Robot tax would damage UK investment & protect just 15 per cent of UK jobs
11 May 2018
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IEA releases report on the rise of robots & their potential impact on the labour market
The panic surrounding technological development and the expanding use of robots is largely overstated, based on speculation and limited facts. In the UK we have at least as high a proportion of the population employed as 100 years ago: technology creates new jobs as well as destroying old ones.
Calls for a ‘robot tax’ to mitigate for a ‘robocalypse’ are misguided. A new report from the Institute of Economic Affairs, published today, argues that trying to implement such a tax would be beset with complications and in practice could, even if successful, protect just 15 per cent of UK workers’ jobs. Shoring up existing jobs in this way could also deter the creation of new jobs as expanding firms would find it more difficult to recruit, and lead to a decrease in investment as the UK would be out of step internationally.
There is scant evidence that job displacement is moving faster than the economy’s ability to develop new types of employment. Many new jobs are now in small businesses, or amongst the self-employed or ‘gig-economy’. These jobs have grown rapidly because, despite decades of growing employment legislation, the UK labour market is still less regulated than many other countries in Europe. Nor are these all low-paid jobs: higher-paid jobs are also growing and the proportion in the top three occupational categories has actually grown in the last decade.
Unemployment and falling wages are unlikely as a result of technological development, but in this event the best policy response would be to reduce existing employment regulation and taxation to make it cheaper to employ people.
The facts:
• The reality is that our economy creates and destroys millions of jobs every year in an endless process of change – the impact of technology is nothing new
• Robots can realistically only replace jobs in a limited range of industrial activities (manufacturing, extraction, transport and energy) which taken together employ around 15 per cent of workers
• There would be an array of complications in implementing a robot tax, including how a robot is defined, which robots should be taxed (should a robot that greatly increases surgical accuracy be taxed?) and how the tax would be levied
• In practice, a tax would have to be based on the profits generated by the robot, so it would effectively be a new form of corporation tax – an inefficient tax that has a negative impact on growth, investment and innovation
• Imposing a robot tax when no other nation is doing so would result in the UK losing investment and thus be uncompetitive
Practical public policy steps:
Instead of imposing a new tax, politicians should be looking to make employing people cheaper by:
• Reforming the minimum wage system which could be artificially encouraging the automation of low-skilled workers
• Reduce employment-related taxes such as income tax and national insurance contributions, so workers are less costly to hire
Commenting on the report, author Len Shackleton, Editorial Research Fellow at the Institute of Economic Affairs, said:
“We must not be afraid of technological change and the rise of robots. New technology offers us improved living standards and a better quality of life and there is little evidence that job displacement is moving faster than the economy’s ability to develop new types of employment. It is often overlooked that with technological change has come the creation of many new jobs already, including IT and scientific professionals.
“While the future may be uncertain, we should not be pushed into premature and damaging policy interventions on the basis of fears and panics. Protecting against a potential shake-up in the labour market with measures such as a robot tax, subsidies or further regulation is not the way to go.”
Notes to editors:
For media enquiries please contact Nerissa Chesterfield, Communications Officer: nchesterfield@iea.org.uk or 0207 799 8920 or 07791 390 268
To download the report, ‘Robocalypse Now: Why we shouldn’t panic about automation, algorithms and artificial intelligence’, click here.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.
The IEA is a registered educational charity and independent of all political parties.
Calls for a ‘robot tax’ to mitigate for a ‘robocalypse’ are misguided. A new report from the Institute of Economic Affairs, published today, argues that trying to implement such a tax would be beset with complications and in practice could, even if successful, protect just 15 per cent of UK workers’ jobs. Shoring up existing jobs in this way could also deter the creation of new jobs as expanding firms would find it more difficult to recruit, and lead to a decrease in investment as the UK would be out of step internationally.
There is scant evidence that job displacement is moving faster than the economy’s ability to develop new types of employment. Many new jobs are now in small businesses, or amongst the self-employed or ‘gig-economy’. These jobs have grown rapidly because, despite decades of growing employment legislation, the UK labour market is still less regulated than many other countries in Europe. Nor are these all low-paid jobs: higher-paid jobs are also growing and the proportion in the top three occupational categories has actually grown in the last decade.
Unemployment and falling wages are unlikely as a result of technological development, but in this event the best policy response would be to reduce existing employment regulation and taxation to make it cheaper to employ people.
The facts:
• The reality is that our economy creates and destroys millions of jobs every year in an endless process of change – the impact of technology is nothing new
• Robots can realistically only replace jobs in a limited range of industrial activities (manufacturing, extraction, transport and energy) which taken together employ around 15 per cent of workers
• There would be an array of complications in implementing a robot tax, including how a robot is defined, which robots should be taxed (should a robot that greatly increases surgical accuracy be taxed?) and how the tax would be levied
• In practice, a tax would have to be based on the profits generated by the robot, so it would effectively be a new form of corporation tax – an inefficient tax that has a negative impact on growth, investment and innovation
• Imposing a robot tax when no other nation is doing so would result in the UK losing investment and thus be uncompetitive
Practical public policy steps:
Instead of imposing a new tax, politicians should be looking to make employing people cheaper by:
• Reforming the minimum wage system which could be artificially encouraging the automation of low-skilled workers
• Reduce employment-related taxes such as income tax and national insurance contributions, so workers are less costly to hire
Commenting on the report, author Len Shackleton, Editorial Research Fellow at the Institute of Economic Affairs, said:
“We must not be afraid of technological change and the rise of robots. New technology offers us improved living standards and a better quality of life and there is little evidence that job displacement is moving faster than the economy’s ability to develop new types of employment. It is often overlooked that with technological change has come the creation of many new jobs already, including IT and scientific professionals.
“While the future may be uncertain, we should not be pushed into premature and damaging policy interventions on the basis of fears and panics. Protecting against a potential shake-up in the labour market with measures such as a robot tax, subsidies or further regulation is not the way to go.”
Notes to editors:
For media enquiries please contact Nerissa Chesterfield, Communications Officer: nchesterfield@iea.org.uk or 0207 799 8920 or 07791 390 268
To download the report, ‘Robocalypse Now: Why we shouldn’t panic about automation, algorithms and artificial intelligence’, click here.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.
The IEA is a registered educational charity and independent of all political parties.
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