Pay rates for freelancers are reassuringly up, unlike contractors' short-term confidence in themselves

As far as professional freelancers like contractors are concerned, generally rising pay rates are at odds with falling confidence in their own prospects, even if their faith in the UK economy is starting to recover, writes Andy Chamberlain, director of policy at The Association of Independent Professionals and the Self-Employed (IPSE).

Contractor confidence, it’s waning

Our latest freelancer confidence index shows contractors’ short-term business confidence in their own operations remains in negative territory at -6.3, after falling from -3.5 in Q2 2023.

When it comes to freelancers’ business confidence in their own ventures for the next 12 months, the outlook also remains in the red at -12.9, only slightly improving from -13.3 in Q2 2023.

This reading from our confidence index, as of Q3 2023, represents the first in eight successive quarters of independent professionals being marginally more confident in their commercial performance for the next 12 months.

Negative factors impacting contractor business performance

But the state of the UK economy continues to be the top factor lowering freelancers’ business performance, cited by 82% of all respondents.

This represents the fourth successive quarter of freelancers citing the UK economy’s condition as the biggest detrimental factor to their business.

The other factors in the third quarter of last year which were also negatively impacting contractor business performance included:

• government tax policy relating to freelancing (78%); and,
• government regulation relating to hiring freelancers (70%).

Positive factors impacting contractor business performance

In terms of factors positively enhancing contractor business performance, freelancers’ brand value and reputation continues to be the top factor, with 66% of independent professionals indicating these marketing-related enhancers in Q3 2023.

The other top two factors having a positive impact on contractor business emerged as:

• Adoption of flexible working practices by organisations (48%); and,
• Innovation from contractors, in terms of the services they offer clients (46%).

How is freelancer confidence in the UK economy?

While confidence has marginally improved, the outlook remains gloomy.

Confidence in the UK economy for the next three months has grown slightly, from -35.0 in Q2 2023 to -26.8 in Q3 2023.

A similar picture emerges when we look at confidence in the UK economy for the next 12 months, marginally growing from -37.2 in Q2 2023 to -28.5 in Q3 2023.

Unfortunately, as these scores from our latest index (Q3 2023) show, both short-term and long-term confidence in the UK economy remains deeply in negative territory in contractors' eyes.

Freelancer pay - day rates are up 17.4%

As mentioned at the top, day rates for independent workers have increased -- from an average of £472 in Q2 2023 to £554.

That's a significant 17.4% upturn in pay!

Secured when we last ran the latest index, all freelancer SOC groups (SOC1/Managers, Directors, Senior Officials; SOC2/ Professional Occupations, and SOC3/Associate Professional, Technical Occupations ) reported such higher daily fees.

Got highly sought-after skills? Then your contractor-type predicts a 60% fee increase

Thirty-six per cent of freelancers said they anticipated their day rate would increase in the next 12 months.

More than four in 10 (42%) forecasted no change.

When quantifying the expected change in day rate, the freelancers forecasted an increase of 21.5% to their day rate in the next 12 months.

Remarkably, the highest-skilled freelancers (SOC1), forecasted a rate of increase of 60% in the next 12 months.

Are contractors operating at maximum capacity, or do they have room to take on more?

Interestingly, independent professionals in Q3 2023 said they were working more than previous quarters, with the average time spent without work falling to just 2.4 weeks (compared with 3.2 weeks in Q2 2023).

Lastly, business costs for contractors be like…

Almost half of the freelance contractors (49%) expect their input costs to increase over the next 12 months, and 43% expect no change.

In terms of quantifying this change to input costs, contractors forecast their business costs to increase by 8.6% over the next 12 months. So it looks like that hefty 60% daily rate increase (foreseen by SOC1 contractors) is going to be both necessary and put to good use!