My report on the incomes of the self-employed in the UK, published this morning, provides a remarkable insight into the differing fortunes of the 1% or so in the UK economy and everyone else.
From 1999-00 to 2010-11 HM Revenue & Customs have published data on the income of the self employed split into fixed income brackets. The data is summarised in the report like this:
Now of course the significance of the bands changes a little over time with inflation, but what is immediately obvious is that the growth in the number of self employed people has occurred almost entirely at the bottom of the income range whilst those earning between £10,000 and £100,000 has fallen slightly, but with those earning more than £100,000 seeing their numbers increase dramatically (Note: HMRC did not publish data for 2008-09; data for that year is an average of the years either side).
The difference in fortunes is stark: if the incomes of all self employed people is considered this is the average over the period stated in the value earned at the time earned:
This, however, is seriously misleading. The income of those over £100,000 when average looked like this:
And the average income of those earning less than £100,000 did this when expressed in current prices of the period:
Inflation adjusted that last graph is more stark: the fall is much more steady:
Now admittedly, when only those saying that their main source of income is self employment are taken into account the pattern changes again (as shown here) but the fact is that however this data is looked at (and I have looked at it many ways, as the report shows) the trend is consistent. Those earning less than £100,000 a year form self employment have seen their fortunes fall over the last decade despite the numbers involved being at least constant whilst those earning more than £100,000 have seen them rise considerably (albeit with some falling off since 2008) and since patterns of incorporation have not changed radically since about 2003 (although it remains popular) this is unlikely to explain the change.
There are three stories here. One is of a small number enjoying considerable good fortune. The second, as the full time data shows, is of those on middle income facing tougher times and third is of very large numbers of people making very modest amounts from self employment at best.
That's a tale for modern Britain.
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Having been self-employed since 1980, these are very much the statistics I would expect to see. In one year or another I have been in all of these categories.
The self-employed are always vulnerable to personal problems and it was very easy to tumble from the top to a loss making situation when dealing with my partner’s terminal illness. No carer’s help came in this situation, of course, because my past accounts still showed funds available. It is a long steep climb on your own, back up again!
That’s the tale of the US society too.
That’s a tale of any current society during a (masked) deflation in a fiat currency regime, accelerated by neoliberal politics (but we should note here keynesian politics only would be ineffective also to target deflation).
There are economists that also claim a Keynesian stimulus would not work in today’s situation, yet the stimulus provided by FDR’s New Deal helped dig the US economy out of the great depression; a situation that was worse than the one we have today!
And the US was well into recovery WELL before World War II!
The fact that everything is globalised and ran by markets is the only difference between then and now.
There is no real barrier to a huge fiscal stimulus. It may well have to be driven by printed money though with interest rates being fixed as low as they are. If we are caught in a liquidity trap as the Japanese were in the late 1980s, then no amount of debt-based stimulus will be able to help.
I must be reading this wrong – the number earning £50-100k went from 133k to 138k but that equates to a 5% decline? Maybe the text is too small on my screen.
The bottom number is an average – not the 2011 data which was 126
Yes – I see that now. Got it.
So 47 more people entered the £100k+ band. They individually may or may not be earning any more than before, but there are definitely more of them.
And we also know something about where these people came from – the decrease in the number of people earning £50-100k you identified.
So this data does *not* tell us that the rich are getting richer – it tells us that more people are getting into the rich band.
47,000 actually
And overall they were earning more to 2008 but that fell back to historic levels after that data – meaning that overall the share of this group rise though
So as a share of the whole – which is the issue of concern – they were getting richer compared to the rest
Your conclusion is wrong
The individuals in the £100k band did *not* necessarily earning more. You just cannot tell that from the data.
What you *can* conclude is that there were more people in that band. Nothing more.
If you are not getting it, try this test – graph the average earnings of that £100k+ band over time only using the data provided. It can’t be done, ‘cos you need to make an assumption about average earnings within the band.
I have done that
Read the report
Please – a serious request and point. I have read your report, and I really do not see how to get to the £280k number on P6 of your report. They key table you show in this post gives us the minimum earning within that band, not the average earning within that band.
You must be using an assumption or other data. I have tried the obvious stuff (e.g. is there a reference elsewhere to the £27bn this group would need to collectively earn) but to no avail. I have gone to both ONS references but one just tells us about the number of people but not their earnings, and the other is an FOI request that is answered by sharing the data collection technique.
I am happy to be wrong and I am not saying you are wrong, but it’s an important conclusion you reach and competent analysts are struggle to reproduce it.
Is dividing one figure by another hard?
Total income for those earning over £100k divided by the number doing so is what I did
HMRC provide the data
It’s not rocket science
I see. So I just need to find a £27bn number somewhere, and you have just given me a clue it’s in one of your HMRC references. Thanks.
Right – I have now just gone through all the HMRC references you provided.
The first one (hmrc.gov.uk/statistics/tax-statistics.htm) shows me lots of information on Income Tax and PAYE, not self-employed. i dont think that’s it.
The second one (www.hmrc.gov.uk/statistics/income-by-year/table3-10.pdf) gives me one year of income for self employed, and quotes £296bn, so I don’t think that’s it either.
The third one is just an estimate of the tax gap, so that’s not relevant to this part of the analysis I don’t think.
I am not doubting that the final division/multiplication is simple. I am simply trying to perform a standard procedure and replicate the results.
So let me make the question clearer – your conclusion rests in large part on your assertion on P6 that says the £100k+ band saw earnings increase from £200k to £280k. I see where you get the population of people in that band, but I don’t see where you get the total or average earnings of people in that band. Can you help point me to somewhere specific I can get this data?
Please email me
I am in Brussels with limited email contact
I am baffled as to what your problem is
How are these figure influenced by say the medium – and even small small operators
incorporating into limited companies? Surely that would distort the figures if those guys earnt more ? A lot of self employed did so (including myself) e.g. when the ill fated Nil Corporation Tax band up to £10,000 profits was introduced.
Companies and company directors are not in this data
I am doing work on companies now
I am saying that the data might be distorted by those self employed who incorporated – and there were 000’s of them -and almost by definition their earnings increased
because that is one of the main reasons to incorporate.
I agree it will have an impact – but seems to not do so above £100k
Why is that?