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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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Community

Politics

8 November 2024

10 min read

How to respond when politicians talk about “our way of life”

Alasdair MacIntyre’s thinking helps us understand what we share across society.

Joel Pierce

Joel Pierce is the administrator of Christ's College, University of Aberdeen. He has recently published his first book.

Four men in suits, sit next to each other smiling, in the House of Commons.

Reform MPs in the House of Commons.

House of Commons, CC BY 3.0, via Wikimedia.

What is “our way of life”? It’s a phrase which slides easily into the rhetoric of politicians of every stripe. It’s what the Reform Party says is threatened by multiculturalism, but what do they mean by it? What kind of politics is sustained by talk of “our way of life” and is there a better way of thinking about such politics?

This summer, we made an exception to the time limit rule for television in my house, mainly so that I could have the Olympics on from morning to night. It’s a habit I acquired growing up in the United States, where an obsession over the quadrennial medal count is one of the few remaining things which bridges political and regional divides. During the Cold War, the Olympics were a way for Americans to proudly affirm the superiority of our way of life over the rigid training schedules and alien ways of the rival Soviet Union.

Although my memories begin around the fall of the Berlin Wall, old habits die hard, and so the Olympics, to me, was endless coverage of plucky underdog Americans overcoming the odds to defeat the machine-like discipline of a new set of rivals–now Russia and China

I moved to Britain just before the 2010 Vancouver Winter Olympics at which Britain won exactly one medal. At first I was bemused by the BBC’s coverage, which, of necessity, had to focus on British Olympians with little chance of winning. I was invited to cheer on eighth or ninth place finishers who had committed their life to a craft which would never bring the rewards of lasting fame or financial security. For them the reward was the Olympics themselves, the chance to compete amongst peers, to push themselves to their highest level, enjoying their sport and their performance for what it was, not for any external reward. In the terms of philosopher Alasdair MacIntyre, what these Olympians displayed was dedication to the internal goods of their sport–those goods that make a particular activity worth doing for its own sake. The Olympics were not about medals for them, but about showing what could be achieved if, as Olympians must do, they made their sport their way of life, dedicating themselves to its unique forms of excellence.

Sports, for MacIntyre, are but one example of a broader category he labels ‘practices’. Although MacIntyre has a technical definition of what counts as a ‘practice’, the general idea can be conveyed through examples he gives such as farming, researching history, architecture, chess, and chemistry. Practices are human activities which are worth doing for their own sake, which require a degree of skill and excellence, and in which what counts as that skill and excellence is, in part, defined and discerned by the people who participate in the practice. This last criterion points at something important about practices for MacIntyre: they are inherently social.

This is obvious in the case of sport. For an individual athlete to compete in a race they need not just other competitors to race against, but also trainers and coaches to prepare them for it, governing bodies to organise it, and, hopefully, spectators to cheer them on. It is, perhaps, less obvious in the case of individual farmer, but even here, one has to be taught to farm and, if one is wise, continues to learn and adapt through consulting with other farmers. A different way of putting this is that practices are the kinds of things which it’s not absurd to call “a way of life”. For an Olympic curler, curling is a way of life, just as much as farming is for a farmer.

There are many ways of life, many modes of being British, as diverse as the professions, hobbies, and passions which we find to have inherent worth.

However, this seems to offer little help in defining “our way of life” if it is being used in the way our politicians like to talk about it. If there’s one thing that I learned from all those BBC features of British Olympians way back in 2010, it was that aside from geographic proximity, there was not much that their way of life had in common with mine. I may be within driving distance of the rink where Winter Olympian Eve Muirhead learned to curl, but my workdays of wrestling spreadsheets and answering emails have little in common with ones spent lifting weights, studying strategy with coaches, and perfecting the just right spin on a stone as it’s released.

And, of course that’s not just true of Olympic athletes. The investment banker who attends our church shares a way of life with his colleagues in Edinburgh, London, and Tokyo, that is completely opaque to my wife and I, immersed as we are in the worlds of ministry and academia. I glimpse some of the internal goods of the practices of our dentist watching her check my daughters’ teeth and our plumber as he fixes our leaking radiators, but their way of life, the rhythms of their days, and what gives them satisfaction in their work as they move from appointment to appointment, eludes my understanding.

Where does this leave the search for a British way of life? If practices are as important to forming us as MacIntyre thinks, then the quest for any singular British way of life will ultimately be fruitless. There are many ways of life, many modes of being British, as diverse as the professions, hobbies, and passions which we find to have inherent worth. And even this characterisation does not go quite far enough, because all of these practices have a way of bursting the boundaries of Britishness if they really are worthwhile. A century and a half ago, football, rugby, and cricket were quintessentially British sports. Now they belong to the world.

Similarly, valuing these practices well within Britain has a tendency to open us to accepting those from outside our borders who can help develop them. The best footballer in Britain is Norwegian. Many of the doctors who ensured my daughters arrived safely after complicated pregnancies were originally from India and Pakistan.

