Sunday, 30 October 2016

Uber - employment lawyers don't understand maths or logic

From the BBC:

Uber drivers have won the right to be classed as workers rather than self-employed.

The ruling by a London employment tribunal means drivers for the ride-hailing app will be entitled to holiday pay, paid rest breaks and the national minimum wage. The GMB union described the decision as a "monumental victory" for some 40,000 drivers in England and Wales…


Fair enoughski, but this is just people fighting over the same source of income. Taxi drivers, collectively have a monopoly - each licence is a little monopoly. the tell tale sign is that an increase in demand for taxi rides does not increase the supply of taxi licences (which are at the whim of a local council or similar), it merely pushes up the value of the licences.

From the point of view of the consumer, Uber busted the taxi drivers' monopoly, bringing down prices and increasing supply, but from the point of view of drivers, it created a new one of its own. The trick with these platforms is to persuade passengers/buyers that they are the biggest and have most drivers on call, while simultaneously persuading drivers/suppliers that they are the biggest and have most potential customers.

Things being what they are, it is far easier and more efficient if everybody uses the same platform.*

Which brings me to this…

The ruling accused Uber of "resorting in its documentation to fictions, twisted language and even brand new terminology", adding: "The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common 'platform' is to our mind faintly ridiculous."

No, that is exactly how it is. Presumably, if you register as a driver with Uber that does not stop you from registering as a driver with other platforms at the same time. Question is then - whose employee are they now? Do they have two employers? How is the holiday pay, rest pay and national minimum wage while on call but not driving supposed to be split between the two?

Here comes the maths fail:

Alex Bearman, partner at Russell-Cooke solicitors, said Uber could look to meet any additional costs by increasing the percentage of each fare that it kept as commission: "It seems likely that this decision will be appealed and we may not see a final determination for some time to come."

Again, no. It appears that Uber takes about 25% of the total fare paid by the customer. If Uber takes a higher percentage, then that leaves less for the driver, not more. So either:
- Uber takes a lower percentage (which won't kill it, their income is pure profit/rent once its minimal overheads are paid) or
- prices overall go up by a third to get driver's average hourly earnings up from £5.03 to the National Minimum Wage. And you can't just put prices up, the result will be less demand and fewer Uber drivers. So those at the margin will be unemployed again and those who keep their jobs will earn more for less work. Which is classic rent seeking, it is just when trade unions do it, they dress it up as A Good Thing.
-----------------------------------
Then there are taxes on output and employment to consider. Let's assume our driver is genuinely self-employed and is below VAT registration threshold. He makes £10/hour gross, Uber takes 25% leaving our driver £7.50/hour, on which he pays 29% income tax/NIC = £5.33 after tax. The self-employed will also get a full tax deduction for motor vehicle costs.

If the drivers are all now employees of Uber, the full fare will be liable to VAT, so out of £10, £1.67 goes in VAT. This leaves £8.33. Even if Uber generously slashes its fee to 5% (42p after VAT) to cover its minimal overheads, this leaves £7.91 to pay gross wages. 96p goes in Employer's NIC, leaving £6.95 employment income taxable at 32%, leaving our driver with £4.73 per hour. The tax deduction which employees can claim for business use of private car is also much more restrictive than for the self-employed and is more difficult to claim.

So an epic fail all round**!

* Which is why the answer is for the government to simply set up its own low-cost ride sharing app, it can provide it for free to all and sundry and will make its money back ten times over from all the extra income tax/NIC it can collect (even at self-employed 29% rate) now that it knows who is doing what. That still looks like a monopoly in the old-fashioned sense of there being a single provider, but in practice it isn't a monopoly at all.

** Unless you are totally cynical and think that the Employment Tribunal is an arm of government and decided the case this way because it vastly increases the tax take from Uber drivers...

47 comments:

Bayard said...

"The ruling by a London employment tribunal means drivers for the ride-hailing app will be entitled to holiday pay, paid rest breaks and the national minimum wage."

