Written by:

Victoria Winckler
Director
The Bevan Foundation

 

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Self-employment is a vital but often overlooked part of the Welsh economy. Across Wales as a whole, one in eight people in work are self-employed – more people work for themselves than work in manufacturing, in construction or in transport and distribution. The figures are even higher in rural areas, with one in four working people in Powys and Ceredigion and one in five in Pembrokeshire and Gwynedd being self-employed.

Self-employment was hard hit by the Covid-19 pandemic, with thousands of contractors and freelancers losing their livelihoods almost overnight. Most commentators expected self-employment to bounce back as the economy opened up, but that’s not been the case. The numbers of self-employed workers has been on a downward trend since September 2019, with nearly 27,000 fewer self-employed people in Wales in September 2022 than three years previously.

The biggest decreases in self-employment have been in former industrial areas, notably Rhondda Cynon Taf (down 47.5%), Blaenau Gwent (down 31.6%) and Rhondda Cynon Taf (down 28.7%), and in some rural areas such as Carmarthenshire, Gwynedd, Denbighshire and Monmouthshire (all down 27 to 28%). Both areas can ill afford to see their workforces shrink, so what’s going on?

A number of factors appear to be driving the decline of self-employment.

Some of the self-employed have been reclassified as employees through choice (for example to access government help in the pandemic) or because of a change in status of some gig-economy workers whose self-employment was found to be ‘bogus’ by the courts.

There has also been a shift into employee jobs, not least to access better rewards. This is hardly surprising as self-employed workers’ earnings are relatively low. In 2020-21 more than half of Wales’ self-employed people had an income of less than £500 a week (after tax and excluding help such as SEISS). These low incomes have been put under huge pressure by rising prices. A recent YouGov survey commissioned by the Bevan Foundation found that nearly a fifth of self-employed people said that they sometimes or often could not afford essentials such as heating, food and toiletries. Moving into an employee job may well be a way of boosting incomes to help with rising costs.

Self-employed people are – like their employee cousins – also opting out of the workforce altogether, either retiring early or not working because of ill health. This is not surprising: the self-employed workforce is on average older than the employee workforce and it is the over-50s who are the majority of quitters.

It remains to be seen whether the downward trend will continue or if self-employment will start to grow again.  Partly it depends on future inflation and whether self employed people will be able to raise their prices enough to cover their costs and maintain their incomes. It also depends on how households manage their spending and in particular if they cut back on goods and services supplied by self-employed people.

What is clear is that despite the fall in numbers, self-employed people remain a key part of the Welsh economy and workforce and should have a much higher profile in public policy than they do currently.