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Hamish McRae: A self-employed revolution is in the air


Hamish McRae
Saturday 18 August 2012 17:11 BST

The latest labour market figures caused a bit of a stir because the continuing robust rise in employment contrasted with the published GDP figures. If the economy really is in recession, how come it has added more than 300,000 jobs in the past six months?

Click here to view the graphic

It is a conundrum that cannot be explained away by pointing to the fact that much of the increase has been in part-timers, for the full-time total has risen by more than 50,000, notwithstanding the fall in public-sector employment. This will not be resolved for two or three years when full data becomes available, but those of us who are inclined to trust the employment figures (and retail sales) rather than early GDP estimates cannot but be encouraged by these numbers.

There is, however, another story in the data which has received less attention: the structural changes taking place in the way we work. There has been some comment on the rise of part-time working vis-à-vis full time. But there has been much less about the rise of self-employment.

Most of our ideas about work centre on having a job – working for someone else. It is certainly true that out of the 29.5 million people in work in Britain, more than 25 million, are indeed employees. But the proportion of people who are self-employed has been rising steadily since 2010 and is now approaching 15 per cent of all employment. That is not as high as it is in some other countries, notably Italy, where some 24 per cent of people are self-employed, but we are unusual in seeing such a sharp rise at this time.

As with part-time working, there is a debate as to whether this is a voluntary trend. Are people becoming self-employed because they have been made redundant from full-time jobs? Are people who have taken retirement coming back to work to supplement their pensions? But the numbers are pretty clear and if this trend continues it is perfectly plausible that in four or five years' time there will be more people working for themselves than working for the government. I have shown an admittedly crude projection of these two trends in the graph.

This has huge political implications. The self-employed vote would be, for the first time since the Second World War, larger than the public-sector worker vote, something that will inevitably change politicians' attitudes to all sorts of things, from pensions to labour market legislation. But there are equally profound commercial implications.

Some of these are obvious. One of the big growth areas will be businesses that supply services to the self-employed. These will include legal and professional services, for the newly self-employed have to fend for themselves in a whole array of functions that previously would have been carried out by their employer.

Of course, these services are available now. The problem is that they are often expensive and cumbersome, so streamlining accountancy, regulatory and legal help so it is affordable will be one of the great challenges for our often old-fashioned professional service industries. How do you change industries that are used to providing bespoke services so that they can supply mass-market ones?

Another obvious area will be banking. To take the simplest example, a civil servant seeking a mortgage is reckoned to be a better risk than a self-employed worker. But given that the numbers in one group are declining and the other increasing, the relative risks are surely shifting. Besides, you don't want to ignore 15 per cent of your market, particularly if it is set to climb to 20 per cent or more.

Still another obvious area is pensions. One of the catastrophes of the past 15 years has been the decline, some would say destruction, of occupational pension schemes. But we are where we are and the next task is to create affordable and trusted pensions for the self-employed. Better provision would help, for some people at least, offset the disaster of the present system.

But there are less obvious areas where our society can benefit. For example, our education system is not really designed to help people cope with the difficulties and benefits of working for themselves. There are a lot of basic skills, from constructing a spread sheet to learning how to pitch for business, that education does not feel it ought to be teaching.

You might say that there have always been intuitive entrepreneurs who seemingly cannot stop themselves starting companies and that you cannot teach entrepreneurship. I am not sure that is true, but even if it were, the need is not to teach people to be entrepreneurial; it is simply to manage the basic functions that the self-employed have to do for themselves instead of relying on an employer's HR department.

The key thing here is to realise that there are no hard lines between being employed and self-employed and that at some time many, maybe most people, will have a period of both. So suppliers of goods or services have to take this into account, both in terms of how they provide those goods and services but also in terms of how they manufacture or create them.

Managing a workforce that is largely comprised of self-employed people is different from managing employees. It is a more flexible workforce and if treated decently, maybe a more loyal one. But managed badly it may be a more fragile workforce. It could be, so to speak, like herding cats.

That is the challenge. We have long recognised that jobs for life are over; so people have learnt to be adaptable in their careers. But we still think of a society of bosses and workers, of employment contracts, of weekly hours and holiday entitlement, of retirement dates. That will not change suddenly but over time small, incremental shifts – such as the rise of self-employment – become revolutionary change.

Good news: Britain's assets rose more than its debts last year

Some holiday cheer: did you know that every man, woman and child in Britain is worth, on average, £110,000? Or at least that would be the amount we would have were the £6,800bn net wealth of the country spread evenly among us.

That is the highest in the history of the country, and more than double the level of 1991. It gets better. Our households have total assets of £7,000bn, made up of homes worth £4,100bn, with pensions, cash and other assets worth the rest. So a family of four people is worth the thick end of half a million.

There is however a catch. Our Government however has a negative net worth of £763bn, debts for which we collectively are responsible, not that we ran them up ourselves. Back in 1991, the government was just in surplus.

So what does all this mean? The big point to make is that these figures, which come from the Blue Book, the popular name for the national accounts that are published each year, are about a stock of wealth, not a flow.

The GDP figures are the flow. If you think of the country as a big family, we have an annual income that at the moment we are rather overspending. But we also have our homes and other assets and the annual overspend is not that big in relation to the value of all those assets.

It is as though the country as a whole is doing what many people did during the boom years: borrowing against the value of their homes to improve their standard of living. But, last year at least, the value of the total stock of assets of the country rose by more than the additional public borrowing, so our total wealth still climbed a bit. Told you it was cheering, didn't I?

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