Oral evidence: The Digital Economy, HC 571Tuesday 23 Februaru 2016
Oral evidence, 23 February 2016.
Witnesses
Brhmie Balaram, Senior Researcher, RSA, and author of Fair Share: Reclaiming power in the sharing economy, Debbie Wosskow, author of Unlocking the sharing economy: an independent review, and Professor Diane Coyle OBE, Professor of Economics, Manchester University, Fellow of the ONS, and author of The Sharing Economy, gave evidence.
Chair
Good morning. Thank you very much for attending to give evidence to our inquiry into the digital economy. Could I begin by asking you to give an idea of who you are and where you come from?
Professor Coyle
I am Diane Coyle, Professor of Economics at the University of Manchester. I have been working on the digital economy for many years and have just been appointed Fellow of the Office for National Statistics where, among other things, I will be looking at measuring the digital economy.
Brhmie Balaram
Good morning. I am Brhmie Balaram. I am a Senior Researcher at the RSA and I lead our work on the sharing economy. In January, I authored a report called “Fair Share: Reclaiming power in the sharing economy”.
Debbie Wosskow
Hi there. I am Debbie Wosskow. I am the Founder and CEO of Love Home Swap, which is a website for homeowners who want to swap their homes with other people around the world. I also wrote an independent report for the Government on the sharing economy at the end of 2014, called “Unlocking the sharing economy”, and I am the Founding Chair of Sharing Economy UK, which is the UK-based trade association for sharing economy businesses.
Chair
Thank you. This is a question to all of you, but I will begin with you, Diane. How are we doing as a country in achieving our potential in the modern digital economy?
Professor Coyle
As far as we can tell, extremely well. There is obviously a lot of rapid growth. If you are talking about the sharing economy in particular, it is still small but growing extremely quickly. One of the questions is that we do not have the statistics that tell us exactly how we are doing, and there are quite a lot of issues. There is no question in my mind but that digital growth and the sharing economy offer great potential for the economy—it is a win-win—and we are not measuring those gains at all well.
Chair
Will it be your job in the ONS to tackle it?
Professor Coyle
It will be their job, but I hope to help them with it. Some of these gains would never be measured in conventional GDP because it is not conventional marketed economic activity. The bit that is really important to understand is how it is changing the ways people are working, how many people are working in these new ways and how many micro businesses there are. That is important if we are thinking about the framework of Government policy, not just regulation but how the tax system works, how the benefits system works. We need to rethink a system that has been delivered through large companies providing services and administration to people who work in a conventional job for a number of years. Through digital start-ups, through the sharing economy and through growth in smaller businesses, that is just not the model people are working in any more. We really need to understand what people are doing so that we can help them do it more and grow this sector of the economy more.
Chair
Brhmie, what is your assessment? How are we doing?
Brhmie Balaram
There is a perception that the UK is very welcoming to the sharing economy, especially in relation to other countries within Europe. For example, in France, Germany and Spain they have cracked down on some of the sharing platforms. Uber, for instance, has been suspended in some of these countries, whereas the UK has taken a bit more of a hands-off approach and therefore is seen as wanting to stimulate the growth of the sharing economy. With the introduction of sharing cities, that is another signal that the UK is very receptive to the sharing economy.
Debbie Wosskow
In terms of Sharing Economy UK, which has been in existence for just short of a year, we launched with 19 founder members and we now have 50. That is evidence that the sharing economy in the UK is a growing space. It is also growing in terms of its scope, because it is a very broad church. You have big businesses like Airbnb. Uber, to my mind, does not technically count as a sharing economy platform in the UK, because its model here is very different. You have continental European start-ups like BlaBlaCar, which is doing ride sharing and is a huge business. Increasingly, you have people sharing pets and boats and power tools and food and a vast range of different business models that are pretty new in their existence. In terms of international economic impact, last month I led a sharing economy mission with UKTI to Silicon Valley, where we took 16 entrepreneurs to meet the founders of Airbnb and Instacart and other great international success stories. Definitely the perception in Silicon Valley, to reiterate Brhmie’s point, is that the perceived light-touch approach to regulation and, indeed, the self-regulation of the sector—the sector’s focus on things like insurance, the TrustMark, which is a piece of work that I can talk a bit about, which is looking at how we can verify these platforms are trustworthy—is seen as leading the way internationally. In that sense, the UK is perceived as producing some really interesting entrepreneurs, some really interesting businesses and some great thinking about how these sites can grow.
Chair
Again, a question to you all, but starting with you, Debbie. I am interested in your thoughts as an investor, as an entrepreneur, the founder of Love Home Swap as well as chair of Sharing Economy UK. What are the barriers to success in Britain in order to ensure we can achieve our potential? What are we missing out on? What is hindering progress and growth?
