• The total solo self-employed population has shrunk by 5 per cent since 2019 after 11 years of continuous growth
• The number of self-employed claiming Universal Credit rose by 341 per cent
• The sharpest decreases were among young self-employed (-11%), less highly skilled male self-employed (-11%) and disabled self-employed people (-8%)
• Regionally, Yorkshire, Wales and the East of England saw the biggest drops

• Of all skill groups, the biggest decline was a 20% drop in the number of process plant and machine operatives (SOC8)

   

The number of solo self-employed in the UK (excluding those who have others working for them) has fallen by five per cent from 4.6 million in 2019 to 4.4 million in 2020. This is a sharp drop for a sector that grew continuously between 2008 and 2019 – by a total of 40 per cent.

The financial impact of the pandemic has been uneven across the sector, with the sharpest drops in solo self-employed numbers among young people, men, disabled people and those in less highly skilled groups. The impact varies significantly across regions too, with the sharpest declines in Yorkshire, Wales and the East of England. The financial hit has also led to an enormous increase in solo self-employed people accessing the benefits system.

Skills and occupations

In terms of skills and occupations, the biggest drop was in Standard Occupational Category (SOC) 8. The number of people in this group – which includes process plant and machine operatives – fell by over 90,000 between 2019 and 2020 (a decrease of 20%). However, there were moderate decreases in almost all SOC groups.

The only skill groups that grew in the last year were the second and third highest-skilled groups, SOC2 and SOC3. SOC2 (professional occupations) grew by two per cent and SOC3 (associate and technical occupations) grew by three per cent compared to last year. The result is that the composition of the solo self-employed sector has shifted, so highly skilled freelancers (SOC1-3) now make up nearly half the entire sector (49% - up 3% on last year). The rise of highly skilled freelancers may also account for the fact that despite overall decline, the self-employed sector’s estimated contribution to the economy has risen from £305bn to £316bn in the last year.

Looking at specific occupations, although most declined somewhat between 2019 and 2020, there was also significant variation. The number of people working in the biggest solo self-employed occupational group, construction and building trades, dropped by eight per cent to 405,000. Road transport driver numbers fell by 20 per cent to 261,000 and agricultural and related trades occupational numbers fell by 18 per cent to 175,000.

Among highly skilled freelancers, there was even more variation, with some groups actually seeing growth. While the biggest freelancer group – skilled artistic, literary and media occupations – remained roughly stable at 16 per cent of the freelance sector, the second-biggest freelancer occupational group, managers and proprietors, grew by two per cent. There were also increases in the number of freelancers working in healthcare (+19%), design (+17%), information technology and telecommunications (+8%), sport and fitness (+7%) and business, research and administration (+7%).

Conversely, the third-biggest group, teaching and education professionals, shrank by 11 per cent. There were sharp declines in the number of public service professionals (-29%), mangers and proprietors in hospitality and leisure services (-18%), engineering professionals (-17%), therapy professionals (-15%) and sales and marketing professionals (-8%).

Exclusion and benefit use

Worryingly, one in seven people in the sector (15%) said they became solo self-employed between 2019 and 2020. This equates to 591,000 people who would not have been able to access the government’s Self-Employment Income Support Scheme (SEISS) because they did not file a tax return in 2018/19. Even more newly self-employed may have been excluded too, because this figure only includes those who were still self-employed by Q2 2020: others may have given up their business before then.

Exclusion from SEISS may be a factor in the enormous increase in benefit use among the self-employed. The number of solo self-employed accessing Universal Credit rose by 341 per cent from 47,000 in 2019 to 206,200. Many of these will also have been able to access UC because the government suspended the Minimum Income Floor application criteria.

Disabled self-employed people

Another worrying change in the sector is the steep drop in the number of solo self-employed disabled people – by eight per cent since last year. This marks a sharp break with the last decade, when there was continuous growth in this group as more and more disabled people turned to self-employment for freedom and flexibility. The decline was particularly driven by men (-16%) and over-60s (-16%).

Gender and age

In terms of age, the biggest decline was among the youngest group of freelancers – those aged between 16 and 29. This group – historically already the smallest – contracted by 11 per cent this year. The second-biggest decline was in one of the biggest age groups, 40-49-year-olds, which shrank by seven per cent. There were declines in all other groups except 30-39-year-olds, which remained stable.