This is the window dressing.

"He makes £10/hour gross, Uber takes 25% leaving our driver £7.50/hour, on which he pays 29% income tax/NIC = £5.33 after tax."

So Uber get £2.50, HMRC get £2.17 and the driver gets £5.33.

"If the drivers are all now employees of Uber, the full fare will be liable to VAT...."

with the result that Uber gets £0.42, the driver gets £4.73 and HMRC get a whopping £4.85, more than double its previous take. That's the real reason.

So the GMB's "monumental victory" is a victory for HMRC, but then who cares if the workers get less, so long as the bosses get less as well and any idea that workers can look after themselves is once again scotched.

"Presumably, if you register as a driver with Uber that does not stop you from registering as a driver with other platforms at the same time."

Well, obviously, the next move is for the courts to put a stop to that sort of thing as well.

Mark Wadsworth said...

B so you are going for the second footnote?

Sean Vosper said...

I thought London cabbies as of a few years back at least were earning a lot more than these figures suggest. I mean these numbers don't seem to work - how can you justify buying the sort of car that you would need for this job - they don't let you drive a banger. Genuinely curious as I've been thinking about it for a while for myself.
Not so sure now.

Mark Wadsworth said...

SV, London cabbies make a good wedge, £50,000 a year after running costs. That is because they benefit from supply restrictions. Uber has busted those restrictions more journeys are made for lower prices. it is quite probably true that at the margin in low-demand areas, Uber drivers only make £5 an hour or £10,000 a year.

I don't know what sort of minimum standard of car Uber insist on, but that doesn't affect the principle. What we don't know is whether the quoted net income of £5.03 is before or after running costs, which must amount to £2 or £3 an hour when driving.

Sean Vosper said...

Well if that's more or less the case - after tax and after costs of £5 an hour then that's a complete non-starter - unless it's just a way to monetise your car for some extra cash part-time say.
Wow.

Mike W said...

Thanks for making me look at debate in a new way. I hadn't thought of the 'cynical' 'HMRC option' in your conclusion. I assumed you were working towards, give it time and Uber's temporary advantage will be competed away by 'Unter' or some such new kid on the block! So surprise by the idea of Government platform.

DBC Reed said...

Agree that Uber is just renting out the app and has an enormous workforce without paying any wages. Nationalising the platform seems the only solution - which is why we know its not going to happen.
The New Establishment view is now that tax is invariably a bad thing and it is the English gentleman's duty to avoid it and not support public services.

There is lot of recent work about the precariat (Guy Standing) in which they are not menaced by blood-dripping capitalists but by faux libertarians seeking to take over public sector enterprises to run them for rent,increasing profits while not increasing supply. The housing 'industry' is this rent clipping or rent farming writ large, but there are plenty of upper middle-class hooligans ready to take over the health service, university grants ,education in the name of anti-bureaucracy doing a nice little number on taking over public services and property for nothing and renting them out.
Unfortunately too many land taxers are of this latter view: they see land tax as giving us chavs more readies so seek to take it off us again by charging a private rent on the health service which they will run with the clippie mentality that has reduced the railways to chaos.

Bayard said...

"B so you are going for the second footnote?"

I'm not quite that cynical. I think the employment tribunal takes the paternalist, bash-the-bosses line like DBCR and most left- wingers.

I can see that Uber are going to lose out big-time by this. Not only is it going to cut into their profits, but they will be deserted in droves by drivers who don't want nearly half their earnings going in tax, even if it is for their own good.

"The New Establishment view is now that tax is invariably a bad thing and it is the English gentleman's duty to avoid it and not support public services."

Do let me know how you get the government to spend the tax you pay only on public services, will you. I find that they have the annoying habit of spending a large proportion of mine on pointless foreign wars and useless nuclear weapons.

"they will run with the clippie mentality that has reduced the railways to chaos."

