IPSE’s Confidence Index Longitudinal Report uses the quarterly Confidence Index to examine the day rates, earnings, capacity utilisation and confidence of the freelance sector since 2014. It shows that freelancers’ fortunes closely track economic and political fluctuations in these years.

Freelancers have been acutely affected by economic fluctuations because, as providers of flexible expertise – often working on innovation and development projects for larger businesses – they are both more exposed to economic changes and have more information about them. This also means that freelancers are adept at predicting economic changes and have regularly been proven right about upcoming economic turbulence and increases in business costs.

There have been three major ongoing political and economic events that have affected freelancers’ confidence and earnings in the last seven years: the UK’s departure from the European Union, the changes to IR35 self-employed tax legislation and the coronavirus pandemic.

Freelancers’ confidence in the UK economy has closely tracked these events. After remaining broadly positive between 2014 and 2015, freelancers’ confidence in the UK economy over the next three months fell from 7.3 in the last quarter of 2015 to -37.8 in the second quarter of 2016 – just before the vote to leave the European Union. It also dipped sharply in the second quarter of 2017, after changes to self-employed IR35 tax regulations were introduced in the public sector (a fall from -16.1 in Q1 to -34.0 in Q2). These drops in confidence, however, were eclipsed by the coronavirus pandemic. This saw a drop from -36.8 in Q4 2019 (already low because of Brexit concerns) to -86.6 in Q1 2020.

While confidence in the economy generally has been extremely sensitive to political developments, however, freelancers’ earnings and confidence in their own businesses have remained more resilient – until the coronavirus pandemic. In fact, in times of uncertainty caused by Brexit, it has actually been more common for freelancers to see an increase in earnings as employers move away from permanent employees to flexible expertise. In the second quarter of 2016, when confidence in the economy dropped to the then-lowest level on record, freelancers saw their average quarterly earnings increase from £23,243 to £29,601.

Freelancers’ confidence in their businesses has also fluctuated much less than confidence in the economy. Immediately after the EU referendum, while 3-month confidence in the economy fell from 7.3 in the last quarter of 2015 to -37.8 in Q2 2016, freelancers’ confidence in their businesses dropped much less: from 10.5 in Q4 2015 to -11.5 in Q2 2016.

This relative stability in earnings and business confidence was reversed in 2020 with the coronavirus pandemic. In the first quarter of the year, freelancers’ average earnings fell from £22,742 to £20,821. As the full impact of lockdown hit, freelancers’ earnings then plummeted to £15,709 in the second quarter of 2020. This drop was because, although freelancers’ average day rates remained relatively stable, the average number of weeks they were not working per quarter rose from 3.3 to 5.5 out of 13.

Freelancers’ confidence in their businesses dropped in a slightly different pattern. Their three-month confidence in their businesses dropped in the first quarter of the year from -14.7 to -62.6. It then recovered somewhat in the second quarter to -20.4 – potentially because of the support packages and economic stimulus announced.

Overall, IPSE’s Confidence Index Longitudinal Report shows a sector that has been more attuned and exposed than others to political and economic fluctuations. Despite this exposure, the self-employed sector has generally remained more resilient and agile compared to other sectors, largely retaining business confidence and earnings levels – even benefiting from surges in demand in some periods of instability. The report also, however, shows how these trends have been reversed by the extreme and extraordinary circumstances of the pandemic, leaving the freelance sector more financially fragile and in need of external support than at any other period on record.

At the end of 2019, self-employment passed the 5 million mark for the first time ever. Much of this growth can be attributed to rapid increases in the number of freelancers working in the most highly skilled occupational categories.

Freelancers, who are the focus of this report, are a subset of the solo self-employed population who are working in the three highest skilled occupational categories (SOC1 to SOC3). This includes managers and directors, professionals and associate/technical professionals.[1]

Freelancing brings value to the individuals who have chosen this way of working, with people moving into freelancing for overwhelmingly positive reasons such as more flexibility (88%), freedom to choose where to work (83%), when they work (84%) and for improved work-life balance (73%).[2]

However, the rapid rise of self-employment has also created considerable uncertainty not only for policymakers but also for industry and freelancers themselves.

Matthew Taylor’s review of Modern Working Practices published in 2017 discusses some of the key policy issues that arose from the rise in self-employment, such as the need for a legal framework that clarifies self-employment status, as well as better training and learning opportunities to enable skill expansion and job creation within the sector.[3]

Freelancers themselves, while satisfied with this way of work, also face some challenges especially when it comes to the irregularity of income they experience (60%), as well as saving for later life (56%) and dealing with late payment (46%) .[4]

To better understand the nature of the issues that affect freelancers, as well as how the sector is influenced by the wider political and economic circumstances in the UK, IPSE have been gathering data on freelancers’ business and economic outlook via the quarterly Confidence Index survey for the last seven years.