Debbie Wosskow
To talk to the sharing economy a bit—and I am also an angel investor as well as a CEO—the perception problem has been around awareness. One of the useful things about writing a report for the Government that has had some airtime, if you like, is it is making ordinary people aware that they can make money and save money from the things that they already own and the skills that they have. I made a programme last year for ITV called “Rent-Your-Life”, which was about going into an ordinary family’s home; they had two kids, and it looked at their car, their box room, their shed and what they could do to make extra money and to save some money. The figure ITV came up with was £8,250 per year that an ordinary family could make or save. It has been described as “micro entrepreneurship”, which is a slightly fancy term and I am not sure many of those people would necessarily identify with being micro entrepreneurs, but awareness that you can do that will be one of the big drivers that enables us to both play on an international stage and for these businesses and business models to become very mainstream. The challenge, as an entrepreneur, is always getting it going. The challenge for sharing economy platforms, in particular, is about trust. Whether you are a buyer or a seller, a guest or a host, a dog walker or a dog owner, you have to trust that the person and the platform are going to do the things they say they are going to do. That has been difficult to get until you reach scale and until industries that surround the sharing economy come with the sharing economy. The specific example there to date has been the insurance industry. Definitely for Love Home Swap, when we first got going we needed to put in place a bespoke insurance product. It needed to insure homes and contents, but it also needed to insure travel, because if you book a home swap to Australia with your three children and the other person cancels, what happens to your flights? It was difficult for the insurance industry to get its head around, first, writing new products and, second, a world in which liability and who is liable is changing. All of those things have been barriers, but I feel like in the last 18 months or so a lot of progress has been made to ensure that start-ups and entrepreneurs can have the infrastructure around them that enables them to build successful businesses.
Chair
Brhmie, what are the barriers?
Brhmie Balaram
I would like to take it back to the definition that the RSA uses. For us, the sharing economy is a socioeconomic system and it encompasses a spectrum of activity, so it is quite diverse. For me, it is important to note that the sharing economy can encompass things like time banks and tool libraries, any sort of local, grassroots-funded initiatives, as well as bigger corporations that are venture-backed and global. They have very different challenges, and that is something that we need to take into consideration. For example, investment for some of the smaller initiatives is a lot more difficult to obtain than it would be for an online platform in the sharing economy that has a completely different business model, can scale much more quickly and therefore is attractive to venture capitalists. The question I would want to put forward first is: what are we looking to grow? Which aspect of the sharing economy is it that the UK is interested in supporting?
Professor Coyle
I would agree with Debbie about the perception being important and starting to change for the better. It is partly being aware of what the opportunities are, but also understanding that it is already quite important and growing quite fast and is going to be a significant aspect of the economy. I would add making sure the regulatory environment stays friendly and allows businesses to grow, including—it was very interesting to hear about the insurance products—the wider framework of institutions that support those businesses.
Chair
Could I press you on that, Diane? We will talk about regulation in a moment, but is the regulatory regime favourable currently to allow the sharing economy and disruptive business models to grow in Britain?
Professor Coyle
I am sure there are specific hurdles for specific businesses, but broadly it is a friendly environment. The risk would be that as it grows people start to become unnecessarily concerned about it, and perhaps, as you say, we will come back to that. Picking up from the previous session, I would add skills and investment and growing both of those and investing at scale as well, because these business models have what an economist would call “network effects”, which means they are more successful the more people you get to sign up on both sides of the platform. There are global companies that can come into the market and run losses for years because they have investment on such a large scale. For this country to get very large-scale platform businesses of this kind, we are going to need to find a way of financing at scale as well as for start-ups.
Chair
Debbie, this is a specific question to you. I very much enjoyed your independent review. It is a very important contributor to the whole digital economy as well as the sharing economy space. It was published in November 2014, so we have had about 15 months. Are you happy with how the Government have embraced it? Are you happy in terms of the implementation of recommendations? What else needs to be done?
