Should we tax mechanization?

David Hurry

Monday, 15 August 2016

One of the memorable features of growing up in a small country town was the Bank Manager. He, for it was invariably a man, held an esteemed position: authoritarian but kindly, helpful but full of common sense, an adviser and a friend. Of course bank managers were phased out long ago but now Japan is to trial a robot, Nao – a humanoid. Shinzo Abe, the Prime Minister of Japan, has called for a “robot revolution” to counter the shrinking workforce and to boost growth in Japan. I feel sure that our banks will be watching the outcome of that trial with eager anticipation.


Taxes, in one form or another, have been collected for over a thousand years in this country. They have been levied to support the activities of kings and of governments. Not only is the business of government dependent upon the collection of taxes, but the continued functioning of the State depends upon the continued collection of taxes. The principle of personal taxation is that those who produce should pay tax on their earnings. We now have the situation where a large proportion of the workforce pays no, or very little,  tax and the Treasury is not collecting enough tax to pay bills.


William Pitt the Younger introduced personal income tax in 1798. He imposed a tax on earnings – on the effort of those producing income. Since then personal income tax has been the backbone of the British taxation system. With the introduction of mechanization, in all forms, people have been replaced in the workplace, on the farms and in the home by machines. Luddites recognised, and reacted to, the loss of jobs brought about by mechanization. Nine out of ten factories are now mechanized to a greater or lesser extent.


It is probable that there is not an office in the country without a computer. This trend is destined to not only continue but to accelerate. Jill Moss, quoting Eddie Grundie (Guardian, Letters, 6th February, 2015,  “Archer reflects woes of modern farming”) discussing the robotic milking parlour: “there goes another skilled Job”.


It is only in modern times that those displaced by machines have not always been able to find work commensurate with their skills. Some fortunate workers have found alternative employment at the same level of skill and remuneration in other jobs. The less fortunate have had three choices: to find a lower skilled job with lower pay, to find jobs on ‘zero hours’ contracts or to seek unemployment benefit or ‘job seekers allowance’. Mechanization leads to a loss of skills and a loss of taxable income. The result is that the Treasury has experienced, and is continuing to experience, a continuing fall in tax collected. This is the current position and there is no prospect of this situation improving as the government pushes for “greater efficiency and improved productivity” – shorthand for more mechanization.


An alternative source of tax revenue is needed. Where personal tax has been collected for over two hundred years on the backs of men and women working, now a change is necessary. Where the fruits of labour have resulted in personal tax revenues, I suggest that we now consider taxing the labour of machines, because it is machines that are increasingly producing income now. Working out how to tax machines would not be easy and implementing such a policy would be harder. The details do not need to be discussed here. They will be worked out later. Taxation could be levied on a simple unitary system and on an annual basis. Where an automatic welding machine is being used in car manufacturing it would be relatively easy to determine how many manual welders have been displaced and a level of taxation calculated.  It would be much more difficult to tax a combine harvester. How to tax an automated telephone system? How to tax a launderette? I have an abiding vision of rows and rows of copy typists in an office in the 1950s but they have all been replaced now. But difficulties should not deter a consideration of the idea. 

What could be expected from a tax on machines? The loss of industrial, office and agricultural work, and therefore skills, would allow not only the retraining in other skills but the learning of new ones. Many more workers skilled in computer and related technologies are needed. We currently produce 90,000 graduates in Science, Technology, Engineering and Maths (STEM) but it is estimated that we need over 100,000 STEM graduates annually to meet the needs of industry currently (that figure will rise to 160,000 in six years). Our workforce needs retraining and needs to acquire new skills and this could be paid for, at least in part, by taxing the very machines that have caused the problem. New areas are opening in medical technology that need highly skilled and well trained workers – these will not be manual labourers. Manual labour is disappearing as we enter this Post Industrial phase and we need a new and radical approach to solve the problem.


‘Machines’ can be broadly divided into two categories. There are those machines, farm implements for example, where the work is seen to be done by the machines. Then there are other ‘machines’ where the work is done, or managed, electronically. The latter is best categorised as ‘automation’. It is automation that is displacing the majority of workers – think of the self actuated check out counters in supermarkets; each one replaces at least seven people and perhaps more. What does the future hold for driverless vehicles? Are we facing the redundancies of a myriad of commercial drivers? According to Hanna Devlin, robots “have mastered the art of poker, helped to write a cookbook and can cope with basic conversation”. She says that the robot bank manager is, “the latest in a series of advances that at times appear to suggest we will all be replaced, professionally and socially, by automatons”.


It is time for us to rethink our taxing strategy. If Devlin is right, there will be less and less tax collected. We need an alternative and I suggest that that alternative should be a tax on automation. Syonara Bank Manager – Hello Nao.

If you’re interested in how we respond to the changing relationship between work and social security, check out our report on a Universal Basic Income

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  1. Posted by G Delasel

    There is currently more automation than ever in history; there are more jobs than ever in history; tax income is higher than ever in histor; disposable income is higher than ever in history; welfare is higher than ever in history; quality of life is higher than ever in history. Hence your argument is invalid.