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

Ethics

General Election 24

Politics

Trust

8 July 2024

7 min read

The problems Keir Starmer faces are not just political - they are spiritual

His greatest battle may be the fight for our trust.

Graham Tomlin

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

The beginning of a new government is a bit like the beginning of a new football season. Nothing yet has gone wrong. The future seems full of promise. The grim memory of last season is in the past. Hope is in the air.

Keir Starmer, in his early speeches as Prime Minister, sound some familiar notes. He speaks of “a weariness in the heart of a nation, a draining away of the hope, the spirit, the belief in a better future that we need to move forward together.” While not quite Margaret Thatcher’s invoking the spirit of St Francis in 1979, Sir Keir was reaching for something deeper than the practicalities of politics, for bigger themes, more resonant ideas. Yet there was one note that caught my eye, not just in these speeches but also before that in the election campaign – a theme that cropped up often – the need for trust.

On the day after the election, when the confirmation came through that Labour had won, in an early morning speech to supporters delivered at the Tate Modern, he said this: “Make no mistake, this is the greatest test for politics in this era – the fight for trust is the battle that defines our age.”

Keir Starmer has put his finger on something. As Martin Kettle in the Guardian put it, “Whether you approve of Keir Starmer’s election strategy or not, it is a matter of observable fact that he has centred it upon the regaining of trust.” The Labour manifesto claimed that “over the last 14 years, trust in politics has been shattered.” It went on: “sleaze and scandal have eroded trust. Just as corrosive has been the inability of politicians to keep promises made to the British people.” Among the main reasons the Conservatives were roundly rejected were the actions of Boris Johnson’s inner circle, who partied in Downing Street while families were avoiding each other and staying away from their parents’ funerals (I know – I was one of them). I'm not sure that he and his party realised how corrosive and damaging that was to public trust in government and the Conservatives in particular. Perhaps now they know.

Trust is built when politicians keep their promises and deliver what they say they will over the months and years. It wilts in the presence of political in-fighting, bets placed by election candidates, or unfulfilled boasts to save the NHS.

Hope and trust are vital things for human life. We cannot live without them. And it’s not just in politics. The Church of England has had its own troubles with trust in recent times. A report, debated at General Synod, lamented the lack of trust in the Church, setting it in the context of a general lack of trust in institutions in our society.

Starmer understands that trust has to be earned. “This lack of trust,” he said outside No 10 Downing Street, “can only be healed by actions not words.” And trust takes time. Trust is built when politicians keep their promises and deliver what they say they will over the months and years. It wilts in the presence of political in-fighting, bets placed by election candidates, or unfulfilled boasts to save the NHS.

However, to be fair to politicians, trust has not only to be earned, it also has to be given. And we have become less trusting as a nation. The IPSOS Trust Index reveals that politicians, the media, bankers and advertising executives are our least trusted institutions. An ONS survey in 2023 revealed that trust in political parties, the media, local government, and international organisations was at its lowest level for years. A survey of over 36,000 interviews across 28 countries revealed “a world ensnared in a vicious cycle of distrust, fuelled by a growing lack of faith in media and government. Through disinformation and division, these two institutions are feeding the cycle and exploiting it for commercial and political gain.”

To break what it called the ‘cycle of distrust’, it recommended demonstrating tangible progress, focussing on long-term thinking and providing credible information. Yet I wonder if the problem lies deeper than that.

Trust is a habit. It is like a muscle. The more you exercise it, the more it tends to grow. Yet the paradox of trust is that without trustworthy objects in our lives, it becomes hard to exercise that muscle. A child growing up with parents who regularly deceive and lie to him, promising but not showing up to sports events, hinting at presents that never actually turn up, quickly learns that trust doesn't work. The disappointment is too great to bear. Cynicism works better. He learns to take everything with a pinch of salt, to be wary of promises, and that a guarded attitude where the default position is not to believe is a safer option.

In a broken and fallen world, trust is a fragile thing. Some people and institutions will be more trustworthy than others, but even the best will get things wrong...

The problem politicians face is that politics, as they say, is the art of the possible, and along the way, whether due to financial constraints, or the need to do deals with allies, political opponents, or (more likely for Starmer, given the size of his majority) within your own party, compromises have to be made, promises ‘re-aligned’ if not actually broken, which is where distrust starts to creep in. Nick Clegg famously made a promise that his party would never increase student fees, yet in the cut and thrust of actually having to govern, he had to break that promise, and his version of the Liberal Democrat party never recovered.

A little while ago, I interviewed Esau McCaulley, an African-American theologian and New York Times columnist with a fascinating backstory. His childhood in the backstreets of Alabama was complicated by an intermittently absent and unreliable father, whose promises were broken again and again. Esau learnt to approach the world with wariness, burned by broken promises. Yet somehow, through the determination of a good mother and the steady influence of a local church, he learnt to trust again. As he put it: “others must own their scepticism, and I my trust, both of which arise out of deeply held convictions about the nature of reality.”

Like Starmer, McCaulley has put his finger on something. The question of whether or not we believe ultimate reality can be trusted lies beneath our cultural tendencies towards trust or mistrust. Ultimately, trust needs a transcendent object. In a broken and fallen world, trust is a fragile thing. Some people and institutions will be more trustworthy than others, but even the best will get things wrong and when those people and institutions that we have trusted implicitly let us down, it is the hardest fall of all.

Judaism and Christianity, in particular the latter, have made a big deal about faith and trust. The Bible is not a list of pithy, timeless aphorisms, but consists of a story across time – and as we saw, trust takes time. One of the central characteristics of the God of the Christian Bible is faithfulness across time. It tells the story of a God who makes a world with a regularity that can be trusted, where the sun rises and sets, light follows darkness, where the fluctuations of a dynamic planet are contained - hence the symbol of the rainbow as a sign that God will not ultimately destroy his creation. When the creation is disrupted by a primeval act of rebellion by the very species that was intended to care for the creation, God promises to send a rescuer from out of that very species to redeem it, a promise fulfilled in Jesus Christ. It then promises the as-yet-unfulfilled hope that the world will one day be healed and brought to its fullness. We do not yet see that, but on the basis of promises previously kept, we are invited to trust. The narrative arc of the Bible is a story that is designed to inculcate trust.

Contemporary spirituality does not have such a focus on faithfulness in time. An appeal to ‘find our spiritual centre’, to ‘accept the present moment’ may bring a temporary sense of peace and serenity. It doesn’t rebuild trust. Because trust, as Keir Starmer has recognised, is built slowly over time by trusting in someone who proves themselves trustworthy.

Having such a transcendent horizon of faith tends to build the muscle of trust. It turns the dial from the default of distrust to that of trust. It becomes just a little easier to handle the disappointments of broken promises in this world because ultimate reality can be trusted.

All this tells us that the deepest problems we face as the new government begins its work are not just political - they are spiritual. I for one hope and pray that Keir Starmer's government will be as trustworthy as he hopes it will be. It would be wonderful if they can rebuild a sense of trust in politics. But there are limits to what politics and politicians can do. They cannot ultimately heal our hearts from the damage done to our ability to trust. Only a faithful God can do that.

Starmer is, well known as an atheist. In seeking to build trust, he has hit the right note. In identifying trust as the key issue of the day, he is perhaps unknowingly reaching out for the God he doesn’t believe in, but who builds trust in those who do.