Sir Anthony Seldon: “We are sleepwalking into the biggest potential disaster of modern times”.
The case for political change
If the failure of existing political policies are not severe enough then the most compelling reason for change is that neither the existing taxes, nor the benefits structure, can survive the digital revolution. When you add in the effects of the ageing population, the current system will fail causing untold misery to millions. Change is needed, but there are huge problems with bringing that change, to ensure double taxation does not arise, which is why the taxes and benefits need to be replaced gradually. That cannot be achieved all the time we persist with the first past the post voting system and the huge swings in policy this introduces.
It is easy to be complacent about the digital revolution, and site the historic examples of ‘revolutions’ that have served to create further employment. They involved retraining the workforce to new tasks. That is why we currently have the highest level of employment ever in the UK. The Industrial Revolution and the power of steam provided more jobs than were lost by hand workers; the car revolution of the 1890s created more jobs than were lost by the horse and carriage economy; and the silicon revolution of the 1960s and 1970s created more jobs than were lost in simple clerical and administrative work.
The digital revolution, of which we are at just the beginning, will have a different result. It will challenge the working lives of millions, and it will replace not just simple, unskilled tasks but will threaten many that we currently consider high skilled and professional. Millions of jobs will be lost, not just tens of thousands. The challenge will be to retrain these people into jobs where people will predominate technology. These are areas such as care, culture and the arts and these can then have a very positive influence on the standard of living for everyone. These are under-valued and underpaid (often voluntary) because they do not always directly contribute to GDP and earnings. We need a different structure.
- a study from Oxford University, The Future of Employment, has suggested that 35% of existing UK jobs are at risk of automation in the next 20 years
- in 2015 the Bank of England applied The Future of Employment 2013 study and applied it to the UK and identified 15 million jobs are at risk of automation
- a 2014 report by the consultancy McKinsey looked at 12 technologies that could have an economic impact of between $14 and $33 trillion each year deciding “millions of people will require new skills”
- The World Economic Forum in 2016 identified 5.1 million jobs lost between 2015 and 2020 over 15 economies (7.1 million lost with only 2 million gained)
Far more jobs will be lost than will be gained. We are being lulled into a false sense of security from reports of the ‘highest number of people in jobs ever’ from the Government. They are failing to look to the future impacts of a host of technology changes including:
- driverless vehicles
- further advances in robotics
- artificial intelligence
- the Internet of ‘things’ which will advance hugely when 5G networks are released starting in 2020
- advances in 3D printing
These are merely the start. There will be deep changes in many sectors, too many to identify here. They will be international, The Future of Employment study on the USA was even more stark warning of the loss of 47% of existing jobs.
The point about technology, is the speed with which it is coming to market is gaining pace. Simply look at the development in worldwide data creation which is expected to reach 40 zettabytes by 2020 (that is 40,000,000,000,000,000,000,000 bytes of data). The Ericssons Mobility Report forecasts world fixed data traffic will increase from 60 EB a month in 2015 to 150 EB a month by 2021 while mobile data traffic will increase over the same period from 5.3GB a month to 150GB.
Artificial intelligence is just one of the technological advances that will fundamentally change working patterns. Examples abound such as the Internet of ‘things’ which will be transformed when 5G networks become a reality in just 2020.
Worldwide the growth of connected devices is forecast to growth at 11.5% a year, far more than the 1.1% worldwide population growth and much faster than Internet user growth at 6.9%. Cisco VNI believe machine to machine connections (this is the Internet of Things) will grow by 26% a year up to 2019 taking connections to 10.5 billion. Technology growth will continue exponentially, and it will not create enough jobs to replace the displaced workers.
Driverless vehicles are becoming increasingly viable; robotics continue to advance; 3D printing will become cheaper; algorithms are already allowing computers to sift huge quantities of information (so-called big data) with implications for banking, finance, sales and telemarketing. Computers can read case law faster than lawyers; software reduces the demand for expert accountants. Algorithms can speed up the diagnosis of medical conditions. Examples are manyfold.
Early advances in technology focused on removing mundane and repetitive tasks. This is changing and advances in artificial intelligence will replace and challenge jobs we currently see as intellectual and high paid. Professionals will join the ranks of the unemployed.
