Some ideas for taking self-employment to the mainstream

This blog first appeared on the Progress website, as part of a series of self-employment articles guest edited by Toby Perkins MP, the Shadow Small Business Minister.

Self-employment is growing rapidly. Since the turn of the century there has been a 30 per cent increase in the number of people working for themselves, with an extra 100,000 choosing to start up in business this year alone. The result is that one in seven of the labour force are now self-employed – the highest figure in living memory.

While the debate rumbles on as to whether or not the boom is a ‘good thing’, there is broad consensus that the labour market is unlikely to return to business as usual in the foreseeable future. Indeed, the RSA’s recent report on self-employment, Salvation in a Start-up, argues that high rates of self-employment should be seen as a permanent feature of our economic landscape, rather than a fleeting phenomenon brought about by the economic downturn. The implication is that we need to begin designing policies that go with the grain of this structural shift – whether around housing, welfare or wellbeing.

Past and present governments have taken several steps to support the United Kingdom’s small business community, for instance through the StartUp loans scheme, national insurance contribution holidays and corporation tax cuts. Yet these measures have overwhelmingly centred on supporting businesses as entities in themselves, rather than the individuals behind these ventures. The result is that the majority of the self-employed feel overlooked by policymakers. Our RSA/Populus survey found that only 14 per cent of those who work for themselves believe the government adequately supports people like them.

As the self-employed become a growing political force, the next government will have no option but to pay closer attention to their needs. A good place to begin is with social security. The self-employed miss out on several benefits that typical employees take for granted – not least statutory maternity pay and sick pay. One means of boosting access to such protection is by establishing a government-backed group insurance scheme, whereby risk is pooled among a large number of the self-employed so as to bring down hefty premium charges. This could be part-funded by abolishing the regressive Class 2 NIC charge of £2.75 a week and channelling this money instead into the collective pot.

A more straightforward measure would simply be to raise awareness of existing welfare entitlements, such as working tax credit and the new maternity allowance. The RSA estimates that only 60 per cent of the self-employed claim the tax credits they are able to, compared with 85 per cent of employees. Whichever party comes into power will also need to address the shortcomings of the pensions system. Less than half of the self-employed are currently saving into a private scheme. One option would be to auto-enrol the self-employed onto the new Nest pension, or introduce a specially designed ISA that would offer greater flexibility to access savings when times are tough.

Universal credit is another policy that is ripe for reform. Our analysis indicates that close to a third of the self-employed have earnings that would fall below the proposed ‘minimum income floor’, and are therefore likely to have their benefit entitlements cut when the new system comes into place. The associated requirement to report income to the Department for Work and Pensions on a monthly basis will also be a burden that most business-owners could do without. We suggest the government extend the ‘start-up period’ during which the self-employed are exempt from the MIF from 12 to 24 months, and work with the Post Office to turn local branches into advice portals for universal credit.

Then there is the issue of employment support for the would-be self-employed. The government created the new enterprise allowance scheme to give jobseekers the financial assistance and mentor support necessary to start up in business. Yet the initiative is seen by many as lightweight, particularly when compared with the original version started in the early 1980s. The same criticisms are levelled at work programme providers, the majority of which lack dedicated advisers to help people move into self-employment. This highlights the need for a new stream of employment support that is specifically dedicated to helping the unemployed start up in business.

Whatever measures the next government takes, it is critical they are not framed simply as a way of ‘saving’ people from the perils and pitfalls of self-employment. The results of our research are clear: the vast majority of those who work for themselves prefer it that way – not least because of the meaning and freedom it offers. Policy should instead be presented and used as a way of opening up genuine self-employment to more people, particularly those on the economic margins who find it difficult to access traditional work. Indeed, there is an ever-present danger that being your own boss could become the preserve of the more affluent who are better prepared to take risks. This is something neither the left nor right should allow.

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