The proportion of the workforce opting for self-employment has risen rapidly in recent years. People choose self-employment over working for an employer for a variety of reasons, including the flexibility and autonomy that it can afford. Equally some of this increase can be attributed to the fact that some industries have developed work practices in which a large proportion of jobs can only be done by freelancers/self-employed people. But self-employment can also include a greater degree of insecurity, with periods of low pay and demand a reality for many sole traders. Building on our analysis of last week’s labour market data, this post explores the early impacts of the crisis on the self-employed - paying particular attention to the insecurity that these workers face.

The most recent ONS labour market data published set out a record quarterly decrease in self-employment – which reduced by 131,000. This is the first significant reduction in the number of self-employed workers for a number of years. The volume of self-employed workers had been growing steadily over the last twenty years, reaching over 5 million in the early part of 2020. This is supported by recent survey evidence from the LSE which shows that self-employed workers are experiencing large decreases in their hours and earnings as a result of the pandemic.

While the drop-off is alarming, there are a number of factors unique to the current context that need to be considered.

Source: Labour Force Survey

Although it is too soon to say definitively what the impact of COVID-19 on the self-employed will be, we can analyse what kind of workers will be most likely to be affected. For example, while the Government stated that self-employed workers were entitled to continue trading during the lockdown and when in receipt of the Self-Employment Income Support Scheme (SEISS), the lockdown will have effectively barred them from this. Hairdressers, electricians and theatre workers are just three occupational examples of self-employed workers who will have been unable to work on account of the lockdown conditions. A large number of these workers may be able to return to trading as we emerge from the lockdown, but there doing so is likely to be subject to significant restrictions that will constrain the scale of their activity for some time to come.

In addition, self-employment in the UK has specific, social and spatial features which means that the crisis will impact on specific social groups and places differently. For example, 10% of self-employed people are over 65, compared with 3% of employees. While this group of self-employed will have state - and most likely private - pensions to draw upon, they are also the group most likely to be at risk from COVID-19, and so may find it challenging to resume their activities prior to a vaccine being developed. The potential loss of earnings could drive some older people into real hardship and potentially exacerbate existing inequalities that they face, such as the risk of experiencing fuel poverty and loneliness.

Areas in Scotland and the North have large shares of self-employment in sectors that are at high risk of disruption due to COVID-19, such as accommodation and food services. Analysis by the Enterprise Research Centre shows that self-employed women are at greater risk of significant income loss than self-employed men, and are particularly concentrated within the North West, Yorkshire and Humber, as well as Scotland and Northern Ireland.

Government has taken steps to mitigate the effects of the crisis on the self-employed, offering grants through SEISS and making temporary changes to Universal Credit to increase the support self-employed people can receive. The SEISS scheme isn’t available for all self-employed people, however. Directors of limited companies, freelancers and those on short-term contracts and new traders are not covered by the scheme – with the 3% of all self-employed workers that started trading after April 2019 ineligible for support.

Similarly, while the changes to Universal Credit (UC) are welcome, there is ongoing uncertainty about how well the scheme can adapt to meet the needs of self-employed workers. For example, many such workers will put money aside to prepare for deferred tax payments, and yet under the current rules, anyone who has more than £16,000 in savings is unable to access UC.

In reviewing this and the Coronavirus Job Retention Scheme, the Treasury Select Committee estimates that more than a million people have missed out on support. The Work and Pensions Select Committee have highlighted a series of ways in which the social security system has been more difficult to navigate for people who are self-employed.

Looking forward, Government will need to assess the heightened insecurity that many self-employed workers will continue to face, and pay close attention to any potential increase in self-employment that is driven by business seeking to make greater use of freelancers and the self-employed in order to keep their fixed staff costs low. More broadly, Government must also consider what role it envisages for the self-employed in the economy post Covid-19. Successive Governments have pointed to the rise in self-employment since the 2009 recession as demonstrative of an entrepreneurial and dynamic economy. But with social restrictions and broader economic uncertainty likely to continue for the foreseeable future, and indications that preferable tax arrangements enjoyed by the self-employed are to be removed as the economy recovers, it remains to be seen whether the rise in self-employment that we have seen over the last decade will be sustained in the months and years ahead.

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