The last year has brought about a shift in the gender proportions of the solo self-employed sector. The sector is now 38 per cent female and 62 per cent male – an increase of two percentage points in the proportion of women to men. This is driven by the fact that the decline in the sector has been sharpest among men, with a three per cent decrease in the number of highly skilled male freelancers (SOC groups 1-3) and an 11 per cent decrease in the number in SOC groups 4-9.

Conversely, while there has been an eight per cent decrease in the number of women in SOC groups 4-9, the number of highly skilled female freelancers has actually increased by six per cent. The highly skilled freelance sector is now therefore closer to gender parity at 56 per cent male and 44 per cent female.

Across the UK

The decline of the solo self-employed has been very varied across the UK’s regions. There was a moderate decrease in most regions and the only increases were in the East Midlands (+4%) and Northern Ireland (+17%). The sharpest declines were in Yorkshire and the Humber, the East of England and Wales, all of which saw a drop of 10 per cent. The sharpest declines in the highly skilled freelance sector were also concentrated in the North of England.

This has been a turbulent year with several key factors impacting the self-employment sector. 2020 started off with the UK formally departing form the European Union and entering an 11-month transition period. However, with the transition period ending in less than a month, uncertainty around what this actually means for the UK continues.

Many self-employed people also started the year with serious worries about the changes to IR35 tax rules in the private sector, which were due to come into effect in April 2020. IR35 encompasses government measures to stop “off-payroll” employment or false self-employment. The new rules would mean that the determination of whether one is considered inside or outside IR35 would fall to the end-client rather than the contractor. With companies concerned about getting it wrong and facing large fines, research showed that 20 per cent of firms were planning to do ‘blanket’ IR35 assessments, considering all their contractors inside IR35 rules and one in ten (11%) were making the decision to end their use of contractors all together.1

While Brexit and IR35 have been troubling the self-employed sector for several years, no one could have predicted the huge impact that the coronavirus pandemic and associated lockdowns would have on the sector in 2020.

Data from the ONS looking at March and April 2020, when a nationwide lockdown was in place, showed that the self-employed had been particularly affected by the pandemic. The self-employed were more likely to have had their household finances and their jobs negatively impacted by coronavirus in a variety of ways, including: reduced income and reduced working hours, having to use savings to cover living costs and being unable to save for the future.2

IPSE’s own research showed that the vast majority (91%) of freelancers (those self-employed who work in the top three most highly skilled Standard Occupational Categories (SOCs1-3)) were concerned about the financial impact of coronavirus on them and their self-employed businesses in March. Alarmingly, almost half (45%) also said that they were likely to find themselves with no money to cover basic living expenses such as rent and bills, and 68 per cent said they were at risk of losing all or most of their savings.3

More recently, IPSE’s Confidence Index report for Q2 2020 (April-June) also shows that freelancers experienced a 25 per cent drop in their average earnings for that quarter and a large drop in the demand for work.4 And it’s not only their finances being impacted but also their mental health, with research showing that a quarter of freelancers now report poor mental health, up 300 per cent since before the pandemic.5

To improve the situation for the self-employed throughout the pandemic, the government has introduced a range of support measures, including the Self-Employment Income Support Scheme (SEISS), the postponement of changes to IR35 regulations, Bounce Back Loans and deferred VAT and self-assessment tax payments.

However, many self-employed people have fallen through the gaps in these measures and have been left with little or no support. The SEISS, which provides the self-employed with a taxable grant based on 80 per cent of their average monthly profits to a maximum of £2,500 per month, is not available to those new to self-employment, those with annual profits over £50,000, and those who are limited company directors.

This means that while there were close to 5 million self-employed individuals in the UK, only 3.4 million of them were found to be potentially eligible for the SEISS and 1.6 million were found to be ineligible6, including approximately 710,000 directors of limited companies.

This lack of support is already having an impact on the size and makeup of the sector. The most recent ONS data reveals that the number of self-employed people in the UK has continued to drop throughout the year. This leaves the overall sector at 4.53 million, down from 5.1 million at the end of 2019 and wiping out the growth seen over the last five years.7

This report examines a subset of the overall self-employment sector: the solo self-employed – those who are self-employed but do not employ others. Using the ONS Labour Force Survey (LFS) data from Q2 2020, the report will look at which demographics and areas have seen the largest hits over the last year and highlight changes in the make-up of the sector.

