Deliveroo: Good for Who?

Deliveroo: Good for Who?

Thursday 9 February 2017 - James Paget-Brown

A quote by Tim Goodwin has been floating around the Internet recently, receiving many likes and shares. It reads as follows: “The world’s largest taxi company [Uber], owns no vehicles. The world’s most popular media owner [Facebook], creates no content. The world’s most valuable retailer [Alibaba], owns no inventory. The world’s largest accommodation provider [Airbnb], owns no real estate. Something interesting is happening.”

I am inclined to agree that something interesting is definitely happening, in the way that apps and websites are completely reshaping the structure of businesses to meet consumer demand more efficiently. In particular, the statement regarding Uber stands out. Nowadays, it seems that everyone orders an Uber instead of hailing or phoning a taxi. Notwithstanding transportation, when I want takeaway food these days, I simply use my phone to order straight from Wagamamas or GBK, and it gets delivered to me within the hour, courtesy of a sweaty, breathless man on a bike. It doesn’t stop there either; I hardly shop for anything on the high street anymore. If I need to buy something, I order it online and it turns up in a delivery van the next day, with certain retail sites even having their items delivered by freelance workers in their normal day-to-day cars. Furthermore, I get to watch these people on their route to delivering my goods with a delivery tracker from my phone or computer screen, in the comfort of my own home. So far, so good. Right?

However, this is potentially not the case. This new separation between corporations and the services that they provide through the Internet and apps is leading to very serious legal and economic issues. We are now truly living in the era of the “gig economy”, where temporary, flexible jobs are commonplace and companies tend towards hiring independent contractors and freelancers instead of full-time employees. This is a digitally enabled phenomenon, as companies like Uber and Deliveroo have found great success through their popular and easy-to-use apps. Smartphone technology and the digitisation of services have led to the creation of easily accessible platforms where consumers can utilise any service on demand. This in turn offers flexible work that can be performed by freelancers, and is not tied down to any particular location. However, what really seems to be happening in practice is that the people who work for these companies work the same normal hours, just like any other full-time job, but receive fewer legal rights.

The gig economy raises some obvious employment law issues for the “independent contractors” who work for these companies. The classification of workers as “independent contractors” or “temporary workers” instead of full-time employees deprives them of a number of significant basic workers’ rights, such as the national minimum wage, sick pay, a company pension or a right against dismissal. Recently, for example, Deliveroo tried to change their pay structure from £7 an hour and £1 per delivery, to just £3.75 per delivery, which would have denied workers the minimum wage that they are legally entitled to. Understandably, Deliveroo workers protested this decision and the Department for Business, Energy and Industrial Strategy weighed in to say that workers must be paid the “national living wage” of £7.20 an hour unless a court or the HMRC rules that they are self-employed. This shows, at least, some resistance at a governmental level to the exploitative provisions being deployed by these companies.

Likewise, there seems to be some hope for the employees here in the form of the recent Uber decision handed down by the Employment Tribunal, which held that Uber drivers can be classed as workers, instead of self-employed and should be paid the “national living wage”, sick pay (SSP)holiday pay, and pension contributions.

Hopefully, this sets a precedent that will also apply to other companies similarly exploiting the gig economy to deprive workers of their rights. In an employment context at least, the end of gig economy exploitation might be just over the horizon. Similar cases are being brought against the courier firms CitySprint, eCourier and Excel, and the taxi firm Addison Lee. If the Uber ruling is anything to go by, then it is likely that the cases will be decided in favour of the workers, who will become entitled to the same basic rights. However, Uber is appealing the decision against them, so the issue may not be settled just yet.

The gig economy also presents a serious issue for future tax revenues. The UK’s Autumn Statement 2016, published on the 23rd November 2016, clearly demonstrates this. The Office for Budget Responsibility (OBR) estimates that in the year 2020/2021 the gig economy will cost the Treasury £3.5 billion. This is due to various methods of tax avoidance deployed by these companies. One of the key ways in which tax revenues are being lost is through National Insurance Contributions (NICS), as less national insurance is paid on self-employment earnings. Another way that the government is losing tax revenues is through the incorporation of self-employed individuals as their own limited businesses, of which they are the sole director. The individuals who do this can also get much of their earnings as dividends from their corporate profits, for which the tax rate for most people is still lower than that of income tax. As such, it is not surprising that the number of people who are self-employed has risen by 45% since 2000 to 4.8 million workers, approximately 1/7 of the working population. Out of the 2.6 million who have found a job since 2010, over 1/3 of them have been classed as self-employed.

So, how can the UK stop these tax losses and reclaim some tax money from the gig economy? Several suggestions have been put forward: for instance, following the Irish model and reducing corporate tax avoidance by reducing corporate tax. Ireland has a very low corporate tax rate of 12.5%, which presumably discourages companies from pursuing tax avoidance because tax contributions do not eat up too much of their overall revenue. Ireland also has a General Anti Avoidance Rule as part of its 2014 Finance Act, which focuses on whether it would be broadly “reasonable to consider” that a transaction’s primary purpose was to give rise to a tax advantage. This is perhaps something that the UK should consider. However, if the suggestion is that we simply lower the corporate tax rate, this would just be bending to the will of these companies, and would probably not make up for the lost tax revenues anyway. Another suggestion has been to follow Norway’s example, with the introduction of a shareholder income tax; this could solve the issue of tax avoidance by self-employed people who incorporate themselves as limited businesses.

As it stands in the UK, the Chancellor of the Exchequer Philip Hammond has said that he could claw back some £630m over the next five years from self-employed workers who are not paying tax on so-called “disguised earnings”, but this seems a measly sum compared to the estimated losses.

As such, the newly developing gig economy is still a very problematic area, which will need further review in the future. Whilst the Uber decision might mean that those who work in this sector receive adequate employment rights, it is still a problem for the wider society as the government is losing tax revenues from the corporate forms of these companies.

In reality, it feels like the quote at the beginning of this article should read on to say something along these lines: “the world’s new popular cluster of service providers does not benefit most of its workers, nor the government and the wider society.” Still, some consolation can be found in the fact that the 2016 Autumn Statement has put the issue on the agenda, signalling that the gig economy will be taken seriously in the future.

About the author

Author: James Paget-Brown