One of the long-term consequences foreseen from the Covid-19 pandemic is that the trend for more people to work from home may continue on the basis that this has certain attractions both for employees (less time and money spent on commuting) and for employers (less expensive office space required). But not all the consequences of this trend are seen as benign. It has been suggested that this could penalise younger, less experienced workers who depend on the learning and other opportunities that happen organically interacting with colleagues in the office. It has also been suggested that this works to the advantage of well-heeled professional workers who can operate in virtual mode and for whom the costs of work are reduced, in comparison with those in lower-skilled jobs who often need to be physically present to perform their role.
A recent proposal made by a Deutsche Bank researcher to address these identifiable negative aspects of home working is for the government to tax those who choose to work from home at a rate of 5%. A second aspect of the proposal is to use the proceeds of this tax to dole out £2000 a year grants to those who are on low income and unable to work from home. It is remarkable that we have here a researcher writing on behalf of an investment bank, whose whole business is based around the creation and maintenance of markets and whose biggest challenge is to manage the ever-increasing costs of government-imposed regulation, proposing government intervention as a means to address a perceived dislocation in the job market.
Let me therefore try to set the record straight by setting out what a market-based counter-argument might look like. Let’s start, as all good proposals should by looking at the problem which we are tasked with solving. In the first instance, concerning those whose roles can be performed virtually, there is no problem, only an opportunity which is conferred somewhat unevenly. This hardly in itself constitutes a basis for seeking government intervention. So let’s look at the other aspect of the proposal. Here an opportunity is deemed to have been generated by the government having come into some windfall cash through imposing a new tax, but absent adequate justification for and consensus around the new tax, this opportunity is seen to have a somewhat tenuous basis. So the main problem addressed appears to be that for many of those in less-skilled jobs requiring physical presence, wages are on the low side, a secondary issue being the plight of those who find themselves without income or employment as a consequence of the lockdown.
But such problems are not new and the situation is not particularly changed by the advent of more working from home in professional jobs. If there existed a fair and effective way to address this situation which could garner public assent it would likely have been tried already. And indeed this has arguably happened in the shape of the minimum wage, in the raising of the threshold level for income tax and in the many other adjustments made to the income of those financially less well off through the Universal Credit scheme. If there is a proposal to make this fairer or to increase its provisions, this should stand or fall independently of whether it can be provided with a theoretical justification related to an opportunity for workers elsewhere in the economy to reduce their costs. Concerning the £2,000 grant idea, our recent experience with the fraud and abuse engendered by making grants and loans available to those claiming to be negatively impacted by the lockdown should give us caution.
So in terms of residual problems, we are left with the inequity of the distribution of benefits which the new opportunity of working from home brings. Let us ask ourselves: can the market help with this and, if so, is it not better for the government to abstain from getting involved? Might not market forces naturally come to our aid in this matter? The thing about opportunities is that they induce people to modify their behaviour and choices. Let us look at the rational response of various agents and see whether this is likely to lead to more or less equitable outcomes, absent any explicit government intervention.
In the case of existing employees, many would be likely over time to move away from over-populated city centres. Indeed house prices have already been rising in the suburbs of London this year, apparently for this reason. Not only that, they may move out of cities altogether in favour of cheaper accommodation in more provincial towns. This will lead to downward pressure on rents and house prices in city centres, easing the burden for those who have no choice but to work in these areas. A secondary benefit is that many provincial towns or villages might benefit from the arrival of a significant number of well-to-do professionals who would bring a welcome boost to the local economy. This would potentially help finance new infrastructure which would be to the benefit of all the local community.
But of course, in the long term the opportunities brought by working from home would not only affect existing employees. Graduates applying for jobs in the future would no longer be disadvantaged by being geographically remote from the offices of their potential employers. By securing a highly remunerative job at a top company without having to leave their home town, they would similarly have more money to spend in the local economy. In this way, issues with the north-south divide in the UK could begin to be addressed: rather than sending government funds to address economic disparities, virtual jobs could achieve the result of starting to address the blight of growing unemployment in provincial areas.
In the case of employers, the ability to employ workers remotely would reduce their running costs so enhancing efficiency and profitability. They might consequently look to expand their business, so creating new employment opportunities, locally or at a distance. This has effectively already been happening through offshoring to India, East Europe and elsewhere. There is no reason why similar benefits could not accrue within the UK. Of course, many employers would likely also consider accelerating the process which has already been initiated of moving HQs out of London to more provincial areas, so reducing their costs, without the risk of drawing on a depleted pool of talent through not being in the Metropolis. This would also naturally boost the local economy, in likelihood creating new spin-off business and employment opportunities, much as has happened in recent decades in the City of London and Canary Wharf.
Another upshot of more HQs being based up north is that this might help shore up the shaky business case for HS2. On those occasions when staff needed to get together at a common location, this could be done quickly and efficiently by their making use of the new generation of high-speed trains. The high expense of these occasional journeys could be offset against the various savings made by employers and employees alike through the latter’s working from home.
In the alternative, we could consider imposing a hefty tax, the chilling effects of which will be felt by employers and employees alike, discouraging both from taking advantage of the many opportunities that working from home brings. But we have already seen how the government’s most recent hikes in income tax and stamp duty resulted in little increase in revenue as those affected sought ways to avoid the tax. The knock-on effects of the opportunity brought by working from home which might be enjoyed by millions would be curtailed. Should we not put our trust in the wisdom of crowds to make the best of the opportunity, rather than in the UK government whose command of wisdom has not been particularly in evidence over the last few months or indeed years?