Still, one might wonder if thinking about community through the lens of practices, as MacIntyre does, is too much of a solvent. Isn’t it a way of imagining us living near each other, but not with each other; siloed in our practices, in each of our communities, not understanding what our neighbours are up to? Not necessarily. For MacIntyre, the familiarity that arise from living near someone, hearing their worries at planning permission hearings, arguing with them at the local school’s parent council meetings, organising a community fundraiser together, or, even, being part of a family with them, can help develop an understanding of the internal goods of practices which we do not take part in. I haven’t lifted a brush to paper to since my secondary school art class, but my mother-in-law’s virtuosity with acrylics has led me to acquire an increasing appreciation for painting. Part of what helps facilitate this recognition is that, as MacIntyre argues, although the internal goods and the skills required to achieve them tend to be different for each practice, the virtues which we develop while pursuing them–patience, honesty, courage, self-control–are universal. Part of what helps us recognise others’ activities as practices, as worth doing for their own sake, are the virtues we see them develop as they do them.

This sort of recognition requires familiarity, the sort I might have with my neighbours in our corner of rural Aberdeenshire, but that I am unlikely to have with fellow citizens in Cornwall, Cardiff, London, or Glasgow. How then are we to respond to national politicians talking about “our way of life”? One answer might be: with extreme scepticism. This is MacIntyre’s approach. He rejects the nation-state, which he calls “a dangerous and unmanageable institution”, as a potential channel of communal unity. Instead, he calls on us to admit that modern nation-states exist as a contradiction, being both “a bureaucratic supplier of goods and services” and yet also something treated as sacred, which we are asked, on occasion, to surrender our lives to preserve. He notes with characteristic acerbity, “it is like being asked to die for the telephone company.”

However, here I’d temper MacIntyre’s rhetoric somewhat. While my attachment to bankers in Canary Wharf is largely a happenstance of history, a contingent fact generated by long forgotten necessities of eighteenth century geopolitics, it has nevertheless resulted in both of us being issued the same passport, governed by the same tax regime, and having the same set of regulatory agencies to complain to when things go wrong. Those may be manifestations of what MacIntyre disparages as “a bureaucratic supplier of goods and services”, but they nevertheless do bind us together. As such we both have an interest in making sure this bureaucracy acts as justly as it can, not because it is the embodiment of all that is British, Britain is much too diverse and interesting to be fully embodied in our political institutions, but because we all have an interest in the institutions in which we are enmeshed, British or otherwise, being run as justly as possible.

Surely politics is all about securing as much money and resources as possible for the people most like oneself. That, it seems, is often the unstated assumption when the talk of “our way of life”

Because we find ourselves tied together by these institutions to a diverse collection of people, we have an interest in learning about those with whom we live. Even those who are far away. And to also celebrate when goods and services delivered by our institutions result in success to which we, in a remote way, have contributed. I may not share a way of life with Adam Peaty, but, thanks to the BBC, I can have a glimpse into what his way of life is and can be happy that through my taxes I have contributed, in a small way, to helping him win another medal. Since that 2010 Winter Olympics Britain has come quite a long way and there is nothing wrong with a little vicarious pride in our athlete’s accomplishments.

But I can also be proud of athletes who didn’t win. Ones like BMX rider Beth Shriever who handled her unexpected last place finish in her final with a kind of grace and maturity, the kind of virtue, which someone more dedicated to her practice than to just winning can demonstrate. It is the facilitating of this kind of moral achievement which is more valuable than any medal.

Similarly, I can rejoice when a new hospital gets built in a neglected area in London, or more council housing is supplied to people in need in Edinburgh, hopeful that these lead to my fellow citizens achieving the kind of flourishing lives they deserve. I can be angry, when I discover that the money I’ve paid towards postage has been used to prosecute innocent victims of a computer glitch, and pleased when the opening of a new rail line eases the otherwise stressful commute of tens of thousands in London. The state may be a bit like a telephone company, but a well-run utility can do a lot to supply people with the goods they need to make their lives. As long as I’m a subscriber, as long as I’m tied to people through national institutions like the state, I have a moral duty to ensure that they’re run as well as possible.

This way of thinking about politics may strike some as idealistic, the kind of view only a naive Christian ethicist could endorse. Surely politics is all about securing as much money and resources as possible for the people most like oneself. That, it seems, is often the unstated assumption when the talk of “our way of life” is deployed and why so much coalition building in our politics turns on finding a convenient other against which to define “our” similarity. Take your pick: immigrants, the EU, woke elites, the Tories, or Westminster (among a certain brand of politician here in Scotland).--. Growing up in the USA, the Soviets, and then the Chinese, and now, depending whether one lives in a Republican or Democratic district, the other political party, have served the same purpose. The problem is that we aren’t that similar, we are and always have been a diverse lot with diverse needs. Every nation is. There is no one British way of life and to allow our politicians to try to sustain the fiction that there is lets them off the hook. Solving deep seated economic and social inequality is hard. Blaming immigrants for not embracing our way of life is easy.

So, perhaps the sort of politics that I am talking about here is idealistic, nevertheless it is the only kind that can sustain a just government in the long term. Without acknowledging the importance of goods we only partly understand which are pursued by people whose ways of life are different from our own, we cannot hope to sustain the minor miracle of coordination and mutual aid that history has gifted us with in our united kingdom.