A press release from Citizen’s Advice at the weekend said that 40 percent of the workforce would like to work for themselves but only 15 percent have managed to do so. It warns that red-tape and lack of support is “creating a barrier to people fulfilling their ambition of working for themselves” and “potentially viable businesses are failing unnecessarily for the want of guidance in the early stages”.
The report itself, Going Solo, strikes a slightly different tone. It is an in-depth study of why people go into self-employment and of the difficulties some of them face. The recommendations, more help with skills and support from Jobcentre Plus and, encouraging more peer group support among the self-employed are all good ideas.
I wonder, though, whether there comes a point when the aspiring self-employed have been given enough help and encouragement. Just because 40 percent of the workforce think it would be nice to run their own businesses it doesn’t mean they all should. Lots of people think it would be nice to live in the country too, without ever having thought through the practical implications.
There isn’t much the government could do to remove red-tape from startups because there is precious little of it as it is. It is mind-blowingly easy to start up a business in this country. It’s not even that difficult to start a limited company. A few minutes on the website, a £15 fee and away you go. You don’t even need more than one director now.
According to the OECD, the UK has one of the lowest levels of administrative burden for company startups. For businesses employing only the directors (which fall under the sole proprietor definition on this chart) it is one of the least regulated in the developed world.
Anecdotally, I hear more complaints from small business owners about corporate red-tape. It’s not so much the government as utilities, banks and phone/broadband providers that mess small firms around. I reckon (again based on anecdotal data) that, over the last ten years, it has become easier to set up a business but more difficult to get a bank account, as banks now take longer to check people out.
Even this isn’t that onerous though. As for handling tax and accounts, there are good, reasonably priced accountants and software packages that will calculate and submit your VAT returns for around £10 a month.
Business owners like to complain about regulation. There is something almost tribal about this. If you don’t have a moan about administrative aggro, you’re not really a proper business person. Yet it’s really not that much of a big deal, especially if you don’t employ people. Frankly, if people can’t cope with what little administrative burden there is, should they really be in business at all?
The Citizens’ Advice report also looks at finance, or the lack of it, among the self-employed. For the already low paid, which a significant proportion of the self-employed are, illness or just a period of lack of work can quickly become an emergency. As for getting a mortgage, unless you can show stable and regular earnings over a long period, forget it.
At one of the many round-table discussions I have contributed to on self-employment the question of mortgages came up. Should banks and building societies do more to accommodate those with fluctuating incomes? Someone from one of the mortgage providers remarked that it had taken them years to unwind the problems caused by mortgage self-certification and they would resist any pressure to start issuing them again. Who can blame them? With self-employment earnings low and falling the self-employed are a high risk. I keep hearing the ‘just because I’m self-employed they won’t give me a mortgage’ meme. Well, yes, that makes absolute sense. Statistically, self-employed equals low and precarious earnings.
Then, of course, there is the looming problem of Universal Credit and the self-employed. Unlike tax credits, Universal Credit will assume that all recipients earn the minimum wage. The trouble is, around 40 percent of the self-employed don’t. With the hike in the minimum wage over the next few years this could get even worse. It is unlikely that self-employed earnings will rise at the same rate as the minimum wage so more people will see their earnings fall below it. Their benefits will therefore reduce based on an assumed income are not earning.
Against this background, is it really fair to continue the policy of encouraging people to start up their own businesses and become self-employed? It may be the dream of 40 percent of the population but is it realistic? As well as selling the benefits, don’t the government, business organisations, think-tanks and charities have a responsibility to warn people of the pitfalls too? By all means go self-employed but you will probably earn less, you are stuffed if you are sick and you will find it almost impossible to get a mortgage. Over time, unless you set aside some money for training, your skills will gradually become obsolete Oh, and you have to go out and find your own work. Yes, that last one still catches people out.
There is still this widespread assumption that becoming self-employed is inherently a Good Thing, despite overwhelming evidence that the self-employed tend to be poor and countries with lots of self-employed people tend to be poor. If 40 percent of our workforce were self-employed it wouldn’t be much good for most of the people concerned or for the economy as a whole.
Over the past decade and a half we have seen a huge growth in the number of small low-turnover businesses but much less growth in these firms’ share of turnover. For the non-incorporated self-employed, total earnings have shrunk by £8 billion since the recession despite there being 600,000 more of them. This suggests that a lot of these new businesses are marginal and not doing much more than taking business from other similarly precarious firms. David Storey reckons the government spends £8 billion a year supporting small businesses without any clear benefit. Most small firms simply play their part in the ongoing business churn.
Is it really such a bad thing that so few of the people who want to be self-employed actually end up doing it? The 40 percent who think they want to start their own businesses could do a lot worse than read the Citizens’ Advice report then see if they still fancy it afterwards. For the truth is that many of them would not be very good at it and most would not make very much money. The barriers that are holding thousands of people back from self-employment are doing most of them a favour. Like the dream of moving to the country, they might get there and find they don’t really like it very much.