The recent Office for National Statistics (ONS) survey of the UK labour market for the second quarter of 2020 shows that there has been a record drop in the number of self-employed people.
Covering the period April to June (inclusive) this report was always going to make for interesting reading as it looks at the height of the COVID-19 lockdown in the UK, which started on 23 March and only just began to ease during June.
However, expectations were that it would show a rise in self-employment as is often the case in the months before a recession – which the UK has now officially entered. Instead, the numbers of self-employed people fell by an unprecedented 238,000 during the period under discussion, a drop which IPSE describes as “disproportionate and disturbing.”
It’s notable that IPSE’s most recent Confidence Index saw the self-employed’s quarterly incomes slashed by 25% after finding themselves less able to secure work during the pandemic.
IPSE’s analysis
As well as the lack of work available, IPSE also lay responsibility for the slump at the government’s door, with IPSE CEO Derek Cribb stating that the drop is “almost certainly because of the serious gaps in the government support for the self-employed, including directors of limited companies and also the newly self-employed, who are at the most fragile stage of their careers.”
This refers to the fact that only self-employed people with tax returns for at least 2018/2019 could claim a grant through the Self-Employed Income Support Scheme (SEISS), while limited company directors were forced to rely on the government’s furlough scheme for PAYE workers. This left many limited company contractors – who draw the majority of their income from dividends rather than salary – hugely out of pocket.
In some cases, as Kingsbridge’s own self-employment survey demonstrated, this meant contractors had run out of financial options and were forced to close their businesses and seek permanent employment.
Cribb also looks to the future, which IPSE now sees as somewhat uncertain: “Going into a recession, we would normally expect a jump not a slump in the number of self-employed, as businesses look to the flexible expertise they offer. However, with government policy driving down the number of self-employed, there is a real fear the UK workforce will become brittle and rigid just when it needs to be at its most agile.”
Usually in a recession we would see unemployment rise as companies cut costs, but this would often create more opportunities for contractors as businesses seek flexible solutions to fill gaps in their workforce without taking on the commitment of a full-time, permanent employee. Less contractors make the workforce less flexible which could, in turn, put more strain on businesses trying to keep down overheads.
Kingsbridge’s view
On the face of it, the figures from the ONS certainly paint a bleak picture. However, it’s important to remember that these figures are from April to June. In other words, the absolute height of UK lockdown.
During this period, many businesses had furloughed their staff and were operating with a minimal workforce, or had mothballed operations entirely. It’s only since the end of June when we’ve seen more and more businesses re-opening and people getting back to their jobs, either working from home or returning to their workplaces.
It’s only since July that businesses can reasonably be expected to have looked at or re-started pre-lockdown projects and so we may well begin to see an upturn in the figures for the third quarter of 2020.
While the numbers should not be taken lightly, we should bear in mind that we have just been through, and are still going through, something unprecedented in living memory. It would be foolish to pretend that there are not some tough times ahead, but the fact is that there is no reason to think that opportunities for the self-employed won’t begin to open up.
After all, as IPSE have pointed out, a flexible, agile workforce is necessary to drive businesses through a recession.
“UK companies will absolutely need to utilise flexible workforces now more than ever to get the economy engines firing again in a post-pandemic landscape,” says Kingsbridge Head of Tax Andy Vessey. “Very few will have been left unscathed by lockdown, and it could prove extremely detrimental – bad business sense, even – to underestimate the worth of your contractors at such a crucial point in time.”
Conclusions
Although things are worrying for many at the moment, we do not believe that now is a time to panic. Instead, contractors should be preparing themselves so that they are in a position to jump on opportunities as they arise by ensuring they are up to date with marketing, accounts, and business insurances, as well as making sure they are in regular contact with clients and recruiters.
You can read more on our guidance for rebuilding your business post-lockdown here.
