What do the UK self-employed actually earn?

One of the features of the credit crunch era in the UK has been the rise or growth if you prefer in the numbers of people who are self-employed. This has led to a debate as to whether it has been a voluntary choice or people have felt forced to do it or more likely a combination of the two. The overall effect from it has been to be one of the driving forces behind this recorded by the UK Office for National Statistics.

For September to November 2016, 74.5% of people aged from 16 to 64 were in work, the joint highest employment rate since comparable records began in 1971.

In terms of numbers the situation is as shown below.

self-employed people increased by 133,000 to 4.77 million (15.0% of all people in work)

If we start with the increase in latest figures we see that the rise in self-employment is only just shy of the rise in employees (144,000) . If we look back over the credit crunch era and start from the beginning of 2008 we see that self-employment has risen from 3.847 million to 4.775 million. Putting that another way the rise of 928,000 is some 44% of the overall rise in employment of 2,118,000. Thus the UK “jobs miracle” has seen self employment at the heart of it.

Putting it another way the numbers of self-employed look on their way to pass the numbers of people in public-sector employment.

There were 5.44 million people employed in the public sector for September 2016. This was: 12,000 more than for June 2016: 10,000 fewer than for a year earlier

So we may yet see a cross-over with the only issue being all the changes around how public-sector employment is defined and measured.

The sex issue

There is another quirk in the numbers which goes as follows. In relative terms men are more likely to be self-employed as in there are more than twice as many whereas total employment is only 13% higher. But in the credit crunch era the increase in female self-employment has been higher than the increase in male self-employment meaning that the proportionate increase is much higher. I would be interested in readers thoughts as to why there has been such a shift towards women and girls becoming self-employed?

Pay and wages

This is an issue because the official wages ( strictly average weekly earnings) data omits the self-employed entirely. Actually it also omits smaller businesses as the threshold last time I checked was 20 staff. This poses all sorts of problems especially as the number of selr-employed has been growing.

AWE is based solely on the Monthly Wages and Salaries Survey (MWSS), which covers employees working in businesses with 20 or more employees in all industrial sectors in Great Britain (an adjustment is made for smaller businesses).

Is adjustment the new word for imputed? Anyway this was all reviewed by someone who pops up on here from time to time which is Dr. Martin Weale who if you recall regularly flip-flopped when he was at the Bank of England. The lack of self-employment data did not seem to get a mention from the good Dr. who is now a fellow of the Office for National Statistics in a Yes Minister style move.

New Information

As we lack official data we need to dig and mine for what we can and the Royal Society for the encouragement of the Arts Manufactures and Commerce has been on the case. It gives us a bleak house style opening.

Bleak headlines such as ‘80% of self-employed people in Britain live in poverty’, and ‘Self-employment used to be the dream. Now it’s a nightmare’ are increasingly common.

Fortunately they decide that for many the outlook is in fact much brighter.

Previous polling by the RSA found that just 19 percent of the self-employed started up in business to escape unemployment — a finding that is repeated across multiple studies.

If we look at the earnings of the self-employed we again start with a troubling view.

A recent study by the Resolution Foundation found that the average pay packet of the self-employed has barely moved in 20 years, while research by the Social Market Foundation shows that half the self-employed now earn below the National Living Wage. The Family Resources Survey appears to corroborate these findings, showing that the median full-time self-employed worker earns a third less than the typical employee,

But there is again a response in that this may be how many want it.

According to the Understanding Society Survey, the self-employed are nearly just as likely as employees to say they are satisfied with their income

The Financial Times points out that it looks like self-employment earnings are indeed lower than otherwise for some at least if this is any guide.

A new report by the RSA (the Royal Society for the encouragement of Arts, Manufactures and Commerce) confirms this has come with a price tag for the public purse: 18.8 per cent of the self-employed are in receipt of tax credits — payments to low-income working households — versus 10.6 per cent of employees.

The FT takes this further.

One in seven workers is now self-employed but their typical weekly earnings are only about £240 a week, less than they were 20 years ago after adjusting for inflation.

So about half of the official average weekly earnings figure.The Resolution Foundation put it like this last October.

The recovery in earnings over the last year means that they are almost back to levels last seen in the late-1990s at around £240 a week, though this is still 15 per cent down on 1994-95 returns.

