Uber and the self-employment dilemma: who really wins in this?

Torsten

By Torsten Brose | Business Development Director Echo | Magenta Technology

One of the long term fears for all private hire companies is HMRC turning its attention to the industry in the way it did to the building trade a number of years ago. At one time, anyone working on a site operated in a similar way to the private hire industry, until HMRC decided it was not getting its fair share. The rest is history. It completely changed the way taxation was dealt with in the building trade and shifted tax responsibility back to the operators rather than the workers.

I can completely understand why HMRC would want to tackle this in private hire, as anyone who has worked in the industry knows that a lot of drivers have a fairly lax attitude when it comes to paying tax.

HMRC has run various test cases over the years against companies to validate the self-employed status of drivers at those companies. So far they have not managed to make anything stick on a large scale.

Having run operations which are funded by shareholders, as opposed to owner-operators, I’ve always had to manage risk mitigation with the self-employed model – how the contract is written, cars being leased from subsidiary businesses – all to alleviate any potential liability for the drivers’ employment status.

There is a pretty standard list of questions that are used to determine self-employed status in any industry, and, from where I’m standing, Uber has one of the least self-employed models I’ve come across.

I’m sure that the hordes of expensive legal teams Uber uses are already formulating an appeal which only the strongest tribunal will be able to oppose. They will throw untold resources at this issue as, without the self-employed status, its business model is in trouble.

Uber loses billions a year, and it’s hard to see how it could sustain the cost of drivers being classed as employed until they kick them all out and driverless cars take over, which in my view is further away than we think, due to the many legal issues rather than technical ones.

Although there are a number of articles knocking around talking about this issue, none really raise what is, to me, the most obvious question, and that is: “What happens to rest the industry if this judgement sticks?”

Is it possible to run competitively priced cabs countrywide if drivers now have to be employed with all the extra cost that this will involve? Here are some predictions as to what that world might look like:

  • Fares will go from their lowest relative rate in my lifetime to the kind of level that will immediately reduce overall bookings massively
  • People just won’t book if fares went up by 100%, which they might well do for certain journeys
  • Drivers would leave the industry in droves as wages would offer security but at a much lower level
  • Drunk driving would go up again as people would take a chance rather than pay inflated fares
  • Many companies would go out of business
  • Transport planning for big cities would have to change dramatically

I’m sure most of you can imagine all of this quite clearly …. so who really gains out of a victory over Uber? Is pursuing the goal of employment in this industry really worth the loss of jobs and revenue, with cabs becoming a luxury extra (as black cabs are), rather than an important part of everyday life?

I think it would be hard to make a case that this would be good news for increased tax revenue or social cohesion, to which the industry undoubtedly contributes.

So what’s really likely to happen? Can two – in my view, misguided – drivers really change the world by toppling the giant and then everyone else? It makes for a great story, but I think it’s a pretty sure bet the status quo will remain, and we can all be pleased about that.

Torsten Brose – torsten.brose@magenta-technology.com

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From Russia with love

As Business Development Director for an innovative technology company, I recently found myself in Samara – the sixth largest city in Russia and the development base for Magenta’s Echo software.