How Britain became a nation of reluctant freelancers
How Britain became a nation of reluctant freelancers
Tim WallaceSat, June 6, 2026 at 9:00 AM UTC
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Toby Dicker, who owns a hairdressing salon, has seen dozens of his staff quitting to choose self-employment instead - Eddie Mulholland for The Telegraph
Half a dozen staff have quit work at Toby Dicker's hairdressing salons in the past year.
They have not tired of coiffeuring customers. Nor have they been tempted by a higher salary from a rival, or set up a salon of their own.
Instead, they have left to go self-employed – typically by hiring a chair at another establishment. The result is a significant tax saving and, therefore, a raise that employers cannot match.
"I cannot give my employees a pay rise because I am being taxed out of the market," says Dicker, who employs around 70 people at sites across south-east England.
"Other salon owners say 'come and rent a chair from me' or 'split the revenue with me'. They do not realise they are just going to avoid the tax."
The hairdressing industry is not alone in this exodus, though it is particularly heavily exposed.
Since Rachel Reeves's first tax-raising Budget in October 2024, the number of people employed on payrolls in Britain has fallen by 277,000, according to tax data.
During the same period, the number of self-employed people has risen by 178,000.
The drop in payrolls has been particularly stark in the wholesale and retail industries, as well as in hospitality, both of which are highly labour-intensive.
The rising costs of hiring staff
Dicker blames the VAT threshold, which forces businesses to charge the tax at 20pc on all sales once their annual turnover passes £90,000, incentivising companies to seek ways to stay below the threshold.
Those who go self-employed can thus do without the tax, either passing that saving on to their customers or pocketing the difference themselves.
On top of that comes last year's £25bn increase in the National Insurance contributions (NICs) paid by employers on their workers' wages. That was accompanied by a sharp cut to the earnings threshold at which the levy kicks in, hammering those who employ low-paid or part-time staff.
The NICs blow was so severe, "it felt like someone was stabbing you", said Dicker.
"Do I blame anyone for going self-employed? For thinking that avoiding tax is the only way they can earn the income they need? Absolutely not," he says.
"But if you make employment so expensive that nobody can afford to do it, what are they going to do?"
Regulations are tightening, too, with the Employment Rights Act. The Government is now consulting on the future of zero-hours contracts, threatening to force bosses to offer flexible workers permanent contracts based on their shifts during the previous 12 weeks.
Retailers have warned that it risks ending the Christmas job, as shops have no desire to be forced to permanently employ those hired for the seasonal rush.
Alternatives could include offering shorter contracts, dodging the 12-week threshold, replacing as many staff as possible with robots or giving the year-long workforce more overtime in the busiest months.
James Cockett, a senior labour market economist at the Chartered Institute of Personnel and Development, says it is not normally cheaper to hire self-employed contractors or temps, but extra costs appear to be pushing bosses in that direction.
"The rising cost of hiring permanent staff through last year's employer NICs rise and through measures to be implemented through the Employment Rights Act are deterring many employers from making permanent hires," he said.
"Instead, some are increasingly turning to forms of employment where workers have fewer rights, such as access to statutory sick pay and paid leave."
A 'lost generation'
The tax rises are backfiring in multiple ways. Businesses are forced into contortions to find ways to keep costs down, instead of focusing on the day job.
Employment is undermined as bosses find it too expensive to hire workers. And long-serving workers go self-employed, surrendering the benefits of a steady job for a lower-tax income.
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The mounting pressure from taxes and regulations comes at a particularly dire moment for the economy.
Youth unemployment is at its highest in more than a decade, with 16.2pc of those aged 16 to 24 seeking work but unable to find a job.
The number of under-24-year-olds who are not in employment, education or training – also known as Neets – has risen to more than one million for the first time since 2013.
At the same time, the number of job vacancies has fallen from the post-Covid-19 frenzy of 1.3 million in 2022 to just 705,000 – the smallest number in more than a decade, excluding the pandemic lockdowns.
The situation has begun to resemble a national crisis. Alan Milburn, the Government's joblessness tsar, warns of a "lost generation" and says that poor health and economic change have created the most daunting situation in the jobs market for 200 years.
The Government has promised a youth jobs guarantee, which seeks to offer work or training to any young person on universal credit who has been seeking work for more than 18 months.
But that scheme was planned even before the war in Iran, which has further eroded the economy's momentum.
Business surveys show companies are trying to cut back their headcount to save money as customers hold off making purchases, even as other costs spiral, with fuel and materials more expensive because of the conflict in the Middle East.
Trying to match a tide of jobseekers with nervous employers are Britain's recruiters.
Neil Carberry, the chief executive of the Recruitment and Employment Confederation, says the combination of rising employment costs with the economic blow from the war is especially painful.
"If you raise the cost of employment, firms tend to manage their paybills. So you get a gentle move away from ongoing fixed-hour commitments and into a bit more flexibility, whether that is agency or self-employed models, or contractors, especially at a time of economic uncertainty," he says.
Businesses are nervous, profitability is low and "the cost of employment has ramped up on every front".
Into that come new employment rights, which are costly to manage.
"The real risk of the proposals around guaranteed hours is that it puts firms off high-quality temporary models and pushes it even further to things like self-employment, whether well-justified or slightly dubiously justified, that avoid guaranteed hours commitments," says Carberry.
"Or it drives [employers] to rely ever more on overtime from existing staff, and some of these flexible jobs just don't get created."
Andrew Griffith, the Conservatives' shadow business secretary, says the pressure on industries such as hairdressing threatens vital routes into the world of work.
Workers from the hair and beauty industry gathered last year for a demonstration to advocate for reducing the VAT - Steve Taylor/Sopa Images/LightRocket via Getty Images
"Hair salons have always been a home of social mobility, but under a barrage of NI hikes, business rate increases and employment red tape, they're under pressure like never before," he says.
"Self-employment is a choice, but shouldn't be made a necessity by the Government."
Dicker echoes that same warning about job creation.
He previously enthusiastically employed apprentices, training young workers in his salons to build a pipeline of future staff.
But that requires investment, and the money is going out the door on higher taxes instead.
"I had five apprentices last year. I have got none now," he says.
"They have all qualified now, which is good, but I am not taking any more now. It is purely about affordability. You have increased my costs by £190,000 in two years – that is four apprentices that I can no longer afford. It is really simple."
Source: “AOL Money”
