02/09/2014 07:47 BST | Updated 01/11/2014 05:59 GMT

Going It Alone - What Next for Self-Employment?

The way we work in Britain is changing. One in seven of the UK workforce is now registered as self-employed - the highest figure on record. On current trends, the self-employed are set to outnumber the public sector workforce by 2020. Thus far the political debate has centred on whether this is a temporary or a permanent shift. Have the ranks of the self-employed swelled because employers have been reluctant to take on staff? Or are we witnessing a structural change?

The emerging consensus is that the economic downturn is likely to have accentuated the rise in self-employment, with employers reluctant to take on more staff in uncertain economic conditions. But the recession alone does not explain the change. The rise in self-employment predates the downturn and is expected to continue independently of the economic cycle. There has been no dramatic change in the characteristics of those who are self-employed before and after the recession. And around three-quarters of those who are self-employed report that this is their preferred way of working.

The challenge now is for policymakers to respond to this shift. Are the UK's labour market laws, tax system, skills, welfare and pensions system set up to deal with people who decide to go it alone, rather than work for others?

In some areas there are anomalies that plainly needed to be addressed. The money that businesses spend on training their staff, for example, is tax deductable so long as it is relevant to the purposes of the organisation - but the same is not true for the self-employed. The self-employed enjoy this benefit only if they are refreshing an existing skill-set, rather than learning new one - an odd idea in a country that wants to encourage more entrepreneurial behaviour.

In other areas the self-employed face particular challenges. Maternity and paternity leave is one example - with employees enjoying generous support but the self-employed left with just the statutory minimum from government. Pensions are another area where there are big discrepancies - savings rates are far lower for the self-employed, who enjoy neither employer contributions, nor the luxury of a predictable income that can help making routine pensions contributions easy. The government should be looking at specialist schemes for both parental leave and pensions which reflect the particular needs of this growing portion of the workforce.

There are other ways in which public policy can make a difference. Freelancers and small businesses often complain that they lack the clout to stand up to larger organisations when they are treated badly - for example when there are disputes over contracts or when invoices are paid late. On these issues the UK can take inspiration from Australia, which has a national network of small business commissioners, which help arbitrate in these circumstances. The service prevents expensive legal wrangling which inevitably favours large businesses over small.

'Revolutions' in the way we work are often overblown, but as Britain emerges from the economic downturn, it appears that high levels of self-employment are here to stay. For millions of freelancers, that means making trade-offs between the freedom and flexibility that self-employment brings and the relative security of working for others. The self-employed do not want government to do everything for them, but as the Demos report published today shows, there is catching up to be done.

Duncan O'Leary is Research Director at Demos. 'Going it Alone' is published today by Demos. The report was supported by IPSE.