Polly Mackenzie, Director, Money and Mental Health

Payments and the precariat

Flexible work can be a tough gig – we explore the gig economy and mental health


It’s great news that the Prime Minister has appointed former Labour adviser Matthew Taylor to review the employment and regulation landscape in the context of huge shifts in the UK’s labour market. More and more people are talking about the need to update employment, tax and welfare rules to reflect the rise in self-employment, variable hours employment, and the so-called gig economy.

In my view, zero hours contracts, self-employment and “gig” platforms from Uber to Deliveroo have an important part to play in a flexible labour market, and the UK’s flexible labour market is an important factor in our strong employment rate. Some work is almost always better than no work, and there are many people who actively seek flexible hours or earnings.

But it’s right to look at where the rules can be changed to ensure job security doesn’t slip away. At the moment, firms are actively incentivised by tax and regulation to transfer risk to their employees, undermining hard-won employment protections like paid holiday, sick leave and parental pay, and reducing the certainty of income for a growing number of people.

This study needs to look beyond employment regulations, however. I’d like to see Matthew Taylor look at financial management, too. It may not be possible to reverse the trend towards precarious earnings, so we need to redesign our financial services and payments systems to help people smooth their income and manage unpredictable earnings without paying a premium as consumers or making themselves miserable with financial stress.

The Micawber recipe for happiness, from Charles Dickens’ David Copperfield, is so widely quoted as to be banal: “Annual income twenty pounds, annual expenditure nineteen, nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”


It’s not such a simple equation
It sounds easy, but in the modern world it is becoming harder and harder to achieve. Matching your outgoings to your income becomes impossible if you don’t know what your income is from week to week or month to month.

Worse than that: it isn’t just harder, it’s more expensive. If you can’t set up a Direct Debit because you’re not sure of your income, you’ll end up paying more for your utilities. If you miss payments or they bounce out of your bank account you’ll pay fees and charges. If you need short term credit to cover a temporary shortfall in your earnings, it will cost you interest. If you’re self-employed and need to self-certify your income for a mortgage, you’ll pay a higher rate, and have a smaller market of providers from which to choose. If you have a bad month and dare to miss a Council Tax payment you’ll find yourself faced with a demand for the full year’s tax up front.

Universal credit could actually make things worse for those with the most precarious incomes, because it will be based on the previous month’s earnings. If your income goes up and down sharply from month to month, your benefits will exaggerate the effect: a bad month after a good one could push you to the breadline.

The “poverty premium” is well-documented. We need to study in detail this “precarity premium”, and look at policy options to help people manage it.


Protecting the precariat
Fintech companies are starting to innovate in this space: Wollit in the UK, Payactiv and Even all offer income-smoothing capacity for those with unpredictable earnings. But there needs to be more work done to help, especially on payments. The JP Morgan Chase Institute has called for changes to the direct debit schedule to help those on weekly or fortnightly pay, for whom monthly payments are a real problem because they sometimes come just before instead of after a pay cheque. Those with unstable incomes need to be able to pay less in the bad months, too – balanced by paying more in the good ones – instead of being required to pay the same every month regardless of what they’ve earned.

Varying incomes look like they’re here to stay. With the end of annuitisation requirements for pensions, we can’t even expect a predictable income in requirement. So the need to vary our outgoings will become more and more pressing. Otherwise we’ll find the precariat cut off not just from employment rights, but from fair pricing and consumer rights, too.