Debbie Wosskow
We have made progress in a lot of areas and not made progress in others. If I had to pick out my top three that still need to be actioned, one was mentioned in the previous session: funds have been allocated for Leeds and Manchester to be developed as sharing cities. There is still work to be done on defining what that means, what the money is for and what is going to happen. I would flag that as something where more work is needed. You may or may not be aware of the idea of Government officials using sharing platforms. It was signed off by the Government in their response to my report that when you and, indeed, everyone within Government travel, you should be able to ride share, car share or stay in an Airbnb. To the best of my knowledge that is not happening, and I am sure you would all welcome staying in an Airbnb rather than a hotel. There was also the ONS recommendation, which I do not want to put solely on Diane’s shoulders, of measuring the size of the sharing economy. Diane recently did a great piece of work for Sharing Economy UK on productivity and how the sharing economy fits with productivity. One of the issues there was definitely scarcity of data. If I were to use the moment to bang the drum for the sharing economy and what is our big ask at the moment, which you may be aware of, the rent-a-room tax allowance was increased last year and we would very much like to see that extended to sharing economy activity more generally. In fact, under John Major, having a lodger in your home was the origination of the sharing economy. It would be great if we could extend that to whole homes, to driveways, to things that belong within a home. I know that is an ongoing conversation between the sharing economy and the Treasury. Those are four things to be getting on with. Back to my original point: the thing that has been really useful in the last 14 months has been putting the UK on the map—to be able to go over to Silicon Valley and to have people aware of my report and aware of the existence of Sharing Economy UK, which is the first trade association of its kind. There is also the work we have been doing on the TrustMark, which I might bore you with for 30 seconds because it is relevant to what has happened since then. That is a project that Oxford University has been working on with Sharing Economy UK and PricewaterhouseCoopers. It is to try to answer the essay question of how we can trust platforms, and is there an independently verifiable standard that is as meaningful to people who are having their dogs walked as it is to those having someone stay in their box room? It is really complicated and takes a much bigger brain than mine, hence Oxford University is our partner. We will be piloting that in the spring of this year. It will be a global first and there is definitely an awful lot of international interest in what that is and how it will work. We are piloting with four different businesses of different sizes that do different things. That has definitely been progress, more from industry than from Government, but with Government shining a lens, to Diane’s point, on self-regulation: “Yes, of course trust is an issue. What can you do, as an industry, to show that you are able to self-verify on that point?”
Chair
Thank you. If I may quote from your report, “Sharing economy businesses and traditional operators need to be treated fairly, particularly in terms of regulation”. Regulation can help or hinder the advancement of companies and business models, and we see the digital economy inquiry that we are undertaking very much as looking at regulation. It is incredibly important to us and, on that basis, Richard wants to ask a few questions.
Richard Fuller
I agree with you, Chair. It is also one of the areas where we are keen to be as supportive as we can of some of the steps the Government have started to make. I do not have quite the same benign view as Ms Coyle does about the state of regulation right now. At some stages, just because the sector is so small, it has not yet hit the radar screen for what regulations may come. In earlier sessions here, we have heard discussion about Uber and the hackney carriage versus private hire dispute, and there seems to be some aspect of regulatory mismatch or obsolescence there. Equally, we heard from Airbnb and the Hospitality Association and the regulations on consumer safety with regard to food, fire regulations and these things. Perhaps as an opening question, and I will start with Ms Balaram, what are the main regulatory opportunities that the Government should be seizing to enable some of these changes in the shared economy? For this inquiry’s purposes, we are mostly focused on the digital economy aspect of the sharing economy, although I know your interest is wider than that.
Brhmie Balaram
That is a really great way to look at regulation—as an enabler rather than an inhibitor. There is a lot of potential in the sharing economy to continue evolving. We are looking at blockchain-based platforms, for example.
Richard Fuller
Do you want to just explain to us what blockchain is?
Brhmie Balaram
Sure. Blockchain is the technology that underpins Bitcoin. It is a distributed ledger, which means that no one owns it but everyone can amend the transactions that are involved, and so therefore it is more accountable. For the purposes of the sharing economy, that means it is essentially a decentralised platform, so there would not necessarily be an Airbnb or an Uber, and that is a really interesting innovation. For example, La’Zooz is emerging as a competitor to Uber and we also have Loganomics, which is emerging as a competitor to TaskRabbit. These sorts of platforms are in their infancy, but a lot of the academics who are studying this, such as Arun Sundararajan at NYU, for example, are saying that this is like the beginning of the internet. There is so much potential here and we are only starting to see the effects of it now. When we think about regulation, we really need to have some foresight and think about what this could mean in the future. If I can refer to the British Hospitality Association’s ask of the Government, which was that everybody needs to share its data, I would urge you to think about a future where there might not necessarily be an Airbnb, so then who would you ask for that sort of data? It is about trying to think of regulation in a different way and piloting a more collaborative approach to regulation that involves users.
Richard Fuller
If I get the gist of what you are saying, it may be the case that if we look to regulate around platforms like Airbnb or Uber, essentially we are missing the main point that, ultimately, the regulatory environment will be about the users themselves and the consumers, and the intermediary—just like many other intermediaries—disappears or becomes a non-important part of the regulatory puzzle.
Brhmie Balaram
Exactly. Blockchain further disintermediates the system, so at some point these intermediaries may cease to exist.
Richard Fuller
Maybe the others can come in on whether they think that is likely, and there will certainly be some time before that happens and I am sure Government would want to have a view on regulation in the meantime. I am interested in your own perceptions about how we get to what you call the shared regulatory environment—shared regulation. Can you explain what that would mean in practical terms? If we were to have the Secretary of State for Business, Innovation and Skills here today, what would you be saying to him? “You need to look at regulation in this way, Secretary of State, rather than trying to bring in Government regulation, top-down regulation, because there are so many advantages to doing shared regulation.”
