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

Character

Comment

Politics

Virtues

5 March 2025

5 min read

Are virtues irrelevant in today’s uncertain politics?

We need to exercise the character traits that uphold our values.

Emerson Csorba

Emerson writes on geopolitics. He is also a business executive and holds a doctorate in theology.

President Zelensky raises a hand while President Trump talks at him.

MSNBC.

In Oliver O'Donovan's Finding and Seeking, the theologian makes a telling comment about virtue, virtue referring to ‘the goodness the world has already seen and known…. Talk about virtue is always third person talk, observers’ talk about deeds that have already taken determinate form.’

Put differently, virtue is about the past. It is about how others have lived and acted in admirable ways. But it is not about today, in all of its ambiguity and uncertainty.

To put it directly – virtue falls apart when hit with reality. It is easy to talk about what virtuous people have done, much harder to be virtuous in the present. Or so O’Donovan says.

There has been a lot of talk over recent years about the need for virtues and values in politics (and in the world more widely), but what even are these things?

Values are principles or standards that individuals or societies consider important.

Virtues are moral excellences or traits of character, such as courage, patience, or humility.

Virtues are the moral character traits individuals need to uphold values, in practice.

When thinking about virtues and values, I often reflect on a simple but profound point made by Nigel Biggar speaking at Oxford University many years ago:

"If you want pure heroes, you won't have any."

Put differently, people – including the most virtuous at first glance – are complicated.

Yet, our world is one in which virtue seems to be in short supply. Some would even say virtue (and values) are non-existent, or on the verge of extinction.

The older I become, the more I am left reflecting on why it is that so few individuals – in political life, but also more generally – seem to live without principle. Integrity – which I define as ‘your word (or principle), and action aligning’ – seems increasingly a thing of the past.

Many seem to think that integrity is ‘old-fashioned,’ acting accordingly, saying one thing and doing another as if there are no repercussions.

This is replaced with an ‘anything goes’ mentality, focused on short-term gratification. It is a “you do you” culture, acting without conscience. People seem to believe there are few if any repercussions for doing bad things. This culture is not only permitted, but even celebrated.

The American situation is, of course, the example par excellence of this. American politicians and diplomats wake up each morning waiting for what their President will write on social media, responding accordingly. Alliances are thrown out the window. Nothing is off the table.

There is seemingly less interest in Western societies in being good persons, doing what is right in hard circumstances, and where few or no people are watching.

Whether in politics or in society more widely, people seem increasingly focused on protecting themselves, doing whatever they need to do to get ahead, rather than looking out for each other.

So where do we draw the line? Is there space for virtue (and values) in a world where growth is slowing, and more people are battling for parts of a shrinking pie?

I believe the answer is yes. My sense is that many people are today yearning for clarity of values and virtues in a world that is becoming much more anchorless.

There does then seem to be interest in values and virtues, but it is perhaps worth remembering that values and virtues are like muscles... It is possible to lose these muscles without practice.

In my home of Canada, where I recently moved back, many value decency, politeness, and a sense of moderation.

In 1955, while serving as Canada’s Secretary of State for External Affairs, Lester B Pearson put his figure on this pulse, delivering a series of lectures at Princeton University entitled Democracy in the World. Pearson argued that a sense of moderation is a leading value for Canadians.

He described this as a ‘confidence in the ability of the peoples and the leaders of democratic nations to grow into the new situations and to accept the greater self-discipline which the preservation of freedom in an interdependent world requires.’

And he saw Canada as especially emblematic of this ability to grow into new situations, this adaptability in working in an interdependent world.

Many Canadians believe that the thirteen provinces and territories need to adapt and work together in order to respond to the threat of the United States.

The candidate for Leader of the Liberal Party, Mark Carney, seems to agree (and is rising in the polls because of this), whereas his opponent Pierre Poilievre is moving in the opposite direction given his more combative approach. But Poilievre has time and the opportunity to turn this around, channeling Canadians' frustrations into a vision focused on the values and virtues we share in common.

In other words, Canadians value working together when faced with challenges, valuing this solidarity when times are tough. We become more courageous the tougher things become.

The virtue of courage is here a noteworthy virtue, so well proven in the Great War battles of Vimy Ridge, Passchendaele and The Somme, or the Battle of the Atlantic in World War Two.

We see this Canadian virtue emerge often in times of crisis.

Andrew Davison in previous writing in Seen & Unseen is especially eloquent on courage, writing that this virtue is:

‘both bracing and realistic. It reminds us that all is not well with the world. We will often need courage because doing the right thing can be costly.’

There does then seem to be interest in values and virtues, but it is perhaps worth remembering that values and virtues are like muscles – a point made by Carney in previous writing and speeches. And Poilievre, well-known for his considerable discipline, certainly understands the importance of the exertion that builds muscle."

It is possible to lose these muscles without practice. Over recent years, societies and individuals have become more permissive, rather than encouraging consistent exercise.

The question therefore is less about whether values or virtues will survive in the harsh light of reality. Instead, it is whether societies – their political representatives and citizens – are open to making the short-term investments necessary to uphold what they believe is good in their countries and in the world?

A tall task, to be sure, but one that I believe is both possible and necessary for Canadians and non-Canadians alike. Canada can here be an example for the world.

This task – upholding certain values and virtues, is not third person talk, as O’Donovan suggests. It is rather an imperative for action in the present. We are called to act accordingly today.