Minutes released from the Bank of England’s monetary policy committee (MPC) — which is responsible for setting interest rates in the UK — appear to confirm the view that capping welfare benefits increases the amount of people entering the workforce.
In their monthly meeting the MPC stated that “Self-employment had risen by over 200,000 in the three months to January at the same time as there had been a fall in the number of employees. And self-employment had accounted for almost half of the rise in employment since 2010.”
Official figures say that the number of self-employed workers has grown in excess of 600,000 since 2010, which would mean that previously unemployed workers re-entering the workplace as self-employed make up more than a third of the 1.5 million jobs created since 2010. In the UK, 4.5 million people are now classified as self-employed.
The UK, which has long had an expansive, generous and expensive welfare system, implemented reforms in 2013 as part of the coalition government’s attempt to cut spending in light of budget constraints. The reforms placed a cap on the amount of money that a person, couple or family can receive in certain categories of benefits. The benefits include unemployment and housing benefits but do not include things like work-related injury benefits and veterans pensions.
The caps top out at “£350 ($588) a week for single adults who don’t have children, or whose children don’t live with them” and “£500 ($840) a week for couples (with or without children living with them) as well as “single parents whose children live with them.”
There is also a total benefits cap in place per household of £26,000 ($43,000), which is approximately the average wage in the UK.
“Every one of our welfare reforms has been about getting Britain working, so it’s encouraging to see the Bank of England explicitly linking our reforms with the strength of the UK labour market,” said Work and Pensions Secretary Iain Duncan Smith.
“The growth in self-employment is both a sign and a result of the economic recovery this Government is delivering,” Smith told the UK Telegraph. “We should welcome this sign that the entrepreneurial spirit is alive and well in the UK.”
The demographic breakdown of the self-employed numbers also shows that more than 70 percent of the people who are creating jobs as a self-employed worker are over 50.
Trade unions have been critical of the numbers, arguing that the rise in self-employment was due to unemployed not being able to find jobs, but the MPC has pushed back against those claims.
“Part of the rise in self-employment appeared to be a continuation of a longer-term secular trend, rather than a cyclical response to a lack of other employment opportunities,” the MPC wrote. “Consistent with that, higher self-employment did not appear to have been associated with inflows of people recently made redundant. Second, survey evidence suggested that the self-employed were only slightly more likely to be looking for a job than were other employees.”
The UK government expects to save £225 million ($378 million) because of the cap by April 2015.