Improved Confidence Levels To End 2015 Bodes Well For 2016

Improved Confidence Levels To End 2015 Bodes Well For 2016

From:  
IPSE Freelancer Confidence Index Quarter Four 2015. A review from IPSE’s Economic Policy Advisor Lorence Nye

IPSE’s Freelancer Confidence Index (FCI), which is drawn from a quarterly survey of independent professionals, showed significant improvement for quarter four when compared with the previous quarter in 2015. In quarter three of 2015, confidence fell to the lowest level since this survey began. The previous steep drop in confidence was a direct response to proposals announced by the Chancellor in the Summer Budget, which raised concerns about plans to remove travel and subsistence tax relief, the Government’s intention to tighten IR35 rules and the tax increase on dividends. 

The Summer Budget was seen by many freelancers as a potential three-pronged attack on their businesses, increasing costs and uncertainty to a degree that may have put their businesses at risk. Although the Government is expected to follow through on its planned changes to dividends taxation in April 2016, there was no action taken in the Autumn Statement on the other two main issues, which seemed to come as a relief to freelancers, allowing their confidence to rebound at the end of the year. However, freelancers remain wary, and confidence has yet to reach the high levels observed in quarter two and the top concerns are still the Government’s attitude towards and regulation of independent workers.

Internal factors drive future optimism

Quarter four saw a shift towards freelancers believing internal factors will have the most positive impact on business performance in the next year. In this survey, freelancers indicated that three of the top four drivers likely to have a positive impact on the performance of their businesses over the next 12 months are actions that freelancers can control themselves: reputation (63.8%), innovation of services (51.0%) and targeting new markets (43.4%). This self-belief from freelancers is reflected in the fact that their confidence regarding the wider economy is lower than confidence in their own businesses.

Downcast outlook for some occupations 

While sentiment strengthened across the board, freelancers working in Standard Occupational Classification code two (SOC2), comprising roles such as IT project managers, mechanical engineers and journalists, still felt that their business performance will worsen over the next 12 months. Their negative outlook may be a result of decreasing earnings as theirs is the only occupational group to have experienced a fall in quarterly earnings over the past year. Another likely reason for the fall in confidence may be the increased demand from firms to hire some professionals on a permanent basis. A recent Recruitment and Employment Confederation (REC) Report on Jobs showed that IT & Computing and Accounting & Financial staff were two of the three occupations in most demand for permanent recruitment – two professions that fall into the SOC2 category. This indirect competition may also have resulted in these freelancers being less engaged over the last three months.

The Summer Budget was seen by many freelancers as a potential three-pronged attack on their businesses

Freelancer earnings, demand and costs provide mixed results

Freelancer earnings have been relatively flat in the year-on-year comparison, as fluctuating demand and day rates have resulted in little net change. Throughout the year, day rates have been fluctuating and therefore resulted in the varied quarterly earnings seen by freelancers. Day rates did however end the year higher than they were at the same point in 2014. Pay growth for employees started to pick up in 2015, with weekly wages for the average UK employee increasing by as much as 3%. By comparison, freelancer day rates have been increasing more rapidly, by 13% in the past year.

Meanwhile, cost increases remain subdued, with only slightly more than half (51%) reporting a rise in the cost of doing business over the past 12 months, while a large minority have not experienced any change and a few have seen falling business costs. This experience is broadly in line with very subdued inflation in the UK economy over the past year. Inflation has been at a historically low level in 2015, even turning negative for brief periods, underpinned by the extremely low international oil price. However, as in quarter three, freelancers believe that business costs will pick up at some point in the next 12 months, with only 3% predicting a fall in costs in 2016. 

Outlook for 2016

Overall, freelancers are quietly confident about their business performance over the next 12 months, but any concerns are mostly over potential damaging government action and future increased business costs, and these factors are holding back any runaway optimism. SOC2 freelancers have had a more challenging year than other occupational groupings in terms of demand and earnings, this group’s negative outlook weighs down the overall figure. However, this downward pressure on confidence driven by these professional freelancers has been countered by the rest of the freelancers surveyed, who are markedly more upbeat about their prospects in 2016.

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