Article

Economics

Politics

24 October 2024

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.

Laurence Fletcher

Laurence Fletcher is a journalist at the Financial Times.

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.

Review

Books

Culture

Leading

Politics

20 November 2024

5 min read

Blair’s revelatory sermon to Starmer

What can the former Prime Minister teach about leadership?

Krish Kandiah

Krish is a social entrepreneur partnering across civil society, faith communities, government and philanthropy. He founded The Sanctuary Foundation.

Tony Blair at rest.

The 1990s are enjoying a revival—from the return of baggy jeans and bucket hats to the reunion of Oasis, and, perhaps most significantly, a Labour government in power once again. Unlike the fervent optimism of 1997, when Tony Blair swept to victory with D: ream’s hit song Things Can Only Get Better as an anthem, today’s Labour government faces criticism for a perceived lack of vision. Luckily, Tony Blair has just released his new book: On Leadership—perhaps a timely read for the current Prime Minister.

Blair's leadership credentials are, at one level at least, pretty impressive: he won three consecutive elections and was the first Labour Prime Minister to do so. His achievements include playing a crucial role in the Northern Ireland Peace Process, reducing NHS wait times, and making a substantial investment in public services. Blair also took a courageous stance with U.S. President Bill Clinton by intervening in the Kosovo conflict against the advice of the UN. He remains however indelibly associated with the controversial 2003 invasion of Iraq that resulted in the deaths of 179 British personnel, and hundreds of thousands of Iraqi civilians.

In this climate of scepticism toward political leaders, Blair's reflections on leadership invite critical questions: Who is this book for? Where is the vision? And even, intriguingly, do we now 'do God'?

Who's it for?

Blair’s book is not a typical guide to general leadership principles; rather, it’s an insider’s view on leading a country. For the average reader, it’s like overhearing a high-level seminar on statecraft—a glimpse into the “room where it happens.”

Maybe there’s a bit of an audience reality check going on in the same way that a TV documentary on what-it’s-really-like-to-be-the-England-football-manager might deliver. Many football fans are happy to shout at our televisions when most have not got even the remotest clue of the challenges and pressures national coaches are under. So perhaps if Blair can tell us how hard it is to handle the myriads of competing challenges as the leader of a nation, readers might better understand the weight of leadership and approach politics – and politicians -with greater humility.

One of the most helpful reflections the book offers was Blair’s self-analysis on three stages of leadership. The first is the new leader listening eagerly; the second comes when they think they know everything, and finally, there’s a third stage of maturity when “once again, with more humility, they listen and learn”. He argues that his book’s purpose is to shorten the learning curve and get leaders to the third stage more quickly.
This a noble cause, but there are times when this book feels like a sermon preached by a slightly unscrupulous vicar, in a church where everyone knows there’s only one person the preacher has in mind. This can make everyone else feel they are there just to fill up the pews so that the message gets delivered. For Blair, his message and his book seem to be very much for Sir Keir Starmer; a plea to him to listen and learn from others.

Where’s the vision?

Blair encourages leaders to make a meaningful impact with their time in office. Recalling a conversation with Shimon Peres, he writes, “Do you want to be in the history books or the visitors’ book?” For Blair, leadership is about pushing boundaries, meeting resistance with persistence, and making difficult choices when others hesitate. He writes, “If you, as a leader, are not a changemaker in this world, it is you who will be changed.” His words on taking risks and demonstrating resilience are certainly inspiring. However, he often focuses on how to lead effectively, with limited exploration of what motivates us to seek positions of leadership in the first place — a disappointing missing focus on moral purpose.

This emphasis on strategy over ideology is evident in chapter titles: The Supreme Importance of Strategy versus The Plague of Ideology. Blair is critical of rigid ideologies, advocating instead for flexibility and pragmatism. He contrasts ideological rigidity with a more agile and pragmatic approach, which could sound like its own simply going-with-the-flow ideology, - a situational ethical approach. This feels very different to the Tony Blair that took on the United Nations over the Serbian genocide in Kosovo. He appeared to take a moral stance driven by a commitment to human rights rather than going with a more pragmatic laissez-faire solution. Blair’s emphasis on pragmatism, while useful, may leave readers wanting more on the values that shape a visionary leader.

Blair includes a joke, a very good one, that feels accidentally pertinent: some people die and the Devil appears and asks them, before they settle for Heaven, to take a look at Hell, because it’s not as bad as they’ve heard. When they see the “drinking and debauchery” in Hell, they ask to be damned. But then they wake up in the real Hell – “cold, miserable and horrible” – and demand to know why it looks nothing like what the Devil showed them. “Ah well,” says the Devil, “back then I was campaigning.”

He meant it as a joke, but the lack of moral clarity in the book made me feel he was sharing more than he intended about the state of political leadership right now. Perhaps sharing to many more than just those he wrote this sermon for. It certainly encapsulates the growing chasm between political promises and reality, as well as illustrating the reason why many people feel disdain, distrust and disappointment in all politicians who say whatever they need to say to get elected.

Are we doing God now?

Famously, when asked about his faith while Prime Minister, Blair was interrupted by his press secretary, Alastair Campbell, who declared, “We don’t do God.” Yet in this book, Blair invokes Moses as an example of leadership under difficult circumstances: “Never underestimate the degree to which people crave leadership. Back to Moses again. The Israelites simultaneously hated and craved his leadership. If you remember, they reached the promised land (though, yes, I know, he didn't).”

Blair sees in Moses a leader who maintained strength and conviction, even in the face of public criticism—a relatable comparison for politicians navigating the pressures of modern social media. Whether or not Blair is “doing God” in this book, he draws inspiration from Moses as a model of resilience and substance, inviting readers to consider leadership as a balance between staying grounded in one’s values and withstanding external pressure.

In the end, On Leadership is a reflective, sometimes provocative take on leading a nation, full of insights that swing from the practical to the idealistic. But it also raises important questions about the ultimate purpose of leadership and the need for a clear moral compass. For a public that remains sceptical of political motives, Blair’s leadership lessons may provide timely, if imperfect, revelation.