Andrew Chamberlain of the freelancer trade body IPSE said the “concerning decline” was bad news for the economy.
He said a “nimble and innovative” workforce could help the nation recover from the economic malaise. “We need these entrepreneurial workers to help companies grow and then leave early so businesses have funds to reinvest in themselves,” he added.
The trade body estimates self-employed workers generate more than £300bn for the economy each year.
“Many freelancers are returning to employment for job security. A lot of coronavirus support excluded the self employed. When you combine that with an ever onerous tax regime and the lack of workers’ rights, you have the perfect storm,” Mr Chamberlain added.
The Government has also confirmed changes to the IR35 regime – which determines the tax status of freelancers – will go through next year. It put the change on hold due to the pandemic.
This will switch the responsibility of declaring whether someone is a freelancer or an employee from the individual to the business. It has drawn widespread criticism from workers and MPs after large businesses simply stopped hiring contractors altogether for fear of getting the rules wrong.
Others forced contractors to work via umbrella companies as de facto employees which resulted in large pay cuts but no employee benefits.
For many, coronavirus has marked a “final straw” moment.
Mark, a 41-year-old cyber security contractor from Greater London, whose name has been changed to protect his anonymity, said he recently returned to full-time employment after years as a freelancer.
“I was due to start a new contract early in the year but the business cancelled it. The contractor market was already in a bad way so I moved back to working for someone else. I’m grateful to have money coming in but feel my skills are being wasted and it is odd working under a manager who has less experience than I do,” he said.
He added that he hoped to return to working for himself as the economy recovers and called for the support for freelancers to be enhanced and match that offered to employees.
“So far, we have been left out,” he said.
A total of 2.7 million freelancers made use of state support via the self-employed income support scheme at a cost of £7.8bn to the taxpayer. However, the Government helped pay the wages for almost 10 million employees via furlough and handed out close to £34bn in subsidies.
The Institute for Fiscal Studies, a think tank, estimated two million freelancers were excluded from support. This included newly self-employed workers and people who own limited companies and pay themselves in dividends.
The Government paid out a maximum of £14,050 to freelancers, covering up to six months of lost income. The furlough scheme was worth up to £20,000 of employees’ wages for up to eight months.
When Chancellor Rishi Sunak unveiled the freelancer support scheme in March, he dropped a strong hint National Insurance Contributions for the self-employed would be increased.
Freelancers argue they should benefit from lower taxes as compensation for lack of sick pay, holiday pay and other benefits such as auto-enrolled pensions employees benefit from. This helps them build a “war chest” for sometimes long periods between contracts.
But many feel they have lost the argument and have simply switched back to life on the payroll.