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Fake Self-Employment Replaces Real Jobs in Sick UK Economy

04/02/2014 10:46 GMT | Updated 05/04/2014 10:59 BST

More than half of the new 'jobs' created in the UK economy since 2008 have been in self-employment, and the income they attract has taken a sharp dive.

This is the stark finding of a blog by Phillip Inman in today's Guardian, exposing the government's line that one million more private sector jobs in the economy since the recession started shows the UK is in good health.

The Prime Minister and Chancellor are firm believers in the 'crowding out' theory, which says that an economy in which the public sector is too big sucks up too many resources (including talented people) and leaves little space for private sector activity.

Their boast that the austerity drive they have instituted has been responsible for creating employment is undercut not just by the fact that 540,000 of the million jobs are actually self-employment, according to the TUC.

It is exposed by the fact that, since 2006, the average earnings of self-employed people have gone down by 20%, an even more shocking real-terms drop when eight years' worth of inflation is taken into account.

James Plunkett, director of policy at the Resolution Foundation, says "The worry is that these aren't budding entrepreneurs, but people taking on insecure odd jobs to make ends meet."

There are other worries too.

Some exploitative employers require their workers to register as self-employed as a way of avoiding paying National Insurance for them.

This can be related to the 'zero-hour' controversy - those who work in the care sector in particular can find themselves working under this regime, with self-employment offering cover for providing no guaranteed hours and a rate of pay below the minimum wage once travel is taken into account.

But the one that UnemployedNet has focused on previously is related to the swathes of public sector redundancies.

Some of those who have worked for the state struggle to get work in the private sector, and the thousands who have been laid off in each area then find themselves chasing the same jobs.

One refuge in this situation is to set up a small company or register as self-employed, and try to sell your services in the open market, which in practice often means back to your previous employers.

The fly in this ointment is twofold: many others are trying to do the same thing at the same time, and many local authorities and other public bodies have a ban on employing consultants or other external suppliers.

The continuation of redundancies in the public sector over the next few years is likely to entrench this cycle; more self-employed people chasing work which barely exists.

There are other problems with including this status in the official count of jobs.

We covered a story last year which showed advisors on the government's Work Programme were pushing unemployed people into self-employment as a way of claiming payments.

The companies delivering this scheme get paid the same for getting a participant into self-employment as they do for getting them into a paid job, leading some to suggest that this route is being exploited and makes up a significant proportion of the category.

In December 2012, Professor Roy Sainsbury of York University identified this as a weakness of the Work Programme:

"You could stay there [in self-employment] for a while - even six months or a year - before anyone really takes much interest in you ... I am beginning to feel that there is an easy route here for work programme providers to channel people into self-employment."

Some who registered this status as a tax dodge in the good times have been shaken out of the system, leaving more of those who have little work lined up but few other options.

Business creation is a vital part of the UK economy and will be key to growth. We need to encourage the setting up of the kind of companies that can create real employment for our citizens, but we don't need the kind of companies that simply disguise unemployment and poverty.

Much of the current wave of 'entrepreneurship' looks like just that.