How much longer can we rely on the taxation of labour? - Wyman Symposium 2017
Ian Young reports on this year’s Wyman Symposium, with the topic of How much longer can we rely on the taxation of labour? Speakers included Calum Chace, Helen Miller, Colin Ben-Nathan and Iain McCluskey and the event was chaired by Carl Bayley, chairman of the Tax Faculty
The 2017 Wyman Symposium took place on 14 September, rather later in the year than normal so that it could be held in the newly-refurbished Great Hall in Chartered Accountants’ Hall. This year’s topic was: How much longer can we rely on the taxation of labour?
The symposium considered the way society is likely to be organised in the future, what the role of work will be and how it will be taxed, looking both at the current tax position and what could be done now to improve it, and further ahead to the future and the impact of artificial intelligence (AI). We are already seeing fundamental changes in the way people work: how is that likely to impact on the fundamental role that labour taxes currently play in underpinning the public finances?
The audience of around 100 people provided a broad spread of tax professionals and other interested parties, including members of ICAEW, other professional bodies, HMRC and the tax charities. We were also honoured this year by the presence of Peter Wyman, a founding father of the Tax Faculty, after whom the series of symposiums/debates is named. This was the 17th event in the series: the first was in 1996 and after a few gaps the event has been held every year since 2003.
The event was chaired by Carl Bayley, chairman of the Tax Faculty.
The four speakers each gave their own take on what the world of work and tax will look like over the coming years. In the order of their presentations they were:
Calum entitled his talk The economic singularity: artificial intelligence and the death of capitalism. His main theme was the impact that AI is having, and is likely to have, on our world and the world of work.
He noted that AI had got the attention of the Chinese when Google’s AlphaGo computer program beat the Go master Lee Se-Dol in March 2016. This is 20 years after the IBM Deep Blue supercomputer narrowly beat World Chess Champion Garry Kasporov.
AI is now operating much more like a human and is capable of learning from its previous inputs or mistakes, and it has the processing capacity to deal with dramatically more data that was previously possible.
Calum looked back to the transformation of the agricultural sector which was, in 1800, the domain of humans and horses. Mechanisation replaced both with machines, but humans have been able to use their brainpower to find other work whereas horses became redundant. As Calum put it, they ended up as dog food, although horse riders and horse racing fans in the audience may believe that horses have moved on to the leisure industry!
In more recent times the most common jobs in the US have changed from farmer/secretary in 1978 to truck drivers in 2014. There are currently five million truck drivers in the US and one million in the UK. The truck driver accounts for a considerable proportion, up to a third, of the cost of running fleets of vehicles. We are now on the cusp of introducing driverless vehicles which will do away with the need for quite a lot of those truck drivers.
In the agricultural revolution there were new jobs for those who lost theirs, but this time round there is not likely to be a ‘magic jobs drawer’. Calum predicted that in a generation, half the population will be unemployable. This will cause enormous societal problems not least because we have defined human status and wellbeing by reference to work.
If people have no jobs and no income, could a universal basic income, a state subsidy to all citizens, be the answer? Calum thought not: it is either too little to be any good or too much to be affordable. He outlined four scenarios that could result from the impact of AI and loss of jobs, of which the fourth, the ‘Star Trek economy’, was a world of radical abundance where AI produces most of the goods and services humans need at very little cost and with very little work on the part of humans.
But Calum did confess he had no idea whether this was going to be possible, or how to get there. He emphasised that the rise of AI is an issue to be tackled now, to avoid panic when people realise how jobs will disappear. There need to be thinktanks working on these issues to chart a possible way forward.
If you want to find out more about Calum’s views then you can read his book The Economic Singularity.
Helen returned us to the present where employment in the UK is at an all-time high and labour taxes make up almost half (44%) of total taxes.
The form and method of work has changed and over the past 10 years 40% of the growth in the workforce has come from the self-employed and owner-managers.
Matthew Taylor’s recent report for the government, Good Work, analysed working practices and he concluded that the current system, and its taxation, is neither justified nor sustainable.
Helen suggested relevant considerations when trying to fix the tax system are: tax shouldn’t distort production decisions; the cost of investment should be tax deductible; and capital and income should be taxed at the same rate.
She thought that in the main we should leave it to the market to allow decisions to be made but there can be market failures, which is why we have R&D tax credits to encourage entrepreneurship. Helen did think that the current R&D regime is poorly targeted and suggested that it was like a gardener whose pot plants are suffering but he or she then applies fertiliser to the whole garden rather than just the ailing pot plants.