IPSE’s Confidence Index was first launched in Q1 2014 and has operated on a quarterly basis ever since. This report summarises this longitudinal set of data on the business and economic outlook of freelancers in the UK, as well as information on their pay rates, demand for the work they do, expected changes in their business costs and other areas of interest.

It covers a period of sheer upheaval and uncertainty in British politics, marked by four distinct periods: the period prior to the EU referendum, a post-Brexit fallout period, a real crunch point in the Brexit negotiations, and finally – the outbreak of the coronavirus crisis.

The report reveals significant changes over time. It indicates that freelancers’ confidence is responsive to changes in the policy and business environment in the UK. Freelancers have further proved to be astute forecasters; both of their own business and the wider UK economy.

The accuracy of trend forecasts from freelancers suggests that they are not basing their predictions just on extrapolations from recent history. Rather, they also seem to be using additional information related to technological change, new projects, business growth and their clients’ plans – or lack of plans – for future innovation. Therefore, freelancers’ predictions about the economy most likely reflect the intentions of the corporations and SMEs they work with.

The analysis and reporting of the results are enabled through the use of the headline index score – a statistical measurement that allows changes in confidence among freelancers to be tracked over time, varying from -100 to 100. The overall trend points that the headline business confidence index score used in the survey has been in negative territory since the outcome of the EU referendum was announced, excluding Q4 2016 and Q2 2018.

Notwithstanding freelancers’ declining confidence, this research has shown that freelancers are resilient in the face of adversity, considering that they continue to work at high capacity and generate premium earnings above that of employees.

Furthermore, the information provided by the survey helps to inform strategies for improving the self-employment landscape by understanding what troubles they face and where to focus lobbying, further research and campaigns.

Research has indicated that the freelancing sector is highly responsive to changes in policy, business, and economic environments. Freelancers have proved to be astute forecasters of trends in the UK economy, many of them working on projects involving high levels of innovation and technology for both SMEs and big corporations. As a result, they often have more access to knowledge and information about changes in the wider economic and investment environment compared to many larger businesses. Looking specifically at IPSE’s Confidence index, the data shows that freelancers tend to be much less confident about developments in the economy in comparison to their own businesses. There also have been several milestone events that caused freelancers’ confidence to sink in deep negative territory, which will be explored in the sections below.

The sections exploring freelancers’ confidence in this report, have been analysed in conjunction with the data looking at the factors freelancers think are negatively affecting their businesses. These include the UK economy, tax and regulation policy, Brexit and most recently coronavirus.

Freelancers’ confidence in their businesses has ebbed and flowed with political events since the inception of the index. In most cases it has ebbed more than flowed. Brexit and the recent coronavirus crisis have been the most decisive factors looking at the long-term trends. However, changes to taxation policy such as IR35 and the wider economy also played out in the figures.

Despite being able to choose from an extensive range of public policy, economic and business-related factors impacting their business performance, freelancers have been steadfast in their belief that the top factors that continue to positively affect their businesses are all internal and self-determined by freelancers themselves.

This reveals that freelancers believe that their own effort, talent and strategic choice are currently driving their business successes as opposed to any external factors, related to the business environment.

Building their brand and reputation has continuously been identified as the most effective strategy to enhance freelancers’ business performance over the years. Other commonly reported factors were innovation in terms of services offered to clients and collaboration with other freelancers/businesses to secure more work.

This is hardly surprising considering that a well-established brand is a key competitive advantage for freelancers and can in fact determine the success of their business. Recent research commissioned by IPSE showed that despite the rise of social media and freelancing platforms, word of mouth remains the top method for the self-employed to find work or market their businesses being selected by over half (52%) of all respondents.30

Service innovation is another factor that seems to be particularly important to hiring businesses as illustrated by previous research. Business interviews with clients from both large and small companies who engage freelancers reveal that managers perceive freelancers as an essential segment of the labour force because their expertise and business inputs enable an innovation driven and entrepreneurial economy.31

Overall, there is a common pattern of freelancers being successful in using business strategies relating to innovation, marketing and entrepreneurship to drive business performance in an adverse external business environment, which they believe has been created mainly by government policies.

