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Benefit cuts creating new generation of entrepreneurs, Bank of England suggests

Iain Duncan Smith hails Britain's 'entrepreneurial spirit' after Bank of England suggests welfare reforms are encouraging people to become self-employed Iain Duncan Smith hailed Bank of England suggestions that the Coalition's welfare reforms are creating entrepreneurs Photo: GETTY IMAGES

By Steven Swinford, Senior Political Correspondent, and James Kirkup

10:00PM BST 23 Apr 2014


Benefit cuts are pushing more people into self-employment and helping to create a new generation of entrepreneurs, the Bank of England has suggested.

The Bank announced that one of the most “striking” features of the economic recovery has been the record 4.5 million Britons who are now self-employed.

According to official figures, the number of self-employed workers has risen by more than 600,000 since 2010, accounting for more than a third of the 1.5 million new jobs created since then.

The Bank said the trend was partly down to government welfare reforms, such as the £26,000 benefits cap, pushing people back into work. Iain Duncan Smith, the Work and Pensions Secretary, claimed that the figures were evidence that the Coalition was reviving Britain’s “entrepreneurial spirit”.

He told The Telegraph: “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.


“This country has a great history of entrepreneurship and small businesses are in many ways the backbone of the UK economy. The growth in self-employment is both a sign and a result of the economic recovery this Government is delivering. We should welcome this sign that the entrepreneurial spirit is alive and well in the UK.”

Under the welfare reforms, households can claim no more than £500-a-week, or £26,000 a year, in benefits. When the policy came into force last July, ministers said it would encourage thousands of families on benefits to look for work.

Minutes released by the Bank’s monetary policy committee, which sets interest rates, appear to confirm that the policy has worked. They state: “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.

“It was possible that some of the increase had come about in reaction to benefit caps, changes in pension entitlements and rules surrounding access to in-work benefits.”

The committee disputed claims made by unions that the rise in self-employment was down to people being unable to find jobs or being made redundant.

The minutes state: “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.

“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 committee also highlighted a growing number of people choosing to become self-employed instead of going into retirement. According to the Office for National Statistics, those aged 50 and over have accounted for more than 70 per cent of the increase in the number of self-employed since 2008.

However, the committee added that it was “possible” that some self-employed people could be more productive if they joined existing businesses as employees.

The number of people who are in work has risen by 1.5 million since 2010 to 30.3 million, driven by a 621,000 rise in the number of self-employed workers. The Bank upgraded its growth forecasts for the second time in as many months, saying that it expected households and businesses to enjoy cheaper borrowing costs on loans and mortgages.