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Economics
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1 min read

How can taxes build a better society?

As we await Rachel Reeve's budget announcement, Laurence Fletcher wonders what positive tweaks can be made to our economic system.
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Few doubt that Chancellor, Rachel Reeves, will be putting up taxes when she presents her first Budget on October 30. The political narrative of recent months has very much been of an alleged fiscal “black hole” of £22bn - or is it £40bn? - that somehow needs to be filled.

While the size of the shortfall and the identity of those responsible are both hotly disputed, and despite a lack of detail from the Treasury about what it actually consists of, the questions now being asked are not whether taxes will rise but which ones and by how much. 

Months of speculation have focused on employer National Insurance, capital gains tax and freezing income tax thresholds as areas that Reeves could look to for the additional revenue. But beyond the immediate issue of raising enough revenue to make good any shortfall, lies a deeper, trickier question about the way in which taxes should be levied for the good of society. If a government is to force people and companies to hand over their money, then what is the most ethical way to do this? Who should pay and who shouldn’t? How can tax be used to reduce inequality and build a better society?

Answering such questions is, of course, far from straightforward, because there are plenty of other factors in play.

For instance, some taxes are surely levied because they are simpler to collect. Take income tax - an unpopular measure introduced in 1799, then abolished before being reintroduced as a supposed temporary measure. It could certainly be argued that taxing people’s income - their attempt to get on in life and improve their lot in life - is less “fair” than taxing wealth that has been accumulated by someone’s ancestors years ago. Working hard and earning income is often surely a way of breaking down class divisions. But income tax - contributing 28 per cent of UK government tax take in 2023-24, according to The Institute for Fiscal Studies - has the advantage that it is relatively difficult for the average worker at a UK company to avoid it. Ease of levying it is surely a driver. 

Equally, some taxes that might seem “fairer” have deliberately not been levied because of the difficulty in collecting them, and/or because to try to do so could be counterproductive. A wealth tax, for instance, would be “economically damaging”, according to one of the UK’s highest profile tax experts, Dan Neidle. Or take the politically contentious issue of non-doms, a colonial era tax break allowing rich foreigners to avoid UK tax on overseas income. It would be fairer, the argument goes, to tax them on the whole of their income. If they are going to be resident in the UK, then surely they should be taxed like a UK resident whose home is here?

Former Chancellor Jeremy Hunt abolished this regime earlier this year but left a number of concessions that the incoming Labour government pledged to abolish. But non-doms are tax-sensitive and highly mobile, and a number of jurisdictions compete to attract them. Many are entrepreneurs and wealth creators that many countries need. Reports have suggested a clampdown could raise no money or even cost money and could drive people away.

So what can be done to use tax in an ethical way? Paul Williams, research professor of marketplace theology and leadership at Regent College, Vancouver and chief executive of the Bible Society, takes a perspective that he believes offers some solutions.

He takes as his starting point a story in the gospels, where Jesus is asked whether people should pay taxes to Caesar. The question is a trap - either Jesus gives his backing to taxation that is highly unpopular with the Jewish people, or he rejects the tax in an act of rebellion against the Romans.

Jesus replies that they should “pay to the Emperor what belongs to the Emperor, and pay to God what belongs to God.” We are to pay our taxes to those in authority, but we are also to honour God.

While Williams believes that too much emphasis is placed on the Budget and political parties’ promises to be able to fix everything, and that a more radical rethink of our economy is required, he also sees room for positive tweaks to the current system.

One key area is the property market, the manifestation of so much inequality in society, with some people owning multiple houses while others cannot afford to buy one. Williams argues that the ready availability of debt finance has allowed those who already hold assets to easily acquire properties, turning real estate into an investable asset class to the detriment of many of the poorer in society.

“The reason there’s so many homeless people and empty houses is due to debt finance. It makes it easy for a relatively small proportion of the population to acquire a large percentage of the assets.

“The system has allowed a structure in which a small advantage in the beginning can lead to big, big differences over time.”

Williams highlights parts of Devon and Cornwall that have been “completely ruined” by wealthy people from elsewhere buying second homes that used to belong to locals, leaving property out of reach of anyone who lives and works there.

