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.

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Comment

General Election 24

Politics

5 July 2024

5 min read

What happens when you lose an election?

Spare a thought (and prayer) for the defeated.

Ross Hendry

Ross leads CARE, a Christian social policy charity.

A mayor reads an election result as a despondent candidate looks on.

Penny Mordaunt loses in Portsmouth.

BBC News.

Friday morning, 6 May 2005 I awoke wondering whether the past few months had been a bad dream, and contemplating what my future might hold. It was the day after the general election. ‘My’ party had won, but my result, while respectable, was a distant second place. So, in the wake of this election, I know what the vast majority of the 4,379 candidates who ran are feeling, which is why I would encourage us all to spare a thought and prayer for them.

Few people apart from close family and friends and the most ardent party activists will give much attention to the candidates who lost. Perhaps a few prominent politicians will be interviewed alongside pictures of the ex-cabinet member who lost their seat to a fresh-faced young candidate. But in general, life moves swiftly on, and those who lost will be quickly forgotten about.

It's understandable. We want to know what a new Government will do – who will be the leading figures shaping our lives over the next few years. If we do think about those who lost it will be in the context of the next competition – party leadership. Will there be a change in party leaders? Which ‘faction’ will come to dominate their party, and so on. This is an important consideration.

There will be hundreds if not thousands of candidates who will need to be reminded that their identity and worth is not in politics, being a candidate, or seeking the approval of local voters.

Of the 3,729 candidates not elected to sit in Parliament for the next five years many will face a similar mixture of emotions as I did on that morning in 2005. There may be regret and anger. I know for a long time I wondered whether there were things I could have done differently. Things I did not say or do that could have made a difference. “If we had planned to do this… if we could have avoided that…, should I have…” will be questions on the lips of many on Friday morning.

Personally, I also felt that there were things said and done against me that were deeply unfair, so I was also angry that the unjust had seemed to prevail. I could identify with the ancientthe ancient writer of the Psalms poetry who cried “why do the wicked prosper?” Politics is unfair and cruel. That is the reality. Too often it is not a meritocracy. Candidates lose, not because they are less able but because voters preferred another party or leader.

In these days following the election, I suspect there will be hundreds if not thousands of candidates who will need to be reminded that their identity and worth is not in politics, being a candidate, or seeking the approval of local voters. For me, I was immensely grateful for close friends and teachers who reminded me that my identity was in Jesus Christ. I was part of a holy nation, a royal priesthood and God’s special possession. God knows how those former candidates and MPs without that security will cope, which is why they need our prayers.

Being a candidate is hugely costly. Some do it for fun, others might be motivated by spite, but the great majority run because they want to serve others.

I also needed to learn what it meant to forgive. I felt that untrue claims and accusations had been made against me during the campaign, and tactics deployed that were designed to intimidate and mislead. I did feel that the result was unfair, and I was angry that my opponent and his team would stoop very low to win, But I also needed to learn how to forgive. To this day I believe I ran an honourable campaign, giving more respect than I received; and I would like to think I would have made a good MP. I believed God called me to run but I do not feel he let me down. That does not mean he still needed to teach me how to forgive my opponent. That is an ongoing process I am learning over time.

There will be many like me who will need to learn forgiveness in the weeks, months and years after the election. Like me, they may need to learn how to forgive opponents that hurt or wronged them, or learn how to forgive themselves, the electorate, or even God for not giving them their hearts desire.

And I'll pray that those who were defeated in this election will still have sense of calling to public service, despite their loss, if this is right for them. Being a candidate is hugely costly. Some do it for fun, others might be motivated by spite, but the great majority run because they want to serve others. We need to remember this in an age where people are increasingly cynical about politics and politicians.

I lived in the constituency I was running in for over four months before the election. The Monday after polling day I was back at the desk I had not seen for months. It took several months for me to slowly work out that God could still have a calling for me into the public square and that his plan was good.

There is evidence that in the current environment, good people are staying out of politics and public life because of the cost and the emotional toll it has on the individual and their family. I know firsthand some of what that means. But if good people are deterred, they leave a vacuum that will be filled by others of less capability and virtuous character. That would be a tragedy for our national life.

So, in the days after the election, I will intentionally remember how I felt nineteen years ago and send a card or text message to those who I know have lost, thanking them for their service and reminding them that God may still be calling them into public life and service, just in a different way. And I will pray for them, as I also pray for the new government, and the peace and prosperity of the UK in the next five years.