Brhmie Balaram
The RSA report looks at shared regulation by, first, looking at different types of regulation, different options. There is the top-down centralised approach, which some Governments in different countries are taking. There is also self-regulation, which Debbie has referred to; businesses in this space are very good at self-regulating when it comes to issues like safety and security. There is also a completely hands-off approach, which is no regulation. Shared regulation is a combination of approaches, but it is looking at more stakeholders than just Government or business. A great starting point is to gather people with an expertise in the sharing economy, but sooner or later you have to have public dialogue. You are going to have to initiate that at some point so you can have difficult conversations about what to do with the vast amounts of personal data that companies hold on users and if it is possible for Government to have access to that. That conversation is already starting to play out in the US, as we see with Apple right now and Tim Cook. Government making the case that it is for the public good or in the interests of wider public society is not necessarily convincing to business at this point. They really need to hear customers, users and citizens step up and say, “Yes, it is fine for you to share my data in this way.”
Richard Fuller
Ms Coyle, you have seen the digital economy evolve over a number of years and there is always the next new thing and regulation is clearly a lagging effort in this. What do you take from what Ms Balaram has said and, in particular, how do you see the evolution of the networked economy and the shared economy? What should the Government be doing on regulation for it?
Professor Coyle
People talk about digital disruption and what they mean by “disruption” is competition, and this is technology enabling new competition. It is great for consumers. It extends the choice that is available to them, much more variety, better quality, better prices, sometimes even free. It is great for people on the other side of the platform too, if they are supplying their home to be swapped or supplying some asset to be used, because it uses the asset more efficiently; they can make more money that way. This is a great thing for the economy. The regulatory challenge is to make sure that regulations that existed for the previous model do not then get in the way of the new model growing, and that is something that will emerge in each sector over time. Trust is very important. Self-regulation is something that we can rely on quite a lot here, because if customers and users do not trust these platforms, they do not have a business. They have to make sure they are trusted. TrustMark is great, but that is partly why you see rating systems as well, and they are much more powerful than conventional regulation. If you set up a hotel, you get inspected once by your local authority and that is that and you carry on for however many years. With a rating system you get continuous evaluation by your customers, so we can rely much more than people are used to on those self-regulatory mechanisms.
Richard Fuller
Just to test you on that, one of the issues that we heard from the hospitality industry and Airbnb was if I rent out a room in my house to someone and I do it seven times a year, I can put a piece of chicken in the fridge and it does not matter whether it is edible or not; it is buyer beware. I do not have to have regulations about showing where the fire exits are; you can find them yourself. For hoteliers who register with the Hospitality Association and that have a business, they do have to comply with food regulations and others. Do you believe that the rating system, this user feedback loop, ultimately will not only be sufficient for me in renting out my room but also would be a better, more efficient, more discreet, more informative form of regulation than the Government inspector coming round with their clipboard every six months in the slightly larger units that are running as a professional business?
Professor Coyle
It can be very powerful and effective. These platform businesses have also learned over time that they need to provide systems for registering the providers on the platform and providing the insurance policies, as Debbie was talking about. Over time, they have built some of that into their own platforms, because if they are not trusted, they are out of business; it is fundamental to them. It is obviously much more cost-effective to do it that way. You do not need the machinery of the inspectors and to rely on them to do it as frequently as they say they are doing, so it can be very powerful.
Richard Fuller
Ms Wosskow, in your report, and the time you have had to think afterwards, you were a catalyst for people to think about this a lot, and I am very interested in what Ms Coyle has been saying about the value of this self‑regulation. If you were to meet Mr Hancock again—I am sure you will—and tell him how we are doing on this regulation, would you be banging the drum to talk about self-regulation? The Government have a £10 billion target for deregulation. From what we are hearing, this seems to be a potential way in which we could be unbundling regulation, not only cutting the cost but making it more effective. Is that a natural follow-on from your report?
