Annabel Denham

Is this the end of the gig economy?

Is this the end of the gig economy?
(Photo illustration by Matthew Horwood/Getty Images)
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Before too long, news that Uber will offer 70,000 drivers holiday pay and the national living wage will be viewed less as an unmitigated triumph than a Pyrrhic victory. In the UK you can be an 'employee' with an ever-growing raft of employment rights, a 'worker' with rather fewer rights, or 'self-employed'. These statuses have different implications for tax purposes.

Last month, the UK Supreme Court, ending a six-year case brought by two Uber drivers, ruling that the ride-hailing firm must classify drivers as workers rather than self-employed. This week, the consequences of that judgment begin to be felt — though it is the government’s fault that, in repeatedly failing to grasp the nettle and draft a new law fit for the 21st century, an issue as important as the gig economy was left to the courts.

While Uber’s PR machine is firing out statements around 'quality of work' and 'additional benefits', it takes a short memory to forget that this is precisely what the ride-hailing firm fought against for half a decade. Despite the firm's valiant efforts to retain the traits that made it so revolutionary when it first hit our screens 12 years ago, it may survive only as a poor shadow of its former self.

No perky press release can convince us that Uber has discovered a new gig-topia in which workers can be handed more rights with no repercussions. Regrettably, it goes against the laws of economics to suggest that self-employment status will be retained, overall 'profitability' unimpeded, and competitive fares maintained following the introduction of these largely unsought benefits.

While Business Secretary Kwasi Kwarteng warmly declares that the move is 'absolutely to be welcomed', the opposite is true. We are sending out a signal that innovative employment possibilities must increasingly be dampened with regulations and higher costs. Quite how hamstringing businesses in this way will 'drive new technologies' and boost 'economic progress' is beyond this author’s wit. It seems more likely that we are disincentivising entrepreneurship and employment when the labour market faces its toughest challenge in decades.

Most maddening is the diorama constructed by 'workers’ rights' campaigners of giggers as modern-day serfs. While exploitation should be stamped out and unscrupulous employers challenged, a recent government review posits that encouraging flexible work is good for everyone and has been shown to have a positive impact on productivity, the quality of work and worker retention.

Too often, the views of Uber drivers themselves are simply ignored. A 2018 Oxford University survey revealed most had moved to the platform from a permanent role, attracted by the flexibility it offered. Half increased their earnings in doing so. More than four-fifths of drivers agreed with the statement: 'Being able to choose my own hours is more important than having holiday pay and a guaranteed minimum wage'. In any case, the entitlement to national minimum wage hourly rates is an illusory benefit, as most were earning more than this anyway.

Countless other polls have revealed the majority of Uber drivers were happy with the status quo, and would not trade it for greater security. Around a quarter work part-time to supplement incomes from another job or running a small business; and an increasing number are using it as a springboard into entrepreneurship.

And despite Uber’s claims to the contrary, drivers may end up paying higher tax and insurance if the tax authorities query their self-employment status. It is entirely possible that HMRC will conclude these rights come at a price — already the conditions under which self-employment status is recognised have been considerably tightened.

Many drivers may find themselves squeezed out altogether: if Uber is to continue working in Britain, it may have to cut back on the number of drivers, presumably concentrating on those prepared to work more hours. The administrative costs of the pension auto-enrolment requirement as well as the requirement for employers to contribute, for instance, makes it more sensible to have one driver for 45 hours a week than three for 15.

It’s hard to see who’s winning here. Certainly not the consumer: offering worker status benefits will be costly to Uber. And despite the company’s assurances that it is committed to 'keeping prices competitive', fares may ultimately rise by around 30 per cent. This will hit those who cannot afford conventional cabs and will reduce the availability of rides at the time when people want them — with all the dire consequences that could present.

Worse, this isn’t just about Uber. The UK Supreme Court’s ruling will reverberate throughout the gig economy, with devastating impact on young people seeking employment at a time when conventional jobs are very hard to come by. It will have implications for food delivery, cleaning, childcare and much more. Gig economy start-ups without access to legal teams will struggle to attract funding under a climate of uncertainty. Some may not survive. More people will join the millions left unemployed in the furlough fallout.

Free marketeers would argue that a voluntary arrangement that suits customers, platforms and their workers is a good thing. It is troubling that our lawmakers don't appear to agree.