Self-employed migrate to salaried work as UK’s Covid pinch tightens

Samantha quit her care sector job three weeks before the UK’s coronavirus lockdown began in March. After years fitting night shifts around family life and college, she had qualified as a massage and beauty therapist; turned her Kent garage into a salon; built a list of regular clients and finally felt she was earning enough to leave the safety of payroll employment.

“It was just starting to take off . . . Then three weeks later — I had no work and no business, nothing,” she said. Now she is back in her old job, a role for which she feels underpaid and overqualified.

She is one of a growing number of sole traders and small business owners abandoning self-employment for salaried work, because Covid-19 has made it impossible for them to operate and they do not qualify for government support.

A fifth of the self-employed workforce expect to leave self-employment as a result of the crisis, according to research by the London School of Economics, and the proportion is higher among those ineligible for state support because they had higher incomes or new businesses.

Self-employment has always been risky, but Stephen Machin, an LSE professor, said of the gaps in support: “What’s going on now is bringing it home to people that they don’t have those forms of social security . . . It must be having an impact on what people decide to do in future.”

Isabella Di Biase, a sound engineer who took a temp job at Tesco after London’s live music venues closed
Isabella Di Biase, a sound engineer who took a temp job at Tesco after London’s live music venues closed © Pat Tamborriello

Official data suggest that more than a quarter of a million people switched from self-employment to being an employee between the second and third quarters of 2020. The Office for National Statistics said these figures must be treated with caution, as some people had changed the way they described themselves without changing job — but some have jumped ship.

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“A lot of us panicked,” said Isabella Di Biase, a sound engineer who took a temp job at supermarket Tesco as soon as London’s live music venues closed. She qualified for government grants and now aims to hold out until gigs restart. Others with children and mortgages could not afford to wait, she said. “I know a lot of people who have left the industry — they retrained as drivers for supermarkets, or Amazon. Somebody became a farmer.”

An exodus from self-employment would be a sharp reversal of a trend that has been a striking feature of the UK labour market since the 2008 financial crisis. Already on the rise, self-employment rocketed in the aftermath of that recession: by 2019, it accounted for 14 per cent of all employment.

Column chart of self-employed as a % of all workers, aged 16-64, showing the rising trend in self-employment has been driven by solo businesses

Few of the new self-employed were entrepreneurs who went on to hire others. Instead, the UK has a 4m-strong army of sole traders and company owner-managers — working as cleaners and consultants, taxi drivers and tutors, personal trainers and project managers.

This was partly about the rise of the gig economy — with digital platforms, new contractual arrangements and skewed tax incentives fuelling the growth of self-employment in roles previously filled by employees.

It also reflects the growth of sectors where freelance work has always been standard — such as the events and live performance industries.

“Genuinely self-employed workers have been hit hardest by this crisis, and the result will be a dramatic fall in this model of work unless the government acts to support people and give them confidence to carry on,” said Mike Clancy, secretary-general of Prospect, the union for professionals.

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But analysis by the Institute for Fiscal Studies, a think-tank, showed the extent to which the solo self-employed may simply have lacked better options. Many were unemployed or inactive before striking out on their own; their average earnings were much lower than those of employees; and a high proportion wanted to work longer hours than they were able to.

Line chart of median real weekly earnings, 2007-08 =100 showing that the earnings of the solo self-employed have fallen behind those of employees

It is this group that have been most exposed to the fallout of the Covid-19 crisis — many with caring responsibilities or health conditions that will make it hard to find a good alternative to freelancing.

“I’ve applied to so many jobs over the years,” said Samantha, who found employers unwilling to accommodate her family needs. “Setting up my own business . . . it was completely flexible, there were no childcare fees.”

“I have always much preferred to work for myself as I find it much easier to cope with the pressure of potential failure,” said Martin Webster, an events manager in West Yorkshire, who had struggled to find work after a motorcycle accident that affected his memory.

He eventually built up a list of clients, working on conferences around the world. Now, aged 64, he sees little prospect of returning to an industry that looks set to shrink, but he has just quit a stopgap job as a delivery driver — he said through “self-respect” after seeing the pressure put on fellow workers.

The flow between self-employment and employment is not all one-way: evidence of a pick-up this year in new company formations suggests that some people at least have used lockdown to hatch new business ideas — possibly after being made redundant.

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Unions, business groups and politicians are urging the government to do more to support the self-employed — in the short term, by relaxing eligibility criteria for income support and helping people retrain, and in the long term, by reforming the welfare system to make self-employment less precarious and have benefits better aligned with taxation.

Ministers have so far resisted these calls, arguing that they have already offered “unprecedented support” and that the basic safety net of universal credit is available for those who fall through the gaps.

But Mr Clancy warned: “The rise of self-employment was a legacy of the last recession. If nothing is done then losing this workforce will be the legacy of this one.”

Yet it is too soon to tell whether the drop in self-employment will last: many people who have put effort and hard-won savings into building a business plan to return once economic conditions improve.

“I am hopeful,” Samantha said. “A lot of blood, sweat and tears went into my little business. I’m not ready to give it up yet.”


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