Also the RSA point out that as we have discussed on here many times the self-employed are a very diverse bunch to say the least. They identify some 6 sub-groupings or if you prefer they have four more tribes than Frankie goes to Hollywood. They are Visionaries (22%), locals (13%), classicals (11%), survivors (24%), independents (19%) and dabblers (11%).

If we move beyond pay there are of course other differences with the employed.

There is no access to Statutory Maternity Pay should they become pregnant, nor is there recourse to Statutory Sick Pay should they fall ill at work. Recent government moves to establish a National Living Wage and to auto-enrol workers onto a private pension scheme have passed them by. Insecurity is inherent across all the above tribes and is as much a problem for the high-skilled as it is for the low-skilled.

Comment

Back on the 14th of December I looked at the situation of the self-employed via what has become called the gig economy.

In total I did five shifts, and earned an average of £8.10 per hour. The London living wage is supposed to be £9.75, according to London authorities. The national required living wage is £7.20 but goes to £7.50 in April next year.

This was Izabella Kaminska of the FT and as it is often necessary to be critical of that media organisation let us today look at its good side which is research and writing like this. Indeed as today’s self-employment article is by Sarah O’Connor it is a case of lets hear it for the girls (of the FT). But as the RSA reminds us the gig economy is only one sector of the issue although it gets media prominence. We learn that overall the self-employed earn less than the employed often quite a bit less as we wonder if that is why Dr.Weale and others omitted them from the official data series. However we need to add that some prefer it that way although of course some will not.

Oh and the official wage data also omits smaller companies as I pointed out earlier. How is that going? From the RSA.

Equally impressive has been the growth in the number of micro businesses, defined as firms with zero to nine employees. In 2000 there were 3.5m micro businesses in the UK. Today there are closer to 5.2m. While much of the expansion has been driven by one-person firms, the number of micro businesses with employees has also increased. 8.5 million people in the UK now own or are employed in a micro business.

Oh dear…….

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29 thoughts on “What do the UK self-employed actually earn?

  1. One reason for the rise in self employment especially among women? Tax credits I’d estimate. Certainly the case with many locally. Yes I know…anecdote alert. However look at the numbers.

    A parent only has to work 16 hours a week to receive working tax credits – 24 hours for a couple. 16 hours self employment is pretty easy to achieve (see the growth in facebook selling, cupcake sales, gardening, running local classes, taxi driving and the like and quite easy to massage hours worked). Wages are almost immaterial when child tax credit pays £6k per child and Working Tax Credit is £3k per year. With 2 children that’s £15k, add in child benefit and £18k plus whatever can be achieved through part time self employment, and then associated other welfare and income is almost the same as your average full time worker with none of the expenses eg travel to work.

    • Fact alert!

      1. A family with 2 kids will receive £1788.80 pa child benefit, not £3000.00 as you suggest.

      2. Most families will receive approximately £2000 pa Working Tax Credit, although some, where the claimant has a disability that is accepted may receive a tad under £3000 pa and the odd one here and there who is severely disabled may receive £4200 pa. (All figures are approximate to within a few quid)

      • Fact alert to the fact alert!!

        #2 above is wrong, in fact most families can receive up to £3970 pa Working Tax Credit with extra amounts on top in relation to disabled children as detailed in the rest of # 2 above so in fact it all adds up to a potential maximum of circa £17500 – Yee haaa!!

  2. Hi Shaun

    As James as said, I wonder if there is a correlation between self employed and the tax credit bill. Another anecdote is when my wife went to the job centre, all the people there wanted 16hrs or less. They were surprised that she wanted to work full time.

    • This may also be related to the amount of free child care available.
      There are still a lot of people who feel there should be someone there when their children get home from infant/primary school.

  3. Hi Shaun
    In a way today’s subject is connected to the
    recurring theme that the last thing that governments
    want is statistical accuracy.
    It would surely, be relatively straightforward
    to gather information from a group of smaller provincial
    accountants and couple that information with VAT
    returns for those on low income. How many families
    with a higher income than the JAM’s are there who
    have fallen foul of credit and hi-tech “must haves” and
    are working out how to swap their maxed out credit
    cards whilst munching their fast food.

    Common sense is a misnomer.

