Jan 29, 2017

Sharing upstarts? No, they are tax-avoiding skimmers

Capitalism can be adroit at presenting itself in a cuddly light, and technology businesses are especially good at this trick. A sector engaged in “collaborative consumption” has been branded the “sharing economy”, which makes it sound almost charitable. A better phrase would be the “skimming economy”; many of the big players are parasitical, leeching from society and not paying their way.

A typical example is Airbnb, whose business model is partly dependent on tax avoidance. For example, the price advantage enjoyed by the accommodation rental site in London, its second-biggest market by number of listings, is mainly due to the typical 17% that its rivals — hotels — have to pay in VAT and property taxes; Airbnb hosts typically pay just 1% in tax on a night’s rate. These differences are worth tens of millions of pounds a year, according to the Financial Times.

A disproportionate slice of its revenue is probably generated by a small number of larger, professional hosts, rather than small operators. Yet somehow, because Airbnb is new and hi-tech and fashionable, it is able to skirt the law.

There should a level playing field. Either the traditional providers should be exempt from tax and compliance issues — which would shrivel our tax base enormously, and probably endanger guests — or Airbnb and its hosts should have to adhere to the same tax, planning and safety regulations.

The “sharing” movement has been masterful at portraying itself as an upstart revolution of young, independent free spirits battling against giant, grey corporates. In fact Uber is a hugely well-funded multinational that is engaged in substantial lobbying and litigation campaigns in many cities.

It sits on more than $5bn (£4bn) in cash. It probably creates very few net new jobs, simply re-distributing work from old-school taxis to minicabs under its control.

Its PR suggests it offers choice over incumbent monopolies, but it is frantically busy creating one of its own by driving conventional cab operators out of business.

Indeed, one of the brilliant propaganda coups achieved by the likes of Airbnb and Uber is the assertion that they “invest” in the cities they colonise. In fact they do not build any accommodation or buy any vehicles. They simply act as gatekeepers, using software to extract a toll from customers and workers.

Unfortunately, too many politicians are impressed by the popularity and financial resources of the new breed, so they distort the system to facilitate a Californian invasion.

Even cheerleaders for the sharing economy admit that it is by no means all good.

Alex Stephany used to be boss of JustPark, the site that “unlocks” unused spaces for drivers. He has written The Business of Sharing, a manifesto for the sector. In it he writes: “The threat to the commons, the monetisation of neighbourliness, the erosion of labor rights — these are pitfalls to be avoided.”

He claims the sector promises to be 80% good, 20% bad, yet some of the flagship companies have stumbled badly. LendingClub, the biggest peer-to-peer lender in the world, went public at $15 a share in late 2014. Last year a scandal forced the founder and chief executive, Renaud Laplanche, to resign, and the stock slumped to $5.

Perhaps the loudest complaint levelled at various companies in the sharing economy is that they depend on notionally freelance workers, so avoid contributions to national insurance and pensions, sick pay and holiday pay.

The rise of the gig economy (another euphemism) means that many more workers are deemed self-employed contractors, and all the legal and financial burdens of hiring staff are evaded.

I strongly approve of entrepreneurship, but that does not include fake self-employment. Two London drivers won a legal case against Uber when a tribunal ruled that they were in fact employees.

Meanwhile there was a strike at food delivery business Deliveroo last year when it tried to move its couriers from hourly wages.

Matthew Taylor, my old colleague at the Royal Society for the Encouragement of Arts, Manufactures and Commerce, is producing a report on this phenomenon. He’s a socialist at heart, so I suspect his conclusions will not delight promoters of the skimming economy.

In What’s Yours is Mine: Against the Sharing Economy, written by technologist Tom Slee, the author argues that the sharing economy is not a diverse, fragmented sector at all. It is actually dominated by a small number of tech firms backed by enormous amounts of capital.

And, of course, the biggest digital free riders of all are Google and Facebook, which are eviscerating the creative industries but contributing nothing to content — while stealing all the advertising. They helped establish a Silicon Valley culture that now funds and defends the disreputable behaviour of the sharing behemoths.

Consumers should not be fooled.

“Software is eating the world,” said Marc Andreessen, the founder of web browser Netscape and now a tech investor. That shift makes the Californian tycoons ever richer, but risks leaving the rest of us scratching around in the dirt, in a society impoverished by a voluntary digital levy.