The self-employed will overtake the public sector with the ‘gig economy’

An army of public sector workers, heavily unionised, with generous pay, lots of time off, and lavish pensions. Councils stuffed with bureaucrats doing non-jobs, and quangos recruiting a growing army of diversity workers. An over-manned and feather-bedded public sector that is intent on voting itself ever more generous pay and conditions. That may well be many people’s idea of the dominant force in the British labour market.

And yet, here is something surprising. That dominance is not really true. In fact, the total number of self-employed workers is fast catching up with the numbers in the public sector. The “gig economy” is triumphing over everything else. As that trend gathers force – and there is no reason why it should not – people who work for themselves are going to become an ever-more powerful economic and political force.

How is that going to change the economy? In three ways. There will be a genuine constituency for tax cuts; the divergence between the regions will become ever more obvious; and there will be a big constituency for politicians who offer the self-employed the kind of tax and welfare changes that make their lives easier.

For most of the industrial era, there were really only two big blocs in the workforce: public and private sector employees. There were a few self-employed people – a few company directors, some builders and the odd taxi driver. But the numbers were not huge.

Since the crash of 2008, that has all started to change dramatically. If you go back all the way to 1975, only 8.7pc of the workforce worked for themselves. By 2008, that had risen to about 12pc. Ever since, it has started to accelerate rapidly, growing to close on 16pc of the workforce now. The total grew as much in seven years as it did in the three decades before that. But here is the really interesting point: The self-employed may soon overtake the public sector.

Just take a look at the latest employment data from the Office for National Statistics. It shows that the number of self-employed is now rising again, after stalling as the recovery strengthened. The total was up by 71,000 in the last quarter alone, rising to 4.61m. Meanwhile, there were 5.35m people in the public sector, down by 12,000 since June, and down by 59,000 year-on-year. That was the lowest overall total since the measurement began in 1999. That is still a gap of around 750,000 workers. But you don’t need to be Einstein to work out that at a rate of 80,000 a quarter, that gap is going to be whittled away very quickly. It could happen by the end of this year, or perhaps next. At the very least, it looks inevitable that it will have happened before the end of the decade.

Indeed, the rate at which the gap is closing may well start to accelerate. The “sharing” economy, pioneered by the likes of Uber and Airbnb, is opening up vast new opportunities for working for yourself; so is the spread of broadband, and well-funded start-ups – all those “unicorns”, the billion-plus dollar start-ups – love to take on lots of freelancers and don’t object to paying them pretty well. At first the rise in self-employment could be dismissed as largely the result of the recession of 2008/9. Lots of laid-off workers were “freelancing” for a while as they looked for a new permanent job. But the labour market is incredibly buoyant, with jobs being created in record numbers. That tells us that most of them are deliberately choosing self-employment.

Meanwhile, little by little, but admittedly not fast enough, the public sector is getting smaller. The cuts are still in place. Assets are being transferred from the public to the private sector. The state payroll is not going to grow again for a long time, and should carry on getting slimmer. We are already used to the idea of the public sector being a big political force – indeed in many ways the Labour Party mainly exists to promote its interests. So what difference will it make when the UK has more people working for themselves than the state?

Here are three trends to watch out for.

First, there may well be a genuine constituency for tax cutting – perhaps for the first time. The public sector usually favours higher taxes, for obvious reasons – that is what pays their wages. The employed sector doesn’t really notice them. Workers’ taxes just disappear from their pay-slips each month. But the self-employed – filling out HMRC forms, and paying taxes directly out of their bank account twice a year – are painfully aware of just how much the state costs. They are far more likely to support calls for lower taxes than any other part of the electorate.

Second, the regions will inevitably drift further apart. Scotland has the lowest rate of self-employment in the UK, along with the North East. In the North East, the rate is only 10.8pc, and in Scotland it is only 11.5pc, compared with 17pc in London, and much the same in the South East. Scotland is well on the way to becoming a separate country, at least in terms of its economy – and the rise of self-employment will make it even more so. (Wales won’t drift away, however – it is much in line with most of England).

Finally, the self-employed will demand more concessions. So long as they were a fairly marginal group, everyone could safely ignore them. The Tories more or less took them for granted, while Labour dismissed them as tax dodgers. And yet, there are plenty of policies that would be very popular. Tax simplification is one obvious example. Most self-employed have to handle their own tax affairs, or pay an accountant to do it for them, so every fiddly change in the system costs them either time or money, and often both. The welfare system takes very little account of their needs and women don’t get much of a hearing. For example, while maternity leave has been extended to employees there is not much on offer to the self-employed – even though the flexibility of working for yourself appeals to a lot of mothers. Any of those policies would win a lot of support – and it can’t be long before an enterprising politician starts pitching for that vote.

The rise of the “gig economy” will prove to be a powerful social trend, both in the UK and in most of the developed work. It shows no sign of slowing down – and it is going to impact the economy and the political system far more than most people yet realise.