00Executive summary

Technological changes and other labour market trends are not only changing demand for jobs¹ and skills², they are also fundamentally changing the way people work.

The recent growth in self-employment, together with the rise of new ways of working, suggests self-employment will play a bigger role in the labour market in the future,³ but sentiments towards self-employment have been mixed. On one hand, many highlight the opportunities it offers in terms of increased flexibility, a chance to be your own boss and turn a ‘hobby’ into a business. Meanwhile, others stress that self-employment fosters instability and insecurity, putting additional pressures on individuals.⁴

This raises important questions around existing employment legislation, and whether it is fit for the 21st century. Yet, while it is crucial for the national government to find answer to these questions, little is known about how self-employment plays out in different places, meaning policymakers have limited insights on how this impacts the creation of ‘good work’ up and down the country.

By looking at these issues, this research finds that:

1. Urban self-employment has grown faster than non-urban self-employment and it now accounts for 52 per cent of all self-employment in the country. Since 2004, there has been a 35 per cent increase in self-employment across the country, growth five times higher than that of overall employment. As a result, five million individuals in the UK – around one in seven of those in work – are now self-employed. This growth has been particularly fast in cities, where, since the financial crisis, self-employment grew by 44 per cent, with cities now accounting for 52 per cent of all self-employment compared to 49 per cent in 2008.

2. Urban self-employment is overwhelmingly concentrated in a few industries and in lower-skilled occupations. Construction, transport and storage, arts and entertainment and personal services account for 13 per cent of all employment in cities, but for 54 per cent of all self-employment. In terms of occupations, over 75 per cent of urban self-employment is in mid- and low-skilled roles⁵ such as taxi operations, hairdressers and cleaners.

3. In cities with weaker economies, self-employment is more likely to be the only source of income and to be lower skilled. In weaker city economies, the share of self-employed individuals in lower-skilled occupations is even higher, and the majority of them rely on self-employment as their only source of income. In contrast, self-employment that offers the opportunity to carry out additional work in higher-skilled roles alongside employment is much more concentrated in cities in the South of England and in Scotland. This suggests the costs and benefits offered by self-employment are not evenly spread across the country and that it is in cities with stronger economies that self-employed individuals are more likely to enjoy the benefits this way of working provides.

As the world of work continues to change, it is important employment legislation develops accordingly. So far, much of the discussion has focused on what this means for employment rights, but there are pressing questions in terms of skills too. Approximately one in five of today’s jobs are expected to disappear by 2030¹ and, while lifelong learning and adult education have a key role in ensuring people will be able to adapt to these changes, self-employed individuals are less likely to undertake training than any other group of workers.⁷

To better support self-employed people 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.⁸ 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.⁷ 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.

Disclaimer

This work contains statistical data from HM Revenue and Customs which is Crown Copyright. The research datasets used may not exactly reproduce HMRC aggregates. The use of HMRC statistical data in this work does not imply the endorsement of HMRC in relation to the interpretation or analysis of the information.