Matthew Taylor has repeated his calls for the government to change the tax system to stop exploitation in the gig economy. It was Taylor who back in 2017 published a series recommendations in his review of working practices in the ‘Good Work’ report and 51 of his 53 recommendations were accepted by the government. However, it is the two that haven’t been taken up that is referring to in this latest opinion-piece. One concerns employment status, introducing a new category called ‘dependent contractor’, the other is an alignment of the tax and employment laws.
He was speaking to Personnel Today’s ‘Oven-Ready HR’ Podcast saying that the government should ‘move to a situation where we don’t tax labour differently depending on who provides it’. He said any expectation that February’s landmark Supreme Court ruling against Uber will put an end to the mistreatment of vulnerable workers in the gig economy is wrong. Instead he said legislation is necessary to stop businesses circumventing the payment of employer’s national insurance. We will come on to consider that tax alignment point shortly but first the employment status reform he recommended in his report. After the Uber decision, this was a big talking point in employment circles and Taylor was tweeting how he thought the government needed to ‘step up’ and do the job the courts were doing. We covered it in this programme at the time and we heard from our own Diane Nicol, who was on Matthew Taylor’s panel. Diane explained how the panel arrived at the new ‘dependent contractor’ category. This is what she said:
Diane Nicol: "The name that Taylor came up with was ‘dependent contractor’ which was to replace 'worker' and to maintain the three tier system that we have in terms of employment law under the current regime, which is 'employee', 'worker' - which we wanted to call 'dependent contractor' - and 'self-employed', because we thought that the three tier system worked well, was very flexible, was something that was aligned to the gig economy and provided the flexibility that was required, but we also wanted to ensure the protection of those who fell into the middle category of, then, worker and what we wanted to call dependent contractor, and that was all related to control. Interestingly, the Uber decision which came out just over a week ago has focused on the control around the individuals in that particular case and in establishing worker status and that certainly is where we were coming from in relation to recommending that there be clarity on dependent contractor status and that that be legislated on so that workers did not have to spend almost five years going through the employment tribunal, the courts, the Court of Appeal, up to the Supreme Court, to find out what their status was. So that was very important in ensuring that workers were protected. It was clear who they are and, unfortunately, this has not come to pass because of all the recommendations, although many of them have been implemented, this is one which hasn't and it has been put into the 'too hard' basket."
The panel’s answer to that ‘too hard basket’ is the point Taylor is making to Personnel Today – an alignment of the tax system with the employment law. The point is the tax regime is binary while the employment system has three categories, so they somehow need to come together and marry up. This is how Diane explained it:
Diane Nicol: “We in the Taylor Review didn't just recommend that. One of the issues that pushes people into 'self-employed versus employed' status is the current tax regime, which is binary - you're either employed or you're self-employed. So we thought that if you had a tax regime that was more closely aligned with the three tier employment regime, and you try to bring them closer together so that tax wasn't a driver for pushing people into a self-employed status, then we would get more traction, if you like, in relation to this and we could achieve more clarity around who was a dependent contractor and who was genuinely self-employed because those engaging them wouldn't be pushing them into the self-employed category in order to avoid paying NICs and various other and benefits to them."
That last point is the one the government would need to get to grips with if they were to make progress on this. So, removing the tax incentives hirers enjoy which causes them to push people towards self-employment. Which begs the question, what are the incentives? Tax specialist Chris Thomas explains:
Chris Thomas: "I think the key distinction is National Insurance Contributions really, because that's the big one where the treatment of someone who's self-employed and someone who's employed varies very considerably, particularly the employer NIC. At the moment there is a big incentive to structure it as a self-employment for that reason. Now obviously we've seen actions being taken and IR35 is a good example of that, where the government is trying to tackle what it sees as avoidance in this area by trying to tackle people trying to avoid being treated as employed when in the fact they are but I think to really get to the bottom of this I think it may require something further and a closer alignment of the two see regimes and some years ago some people may remember Philip Hammond did try this when he was Chancellor. He tried to align the National Insurance treatment to a degree and I think it's fair to say he had a lot of rather fierce and vocal opposition to that and eventually it got dropped. There's probably an interesting question as to whether the government is now willing, perhaps, to grasp the nettle and have a further go at that perhaps bearing in mind that the pandemic may have changed things to some extent in opposite in that there has been a lot of government support provided to the self-employed and does change the political dynamic and make that easier for them to do? I think the cynic in me says, well, the government's track record on this sort of thing is not great and what they tend to do is just layer on yet more anti-avoidance rules on top of what there already is, rather than really doing the kind of root and branch back to basics sort of structural review."
The interesting thing about Matthew Taylor’s comments to Personnel Today is he does appear to have changed his mind since 2017 on the approach to alignment of the tax and employment systems. In the podcast he says: “Under tax law there are only two statuses – self-employed and employed – but in employment law there are three statuses – employee, limb (b) worker, and self-employed. I would only have two categories and I’d have the line that separates people in tax terms exactly the same line as in employment terms.” In contrast, in the Good Work Plan he was recommending that we stick with 3 categories, albeit ‘the ‘worker’ category changes to ‘dependent contractor’, plus you have ‘employee’ and ‘self-employed.’ It rather proves the point that there isn’t an obvious answer to this problem and it probably explains why the government still hasn’t fixed it yet, and probably never will.