Debbie Wosskow
There are two ways into that. The first is: do I feel like sharing economy platforms provide a lens for safeguarding the interests of consumers that is more cost-effective to deliver than a top-down regulatory framework? Often yes. eBay is the granddaddy of the sharing economy, and for the last 15 years they have got us used to a stranger giving a rating in a review and that being as good as an inspector, so I do think that works. To your point, which was the original question on regulation and framework and deregulation and what else is there, I feel like we have talked in quite philosophical terms about what an approach might be. I also just want to use this as a way of raising two other topics, which we have not talked about today but I would like to get them out there. The first is around ride sharing. In previous conversations, you have talked about to Uber or not to Uber and to black taxi or not to black taxi. The one thing that we should not forget about is ride sharing as a business. In fact, one of the biggest sharing economy businesses in Europe is a ride-sharing business; also, to look at the UK, across the regions, some of the most successful start-ups that we have outside of London in the sharing economy are ride-sharing start-ups. One of the conversations that has followed on with Mr Hancock and others since my report has been around ride sharing for profit. At the moment, you are not allowed to do that. You are not allowed to share a lift to Glastonbury or, indeed, to the office and have anyone make any money; you have to just cover the cost of the petrol. There is a point about deregulation in that and letting people make a bit of extra money from ride sharing, which gets to the heart of the sharing economy. It is complicated, because it does touch on minicab licences and all the rest of it, but I do not think we should forget about that and I have been very concerned that there is a baby-bathwater moment, particularly with TfL’s 25 recommendations around Uber, one of which was specifically about ride sharing. I put that out there because that is a good example in very practical terms of deregulation enhancing the sharing economy. The other thing that we have not touched on is about the status of workers on platforms. Julie Deane published a report last week or the week before, which gave some very interesting statistics about how self-employment is at an all-time high. My particular passion around the sharing economy is the difference it is making to women’s lives. The statistic is that 44% of women in London who are not working and want to work are doing so because of reasons of childcare and affordability. The sharing economy can be a real salve to many of those issues and what we are seeing is definitely a shift in people’s working patterns.
Richard Fuller
Equally, you would say there are also concerns about the definition of an employee.
Debbie Wosskow
Agreed, but I feel like there is a separate point in all of this about the role of the digital platform, the deregulated or re-regulated role of the digital platform and the role of the person who is working in a different way. I wanted to flag those two points, because it feels like they are important.
Chair
We have looked at this as part of our inquiry already and we took evidence from hassle.com. Is there an argument that the upside is that people who are not in employment can be, that it can be liberating and flexible, but the downside is these people would be traditionally employed, with employment protection, and they do not have it any more? This is a way of exploiting workers, particularly workers on low pay. That is what the digital economy does, does it not?
Debbie Wosskow
I would really challenge the latter point, because that just has not been my experience nor the experience of my 50 members. Most of the people that we are dealing with in our platforms are people who otherwise would not be working or would not be working in the way that they want to work. I feel strongly that as part of this conversation we need to focus on how people are working, how they want to work and when they want to work. The Love Home Swap membership is 70% female. It is often the case, for many of these sharing economy platforms, that it is tapping into women who want to work more flexibly. Indeed, that was one of the main points of the report that Diane wrote on productivity. We need to make sure that we are capturing that in the way that we think about how productive we are as a nation. I am an entrepreneur, so I am endlessly optimistic and I would see it as an opportunity rather than a race to the bottom.
Richard Fuller
There are very distinct views that emerge on the impact on employees from the shared economy. When do I become an employee? When am I just doing something in my spare time? Who should be responsible for taxation on my income? Should it reside with me as an individual? Should it reside with the corporation? There was an estimate that for Uber it would be $4 billion or £4 billion. Ms Balaram, in your vision of the shared regulatory side there must also be, perhaps, more protection or at least eyes from the Government on protection of employees in the shared economy. What would be your suggestions on that?
Chair
May I just add to that? We have mentioned eBay already and eBay is a great way of people getting additional money by selling things they no longer need, but at what point do you go from selling stuff that is in the garage to becoming a trader and then liable for corporation tax and what-have-you?
Brhmie Balaram
On the question of whether these workers are employees or self-employed, shared regulation, when fully developed, would help shed some light on this. Right now, we are just hearing the perspectives of business again, and of course businesses are going to say that these workers are self-employed. As you have just mentioned, if Uber was to consider its drivers to be employees, they would have to shoulder those costs of 4 billion. For a company like Uber, with the backing of their venture capitalists they could continue to soldier on, but for much smaller companies that is definitely going to drive them out of business. These models would be best compared to something like Amazon or Walmart. It is a numbers game; you have as many transactions as possible and that is how you make your money. On an individual transaction they are probably losing money. The profit margins are razor-thin here, so that is why scale is so important in the sharing economy. Would I say that they are employees? It is a very complex issue. People use these platforms in different ways. For some people, as Debbie has mentioned, it is a flexible form of labour, it is casual, they have the benefit of maybe a full-time job and they can dip in and out. For others who are replacing full-time work with driving or renting, or whatever it is they are doing on these platforms, the question is much more difficult. They are at the mercy of these platforms, which are setting terms and conditions that may be increasingly akin to those of an employer. That is a question that is being explored in the US once again. It is looking at whether or not we need a third category of worker and that is something we need to consider in the UK as well, especially as GMB, for example, is supporting workers to bring court cases against Uber.