There are very few differences in the top positive factors selected by the three freelancer occupational groups. For instance, SOC3 freelancers working in associate professional and technical occupations are the only segment that often outline targeting new markets as a key method to enhance the performance of their businesses.

This could be associated with the fact that SOC3 freelancers are working in occupations such as design and media and are more likely to seek clients abroad, especially in the EU and work remotely. Therefore, targeting new markets allows them to diversify their client base and enhance their business performance.

The only top positive factor mentioned by freelancers that is external to their business strategies is the growth of the sector in which they work. This suggests that there has been an increasing demand for freelancers’ skills and expertise across businesses over the last five years.32

This is also in line with recent ONS figures showing that the number of self-employed people passed the 5 million mark for the first time ever at the end of 2019, this rise being driven by an increase in the number of freelancers working in the three most highly skilled occupational categories.33

As mentioned earlier in the report, it may be expected that the demand for freelancers’ work in the economy will increase in the long term due to improved business perceptiveness towards remote working during and after the coronavirus lockdown.

There was some evidence for this trend in Q2 2020, when ‘adoption of flexible working practices by organisations’ was for the first time cited as one of the top positive factors and selected by almost half (49.2%) of freelancers.

Therefore, while the outlook for 2020 is tough for freelancers, it is also likely that those of them that can last the pace will benefit from a very positive growth in demand for work in the period beyond the coronavirus health crisis.

Freelancers report high capacity utilisation – meaning the amount of time they are on assignment/project in a 13-week quarter. Between Q4 2014 and Q1 2020, on average freelancers were working 80 per cent of the time, which is a comparatively high figure considering that it does not account for holiday periods.34

It’s important to note that this could vary for freelancers with some working on multiple projects while others working on a non-project basis.

Interestingly, there appears to be little seasonality in the amount of time freelancers are working. For all quarters, capacity appears to be around 80-81 per cent. The only exception is quarter three (Q3 – July to September) when capacity drops to an average of 79 per cent which could be associated with freelancers taking more time off during the summer season.

Demand for freelancers’ work, however, changed over the years.

For all three years between 2015-2017, capacity utilisation was close to 82 per cent. It dropped to 79 per cent in 2018, and further to 78 per cent in 2019. It can only be expected for this annual average to drop even further in 2020 due to the coronavirus outbreak and the impact it had on businesses and the economy.

Overall, this decreasing capacity can be explained by the impact of certain political and economic events on the demand for freelancers’ work.

For instance, freelancers’ spare capacity was affected by the EU referendum and the following period of economic uncertainty. The number of weeks not working per quarter rapidly dropped from 1.7 (13% spare capacity) in Q2 2016 to 3.4 (26%) in Q3 2016 when the outcome of the referendum was announced. Furthermore, the levels of spare capacity remained high (2.6 weeks) in Q4 of the same year.

On the other hand, freelancers’ volumes of work increased substantially in the two quarters preceding a Brexit deadline, with spare capacity falling from 2.9 to 2.7 weeks in Q4 2018, and from 3.3 to 2.5 weeks in Q3 2019.

This could partially be explained by the “talent gap” in the labour market, created by Brexit uncertainty, with many employers preferring freelancers’ “pay as you go” workforce model that allows businesses to fill in a temporary skills gap without the financial burden or risk of hiring a permanent employee.

Freelancers’ spare capacity also increased rapidly during the coronavirus outbreak – from 2.6 weeks in Q4 2019 to 3.3 weeks in Q1 2020 when the crisis began to the record 5.5 weeks in Q2 2020. This is hardly surprising with recent IPSE research finding that over two in three (69%) freelancers said that the demand for the work they do had decreased as a result of the coronavirus crisis, and over half (53%) said it had decreased substantially.35

However, while the freelancing sector has been strongly hit by the coronavirus crisis, what the future holds for freelancers is not necessarily all bad.

Because of the increased trend in remote working caused by the coronavirus lockdown, it can be expected that a significant proportion of organisations may discover the business performance benefits of remote working and will continue to use it in the future.

Therefore, in the long term, we may experience an increased receptiveness to outsourcing work to freelancers who are the ‘core remote workforce’ and may see an increase in their capacity after the crisis comes to an end.

Finally, looking at the different freelancer groups, SOC1 managers, directors and senior officials (80%) and SOC2 professional freelancers (82%) tend to work more than SOC3 associate professional and technical freelancers (78%).

This could be related to the fact that SOC3 is the largest of the three groups, comprising 814,000 freelancers (in comparison with 767,000 in SOC2 and 544,000 in SOC1),36 and therefore the group most likely to face competition.

