Economic View: Freelances play key role in shaping brave new world

Now the Inland Revenue is jumping on the out-forcing bandwagon. Like companies, entire industries, local authorities and government departments before it, the Revenue has started contracting out its work to the self- employed - only this time the self-employed won't be paid for the extra work they do.

Under self-assessment, which begins this month, millions of people will have to calculate their own tax returns, rather than expecting civil servants to do it for them.

Not that the Inland Revenue has ever worked out the tax bills for most people in the economy - employees all have their dues calculated by weary employers under the Pay As You Earn system.

But the fact that the Inland Revenue is now expecting the self-employed to do the same is a sign that they too have recognised the big changes taking place in the labour market as more and more people stop being "employed" and start working for themselves instead.

Self-employment grew by a remarkable 1.2 million in the 1980s. Even despite the recession, the numbers of self-employed today are still considerably higher than 16 years ago. Around one in eight of the working population are now their own bosses.

The Government would like to believe this is evidence of a more entrepreneurial culture in Britain these days, as the self-employed build their businesses and create jobs for others.

Management gurus such as Charles Handy suggest instead that we are watching the development of the companies and work patterns of the future, as highly skilled white collar workers and professionals become freelances and sell their services to their former employers.

The truth about the current growth in self-employment may be less glamorous than either would like to believe. Certainly there has been an increase in the numbers of professional and freelancing self-employed who show little sign of ever creating work for anyone else. Around two-thirds of the self-employed have no employees at all. Meanwhile 6 per cent of professionals are now working from home.

The publishing and media industries are particularly suited to the use of freelances.

Most book publishers are already employing in-house staff only to commission, supervise and co-ordinate, while their proof-reading, editing and indexing is done by freelances.

National newspapers and television companies increasingly use freelances and short-term contracts. And they have cut their staff accordingly. Professional skills from legal advice to economics to information technology are all increasingly suited to freelance work.

The benefits to businesses who introduce these working practices are relatively obvious. Staff members cost the company in additional National Insurance contributions.

Overheads - in terms of desks, office space and equipment - all add to the bill. But the biggest benefit to the company comes through transferring the risk that future work might dry up.

When everyone is on staff, they still have to be paid in a lean period. In the world of contracting out, it is the freelances who have to go out scavenging for different contracts to keep the bills paid.

So here is the new world emerging - in certain industries at least. Professional skills are bought in rather than employed. Highly skilled people are paid for their knowledge and their services rather than for the hours they put in - an arrangement that is potentially extremely liberating for many professionals.

Mr Handy paints a portrait of portfolio workers, constructing combinations of contracts to suit themselves. But it is not yet clear whether these new work patterns will turn into the long-term trends that Mr Handy describes.

Many of these professional free-lances do not yet have a portfolio existence. And even if individuals manage to adjust and are happy with these new arrangements there are longer-term problems in the industries that have most whole-heartedly embraced freelancing so far.

In an article in the spring issue of New Economy, Celia Stanworth describes a detailed case study of freelances in the publishing industry. Interviewing 371 freelance editors proof readers and indexers, she finds that while many were women who had turned freelance on starting a family, most had become self-employed following redundancies from publishing houses.

And they were typically dependent on one main client, often their former employers. In effect, many of them were doing the same job for the same company as before. Only now, their tax status, their security, and their place of work had changed.

If these new freelances had retained the same bargaining power in the labour market, they should have been paid more for taking on the new risks themselves. Not so. Ms Stanworth finds their hourly rate remained roughly the same as their in-house colleagues. Out-sourcing to freelances was simply a way for publishing houses to push real wages down, when faced with an over-supply of qualified publishing professionals.

Imagine for a moment however that those freelance skills were suddenly hard to come by. A desperate editor with a deadline looming is forced to spend hours on the phone trying to find people with the free time and experience to do the work. The best, most professional workers are never available when you need them most.

And should, heaven forbid, a crisis occur where a piece of work has to be revised at the last minute, there are no available staff willing to work all weekend to turn things around.

Suddenly out-sourcing looks a lot less attractive. Sensible companies will want to tie their best professionals in, to ensure they have a steady and reliable supply of high quality work. Contracts, retainers and even staff jobs all slip back onto the agenda.

Even in the publishing industry this sort of skills shortage may not be so far away. Ms Stanworth finds that three-quarters of the freelances she interviewed were over 40, a third were over 50. Most spent many years building up experience and contacts, working full-time in the publishing industry.

In contrast, those without experience who tried to break into freelancing found it very hard to get work.

Clearly, the publishing industry is revelling in a time-limited labour market phenomenon: over-supply of experienced professionals. But no one is providing the training and experience for the freelances and portfolio workers of the future.

Across the media it may not matter too much if the next generation doesn't ever spend a decade or two acquiring experience with a single company.

The skills needed may advance so fast, that portfolio professionals will just update their experience with regular courses and secondments instead. But the short-termism and the problems for training revealed in the publishing industry are a good guide to why other industries have rejected the model entirely.

Widespread out-sourcing is a far cry from the stakeholding companies advocated by economist John Kay. He describes successful companies as networks of loyal relationships between suppliers, employees, investors, managers and customers. The political enthusiasm for freelancing is even more limited.

Despite the obvious advantages for women who want to combine their work with family commitments, the growth of freelancing and temporary contracts are seen as the source of middle-class anxiety about job insecurity. But the long-term prospects for the new self-employed will depend not on the advice of politicians or economists, but on whether the training structures and the labour supply of the future make the use of freelances a sustainable business proposition.