Self-employed have been shamefully left behind – it needs to be rectified

The sector is in dire trouble and the economy is not going to recover until we start treating it better

‘If the Government was on a mission to hound the selfemployed out of existence it could hardly be making a better job’

Their incomes have steadily fallen. Inflation has hit them harder than anyone else. They are worried about making ends meet, and, perhaps understandably, they have been quitting the workforce in droves. Many different sections of the workforce have been hit hard first by the pandemic, and then by the cost of living crisis that has followed it. But none has been hit harder than the self-employed.

The latest survey of the sector from the London School of Economics (LSE) shows that it is in dire trouble.

In reality, people who work for themselves have been treated appallingly by the Government. There were no support schemes that were anything like as generous as furlough was for employees. Their taxes have been put up, whether it is National Insurance or dividend tax, at precisely the moment when their incomes have been slashed. And they have been hit by complex new regulations by an administrative state that seems to want to hound them out of existence.

That matters. The self-employed make up 15pc of the workforce, and they are typically its most productive and flexible members. The economy is not going to recover until we start treating them better – but there is very little sign of it right now.

The public sector, pensioners and private company employees might all have legitimate gripes about their tax bills, their working conditions and the soaring cost of living. But one point is undeniably true. None of them has found the last three years as tough as the one in six people who work for themselves.

The LSE does a quarterly survey of a sector that is often neglected in mainstream policy discussions, and the latest bulletin makes for grim reading.

While there was a small rise last summer, incomes from self-employment are now falling again (and dramatically so once it is measured in real terms).

One third of self-employed workers are struggling with their daily living expenses, especially as energy is often a major cost for many small businesses.

The total number of hours worked – and most of the self-employed get paid by the hour – is falling steadily. The numbers of self-employed workers making less than £1,000 a month – a very low income to try to get by on right now – has increased from under 30pc of the total pre-pandemic to more than 40pc, while the numbers making more than £6,000 per month keeps on falling.

It is hardly a surprise that many of them have decided to give up.

“While the number of employees in the UK has steadily grown and is now above pre-pandemic levels, the numbers in self-employment are lower than they were in 2019,” said Robert Blackburn, professor of entrepreneurship at Liverpool University and one of the co-authors of the report.

Overall, almost half a million people have left the sector over the past few years. And when you look at everything they have to cope with it is hard to blame them.

In reality the self-employed have been shamefully left behind by a Government that should have been on their side. During the pandemic, while employees were put on the incredibly generous furlough scheme, with their incomes and pension contributions protected while they did nothing, and companies were offered an avalanche of soft loans with few questions asked, a support scheme for the self-employed was offered way too late, and with so many restrictions it was virtually worthless.

Many people working for themselves went for months with hardly any income (one reason the former chancellor Rishi Sunak is so unpopular with Conservative Party members, many of whom work for themselves, is because he did so little for them during the pandemic).

Even worse, over the past couple of years they have been hit by far higher taxes, an especially vindictive decision by the Treasury at a time when incomes in the sector are falling so sharply. They are now paying higher National Insurance charges, and higher dividend taxes as well if they pay themselves through a company.

Finally, there have been a raft of new regulations, all of them enforced with a severity that is rarely seen in any other sector. The widely hated IR-35 rule does its best to tax them as employees, even when they have none of the benefits of a regular job, while the “making tax digital” scheme means even micro-business with only £10,000 a year in revenues have to invest in fiddly software. If the Government was on a mission to hound the self-employed out of existence it could hardly be making a better job of it.

The trouble is, that does a huge amount of damage to the economy. Rewind a few years, and selfemployment was one of the fastest growing and most dynamic sector of the economy, generating lots of well-paid, satisfying careers and, perhaps more importantly, a pathway to entrepreneurship – after all, most people who set up companies employing 10 or 20 people start out by working just for themselves. They provide flexibility, filling gaps in the workforce that many companies need. And they are typically a lot more productive than mainstream employees and put in far longer hours while receiving far fewer benefits.

If the half a million people who have become so discouraged by the way they are treated over the past three years were still part of the workforce we would not be facing such acute labour shortages as we are, nor would inflation – in service sectors in particular – be nearly so high.

They have been badly left behind over the past three years, and it is hardly a surprise that so many have given up – and until we reverse that there is little chance of the economy recovering.