Helping the self-employed combat the rising cost of living

22/3/2022

EE Director Phil Ashford teaching one of our great self-employment programmes.

The rising cost of living has had far-reaching consequences for all aspects of the UK economy. As of December 2021, inflation in the UK reached its highest recorded level in decades, with the UK Parliament noting that the consumer prices index (CPI) has risen as much as 5.4%, making it noticeably more difficult for the average UK citizen to purchase goods and services. Coinciding with the seemingly ever-rising cost of living, there has been an unforeseen effect on the self-employment market. Many small business owners are struggling to adjust their model to cope with the new status quo. The long-term consequences for the self-employment sector of the UK job market remain to be seen, but thousands are already feeling the pinch. The economic downturn has raised operating costs whilst simultaneously reducing the nation’s consumer confidence, which dropped to its lowest level in 13 months in February of 2022 according to Trading Economics, in direct response to heightened inflation.

SMEs & self-employment

When discussing the rising cost of living, it is important that we consider the different groups within the category of self-employment. Within this bracket are sole-traders who run small businesses and small to medium enterprises (SMEs) who provide self-employment training to local entrepreneurs. These enterprise support providers, such as members of the NEN, offer practical support to the self-employed in the form of education and guidance regarding the setup and maintenance of their business. This is in lieu of any government-run services providing hands-on guidance to the self-employed. This landscape of self-employment training is supported primarily through SMEs, who receive funding via local government financing bids to run development and education programmes. The provision of funding to deliver enterprise support is sporadic and inconsistent in its coverage. This is one area where self-employed workers and those who support them are not afforded the same provisions as those in full-time employment, in terms of fundamental worker support.

The secondary sector

For the self-employed, there are additional steps to contend with to establish themselves, over and above those of our employed counterparts’, including tax and legal commitments. Many feel the government should institute systems to make these processes easier and more fool-proof, especially in terms of legal advice and provisions. More importantly however, those who are self-employed do not receive government support in the form of sick pay or annual leave, leaving them in a more exposed financial position. Despite there being an argument to be made for our ‘earned’ additional support given their ‘self-starter’ nature, the self-employed remain one of the least protected brackets in the UK economy.
Another factor we must consider is the social benefit system within the UK which doesn’t always cater for the self-employed. The current Universal Credit system provides the newly self-employed with 12 months in which the ‘minimum income floor’ does not apply. This means they will be afforded the full rate of financial support whilst they are ‘newly gainfully self-employed’. Whilst this sounds positive at first, when we consider this period as a test-trading period, 12 months starts to look less than sufficient.

“Having been through the UC system and becoming self-employed, I agree that there is a lot left to be desired in terms of long-term support”. – Todd Mitchell

Have you been affected by the Universal Credit system's short-comings? Let us know on Twitter! @Enterprise_Exch

Lack of a supportive culture for the future self-employed

In addition to the universal credit system, loan and grant offerings can feel impossible to attain for entrepreneurs with poor credit scores – caused for the most part by the poor financial situation of the last few years – or other groups who don’t fit neatly into the tick-box criteria. Exemplifying the dysfunctional loans and grants system is a £3,000 Help-To-Start offering aimed at helping people get their business off the ground. With this loan however, only those out of work and in receipt of benefits qualify. It therefore appears that Help-To-Start is designed for those in dire financial circumstances, as opposed to being a proactive option for those seizing the initiative.

The UK economic recovery

In January of 2021, a joint YouGov and Mettle survey estimated that the self-employment market accounted for £125 billion towards the recovery of the UK economy after the Covid-19 pandemic. This clearly demonstrates that the challenges reported by the self-employed are substantiated, given the role we have to play in the bounce back of our economy. Considering this data, our requirements for a more in-depth discussion about the policies and procedures surrounding self-employment start-up support as well as sole-trading maintenance and education are well founded.

Issues extending to SMEs

The cost of utilities and materials for small businesses have always been a point of contention, as prices continue to soar. Recent difficulties have resulted from a combination of the European energy shortage, Covid-19 pandemic, and subsequent production and logistical issues. The overall increased costs for any product or service have a knock-on effect: the everyday customer begins to spend less with small businesses, instead opting for larger entities that can weather the inflation more readily thanks to their size. To demonstrate how far-reaching this issue has become, the British Chambers of Commerce (BCC) released survey results in January that highlighted three quarters of businesses are increasing their prices to meet surging costs. Moreover, 62% of those surveyed reported that gas and electric bills are a crucial issue bolstered by 52% also recognising material costs as problematic.

