Tax will torment the Conservatives long after the Brexit rage fades | Matthew d’Ancona

Matthew d'Ancona
‘Increasingly, self-employment is the only viable path to work of any kind.’ Photograph: Daniel Leal-Olivas/AFP/Getty Images

‘Why don’t they write about Matthew Taylor’s review of employment practices?” This question was put to me by a senior ally of the prime minister a few months ago, when the papers were full of Brexit – as they will be, once again, this week. The point this person was trying to make was that the government is not exclusively preoccupied by the EU. To paraphrase the exasperation: here we are, taking audacious steps such as appointing Tony Blair’s former policy chief to examine the world of work, and all anyone wants to talk about is article 50.

Well, we are talking about the Taylor review now; or, to be strictly accurate, the issues it was asked to investigate. In his first budget last week, Philip Hammond fired the starter’s pistol on a race of immense significance, raising class 4 national insurance contributions (NICs) by the self-employed from 9% to 10% next year, and 11% in 2019.

As the implications sank in, the Tory psyche went into spasm. Since class 4 applies to those with annual profits of more than £8,060 a year, was this not an assault on the very strivers May had promised to champion? And was the party of Margaret Thatcher’s “vigorous virtues” suddenly penalising those who strike out on their own?

To soothe her colleagues, the prime minister quickly announced that the NICs rises would not be introduced until the autumn, by which time the government should have received the Taylor review and assessed ways of helping the self-employed. In particular, she promised to address “issues like pension rights and parental rights and maternity pay”.

There has been predictable sniping between the May and Hammond camps in the past few days. According to one former cabinet colleague of the prime minister: “In all those years, I don’t remember Theresa once making a significant intervention on economic matters.” The counter-punch is that the chancellor has proved himself politically naive. And so it goes.

The most pathetic claim has been that Hammond did not warn his cabinet colleagues that the increase represented a breach of the Conservative manifesto. I mean, come on. The 27 ministers entitled to attend cabinet are the most senior Tories in the land. If they don’t know what was in the 2015 manifesto, what are they doing at the table?

To compound the melee, there is now a parallel row over the proposed increase in probate fees for estates worth more than £50,000, currently capped at £215. Jacob Rees-Mogg, who is increasingly turning self-parody into celebrity, has already declared his opposition. Other Tory MPs grumble that Hammond is imposing yet another “death tax”.

What we are witnessing is the collision of two imperfect storms: the Conservative party’s turmoil over the future of taxation, and the transformation of the economy. It is reflexive for Tories to demand lower taxes and a smaller state, just as Labour’s instinct is to do the opposite.

The Tories will have to set aside their deep reservations and find ways of taxing wealth as rigorously as income

The trouble for the Conservatives is that real politics is remote from ideological yearning. Since the 1990s the party has been on a long and painful journey – launched by Peter Lilley’s speech on public services in 1999, continued by David Cameron’s pledge to ringfence spending on the NHS and schools.

Just as Labour learned (and then unlearned) that economic credibility is a precondition of electoral victory, so the Tories grasped that they must be trusted as custodians of public services. This means that, like all fetishes, the love that some of them have for the Laffer curve, flat taxes and the minimal state has to remain private. What you call austerity, these ideologues call a modest start. But they are not in control of the party.

The question for those who are, therefore, is where the money is going to come from. And there will need to be more money, for demographic reasons alone. After the kicking he has endured, Hammond deserves at least some credit for announcing a strategic review of social care, and a fresh examination of NHS funding in the autumn budget.

The trouble is that our taxation system, employment laws and social entitlements are antique, designed for a world that is evaporating. It may once have been true that the self-employed sought this status to minimise their taxes. Increasingly, however, they do so because self-employment is the only viable path to work of any kind. The rise of digital platforms as employers – Uber, Amazon, and all the other services on your smartphone – is a clear signpost to the future. There is a serious risk that, sooner rather than later, “self-employment” will simply be a euphemism for regular work in which the employee is unprotected by minimum-wage legislation or any other workplace entitlements.

This is the challenge May and Hammond now face, and working out how to tax the self-employed fairly is only part of the puzzle. Sooner or later, I believe, the Tories will have to set aside their deep reservations and find ways of taxing wealth as rigorously as income. For a party that believes in wealth “cascading down the generations” this will be painful. But it will happen.

The antics of the past week are pimples pointing to a deeper infection within the Conservative organism – and, for that matter, the body politic. How to tax? How to regulate the revolution in the way we work? These are huge questions, and the arguments will still be raging when the Brexit negotiations are fading from memory.

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