The Chancellor offers us patching, when what we need is revolution

The RSA’s Economy Team bring you their reaction to Phillip Hammond's 2018 Budget.

With contributions from:

• Fabian Wallace-Stephens
• Josie Warden

The Chancellor claims to be taking on tech tax-avoiders, unfair business rates and bodged welfare reform and creating an economy that works “for everyone”.

The rhetoric is robust and that may be the aspiration, but he has, to use William Beveridge’s words, offered us patching, when what we need is revolution.

On plans to tax tech giants

He said: "We will now introduce a UK digital services tax... and established tech companies with profits of over £500m will shoulder the burden."

We say: The Chancellor’s determination to get tech companies to pay their fair share of UK taxes risks being nothing more than a howl in the dark. Companies will always look for ways to move their money abroad, to offshore subsidiaries; smart design will be key to the measure’s success.

Meanwhile, the Chancellor only expects to raise £400m per year initially from the tax, and many tech companies such as Uber do not make significant profits. We are concerned that a tax based on profits will not work.

A better way is to follow the RSA’s recommendation of a data levy on tech giants. This would raise revenue from public information and would be far harder for tech giants to avoid.

On business rate reform

He said: "For the next two years… for all retailers in England with a rateable vale of £51,000 or less I will cut business rates by a third"

We say:  The Chancellor’s business rate cuts simply do not go far enough.

It cannot be fair that an out of town e-commerce warehouse – which covers thousands of square feet and has a larger burden on local infrastructure – pays the same or even less in business rates than an inner-city restaurant, café, shop or bar.

Small businesses do not want special treatment, they want fair treatment. That means, not arbitrary rate changes, but an overhaul of property tax: rethinking the purpose of business rates and making sure they capture the economic activity of online retail. Such taxes, also, are far harder to avoid for tech giants than a tax on profits.

On Universal Credit and Enterprise

He said: I will introduce "A package of measures worth £1bn over five years… And increase work allowances…’ and ‘I will fund support for enterprise."

We say: The Chancellor’s rescue plan for universal credit is a start but will do nothing to help the many self-employed people on welfare who have been harmed by the system.

Universal credit harms not only those out of work but those setting up businesses who have uneven income and so struggle to meet the DWP’s exacting requirements (on which see last week’s predictions blog).

The Chancellor’s attempts to help entrepreneurs in poor communities through additional enterprise support appear therefore to be incompatible with his own welfare reforms. This requires real reform if we are to properly tackle the UK’s lack of productivity.

On tackling the productivity challenge

He said: ‘We will take on and beat the productivity challenge.’

We say:

The Chancellor claimed in his speech that he has created an economy that is working for everyone. We welcome his ambition, but we are far from there yet, especially as it is increasingly clear that his much vaunted ‘jobs miracle’ is comprised of an array of low paid, insecure work that keeps workers resolutely in poverty (this fantastic RSA blog from Atif Shafique has the details).

Britain’s low productivity remains the bane of the Chancellor’s narrative and the key to tackling it lies not only in some of the infrastructure investments announced in the budget but in admitting that, for many, the jobs miracle is a sham and by incentivising business to invest in their workforce and their jobs, especially of low-productivity sectors such as retail, hospitality and social care.

It also involves admitting that claims that austerity – productivity-harming under-investment in our economy – is over are wide of the mark. Our public spending has moved from almost 45% of GDP in 2010 to around 38.4% today - much closer to the US's 36% than the EU average.  Taking on the productivity challenge will require more than rhetoric and more than patching.