    JRH

    • An off-topic aside, but I believe relevant, certainly heartfelt from a daily reader of the site.
      JAMs?
      By all means look down on my ignorance, but you (and many others) sometimes don’t encourage reading of your excellent comments by assuming universal familiarity with abbreviations and acronyms. It becomes too tedious to keep interrupting reading to divert elsewhere to find out what your talking about. Just a few more considerate key strokes, people, and you’ll be better read and understood!

  4. The ONS doesn’t look at self employment because their political masters don’t want them to. The record numbers in employment of course include the self employed yet their wages do not. There is a seperate and very serious issue raised here also that many miss, it contributes to the current rise in populism and was certainly a factor behind brexit.

    The driver behind the UK “record employment miracle” is part time jobs topped up with with tax credits hence these 16 hour posts proliferate. This, if you’re a single non alpha male, is no help to a man wanting a family and his own home. The system rewards single parents which tends to be the mother. All just above subsistence of course but that’s the cohort it works best for.

    Self employment also helps avoid the stigma of unemployment so mercilessly driven by the press. Self employment can work out well but hides one shed load of poverty at the same time. Follow @FlipChartRick and @StrongerInNos on Twitter for further good commentary.

    • Hi Bill

      Your reply reminds me of one of the Yes Minister episodes where Sir Humphrey was talking of government’s fiddling the unemployment numbers and the scary thing when I looked it up was that it was from 1983! It is really very poor that we have a quantity number ( employment) but not the price (self-employment earnings).

  5. does it matter when the tax base over the next 25 years will disappear?

    oh right , so long as thats on their shift , not ours….

    why are we in this cart and where did you say we’re going ?

    forbin

  6. The point about the self-employed and their ineligibility for contributory benefits is an interesting one. The NI contribution structure was designed to exclude them from such benefits, the other side of the equation being significantly lower NIC’s and of course no employer’s NIC. If the self employed want the full range of contributory benefits, it would be reasonable to charge them the full cost of both parts, as paid by employees and their employers.

    • That would pose a problem. What of the self- employed person undergoing a slow patch so claims contributory JSA or says s/he is sick in order to qualify for statutory sick pay and then makes a miraculous recovery when they secure a contract?

    • Hi Carys

      Which way would you go? Would you make it compulsory and enforce the higher National Insurance payments or give people a choice? The employers contribution alone at 13.8% is quite chunky and would perhaps have to be fed in step by step if compulsion was the road chosen.

  7. So thats about 15% formally self-employed, 16% employed in very small companies ( < 10 employees ), and an unspecified % employed in not-quite-so-small companies ( 10..19 employees ) – giving a non-random ~40% of the workforce excluded from the workforce survey. Yes ?

    • Hi arrbee

      It certainly seems that way. We know the 15% self-employed are excluded and I guess you like me are not entirely reassured by the “accounted for” description of smaller businesses. What does it mean? Imputed perhaps….

      The irony is that the AWE ( Average Weekly Earnings) figures were supposed to catch changes in the workforce, but seem to leave so much of it out.

  8. My thoughts as to there has been a shift to women and girls becoming self employed are, it’s obvious and it ties in with imputed/adjusted GDP – Prossies! They saw that this was a growing area of employment but the official GDP stats weren’t going up so they invented imputed/adjusted GDP in terms of drug dealing and prostitution to explain the discrepancy – the self employed blokes are probably the drug dealers.

    Anyway, looking at the definition of average weekly earnings that’s the least of your problems Shaun. It only seems to measure wages and salaries of industrial workers, that would be the 15% or so of the working population then! What about the other 85% service sector wages and salaries?

      • Apologies Shaun I was looking at he definition you replicated here. Now I have examined the pdf on the ONS site I see it does cover most businesses:

        “The sample is stratified by business size, industry and legal status. In other words, businesses in Great Britain are divided up into groups, based on the number of people they employ, the industry they operate in, and whether they are in the public or private sector. Within each group, or stratum, every business has an equal chance of being selected for MWSS.”

        But where did your definition come from?

  9. I think one of the reasons more women are becoming self employed is that over the last few years there has been a lot media attention directed towards female entrepreneurs. Giving young women and girls strong financially independent female role models to look up to and emulate.

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