‘Rotten system’

The UK’s burgeoning “gig economy”, which often relies on exploitative zero-hour contracts and questionable definitions of self-employment, will cost the Treasury £3.5bn in 2020/21, new figures show.

The Office for Budget Responsibility estimate, released during last week’s Autumn Statement, shows that the gig economy is bad for both its employees and the taxpayer.

Review

The problems the gig economy has posed has prompted an official government review, formally launched today (November 30) and headed by Royal Society of Arts chief executive Matthew Taylor, a former policy expert who has been appointed to investigate modern employment practices.

Dubbed the ‘Taylor review’, the inquiry will be aided by a three-person panel which includes Gangmasters Licensing Authority chief executive Paul Broadbent, Greg Marsh, the founder of the web-based homes rental site Onefinestay, and employment lawyer Diane Nichol.

From January through March, the review will tour cities and towns across the UK including Coventry, Glasgow and Maidstone, and will take evidence in public hearings.

TUC general secretary Frances O’Grady welcomed the review.

“The Taylor review is an opportunity to bring the rules protecting workers into the 21st century, and to improve rights for millions of working people,” she said.

“As we have recently seen at Uber and Sports Direct, strong unions are key to exposing bad bosses and winning a better deal for working people.”

Tax reforms

Chancellor Philip Hammond has previously pledged to fix the problem – caused by the rise in precarious work, shifting employment patterns, legislative loopholes and new digital business models – through tax reforms.

He said, “Technological progress is changing the way people live, and the way they work. The tax system needs to keep pace.”

Critics, however, have accused Hammond of ignoring the problems the rise in self-employment have added to tax collection.

While the government has boasted about lowering unemployment, a report published in September by MPs Frank Field and Andrew Forsey found that more than a third of the 2.6m people who gained new employment since 2010 have been self-employed.

On average self-employed workers earn just ÂŁ13,500 a year, much less than other workers. Many of those in the gig economy, who are often forced to register as self-employed to slash labour costs and tax bills for their employers, have no choice but to work long hours without sick pay, holiday pay or the right to the minimum wage.

In the Autumn Statement Hammond said the government will target self-employed workers who use untaxed “disguised earnings”, which can be made as a loan or a payment in kind. He also promised “to consult in due course” on proposed changes to the way companies are formed, due to individuals taking unfair advantage of tax breaks.

However Andy Chamberlain, deputy policy director at the Association of Independent Professionals and Self Employed said Hammond was missing the real issue – that businesses are using self-employed workers to avoid paying national insurance contributions.

He told the BBC, “The loss in tax revenue for the government is not because self-employed workers are paying much less. The real differential is because the employer is no longer paying national insurance contributions.

“If you employ someone for ÂŁ100,000, you pay the taxman about ÂŁ13,000 in NIC. If you pay a self-employed person the same amount, the government loses that tax revenue.”

New systems call

In general, Chamberlain said the government had lost control of labour market regulations.

He said, “For instance the ruling on the Uber drivers last month that established that they were workers, employed by Uber, gives them some statutory rights.

“But it doesn’t affect their tax status, which is still one of self-employed. The government is now beginning to wonder if it really has the systems in place to capture all the different ways of working.”

Unite assistant general secretary Steve Turner called on the government to get its act together.

“Not only is (the gig economy) a gross and blatant attack on workers’ rights, it is also eating away at our public finances by allowing large companies to get out of paying their fair share to society,” he said.

“The government needs to overhaul a rotten system that allows unscrupulous bosses to maximise profits by cheating employees of their statutory entitlements and spending tens of thousands of tax deductible pounds to minimise their tax bill to the nation.

“If they’re serious about tackling wage and tax theft they can start by supporting strong, effective trade unions and providing the framework for sectoral collective bargaining, ensuring that every worker gets their fair share of the wealth they create and by properly resourcing and updating the tax system to ensure it’s fit for purpose to deal with a modern digital economy.”