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  • Self-employed earn ¼ less than typical workers and are ill prepared to deal with ‘income shocks’ caused by an illness or late payment

  • Self-employed half as likely as employees to contribute to a private pension and to take part in regular training 

  • Time that the main political parties “got serious” about protecting the living standards of the self-employed, focussing less on business issues such as red tape and more on access to welfare, mortgages and insurance

The next government must take significant measures to improve the living standards of the most vulnerable self-employed, with further changes to National Insurance, Universal Credit, pensions and maternity pay being key priorities, according to a report published today by the independent RSA think tank.

Funded by the Joseph Rowntree Foundation, the far-reaching study examines the effect of the recession on self-employed workers, a community that has grown by 39 per cent since 2000. The report found that the full-time self-employed now earn close to a quarter less than their counterparts in a typical job – a shortfall of £167 a week. The result is that 36 per cent of self-employed workers are in the bottom 20 per cent of all earners.

As well as experiencing lower than average earnings, the report expressed concern that the self-employed are more vulnerable to ‘income shocks’, having no sick pay to cover them should they fall ill, nor maternity pay should they become pregnant. A large number may also be storing up trouble for the future, with the self-employed half as likely as employees to be contributing to a private pension or taking part in regular ‘in work’ training.  

With 1 in 7 of the workforce now self-employed, the report said it was time that the main political parties “got serious” about protecting their living standards. It expressed concern that policy efforts to support entrepreneurship had so far centred on dealing with business issues such as red-tape and access to finance, with the personal circumstances of the self-employed largely ignored. Just 11 per cent of those surveyed in an RSA/Populus poll, for example, said that the welfare system is fair to people who work for themselves.

The report adds to growing calls for the self-employed to be given access to more social security protections, including Statutory Maternity Pay and contribution-based Job Seeker’s Allowance. However, the authors break with convention by suggesting that the self-employed may need to pay more in National Insurance contributions (NICs) to finance an extension in welfare. Currently the self-employed pay lower NIC rates than employees.

Building upon the Chancellor’s recent commitment to abolish Class 2 NICs, the changes advocated in the report would see the self-employed community as a whole pay more in National Insurance, but with the greatest burden placed on the highest earners.

By increasing the rate of Class 4 NICs, and raising the threshold at which this tax kicks in, the RSA estimates that the government could raise an extra £280 million a year, while making a progressive distributional impact overall.

Around 38 per cent of self-employed workers (with incomes from self-employment between £5,965 and approximately £20,000 per year) would gain from the reforms, with those earning more than £20,000 (around 34 percent of self-employed people) losing and the remaining 27 per cent earning too little to be affected by the reform. A self-employed worker with an annual income of £11,000, for example, would be £359 better off.

Laying out a total of 18 comprehensive policy recommendations, the RSA also argued for changes to existing welfare coverage, including the incoming Universal Credit flagship welfare programme. The report recommended that the scheme’s Start-Up Period – where people are treated more generously to help them in the early stages of their venture – be extended from 12 to 24 months, given that it often takes longer than a year for fledgling business owners to find their footing.

The report argued that a campaign should be initiated in order to inform the self-employed of their current welfare entitlements, such as Tax Credits and Maternity Allowance. The RSA said it was concerning that only 61 per cent take up their Tax Credit entitlements, compared with 85 per cent of employees.

The self-employed should also be encouraged to support one another through new partnerships that ‘pool risk’, the report said. One idea put forward is to establish a collective income protection insurance scheme that would help the self-employed in the event of a long-term illness. The government and business support organisations should also consider piloting a new social enterprise with a ‘cash-pooling’ service, which would enable business owners to dip into a collective pot of money as they await payments from clients.

Author of the report, RSA Senior Researcher, Benedict Dellot said:

“We need to begin taking self-employment seriously. The risky nature of self-employed work was easier to overlook when few people entered the world of business and when those that did were typically more affluent. Yet the self-employed now make up 15 per cent of the workforce – up from 8 per cent in 1980 – and their numbers have been swelled by different groups that often require more support, such as young people, women and migrants. As such, self-employment should no longer be seen as a fringe activity but instead a mainstream form of work that merits more attention from policy makers.