My, you have a short memory. You have obviously forgotten what the railways were like under British Rail. Case in point - my local line when I was growing up - old, dirty, unreliable rolling stock, two-hourly service, often up to two hours late. Same line now, new, clean, smart rolling stock, one-hourly service almost invariably within a few minutes of on time.



Shiney said...

Oh FFS - the government developing a ride hailing/sharing app.

Really? REALLY? I could remind you all of the various monumental government IT fuck-ups of the last 30 years... but what's the point.

And of course, now its successful and patronised by many people (customers and suppliers) because it actually works, DBCR and others on 'the left' want to nationalise it.

For sure, make market entry work so Uber (or whoever) can be out competed. But nationalise it? Seriously? I despair. And anyway, Uber will probably be blown away by some unforeseen technology (driverless shared rented cars perhaps?) just as others have been.

Mark Wadsworth said...

S, the govt is rubbish at inventing new stuff, but simply reverse engineering something that already exists can't be that difficult. And most of the really crass fails, like NHS spine, were merely intended to shovel loads of cash to mates of government in the pseudo-private sector.

And in practice, how do make market entry for new ride sharing apps possible? It is a rational thing for drivers and passengers to use whichever is the "biggest" such app, and there can only be one "biggest".

Things like this are a natural monopoly because it is an intermediary/reference work/market place/forum etc. It is the same estate agent websites and used car websites. Things work better if everybody uses the same one. Sellers only need to advertise once and buyers only need to search once. Saves time and hassle.

That doesn't mean that the benefits of everybody using the same platform should largely accrue to a bunch of Californian billionaires who spend a few quid on developing the app and several zillion on a massive advertising campaign.

Kj said...

There was another labour case a short while ago in the UK, it was a partially disabled chap which was awarded several years of backpay, on the count of him spending longer on the route than what was paid for.
This Uber-case is about as much as a "win" for Uber drivers as that case was a "win" for disabled workers. If the market won't put people on the margins out of work, the unions and courts will. Pretty depressing.

DBC Reed said...

Mark is on a roll with this one and the old notion of natural monopoly.
If we had stuck with the old pre Mrs Thatcher arrangement of 42% of the population having council houses and flats, technical progress would now mean we could have a national website where people could arrange council transfers from one end of the country to the other over a weekend at minimal cost.
I can remember, apropos of Bayard's dim view of the post war mixed economy, everyday occurrences such as the building of motorways and new towns and MacMillan building 300,000 new houses a year, something which the present Tories have decided is not humanly possible.
(BTW for those who accuse me of hardline communism, MacMillan is the politician I most admire although I was too young to vote for him).

Bayard said...

"If we had stuck with the old pre Mrs Thatcher arrangement of 42% of the population having council houses and flats, technical progress would now mean we could have a national website where people could arrange council transfers from one end of the country to the other over a weekend at minimal cost."

Yes, David Cameron was only following her example in f*cking things up big time for a small political advantage.

"MacMillan is the politician I most admire"

I am surprised, I would have thought it would be Attlee, who I admire.

Bayard said...

"Mark is on a roll with this one and the old notion of natural monopoly."

Unfortunately, this is something even the Corbynites have yet to come up to speed on. They are still talking about nationalising things like the railways, where the natural monopoly element is already in public ownership and steel production, which has no natural monopoly. No-one is suggesting taking into public ownership things like the electricity distribution network, the telephone network or the mobile phone mast network.

Shiney said...

@MW

"but simply reverse engineering something that already exists can't be that difficult"... Then let the LTDA do it? Or Facebook, or google... or some bedroom start up.

There are 'many' hotel/airfare/holiday booking sites. Downloading an app for these takes 10 seconds. Should they all be nationalised?

I refer you to...

https://www.amazon.co.uk/Blunders-Our-Governments-Anthony-King/dp/1780742665

'nuff said.



Shiney said...

