London has the UK’s largest concentration of self-employment, with around 900,000 self-employed workers in 2018. This section offers a picture of London’s self-employed workers, building on existing research and publicly available data.
Self-employed jobs are not evenly distributed across sectors
London’s self-employed workers are not evenly spread across sectors (see Figure 2). Data from 2018 indicates that in three sectors, self-employment represents over one-third of the workforce – accounting for 52 per cent of household workers, 42 per cent of construction workers and 36 per cent of the arts and entertainment sector.
Self-employed Londoners work in a variety of occupations
Self-employed workers exist at all occupational levels, but self-employment is much more common among machine operatives (particularly in passenger and goods transport), skilled trades (which include construction, vehicle maintenance and hairdressing), and managerial occupations.
Self-employed workers are more likely to be low earners – and are unlikely to be saving for retirement or benefiting from other sources of income
Self-employment is sometimes seen as a lucrative way to make a living, and there are more high earners among the self-employed than among employees. But the bulk of London’s self-employed workers earn low or middle incomes from self-employment. The most comprehensive study of earnings to date found that 67 per cent of London’s self-employed earn a full-time equivalent wage below the London Living Wage, and 55 per cent earned an income below the poverty threshold (compared to 49 per cent outside London). 7
However, there are a few caveats to these findings. As people start to earn more through self-employment, some find more tax-efficient ways to manage their income, for example by taking it as dividends. Some who obtain an income from self-employment also supplement it with other streams such as property income. Self-employment income is also more likely to go undeclared – especially in professions where activity tends to be cash-based – and such income would be absent from tax return data. Shadow economic work is estimated at 10 per cent of UK GDP and occurs most in London’s skilled trades and household services. 8
Despite these limitations, the study of incomes quoted above also established that many low-paid self-employed Londoners could not rely on other sources of income to support themselves, because:
- Few self-employed Londoners were also earning income from employment (only six per cent did).
- Few self-employed Londoners were earning income from sources other than employment. Just 15 per cent earned over £1,000 from other sources of income such as pensions, property, or dividends – compared to 24 per cent in the UK as a whole.
- Nationally, self-employed workers were more likely than employees to live in a poor household (28 per cent versus 19 per cent). 9
On top of this, we found that pension scheme participation was at 10 per cent among London’s self-employed workers, compared to 68 per cent for employees. 10 This gap isn’t surprising – employees are automatically enrolled in employer pension schemes, and there are ways of building a pension other than investing in a scheme (such as investing in property).
Pensions are a matter for UK government policy and therefore outside of our study, but the lack of pension savings may point towards a bigger problem: the extent to which self-employed Londoners can save and build resilience.
Other data suggest that a large minority of self-employed workers aren’t managing to save. According to the Wealth and Assets Survey, 32 per cent of self-employed people do not have enough financial savings to cover a 50 per cent reduction in their income for three months. 11 This group would not be able to protect themselves against the risks and potential costs associated with self-employment.
Women and people from minority ethnic backgrounds are overrepresented among the low-paid self-employed
The vulnerability outlined above is more likely to affect women and people from minority backgrounds.
Women are more likely than men to work part-time and have a low income when self-employed. This is particularly the case for Black, Asian, and Minority Ethnic (BAME) women. 60 per cent of BAME women in self-employment are low-paid, compared to 48 per cent of White women and 42 per cent of White men. 12
According to a previous study published in 2016, 28 per cent of self-employed workers in London were women, but women represented 33 per cent of the low-paid self-employed. 9 Since then the gender pay gap among self-employed workers has slightly widened (see Figure 4).
Women are three times more likely to report poor mental health than men, and this figure has been increasing. 25 per cent of self-employed women suffer from loneliness due to working remotely, compared to 16 per cent of men. 14 Women are also more likely to provide unpaid care for children, friends, and family, which has a consequent effect on working hours and pay. Despite these challenges, many women enter self-employment for positive reasons, such as having greater control over working hours, a choice of where to work, and a better work-life balance. 14
Levels of self-employment vary among different ethnicities. Pakistani and Bangladeshi men who are economically active are more likely to be self-employed than other groups, and the work that they do is more concentrated in sectors such as transport and catering. 16
Evidence on the earnings of self-employed people from ethnic minorities is scarce. One study found that nationally, self-employed workers from ethnic minority groups earn less, work longer hours, and have lower job satisfaction than White British workers who are self-employed. 17 Among ethnic minority groups, self-employed Bangladeshi and Pakistani workers face a smaller pay penalty than Black African and Chinese groups.
While the motivation for entering self-employment varies from person to person, some suggest that people from BAME groups may enter self-employment to overcome the barriers they have experienced elsewhere in the labour market – such as a lack of information about the employment options available to them, and discrimination. 16
Self-employed workers tend to experience greater job satisfaction than employees
While some workers have been pushed into self-employment due to a lack of secure employment opportunities, 19 research indicates that self-employed workers tend to have higher levels of job satisfaction, higher levels of overall wellbeing and lower anxiety than employees – despite having lower average earnings.
To exclude the possibility that this finding is due to people with higher levels of life satisfaction being attracted to self-employment, one study compared the reported job satisfaction of people who had become self-employed as a result of losing employment. The researchers found that people experienced an improvement in job and life satisfaction compared to when they had been employed, despite having lower earnings on average. The authors of the study also found that wellbeing has improved more among self-employed workers than among employees in recent years. 19
Of course, data on wellbeing tracks averages, and there are professions where job satisfaction is low and anxiety levels are high. Although research suggests that hitherto there has been no specific wellbeing cost associated with self-employment, it is possible that financial strains during the COVID-19 pandemic have changed this calculation – a question we explore in the next section.
