The latest Freelancer Confidence Index produced by self-employment trade body, IPSE, has found that after a surge in earnings at the start of the year, freelancers’ average income in Q2 has fallen by more than £2,000 – to £18,652.
The driving force behind the fall was not because freelancers were working less, but they had in fact slashed their day rates from an average of £445 last quarter, to £397 this quarter – the lowest overall since 2018.
Analysis by IPSE suggests that the high competition for fewer contracts – which is yet to return to pre-pandemic levels – seems to be forcing freelancers to lower their day rates.
The survey also found that freelancers’ spare capacity – the number of weeks per quarter not working – stayed at 3.7 weeks in Q2 when measured against Q1.
A key factor behind this figure could be the changes to the off-payroll rules that came into effect in the private sector in April this year.
IR35 reform shifted the responsibility for determining IR35 status to medium and large businesses, which has led many companies to stop engaging contractors altogether.
According to IPSE’s research, managerial and professional contractors, who have been the most affected by the changes to IR35, are also the groups most likely to cut their day rates.
Contractors in these sectors also reported government tax policy as one of the biggest factors negatively affecting their business – 60 per cent of managerial and 71.8 per cent of professional contractors.
However, and despite this slump in income, freelancers’ confidence in the economy is now at its highest since 2014.
Not only are self-employed people more optimistic about the long-term prospects of their business, but their confidence in the performance of their companies over the next three months has risen to the highest since 2018.
Derek Cribb, CEO at IPSE, said: “It is now clear – as we feared – that the changes to IR35 were introduced into the private sector at the very worst time: just when they were most likely to hamstring the freelance recovery.
“Now just when there should be a surge in freelance work to support the wider economic recovery, many freelancers are finding themselves competitively slashing their day rates to fight it out over fewer contracts.
“It is not all bad news though: it is promising that there is so much optimism among freelancers about the economy and their businesses’ long-term prospects. Clearly, freelancers see a brighter future when the post-IR35 chaos settles.
“This also shows a path for government: stepping in to regulate umbrella companies and clear the mess after IR35 would not only boost the freelance sector, but also unleash its potential to drive a faster and fuller economic recovery.”