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.

Article

Climate

Comment

Politics

22 September 2024

5 min read

Climate meets politics at UN summits, so who will save us?

It's that time of year when commitments to change are sought. Is there a different way to power the energy transition?

Julia Kendal

Juila is a writer and social justice advocate.

A fallen statute with tyre tracks over it lies on the steps to a government building, in a form of protest.

Climate protest, Berlin.

Nico Roicke on Unsplash.

We’re coming up to a tipping point: the autumn equinox, when the balance of light and dark shifts. For some, this season change still carries the possibility of September – new term, fresh notebook; for others, myself included, there’s more a feeling of ‘here we go again’ with the nights closing in and the hurtle to the end of another year.

On the global scale, it also kicks off the pattern of international summits and negotiations to drive progress on making this world, our world, a bit fairer, safer, and more hopeful. World leaders gather in New York for the United Nations (UN) General Assembly; then it won’t be long until the next UN Climate Summit (COP29) in Baku, swiftly followed by discussions in Busan to create a new UN Treaty to end plastic pollution. Perhaps that draws another sigh; here we go again.

But there’s something new this time on the agenda in New York: the UN’s Summit of the Future on 22-23 September. It is being touted as a ‘once-in-a-generation’ opportunity to forge a better way forward. Will this be the moment that saves not just us, but future generations and the natural world too?

A few years ago, I was involved in organising an event that brought together experts in sustainable development from science, government and civil society. To get the conversation going, we wrote this question on a flipchart: What will save us over the next decade? We asked people to cast their vote with a sticker, giving them just three options: government; society; technology.

As people gathered around, we noticed a general pattern emerging:

the scientists voted for government
the civil servants voted for society
people from civil society voted for technology

There seemed to be subtext to all this:

‘Who will save us?

Not me.’

I wonder if in that moment, the people voting – knowledgeable and connected, experts in their industries – were feeling the limits of their power.

When we brush up against our own limitations, it can be tempting to look elsewhere for reassurance. I find hope in a too-little-known story of change, a kind of David and Goliath story , that cuts across government, society and technology. A story that has seen leaders held to account, voices heard and literally billions of dollars shifted out of fossil fuels and into clean energy.

It might seem distant from our day to day lives, such wrangling over exact punctuation at global summits. But these commitments can have long-lasting influence.

People said it was impossible, because no one had ever done it before. For decades, the UK and other wealthy nations provided billions in taxpayers’ money for fossil fuel projects in other countries around the world. People’s taxes were spent on a gas plant in Mozambique, oil fields in Brazil, thereby fuelling the climate crisis and risking locking low-income countries into using fossil fuels for decades to come instead of investing in the clean energy transition.

This is a transition that has begun. In most places around the world, solar and wind are cheaper and more easily accessible than oil, gas or coal. Power is transformational; it fuels homes, schools and hospitals, it unlocks jobs, education and healthcare. And it’s getting to the point where there’s little reason it can’t be renewable.

With the technology getting there, it became time for the political will to shift too. So, a few years ago, a small group of campaigners came together to push for an end to this funding in the UK. They built relationships with MPs and civil servants, they got the media interested in this fairly niche issue, and they worked with the communities affected by UK-funded projects, coming with a straight-forward message that got to the heart of the injustice: stop funding fossil fuels overseas.

And it worked. In December 2020, the UK announced an end to all taxpayer support for overseas fossil fuel projects, the first high-income country to do this. But not the last. In the run up to the 2021 UN Climate Summit, campaigners and civil servants worked to get 38 more countries and large banks to make the same commitment to end funding for fossil fuels and shift it into renewable energy projects. With Norway and Australia joining at COP28 last year, that group now numbers 41, and represents over $28 billion a year that could be shifted from fossil fuels and into clean energy.

It’s not been plain sailing, and it’s not fully in the bag. For a few years, I got work alongside the incredible advocates at the frontline of this work. A few weeks ago, some of them published a new report which found good progress on the fossil fuels part of the pledge but much more work needed from governments on getting that money into the renewable energy projects that could be transformative for the 685 million people who currently don’t have access to electricity.

This story reminds me that ‘saving us’ isn’t a once and done thing. It’s bigger than that; something to be lived out, imperfectly, with others, over the years.

One of the hot topics at the Summit for the Future, is whether the leaders can agree to transition away from fossil fuels in a new ‘Pact for the Future’, echoing language that was fought for, weakened, then mostly put back into the final commitment made at COP28 last year. (This counts as a high stakes drama in the climate policy world). It might seem distant from our day to day lives, such wrangling over exact punctuation at global summits. But these commitments can have long-lasting influence. For nearly 80 years, the Universal Declaration of Human Rights has been protecting people – or showing the gap when their rights are being violated.

And really, this isn’t just about words, it’s about power.

Part of the problem with our question on that flipchart was that it divorced people and opportunities, rather than bringing them together. The best way of driving change is to build collective power, holding each other and our decision-makers to account.

Perhaps thinking of the future brings more fear than hope. But this story reminds me that ‘saving us’ isn’t a once and done thing. It’s bigger than that; something to be lived out, imperfectly, with others, over the years. And lived out with God. This is a partnership that he invites us into: to join in his work of seeing a world full of potential being nurtured and restored. We might not see the whole change we hope for, but sometimes we’ll get to see the scales tip.

The energy transition has begun – but it’ll take the collective influence of a movement of people to ensure that it’s fast, fair and serves those who need it most. With a big gap remaining between the finance needed and the finance pledged, all eyes are on this year's COP29 in Baku to see tangible progress.

Here we go again.