Self-employed workers have been more exposed to the COVID-19 crisis
For a range of reasons, self-employed workers have been more exposed to the economic shock caused by the pandemic than employees. This is partly because self-employed workers are over-represented in locked-down sectors, but it is also due to their contracts or supply arrangements being easier to terminate than for employees – as well as patchier provision of income support. 21
The UK government has compensated some of this loss by introducing a Self-Employment Income Support Scheme (SEISS) which offered four grants calculated against a self-employed worker’s past earnings. Though such a scheme is unprecedented, and many workers received some level of financial relief, there were three groups of self-employed workers who were not eligible: those who started self-employment during the 2019/20 tax year, those whose main income was not from self-employment, and those whose trading profits were above £50,000. 21
In London, HMRC estimated that 630,000 of 900,000 self-employed workers were eligible for support under SEISS in spring 2020. Those who were not eligible could fall back on Universal Credit instead – for which the Minimum Income Floor was suspended to allow low-earning self-employed workers to receive support. 23
Centre for London’s quarterly Snapshot of Londoners survey highlights how the pandemic and its associated recession have pushed more self-employed people in poverty. Six months into the pandemic, 55 per cent of self-employed workers had seen their income negatively affected by COVID-19, compared to 44 per cent of employees 24 – and the proportion of self-employed workers struggling to make ends meet jumped from 28 to 38 per cent (see Figure 5). A national survey conducted by the Resolution Foundation in January 2021 confirmed that the crisis has dealt a particularly heavy blow to self-employed people. 14 per cent of UK self-employed people were no longer working, compared to six per cent of employees – though a subset of employees who were on atypical contracts are about as likely to have lost activity or income as self-employed workers. 25 Among the self-employed, the survey found that older and low-paid workers were more likely to have stopped working altogether, thereby showing that the pandemic is worsening some pre-existing inequalities. We also know from our own Snapshot of Londoners that women are more likely to have lost working hours and income during lockdown, further worsening gender inequalities.
Unsurprisingly, the financial woes of many in self-employment have contributed to a deterioration of their mental health. According to a survey by IPSE, the association for the self-employed, the number of self-employed workers reporting “poor” or “very poor” mental health has increased from six per cent to 26 per cent since the beginning of the pandemic. 26
Despite the financial difficulties they had experienced during the pandemic, most (but not all) of our focus group participants said they wanted to remain self-employed.
Focus group participants:
“Even after the pandemic I’d still go back into self-employment. No time feels wasted and every second of work is towards something that I want to do.”
“It sounds like a lot of people here do something that they love, and we are willing to put up with longer hours and be paid less because of it. But I would not have it any other way.”
“I’ve invested my life savings into my business and they’re now burnt. And I don’t think the freelance marketplace is going to be able to sustain me, so my hand is forced and I’m going to have to go back into full-time employment.”
Nonetheless, the pandemic has changed perceptions of self-employment. A survey of self-employed workers conducted in September 2020 found that 64 per cent were either “less likely” or “unsure” they wanted to be self-employed or freelance workers in the future. 27 We do not know whether this change in attitudes will be a long-term one – but we would expect people who have faced financial difficulties during the crisis to be more reluctant to rely on self-employment in the future.
As discussed above, even those for whom self-employment is a choice face barriers to leading successful careers and making the most of London’s labour market opportunities. The next section explores these barriers in more detail.
Case study: Self-employed workers in arts and entertainment
Freelancers are essential to London’s creative industries and world-renowned cultural institutions. They make up one-third of London’s creative workforce. In fact, it is common for organisations to work with more freelancers than employees. For example, before the COVID-19 pandemic the National Theatre contracted with 1,900 freelance workers a year in addition to its employee workforce of 1,178. 28
Organisations in London’s creative industries generally receive funding on a project-by-project basis. Many of them also operate on a seasonal basis, including London theatres, festivals and concert halls. As a result, opportunities for permanent, full-time employment are limited, and contracted or commissioned work is far more common.
Self-employed workers in the arts tend to be high-skilled but relatively low-paid. Although two-thirds of creative freelancers hold a university degree, average income is under £20,000. London’s creative freelancers take on a range of different roles, from sound engineers to script writers and dancers. Over half (56 per cent) of creative freelancers work in museums, music, performing and visual arts. 29
Short-term contracts and irregular cashflow can have a deleterious effect on a person’s mental health, and workers in the creative industries are more likely to experience mental illness than the general population. Workers in the creative industries are also subject to high levels of sexual abuse, bullying and discrimination. 30
In addition, the lack of advertised positions and reliance on a network of contacts to get paid work can reinforce barriers to entry. In 2016, BAME workers represented around only 23 per cent of the sector (compared to 36 per cent of London’s total workforce) and 95 per cent of London creative industries workers came from advantaged backgrounds. 31
“I love the freedom and dynamic nature of [self-employed] work. It’s exciting when every day is different – I get to work with different people and choose projects and companies that I find interesting.”
Case study: Self-employed workers in construction
Almost half of the capital’s construction workers are self-employed, making up the largest group of self-employed people of all industries in London. Pressure on costs as well as changing demand for labour and skills has caused this self-employed workforce to grow – though a level of self-employment has always been a feature of London’s construction industry.
Many self-employed people are subcontracted through a construction agency. Subcontracting allows developers to staff each project differently, and for a limited period. Each construction project needs flexibility and people with different skills: for example, a new station such as Crossrail requires more electricians than a residential tower block. Developers do not have full knowledge of the wage that self-employed workers receive through an agency, which creates a high level of insecurity and leaves workers at risk of poor treatment.
Questions have been raised about this model of self-employment, and some say that many of these workers are falsely self-employed. Though these workers are classed as self-employed, trade unions say they work under employment terms and should be entitled to employment rights.