@MW

Plus "a bunch of Californian billionaires who spend a few quid on developing the app" Exactly. Do you really thing that the government would spend 'a few quid'? More like billions. To not deliver something. As you yourself just said, they'd just spend the money with their mates in 'big IT' rather than buying the tech from a startup.

And as I pointed out, Uber will be blown away at some point by another app/service/technology. As will Facebook, Google etc.

Dinero said...
This comment has been removed by the author.
Dinero said...

If Uber charge £2 a mile for a car travelling at 30 mph it is £60 an hour for a starting point not £10.

Shiney said...

"Annie Powell, a Solicitor at Leigh Day, told road.cc: “It is very early days, we haven’t issued a claim but we are exploring bringing a claim on behalf of Deliveroo drivers”."

Can't wait for the nationalised or government built pizza delivery service!!!!..... I can see the text response now...

"Sorry, you can only have one super pepperoni this week because you ordered two last week and we think you might have exceed your government mandated pizza quota for the year... we've reported this to your NHS trust who will deny treatment 'cos you are a lard ass, and booked also you onto the local authority healthy eating course. failure to attend will result in a £1,000 fine"

Lola said...

Uber is the most vulnerable app there is. There is no IP value in it at all. It will be superseded by the Next Big Idea. Or it's franchise will be eroded. FWIW I dispute that there is any such thing as a natural monopoly. Except land. Of course.

Shiney said...

@Lola

+1

DBC Reed said...

It may be that Mark is in at the start of a whole new political wave. If so, I will associate myself with his ideas immediately , and ignore all previous disagreements.
Publishers blurb for Guy Standing "The Corruption of Capitalism" (published now):
"A plutocracy and elite enriches itself not through production of goods and services but through the ownership of assets, including intellectual property, added to subsidies, tax breaks, debt mechanisms, revolving doors between politics and business and privatisation of public services."

Standing, of Precariat fame, is a well-known supporter of Universal Basic Income.

I don't suppose Standing is right about everything but it will be an improvement to cite agreeable arguments from a well reviewed book and then slip in our kind of stuff round the edges.

Sean Vosper said...

Hhmmm, well if that blurb is anything to go by then he hasn't quite got it.
LVT is by far and away the most rational monopoly to tax. Others like subsoil minerals, spectrum, patents and the like are all a LOT more complicated - basically because the economics is much more subtle and nuanced. Ditto the monopolies generated by the networked platform effects of software and tech and yes uber - kind of.
No need to overcomplicate things - a simple upgrade of the council tax system as outlined a couple of weeks back by MW. Introduced gradually over 25 years, removing as you go the worst taxes in a revenue neutral fashion. Increasing the overall take by gradual increases in local spending in health, education, and welfare - introducing as you do so some welcome loacalness. Upping the total local take to about 30% of national tax income.
Bish bosh, jobs a good 'un.

Lola said...

SV. "introduced gradually over 25 years". The political cycle won't permit that. I'd allow five years, max.

Mike W said...

Agree with you Vosper and disagree with Lola. A 'normal' political cycle of two party: win, lose, win, YES. But this is what the critics mean by, 'no one will vote for you lot in' and you will never have LVT because you can never win an election. 'LVT = lose votes tax, don't you know? Ha Ha'.

But we may well be half way through a 10 year cycle of Tory governement now. Then what? To answer my prevous post here. Labour is not a national party (even if it can afford to play the game).Eventually, it will have to do deals in advance,(key point) with a broad left coaltion to ever be in power again. Broad left New Deal = 'Left'conservatives looking at tax reform, Lib Dems looking at their own history and tax reform, Greens focusing on the ECO bit OF HG, Labour looking at the social justice bit of HG,and Nationalist just looking to keep Tories out. Bound by basic Georgist ideas, such a grouping could alter the shape of the political cycle as well as the economic cycle. So 15 years and 'Bish, Bash Bosh jobs a good un'. Wouldn't that be something?

