New research by IPSE suggests that while the number of freelancers remained stable in 2022, their economic contribution fell by an estimated 8% compared to 2021.
The Association of Independent Professionals and the Self-Employed (IPSE) has published the latest edition of its Self-Employed Landscape report, which provides a yearly snapshot of the sector and reviews the size, make-up and overall contribution of the those who work for themselves.
It tracks the Office for National Statistics (ONS) Labour Force Survey and the government's own business population and turnover estimates, to estimate the economic contribution of the solo self-employed.
Its findings have been described as a "wake-up call" for the government as it suggests that the self-employed sector contracted significantly in 2022. The findings show that whilst the solo self-employed population remained stable at 4.1 million in 2022, the sector's economic contribution plunged by an estimated £25bn to a total of £278bn - an 8% contraction compared to 2021.
Despite the fall in the sector's economic contribution, the 2022 Self-Employed Landscape report has revealed positive news for groups underrepresented in the workforce. The self-employed disabled population continued its trend of year-on-year growth since 2013, increasing by 42% during this time, whilst the number of working mothers in self-employment has increased by 55% since 2008 - the latter now accounting for 13% of the solo self-employed workforce.
The average age of the UK's solo self-employed is now 48 years old, one year older than 2021; the 60+ age bracket increased by 7% in 2022, more than any other age group, to account for a fifth (21%) of the solo self-employed population.
Wake-up call to government
Andy Chamberlain, director of policy at IPSE, said: "Whilst the self-employed population has been resilient at best - and stagnant at worst - it is very concerning that the sector's economic contribution has fallen by £25bn, pointing to a less rewarding operating environment for solo business owners.
"This research should act as a wake-up call to government. Policies which are detrimental to the sector, such as the IR35 rules and the VAT threshold acting as a cap on activity, should be reviewed.
"We know that self-employment is an attractive option for key groups, particularly older workers; if government is serious about growing the economy and tempting them out of economic inactivity, it should be doing all it can to make self-employment an attractive and aspirational option."
Off-payroll legislation
Changes to IR35 tax rules for contractors have had a detrimental impact on freelancers, according to Dave Chaplin, ceo of tax compliance firm IR35 Shield. Commenting on the findings, he said: "The government needs to act quickly to fix the longstanding flaws in the badly implemented off-payroll legislation, because it has led to a negative behavioural effect on UK plc.
"HMRC's own recently commissioned report demonstrated the administrative burden on businesses to be 74 times more than Parliament was originally told it would be. The structural double-taxation flaw is not only unfair, but causing firms to push work offshore, leaving UK freelancers on the bench, earning no money and paying no tax.
"Perversely, the flaws also mean a recruitment agency could get saddled with a hiring firm's tax bill, even though the agency had no cogency over the IR35 status decision.
"The off-payroll legislation has been an act of self-harm, to UK Plc, and politically, an act of self-harm to the Conservative Party. If the Conservatives want to have any chance of winning back the votes of the self-employed, they will need to act decisively and quickly at the Spring Budget in March."
Written by Rachel Miller.