The thrill of the new, of progress, the advance of technology, can cause us to misascribe to modernity that caused by quite something else. We can, for fear of appearing Canute, accept as inevitable that which can and should be resisted.
Care should be taken.
Many of these problems are evidenced in our analysis of the growth of self-employment.
It is true that technology puts the buyers and sellers of labour together with an efficiency that benefits both – indeed us all. It is true that this has made possible – and desirable – patterns of working that could not previously have existed. But it is not true that it is this alone, or even primarily, that has caused the rise in self-employment. And it is not true that the negative consequences – the creation of a class of worker living precariously on the margins – are inevitable.
Care must be taken.
Put aside those who progress crowns winners. Focus instead on those without bargaining power: the warehouse workers, secretaries, drivers, call-centre workers, the marginal trades. Those who are dependent, very often, on a single relationship. Their status as self-employed stems often not from technology but the law. The law, which creates two compelling disincentives against their employment.
The first is the tax system. As I explain here, putting £100 into the pocket of an employed worker can cost an employer £26 more than putting that same £100 into the pocket of her self-employed equivalent. This difference is profoundly important to the economics of the low margin, high volume businesses in which the precariat are engaged. If you employ a worker you cannot compete.
The second is employment law. We ask employers to provide a safety net for their employees. We ask them, very often, to bear a cost which would otherwise fall on the worker or on the state. But we impose no equivalent burden on engagers of the self-employed.
Think about that.
We use our tax system to incentivise employers to avoid providing a safety net. This – I hardly need say – makes no sense. The incentive should be exactly the other way: not to shirk a safety net. We should not through the tax system subsidise those who transfer costs to others.
But addressing it is not impossible. It requires only political will. The Conservative Party has at least two terms of Government before it. It is insulated from political risk. It should act. And here is how.
First, it must remove the tax incentive for employers to shirk the provision of the safety net. This could be done in a revenue generative fashion – by raising the tax costs of engaging the self-employed to the level of the employed. Or a revenue neutral fashion – by spending some of the tax raised from self-employment on cutting taxes for the employed. It matters not. But the playing field must be leveled.
Second, we must address when that safety net should be provided.
Presently the answer is given by a judge made test – employment or self-employment – that dates back a century or more. The test relies on a range of factors, many of which have no logical relationship to the question when we should place responsibilities on the employer. We must replace it with a statutory test that Parliament can trim to the conditions of the day.
To ask what that test should look like we need to recognise its purpose. That purpose is not to ask of a worker whether he should have a safety net: it is not a substitute for a welfare system. It is, instead, to ask of an employer whether his relationship with his workers is such that it is reasonable for him to provide one. Is the worker ‘dependent’ on the employer?
This is, it seems to me, a function of two factors: first whether the worker has the power to set his own prices and second whether the worker really is in business on his own account.
When I, as a barrister, set my prices I can include within those prices a margin to enable me to provide my own safety net: sick pay, holiday pay, a pension and so on. In those circumstances the law should not compel any other to, for example, make contributions towards my pension. But where an employer dictates the prices at which a worker works, she cannot create that margin. Indeed the logic is to ask: what minimum amount does a worker need to pay for her own safety net. Pay below this rate and the burden of providing the safety net falls upon you.
The other important factor is whether the worker is dependent upon the employer. Our law already knows of the concept of a ‘subordinate’ worker. We could replace it with a simple test based on the number of hours worked for an employer. Use a worker for that number of hours and they become dependent on you; you acquire a commensurate obligation to provide a safety net for them.
These steps would not stem the rising tide of the gig economy. They do not seek to; they recognise the benefits it brings. But they would ensure a level playing field for employers. They would ensure the less generous do not drive out the more. And they would remove the bizarre encouragement our tax system provides for business to transfer costs to the state or the individual.Follow @jolyonmaugham