Hamish McRae: Social change is consigning the 9-to-5 office job to the past

For many of us, more flexible working practices will be a liberation

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The Independent Online

Economists become so focused on the detail – each new twist of the data, every cryptic statement by some central banker – that they tend to ignore the seismic shifts that are taking place in the world economy. It took a long time, for example, for the developed world to grasp the significance of the rise of the big emerging economics until the expression the BRICs moved into our language.

But now something is happening here in Britain, probably more quickly than in other economies, that is almost as important as the rise of the BRICs, but which has attracted much less attention. It is the changing way in which we work. There are five related changes in the UK labour market that taken together constitute a true revolution.

One is the rise in self-employment. This has been rising steadily over the past three years and is now nearly 15 per cent of all workers. Second is the rise in part-time working: more than 8 million people are now working part-time compared with 21.4 million full-time. Next is the rise in home-working, both among the self-employed and the employed, which on average in the UK accounts for 13 per cent of the workforce, with more than 15 per cent in the South-west and South-east of England. Fourth comes the rise in incorporation: people working for a company they themselves have set up. The figures for self-employment exclude these, so the number of self-employed is actually even higher than it appears. And finally there is the rise in people working beyond normal retirement age, some 930,000 at the latest count, up more than 100,000 over the past two years.

Of course, not all these changes are voluntary. Some of the self-employed are people made redundant and who cannot find another job. A lot of part-timers say they would prefer a full-time job if they could get one. Some home-workers might well prefer to go to an office if that were practicable. While incorporation may be driven partly by tax considerations, we have had recent evidence of employers, including the BBC, encouraging freelances into forming a company. And finally many would-be retirees are continuing to work ,not because they want to, but because their pensions are inadequate.

But while I don't think we should glamorise these changes I don't think we should demonise them either. For many, the more flexible lifestyles will be a liberation: freedom from the drudgery of commuting and the need to fit in with a disagreeable employer. For others, it will be an insecure and worrying life: having to cope with pensions, taxes and all the other things an employer would normally do, as well as finding customers who will pay them to do the work.

Nothing is forever and we should not assume that this shift to more flexible working practices will carry on in a straight line. But some aspects will continue for another generation at least, notably the rise in people working beyond normal retirement age. I suspect, too, that the move towards home-working will carry on, as technology makes this more and more practicable. People still have to meet from time to time, so the home becomes the factory, while the office is a club.

The idea that we will be divided into core workers and portfolio workers was first developed by Charles Handy, and was sketched in his book The Age of Unreason back in 1989. People would spend the early part of their careers as core workers, learning the skills and building the contacts; then they would move to a portfolio lifestyle, with a range of different activities. But that was only available for a relatively small number. What has happened since then has been the revolution in communications technology, which has transformed the process – and with it our lives.

Did the 50p tax rate reduce our revenue?

Now back to the detail. It looks very much as though the Government will miss its borrowing target for this year, in effect pushing back its deficit reduction programme by a year. With the accounts for the first four months of this financial year now published, we are running behind last year in cutting our borrowings, instead of ahead of it.

The key problem is what is happening to tax revenues. Take the first four months, rather than just the July numbers. Overall revenues are up only 1.1 per cent year on year, while current spending is up 3.5 per cent. But some revenues are fine: VAT receipts are up 4.8 per cent, while National Insurance Contributions are up 4.4 per cent. That suggests, allowing for inflation, that the economy has grown by about 1 per cent, maybe a little more, over the past year.

The revenue problem is partly corporation tax, down 10.4 per cent, apparently reflecting poor North Sea oil profits. But the really troubling number is that receipts from income and capital gains tax, our biggest tax of all, are down 0.5 per cent year on year. The NIC data suggests it should be up by at least 4 per cent. We should wait for a fuller analysis, but it looks as though the 50p tax rate (set to fall to 45p next year) may be costing the Exchequer between £5bn and £10bn a year.