Professor Coyle
Exploring the idea of a new category of worker is a very interesting one and we should think about that, but the best way to protect people from “being exploited” is to make sure that they have good alternatives. Nobody is being made to engage in the sharing economy. Much of the discussion about this comes from evidence based in the United States, where the other options people have are very different and the way that a company like Uber is operating in the United States is very different from in the UK. For the first time the possibility is that flexibility now works for the individual. We have talked about employment flexibility; it has always been working for the employer in the past, and this is flexibility for the individual. I do not think we should rush to say this is exploitation anyway. We do not have that evidence. People do not have to do it, and for women who are able to make a bit of money from selling crafts or renting out their driveway, it is fantastic. Why would we not be embracing that?
Chair
The other side is that a woman on low pay who is cleaning and before was maybe part of a cleaning company and had protection in terms of holiday rights no longer has that. She is feeling less well-off and less protected as a result of the digital economy. Is that fair?
Professor Coyle
It is fair if it is happening. I do not think there is any evidence that it is happening at scale.
Chair
The notion that you can say, “Tough; go and get another job”, almost can be insulting, can it not, for somebody who might have low skills and might not be able to shop around in terms of his or her worker’s rights?
Professor Coyle
That is not what I am saying. I am saying that in the UK there is no evidence of that happening on any scale.
Chair
Okay, thank you. Brhmie, tell me if I have understood this. I was really interested in your point when you were talking about blockchain and how that could mean that intermediaries could become obsolete. Have I got that correct? One of the things that I found interesting is possibly the opposite of that, which is the digital economy is meant to provide greater competition and better consumer choice. What seems to be happening is that there is a growing concentration of power in a single provider in a sector—Uber, for example, or Google. Is the digital economy providing a monopolistic situation rather than the point that you are making?
Brhmie Balaram
I am saying that the future of the sharing economy is probably in response to the fact that there is a greater concentration of power. People are pursuing blockchain technology because they want to decentralise the sharing economy. They think that there is exactly what you are saying, and that is why people are exploring these options. If you read the report, what I am speaking about is that this online sharing platform model does lend itself to monopolistic tendencies.
Chair
Linked in with that, one of the interesting things is how that can be broken up. What I am really trying to say is how does that work in relation to what you have also said in respect of scale? Is there not a tension there? In order to make people feel trust about a particular brand, they need more and more people to use it, which means there is that growing concentration of power. How does that work? I am interested if you can see an inherent contradiction in that policy and what needs to be done.
Brhmie Balaram
There is also a growing movement towards co-operative platforms and wanting to share ownership of these platforms. That is the other side of it. When we talk about power and scale, there are different ways of scaling. There is scaling upwards, which a lot of these platforms are doing, but there is also scaling outwards. It is not that you have the same sort of company providing bicycle sharing, for example, in different cities, but you still have that sort of scale in that everyone is cycle sharing. The future of the sharing economy might be about trying to nurture these co-operative elements, so what would it look like if the drivers owned Uber, for example? There is something to be said there for how the Government could intervene and nurture the sharing economy.
Richard Fuller
Ms Coyle, on your newish role at the ONS and about the information available to make good judgments about the sharing economy and digital economy in general, could you share with the Committee your initial thoughts about what is missing to enable Government to have a factual basis on which to make decisions?
Professor Coyle
There are quite a lot of gaps. One of the issues is that there are parts of the digital economy broadly and the sharing economy that should be captured by the statistics but they are not. That is because the businesses are so small or because people responding to the surveys do not think of what they are doing as a job, so they do not tick that kind of box, or the categories we have for occupations just do not cover digital activities at all well, so who knows where people put themselves in the statistics? There is that kind of problem. There are benefits that just will not get captured in GDP-measured statistics. For example, if you do a home swap and you save money on a hotel, it might not affect measured GDP because you have money to spend on something else. That extra benefit that you get will not be captured anywhere in the statistics, but it does not mean it is not real and it is not large. That can be very large as well. Some of the changes tend to reduce what we measure as growth. If there is less investment in assets, in cars or in houses, if retailing is dematerialising because it is going online, it will tend to reduce measured investment, but in fact the economy is doing better because the assets that we have are being used more efficiently. There is the whole question about understanding how people are working, which I think is the most important part. To ensure that not jobs but individuals are protected—they can work how they want to, have the right protections and have good alternatives—measuring better what they do now, how they earn their income, is very important. You also touched on the tax question, and I am very unclear at the moment on what HMRC policy is about registering businesses that do not need to be registered: there have been newspaper reports that they say you do not need to register for VAT even if you want to, because you are below the threshold. I also do not know the policy about applying VAT through the online marketplaces, so there are some questions about what is happening with taxation as well.
