Are benefits cuts creating entrepreneurs?

This blog has previously explored the reasons underlying the growing numbers of self-employed. There has been some debate as to whether the UK is really seeing a surge in entrepreneurial spirit. The debate appears to hinge on whether the self-employed – now some 4.5 million – are made up of people starting businesses or not. The self-employed, statistically speaking, can include anyone from part-time employees and carers, to those running businesses turning over more than a million pounds a year.  We’ve also seen the rise of the zero hours’ contract and there has been the suggestion benefits advisors are encouraging people to go self-employed.

The surge in self-employment accounts for a significant reduction in unemployment as a whole, and in part explains why UK plc hasn’t witnessed a corresponding surge in productivity. The Bank of England’s Monetary Policy Committee seems to share this view. The Bank has noted the “striking” amount of people becoming self-employed and has attributed this trend in part to changes in the benefits system. The Bank’s view seems to be that structural reforms, such as the benefits cap, is “pushing” more people back into work.

This has been the Government’s view for some time and minutes from the latest MPC meeting confirm the view the rise in self-employment appears to be part of a longer term trend. Part of the evidence seems to be in the large number of people deferring retirement (also discussed here): 70% of those becoming self-employed since 2008 are aged over 50. Going back to the point raised above about productively, it is interesting to note that the Committee suggested it was “possible” some people could be more productive if they opted to become employees rather than go the self-employed route. If older people are more likely to become self-employed then it’s entirely possible these are part-time or lifestyle businesses.

As we have previously discussed older unemployed people tend to be out of work longer. Self- employment seems to be a way out for some of these workers and those that feel they can’t afford to retire after being made redundant.

If benefits cuts are creating entrepreneurs it’s unclear whether its US-style entrepreneurship. Rather, it could still be a pragmatic response to current economic conditions.