In fact, SOC3 is the only group selecting competition from other freelancers as a key negative impact on their business performance, which also suggests that within their sector it might be more difficult to find projects and work.

Interestingly, SOC1 managerial freelancers have been more strongly affected by the coronavirus crisis with their spare capacity reaching almost 50 per cent (49%) in Q2 2020, compared to 41 per cent for SOC3 and 39 per cent for SOC2 and an average of 42 per cent.

Freelancers charge £438 on average per day, with rates varying substantially based on their skill level.37

SOC1 managers, directors and senior officials charge on average £587 per day, followed by SOC2 professional freelancers who charge £495. SOC3 freelancers working in associate professional and technical occupations charge almost half this figure - £292 per day.

These differences between the SOC groups illustrate the importance of training for the development of new skills, and for keeping abreast of advances in technology and innovation to secure more clients and higher day rates in self-employment.

Freelancers’ day rates are often linked to changes in the political and economic landscape of the country. For instance, freelancers in all three groups experienced a big spike in earnings in the final quarter of 2018. We know from data produced by the REC that this period saw a real tightening of the jobs market, and that with the Brexit deadline a few months away, government preparations for “no deal” began in earnest.

It is quite possible that firms turned to freelancers to fill the gap left by a tight employment market. The flexibility of their working patterns made it easier to hire them quickly for a short period if necessary.

Another key finding is that expected changes in day rates are generally associated with changes in freelancers’ overall confidence. For instance, in Q3 2016 and Q2 2017 when freelancers’ confidence dropped significantly, a large proportion (42% and 40% respectively) of freelancers indicated that they expected their day rates to decrease in the next 12 months.

Similar to this, in Q1 2020 when freelancers’ confidence in both their businesses and the economy hit record lows, freelancers predicted a 20 per cent drop in their day rates over the next year.

Freelancers also tend to experience seasonal earnings, with Q1 (January-March) and Q3 (July-September) typically showing a fall in day rates, and Q2 (April-June) typically showing an increase in rates.

Overall, however, day rates haven’t changed much over the years and despite fluctuations, the difference in average day rates from 2015 to 2019 is only £13 – a drop from £436 to £423. They also remained on a similar level (£430) during the coronavirus outbreak in Q1 2020 and experienced a small drop to £416 in Q2 2020 during the lockdown.

In fact, day rates remained close to £430 in most years, with the only exception being 2017 when they reached a peak of £481, illustrating the resilience of the sector.

Since Q4 2017, IPSE’s Confidence Index has been tracking how freelancers feel about their business costs in terms of sentiment, charting if they expect them to increase, decrease or stay the same over the following 12 months. Freelancers have consistently expected their costs to increase.

Looking at the period from 2017 onwards, we can see that all three freelancer occupational groups have consistently expected higher than inflation increases in business costs. For instance, the average rate of inflation for 2019 was 1.5 per cent, compared to freelancers predicting a 11-14 per cent rise in their business costs over the next year in 2018.

This could be related to the fact that freelancers’ businesses are exposed to specific costs such as: travel, technical equipment, and work-related training. Looking at transport in specific, this can go up at a faster rate than consumer prices. However, the major driver behind freelancers’ sensitivity to increases in their business costs could be related to working solo, which requires being responsible for all business-related expenditure, rather than having an employer to take on some of the financial pressure and cover part of your work-related costs.

IPSE’s Confidence Index is a story of this volatility, which we can split into four distinct periods looking at both business and economic confidence. The first is easy to mark, it covers the first confidence index right up to the referendum where our results plunged. The second period runs from this point until mid-2018 and can be deemed as the post-Brexit fallout period. Economic confidence in this section is locked into negative territory, but business confidence is more volatile. It covers the 2017 snap election, but crucially also the rollout of IR35 in the public sector. Looking at economic confidence and business confidence for Q2 2017, which covers both events, there is a particular dip.

The end of this period is characterised by a change in the discourse around Brexit as negotiations began to enter a crucial phase and the implications of several narrow results in political debates (Scotland, Brexit, snap election) began to take their toll on the political fabric of the country. This third period saw our lowest result on record pre-coronavirus building up to the two major Brexit deal deadlines in March and October. It also saw a continuing business confidence slide, decoupled from economic confidence, which is likely to do with negativity around the introduction of changes to IR35 in the private sector as explained in the sections above. The fourth period is marked by the outbreak of the coronavirus health and economic crisis in Q1 2020.e