Posted by Milad Shojaei, a trainee legal advisor at the Ministry of Justice, and strategy & engagement director at Legal Futures Associate Casedo
German investment bank Deutsche Bank recently recommended that those working remotely should pay more in taxes. The ‘What we must do to rebuild’ report suggested this was a viable solution to create a more inclusive economy.
It proposed a tax of 5% on a worker’s salary for each work from home day post-pandemic (ie, when they have a choice). It would be paid to low-income people who cannot work from home.
The bank contends that this would assist unemployed individuals, while also levelling the playing field by enabling those who can’t work from home to save. The move to permanent home-working would also allow companies to make considerable savings on office maintenance and downsizing.
The pandemic has led to a tenfold rise in the number of people working from home. As it stands, 47% of workers in the UK operate remotely and 56% in the US. The report’s findings indicate that remote working will continue post-pandemic and that people will make an active decision to work from home, despite any additional taxes.
With the Covid-19 global crisis having a devastating impact on poverty and inequality internationally, those who can work from home through flexible roles or adaptable organisations may have to pay the privilege. Deutsche Bank strategist Luke Templeman argues: “For years, we have needed a tax on remote workers – Covid has just made it obvious.”
A sensible proposal?
Deutsche Bank’s report submits that people who work from home contribute less to the infrastructure of the economy while taking advantage of its resources. Remote workers benefit substantially from savings in commuting, dining, work-related socialising and buying clothes. Research indicates they are have better job security and flexibility.
However, the proposal has been criticised as virtue-signalling. Many economists have highlighted that it overlooks crucial aspects of remote working, such as increased utility bills, alongside restricted access to IT services and support.
Remote working professionals also deal with isolation and mental health issues. Given the infrequent access to colleagues and managers, employees are expected to get on with intricate work independently. Studies have shown that remote workers have also worked longer hours during the week and on weekends.
By further advancing ambiguous assumptions on who will benefit from the potential grants, It appears that Deutsche Bank’s misguided proposal will effectively punish progressive employers and remote workers alike.
Is it justifiable to hold employees responsible for supplementing the income of those who remain in offices? As Jared Walczak of US thinktank Tax Foundation puts it: “The proposed remote work tax doesn’t fix a problem; it doesn’t even identify a problem worth fixing. It simply enacts a penalty on those able to work remotely.
Might the UK take up the idea?
Deutsche Bank estimates that the proposed tax could raise £7bn in the UK. According to Mr Templeman’s calculations, the tax would cost an employee on a £35,000 salary just £7 per day. The funds raised could offer a £2,000 grant to 12% of people aged over 25 and earning the minimum wage.
Deutsche Bank maintains that the tax proposals are based on millions who have worked from home during the pandemic and calculated to help us adapt to the current social environment. Comparisons have been made to the UK’s ‘window tax’, which between 1696 and 1852 placed a heavier emphasis on taxing the wealthy.
The bank suggests its recommendations are no different, and Mr Templeman argues that our tax systems must change with the revised models of working. Despite the fundamental flaws in the idea, many may inevitably see it as a desperate but necessary measure.
Chancellor Rishi Sunak has already signalled that he intends to increase taxes to pay for the pandemic recovery. The Treasury is planning to raise at least £20bn to meet the current staggering public expenditure to pay for the coronavirus recovery.
Will Deutsche Bank’s proposal be received as a sensible strategy to avoid a recession? The Institute for Fiscal Studies has warned that decisive action must be taken if we are to avoid aggravating the UK’s economic recovery. The UK government anticipates that a slower pandemic recovery will compel the Treasury to borrow more than forecast.
Given the pressure to consider all viable taxation measures, coupled with the reality that millions will permanently move to remote working, the UK government may look favourably to a flawed proposal.
Deutsche Bank’s controversial background
On the surface, Deutsche Bank’s proposals appear to side with the interests of the vulnerable during a difficult time. Yet its dubious background certainly hurts the viability of their suggestions, with former staff committing major tax fraud, engaging in covert espionage and being involved in money laundering scandals.
The bank casts a long shadow in the commercial real estate sector, with billions invested in office space. Is it more invested in protecting its investments by discouraging home-working?
Progressive taxation can be a positive step in the right direction, but levying a higher tax on employees for working remotely fails to fix the problem while penalising those who can work from home. Flexible working arrangements can facilitate higher job satisfaction and productivity, all while promoting an aptitude for innovation and technology.
Working from home is a relatively new phenomenon that has helped salvage a world devastated by intensifying economic division. If a financial penalty is attached to the new arrangement, we will only curtail progress. So we should resist such an idea – both face-to-face and remotely.