Tory conference - Chancellor Philip Hammond threatens to “go it alone” with digital services tax

Addressing Conservative party members at annual Tory conference in Birmingham this week, Chancellor of the Exchequer Philip Hammond centred his speech around the impact of rapid technological change on people's lives and what the government can do to prepare Britain for this.

Hammond outlined two core themes - one around the need for a digital tax on the largest tech companies in the market, the other around providing funding to boost skills across the UK.

However, Hammond started, unsurprisingly, talking about Brexit. The UK is set to leave the EU in March of next year - just six months away - and negotiations are difficult and ongoing, with concerns being heightened that we could be heading for a ‘no deal’ scenario. But regardless of the outcome, Hammond noted that we need to understand why the Brexit result turned out the way it did. He said:

Brexit did not happen in a vacuum. It is a product of something deeper and wider. It happened because over the last 20 or so years, as the world has got smaller, a gap has opened up in Britain and in other developed countries…between the theory of how a market economy delivers and distributes rising prosperity.

Too many people feel that they have lost control; That they are working for the system, but the system isn’t working for them.

Part of this is down to, Hammond said, technological change that is transforming not only the economy, but society, at a rate that none of us have seen in our lifetimes. In response, the Conservative Party, he added, has to “dare to change too” and apply its principles and values to “the challenges of the future. Hammond said:

And when the history of this period comes to be written I can promise you that it will be this technological transformation, and how we manage it – not Brexit – that will define the future of our country and our party.

In the next decade or so, Artificial Intelligence, self-driving cars, personalized medicine, virtual reality, advanced robotics and many, many other cutting-edge developments will all begin to transform our lives.

Hammond said that the government needs to “set out clearly the benefits” that individuals and families will see from the digital age, and how the government will help them to prepare for it, as well as deal with the consequences of it.

[We need to} reassure the very many who will worry about what new technologies mean for their job security worry that the gains will be made by the few and that they will be left behind.

Show them that, crucially, the change that technology is driving will address their concerns, not make them worse.

Skills

Part of the government’s plan to address this challenge, as Hammond outlined in his speech, is for it to provide additional funding to boost skills across the country. Plans announced this week include:

• Apprenticeships - The Chancellor announced a package of reforms and £95 million increase to the Apprenticeship Levy to help business train people with the skills they need for the new economy.
• Management skills for small firms - The government’s recent productivity review found the UK’s small business community is facing a management skills challenge. To address this, the Chancellor announced £20 million will be invested in networks to enable small businesses to learn from each other and from world-leading firms. Over 100 mentors from companies, such as GSK, Amazon, KPMG and Siemens, have already signed up to offer their management expertise.
• Hammond said a further £11 million will pay for a training programme that will build the necessary management skills lacking in many SMEs. This will aim to help 2,000 businesses in its first year, with an ambition to train 10,000 people per year by 2025.
• Adult skills/National retraining scheme - the government is hoping to work with employers to give every worker the opportunity to upskill or retrain for the new economy. The Chancellor pledged £100 million for the first phase of the National Retraining Scheme, announced in the last Budget, which will be rolled out next year.
• Midlands Engine - the Chancellor also announced £2 million for the Midlands Engine Partnership to support a study into how best to redevelop the area around Toton in the East Midlands, to ensure it maximises the growth opportunities offered by HS2.

Digital tax

Finally, Hammond also addressed something that has been touted many times before - a new tax on the largest technology platforms in the economy. The likes of Facebook, Amazon and Google have all been criticized for the amount of tax they pay the Treasury. Although what these companies are doing is totally legal, often making use of low-tax territories in the EU, there is a growing consensus that the system is broken and doesn’t fit the digital age.

The government has already announced plans to explore how using user participation as a measure for tax on digital platforms could be introduced. Hammond’s speech, however, carried a far more threatening tone than on previous occasions. He said;

Adam Smith taught us that the key to the power of the market to deliver for the good of society is competition. And just as, in late 19th Century America, concerns about the near-monopoly of Standard Oil and the railroad cartels led to the introduction of the world’s first anti-monopolies legislation, so today, the expansion of the global tech giants and digital platforms, while of course bringing huge benefits to consumers, raises new questions about whether too much power is being concentrated in too few global technology businesses.

That is why I have asked President Obama’s former chief economist, Jason Furman, to lead an expert panel to review the UK’s competition regime, to ensure it is fit for the digital era. And it isn’t just competition policy that needs updating.

We can tell them how we have led the debate on reforming the international tax system for the digital economy insisting that the global internet giants must contribute fairly to funding our public services.

And let me be clear today: The best way to tax international companies is through international agreements but the time for talking is coming to an end and the stalling has to stop.

If we cannot reach agreement the UK will go it alone with a ‘Digital Services Tax’ of its own.