A decent portion of government revenue is at risk of declining, which gives an opportunity (a) think about what tax is for; and, (b) propose some taxes on Big Tech.
Vices. The traditional ones are alcohol, tobacco, and gambling. UK tax revenue in 2019-20 is forecast at £742.1b (source). Vice taxes made up:
- Alcohol duties: £11.5b
- Tobacco duties: £9.7b
- Betting and gaming duties: £3.2b (doubled since 2010)
Total vice taxes: £24.4b. That’s 3.3% of government tax revenue!
Sources unless otherwise specified: Office for Budget Responsibility Economic and fiscal outlook, Nov 2020 (table 3.3) and the Tax by tax section.
In comparison to other taxes: vice is equivalent to 18% of VAT (sales tax; £133.8b). And vice is a little over half what corporation tax is worth (£48b).
What does vice buy us? The entire BBC seven times over, or 10% of the welfare budget.
But there those stories about millennials and zoomers drinking less, and tobacco is already becoming seriously unfashionable – that makes me think we should consider seriously whether vice taxes will drop off a cliff.
One question is: why tax vices at all? The intention is only partially to dissuade: if that were the goal, you would ban it. I don’t know about you, but I like booze, cigs, and betting. I haven’t smoked for years, but what’s life without a vice or two.
(I’ve not included the Soft Drinks Industry Levy which brings in £0.3b, not VAT collected on the goods above.)
We tax vices because there is individual utility but a society incurs a cost, either in healthcare, or maintaining order, or productivity, or something else. Which I think is a fair trade.
But there’s another activity with high societal cost.
Carbon and the environment. The figures here for 2019-20:
- Fuel duties (petrol, diesel, and other legacy fuels): £27.6b
- Air Passenger Duty: £3.7b
- Climate Change Levy: £2.1b
- Landfill Tax: £0.8b
Total environmental taxes: £34.2b. 4.6% of revenue! Comparable to vices.
I’m not sure I’d say that carbon is a vice itself… though maybe? Carbon is a vice for industry? That’s a metaphor that could work.
(I’ve not included Environmental Levies at £8b as these appear to be intended to restructure the wholesale energy market and go straight out again.)
Two immediate observations:
- In terms of carbon, £34.2b is clearly not nearly enough to pay for the impact of the climate crisis, which will be astronomical. We need a better word than astronomical because while astronauts are getting more affordable by the day, the cost if we don’t retool away from a carbon economy is basically the existence of society as we know it.
- We would hope that the income from these taxes declines – and soon. Electric vehicle switchover in the next 15 years; air travel being substituted by Zoom where possible; less to landfill, etc.
So revenue from environmental taxes, if they were high enough to do the job of dissuasion, would be declining. We can’t bank on those taxes either.
All of which makes me ask: where’s the money going to come from in the future?
What are taxes for? An economist or political scientist would have a typology, but let me guess:
- Tax as the fair cost of society: to share fairly the cost of the state
- Tax as planner: to drive some macro shape to society (such as encouraging business growth in certain sectors, or business formation as an activity, or certain levels of wealth)
- Tax as inhibitor: to discourage individual behaviours, for reasons such as public health or moralism
- Tax as parasite: simply because it can be done…
- Tax as rebalancing: where there is a difference in the cost felt by the taxpayer and society, such as with cigarettes or pollution, and tax is used to impose the cost of that externality.
The last of these is the most interesting to me. I’d not thought about taxes in that way before.
Let’s say that vice taxes and environmental taxes decline over the next decade.
What new vices do we tax to create, say, 1% of all tax revenues? (i.e. £7.4b, just under the tobacco duty tax.)
Big Tech?
I suggest Big Tech because there are a lot of calls for regulation but, as I’ve detailed before, I don’t believe it’s a good idea to have unconsidered, blunt instrument regulation (such as a “Digital Tax,” ugh). Better to have in mind specific issue which is a problem, and a hypothesis about how a given intervention will provide a remedy without over-reaching.
With that in mind:
I think we could make an argument that
- engagement-driven social media, and
- microtargeting technology
are both mis-balanced in terms of individual benefit vs societal benefit. NOT that they are bad, merely that where the benefits and costs fall is out of whack. Like, scrolling Facebook is great! But it turns out that the thing to create the dopamine hit is also a radicalisation engine. Maybe we’re fine with that: cars are fun but they’re also polluting death machines, and we use taxes and regulation to distribute the load until it feels equitable.
Two ideas for new taxes!
1. Engagement Levy
Tax the app front end, which after all is the system that asks for user consent to collect data. Could you charge Twitter, or Snapchat, or Facebook based on usage measured in app-hours in the UK? Make it progressive based on an exponential: the more users who are touched, and the more hours, the higher the levy paid.
2. Anti Microtargeting Duty
On the one hand ad targeting helps businesses economically find customers; on the other it is a giant attack surface for dark propaganda. This is a classic duty: make sure the societal cost is reflected in the price paid by the advertisers. Put a duty on paid ads of, say, 1 penny, but don’t make it per impression, make it per bid. If you can find a way to reach people with fewer bids (i.e. less targeted) then you pay less.
I think we can ask the same rebalancing question of other new businesses.
Like: e-commerce. It’s hazardous for neighbourhood shopping. But, as we’ve learnt during Covid, it’s also vital resilience for the nation. So maybe the issue is homogeneity. How can that be taxed specifically?
