Jeff Salway: Self-employed left behind

Self-employed generally carry a far higher level of debt. Picture: John Devlin
Self-employed generally carry a far higher level of debt. Picture: John Devlin
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‘THAT’S it, I’m off,” is a declaration that would have been heard in workplaces all over Scotland over the past week.

Quitting your job is a bit of a January thing, like signing up for a gym, embarking on the diet du jour and filing for divorce. It increasingly means taking the brave step of going it alone and entering the world of self-employment.

Of the 4.6 million self-employed people in the UK, it’s estimated that around a third have gone down that route since the financial crisis, with self-employment accounting for around 75 per cent of UK jobs growth over that period.

Why, then, do the self-employed as a group continue to be poorly served by financial services companies? The financial disadvantages have grown, if anything.

Take mortgages, with the major lenders becoming even more inflexible. Regulation has encouraged a tick-box approach that some have simply taken too far. If computer says no, you’re pretty much stuffed, regardless of the deposit or the income records you have.

Lenders claim it’s due to the affordability requirements that came in with the mortgage market review in 2014, but that’s only partly valid. They’ve also been tardy (at best) in overhauling their systems to ensure they can underwrite self-employed applicants. Several of the smaller building societies will be more flexible, but at a cost to the borrower.

The situation is little better when it comes to pension savings. On current trends, large numbers of self-employed people will be very dependent on the state pension when they retire.

While the number of people in workplace pensions has been driven up by automatic enrolment, the self-employed have been left behind. The proportion of self-employed workers paying into personal pensions has plunged over the past 15 years from one in three to just one in 10, according to the Office for National Statistics.

Intervention is needed, and soon, if this isn’t going to become yet another pensions scandal in years to come. It would require a government with the appetite to provide support now – such as tax incentives to join an auto-enrolment scheme – in return for longer term savings (in terms of tax revenue and welfare costs). That’s a long shot, at present.

The disadvantages extend to other areas too, including insurance. One feature of the PPI scandal was the number of policies mis-sold to self-employed people who weren’t actually eligible for the insurance.

Then there’s the debt obstacle. A 2013 StepChange report found that debts among the self-employed are four times greater than those in full or part-time employment.

This is about more than a failure to serve a growing market. It’s indicative of a wider industry culture – or society, even – that too often remains stuck in an age when people took long-term jobs, got married, had kids and bought homes, all in their 20s.

For all the innovation in technology and mobile banking, the financial services sector still struggles to serve a society where more people work for themselves, continue renting into their forties, live alone, move between countries, retire later and for longer and are as likely in middle age to be looking after their parents as well as their children. The industry needs to catch up.