The March budget lived up to expectations. We were not expecting this to be an earth shattering budget as the next budget is only just around the corner. There are two interesting points to raise. First, is the alteration to NI rates for the self-employed. This will be considered to be an unwelcome innovation by this group. It is important to understand that the labour market is evolving rapidly. One of these changes has been the shift from employment to self-employment. Between 2008 and 2015 the level of self-employment in the UK increased from 3.8 million to 4.6 million.
This absolute change in self-employment was evenly divided between part- and full-time employment, but part-time self-employment grew by 88% between 2001 and 2015 compared to 25% for the full-time self-employed. Much of this work is concentrated in finance and business services and in higher occupational groups with full-time self-employment being particularly more concentrated in London. Much of the growth in self-employment appears to reflect older workers managing their careers as they shift from full-time employment to part-time self-employment and then retirement.
Reconciliation of NI rates across employment categories appears to be sensible and reflects an inclusive agenda to taxation. Second, business rates will continue to be a problem. The Chancellor noted that Business rates generated £25bn and could not be abolished. The decision to review them is welcome, but all we are seeing in this budget is a ‘patch’ on a form of taxation that no longer reflects the operation of the economy. On education and skills, we can only agree that this is an area that requires investment, but there is not much new investment here. This reflects a still very challenging national fiscal position – we are still borrowing to meet everyday expenditure.
One could argue that what we are seeing in this and other recent budget’s is the problem of tampering with the taxation system on the edges during a time in which fundamental changes have been occurring that have transformed where wealth is generated and where it is taxed. The problem with business rates is only another example of the impact e-commerce is having on the developing geographies of wealth creation and taxation. What has been happening is a gradual misalignment between two systems – economic activity and taxation. Brexit is perhaps a minor issue compared to the development of a new taxation system to meet the complex functioning economic geographies that are evolving. Brexit needs to go hand-in-hand with a taxation revolution.