The Rise of the Robots, and the Role of Taxation
by Robert Leggett
When not dealing with his party’s internal strife, Labour’s Tom Watson has
spent a lot of this year talking about the rise of the robots, and the profound effect that this will
have on the UK of the future. He talks of the benefits of future technology,
such as the added safety and efficiency that driverless vehicles will bring, not
to mention the potential economic benefits. But he also predicts a world where
as many as 11m UK jobs will be lost in the next decade, as firms seek the cost
savings which automation might bring them.
New technologies fascinate me and excite me, but there is no doubt that the
impact of such rapid change on society must be carefully managed. As a tax
adviser, I wonder how the tax system will cope with such changes, and even
whether it is one of the main drivers behind this change.
The truth is that for many decades, successive governments have been obsessed
by taxes on work, whether employed or self-employed; with NIC included, we pay
far higher taxes on income from work, than we do on investment income. This is
strange, as normally you would expect taxes to be raised on things that we want
to discourage, such as cigarettes and alcohol; surely we want to encourage
employment? Indeed, according to HMRC statistics, PAYE Income Tax and NIC account for 48.6% of
taxes collected in 2015/16; the figure will be higher still when self-employed
Income Tax is included, but this figure is not published. A significant
reduction in employment would not just see social consequences, and increased
Government spending on benefits, but is also likely to have a drastic impact on
the amount of tax receipts.
Corporation Tax might seem like an obvious replacement, if the use of
machines will increase corporate profits. But economies currently seem to be
competing to reduce Corporation Tax rates to attract business, and bucking this
trend might simply see less investment in the country and be counter
productive. Furthermore, profits-based taxes are more susceptible to economic
Future Governments will therefore need to think outside the box if they are
to deal with this, and it is possible that wealth based taxes will have to take
up some of the strain from income based taxes. This must be approached with
But I think we should also ask ourselves whether this obsession with taxes on
work is driving automation much faster than would otherwise be the case; perhaps
driving automation where there is no underlying social benefit. Whilst I may be
able to see the underlying benefits of self-driving vehicles, do I want to be
served my coffee by a robot barista, or would I prefer the social interaction of
a real person? Businesses though, understandably, will seek to automate where
there is an economic benefit to them in doing so; in other words, if technology
is cheaper than their employees.
Are employment based taxes and costs preventing workers from
competing with their robotic counterparts?
Let us consider that a particular worker expects £20,000 per annum in their
pocket. In order to receive this, the employer needs to pay the worker a gross
salary of £24,754 in 2016/17 because of Income Tax and NIC. Added to this, the
employer must pay Employer’s NIC of £2,297, apprenticeship levy of £124, and pay
1% into a pension under auto-enrolment on salary from £5,824 to £43,000. This
rises to 3% from April 2019, at which point it will cost the employer £568 per
year. This brings the total employment cost to £27,743, before even starting to
think of the impact of employment rights. There are no similar taxes and costs
on a machine; perhaps a future government will introduce some sort of levy on
robotics, but this would be extremely difficult to design, and could hold the UK
back in the technological race.
Of course, a company will save Corporation Tax, currently at 20%, on the
total employment costs, as this will reduce taxable profits. But the running
costs of a machine will also get Corporation Tax relief, as will the cost of
purchase (over time) via Capital Allowances.
So to me, it seems little wonder that there is a rush to automation; by
taxing work so heavily, the tax system makes it difficult for workers to compete
with their robotic counterparts. Blue sky thinking in the tax system may not
just be required in the future to deal with the consequences of automation, but
it might also provide workers with a more level playing field, and stop there
being the “wrong type” of automation.