Nevertheless, he believes taxation can be used in this area to help level the playing field.

He proposes a “pretty punitive” marginal rate of tax on ownership of more than one home. (Stamp duty only partly does the job and is a blunt instrument also affecting people moving homes, thereby makes mobility expensive).

“You want to disincentivise the way the housing market is used for speculation,” he says.

“Housing is being treated as a commodity. The problem is, it’s not; it’s not just an asset. It has utility value and a communal and quasi-spiritual value, enabling people to feel rooted.”

Buy-to-lets, meanwhile, are better than having empty second or third homes, but “wouldn’t it be better if occupiers could buy that house?” he adds.

Meanwhile, research by the Financial Times recently found a huge wealth gap between the average millennial and the top 10 per cent of millennials, who are benefiting from family wealth to accumulate substantial housing assets. 

So would increasing the rate of inheritance tax - one of the most hated of taxes - and/or lowering the threshold also help reduce some of this inequality? After all, how is it fair that one child in the UK is born to inherit large property wealth while another is born to inherit little or nothing? Or, even worse, that second child will only ever be able to afford to be the tenant of the first, paying them rent for the rest of their lives? Williams is not a fan of inheritance tax per se, arguing that it is “not part of the package” in a Biblical image of a flourishing economy. But he adds an important caveat: “the playing field is not level".

“There might be circumstances to impose a one-off tax on the very wealthy… if you want a transition to a more equitable society.”

Such steps are not easy to take. It is, he admits, probably “career suicide” for a politician to adopt such views. But if we are to take steps towards a fairer way of life, and avoid a two-tier society in decades to come, then maybe the conversation needs to shift this way. Perhaps the Budget could be the time to start.

 

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How to survive a culture war

Blaise Pascal shows us what really underlies our contemporary battles.

Graham is the Director of the Centre for Cultural Witness and a former Bishop of Kensington.

Two goats lock horns.
Maxime Gilbert on Unsplash.

We often say these days that we are more polarised as a society than ever before. But we're wrong. Maybe the USA is experiencing a particularly sharp divide right now, but they have had their own, much more violent troubles in the past. And in Europe, and especially in Britain, we know a fair bit about culture wars that were literally that – wars.  

In the 17th century, we English had our own civil war where we literally killed each other over religion and politics. We even killed a king. The French did something similar and even more vicious just over 100 years later. That is real polarisation. However spiteful Twitter/X arguments may get, I don't think Charles III or even Kier Starmer is quaking in their beds expecting to be put on trial for treason.  

So maybe our history has something to teach us about how we navigate culture wars.  

The literary critic Terry Eagleton once wrote of our age:  

“the world is accordingly divided between those who believe too much and those who believe too little. While some lack all conviction, others are full of passionate intensity.” 

 We tend to think our contemporary divide between left and right, progressives and conservatives is something new. But we can find echoes of this in previous times.  

A case in point was the mid-17th century – the time of many other upheavals in Europe. Part of the febrile atmosphere of the time saw fierce arguments between rationalists and sceptics.  

There were at the time, two broad strands of thinking about the human condition. On the one had there were the ‘Dogmatists’ who were sure that they knew everything through use of reason or the application of philosophical or scientific method (like René Descartes). On the other hand, there were the ‘Sceptics’ who thought everything was random, or custom, and there is no final Truth to be found (like a figure from the century before – Michel de Montaigne). 

Of course, our own time has its fair share of people with an overwhelming confidence in the power of human knowledge, and the physical sciences in particular, to unlock the secrets of life, the universe and everything. The ‘new atheist’ project of Richard Dawkins and friends was hugely confident in reason and its capacity to tell us all we need to know, dispatching religion to the dustbin of history and instead placing an unshakable faith in the empirical methods of science. It had - and has - definite similarities with this picture of human knowledge.  

Yet on the other hand we also have, in the progressive postmodern project, those who reject any kind of underlying rationality or sacred order either above us or beneath us. For them, there is no underlying Truth to be discovered, and they delight in revealing the instability and illusory nature of any claim to truth. It sounds very much like the culture wars of our time. 

