I have lost count of the number of discussions about where the government should be spending money: the NHS, education, infrastructure, defence. And in party conference season, it’s even more prominent.
But rarely do people think about where all this money comes from. We know it is tax receipts – but it is which tax, what leads to that tax, and how much longer we can rely on it which concern me.
What debt are we leaving our children’s generation, and what resources will their future tax system have to cope with it?
The first problem stems from changing work patterns. The sharing economy and its labour subset, the gig economy, is a topic which people are now starting to engage with. TfL’s decision last month to ban Uber in London has brought the issue into the headlines once again.
These conversations are vital. The changes this will spark on the tax system will be politically toxic without further understanding.
Nearly 18 per cent of our income is through National Insurance (NI). Of this, a significant sum comes from employers’ NI contributions (NIC). This will obviously be under threat if the trend away from traditional employment patterns continues.
If platforms such as Uber can connect us to what we want through the internet, and if the people who drive the cars are not employees for tax purposes, then employers’ NIC receipts will fall as our demands for these services rise.
Increasing numbers of people want to work more flexibly and are using the internet to find work. Many of these will adopt self-employed contracts.
As businesses put work out to tender, it is easier to access a wider market online. In the past, a short term employment contract might have been the result. Now it could be cheaper to have the work performed by self-employed contractors.
Taking this a step further, the actual work could be done abroad, with no UK tax due at all.
Where this leads is reduced NI receipts, as employers’ NIC is no longer relevant to the labour used.
Matthew Taylor’s report in July went some way to addressing this first concern, suggesting that those with employment law “worker” status should be given more employment rights and be renamed “dependent contractors”.
It’s a small step intellectually to expect that these rights should have to be paid for – through higher National Insurance.
Perhaps we will see employers’ NIC or a similar levy imposed on payments to this group? This would protect the tax base in the event of a shift towards more businesses using self-employed contractors. Politically, it would be challenging to achieve, but something needs to happen because we can’t afford for it not to.
The second big issue is working from home. Business rates are expected to contribute £30bn to the UK’s treasure chest this year. If workers base themselves at home, office workspaces can be smaller. This means the business rates will be less than those associated with larger premises.
If the trend towards businesses encourage remote working via the internet continues, businesses will be able to move to where costs are lower. Some may work without business premises at all. Indeed, this is already the case for many tech startups.
A high street address may be needed for some businesses, but a diminishing number. I am sure many consumers already use traditional shops to window shop, but then buy more cheaply from the internet.
Who will lose out from this tax reduction? As councils collect and retain much of these business rates to fund their local expenditure, the risk rests with local government. This lost revenue will need to be recovered in another way, if local services are not to be cut.
And I have one final concern: the ageing population.
As the proportion reaching retirement age grows, the number of working age people is shrinking as birth rates decline.
UK state pension payments are funded through the taxes and NIC paid by those of working age. And there will be fewer of those.
If this reduced pool of workers will have moved towards self-employment by then, they will be paying less NIC, as will those who use their services. Who will pay the pensions of the elderly?
Politicians have some difficult decisions to make – and whatever they decide, it wil be a challenge to sell them to a public that doesn’t understand what is happening. This isn’t about political parties, but a necessary look at the legacy of debt we are leaving the next generation.
The gap between self-employed versus employed tax difference, as highlighted by the Uber driver dispute, has to be addressed. But we must also take a longer term look at our shrinking tax base, before it is too late.