Today we launch a new report called Everyday Employers, looking at how behavioural insights might be used to encourage business owners to expand their operations and take on employees. Here are the topline findings:
#1 – The number of microbusinesses is growing rapidly, but the vast majority are one-man bands
One of the most notable and enduring economic stories of the past few years has been the rapid expansion in the number of microbusinesses, defined as firms with 0-9 employees. Figures released just today show there are close to a million more microbusinesses than there were when the recession first began in 2008. Yet an even more significant trend has been the rise of the one-person business. As the graph below shows, the number of firms with zero employees (i.e. just the owner) has grown by around 70 per cent since the turn of the century. In fact, almost 95 per cent of all the growth in the microbusiness population over the last decade is owed to non-employing firms.
This blog first appeared on the Progress website, as part of a series of self-employment articles guest edited by Toby Perkins MP, the Shadow Small Business Minister.
Self-employment is growing rapidly. Since the turn of the century there has been a 30 per cent increase in the number of people working for themselves, with an extra 100,000 choosing to start up in business this year alone. The result is that one in seven of the labour force are now self-employed – the highest figure in living memory.
While the debate rumbles on as to whether or not the boom is a ‘good thing’, there is broad consensus that the labour market is unlikely to return to business as usual in the foreseeable future. Indeed, the RSA’s recent report on self-employment, Salvation in a Start-up, argues that high rates of self-employment should be seen as a permanent feature of our economic landscape, rather than a fleeting phenomenon brought about by the economic downturn. The implication is that we need to begin designing policies that go with the grain of this structural shift – whether around housing, welfare or wellbeing.
Past and present governments have taken several steps to support the United Kingdom’s small business community, for instance through the StartUp loans scheme, national insurance contribution holidays and corporation tax cuts. Yet these measures have overwhelmingly centred on supporting businesses as entities in themselves, rather than the individuals behind these ventures. The result is that the majority of the self-employed feel overlooked by policymakers. Our RSA/Populus survey found that only 14 per cent of those who work for themselves believe the government adequately supports people like them. Read more
The ONS published a report this week showing that the proportion of self-employed men contributing to a personal pension has fallen sharply over the past 20 years. Just over 60 per cent were adding to a personal pension in 1996/7, but today the figure is only 22 per cent (see the graph below). For some reason the ONS didn’t include the details about self-employed women, but our own analysis of government data shows the picture for them is more or less the same, with around 25 per cent actively contributing to a pension.
Our data crunching also reveals that the self-employed are likely to have smaller pension pots than employees. The average total pension wealth of the age group closest to retirement (55-64 year olds) is £50,000 for the self-employed, versus £104,000 for employees – in other words, less than half the size. Moreover, around 23 per cent of the self-employed in this age group have no pension wealth whatsoever, compared with 17 per cent of typical workers.
What would you do to help more businesses survive and grow?
If you’re like most people, you’d probably call for greater deregulation and a cull of burdensome red tape. This is what Cameron promised at the start of this year when he announced plans to drop or change more than 3,000 business rules. Regulation was also the target of Adrian Beecroft’s infamous report in 2012, which proposed introducing no-fault dismissals so that small businesses could let go of staff at will. Only a few weeks ago, a senior EU official argued for a ‘bonfire of red tape’ across Europe, which would make small and medium sized businesses virtually exempt from rules affecting business practices. The rationale for these moves is clear: cutting red tape would reduce the risk and costs of doing business, and thereby encourage entrepreneurs to innovate, expand and take on staff.
Yet if this sounds too good to be true, that’s because it is. The reality is that red-tape just isn’t as big a deal as we like to make out. The OECD, for example, reports that the UK has the third least regulated labour market in the world – so flexible, in fact, that it is thought to be easier to dismiss someone here than in the US. Similarly, the World Bank consistently ranks this country as one of the easiest places in the world in which to do business – ahead of Germany, France, Japan and many other developed countries. The government also continues to enact measures that make the labour market more flexible for the benefit of employers. Last year saw the introduction of new fees of up to £1,200 for any workers seeking to make a tribunal claim. As a result, the number of employers being taken to tribunal have plummeted.
Regular readers of this blog will know that the RSA has a new worldview called the Power to Create. In short, this is about helping more people in more places to turn their ideas into reality, and thereby become the authors of their own lives. The animation below gives you the gist of what it’s all about.
I broadly subscribe to the vision, except for one assertion: that people are clambering for greater power, and that this is partly down to a decline of deference for the elite. If anything, I think large parts of society are in danger of becoming more docile and revering. As Nick Cohen put it not long ago, ‘the British have no fight in them anymore’.
