What’s in a Name? Why We Need to Change How We Describe the Self-employed

Sometime before the last election, David Cameron wanted us all to know what really got him going (and also that he was a human being capable of emotions, not just a C3PO-bot made of ham). He gave the now infamous “that pumps me up” speech, all about how entrepreneurs were the people that got him most excited, with their passion, their commitment to business, their have-a-go heroism.

Apparently it’s not just entrepreneurs getting the government excited, but also the self-employed—as Iain Duncan Smith said in 2014: “The growth in self-employment is both a sign and a result of the economic recovery this Government is delivering. We should welcome this sign that the entrepreneurial spirit is alive and well in the UK.”

When you think of an entrepreneur or someone self-employed, what picture comes to mind? Is it a young hipster, sitting in a café with their Macbook, typing furiously as they run their multi-million dollar digital start-up between lattes? Is it David Cameron’s passionate business people, rebuilding the UK economy one SME at a time?

A lot of the language and narrative around self-employment and entrepreneurship is along these lines, focusing on the glamour, the freedom, the innovation, the ability to set your own hours. Looking back through my own blog, I found the post I wrote about self-employment when I was starting out, and you can see how I’ve absorbed the vision as well.

I haven’t changed my mind about that vision, and for my specific set of circumstances self employment has been a positive experience. And I do think there’s scope for changing the way we approach work generally. But emerging from the research into self-employment, and from more general observations, is an uglier and more worrying picture of what can mean to be self-employed in the current climate.

Enterprise poverty and “false” self-employment

Research by Professor Laura Galloway at Heriot-Watt University clearly identifies that there are many different types of the self-employed people: and that some of them are a far cry from what we might imagine.

Her recently published research focused on what she terms “enterprise poverty”—people who are forced into self-employment as an alternative to unemployment, or as a form of contractualised labour, and end up below the poverty line as a result.

In the first instance, she found that the New Enterprise Allowance, set up to help budding entrepreneurs start their own businesses, was sometimes being used to get people who were wholly unsuited to self-employment off long-term unemployment. Unsurprisingly, she found that the firms “created under these circumstances are low value and, in fact, are likely to have a net negative value in socio-economic terms and cause harm to health and wellbeing for individuals.”

The second instance that she found was people who may even have thought they were employed, but found that instead they are self-employed people, despite looking to all intents and purposes like employees. When CityLink went into administration on Christmas Eve, many of their drivers—sorry, “service delivery partners”—were left high and dry with no work and no redundancy pay, and pretty low down the list of creditors owed money by the failed company. If you were an established company, ran a fleet of your own vans and had other clients as well, you could potentially absorb this loss, but the single driver who gets up at 4.30 am and works till 7.30 pm, and pays for his own national insurance, income tax, van insurance, fuel, van charge and uniform is going to find it hard to recover from that blow.

We all get very excited about Uber and TaskRabbit as shiny new digital platforms to upset stagnant industries or come up with new ways of working—but a recent article in The Guardian highlights exactly this same phenomenon: people technically self-employed but enjoying none of the benefits of self-employment, only the drawbacks. And the drawbacks are significant: no sick pay, no holiday pay, no redundancy pay, no notice period, no security. This type of self-employment is currently being challenged in court by Uber drivers, but many people are still stuck doing insecure, badly paid work, with no prospect of a class-action lawsuit to improve their lot—and the national living wage doesn’t apply to the self-employed.

Why you should care

If you are a true dyed-in-the-wool free market capitalist, you might not think this is too worrying, but simply a sign of the markets adapting to new technologies and modes of work—it will all come out in the wash, particularly as the economy recovers. Iain Duncan Smith is still talking about it in this vein: “enormous economic benefits flow from encouraging thrift; exalting the wage-payer; and protecting initiative and independence.”

A year on from David Cameron’s speech, however, the economy is still not looking terribly secure, and the self-employed wallowing in enterprise poverty are clearly not going to be the engines for growth the government so desires. As Professor Galloway says, enterprise poverty is “bad for individuals, for organisations, for national innovation and competitiveness and for national economies.”

To be fair, not all self-employed people are in this situation. An RSA survey found that only 15% of the self-employed they surveyed chose it due to having no other options, with the rest making the move out of choice and for various reasons including more freedom and flexibility. Self-employment is however having a negative impact on earnings. Self-employed people’s earnings are falling year on year—in one analysis, “turnover per worker for non-employing businesses fell from £76,000 per worker in 2003 (adjusted for CPI) to £70,000 per worker in 2009 and then to £53,000 per worker in 2014. The recession made a fall in revenues that had been going on since the early 2000s even worse.” (Remember that’s turnover, not salaries.)

The HMRC says that the average income for self-employed person is £13,500, which is not a lot, but the statistics are murky. Other research puts average earnings for sole traders at £19,000, while people who are operating on their own but as a limited company seem to do rather better—around £58,000 per year.

Lower incomes means lower growth, lower tax receipts, and also more people being propped up by the welfare state, none of which is good news for the economy. Furthermore, the economist Vicky Pryce pointed out during RSA’s Spotlight on the Self-Employed research program that the self-employed tend not to invest in training to the same level as organisations, which has a negative impact on skills: “So if you look at productivity from the longer term perspective, if this trend continues, however wonderful it is to be entrepreneurial which of course is a very good thing we are deskilling ourselves. So the country will be on a lower productivity path for considerably longer.”

What’s all this got to do with language?

Language is important. Language has the power to shape perceptions, understanding and ultimately, policy. Politicians aren’t known for their precision with language, but the way in which the terms entrepreneur and self employed are used interchangeably by politicians of all stripes is impressive. Speeches like David Cameron’s assume that the self-employed and entrepreneurs are all one homogenous mass, and gravitate to the most attractive picture—the successful director, the digital start-up, the freelance designer.  As Neeta Patel of the New Entrepreneurs Foundation says:  “The myth we are all buying into is that entrepreneurship and self-employment are the same thing. One is not a shorthand for the other.”

But actually, the issue with the way we describe the self-employed goes even further: as we’ve seen, being self-employed covers everything from the Uber driver or the TaskRabbiter to the digital start-up, and all cases in between. This makes it really hard to measure and analyse what’s going on, and also to plan useful policy to support these ever-growing groups.

The RSA recognised the importance of more specific terminology around self-employment in their review, suggesting six different categories that make clear the different ambitions and drivers of each group – visionaries, locals, classicals, survivors, independents, and dabblers. In order to be useful, however, any categorisation has to be strictly defined, as the Office of Tax Simplification identified in their Employment Status Review:  “Without a consistency in understanding and without a counting mechanism the significance of these groups…is difficult to establish.” Julie Deane’s review of self-employment, published early this year, also pointed to this issue, calling for a legal definition of self-employment in order to bring clarity to tax and employment law.

Of course coming up with new ways of describing emerging modes of work won’t increase wages or haul people out of enterprise poverty. But it will make it much easier to see clearly what’s going on, so people don’t get lost in the statistics and politicians can’t make sweeping statements about how wonderful it is to be an entrepreneur. And it will also make it much easier to design policy that doesn’t treat all the self-employed exactly the same way, no matter what their needs might be.

Cecilia Thirlway is a self-employed writer and brand consultant who writes about innovation, brand strategy and self-employment.