Thus spoke the contractor
Unless I've missed something there's a very big flaw in this idea and it seems that it comes from not thinking outside of the contractor box. For the purposes of planning and workforce management there are advantages to knowing how much leave your staff will be taking in a given year and the ability to dictate at least to some extent when they can take it.
Imagine you run a call centre and you can in theory at least forecast the number of calls you expect to take and by some mathematical jiggery pokery determine the number of bums on seats you need to answer an arbitrary percentage of those calls. If you know the figures you know how many staff you need to employ and if you know how much leave they're entitled to you can work that into your equations.
Since you're paying for the leave you can set limits on the number of people that take leave at any one time so that you can still meet your target for the percentage of calls you want to answer by ensuring that you will always have enough people to take those calls.
In Worstall's-World everyone's a self-employed contractor and so can chose when they want to work as long as they accept that they're not going to get paid for it. When the school summer holidays arrive as they do every year your contact centre is going to be empty because 90% of the women that work there (which is usually well over 50% of the workforce) take the six weeks off to look after their children or their grandchildren. For the parents especially, not being paid isn't a massive problem because the cost of childcare is on a par with what they earn every day. Most people will decide that the small effective decrease in available income is worth taking given that you get six weeks off work. Work seven hours a day for an extra £20 a day, £8+ of which is spent on travel or parking or whatever or have those seven hours plus travel time to yourself? For most people in a household with another income it's an easy enough choice to make.
So if we want to run our contact centre efficiently we're going to have stipulate the days we want our contractors to work when we agree the contracts and given that we'll be using the same criteria for deciding that we'd be using if we were allowing paid annual leave, the employee is in pretty much the same situation as they were before but they now have to set aside the money they need to take holiday out of their normal income. That's easier said than done when you're on a contact centre wage. Not a problem when you earn two or three times as much as a contact centre worker but not easy when that extra 10% you'll be getting paid isn't that much. Add to that, that the contractor will have plan their leave in advance when the contracts are agreed and the so called freedom of the contractor is gone. The employee loses flexibility and so does the employer; if the forecasts were wrong and it's actually quieter you can relax the leave limits and people will take the leave reducing the chance you'll be paying them for being at home when you needed them at work.
The other option is that contractors come to work when they feel like it which is no good for a business that needs to plan its staffing levels. If as a business you pay people for leave then you're generally buying yourself some workforce stability; most people take some leave before they've accrued it and so if they leave employment they have to pay it back. If Joe Bloggs owes two weeks' leave then Joe Bloggs is less likely to leave on a whim because Joe Bloggs will only get half a month of wages when he does.
If we also consider the school summer holidays again (and the easter holidays and all the others) then what about teachers? They don't have a choice about when they take their holiday so how does being a contractor benefit them in that respect?
Being a contractor is great if you get paid a contractor's wage but for the average person on an average wage it's not as great as a contractor thinks it is. For most people it would mean either less freedom and flexibility or intolerable uncertainty.