One enigmatic 17th century figure charted a way through this dilemma - Blaise Pascal. When he looked at his century’s culture war, he thought both sides had a point. There is, he observed… 

…open war between men in which everyone is obliged to take sides, either with the dogmatists or with the sceptics, because anyone who imagines he can stay neutral is a sceptic par excellence…. Who will unravel such a tangle? This is certainly beyond dogmatism and scepticism, beyond all human philosophy. Humanity transcends humanity. Let us then concede to the sceptics what they have so often proclaimed that truth lies beyond our scope and is an unattainable quarry, that it is no earthly denizen, but at home in heaven lying in the lap of God, to be known only insofar as it pleases him to reveal it. 

So far, he says, the sceptics, like Montaigne, are right. Truth is beyond our grasp, it does not reside here on earth, openly obvious and ready to be found. If it exists, it exists in some world above us, beyond our reach. How do we even know if we are asleep or awake, given that when we dream, we are as convinced that we are awake as we are when we are truly awake?  

And so, modern progressives, looking to dismantle the assumed results of previous understanding, due to its inherent colonial, patriarchal or abusive past, delight in showing how random and arbitrary is so much of what we take for granted from the past. And, Pascal would add, they have a point. Many of our legal, political and cultural assumptions are purely cultural and arbitrary, and sometimes simply serve to the advantage of the rich and powerful rather than the poor and marginalised. 

Yet on the other side, the ‘dogmatists’, like Descartes, have their strong point, which is that we cannot doubt natural principles. The acids of deconstruction can only take you so far. The most sceptical philosopher still puts the kettle on assuming that it will boil to make a cup of tea. She gets up in the morning assuming that the sun will rise and set again at the end of the day. Despite the corrosive effects of scepticism, Pascal wrote,  

“I maintain that a perfectly genuine sceptic has never existed. Nature backs up helpless reason and stops it going so wildly astray.”  

Despite all our doubt, we still live in a world with order and predictability. Scepticism keeps bumping up against reality.   

So, modern conservatives point to a deeper ‘givenness’ to things, an order within the natural world that we did not create, and yet, mysteriously, seems to be prearranged before we got here. Scientific exploration does make sense. There is a regularity to nature that we can, indeed have to, depend on. Sexual differences exist and can’t be ignored. We are not entirely free to override the natural order of things - there is a deeper rhythm to nature and its capacity for renewal that we only mess with at our peril, as climate change has taught us. As a result, the age-old battle between rationalists and sceptics, progressives and conservatives, will never find resolution, as the arguments flow back and forth.  

Christian faith includes both progressive and conservative impulses. Christians are aware of the brokenness of the world and therefore long to see it changed. The progressive impatience with the way things are, and the yearning for a better world has its roots in Christian faith.  

Yet at the same time, Christianity discerns a divinely created order to the world, a rhythm to the natural world, that cannot be broken and needs to be respected. Therefore, an inherent conservatism is part of Christian faith as well. In other words, the Christian story can explain both and offer a bigger picture than either.  

For Pascal, Christianity offers a diagnosis for this mystery of the human condition, the complex mix of grandeur and misery, infinity and nothing, sceptic and rationalist, in the simple, yet endlessly generative idea that we humans are gloriously created, deeply fallen and yet offered redemption through Jesus Christ. Our sadness is heroic and tragic. In Pascal’s suggestive image, it is “the wretchedness of a great Lord, the wretchedness of a dispossessed king.” 

“We show our greatness,” says Pascal, “not by being at one extreme, but by touching both at once and occupying all the space in between.” For him, the very existence of such culture wars points to the truth of the Christian diagnosis of the human condition. 

Pascal offers us a way between the Scylla of Progressivism and the Charybdis of Conservatism – or perhaps better, to embrace the best of both. Culture wars are tricky to navigate. Yet they might find resolution if we allow them to point us to a deeper reality - our strange mixture of greatness and sadness. And not losing sight of either side of this enduring truth.  

 

Graham Tomlin is the author of Blaise Pascal: The Man Who Made the Modern World  (Hodder) £25.  

Watch Graham explain why he is fascinated by Pascal.

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