UK employment review to consider rights and tax
The adviser appointed by UK Prime Minister Theresa May to conduct the review into modern employment launched on Wednesday has called for a rethink on worker’s rights in the gig economy. Writing in The Guardian, Matthew Taylor states that it is essential to ensure that current employment rules are able to adapt to changes in the world of work. Self-employed people now constitute 15% of those in work in the UK. The review will examine the tax implications of self-employment. The tax paid to the state for an employee is £2,000 a year more than for a self-employed contractor.

For work in the UK it can feel like the best of times and the worst of times. We have a flexible labour market, a strong and internationally envied record of job creation and a solid framework of individual rights. Yet hardly a day seems to go by without stories of workers being unfairly treated, whether in long-established areas of employment such as retail or care, or through new technology-enabled enterprises. Protecting our strengths while tackling the weaknesses is the overarching task facing the review of modern employment that the government has asked me to undertake. It is a daunting task but the prime minister is right to see it as a priority.

One of the key issues for the review is ensuring that our system of employment rules are fit for the fast-changing world of work. The UK’s framework of employment protections and entitlements exists to help correct the inherent power imbalance between employers and employees. Rights such as access to paid annual leave and protection from discrimination provide the statutory base line on to which most employers add further benefits as part of the employment contract. Entitlements such as the national minimum wage, employer pension contributions and parental leave also contribute to wider public policy goals.

Ensuring that workers get their due protections and entitlements is often an issue of enforcement and the review will explore whether we could do better at making sure such rules are observed. If one employee wins a claim against an employer is there a case to automatically investigate whether colleagues are also being short-changed?

As a result of government policy and changes in the labour market, self-employed people now make up about 15% of those in work in the UK. The self-employed have more flexibility and pay lower taxes in the form of national insurance, but they do not enjoy the rights or protections of employees. While there are genuine grey areas, sometimes businesses appear to impose the expectations and obligations of employees but, by defining workers as self-employed, deny them their due rights and entitlements. The review will explore how clearer information and better support – including new forms of worker representation – might enable people to understand and enforce their rights.

Another important issue is the way our employment and tax system interact. Arrangements such as self-employment and sole trader incorporation can provide flexibility for all parties but there is also a strong financial incentive at play. Not only do the self-employed pay lower national insurance contributions, but unlike employees their labour isn’t subject to employer’s NI. If two people are doing the same task and earning the same basic remuneration on average earnings, the total tax paid to the state for the employee is about £2,000 a year more than for a self-employed contractor, or as much as £3,000 if they are working through their own company. Yet, apart from some particular entitlements such as paternity pay, the self-employed access exactly the same share of public spending per head as employees. I was pleased that the chancellor said in his autumn statement that there are issues here both of fairness between different types of worker and the long-term resilience of the tax base – and he set out that the Treasury is considering these issues.

Technology is making it easier to break down jobs into small parcels and to engage people in forms of “gig” work. Current employment and tax rules add an extra incentive to this process and encourage people to set up their own companies. I believe strongly that in achieving a fair, flexible and sustainable framework for employment, there are important roles to be played by employers, trade unions, consumers and entrepreneurs. In America, for example, new business models are combining gig work with employee ownership. As well as the challenges, the review will look at the opportunities new forms of work create for groups such as older workers and carers, and also the scope for new career progression routes.

Work is central to society, to the economy and to our individual lives. There is much to be proud of in the UK’s jobs record but our current system has weaknesses and is not future-proof. If the review succeeds it will help our nation be a leader not just in flexibility and job creation but also in laying the basis for a socially just and economically dynamic employment system fit for the future.