This first section looks at the UK’s solo self-employed population. These are people who are running their own business, operating as a sole trader or in a partnership and do not have any employees.

This report looks at data from the Labour Force Survey from the second quarter of 2020, 2019 and 2008. This year, unlike previous years, we have seen a decrease in the solo self-employed population of five per cent compared to 2019 – down to 4.4 million people. We already know, too, that this figure has continued to drop in the second half of 2020.8

Since 2008 the sector has seen consistent growth, largely driven by the expansion of the freelance sector. Freelancers are a subsection of the solo self-employed who are working in highly skilled managerial, professional and technical occupations; this includes occupations from lawyers and accountants, doctors and scientist, writers and designers to high level managers and directors, to list a few. Unlike the solo self-employed population as a whole, freelancers have managed to maintain their numbers with a small increase of one per cent between 2019 and 2020. However, as we will explore in the later sections of this report, not all groups of freelancers have continued to thrive.

In the one to nine major SOC groups there are 90 minor occupational groups. Looking closely at these can give a more detailed understanding of the kinds of roles solo self-employed people are working in.

Similar to previous years, the highest proportion of the UK’s solo self-employed are working in the construction and building trades (405,000), in artistic, literary and media occupations (299,000), as road transport drivers (261,000), and in agricultural and related trades (175,000). However, three of these groups have seen a reduction in size between 2019 and 2020. Those working in construction and building trades have decreased by eight per cent, as road transport drivers by 20 per cent, and those working in agricultural and related trades have reduced by 18 per cent.

In the UK there are now a total of 605,000 solo self-employed mothers, just over half of whom are working in SOC1 to SOC3 occupations. This means that one in seven of all solo self-employed people are now working mothers.9

In line with the overall drop in solo self-employed females, the number of solo self-employed mothers decreased by one per cent between 2019 and 2020. Mothers are most likely to be working in SOC3 (associate professional and technical occupational groups – 158,000) SOC6 (caring, leisure and other service occupations including caring, leisure and travel – 130,000), and SOC2 (professional occupations – 123,000).

The number of solo self-employed mothers in SOCs 2 and 3 saw impressive increases between 2019 and 2020 of 12 per cent and 28 per cent, respectively. However, there were large declines in SOC7, sales and customer services occupations (-34%) and SOC5, skilled trade occupations (-22%).

There was also a nine per cent drop in the number of solo self-employed mothers working in the highest occupational group SOC1 which includes managers, directors, and senior officials. This despite an overall increase of five per cent in the number of females working in SOC1 between 2019 and 2020.

Looking at the length of time the UK solo self-employed have been self-employed reveals that over a quarter have been working this way for over ten years. Self-employment is clearly something people enter for the long run – and previous research shows that the main reasons people become self-employed are for the freedom and flexibility it provides and very few enter self-employment because they could not find other employment.10 11

At the other end of the scale, one in seven people (15%) highlighted that they had become self-employed between 2019 and 2020, equating to almost 591,000 individuals. This is somewhat worrying as most of these people will not have been eligible for the Self-Employment Income Support Scheme (SEISS) as they would not have submitted a 2018-19 tax return, a requirement to be able to access the scheme. The number of people unable to access the scheme because they were new to self-employment may be even higher than this as these figures only report those who are still self-employed in Q2 2020. Data from HMRC estimated the number of self-employed people who were not able to access SEISS, for a variety of reasons, at 1.6 million.12

The number of solo self-employed people in the UK who were considered disabled under the Equality Act 2010 has been increasing year on year since 2013. We know from IPSE’s 2018 report ‘Making self-employment work for disabled people’ that these individuals were on the whole choosing self-employment for positive reasons including better job satisfaction and improved working conditions and to enable them to work effectively around their disability.13

After large growth in 2019, this year’s figures show that there has been an eight per cent drop in the number of self-employed disabled people. This is compared to disabled employees who have seen a three per cent increase during the same period (2019 to 2020).

