Self-employment falls for the second year running

Disruption from the pandemic and changes to tax regulation have led to self-employment in the UK shrinking for the second consecutive year. The biggest fall in freelancing came among those self-employed at the management and director-level.

The UK’s freelance economy took a hefty hit from the coronavirus outbreak. Earlier in 2021, research suggested that two-thirds of the sector’s workers were negatively impacted by the pandemic itself. Meanwhile the Association of Independent Professionals and the Self-Employed (IPSE) found that since reforms of IR35 came into effect in 2021, close to one-fifth of freelancers would now consider a return to salaried life as a result.

At the start of a new year, further research from IPSE has indicated that many individuals are making good on their promise to exit the independent market. The number of solo self-employed workers in the UK fell by 5% from 4.3 million in 2020 to 4.1 million by the end of 2021.

That fall represents the second consecutive year that the solo self-employment sector has decreased, having grown by 40% between 2008 and 2019. This may lead to serious economic impacts in the wider market, as self-employed individuals currently contribute an estimated figure of £303 billion to the UK economy per year. Included in that is approximately £147 billion from what IPSE terms ‘highly skilled freelancers’ the segments which are leaving the sector most rapidly.

Derek Cribb, CEO of IPSE, said, “It is worrying to see that the number of self-employed workers has fallen for a second year running, especially given the significant contribution the self-employed are known to make in periods of economic recovery. While historically self-employment has been one of the most dynamic and resilient parts of the economy, it is clear that the pandemic and other issues like IR35 and Brexit have seriously impacted the sector and have sown seeds of doubt and uncertainty throughout the freelancing industry over the past two years.”

Managers, directors and senior officials made up 9% of the independent market in 2021 – with the segment shrinking by a total of 30%, more than any other. At the same time, while the number of self-employed people in professional occupations such as accounting and consulting held more or less steady, around 10% of associate professional and technical occupations withdrew from self-employment.

Meanwhile, the only areas to rapidly add self-employed individuals were those where sales and customer services – growing by 108%. While it is difficult to explain why this might be, it may well have something to do with employers seeking to reduce spending, recruiting ‘freelance’ individuals to avoid being legally required to offer would-be-staff compulsory benefits like sick pay, or parental leave.

Further illustrating this major shift in the gig economy, specific jobs relating to ‘high skilled’ work have seen the most dramatic declines. Managers and proprietors in other services saw their number fall by 44%, while functional managers and directors fell by 26%.

Cribb added, “While certain regions, demographic groups and occupations have thankfully defied expectations, the fact remains that these bright spots don’t make up for the mass exodus of self-employed workers during the pandemic. The sad truth is that the sector has started 2022 in a highly fragile state and if it is going to recover its pre-pandemic growth after Omicron, then the government needs to intervene and ensure that damaging and confusing legislation like IR35 is properly reviewed and that the conditions are right for recovery.”