On the subject of AI, Helen noted that technology has been replacing human effort throughout history; it has made life easier and is not to be discouraged. If we fix the problems in the current system we will be in a better position to tackle the challenges of AI. At the end, Helen reminded us that tax is not the only policy lever.
Her suggestion that capital and income should be taxed at the same rate was picked up in the Q&A session by Edward Troup, executive chairman of HMRC, who was in the audience. Edward observed that capital is highly mobile and will move to jurisdictions where there are favourable tax regimes for capital, so a low tax rate is necessary to attract inward investment to one’s country.
Colin looked in more detail at the current tax system and recent attempts to change the taxation of different parts of the labour system, focusing particularly on national insurance contributions (NICs).
The chancellor proposed changes to the NIC paid by the self-employed in his March 2017 Budget, to reduce the gap in rates paid by the employed and self-employed and reflect that both have the same right to the new state pension. He then withdrew the proposal because it was contrary to the Conservative manifesto pledges; it was deemed to be premature as the Matthew Taylor review had not yet been published and there had been inadequate prior consultation.
There have also been suggestions from the Office of Tax Simplification about some alignment of NIC and income tax but that has not been supported by HM Treasury.
Colin looked in more detail at the 2017 Budget events and the HM Treasury calculations at the time, which showed that an employee on £32,000 would pay nearly £4,000 more than a self-employed person if employers’ NIC is included in the calculation. The overall cost of lower NIC for the self-employed is estimated to be £5.1bn in 2016/17.
Colin looked at various options and the one which was picked up in a subsequent Q&A session was his third, for a greater alignment of NIC rates between the employed and self-employed and the replacement of the employers’ NIC with a contribution geared to operating costs. In other words, ‘decoupling’ the employers’ contribution from the status of the worker. The Q&A highlighted difficulties with the latter suggestion, such as what to do with outsourced work and costs, and Colin did not belittle the difficulty of making significant changes to a major part of our existing tax system.
Iain suggested we might be entering a golden age of work which he called ‘the platform artisan economy’, but there will be challenges as to how you deal with AI.
Craft brewing was Iain’s example of an artisanal part of the current economy – a move from global companies to “smaller, exciting, human-driven businesses”. But it was likely to remain a small, niche part of the overall economy.
The large internet providers allow new types of business to operate and Iain cited people he knew who had been able to write and publish their own books, freelance, without involving a book publisher. Iain referred to the report his firm published recently, Workforce of the future: the competing forces shaping 2030 (which is available to download from tinyurl.com/TX-PwC-WOTF), which provides background to his comments.
Iain thought there needs to be support with a lower tax and NIC regime for the genuinely self-employed, the self-starter and the entrepreneur with protection for dependent contractors. The PwC research suggests that with such protection 41% of people would be more likely to take up flexible work.
Platforms, and technology, allow many more people to work from home and some find it feasible to work in one country for a business located in another. The international tax system may have to adapt to capture these new forms of working with a ‘pay as you go’ system for cross border working.
In the longer term Iain thought that when the tax take on labour is finally eroded, we might end up in a world of transaction and consumption taxes with taxation at source in real time.
Questions from the floor
The presentations were followed by a lively Q&A session which demonstrated how the presenters had captured the interest and imagination of the audience, so much so that the session was extended to fit in everyone who had comments.
In answer to one question Helen Miller reiterated the three key objectives of any tax system: provide funds for public goods such as education, hospitals and transport infrastructure; provide insurance against shocks; and redistribute resources from rich to poor.
One question was how do we sustain public pension arrangements when there are going to be fewer and fewer people of working age providing for more and more people of pension age. A related question from a younger member of the audience was whether there would be any public pensions at all by the time he came to retire. The answer to the second question was a bit more straightforward in that the age of entitlement to public pensions is advancing more slowly than the increase in life expectancy. But an ageing population is going to be one of the great future challenges to the public finances and while the demographic situation in the UK is not as bad as in other countries (Japan was mentioned), it will still be a major problem.
A theme that emerged was that there is always a political perspective to tax problems, and potential solutions, and quite rightly so. The best theoretical solution will never be adopted unless it is politically acceptable and practically achievable.
A final question, serious but put in a light-hearted way, was whether we would like to end our days being looked after by a robot. In the light of recent scandals about the quality of care in nursing homes several of the panellists thought there was considerable merit in being looked after by a robot that might be more sympathetic to their needs than a harassed and low-paid carer. One said a robot would be fine if it could play chess.
We began and ended with games, from Go to chess, but it had been a very stimulating symposium in between and was enjoyed by all who attended.
|This article was published under the title: 'Society, work and the tax system' in the printed version of TAXline October 2017|
About the author
Ian Young is technical manager with responsibility for international and tax policy matters at the Tax Faculty