The implications for tax
The digital revolution will make many existing taxes ineffective. It will bring into question taxes (for various reasons) that currently make up 80% of taxation income for the government. Not all of that would be lost, but huge implications exist, which will stop the capacity of the government to fund public services:
- Income Tax (currently 27.1% of taxation income). Even if we progressively retrain the displaced workers for new roles, inequality will spiral. The wealth and income will be in the hands of the technology owners, and there is no guarantee they are UK citizens. There will be huge gaps in revenue as retraining takes place. Many of those new roles will not be income producing for the country, but will place further demands on public services as they cover care roles
- National Insurance (currently 18.2% of taxation income). Already National Insurance is failing to provide enough income for retired people. This is in a period where the working life is being extended to reflect the ageing population. This will no longer be practical as jobs become scarcer. The working life of an individual has to condense to provide opportunity for all but it also means the system has to allocate far higher resources to that individual to provide for their retirement. If it fails to do this, then the effect will merely be to place further demands on public spending to support the individuals
- VAT (currently 18.5% of taxation income). VAT will be less affected, but equally with higher levels of unemployment there will be fewer people contributing to other forms of tax. It is important that everyone pays some tax to maintain their interest in political issues. VAT will become one of the primary forms of taxation income in a society with higher unemployment and less direct Income Tax
- Fuel Duties (currently 4% of taxation income). Fuel duties will fall as technology continues to move vehicles away from petroleum and as fuel efficiency continues to advance
- Capital Gains Tax (currently 1% of taxation income). A currently poor tax that provides taxation discount for those who can sell major assets has no place in a society where fewer and fewer individuals will own higher and higher parts of the wealth
- Business Rates (currently 4.5% of taxation income). Business Rates will increasingly be challenged as more and more businesses are replaced. There are no robust forecasts of how many companies will end under the digital revolution (we simply have never experienced this type of revolution before) but some American estimates are suggesting 40% of businesses will cease in only the next ten years. There will be a concentration of businesses and they will require less floorspace
- Corporation Tax (6.7% of taxation income). A tax already ineffective in the face of multinational corporate abuse which will become increasingly obsolete in a global digital economy
This is a vast amount of the current taxation income that will come into question. Change is needed. There needs to be a total revaluation of how to tax people. The obvious choice is to bring in taxes that are simple, unavoidable and low cost to collect, yet robust. Forward Thinking identifies the Land Value Tax as being the vital taxation on which to build a system. Eventually, it can replace many current taxes.
The difficulty is that in taxing wealth rather than income, there is the potential to double tax people. To avoid this the only practical way of implementation is to change the tax system gradually over many years. There are other changes proposed, such as replacing Corporation Tax with a much lower Turnover Tax to move away from multinational companies avoiding their fair share. Forward Thinking believes that extending VAT to all products is an essential part of ensuring everyone is paying some tax. People have to take ownership of their responsibility for public sector services and its finance.
The difficulty with a long-term taxation policy is that it needs continuity of policies the first past the post system fails to deliver. As a result a form of proportional representation is a prerequisite of change.
The implications for benefits
The politicians and press hugely inflate attention on the role of unemployment spending currently in the UK. By European comparison not only is unemployment in the UK currently very low, but our spending on it is even smaller. It is just 1.5% of the total spending on social protection. Of course this is not the full story, because the politicians are so intent on demonising this part of the population, the benefits are so low it is impossible to live off these without other public sector benefits (housing etc). It has become acceptable to both politicians and the press to denigrate this section of the population and to portray it in a negative way. It will be interesting to see if this financial and social bullying continues when high-level jobs get replaced with artificial intelligence and lawyers, solicitors, accountants and other professionals join the ranks of the long-term unemployed.
Of course the way to prevent a massive increase in unemployment, and to improve the lives of not only the displaced workers but society in general, is to retrain and employ these people in jobs where humans are required rather than computers. This will take a huge change in attitudes with much of the care sector needing greater levels of staffing. What a beautiful opportunity to improve the lives of many, and how strong the growth in demand will be with the continued trend in the ageing population.
The difficulty is that to retrain and reward these people for providing the care , rather than joining the ranks of unemployed, will need greater public funding, and the current tax system is simply going to fail in this objective.
There will be a further huge implication in benefits. The working life of any individual will be challenged by the scarcity of jobs. While on the positive side this affords individuals greater leisure time, it will also result in earlier retirement. Already pension income is not enough to cover the reasonable costs of a pensioner, and the pressures on change in this sector are significant. The insistence on holding sections of the population such as the unemployed, disabled and pensioned on such low-income is also counter productive. It leads to huge other costs in the form of housing, health care the state has to fund.
Yet by making National Insurance a universal rate (that is, not even progressive), Forward Thinking calculates the rate can be reduced from a current 12.5% to 5%. This already leads to a huge opportunity for the money to be re-directed into the individual’s own Workplace Pension, which will reduce the costs on the state of funding pensioners.
Forward Thinking has the eventual objective for simplifying benefits through a Basic Household Income for all. This introduces costs that need major changes to benefits and tax. A Basic Household Income, will take the form of a prebate on the indirect tax for essential items for all those households earning less than £100,000. This will be a major shift to ending poverty, protecting the vulnerable while allowing individuals to be rewarded for their work.
The implications for the standard of living
There is a fundamental choice facing the UK.
We can let the digital revolution result in even greater income and wealth inequality with our current system. Taxation income will decline and so will the capacity to fund public services. Yet there is an inevitability the demands on that spending will increase. It will result in wide spread poverty and will break the demand for services such as health and pensions.
Or we can prepare a future ready UK, and start a programme of major change in tax and benefits that will provide for a higher standard of living for all. We can share the benefits of automation and artificial intelligence, increase people’s leisure time, reduce people’s working lives and provide true services for all that protect our ageing population. It needs Forward Thinking.