Britain’s growing army of self-employed workers are earning less than they were 15 years ago and are vulnerable to changes that will make the welfare system less generous, two new thinktank reports have revealed.
The Resolution Foundation said the 45% increase in people deemed to be working for themselves since 2001-02 had been accompanied by a £60-a-week cut in the average pay packet.
Meanwhile, the Social Market Foundation said many of those working for below the minimum wage in a sector that includes construction site workers and drivers for Deliveroo and Uber, stood to lose out when the government’s new universal credit replaces existing benefits.
The two reports come as the government launches an investigation led by Matthew Taylor, the former head of Tony Blair’s No 10 policy unit, into the pay and conditions of the one-in-seven workers who are self-employed.
Adam Corlett, economic analyst at the Resolution Foundation, said: “Almost five million workers across Britain are now self-employed. But while the self-employed workforce is getting bigger, typical earnings are actually lower than they were 20 years ago.
“Prior to the financial crisis, this stagnation was as much about the changing nature of self-employed work, rather than individual rewards. But since the crisis the returns to self-employment have fallen sharply, even when measured on a like-for-like basis.”
The Resolution Foundation said typical weekly earnings for self-employed workers grew steadily in the late 1990s and early 2000s, stagnated in the run-up to the crash and then fell by a quarter in the wake of the financial crisis.
A spokesperson for the Department for Business, Energy and Industrial Strategy, said: “The government is committed to building an economy that works for everyone and while the ‘national living wage’ has given one million workers a pay rise, the prime minister has made clear the labour market must support and protect all workers.”
The Social Market Foundation said the pay squeeze meant 45% of the self-employed were being paid below the “national living wage” of £7.20 an hour.
It added that 20% of families with self-employed workers were claiming in-work benefits such as tax credits and housing benefits and that when these were replaced by universal credit – which is being phased in by 2022 – many were set to be worse off since the amount they could claim would be based on an assumption that they were earning the equivalent of an employee on the national living wage.
Nida Broughton, Social Market Foundation chief economist, said: “We have made great strides in tackling low pay among employees, however the self-employed have traditionally been overlooked. We welcome the government’s announcement that Matthew Taylor will lead a review into modern employment.
“Our report shows the scale of the low pay problem among the self-employed. If the government really wants to build ‘an economy which works for everyone’ – and deal with the problem of low pay among the self-employed – it must address the tax and regulation gap between employees and the self-employed, give the self-employed a stronger voice, and look at how training, better advice on business growth and wider opportunities can help people decide whether self-employment is the correct career path for them.”
Frances O’Grady, the TUC general secretary, said: “Britain’s new generation of self-employed workers are not all the budding entrepreneurs ministers like to talk about. While some choose self-employment, many are forced into it because there is no alternative work.
“Self-employment today too often means low pay and fewer rights at work. We need more decent jobs that people can live on. Not a return to the sort of working practices we saw in Victorian times.”
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