The decrease has been driven by males who have seen a drop of 16 per cent between 2019 and 2020 equivalent to almost 62,000 people. The age group that has seen the highest drop is those over 60 years of age; this group has seen a 16 per cent decrease between 2019 and 2020 equivalent to over 31,000 people.

The Labour Force Survey asks people to indicate whether they were claiming any state benefits or tax credits during a specific one-week period in the quarter. Looking at the Q2 2020 data we can see that there were huge increases in the number of solo self-employed people claiming Universal Credit and income support between 2019 and 2020.

The number of solo self-employed people claiming Universal Credit rose by 341 per cent between 2019 and 2020. One reason for this could be that those unable to access the government support schemes available for self-employed people were encouraged to apply for Universal Credit. The government also introduced a temporary suspension of the minimum income floor for Universal Credit which historically made it very difficult for many self-employed people to access Universal Credit because of their naturally fluctuating income levels.

Similarly, the number of solo self-employed people claiming income support rose by 335 per cent although the absolute number remains low at 12,000.

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

In 2020 there are now almost 2.2 million freelancers in the UK, up a small one percent from 2019. Of these over 1.9 million state that freelancing is their main job with a further 239,000 people doing freelancing as a side hustle alongside other employment.

Due to the small increase in freelancers between 2019 and 2020 and the larger drop in the overall solo self-employed population (-5%), the number of freelancers as a proportion of wider population has increased by three percentage points from 46 per cent to 49 per cent. Therefore, highly skilled freelancers now make up almost half of the 4.4 million solo self-employed in the UK.

Research has shown that freelancers play a vital role in the economy by driving innovation and providing greater flexibility and efficiency. This, in turn, has led directly to a boost in economic output as the freelance sector has grown.14

There are no official statistics directly measuring freelancers’ contribution to the economy. It is, however, possible to provide a speculative estimate. If freelancers’ contribution to turnover is proportionate to their presence in the wider group of businesses without employees, their collective sales would be approximately £146bn. That equates to 46 per cent of the £316bn contributed by the UK’s wider solo self-employed workforce.

This figure could be even higher as freelancer-owned businesses may be expected to generate greater revenues than businesses in the lower skilled occupational categories because of their level of knowledge and skill. Their contribution to the UK economy in 2020 could even be as high as £162bn.

The largest group of freelancers, accounting for 845,000 people or 39 per cent of freelancers, are those working in associate and technical occupations (SOC3). This group contains a wide range of occupations including artists, writers, health associates, designers, sales and marketing professionals and business and financial associate professionals. This group has seen a three per cent increase in the last year and a 35 per cent increase since 2008.

Another freelancer group that has seen increases in the last year is SOC2 which includes freelancers working in professional occupations and has increased by two per cent to 784,000 individuals.

SOC1 – including freelancers working in managerial occupations – in contrast, has seen a four per cent decrease, equivalent to 20,000 people and now amounts to a total of 528,000 people.

Looking at the occupational categories in more detail reveals that various occupations have been affected differently over the last year.

Looking at the top occupations identified in the 2019, artistic, literary and media occupations remains the largest group and has remained stable between 2019 and 2020 continuing to account for 16 per cent of all freelancers. Managers and proprietors have also seen a small increase of two per cent in the last year and continue to account for 10 per cent of freelancers. Teaching and education professionals however have seen an 11 per cent drop in numbers equivalent to over 19,000 individuals.

Some freelancer occupations have managed to thrive over the last year, including health professionals, which have increased by 19 per cent (equivalent to over 15,000 individuals)  and those working in design occupations, which have increased by 17 per cent (equivalent to over 12,000 individuals).

Other occupations that have also seen growth over the last year include information technology and telecommunications professionals (+8%), sports and fitness occupations (+7%) and business, research and administrative professionals (+7%) among others.

The story has not however been as positive for other occupations. Freelancers working as public service professionals have dropped by 29 per cent (equivalent to over 15,000 individuals) and those working as mangers and proprietors in hospitality and leisure services have seen an 18 per cent drop in numbers (equivalent to 10,000 individuals). Other sectors affected include engineering professionals (-17%), therapy professionals (-15%) and sales and marketing professionals (-8%).

