"A ‘shadow economy’ of firms like hand car washes and nail salons is exploiting workers – and regulations are making things worse", 9 August 2023

Almost a million UK workers do not receive holiday pay and the UK continues to lag behind most European countries in tackling the exploitation of these workers.

Our research indicates this is because the UK’s regulatory framework for businesses is too permissive. Its complexity also gives certain types of business cover to flout the rules. And regulators just don’t have the resources to monitor these businesses properly and force them to abide by the rules.

The regulatory framework for UK businesses needs to be redesigned to suit the current economic environment of restricted resources for investigating and punishing businesses for unlawful activities.

The permissiveness of the current rulebook is clear among business types such as hand car washes, nail bars, food delivery, construction and those operating within the gig economy. Businesses in these sectors often exist in a “shadow economy” , providing legal goods or services but operating out of sight of regulators.

Research demonstrates that, across the UK economy, 2 million people, or roughly 9% of the employed private sector working population, work in the shadow economy. Their employers often openly display non-compliance with the minimum wage, health and safety regulations, paid holiday requirements and broader employment standards for worker welfare...

For hand car washes, for example, regulatory complexity enables non-compliance because regulators are too stretched to police them properly. Businesses in this sector are more likely to copy each other. This creates an alternative regulatory environment where unlawful activity occurs in plain sight – on the side of the road or on our high streets...

A single enforcement body could help resolve some of the problems around non-compliance on workers rights in the shadow economy. But its power relations and status with other important organisations such as HMRC needs to be clarified from the outset. Guidelines for joint operations would be needed early on to ensure efficient collective action...