Hope we all live long enough to be involved with it when it is so far along there is no turning back. But Lola above needs to thicken out the distinction he is drawing above :)

Mark Wadsworth said...

Sh, please no not misquote me.

I think that Uber and similar services are a fine invention, and if they were charging drivers 10% or less of fares then all would be well and good.

It is the approx. 25% that worries me. That is clearly monopoly profit, and acts like VAT to restrict supply, push up equilibrium price and depress drivers' earnings. All of this is sub-optimal. If there were no natural monopoly here (the biggest service will always do disproportionately well) then in course of time, their % would be competed down to 5% or 10%. Other services would undercut Uber on price and charge a lower fee.

It is just that I don't see that happening any time soon. I might well be wrong and I hope I am. But what is wrong with the government offering its own service in competition which charges zero % commission? If Uber's service is that much better and it continues to charge and receive 25%, well so be it.

SV, taxing a monopoly is a last resort. Best if the monopoly is busted by other means - one of which is offering a low cost alternative. Charging a much higher tax on Uber profits just makes things worse for consumers and drivers.

L, correct, 25 years is too long for a single plan. But think about the shift from Georgism Lite to full on Home-Owner-Ism, that took decades. The reverse journey will also take decades.

MW, yes

Lola said...

MW Hailo already operates. In any event the 25% 'premium' is supported by the monopoly profits of old style London Cabbies. Once that monopoly is broken then the profits will reduce. It's the same with Sky's prices and the BBC.

MikeW I agree that a coalition of the 'left' might establish LVT. The 'right' certainly won't. Which brings me back to my vertical v horizontal political axes. With a vertical axis LVT / CI is much more likely.

Mark Wadsworth said...

Lthe 25% 'premium' is supported by the monopoly profits of old style London Cabbies. Once that monopoly is broken then the profits will reduce. It's the same with Sky's prices and the BBC

Let's hope so. That would be reaffirm my faith in free markets. But sometimes these monopolies persist for
decades if everybody benefits from using the same common medium like Microsoft, who IMHO are right royally taking the piss.

Mark Wadsworth said...

L, but what is the BBC if not a low cost government provided alternative to paid for tv? Same goes for NHS or state education or council housing. These are not ends in themselves, these serve as a baseline against which private providers have to compete.

Lola said...

MW. Yes. Microsoft have been extremely successful in perpetuating their monopoly. They've either bought out the competition or nicked their ideas (Netscape?). But even here I work with at least one major outfit that uses no MS software. And as I understand it (not very much) a lot of the major bits of the IT world run on stuff other than MS.

I am unpersuaded that the BBC is 'low cost'. Look at all the high pay for very iffy people. It's a rent seekers charter. Personally I think Murdoch loves it as it enables him to cherry pick popular stuff and charge premiums for it - F1 for example. Anyway the BBC is already under threat from on-line streaming - Clarkson & Co. for example.

And I know that DBCR will disagree but the money in the nationalised education system is woefully managed. I have a really good inside knowledge on how in just one instance The Higher Education Funding Council completely messed up to the tune of about £100m. The fact is without market forces these things always end up being run for the employees benefit, well, the rent seekers. The incentives are entirely skewed.

Lola said...

MW. Oh, and you know I agree that Council Housing is a 'special case', what with land being THE monopoly an' all.

Lola said...

And the competition has started:
https://karhoo.com/en-GB/
https://en.wikipedia.org/wiki/Hailo

Bayard said...

"I can remember, apropos of Bayard's dim view of the post war mixed economy, everyday occurrences such as the building of motorways and new towns and MacMillan building 300,000 new houses a year"

You prove my point: neither roads, towns or houses were built by nationalised industries. The state, i.e. the civil service, has always been able to manage such things, often surprisingly efficiently. It's only nationalised industries that I take a dim view of.

"The fact is without market forces these things always end up being run for the employees benefit, well, the rent seekers."

