The COVID-19 pandemic presents us with a unique opportunity to reform the gig economy for the better at the same time as supporting small business in the transition to online trading.
The pandemic has forced us to rethink the way we interact with each other and do business. As we have been forced to limit our social contact, the shift to “online” forms of business has been accelerated. This has had a disruptive effect on numerous business sectors, including high street retail, live entertainment and hospitality. The government has intervened to put entire sectors “on ice” while the pandemic plays out: shops and venues have been forced to cease trading, kept alive by a mixture of government-guaranteed loan packages. Millions of workers have been placed on furlough, at enormous cost to the Treasury, and are currently economically inactive. Despite such measures, numerous businesses will go bust and mass unemployment seems inevitable. Just this morning (6 February) the Chancellor announced that further significant economic measures would be needed to support small businesses struggling to repay government-backed loans.
But this is not the full story: many businesses have prospered during the pandemic. The most high profile example may well be Amazon. Since the start of 2020, Amazon’s share price has almost doubled, Jeff Bezos’ personal wealth has risen to over USD200 billion and, more inspiringly, Amazon has increased its global headcount by almost half a million people. Many of these additional roles are in the gig economy, the most obvious example being the raft of additional delivery drivers.
Broken down, there are three clear problems here:
1. Small businesses are struggling to keep pace with big businesses in the shift to online trading. There are numerous reasons for this but one aspect of this which has attracted significant commentary in the UK press is the cost of implementing effective distribution networks and paying for deliveries. The vast majority of goods are now delivered by delivery services (as opposed to acquired on premises or collected via so-called “click and collect”) and these services are more expensive for smaller businesses which do not have the advantage of scale or established relationships with suppliers to drive down prices. According to reports, delivery charges can be as much as 35% of the total transaction value.
2. The government is currently supporting the workforce in parts of the economy that have shut down through the furlough scheme. There are good reasons for favouring such a scheme, not least its simplicity. However, the furlough scheme is a temporary solution and a very expensive one. It is necessary to consider whether it can be supplemented by other job-creating schemes, both to make better use of inactive workers (in view of the cost to the Treasury) and to begin to shape the recovery by energising the sectors most likely to emerge from the pandemic in a strong position.
3. Many of the new opportunities for work are in the gig economy. While many workers enjoy the flexibility the gig economy provides, there is a consensus generally emerging that it does not provide workers with sufficient security and that the compensation provided is often not commensurate with the risks (financial and otherwise) that gig economy workers are required to take. Steps are needed to regulate the gig economy so that it works better for its core constituency.
The following proposal seeks to address these problems:
1. The government should subsidise delivery costs for small businesses by providing funding that can be used with “approved” suppliers (see 2 and 3 below) to pay for delivery services. This funding could be provided as an extension to the existing government-backed loan facility and take the form of a grant, an additional loan or a mix of the two. To ensure an appropriate allocation of funding, funding might be capped at, for example, 50% of a small business’ average monthly spend on delivery services over the last year. To ensure any funding is spent on delivery services, it could be provided in the form of vouchers (for free or for a discounted price) used to pay approved suppliers, which suppliers could then cash in with the government or banks already involved in government-backed lending.
2. The government should establish a framework for suppliers of delivery services to achieve “approved” status. Approval would be dependent on demonstrating consistently high standards in relation to any gig economy workers engaged by the supplier. Criteria might include: a. Average pay of at least £10 an hour. b. Sick pay. c. Insurance. d. Skills training. e. Safety training. f. Regular risk assessments.
3. Approved suppliers should be awarded a kite mark for so long as standards are maintained with a view to establishing, in the longer term, customer preferences for business that deliver using a kite-marked service.
If successful, this proposal would create new job opportunities, both in prospering small businesses and with approved suppliers. The kite-marking programme would help to ensure that these are good quality roles, with the opportunity for higher standards to be maintained in the longer term as well. The incremental cost to the Treasury should be limited, as the need to provide additional support to small businesses has already been identified and, as the proposal generates new work opportunities, existing furlough commitments should reduce. An element of any government subsidy for the proposal would also be recouped through taxation of workers.
The proposal is designed to be easy to implement through a simple extension to existing funding facilities and a transparent kite-marking framework that would be largely self-policed by suppliers but shored up by independent supervision (this could, for example, be done by HMRC as an extension to its National Minimum Wage and National Living Wage enforcement responsibilities). The kite-marking framework would also help to ensure that delivery services are conducted safely, in a COVID-19-compliant manner, protecting both workers and customers.
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