Our welfare state and the Gig economy

By Steven Pinhey, Tax Director
020 7490 7766

Following Jeff Gitter’s article ‘The Gig Economy – what is it and should we care?’ published on our website on 17 February, the Works and Pensions Committee have now published an abridged report stating that the welfare state needs to adapt to the changing labour market. All quotes are made from that report which can be found at https://www.publications.parliament.uk/pa/cm201617/cmselect/cmworpen/847/84702.htm

Frank Fields, MP and Chair of the Committee said;

"Companies in the gig economy are free-riding on the welfare state, avoiding all their responsibilities to profit from this bogus "self-employed" designation while ordinary tax-payers pick up the tab. This inquiry has convinced me of the need to offer "worker" status to the drivers who work with those companies as the default option. This status would be a much fairer reflection of the work they undertake which seems to fall between what most of us would think of as "self-employed" or "employed". 

The Committee state that ‘self-employed people and employees receive almost equal access to all of the services funded by National Insurance payment, especially with the introduction of the new state Pension, yet the self-employed contribute far less. The incoming Government should set out a roadmap for equalising employee and self-employed National Insurance Contributions.’

It also believes that there should be ‘an assumption of the employment status of “worker” by default, rather than “self-employed” by default,’ and that this ‘would protect both those workers and the public purse. It would put the onus on companies to provide basic safety net standards of rights and benefits to their workers, and make the requisite contributions to the social safety net. Companies wishing to deviate from this model would need to present the case for doing so, shifting the burden of proof of employment status onto the better resourced company.’

The growth in reliance on intermediary digital platforms to connect self-employed workers with work means the ‘gig economy’ (which is already used by a range of different types and models of work) is set to pose ‘a challenge for a welfare state established at a time when paid work was primarily carried out by men in full-time employee jobs and the self-employed were a smaller and more easily defined group. Today, those assumptions do not hold true on many counts. A string of court cases testing employment status, and with it rights to minimum basic standards of support, evidence established definitions of employment and self-employment that are straining at the leash. Welfare policies have, to some extent, adapted to the growth in self-employment. Yet flagship policies such as Universal Credit and auto-enrolment were designed primarily or wholly with employees in mind. Together, these challenges encompass the two fundamental functions of the welfare system: as a system of contribution, and as a safety net.’

It will be interesting to see how in these uncertain political times the Government seeks to address these fundamental issues and whether there will be a further alignment of National Insurance Contributions between the employed and self employed

If you are self-employed and need assistance with your accounts and tax please contact Steven Pinhey who would be happy to discuss how Lubbock Fine could help.

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