Or: the gig economy. Uber is great for getting around town, and at least some drivers love the independence and flexibility. But the method of employment is freeloading on the state-provided welfare safety net. So what’s a duty that puts the cost back on that method of employment?
And then back to vices:
It’s telling that betting and gaming revenues have doubled in the last decade. Dopamine is the new alcohol. We’re swimming it in as a society, it’s normalised.
But there are dopamine triggers that aren’t taxed: so-called free-to-play games. They’re engagement farms sticking micro-transaction sap spiles in their players. Coins, crates, and gems, whatever.
Tax these games like casinos.
A decent portion of government revenue is at risk of declining, which gives an opportunity (a) think about what tax is for; and, (b) propose some taxes on Big Tech.
Vices. The traditional ones are alcohol, tobacco, and gambling. UK tax revenue in 2019-20 is forecast at £742.1b (source). Vice taxes made up:
Total vice taxes: £24.4b. That’s 3.3% of government tax revenue!
Sources unless otherwise specified: Office for Budget Responsibility Economic and fiscal outlook, Nov 2020 (table 3.3) and the Tax by tax section.
In comparison to other taxes: vice is equivalent to 18% of VAT (sales tax; £133.8b). And vice is a little over half what corporation tax is worth (£48b).
What does vice buy us? The entire BBC seven times over, or 10% of the welfare budget.
But there those stories about millennials and zoomers drinking less, and tobacco is already becoming seriously unfashionable – that makes me think we should consider seriously whether vice taxes will drop off a cliff.
One question is: why tax vices at all? The intention is only partially to dissuade: if that were the goal, you would ban it. I don’t know about you, but I like booze, cigs, and betting. I haven’t smoked for years, but what’s life without a vice or two.
(I’ve not included the Soft Drinks Industry Levy which brings in £0.3b, not VAT collected on the goods above.)
We tax vices because there is individual utility but a society incurs a cost, either in healthcare, or maintaining order, or productivity, or something else. Which I think is a fair trade.
But there’s another activity with high societal cost.
Carbon and the environment. The figures here for 2019-20:
Total environmental taxes: £34.2b. 4.6% of revenue! Comparable to vices.
I’m not sure I’d say that carbon is a vice itself… though maybe? Carbon is a vice for industry? That’s a metaphor that could work.
(I’ve not included Environmental Levies at £8b as these appear to be intended to restructure the wholesale energy market and go straight out again.)
Two immediate observations:
So revenue from environmental taxes, if they were high enough to do the job of dissuasion, would be declining. We can’t bank on those taxes either.
All of which makes me ask: where’s the money going to come from in the future?
What are taxes for? An economist or political scientist would have a typology, but let me guess:
The last of these is the most interesting to me. I’d not thought about taxes in that way before.
Let’s say that vice taxes and environmental taxes decline over the next decade.
What new vices do we tax to create, say, 1% of all tax revenues? (i.e. £7.4b, just under the tobacco duty tax.)
Big Tech?
I suggest Big Tech because there are a lot of calls for regulation but, as I’ve detailed before, I don’t believe it’s a good idea to have unconsidered, blunt instrument regulation (such as a “Digital Tax,” ugh). Better to have in mind specific issue which is a problem, and a hypothesis about how a given intervention will provide a remedy without over-reaching.
With that in mind:
I think we could make an argument that
are both mis-balanced in terms of individual benefit vs societal benefit. NOT that they are bad, merely that where the benefits and costs fall is out of whack. Like, scrolling Facebook is great! But it turns out that the thing to create the dopamine hit is also a radicalisation engine. Maybe we’re fine with that: cars are fun but they’re also polluting death machines, and we use taxes and regulation to distribute the load until it feels equitable.
Two ideas for new taxes!
1. Engagement Levy
Tax the app front end, which after all is the system that asks for user consent to collect data. Could you charge Twitter, or Snapchat, or Facebook based on usage measured in app-hours in the UK? Make it progressive based on an exponential: the more users who are touched, and the more hours, the higher the levy paid.
2. Anti Microtargeting Duty
On the one hand ad targeting helps businesses economically find customers; on the other it is a giant attack surface for dark propaganda. This is a classic duty: make sure the societal cost is reflected in the price paid by the advertisers. Put a duty on paid ads of, say, 1 penny, but don’t make it per impression, make it per bid. If you can find a way to reach people with fewer bids (i.e. less targeted) then you pay less.
I think we can ask the same rebalancing question of other new businesses.
Like: e-commerce. It’s hazardous for neighbourhood shopping. But, as we’ve learnt during Covid, it’s also vital resilience for the nation. So maybe the issue is homogeneity. How can that be taxed specifically?
Or: the gig economy. Uber is great for getting around town, and at least some drivers love the independence and flexibility. But the method of employment is freeloading on the state-provided welfare safety net. So what’s a duty that puts the cost back on that method of employment?
And then back to vices:
It’s telling that betting and gaming revenues have doubled in the last decade. Dopamine is the new alcohol. We’re swimming it in as a society, it’s normalised.
But there are dopamine triggers that aren’t taxed: so-called free-to-play games. They’re engagement farms sticking micro-transaction sap spiles in their players. Coins, crates, and gems, whatever.
Tax these games like casinos.