The number of self-employed people has reached yet another record high. According to the BBC, the government’s work programme advisors have been helping things along by advising people to set up their own businesses. Doubtless, they would claim that they were helping to strengthen Britain’s entrepreneurial culture, or something like that. More likely, says the report, it is a quick way of getting people ‘into employment’, thereby meeting bonus targets. The newly self-employed person can claim in-work benefits like Working Tax Credit and Housing Benefits and the advisors get their payments. Everyone’s happy!
How widespread is this? It’s difficult to say. As far as I can see, there are no figures on how many self-employed people are claiming in-work benefits (though if anyone has any I’d be fascinated to see them). Given what we know, though, it is probable that a considerable number of them are.
According to TUC research, the newly self-employed account for 40 percent of the new jobs created since the recession. Of these, the vast majority are sole traders. (Many will have companies for tax and administrative reasons but they are still one-man/woman-bands.) The number of businesses employing more than one person has remained almost static for a decade.
Most of them are probably not earning very much. As David Blanchflower says, in general, the self-employed don’t earn as much as those in employment. Of the newly self-employed, the majority are probably not making as much as they were in employment. On all fronts, tax receipts are almost static (See HMRC papers here and here.) Whatever else they may be doing, these new business owners do not seem to be contributing much to the exchequer.
But, while tax revenues have failed to increase in line with employment levels, the benefits bill has risen. Though the numbers in employment have increased, the numbers claiming in-work benefits such as Working Tax Credit and Housing Benefit have increased too.
It is likely, given the financial precariousness of the self-employed, that at least some of this increase in benefit spending must be going to support the new army of sole traders.
So, far from heralding a journey towards self-reliance, or a return to some mythical era of independent yeomen and artisans, record self-employment is underpinned by dependence on state-benefits and crippling levels of debt. Small wonder, then, that high levels of self-employment are a feature, not of prosperous states, but of basket-case economies.
This is the worst time of year for the newly self-employed as they struggle to understand their tax returns and find that, if they are lucky enough to have made any money, some of it is owed to HMRC. All that stuff their employers used to handle through PAYE.
There is also a risk that those claiming tax credits may find their self-employment status challenged. This, like the joy of tax returns, is something many people will only discover after they have been running their businesses for a while.
As David Blanchflower said, “For most people, becoming self-employed is a bad idea.” For the most part, they earn less, have higher debts and struggle to keep up with the administrative workload. Even when people try to make businesses out of their hobbies, they often find that the thing they used to enjoy so much has become a chore.
Encouraging people to become self-employed, then, is even worse than pushing them into jobs they are not suited for. At least people can leave jobs they don’t like. Self-employment, on the other hand, can land them in all sorts of trouble, leaving them with debts and complex tax liabilities.
We don’t know how many people have been cajoled into self-employment by work programme advisors. We do know, though, that there are already too many odd jobbers and hobby jobbers trying to scratch a living, partially supported by the state and sliding ever deeper into debt. The last thing the government, or its contractors, should be doing is encouraging more of it.