Freelance mothers in the UK have also continued to thrive over the last year, seeing an increase of 13 per cent between 2019 and 2020. There are now almost 343,000 highly skilled freelancing mothers, accounting for 16 per cent of the total freelancer population.

Those working in SOC 3 associate professional and technical occupations have seen the biggest increase this year, with an additional 34,000 mothers turning to freelancing (an increase of 28%).

The number of freelancing mothers in SOC 2 professional occupations also increased by 12 per cent (equivalent to 13,000 people). However, the highest skilled group – comprised of managers, directors and senior officials – actually saw a drop of nine per cent between 2019 and 2020, equivalent to over 6,000 working mothers.

There is very little difference when looking at the length of time UK freelancers have been self-employed compared to the overall solo self-employed population. Over a quarter of freelancers (28%) have been working in this way for over 10 years and 15 per cent have only moved to freelancing between 2019 and 2020, equivalent to 292,000 people.

Again this is worrying as most of those new to freelancing will not have been eligible for the Self-Employment Income Support Scheme (SEISS) as they will not have submitted a 2018-19 tax return, a requirement to be able to access the scheme. The number of people unable to access the scheme because they were new to self-employment may be even higher than this as these figures only report those who are still self-employed in Q2 2020.

We saw in the previous section that there have been some large increases in the number of solo self-employed people accessing a range of benefits between 2019 and 2020. The same is true for the highly skilled freelancer subsection.

Looking at the Q2 2020 data we can see that there were large increases in the number of freelancers claiming almost all of the benefits apart from pension benefits (-12%) and tax credits (-29%).

The highest increase was for the number of freelancers claiming Universal Credit which rose by 345 per cent between 2019 and 2020. Those claiming income support also saw an increase of 294 per cent and the number of freelancers on sickness or disability benefits rose by 102 per cent.

In addition to these benefits which have seen over double the amount of freelancers claiming them in the last year, those on job seeker’s allowance (+69%), housing or council tax reduction (+26%), carer’s allowance (+23%) and claiming child benefits (+13%) have all seen increases between 2019 and 2020.

This year, the financial impact of the pandemic has led to a startling reversal in the growth of the solo self-employed sector. For the first time in 11 years, the solo self-employed sector has shrunk by 5 per cent – from 4.6 million to 4.4 million. This decline is also likely to have hastened in the months since Q2 2020 – as is indicated by the fall of the overall self-employed sector from 5.1 million at the end of 2019 to 4.53 million in November, according to the ONS Labour Force Survey.

The 2020 Self-Employed Landscape report has revealed where the hits to the solo self-employed are sharpest – from areas like Wales and Yorkshire to younger people and less highly skilled men.

It is clear that the pandemic has had an extremely uneven impact on the solo self-employed population, with the worst of it falling mostly on less highly skilled and secure self-employed. At the same time, some groups – especially among highly skilled freelancers – have actually managed to grow and flourish in this time. The total number of highly skilled freelancers has grown by 1 per cent and, combined with the decline of groups like SOC8, this has led to highly skilled freelancers now making up 49 per cent of the sector (up 3 percentage points on last year).

The unlikely success and flourishing of some groups cannot, however, make up for the disproportionate financial hit taken by many self-employed people – especially those excluded from the government’s Self-Employment Income Support Scheme.

The exclusion of groups like the newly self-employed (revealed to be at least 591,000 people) has led to an enormous increase in benefits use. The number of self-employed accessing Universal Credit increased by an enormous 341 per cent between 2019 and 2020, while the number claiming income support grew by 335 per cent. Added to recent IPSE and Starling research showing one in five self-employed are now in debt because of the pandemic, this paints a bleak financial picture of a once thriving sector.

Overall, 2020 is a year that has left the self-employed landscape pockmarked and scarred. What the future holds for it is hard to say. The UK is now in its worst recession in recent memory and, while the self-employed can ordinarily be expected to thrive in a recession, the sector has been badly damaged and undermined by the financial impact of coronavirus and the gaps in government support over the last year.

This damage may leave the sector unable to flourish and drive recovery. There are also more threats arrayed against freelancers and the self-employed: particularly the changes to IR35 due in April and the impact of Brexit. Historically, the self-employed sector has been one of the most dynamic and resilient parts of the workforce, but against this backdrop there are serious doubts about its future and its ability to bounce back.