I discovered some very interesting facts about small businesses in the UK this month. I am intrigued by the statistics that follow because I want to know what the real impact is of small businesses on the UK economy.
The reason I am interested is because of the stories I hear all around me of self employed people struggling to stay in business and in control of debt, and of my own experiences as a single person, running a business in an oversubscribed industry. Of course, this is the same for the employed. In an age of rising costs, earning enough is a problem for most of us no matter how we make our money. These are not issues solely of the self employed. But that average income for the self employed is considerably lower and comes with less benefits such as pensions, holiday pay and sick pay, raises questions about the fragility of this growing trend and the long term sustainability of it in the UK economy.
Now, add to that the number of self employed people utilising Working Tax Credits (WTC) to make ends meet. This suggests they are earning under the personal allowance, taking from the system in WTC and not paying any tax back into the system. Now you can see some of the pitfalls as to why mass self employment may not be working as well as the initial statistics might tell you. Even though the numbers of self employed people greatly reduce the unemployed Government figures, what they take out could be far greater than what they put in. Once you are registered as self employed you immediately come off the unemployed figures regardless of how much you may be earning. You can earn nothing and you are still listed as employed.
Here are some of the figures that particularly stood out for me and some charts to brighten up this rather heavy write up. The text has been taken directly from the ONS website.
- In 2017 there were 1.3 million employing businesses and 4.3 million non-employing businesses. Therefore, 76% of businesses did not employ anyone aside from the owner(s).
- The majority of population growth since 2000 has been due to non-employing businesses, which accounted for 89% of the overall increase. The number of small businesses employing others has fallen, whilst the number of single person businesses has continued to rise.
- Non-employing businesses accounted for 79% of the overall 197,000 increase in the last year. Small businesses accounted for 99.3% of all private sector businesses at the start of 2017 and 99.9% were small or medium-sized (SMEs).
- SMEs account for at least 99.5% of the businesses in every main industry sector.
- Total employment in SMEs was 16.1 million; 60% of all private sector employment in the UK.
- The combined annual turnover of SMEs was £1.9 trillion, 51% of all private sector turnover in the UK.
The overriding aspect of this is the number of people setting up as a sole proprietor, and therefore not employing anyone else. Self employed people might be a huge statistic but why is this? One of the reasons is simply that they can’t get a job working for someone else doing what they are trained to do because there aren’t enough businesses hiring. It doesn’t necessarily mean that their particular industry sector needs more companies. It might be that it is an oversaturated market and that is why noone is hiring. Therefore, this does not mean that a person will find enough work to survive. This may account for why so many SME’s don’t employ anyone else. They simply can’t afford to.
Figures for how many self employed people are receiving WTC aren’t available but a UK Government research paper does offer some interesting insights. The Office for National Statistics report also attempts to answer the question of the number of self employed utilising WTC. It suggests that income among the self-employed is lower than among employees. To quote: ‘The distribution of self-employed income appears centered around £240 a week, much lower than that for employees, which is centered around £400 a week.’
Another, perhaps unexpected, statistic is that self employed numbers are made up in majority by those with a degree level education. Whether this is because that education gives them an advantage when starting a business, that the university system enables them to start up (there are start up schemes open to graduating students) or simply that the university promise that a degree will get you a job is false, is unclear. When I was at university it was reinforced to us that our degrees would get us jobs and attached to that were the kinds of pay salaries you could theoretically expect. This didn’t take into account a whole raft of other factors. However, it was a false claim at a time where the majority have a degree level education.
Perhaps one of the most worrying figures is the number of self employed people with no pension provision. This means that over the next 30 years, and beyond if things continue like this, the number of retired (or of retirement age) individuals unable to survive financially is going to increase dramatically. Removing compulsory NI contributions for those earning under certain thresholds will have a huge impact as the basic state pension will be nowhere enough to sustain these individuals. The low income of self employed people also means they are not putting additional money aside for retirement.
The figures for the over 55 age group were no more inspiring than what you see below. Historically, many older people start up their own business when industry has failed them, or they have been made redundant and their age means they are not seen as attractive employees.
If anything, these figures suggest that the retirement age will, for many, be nothing more than a pipedream, and those without provision will simply have to carry on working to top up the basic rate state pension where they have not contributed to the system.
As I completed this blog entry, and amidst the news that Claire’s Accessories is rumoured to be filing for bankruptcy, this article about the rise of the independent retailer popped into my inbox. Food for thought. No doubt many of these are self employed individuals. Here’s their chart, which is tantalising to say the least.