It's not just in the public sector that this happens: look at practically any joint-stock company where the shareholders are either big and institutions or many, small and private and you will see the top management on huge and unjustified salaries.

Mark Wadsworth said...

L, you are misquoting me.

I mean "low cost" from the point of view of the customer. That sets a cap on what private providers can charge.

I am perfectly aware that private schools are better than state schools etc, but in terms of value for money to the customer, private schools are piss poor value etc. This is because they have a captive audience and collect rent, you are paying for the conspicuous consumption etc.

Same goes for private hospitals. Doctors collect rent. You are prepared to pay "a lot" for health and life and doctors are happy to charge you as much as you can afford.

I have no grudge against either Sky or the BBC as it happens, they are both equally crap, and that is a minor issue.

Lola said...

MW. No. I didn't express myself well.

I agree about the low cost from the customer perspective.

But I think it is the other way about. It is the BBC monopoly and telly tax that enables Sky to buy premium stuff and charge premiums for it. F1 for example. That is you have to pay the telly tax before you can get Sky. Which in turn means that Sky can demand a premium subscription.

DBC Reed said...

L
News to me that education was captured by the teachers for their own benefit.I must have missed that in FE.

Lola said...

DBCR. I have previously said on here that the wonderful trick carried out by the nationalised education system is to both enjoy substantial producer capture and at the same time exploit its productive employees. Mrs L was a teacher - and a very good one - and was wildly underpaid for her efforts and professionalism. As were many of her colleagues. OTH there were in every school she worked at several complete wankers who should have been sacked. As for the ludicrous bureaucracy and constant political interference....?

Bayard said...

"This is because they have a captive audience and collect rent, you are paying for the conspicuous consumption etc."

Captive audience? when the competition is free of charge? I can't see the "conspicuous consumption" involved in sending your children to the little private school down the road. Eton, Marlborough or Harrow, yes, but not the Park School, Yeovil.

"News to me that education was captured by the teachers for their own benefit.I must have missed that in FE."

It's never the ones who actually do any work who run these organisations for their own benefit, so no, not the teachers.

Mark Wadsworth said...

B, I am a victim of a status conscious wife, you would not believe the snobbery and keeping ahead of the Joneses that goes on, even if it's only park school, yeovil.

Lola said...

DBCR. That is not what I said at all. Read my comment again.
To repeat, from 30+ years of observation, the nationalised education system exhibits a neat trick of both enjoying endemic producer capture AND exploiting its productive employees. That is most teachers, on a comparative basis with other professions, are woefully under-rewarded, even allowing for their excellent pensions. It is impossible to get rid of bad teachers who cause endless problems for the good ones. Mrs L has been bedevilled by one or more appallingly idle/incompetent/exploitative colleagues in every school she's ever worked in and no head teacher or board of governors was ever really able to do anything about any of them.. And that's just the bad teachers. On top of all that you have endless layers of self serving bureaucrats and political interferences.

Lola said...

MW. Aahhh. I am sure you love her really.

DBC Reed said...

Mark is obviously far too modest to say , but my favourable comparisons with Prof.Guy Standing, whose " Corruption of Capitalism" is currently attracting attention, may stem from both being members of the Citizens' Income Trust.

Mark Wadsworth said...

DBC, I asked Guy S what he thought about Georgism and he was very dismissive to the point of being rude.

DBC Reed said...

@MW
Funnily enough , I suspected there might be a big Georgist gap in his thinking. Somebody needs to do a big review of his book pointing out the obvious.

Mark Wadsworth said...

DBC, his book and Picketty's book etc etc

Mike W said...

MarkW, DBCR,

And Steve Keen's book, 'Debunking'. In that volume he even lists possible 'hetrodox' economic candidates (and not a whiff of HG) !!!


I must be missing something :(

DBC Reed said...

MW
Perhaps ,on second thoughts, we are just doomed: Joseph Stiglitz smacked Picketty on the land issue pretty definitively last time.