It is important to stress that a ‘serious’ approach does not simply involve providing extra support. Rather it means achieving the correct balance between rights and responsibilities. A right, for example, to greater welfare coverage such as Statutory Maternity Pay. But an equally important responsibility to pay higher National Insurance rates to finance such protection. While not everyone will agree with our proposals, the reality is that it is only by having this more challenging conversation that the living standards of the self-employed will ever be enhanced.”

Other recommendations in the report included:

  • Establishing innovative automated savings schemes, for example a ‘Save When Paid’ initiative that would allow the self-employed to automatically channel some of their earnings into a savings account

  • Introducing a ‘Right to Request’ process that would enable the self-employed to ask for more flexible terms on mortgage repayments and rental costs during times of crisis

  • Presenting the self-employed with a ‘compulsory question’ for enrolment onto a private pension, which would require them to declare ‘yes’ or ‘no’ whether they want to save into the Nest pension scheme or a government-backed ISA

  • Working with the BBC to establish a MyBusiness portal that would collate and curate information about training – both the general business management kind and that related to specific industries

  • Establishing a universal self-employment service to help people start, sustain and formalise a business. This would replace the New Enterprise Allowance and the disparate self-employment support currently provided through the Work Programme

The report concluded that the government’s task should not simply be to ‘save’ people from self-employment. While there are a significant minority who would prefer to work in a typical job, the RSA’s analysis of government data reveals that the self-employed are on average more satisfied than employees both with their work and life overall. Rather, the authors argue that the aim should be to help more workers take part in ‘meaningful self-employment’, primarily by boosting their earnings potential and helping them live with the risks inherent to their work.

Fiona Crawford, Founder of Helter Skelter Play Cafe in Broadstairs, Kent said:

“There are so many ups and downs in having your own business. I love my award winning business, am proud of its ethos, quality and the affection it has in the community. I love the freedom to spend time with family and creative expression it has given me. Not so great are the uncertainties - mainly financial.

Many of us microbusinesses owners (employees 0-9) throw ourselves into our idea, without thought of the consequences - will we make money, will we survive? There are many like me who aren’t earning a living wage, don’t have decent pensions, and don’t see a way out of their financial difficulties. We don’t get holidays and can’t afford to be ill. I joke that with my life insurance, I am worth more dead than alive. Most of the time I love what I do, sometimes I really hate it. But I wouldn’t do anything else.”


Key facts and figures

  • 84 per cent of the self-employed community are satisfied with their job (a quarter are ‘completely’ satisfied), compared with 76 per cent of all employees (Understanding Society Survey)

  • Real median weekly wages of the full-time self-employed shrank by 12 per cent between 2008 and 2012, compared with an 8 per cent fall among employees (Family Resources Survey)

  • Close to a third of households with a single worker who is self-employed are in poverty, compared with 14 per cent of households with a single worker who is employed. The overall household poverty rate is 16 per cent. (Family Resources Survey)

  • People who have been self-employed for three years or more earn nearly four times as much as those who have worked for themselves for less than a year (Understanding Society Survey)

  • Self-employed workers are only marginally more likely to be dissatisfied with their income than employees, with 38 per cent and 35 per cent saying so respectively (Understanding Society Survey)

  • Just 26 per cent of the self-employed are currently contributing to a private pension, down from 42 per cent in 2002. In contrast, 50 per cent of employees are signed up to a scheme (Family Resources Survey)

  • Social security protections that are not open to the self-employed: Contribution-based Job Seeker’s Allowance, Industrial Injuries Disablement Benefit, Statutory Maternity Pay, Statutory Paternity Pay, employer pension contributions and Statutory Sick Pay, among others.

  • Self-employed workers who fall ill without insurance must usually rely on Employment Support Allowance, which amounts to around £110 a week and becomes strictly means-tested after a year

  • 28 per cent of the self-employed believe their health and safety is at risk due to their work (European Working Conditions Survey)


Notes to editors

  1. For more information contact RSA Head of Media Luke Robinson on 020 7451 6893 or 07799 737 970 or


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