Chancellor announces measures on digital tax and apprenticeships

The Chancellor Philip Hammond attempted to underline the Conservative Party’s relationship with business in his keynote speech at the party conference in Birmingham on Monday 1^st October. Mr Hammond described business as “a force for good,” announcing a £125 million package to boost the number of well-paid jobs across the UK and a plan to allow large employers to transfer up to 25 per cent of apprenticeship levy funds to smaller businesses in their supply chain from April 2019.  Mr Hammond also outlined proposals to increase the number of people who can access science and technology courses and a £30 million fund to encourage big business to mentor small firms.

Professor ManMohan Sodhi, Head of Operations & Supply Chain Management at Cass Business School, commented on the Chancellor’s plans for a digital tax and apprenticeships.

He said:

“The Chancellor’s approach to taxes and digital technologies appears to be motivated by scoring some points without having to do anything in the near term.  Mr Hammond said, ‘If we cannot reach [international] agreement [on taxing the ‘global internet giants’] the UK will go it alone with a digital services tax of its own.’

Tax avoidance

“The tax avoidance issue is not only about internet giants, it is about large international companies in general, for instance, Starbucks.  If there were a way, an international agreement would already be in place.  The OECD has so far failed to find agreement between the 36 wealthy countries that are its members.  All this is known and Mr Hammond’s predecessor, who managed to eke out a one-off payment from Google, noted the enormity of the challenge.  The UK imposing taxes on its own will have resistance: internet giants are based in the US, which would lean hard on the UK if taxes were created.

Benefits of the digital age

“At the same time, the Chancellor had already noted that ‘in the next decade or so, artificial intelligence, self-driving cars, personalised medicine, virtual reality, advanced robotics and many, many other cutting-edge developments will all begin to transform our lives.’  He wants to ‘set out clearly the benefits that individuals and families will see from the digital age… by harnessing the power of the market economy’. Part of the effort to harness such power is, typically, to provide tax incentives to technology companies, which may well include the very same global internet giants. Indeed, the tech industry in the UK has already voiced its opposition to the Chancellor’s idea of going it alone on taxes on these companies for fear they may be harmed too.

Apprenticeship levy

“Mr Hammond was more helpful and clearer on the apprenticeship levy but he can, at best, expect only lukewarm support for his approach to changing the apprenticeship levy.  In his speech, he promised to look into business concerns on the apprenticeship levy by way of more flexibility on how companies spend this.  He also made a concrete proposal to set aside £30m to encourage big companies (those paying more than £3 million per annum in wages) to mentor small companies in their supply chain.

“The question is what the additional flexibility would bring to large companies in transferring apprenticeship efforts within their own company to smaller companies in their supply chain.  Companies that wish to improve their smaller suppliers already do so, as do those who wish to invest in training young people.  I suspect that companies would be happier if the apprenticeship levy was simply done away with.”