Hamish McRae: Britain should welcome this silent revolution

Economic View: People start in jobs to learn the trade, then see opportunities or get fed up with the confines of being employed

The puzzle continues – but in an encouraging way. The puzzle is why we have record employment in an economy that is supposedly in recession? But at least we have decent job growth, notwithstanding quite proper concerns about the quality of the jobs being created, and that should be a source of relief, if not celebration.

Click HERE to view graphic

We will not know the full answer to the puzzle for several years, but it must be some combination of undercounting GDP and changes in the labour market which have meant output per worker has declined. The Office for National Statistics had a seminar on the productivity puzzle earlier this week and argues it is implausible that undercounting of GDP could be so large as to account for most of the mismatch. It thinks the growth of lower-productivity jobs (part-timers, self-employment, temporary jobs and so on) and the loss of high-productivity ones is more important.

We will just have to wait and see. In the very latest set of labour market data there seems to be a slight slackening in the rate of job creation, which may signal worries ahead. On the other hand, British consumers seem to be recovering their confidence. They will be helped by the decline in inflation, though the consumer price index is still outrunning the rise in wages. Still, we managed to increase car purchases (or at least car registrations) by 8.2 per cent in September compared with the same month last year, and that does not look like austerity.

Actually, European car sales are fascinating because they show, in magnified form, the divergent patterns of consumptions across Europe. During the first nine months of the year, overall registrations in the EU were down 10.8 per cent. There was only one market where they were up and that was the UK. Even Germany was down and as you can see from the bottom graph, Italy and Spain are a disaster.

When figures are uncertain or conflict with each other, I always like to look at hard numbers. That is why car sales are helpful because they tell you what consumers have done, not what they think or how they say they feel. The next set of hard numbers to watch for will be tax receipts, particularly from VAT, which cover half of consumption, and from National Insurance contributions, which tell us about the numbers of people in work. You don't pay VAT unless you are buying something and you don't pay NICs if you haven't a job. So if receipts go on rising faster than inflation the economy must be growing and if they don't, it is not.

What I think is fairly clear from the labour market figures is that we are in the middle of a massive structural change in the way we are organising our work. As previously noted, there is the shift to part-time employment, some of it voluntary, some not. There is continuing growth of people working beyond normal retirement age. There is the rise of self-employment, with the possibility that in a few years' time there will be more people who are self-employed than work for the state. But one of the most remarkable phenomena of all has been the growth of small businesses.

By coincidence, yesterday saw the publication of the annual survey of British business done by the Department for Business Innovation and Skills. There are now 4.8 million private-sector businesses in the UK, a record number, with somewhere between 200,000 and 250,000 new ones created in the past year. Of these, three-quarters are businesses with no employees: they are sole traders, partnerships where the partners do the work, or companies where the directors do the work. That is the largest growth area, as you can see from the top chart, which shows business growth in the form of an index. Larger businesses – those with up to 49 employees and those with 50-249 employees – have risen over the past decade but don't show anything like this rate of growth. And large businesses, classified as those with more than 250 employees, have declined in number, though that decline now seems to have been halted.

What does all this say? Several thoughts:

First, these are tough times and many people who lose their jobs seem to have set themselves up as businesses. Anecdotally that is what has been happening and it would square with a rise in micro-businesses that has continued right through the recession;

Second, there has also been a rise in businesses that are not registered for VAT or NICs over the past few years. That too would fit with the idea a lot of these businesses are very small, founded by people who want to go on working and have been made redundant. But the total number of registered businesses rose by 80,000 last year and since the floor for VAT registration is a turnover of £75,000, that suggests a decent proportion of these new businesses are serious ones;

Third, there are sharp, regional differences. The number of businesses relative to the population is highest in London and the south-east and lowest in the north-east and Scotland;

Finally, small businesses are massively important as employers. Companies with 49 employees or fewer account for 47 per cent of private-sector jobs.

My own feeling is that there is a silent revolution taking place, of which the rise in self-employment is the visible sign, but which is much deeper than people who have lost a job deciding to set up on their own. It is that a lot more people now regard it as normal to work for themselves for at least part of their careers. People start in jobs to learn the trade, then see opportunities or get fed up with the confines of being employed, and have the self-confidence to set out on their own.

A bit of this may be tax-driven, for there are some advantages of being self-employed. But there are also disadvantages and what seems to be interesting is that for many people the balance of advantage may have shifted. Also, there may have been some societal shift in that being an entrepreneur has become a more cherished social choice. But from a purely economic point of view one thing is clear. Read with the employment numbers, these figures show a revolution is sweeping across our whole economy and – surely – a welcome one.

News
peopleHowards' Way actress, and former mistress of Jeffrey Archer, was 60
Sport
Chelsea are interested in loaning out Romelu Lukaku to Everton again next season
sport
News
Robyn Lawley
people
Arts and Entertainment
Unhappy days: Resistance spy turned Nobel prize winner Samuel Beckett
books
PROMOTED VIDEO
News
people
Life and Style
Troy Baker and Ashley Johnson voice the show’s heroes
gamingOnce stilted and melodramatic, Hollywood is giving acting in video games a makeover
News
i100
Life and Style
Phones will be able to monitor your health, from blood pressure to heart rate, and even book a doctor’s appointment for you
techCould our smartphones soon be diagnosing diseases via Health Kit and Google Fit?
Travel
Ryan taming: the Celtic Tiger carrier has been trying to improve its image
travelRyanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?
News
people
Extras
indybest
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

BA/PM,EMIR/Dodd-Frank,London,£450-650P/D

£450 - £650 per day + competitive: Orgtel: My client, a leading bank, is curre...

Senior Analyst - ALM Data - Banking - Halifax

£350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...

Java developer - Banking - London - Up to £600/day

£500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...

Day In a Page

Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
How live cinema screenings can boost arts audiences

How live cinema screenings can boost arts audiences

Broadcasting plays and exhibitions to cinemas is a sure-fire box office smash
Shipping container hotels: Pop-up hotels filling a niche

Pop-up hotels filling a niche

Spending the night in a shipping container doesn't sound appealing, but these mobile crash pads are popping up at the summer's biggest events
Native American headdresses are not fashion accessories

Feather dust-up

A Canadian festival has banned Native American headwear. Haven't we been here before?