The need for robust and inclusive support

The principal cost of most businesses is labour, with the BCC reporting that 63% of those surveyed directed most of their discontent towards salaries and contractor costs. These expenses have naturally increased to meet the raised living cost with many noting the increasing pressure on their businesses to raise prices as a result. All of these issues result in the same outcome: increased financial uncertainty due to customer loss and lack of spending.
Unsurprisingly, given our current economic situation, the last few years have seen a huge uptick in extenuating personal circumstances. The chief issue has been even greater isolation for those maintaining small businesses, with the lack of support for those maintaining self-employment becoming more pertinent still. We need a more robust and inclusive support system in the UK for SMEs and the self-employed to lessen future disruptions.

Fixing the problem

Though it may seem like support in the UK for the self-employed and SMEs is flawed or even wholly absent, Enterprise Exchange posit that without too much demand, many of these issues can be rectified. A combination of government-backed solutions, improved public knowledge, and more confident and widespread support must be tackled head-on despite the UK’s broader economic issues. The first and most obvious solution is to evolve Enterprise Support from its current state as a localised offering into a nationwide skills-based support programme. This would benefit those beginning their self-employment journey but would also provide help for small business owners in maintaining their standing enterprises. It is essential that extant businesses are educated and supported as they pivot their focus in response to the ever changing landscape of the economy.

Leave a comment and let us know your thoughts on the current state of self-employment in the UK.

Recommendations

For micro and small businesses to continue driving the UK’s economic recovery, the government must ensure that there is adequate, flexible, and attainable support in the form of benefits, loans, and grants available for both business start-up costs and small business maintenance. Additionally, the self-employed would benefit from a longer test-trading period, accompanied by specialist business support.

Financial support should be readily available to allow small businesses to innovate and evolve: this is key in adjusting to a moving customer base as a result of financial hardship. The final piece of the solution could come in the form of a trade union for the self-employed, which would allow a traditionally segmented and uncoordinated sector of labour to come together. In turn this can guide the necessary recalculations on support available to self-employment training providers and sole-traders, informing policy now and in future.

A sustainable model for the future

Like any small business, Enterprise Exchange have felt the tightening strings of the economy and as such have taken several proactive steps to parry these constraints. Our goal to consistently innovate and develop our process and subsequent services is unwavering. This allows us to position ourselves in the best way, whilst retaining consideration of the economic situation. Our use of virtual reality software has revolutionised the way we approach our self-employment education programmes alongside our interactive augmented reality workbook (watch below). Another focus for EE has been to invest in collaborations with organisations that are attempting to close the divide between people who are self-employed, as well as with SMEs generally. We have also been lucky enough to work in coordination with several universities in addition to working closely with the Innovate UK organisation to attain business-led innovation. We recognise that we must consistently adjust to ensure we are at the forefront of our sector and are capable of meeting the moving requirements of the current economy.

Another important step for us has been working as a member of the brilliant National Enterprise Network. This has demonstrated the vital importance of maintaining a unified network for the SMEs attempting to confront the issues faced by the self-employed. It has also allowed for Enterprise Exchange to have some input on government policy affecting self-employment.

“Only by combining business flexibility, adaptation and collaboration can we achieve a unified sector where support for small business is acknowledged and achieved”. – Phil Ashford

With the CPI expected to rise to 7% by April of 2022, the current economic situation appears to be again worsening due to world affairs and without any definitive answer on when we can expect a return to a more stable market. Through this hardship, sole-traders, SMEs and enterprise supporters must stand up to our problems in a constructive fashion. In doing so, our collective resources can be pooled, policies can be reformed, and financial and educational support can be ensured.
Enterprise Exchange believes in a brighter future where small businesses are protected and offered more stability. Let’s continue to celebrate the independent business mindset and associated success of the self-employment market in the UK.

Author

Todd Mitchell

I am Enterprise Exchange's Marketing and Communications Coordinator and wrote this article as the issue of the rising cost of living is getting worse presently and is a problem that must be discussed and acknowledged. I myself was previously on Universal Credit in the midst of the pandemic and am also a self-employed worker so I understand first hand the issues facing the sector and the lack of support available to most people.

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