But there’s also a problem: namely, where is the value you’re taxing actually created? If Apple builds an iPhone in Taiwan, using raw materials from Australia and advanced components from Brazil, to a design thought up in California (but partially in Oregon), then markets it in the UK, via a company based in Ireland, where is the value created?
(This is without even getting into the licensing and buying-back of intellectual property rights, or any number of other accounting dodges.)
That very pertinent question is from an article in Cap X that I read last week. More of it later: first, last week’s Budget.
Philip Hammond bounced confidently to his feet and delivered his first (and last – it’s moving to the autumn) Spring Budget speech. There was good news on the economy: growth forecasts were up, borrowing was down and the Government’s “plan was working.” He delivered some far better jokes than George Osborne and sat down to a loud chorus of approval from the Conservative backbenches. He may even have glanced sideways at Theresa May and concluded that in the event of the mythical fall-under-the-bus, Mrs Hammond would be odds-on to be measuring up for new curtains in 10 Downing Street.
He could look forward to a nightcap, a good night’s sleep and plenty of plaudits in the following day’s papers…
Sadly not. Thursday morning’s newspapers were united in their condemnation.
‘Hammond breaks election pledges,’ said the Telegraph. ‘Hammond raids the self-employed to fund care,’ declared the i newspaper. The tabloids were significantly more direct: ‘Spite van man’ screamed the Sun. ‘Rob the Builder’ was the headline splashed across the Star.
Hammond’s crime? He had allocated money to fund social care – £2bn over the next three years – and one of the ways he planned to fund it was by raising the Class 4 National Insurance contributions paid by the 15% of the UK workforce who are self-employed.
By Friday morning more than 100 Conservative MPs were supposedly voicing their discontent, with Anne-Marie Trevelyan, the MP for Berwick-upon-Tweed, saying “it goes against every principle of Conservative understanding of business.” The Chancellor was roundly criticised for riding roughshod over David Cameron’s ‘5 year tax lock’ and the Conservative manifesto.
There’s no doubt that, politically, Hammond made a mistake. Wittingly or unwittingly he’s given the impression that the Government doesn’t like or trust the self-employed and those running small businesses. As the Spectator said, it seems ‘that he suspects them of being tax-dodgers, of using the NHS without paying for it.’
He may even have given an unintended boost to the black economy. If the legendary ‘white van man’ suspects he’s being taxed unfairly he might decide to do even more work for cash – and the Chancellor might end up with lower tax receipts, and very expensive egg on his face.
But let me say a word in defence of the Chancellor – and here we return to the quote from the Cap X article. In his speech Philip Hammond talked about “the challenges in globalisation, shifts in demographics and the emergence of new technologies.”
He’s right – the economic landscape is changing rapidly. More and more people are becoming self-employed or trading through limited companies: people are changing jobs far more frequently, and all too often they need to have two jobs, often combining employment and self-employment. As Cap X put it, a 20th Century tax system is failing to cope with a 21st Century labour market.
And it’s not just the labour market: look at retailing, where online, out-of-town, low tax distribution centres are wiping out the bricks-and-mortar, high street, highly taxed shops.
Right now the tax system is divorced from the way business operates. There will have to be changes over the coming years and it is simply another illustration of the point I’ve made continuously in this blog: business is changing, and the pace of change is accelerating.
In a future post I’m going to look at the growing trend towards ‘agile’ leadership and management. What the Budget – and its fall out – illustrates is that in the future we will all need to be increasingly agile as we face ever-faster change.
But for next week we might just be due something a little lighter: why Ikea bookcases are a vital economic indicator…
…And there, gentle reader, are the perils of including current events in your blog. I wrote this post on Tuesday evening and, as you’ll all know by now, The Chancellor performed a humiliating U-turn on Wednesday and the NIC increases have now been scrapped. (You can forget measuring up for curtains, Mrs H…) I was initially tempted to re-write this post but, on reflection, I think the U-turn illustrates my point even more forcibly: today’s tax system simply has to change to cope with today’s economy. Maybe Wednesday’s climb-down will bring those changes closer – but let’s hope that whichever Chancellor finally has the courage to undertake a wide-ranging review pays more attention to detail than the Rt. Hon member for Runnymede and Weybridge did last week…