According to recent data from Merchant Savvy, self-employment in the UK has almost doubled since the year 2000, with a 93.9% rise recorded in the last two decades. Digging further into that figure, the main increase has come in the form of single person businesses, which numbered 2.36m in 2000, rising to 4.57m in 2020.
With single person enterprises now accounting for 76.3% of all businesses in the UK, the question to be asked is why are so many Brits turning to self-employed life?
Why have so many turned to self-employed life?
The SME market is the core of UK business, with 5.98m SMEs (meaning any business with less than 250 employees) making up 99.8% of the business landscape domestically and accounting for 52% of private sector turnover in 2020 and 60% of all private sector jobs in the UK. It is, however, the aforementioned growth of micro and small companies that has really stood out in the last 20 years.
Data from the Department for Business, Energy and Industrial Strategy (BEIS) shows that average turnover by employee rose across the board from 2019 through to 2020, with the Yorkshire and Humber region boasting the greatest growth in that area at 7.78%.
Despite those encouraging turnover numbers, key findings from the Institute of Fiscal Studies have found that the rise in solo self-employment is less about the potential earnings from self-employed work and more to do with circumstances and frustration with a lack of opportunity in the employee market. The IFS study’s key takeaways are:
- The solo self-employed earn less than employees on average and that gap has widened over time, with median pre-tax earnings among the solo self-employed in 2018-19 30% lower than those among employees.
- Many of those who enter solo self-employed work do so from a background of unemployment or inactivity, suggesting that the solo self-employed are an increasingly marginalised group.
- A higher prevalence of solo self-employment is associated with downward pressure on employee wages – further evidence that it is, in part, a symptom of a lack of opportunity in the traditional employee–employer labour market.
- However, wellbeing is higher among the solo self-employed.
Becoming self-employed
Self-employment, whether it’s done on an individual basis or a larger scale has clearly become a more appealing prospect to British workers in recent memory for a multitude of reasons, but those looking to go into self-employment should do so with caution. According to Fund Squire, British start-ups currently face unenviable longer-term prospects, with 20% of new businesses going bust before the end of year one and 60% falling foul by year three.
For those considering a move into solo self-employment or into the wider SME market, then, there is a clear message to come up with a solid business idea and plan before moving into what are largely highly competitive and saturated markets. With cash flow problems being the number one killer of new businesses, prospective self-employed workers may wish to look into additional funding options like small business loans to support their initial objectives and stay afloat beyond the rather ominous one- and three-year marks.
Despite the numbers, it appears many Brits are willing to give self-employed life a try. And with the micro, small and SME business market playing such a fundamental part in the UK economy, there are still undoubtedly opportunities for fresh entrepreneurs to take advantage of – the challenge is finding the right gap in the market to find that success.