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'Gig economy' companies free-riding on welfare state
by Susie Hughes at 12:29 02/05/17 (News on Business)
The Government must close the loopholes that are currently allowing 'bogus' self-employment practices, which are potentially creating an extra burden on the welfare state while simultaneously reducing the tax contributions that sustain it, according to a report from the Work and Pensions Committee.
In an inquiry that has had to be curtailed because of the election, the Committee heard from 'gig economy' companies like Uber, Amazon, Hermes and Deliveroo, and from drivers who work with them. The evidence taken painted starkly contrasting pictures of the effect and impact of “self-employment” by these companies.

Companies relying on self-employed workforces frequently promote the idea that flexible employment is contingent on self-employed status, but the Committee says this is a fiction.

The Committee says:
  • The apparent freedom companies enjoy to deny workers the rights that come with 'employee' or 'worker' status fails to protect workers from exploitation and poor working conditions. It also leads to substantial tax losses to the public purse, and potentially increases the strain on the welfare state.
  • Designating workers as self-employed because their contract offers none of the benefits of employment puts cart before horse. It is clear, though, that this logic has taken hold, enabling companies to propagate a myth of self-employment. This myth frequently fails to stand up in court, but individuals face huge risks in challenging their employment status that way.
  • Where there are tax advantages to both workers and businesses in opting for a self-employed contractor arrangement, there is little to stand in the way.
  • An assumption of the employment status of 'worker' by default, rather than 'self-employed' by default, would protect both those workers and the public purse. It would put the onus on companies to provide basic safety net standards of rights and benefits to their workers, and make the requisite contributions to the social safety net. Companies wishing to deviate from this model would need to present the case for doing so, shifting the burden of proof of employment status onto the better resourced company.
  • Self-employed people and employees receive almost equal access to all of the services funded by NI, especially with the introduction of the new state Pension, yet the self-employed contribute far less. The incoming Government should set out a roadmap for equalising employee and self-employed National Insurance Contributions.
  • The DWP needs to ensure that its programmes and resources reflect the positive contribution that self-employment can make to society and the economy. This may require an expansion of specialist support in JCP.
  • DWP is seeking to support entrepreneurship without subsidising unprofitable self-employment. The existing Minimum Income Floor in Universal Credit does not get this balance right and risks stifling viable new businesses. The incoming Government should urgently review the MIF with a view to improving its sensitivity to the realities of self-employment. Until this is complete, the MIF should not apply to self-employed UC claimants.


'Free-riding'
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Frank Field MP, Chair of the Committee, said: "Companies in the gig economy are free-riding on the welfare state, avoiding all their responsibilities to profit from this bogus 'self-employed' designation while ordinary tax-payers pick up the tab. This inquiry has convinced me of the need to offer 'worker' status to the drivers who work with those companies as the default option. This status would be a much fairer reflection of the work they undertake which seems to fall between what most of us would think of as 'self-employed' or 'employed'. It would also protect them from some of the appalling practices that have been reported to the Committee in this inquiry. Uber’s recent announcement that it will soon charge its drivers for sickness cover is just another way of pushing costs onto the workforce, to reinforce the impression that those workers are self-employed.

“Self-employment can be genuinely flexible and rewarding for many, but 'workers' and 'employees' can and do work flexibly. Flexibility is not the preserve of poorly paid, unstable contractors, nor does the brand of 'flexibility' on offer from these gig economy companies seem reciprocal. It is clearly profit and profit only that is the motive for designating workers as self-employed. The companies get all the benefits, while workers take on all the risks and the state will be expected to pick up the tab, with little contribution from the companies involved.

“It is up to Government to close the loopholes that are currently being exploited by these companies, as part of a necessary and wide ranging reform to the regulation of corporate behaviour.”

Technology
While technology has facilitate the rise and growth of these companies, the problem is not new as the conflict between tax and employment status has been around for years.

Crawford Temple, CEO of employment intermediary trade body PRISM, said: "There are a host of new and innovative companies in the gig economy but all they have done is highlight shortcomings in the tax system that have existed for decades.

"The tax system has been slow to evolve in line with modern business practices but this is not a recent phenomenon. Mini-cab drivers, for example, had a history of being self-employed while working for individual taxi firms long before the rise of cab hailing apps.

"The gig economy is characterised normally by the use of technology and apps to obtain assignments. This in turn means these companies are capable of scaling up incredibly quickly across wide areas. This has focused the minds of unions, tax officials, ministers, workers and smaller competitors who haven't embraced technology to the same degree because all of a sudden you have fast growing firms capable of taking enormous market share very quickly.

"However, in reality very little has changed. The irony is the courts have been having to deal with a lot objections from gig economy workers and the Government has been criticised for being slow to act.

"In the contractor sector - often confused with the gig economy - we've had the opposite problem in the teeth of a lot of misunderstanding about how umbrella companies operate. The Government has stripped contractors of benefits enjoyed by the self-employed despite their patterns of work being similar and worker intention being the same. It is the system that recognises two types of tax status but three types of employment status that has to change. PRISM has been saying this for two years and a review by the Social Market Foundation looking at this area, sponsored by PRISM, will report shortly.

"Employment status must be governed by the spirit of the relationship, and not be exploited by either side. Any perception of flexibility for the worker must be backed up by a degree of choice over when to work, with no penalties when they don't. This isn't happening in the gig economy and wasn't at mini-cabs firms around the country 30 years ago."

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Susie Hughes © Shout99 2017

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