This will be Theresa May's first big test when she is re-elected Prime Minister

Andrew Grice
Theresa May will be under pressure to change the rules around how businesses classify their employees, affecting companies in the ‘gig economy’ which follow models similar to Deliveroo: Getty

On the day after the general election a very important report will land on Theresa May’s desk, if, as everyone expects, she is still Prime Minister. This report, a review of the changing labour market, will provide a huge and immediate test of May’s pledge to stand up for “ordinary working people” and against business.

I understand that the review will propose reforms to address the “one-sided flexibility” in the gig economy, under which employers can decide when their employees can work while their workers have no security of income and very few rights of redress, such as being able to claim unfair dismissal. The review is led by Matthew Taylor, who was once Tony Blair’s head of policy, and is expected to call for greater protection for people who don’t know whether they will have work from one day to the next, as opposed to Uber and Deliveroo employees who enjoy “two-sided flexibility” because they can decide when to work.

To have any credibility as a champion of the workers, May will have to accept Taylor’s conclusion that the labour market is loaded in favour of employers, who enjoy much flexibility, and against workers struggling with insecurity and vulnerability. That will be the easy bit; the hard part will be doing something about it.

The rhetoric of the Tory election campaign will have to be turned into the policies that business, including many Tory donors, will not like. They are already grumpy about a manifesto they view as anti-business because of its flawed net migration target, curbs on executive pay and foreign takeovers, and May’s “no deal is better than a bad deal” approach to Brexit. Right-wing Tories are also alarmed about what they perceive as a lurch to the left.

What should be done to tackle the “one-sided flexibility” problem? Taylor’s team is still finalising its recommendations but is looking at an idea that featured in the Labour manifesto – to “crack down on bogus self-employment by reversing the burden of proof so the law assumes a worker is employed unless the employer can prove otherwise”. This would ensure that people who, to all intents and purposes, are employees but are classed as self-employed were no longer denied the extra rights of those directly employed, on pensions, benefits, holiday pay and sick pay.

Taylor, chief executive of the Royal Society of Arts, may not go as far as Labour suggests. He might want to avoid malicious or trivial claims at an employment tribunal by someone claiming to be an employee when working only a few hours a week. But he is likely to propose that the burden of proof be placed on the employer rather than the employee at some point in the process.

He has already floated the idea of a higher national minimum wage for people on zero-hours contracts, which has drawn fire from business groups and may be a step too far for May. The Tory manifesto, while promising to raise the minimum wage each year in line with median earnings, stops short of guaranteeing the £9-an-hour in 2020 promised previously by George Osborne. (Labour is offering £10-an-hour by 2020).

Although Taylor cannot make specific recommendations on tax, he is expected to address the Treasury's loss of an estimated £5bn a year in tax and National Insurance contributions (NICs) because of the growing trend for employed people to be classed as self-employed.

Philip Hammond, the Chancellor, got in a pickle over this in his March Budget. He raised NICs for the self-employed but was forced into a humiliating U-turn because the move breached the 2015 Tory manifesto. He is now free of that pledge, as Thursday’s document only promised not to raise VAT, making no such commitments on NICs or income tax. The case for reforming taxation of the self-employed is overwhelming, but May will have to sugar the pill by extending parental and other rights.

The “gig economy” will not be the only cause of insecurity and anxiety for workers over the next few years. Mark Carney, the Bank of England Governor, has warned that almost half of today’s 32 million jobs could eventually be done by robots (though Taylor is less pessimistic). A more immediate threat to the May Supremacy will be a fall in living standards now that wages are rising by less than inflation. The costs of Brexit will limit her ability to cushion the blow. No wonder the Tories have pushed back deficit reduction (again).

The Tory manifesto nodded to the Taylor report, hinting at greater protection for those in “gig economy”. May will need to swallow some unpalatable options that will be opposed by business. Otherwise her claim that the Tories are the true “party of the workers” will be exposed as completely bogus.