UK is now the self-employment capital of western Europe, says IPPR report

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Britain is dubbed the self-employment capital of western Europe in a report published on Tuesday that feeds concerns over the strength of the UK's economic recovery.

Figures from the IPPR thinktank show that the growth in self-employment in the UK has been the fastest of all western European countries over the past year, a trend that is expected to continue when official labour market figures are published on Wednesday.

The number of self-employed has grown by more than 1.5 million in the past 13 years to 4.5 million and now accounts for more than 15% of the labour force.

The report said: "The UK had internationally low levels of self-employment for many years but has caught up with the EU average and, if current growth continues, the UK will look more like southern and eastern European countries, which tend to have much larger shares of self-employed workers."

Around two-fifths of all new jobs since 2010 have been among the self-employed, a trend that has triggered debate over the strength of the recovery and helped shape Labour's cost-of-living agenda. Labour has accused the government of over-selling the boom of the past 18 months following a series of reports that showed many recently self-employed people are working part-time and paid a fraction of the wage enjoyed by full-time employees.

Spencer Thompson, the IPPR's senior economic analyst, said that while Britain's self-employed workforce "come in many shapes and sizes", some members of the Bank of England's interest rate-setting committee view the phenomenon as an indication of weakness in the labour market. "Some have seen it as a negative development, having legitimate concerns whether a lot of the new self-employed are actually employees by another name. The monetary policy committee of the Bank of England, while divided on the issue, see the rise in self-employment as a sign that the labour market may be weaker than it appears."

Shadow business secretary Chuka Umunna said it was misleading that figures for average wages ignored self-employment, especially when it was now a large minority of the UK's workforce.

Umunna said: "Self-employment is increasingly becoming a route people choose to fulfil their dreams and aspirations, while it also offers flexibility for those who want to balance work against other commitments, such as childcare. This entrepreneurial spirit should be encouraged, but worryingly the situation has gone into reverse as we've seen self-employed people hit hardest by the cost-of-living crisis."

Releasing a separate analysis by Labour, Umunna said self-employed incomes had fallen by £2,000 on average since May 2010 – a 14% drop – which compares with a 9% fall for those in regular employment. Umunna said he and the shadow welfare secretary, Rachel Reeves, had called on Sir Andrew Dilnot, chairman of the UK Statistics Authority, to consider taking into account the earnings of self-employed people when the Office for National Statistics publishes earnings figures, following a sustained rise since the financial crash in the number of people working for themselves.

The IPPR said the UK's self-employment rate grew at the fastest pace in western Europe between the first quarters of 2013 and 2014, following an 8% increase that added a full one percentage point to the total number of people working for themselves. The rise outpaces countries such as France, Spain and Italy – which showed no change over the year in self-employment levels – but is slower than double-digit increases at Slovenia, Cyprus and Bulgaria.

The IPPR's Thompson said: "Around 2,000 people a month are moving off benefits into their own business. The government's response to the rise in self-employment has been to praise the UK's entrepreneurial zeal, while increasingly promoting self-employment as an option to job-seekers." He added: "The self-employed come in many shapes and sizes. Some are entrepreneurs, driven by high-growth ambitions, innovation and disruptive business models, but many are sole-traders simply looking to get by or small businesses happy to stay at their current level. The UK is just as much a nation of shopkeepers as a vanguard of cutting-edge capitalism."

Powered by Guardian.co.ukThis article was written by Phillip Inman, Economics correspondent, for The Guardian on Tuesday 12th August 2014 00.01 Europe/London

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