8 February 2018

Restricting the gig economy will cost jobs and hurt consumers


At 2am on Sunday morning in Birmingham after a night out and an ill-advised kebab with friends, we decided to call it a night and head back to our friend’s house. So we did what countless other people do and ordered an Uber. We sat in the warmth and relative comfort of the kebab shop and withing four minutes our driver had arrived, ready to get us all home quickly and safely.

My experience was vastly different from how nights out used to be years ago. Gone are the days of either cutting short my enjoyment in order to get the last tube home, or walking home with the fear that I might encounter some unsavoury characters. The only alternative would be to hail down a cab driven by somebody whose competence and character were a mystery to me and who had no incentive to provide a good quality service, and would charge me an extortionate fare.

Countless people in the UK have enjoyed being able to use an app to order an Uber to take them to where they need to go, in the comfort of knowing that there was a record of the journey and that the fare would be reasonable and fixed in advance.

As such, it is both disappointing and surprising that the recently published Taylor Review into work practices ignored the impact that its recommendations will have on consumers.

The government commissioned the Taylor Review due to concerns over the working practices of new companies in the so-called gig economy and how these impact workers. Yesterday Business Secretary Greg Clarke announced that nearly all of the review’s recommendations will be adopted. It is right to be concerned about workers, especially those on low incomes, and nobody wants to live in a society where such people are exploited. However, the government’s good intentions will have a negative impact on the people who use these companies.

Placing onerous restrictions on companies will restrain and restrict their opportunities for growth. For example, research conducted by KPMG revealed that regulations imposed on businesses by the government have a detrimental impact on growth and damage their profit margins. As a result, companies have no choice but to pass on these extra costs to consumers. The evidence overwhelmingly demonstrates that increased interference in business by the government results in higher prices for consumers. This is the case with both small entrepreneurial firms which disrupt industries, and also larger, more established, companies.

The research leads us to the unavoidable conclusion that implementing the recommendations in the Taylor Review will hurt the profitability of firms such as Uber and Deliveroo, and that these added costs will be passed on to the consumers. As a result, the millions of people who use the services provided by these companies will see their household budgets taking a hit, and the very poorest in society will be priced out of using them entirely. There is a real cost of living crisis in the UK, with many people struggling to make ends meet. Implementing the Taylor Review’s recommendations will only exacerbate this problem further.

However, it is not just consumers who will suffer. The Taylor Review expresses its desire to protect workers, but its recommendations are likely to adversely affect them. For example, extra regulations restrict the growth and damage the profitability of firms. As a result, imposing new restrictions on firms will make it less profitable for companies to employ as many workers or to use their services – something which could suddenly put many Uber drivers and Deliveroo riders out of work.

Furthermore, although the Taylor Review is right to not recommend banning zero-hour contracts (as the Labour Party advocates), its recommendations for further regulation of these types of contracts could still hurt workers. It might not be financially viable for a firm to have all its workers on fixed-hours contracts, so, instead of offering work to lots of people on a zero-hour contract basis, it might be forced to employ far fewer people on fixed-hours contracts, thus robbing many workers of employment opportunities.

Moreover, it ignores the fact that many people prefer to work on zero-hours contracts. For example, being a Deliveroo rider is a popular choice with students who want to earn some extra cash but who can’t commit to a regular job, due to having to attend lectures and supervisions, study, and enjoy the social side of university. Zero-hour contracts are also popular with people who have caring responsibilities and need work which offers them the chance to earn money by working flexible and irregular hours.

The government claims to want to offer security to workers. In reality, however, further regulation would imperil the employment opportunities of countless people.

Perhaps the most bizarre recommendation designed to help workers is the suggestion that the National Insurance contributions of the self-employed should be increased. National insurance contributions are nothing more than a double tax on incomes in disguise. Such a move would be deeply regressive and would reduce the amount of money which workers take home and would increase pressure on their household budgets further. Any recommendation to help people by making them poorer should be flatly rejected.

The Taylor Review could have been far worse. It resisted calls for a ban on zero hours contracts. It was correct to praise the success of the UK’s flexible labour market. It is also, obviously, right to be concerned about the well-being of workers, especially those on low incomes. However, many of its recommendations would restrict the growth of companies and reduce their profitability. As a result, consumers will face increased prices, with the poorest being priced out of these services entirely. Moreover, it will result in firms offering employment opportunities to fewer people.

The recommendations put forward by the Taylor Review and endorsed by the government are well-intentioned and designed to help workers. However, as is so often the case with government regulations, they would make both consumers and workers poorer, reduce their standard of living, and exacerbate the cost of living crisis facing millions of people in the UK.

Ben Ramanauskas is Policy Analyst at the TaxPayers Alliance.