Richard Fuller
May I ask a question on the GDP aspect? When it comes to the digital economy, there are two things that might be particular to it that might not affect other sectors. The first is if you look at a mobile device, it is still a phone but it does a heck of a lot more than it did in the past. To what extent does the measurement of our statistics for how our economy is growing or not, reflect the fact that things get better and do more? The second, to your point, is that with the sharing economy a specific asset like a car that I might have had in my driveway and might have been used 20% of the time will be used 40%, 60% or 80% of the time. Are both those things missed in current statistics? Are you thinking of ways in which we can start to capture them if they are?
Professor Coyle
They are missed in current statistics. We do not have any measures at all of the asset base that could be used in that way and how much more efficiently it could be used. Nobody has looked at it through that prism. It is not just that there are economic benefits; there are environmental benefits, and the environmental potential of that is very large indeed. On the quality point, the statisticians do try to make adjustments for quality when they calculate a price index. They will look at the characteristics of your phone now and your phone five years ago and try to adjust for the fact that it can do so much more. That is extremely complicated and difficult, and because some of these platforms offer what appear to be free goods, the statisticians just ignore that. There are real gains in living standards if you are engaged in these activities that are just not measured at all. Therefore, when you adjust the pounds in the economy for inflation, it is understating real growth as well.
Chris White
We are talking in quite philosophical terms. When do you think this will become mainstream and how much of a threat will it be to our economy? You have mentioned some very good examples of where it has worked and it is welcome and the efficiencies that it will create, but do you also see it as a threat?
Debbie Wosskow
In terms of mainstream, we describe it within the industry as the Airbnb afterglow, if you like. That is a definite factor of the last five years, where we should not underestimate the impact that Airbnb has made on ordinary people becoming comfortable with this activity. From my own experience at Love Home Swap, we have raised a significant amount of venture capital in the UK and latterly in the US. When I first went out to raise money five years ago, most venture capitalists told me that there was no way in the world that anyone would ever have a stranger in their home and why would you? Fast forward to last summer, when my mother stayed in an Airbnb. That is an anecdotal piece of evidence that it is becoming more mainstream. What we are seeing in terms of uptake, going back to the point on the scale of these platforms, is a lot more scale going through these businesses and people thinking a little more broadly about the things that they already own, the things that they can do and how they can put them together in a portfolio to make and save money in different ways. The definitive statistic is the PricewaterhouseCoopers research, which you may have seen. It is a year old now, but it sizes the sharing economy as being worth £9 billion already and forecasts that it will be worth £230 billion by 2025. That is the data that we all have to go off. Nesta also did a piece of research, which is also now about a year old, and it says that 25% of UK adults are already sharing online. If you combine those two things together, it seems to suggest it is getting bigger and that Brits are quite good at it. You have already played out here the debate on what this means and whether it cannibalises existing industry, so I will not review all of that. However, Goldman Sachs produced some research a couple of weeks ago specifically on how Airbnb is affecting the hotel industry. It is really interesting—Airbnb will have given you their different stats on this—that the UK hotel industry is up 26% in terms of room occupancy between 2011 and the end of 2015 in spite of, or perhaps because of, what has been happening with Airbnb, so there does not seem to be that cannibalisation. In my day job, our latest investors are Wyndham Worldwide, who are hoteliers; they own Ramada, Travelodge, Premier Inn and lots of different hotel brands. They have invested in my business. I suspect it will be the same as what we saw with the online travel industry, if you cast your mind back 15 years, where you had travel agencies and then you had upstart online travel businesses like lastminute.com and others. They were worlds apart and then they organised themselves around what consumers want. That is much of what we will see around the sharing economy. I am interested that we have not had the debate yet about the term “sharing economy” and whether it is meaningful, because that is an ongoing conversation. I do not think we will use it at all in a decade’s time. We will just think very differently about people’s access to the goods that they own and, in the different, so far big and well developed sectors of the sharing economy, how people want to travel and where they want to stay when they go on holiday.
Craig Tracey
I was interested in the point that was made earlier on about the ongoing review-by-rating system. Are there any examples of companies that have failed as a result of starting to get negative rankings? Is it the case that once a company becomes big enough the good reviews will negate the bad reviews? Are there any examples of where it has affected a business model, and is there not an argument to say that people trust the brand name—they all know Uber or they know Airbnb—and there might be other companies that are providing better services?
