The strange story of the rise in self-employment just got stranger. Chris Giles wrote a piece in the FT this week arguing that most of the increase is due not to lots more people becoming self-employed but to lots more people not leaving self-employment who would otherwise have done so. There has, he said, been no surge in the number of people going into self-employment.
— Chris Giles (@ChrisGiles_) July 31, 2014
This is based on the ONS Economic Forum report which found greater increases in the number of the longer-term self-employed, implying that a lot of people are staying self-employed.
The Resolution Foundation also found that the slowdown in outflows was a significant factor in the increase in self-employment. However, they still reckoned 72 percent of the post-recession rise was due to people entering self-employment and only 28 percent due to the decline in outflow.
Someone with more time than I have will no doubt dig into the ONS figures over the next few days and explain this in more detail.
If Chris is right, though, this is an even more bizarre story. It suggests we have had a 700,000 increase in self-employment since the recession mostly because fewer of the self-employed went back to employment or retired.
If that’s the case, you can’t even blame the catastrophic collapse in self-employed earnings after 2008 on there being lots of new people who didn’t know what they were doing. If Chris is right, this is old timers seeing their business shrink, rather than newbies trying to find their feet, under-charging and messing things up.
The same goes for the increase in the number of self-employed tax credit claimants and the steady rise in non-employing and non-VAT paying businesses. If there has been no surge in new entrants, then either a lot of low profit and low turnover businesses are hanging on in there, or a lot more of them have become low-profit and low turnover businesses since 2008.
Whatever has caused the rise in self-employment, one thing is clear. Since the recession, the economics of self-employment have been truly frightening. Chris says we should stop complaining because self-employment boosts tax revenues. It hasn’t done much boosting in recent years though. Despite the increase in numbers of people, the declared income of the self-employed was down by £8bn between 2008 and 2012. This might have improved recently; we won’t really know until we get the next full HMRC stats until January. Michael O’Connor’s chart based on the recent HMRC report suggests self-assessment income (or which self-employment income is a substantial part) continued to fall after 2010, even as the numbers of self-employed rose.
It may be that self-employed earnings pick up again. The Chancellor thinks he’s going to get bumper revenues next January when the newly flush self-employed pay their taxes. The pay data from the last few years don’t give much cause for optimism though. Even if self-employed earnings are up, it’s difficult to see them making up the ground lost since 2008 for some years yet.
Debates about the reasons for the increase in self-employment and its demographics will rumble on. What we do know, though, is that the economics of self-employment, in terms of earnings, benefit claims and tax revenues, have been utterly dire.