The future of the left since 1884

Intelligent taxes

In the reality of automation, it becomes clear that the Labour party must rethink how it approaches tax policy, writes Mary Honeyball MEP.



Automation is changing our world, again. It has been changing our world since the mid- 1700s: creating jobs, vastly improving our standards of living, and kick-starting a process of exponential technological growth and invention. The ‘second’ industrial revolution, characterised by the widespread adoption of electricity, prefaced the invention of computers and the internet in the ‘third’. Now, in the ‘fourth’, the global ubiquity of computers and smart phones heralds the invention of advanced artificial intelligence (AI), machine learning, block chain architectures and cloud processing.  

Each revolution so far reveals the same economic trend that shows no sign of slowing down: that with each technological moment, the share of wealth generated by labour gives ground to the share generated by capital. Historically, this has never proved problematic. Industrial revolutions have always yielded a net surplus in jobs, and on this principle, many economists rest easy at the thought of what is to come. 

This time, things are different. The nature of AI and machine learning, notably the capacity for machines to perform quasi-cognitive tasks, creates potential re-absorption difficulties for the unemployed, not because new skills might be complex and costly to acquire, but because machine learning may soon out-pace human re-education. In other words, whilst past industrial revolutions did successfully create more jobs than they destroyed, the ‘fourth’ revolution will likely create more AI-designated jobs in the first instance. In short, the luddite concern that processes of automation will vastly disrupt global labour-production processes might, this time, be well founded.

It is easy to presume that only ‘low-skilled’ work is at risk here. In fact, there is no retreat anywhere in the labour market, nor the wider economy, that technology-led processes of automation, artificial intelligence and machine learning cannot touch. These technologies are already doing accountancy work that previously took weeks in seconds. Technologies are performing surgery and replacing financial investors. Even ‘intellectual’ professions like law could be automatable. In April 2017 the International Bar Association cited an intelligent algorithm which analysed decisions from the ECHR, and having learnt from the cases, was successfully able to predict the outcome of new cases with 79 per cent accuracy. 

This pervasive scope adds a second dimension to the ‘fourth industrial revolution’: that machines, when replacing ‘high-skilled’ production processes, create additional pressure on those further down the chain, already on minimum wages and precarious contracts. Despite these risks, we cannot work to inhibit the undeniable societal, economic, and technological boons that an increasingly automated future offers. It is here, on the dividing line between two worlds, that Icarus flies.  

The European Union is already taking steps to prepare for this new automated world. The legal affairs committee, for instance, recently produced a report looking at the implications of robots in everyday life, such as who would be liable if a driverless car had an accident. Such forward thinking, best done across national boundaries, would be lost to Britain were Brexit to become a reality. 

Beyond the various legal and political challenges that necessitate rigorous, multinational, forward planning, the underlying question from a governmental point of view concerns tax. UK income tax receipts for financial year 17/18 account for 30.5 per cent of total UK tax revenues. Counting national insurance contributions, that number rises to 49 per cent. In the UK then, just as in most states, revenues derived from labour constitute the highest proportion of total tax revenues. Comparatively, revenues derived from capital, such as corporation tax and capital gains, accounted for just 9 per cent and 1.3 per cent respectively. This despite the fact that capital’s capacity for wealth generation and GDP growth is continually gaining on that of labours.  

The reliance on income-related tax revenues could therefore be detrimental to future government budgets if technology-led innovation stimulates processes of structural unemployment. Not only would rising unemployment decrease UK income tax revenues, it may also affect other revenue streams, such as consumption taxes, which rely on robust levels of public spending. The combination of technological innovation weakening the labour share of economic output, alongside capital’s growing capacity for wealth generation, suggests a gross misalignment in the UK tax code.  

The obvious suggestion, put forward by various commentators, is the introduction of a ‘robo-tax’. This approach suggests taxing specifically digital-businesses and profits derived from automation. However, others note that the implementation of a ‘robo-tax’ risks forcing smaller businesses out of their industries by preventing them the means to digitise, whilst larger companies capitalise and sweep up a larger market share. Further to this, there follows a second risk that a ‘robo-tax’ effectively inhibits both technological adoption, and the potential for future investment, particularly in the form of “smart factories”. 

A more proactive approach might be to initiate a comprehensive re-alignment of the UK tax code, prioritising capital-based taxes (ie corporation taxes and capital gains). Capital-based tax exemptions and subsidies, currently underwritten by the UK government and thus, the UK taxpayer, could be replaced with redistributive funds either for those whose jobs have been lost to automation, or to the improvement of public services. If modern businesses and their investors can reap the profits of cheap, automated labour, so too should those who have lost their jobs in that pursuit. Furthermore, this type of approach, whilst ambitious, would effectively prepare the UK for a future in which capital-based wealth generation surpasses labour-based wealth generation. 

Targeting capital-based taxation also opens up the potential for international collaboration on international capital. In the face of globalisation and digitisation, this second challenge is imperative. Multinational corporations are increasingly able to navigate, and exploit the advantages of, a borderless international sphere. It is the job of international governments to make sure that the profits of globalisation are fairly distributed to its populations as well. This is just one reason why international organisations like the European Union are essential in the modern era, because only through institutions like the EU can this sort of collaboration be seriously achieved. In this regard, UK membership of the European Union would greatly strengthen its ability to collect international revenues in the face of falling labour-based tax revenues. 

In the reality of automation, it becomes clear that the Labour party must rethink how it approaches tax policy. Technological progress, automation and artificial technologies are not bad. In fact, they have the potential to revolutionise our society for the better, with shorter working weeks, cheaper products, greater standards of living and greater productivity. The Labour party should seize the opportunity to improve lives and be ambitious for the common good. 

Mary Honeyball MEP

Mary Honeyball is a Labour Member of the European Parliament for London.


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