True, the approval ratings of politicians have plummeted over the last few decades, and it’s hard to see how they could get any worse. Likewise, we know that the religious clergy have lost much of their influence, with ever dwindling numbers turning up to church each week (though the story may be different for non-Christians). Scotland Yard and Fleet Street have also lost huge amounts of respect, in large part due to never-ending scandals. Even big business is seeing its authority undermined. Surveying by Ipsos Mori has found that only 34 per cent of people believe business leaders can be trusted. Read more
This is a guest blog by Helen Kemp, Founder of Just Got Made. JGM is a directory that links creative small businesses with hand-picked suppliers and producers. Find out more at www.justgotmade.com
We are at the forefront of a Maker Revolution! This time around it’s not about large factories but involves thousands of talented individuals; craftspeople, designers, artists and makers, working from their dining room table or studio desk.
There needs to be a new way for companies to connect, to reach each other in this new landscape of cottage industries working on a global scale. And that’s where Just Got Made fits in. We are part of the toolkit for the next generation of makers.
I grew up in the London suburbs, obsessed with the 90’s grunge scene and immersed in the alternative cultures running through music, fashion, photography and art. The DIY ethos of independent culture got into my blood and instilled in me the conviction that independence is a powerful driver of creativity.
In theory Universal Credit is a dream policy. The idea has been to streamline the welfare system, rolling six means-tested benefits into one so that work will always pay. UC is also intended to make the transition in and out of benefits more seamless, and as such accommodate workers whose income fluctuates and who find themselves flitting between jobs. In 2012 DWP estimated that an extra 300,000 more workless households would move into employment as a result of UC, and that it would save £38bn over 12 years from its inception.
Yet as we all know, the hype has not lived up to reality. Universal Credit has proven to be something of a nightmare. Indeed, it is hard to overstate the problems that have beset this flagship welfare scheme. IT failures, civil servant departures and a lack of departmental resources are just a few of the reasons for Universal Credit’s woes. Such are the challenges facing the £2.4bn scheme that the Major Projects Authority in Whitehall decided it needed to be ‘reset’ in 2013, while £34m of new IT assets had to be written off as a result of unexpected difficulties. To top this off, a damning National Audit Office report noted that ‘throughout the programme the Department [DWP] has lacked a detailed view of how Universal Credit is meant to work’.
Last week I argued that the concerns over shrinking self-employed earnings may be a little exaggerated. Coincidentally, at the same time the blogger Flip Chart Rick convincingly proposed the opposite: that we aren’t half as worried as we should be.
Clearly the jury is still out. So while we’re in the debating mood it might be worth adding another layer to the debate – that of wealth and asset ownership.
As part of our new project with the Joseph Rowntree Foundation, we’ve been looking at the data on earnings, wealth and debt. And while some of the findings are unsurprising, there are a few curveballs in there too.
Here are a few initial observations to chew over:
#1 – The full-time self-employed earn around 20 per cent less than their employed counterparts, and their income has fallen by 10 per cent in real terms since 2000
This week the ONS published a brief report on the rise in self-employment. The headline is that the number of people working for themselves has reached a record 4.6 million, the equivalent of 15 per cent of the workforce. This is the highest figure since records began 40 years ago.
Yet it wasn’t the aggregate numbers the media paid attention to. It was the stats on their earnings, which the ONS report had fallen by 22 per cent in real terms between 2008 and 2012 – quite a staggering fall. Others have highlighted a similar trend, including ourselves and the likes of the Resolution Foundation. In short, the message of the data is that while being your own boss may be more fulfilling, it can also be financially precarious.
While I broadly subscribe to this position, I do increasingly wonder whether we may be exaggerating the income crashes and shortfalls of the self-employed. Here are three reasons why:
This week the RSA and the Joseph Rowntree Foundation launch a new project exploring the living standards of the self-employed. Over the course of the coming months our aim will be to pinpoint the particular economic and social challenges facing people who work for themselves, consolidate emerging thinking around how these might be addressed, and build up a network of support organisations willing to collaborate on the development of practical and policy interventions. The rationale for the project is unpacked below.
Self-employment in the UK is growing rapidly. Since the turn of the century there has been a 30 per cent increase in the number of people working for themselves, which equates to an extra 1.4m workers. The result is that 1 in 7 of the workforce are now self-employed – one of the highest figures in living memory. Nor does this trend show any sign of coming to an end. Over the last 6 months alone an extra 300,000 more people have turned to self-employment. Should these rates continue, the RSA predicts that the number of people who work for themselves will soon be greater than the size of the public sector workforce.
The fact that this community is growing is seldom contested. Where there is disagreement, however, is in what lies behind the boom and whether the growth in self-employment is a ‘good thing’ for those involved, as well as for the nation as a whole. For some, the increase witnessed in recent years is a sign of a fragmented labour market and a deeper malaise in the wider economy. For others, the trend is indicative of a resurgent entrepreneurial spirit in the UK, and as such should be welcomed and actively supported.