04What needs to change?
Technological changes and globalisation are fundamentally changing the way people work. Over the last decade, self-employment grew much faster than overall employment, particularly in cities, and as a result one in seven people in work in the UK is now self-employed.
Many of the trends in self-employment in recent years have been similar up and down the country. Self-employment is overwhelmingly concentrated in a few industries — construction, transport and storage, arts and entertainment and personal services. Over three-quarters of self-employed people are in lower-skilled occupations, and three in four rely on self-employment as their only source of income, increasing their risk of being in a less secure work situation.
Beyond these national trends, important geographic patterns exist too. The characteristics of a local economy impact the nature of self-employment. In weaker city economies the share of self-employment in lower-skilled occupations is even higher, and so is the share of people who are self-employed only. In contrast, the type of self-employment that offers the opportunity to carry out additional work in higher-skilled roles is much more concentrated in cities in the South of England and in Scotland.
The Government should acknowledge these trends, in particular in relation to skills. Evidence suggests that approximately one in five of today’s jobs will no longer exist by 2030,22 and the skills required to succeed in the labour market are drastically changing, even within specific occupations.23 Lifelong learning and adult education will be vital to ensure people are able to adapt to these changes, but the concern is that self-employed people are less likely to undertake training than any other group in the workforce.24
As such, to better support self-employed individuals to thrive in the labour market of the future, this is what needs to change:
1. To support individuals: allow self-employed people to deduct the costs of any forms of training from income taxes. Currently, self-employed individuals are allowed to deduct training costs when the training goes towards maintaining or updating the skills necessary for the purpose of their role but not if the training introduces new skills.25 Yet, given the rapid changes in the labour market, it is important people can acquire the skills they need to adapt to these changes, and shift from one occupation to another if necessary.
2. To support industries: government should bring together businesses in industries with high rates of self-employment to invest in and pool resources to fund training. Financial pressures are one of the main reasons behind the low take-up of training by self-employed individuals.24 While the first recommendation would partly relieve these pressures, in industries with high rates of self-employment there is scope for businesses to contribute too. In the construction industry, for example, there is already a training body — the Construction Industry Training Board — in which companies actively contribute by paying a levy to improve skills. This model should, firstly, be improved to make it easier for self-employed people to access training and, secondly, be replicated by other industries with high shares of self-employment. That would allow each industry to tailor training to their needs and to those who work in that industry.
3. To support places: for struggling cities in particular, the best way to support self-employment is to strengthen the overall economy. These places should focus on creating more vibrant labour markets where high-skilled individuals and businesses want to locate, by facilitating the creation and exchange of knowledge through improvements in skills and the quality of business environment on offer in their city centres. This would broaden and improve the choices available to individuals, indirectly benefiting self-employed people too.