questions:

1. Who are the self-employed?
2. What is the self-employed experience in Britain’s labour market?
3. How has the rise of self-employment changed Britain’s modern
   economy?

On question 1) we find that self-employment’s recent rise has been driven by
particularly strong growth from:

• Part-time self-employment
• Older workers – specifically those aged 70+ where self-employment now represents 50 per cent of total employment
• The financial and business services sector
• London and the South East.

We also stress that, contrary to some commentary, self-employment’s rise is not caused by, or even particularly connected to, the emergence of the ‘platform economy’ (taxi-driving self-employment, to take one particularly popular example, has actually grown more slowly than total self-employment in recent years). Moreover, we also dispute the characterisation that the self-employed workforce is best understood as a story between two distinct ‘privileged’ and ‘precariat’ groups. Not only do we find this to be a partial misreading of the best available evidence on self-employed earnings, we also suggest it could undermine the universality of many policy issues faced by the self-employed – particularly those concerned with economic insecurity. For example, the challenge of providing good pension provision and later-life savings amongst the self-employed is not at all contained to the most economically insecure selfemployed workers.

Ultimately, the self-employed workforce, like many broad and diverse groups, is most characterised by its ‘extreme heterogeneity’. Therefore, a sweeping generalisation is, by definition, somewhat crude. Yet if we were asked to provide a relevant characterisation for policy development we would suggest that mainstream (i.e. the most typical experience) self-employment might be best captured by the once popular ‘squeezed middle’ description. This description allows us to stress, correctly, that mainstream self-employment is not a story of enforced vulnerability. More importantly, it also allows policymakers to focus their response on the broad challenges faced by both lower and median paid self-employed workers, which we find to be relatively universal. Certainly, this is where we have chosen to focus our policy response in this report. In terms of the economy, we also find that there is a dire need for a ‘new deal’. Indeed, where there are policy problems that might be connected in some way with rising self-employment – such as, for example, the potential productivity impact of the inefficient deployment of self-employed labour – we find that these challenges call, first and foremost, for a more imaginative policy response. To suggest instead that self-employment should be discouraged, would be to commit something close to the ‘lump of labour’ fallacy – the vast majority of self-employed labour is deployed to do work that would be impossible or inappropriate for employees to do, let alone merely inefficient. More importantly, such an argument misses the clear economic benefits that self-employment brings to a dynamic modern economy when deployed correctly.

If we want an economy that boosts our innovative potential, stimulates entrepreneurial activity, encourages businesses efficiency and holds true to the flexible nature of what Matthew Taylor has called “the British way”, then we find that a vibrant and growing self-employed workforce must be at its heart. Finally, drawing on original polling evidence commissioned for Demos/IPSE, we draw the following conclusions about the experience of being self-employed in Britain:

• The majority of the self-employed are happy (80 per cent) and actively choose to be self-employed
• The vast majority of self-employed workers (70 per cent) are content to stay in self-employment for the foreseeable future
• Economic security issues – often associated with irregular income patterns – represent the biggest challenges in terms of the self-employed ‘experience’.
• Pensions or the lack of retirement savings is the biggest substantive policy issue within these challenges (net concern 46 per cent).

These findings are important not only because they allow policymakers to target their response more effectively towards the real needs of Britain’s self-employed workers. They are important too for their ability to rebut another surprisingly resilient narrative about self-employment’s rise: that it is symptomatic of a broader economic malaise that sees would-be employees nudged, by economic insecurity or joblessness, towards self-employment. This simply does not tally with our research – or, for that matter, the wider literature and quantitative evidence. The basic reality uncovered by our polling is that self-employed workers actively choose self-employment, are broadly happy with it, and, for the most part, would like to remain self-employed in the future. In fact, as our qualitative research uncovered, self-employment is often chosen in the full knowledge that there are economic security issues – particularly those surrounding irregular payments – which are then traded off against the nonmaterial benefits the self-employed lifestyle can bring: flexibility, independence, wanting to be your own boss etc. Moreover, we noticed that dissatisfaction with the “rigidity” of the employee lifestyle is regularly cited as a push factor towards self-employment – even, if not especially, for some groups of vulnerable workers. In short, it could be that an overly corporatist mind-set misses the fact that rising self-employment could also be telling us something quite profound about the employee experience in the British economy; that self-employment has become, to some extent, a de facto flexible working policy for the entire British labour market.

Our research supports this conclusion and furthermore, suggests that in a time of limited resources, policymakers could face a strategic choice about whether it is more pragmatic to focus on making firms more flexible, or whether making self-employment more economically secure is a more realistic goal. We do not make a firm choice in this report – but we do believe, as it stands, that only one of those choices is properly represented in the policymaker debate. We hope therefore, that this report and our ‘new deal’ will stand as an important corrective.