Debbie Wosskow
There are a few ways into that one. One of the things that I try to do with Sharing Economy UK, and the reason for its existence, is to help entrepreneurs with sharing economy businesses to get going within the UK. We see a lot of clusters of start-ups within the sharing economy within transport and accommodation, because those have been the sectors that have moved the quickest and they are the highest-value items: you live in your house; you look on your driveway; the car is there. Many of them are businesses that you will never have heard of. It goes back to the point that competition is of course incredibly important, so is localisation, so is people offering services in different ways, particularly around transport. We have a big ride-sharing business in Norwich that provides great service around Norfolk and Suffolk. I suspect they would definitely rival any non-hyperlocal business, but how do you trust them and how do they get going? You are probably not trusting the brand, but you are trusting the offering, the localisation, the reviews and word of mouth; that is a huge driver for all of these sharing economy platforms. I would not necessarily think about bad reviews in terms of success and failure: does it make a business go bust or does it ensure success? But we do take it incredibly seriously in terms of an ongoing service review. All of these business models, including my own, are iterative. My business did not exist just over four years ago; we now have over 100,000 homes in 190 countries around the world and people swapping every single day. It feels like the reviews are much more a touch point on individual experiences. If you are dealing with individual cars or individual properties, it is the role of the platform to take them seriously and act on them, and they do provide an incredibly important currency for the smaller businesses that are not the brand names. We will see more and more of those as we see the sharing economy move into healthcare and B2B and logistics and all of the new aspects of doing business that will be impacted by these models. When we look at how we have developed the TrustMark criteria, the peer reviews are the bedrock of it. Yes, the checks and balances underneath, the insurance, the identity verification, extending GOV.UK Verify—things we have not really talked about today—are all important, but the peer reviews are the thing that shine the light that you can act on quickly.
Chair
Debbie, I am conscious of time, but this is focused on you. We have touched upon this before and it is in relation to progress with regard to your report’s recommendations. I am interested in three areas, if you could give us a brief summary. We have talked about this already and I think Diane mentioned it: the treatment of tax. In terms of the negotiations with the Treasury, how much progress has been made?
Debbie Wosskow
There are conversations under way.
Chair
You sound like a politician.
Debbie Wosskow
I feel like one. I cannot tell you what may or may not happen, but I can tell you that the Treasury have been definitely engaged. There have now been three sessions with different players in the industry talking about their different businesses. This issue of tax is obviously very broad and it is not just about the tax allowance, which I would love to see happen; it is also about encouraging people to understand where you declare sharing economy income on your tax return; it is about the digitised tax return. It is a broad topic. I would say the Treasury are doing a pretty good job of being engaged in that topic. I do not have any complaints with them.
Chair
Can you reassure us that the Treasury understands that this is not about trying to drill down and get more tax revenue, but that this could increase the share of the pie in general? The economy could grow as a result of this. Do they get that or do they think, “We need our pound of flesh”?
Debbie Wosskow
Conversations definitely focus on both aspects of the situation that you describe, as I would expect. I would expect them to be thinking about where the new revenue is, but also, with some of the sectors that we have talked about and the people you have had in here before, it is often about bringing income into the tax regime that is not always in it, particularly around some of the platforms like cleaning. The debate is quite broad-ranging, but so far so good. They have definitely engaged with the breadth of industries. They have had lots of different entrepreneurs in there doing lots of different things, but of course anything further that can be done would be greatly appreciated.
Chair
The second aspect is the Kitemark, in terms of making sure there is trust. Are you happy with progress there?
Debbie Wosskow
That is on us, I think, and I am. Oxford has been a great partner. It sits within the Saïd Business School, and the internationally renowned sharing economy expert is a woman called Rachel Botsman, who authored the book that defined the term “sharing economy”. She taught the first academic course on the sharing economy in Oxford last year. She has worked with us on that, so I feel that is good. PricewaterhouseCoopers are an excellent assessment partner. If I am to make a public plea for anything, all of this is self-funded by industry, and of course that is difficult for an industry that is small and embryonic. How can Government help to support us on that? How could it sit within existing standards that have Government support? How can we really stop it from just being something that is industry-driven and therefore adjacent to the way that some of these standards are measured across the piece?
Chair
The final point is access to finance. You have touched upon your own experience, but your report is very strong on ensuring that there is access to finance for specific sharing economy activities. Again, do you think the whole finance ecosystem is lending itself to that? You mentioned the Airbnb glow.
Debbie Wosskow
It is a challenge. That was one of my recommendations that Government did not like very much—that there should be some sort of supported fund or incubator focused on the sharing economy. The reason for that was because we now do have a lot of expertise within the UK. The challenge about the digital scene, as you will have heard endlessly, is always accessing finance. It has improved. We should not underestimate the impact of EIS and SEIS and crowdfunding platforms for the fledgling entrepreneur. However, it is not a coincidence that to grow my own business to the next stage, series B and beyond, I have raised money outside the UK. It is still very difficult to do over here. It is still the case within the ecosystem that for people who are in the know it is easier to raise money than for people who are not, and that is not right. Just knowing the right people does not predetermine that you are going to be a successful entrepreneur. Particularly with sharing economy businesses, many of them will succeed in their own way because they have a regional focus, so finding a way to match those entrepreneurs with funding would be great.
Chair
We are very grateful for your contribution; it has helped us enormously. Thank you very much again for your time. We really appreciate it. Oral evidence: The Digital Economy, HC 571