Tax and Fiscal Policy

Why a tax on homeworking is a really bad idea

Researchers at Deutsche Bank (DB) have proposed an additional tax on people working from home “to help those who cannot”. This would break just about every principle of good tax design and is one of the worst ideas I’ve ever heard. Let me explain…

As I understand it, the proposal is for a 5% tax on someone’s income if they work from home when no longer required to do so by the pandemic. The tax would be paid by employers (though surely passed on to employees), with the self-employed and those on low incomes excluded.

The revenue raised would then be transferred to selected people in low-paid jobs who cannot work from home, perhaps in the form of cash grants or additional subsidies to keep people in employment who might otherwise be made redundant.

Where to begin? The new tax is supposed to be “fairer” because those people who are able to work from home are assumed to spend less money on commuting, eating out and so on, and therefore pay less in consumption taxes than those who go out to work.

What’s more, they are assumed to be contributing less to the infrastructure of the economy “whilst still receiving its benefits”.

These are flimsy arguments. For a start, it is not obvious that homeworkers do pay less tax. They are liable to the same taxes on their income and wealth and the money they save on commuting is spent instead in their local community, or online, or invested in other businesses. (It seems unlikely that it is just stashed under the bed.)

Here, the DB report simply asserts that “our economic system is not set up to cope with people who can disconnect themselves from face-to-face society”. This appears to take it for granted than anyone working from home becomes an off-grid hermit.

It is not even obvious that homeworkers are making the same demands on the public services. For example, they will be probably be making less use of public transport and are less likely to require hospital treatment for traffic or work-related accidents. With more leisure time and flexibility, homeworkers may well be fitter and healthier, both physically and mentally, providing further benefits to the NHS.

Taking more money from someone just because they happen to work from home is therefore surely a far bigger unfairness.

It’s also not good enough to say that the money raised would go to good causes. If these other things are worth doing, they can and should be financed through general taxation, or additional borrowing. And if this is about rich people helping poor people, or bankers helping nurses, we already have a progressive tax system for that.

Nor is there wider public interest in taxing or discouraging homeworking. If anything, we should be subsidising it, not just to reduce infection risks during the pandemic, but also long after – to reduce the damage that commuting does to the environment. And like other forms of flexible working, it is surely a “good thing”.

Of course, there may be downsides to homeworking, including fewer opportunities for teambuilding and training, and, for some, social isolation. But these are issues and judgements best left to individual businesses and their staff, not government intervention – and they are certainly not something that should be tackled by a crude blanket tax.

What’s more, even if the “fairness” arguments held water, the proposed homeworking tax fails on many other counts, including practicality, predictability and efficiency.

The DB report suggests it would only apply to employees and not the self-employed. This makes little sense. If you believe that homeworkers pay less than their “fair” share of tax, that is surely true whatever their employment status.

In practice, this would presumably also mean that lots of employees would magically switch to self-employment. And some jobs would go completely (perhaps to other countries where people can work remotely without incurring higher taxes).

Another practical problem is the definition of “homeworking”. What happens if someone works from home three days a week and goes into the office for two days? Would the tax then be applied on a pro rata basis? What if someone’s place of work changes a lot? Is it OK if someone leaves their home and works in a café, thus spending more money? What if you have to work from home for good personal reasons, such as childcare or disability?

Indeed, who on earth will keep tabs on all this? Will people have to wear electronic tags, or is there a new role here for “Track and Trace”? Will tax inspectors snoop into people’s homes? Shouldn’t people then be able to claim more of their household bills as an employment expense? Perhaps this is one for a new “Office of Tax Complication”…

The proposed tax would also be inefficient. It would force people who can do their jobs perfectly well from home either to pay more tax, or waste time and resources commuting to somewhere else to work – and queuing to buy an over-priced sandwich while they are there.

The proposal also fundamentally misunderstands the purpose of economic activity. This is not to support particular types of business, whether that’s a dry cleaner’s, city restaurant, or the owner of an office block. It is not even to generate tax revenues. Instead, it is to improve welfare and make people happier.

Otherwise, let’s also impose additional taxes on people who recycle rather than buy new, or who bring their own packed lunches to the office, or who might choose not work at all. That’ll teach ‘em.

In short, the DB proposal wrongly assumes that homeworkers pay less tax while still receiving the same benefits from public services. It would be unfair, distortionary, inefficient, impractical – and a bureaucratic nightmare.


This article was originally published on Julian Jessop’s blog.

Julian Jessop is an independent economist with over thirty years of experience gained in the public sector, City and consultancy, including senior positions at HM Treasury, HSBC, Standard Chartered Bank and Capital Economics. He was Chief Economist and Head of the Brexit Unit at the IEA until December 2018 and continues to support our work, especially schools outreach, on a pro bono basis.

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