The Taylor Review: Poor timing?

9th August 2017 by Steve Herbert

Despite slowing economic indicators – and the many uncertainties of Brexit just over the horizon – the UK’s employment figures have been rather impressive of late.  The official ONS figures in June this year show a record employment rate of 74.8%.  So how is this being achieved?

There are many factors at play here, but a significant driver to the high levels of employment has of course been the rise and rise of the so called “gig” worker economy.  This moniker is now being liberally applied to a variety of workers who all fall somewhere between the status of a fully employed worker and those who are genuinely self-employed.

There are various reasons why gig working has become so prevalent in recent years, but perhaps the two most significant points are these:

When taken together these two factors are extremely attractive to many employers across the UK, and indeed many workers also find the flexibility of this approach beneficial to their individual lifestyles.

But of course the positives do mask some rather unpleasant negatives.  Many gig workers find it difficult to budget without certainty of income from month to month, and likewise find it difficult to secure borrowing and accommodation for the same reasons.  And a few such workers are undoubtedly hampered by their current agreements from actively seeking alternative full time employment.  The final component in this problem is the legally ambiguous state of such workers, and whether and when Employment Law applies to them.

The result has been a rash of legal cases seeking to identify what rights apply to such workers.  This in turn has made the issue a political one, and the result of that is The Taylor Review of Modern Working Practices published only last month, with a supporting fanfare of media headlines.

The key approach championed by the review is the creation of a new status for those caught between the two extremes of employment and self-employment.  The review suggests that a definition of “dependent contractor” will better reflect the reality of modern day working arrangements for this grouping.  Dependent contractors will be any individual who is not an employee, but neither are they genuinely self-employed.  The report states:

“Ultimately, if it looks and feels like employment, it should have the status and protection of employment.”

Clearly there is some way to go to develop the dependent contractor test, and to isolate what rights and duties this proposed new status will ultimately place on both employer and worker.  However the likely outcome is an overt employment status for such workers, with clearer access to employment rights and law as a direct result of this.  What is perhaps less obvious is whether the NI treatment for this grouping will also change to reduce or remove the social insurance advantages to employers and workers of gig working.

Yet the review did also raise some other issues for me.  I was particularly struck by this passage:

 “The Organisation for Economic Co-operation and Development (OECD’s) employment protection index is a widely used indicator for labour market flexibility.  According to this index, the UK has much lighter protections in place for individuals in the labour market relative to countries such as France or Germany.  The US is considered to have the least protection in place.”

This strikes me as rather important.  Should a deal with the EU not be struck soon, then the UK will have to replace that trading arrangement with a number of new trade deals with other large geographical markets.  Clearly the US is a key contender here, and President Trump has indicated his willingness to engage on this.

Yet it’s one thing being able to trade with different geographical areas; it’s another being competitive enough to win the contracts.  And here the UK is at a disadvantage.  For the country to be competitive it needs to be productive.  Yet all the evidence suggests that as a nation we are some way off being the master of productivity, and we are way behind the US in this respect (see this post from early last year for details).

The problem with granting a new status of dependent contractor to gig workers at this time is that it is likely to result in extra short-term fiscal and legal burdens for many employers, which may make the nation less competitive against the US for a while.  Add the challenge of bridging the productivity gap and things start to look more worrying still.

So it seems to me that dependent contractor status is probably the right idea for all the right reasons, but possibly just at the wrong time for the nation given Brexit.  It will therefore be interesting to see how quickly the proposals of the review are adopted.

Steve Herbert is Head of Benefits Strategy at Jelf Employee Benefits