What’s up with self-employment?
Last week I was perusing the latest Business; activity, size and location statistics on the ONS website (which counts as a good time in your 30s) when I noticed an interesting quirk: the number of private sector businesses continues to grow but the number of sole-proprietorships has continued to decline. At this point its probably worth establishing some definitions:
Business – an organisation that sells goods or services for profit. A business in the following includes a man with a van, and Unilever.
Sole-proprietor – businesses run by one self-employed person, which have not undertaken the legal steps necessary to become a company.
Self-employed – A person is self-employed if they run their business for themselves. Anyone who is classified as self-employed lacks the protections and rights that employees receive.
Company – in the following a company means a business that has registered to become a limited liability company, with the responsibilities and protections entailed.
Anyone who follows @TUCEconomics on Twitter should be well aware that self-employment has been the biggest growth area in terms of raw numbers, in the last quarter.
Sole-proprietorship is down
Yesterday, BEIS released the latest round of their Business Population Estimates (BPE), which uses a lot of the ONS data but goes into more detail as to what is happening within businesses. To briefly summarise, there are just under 5.5 million businesses in the UK. Of which, almost 5.5 million are Small to Medium Enterprises (SMEs), and nearly 5.5 million of those are small businesses with between 0 and 49 employees. That was a little bit of rounding humour for you there; the precise figures are as follows
Make up of business population, October 2016
The vast majority of these small businesses have no employees (4.1 million of them) which is in keeping with ONS employment data that shows 4.7 million self-employed people in the UK.
But how do we square the robust health of self-employment in the UK with an apparent decline in sole-proprietorship? Confused about this, I gave the ONS a ring, and as they were decent enough to talk me through their figures. The ONS stats only report the sole-proprietorships that are registered, i.e. registered for VAT or PAYE. As both BEIS and the ONS report, this number has declined to around 27.4 per cent of all businesses. As the BPE reports however, 3 million businesses remain unregistered.
Why is this? it could be that there has just been a dramatic efflorescence of entrepreneurial activity in the country, and the declining proportion of registered sole-proprietors simply reflects the fact that there are many more go-getters out there who are doing it for themselves, though not yet at a level where they need to register for PAYE/VAT.
Ease of companies and the gig economy
Looking at the BPE figures, it is clear that while sole-proprietorships have declined over the past year, there has been a dramatic increase in the number of companies registered. This may help to explain some of the discrepancy. It is now possible to form a limited liability company online, within a very short period, and the former chancellor’s minimalist attitude to corporation tax has made this an increasingly attractive option. It is very possible that this has driven an increased proportion of people starting out in business to start out as a company, rather than a sole proprietor.
Another possibility is that some of these sole-proprietors are not what most would consider self-employed at all. Instead they provide a service to another business on a self-employed basis, in what is often called “disguised employment”. This type of employment is at the heart of the recent GMB dispute with Uber, and it also lies behind the protest by Deliveroo drivers that took place in August.
Answers on a postcard please.
Yesterday afternoon I rang BEIS and they were also decent enough to discuss their figures with me;
However, as they pointed out the BPE doesn’t investigate the motivations of the business population, so it is not possible for them, or me to draw firm conclusions from the data. Nonetheless, it will be worth keeping an eye on the data to see how this trend plays out.
In addition if you think there is a more obvious, devious or ingenious answer to this question please jump into the comments box and let me know.