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

Creed

General Election 24

Politics

3 July 2024

5 min read

Cross-check what matters when voting

Three perspectives to inform how we vote wisely.

Sam Rylands

Sam recently completed a doctorate in political theology and is the Vicar of St Andrew's, Fulham Fields.

A pen draws a cross in a box on a ballot form.

What principles will shape your vote this Thursday? What or who will primarily guide your decision in the ballot booth? Podcaster and former political advisor Alastair Campbell’s old adage “we don’t do God” suggests that religion and politics don’t mix. Yet some of the most important movements for social and political justice in modern history had Christians at their heart. Think Wilberforce, Fry, Bonhoeffer, Martin Luther King Jr., Desmond Tutu, or the lesser-known but worth-a-google, Melanesian Brotherhood.

What wisdom might the Christian faith have to offer when thinking, not just about this election, but how to approach politics in general? Like lions on the England football shirt, all good things come in threes– so, here are three Christian perspectives that can inform political engagement.

First, earthly kingdoms are penultimate. God’s kingdom is ultimate.

Perhaps the moment that Jesus is drawn most explicitly to comment on the politics of his day, was when he was asked about paying taxes. “Is it lawful to pay taxes to the emperor, or not?” Given how frustrating it can be watching politicians avoid responding directly to any question posed, we might sympathise with those who wanted a direct answer here. But for Jesus, to say yes would position him as a traitor to the Jewish people who wanted to resist and subvert the authority of the Roman Empire. To say no, however, would be to signal revolutionary intentions to lead a rebellion against the occupying Roman force.

Set within this political trap, Jesus responds by asking for a coin and turns the tables by asking, “whose face is on this coin?” “Caesar’s,” comes the reply. “Then give to the emperor what belongs to him,” says Jesus. Yet, before we allow this response to justify opting out of political practice or hallow every existing ruling power, Jesus continues: “But give to God what belongs to God.” And what belongs to God, we ask? Well, as the writer of the ancient Psalms poetry put it, “the earth is the Lord’s and all that is in it.” Nothing short of the whole universe and beyond belongs to God, the creator of heaven and earth. So, in taking the coin, Jesus is not giving a blanket affirmation of Caesar’s rule, but challenges each and every earthly kingdom by relativising it in the light of God’s eternal kingdom. What has sustained so many Christians in challenging and renewing the political context of their day is the trust that before, behind, and beyond the rising and falling of each earthly authority stands God’s eternal kingdom. This kingdom is not in competition with the kingdoms of earth, vying to secure its own territory, but is a kingdom inaugurated by a king who wears a crown of thorns, forgives his executioners, and is raised from the dead to proclaim, “peace be with you!” The call to follow Christ within the political is to retain the perspective of this eternal life.

Second, politics needs a perspective beyond personal interest.

Holding an eternal perspective, however, is not to say this world or politics does not matter. In contrast, justice, compassion, and seeking a world as God intends it to be matters precisely because of eternity. How we live here and now has eternal significance. How we treat one another and care for all of creation has eternal significance. What belongs to God? We all do. Each person is made in God’s image. As a coin bears the image of its ruler, so we are marked by the image of God. When we consider our political responsibility, therefore, we must do so not with our own cares or concerns alone, or even primarily. Rather, we should ask what political responsibility we have towards others? How do my political decisions or actions impact my neighbour, both local and global– particularly those on the underside of the political power of the day? As the Archbishop of York, Stephen Cotterill, recently shared, “as a Christian, I’m hoping and I’m praying, that when I vote, when you vote, we won’t be placing our vote according to what’s best for us, but for what’s going to be best for God’s world.” If God’s power is displayed most fully in Christ who came, not to be served, but to serve, giving his life for the sake of the world, then political power cannot be a means for securing our own advantage over and against others. A Christian approach to politics recognises that my flourishing is bound up and inseparable from the flourishing of all others.

Third, let’s disagree well.

However, even if we could agree on the importance of politics beyond personal interest, we won’t all agree on what this looks like in practice. For instance, whilst two people might agree on the need to ensure a welfare safety net for the most deprived in society, their perspectives on how best to achieve this might differ greatly. Christians are not immune from such disagreements and (not that you would know it from the promises of each political party) no political system can deliver heaven on earth. How then are we to reconcile our political differences?

Returning to the theme of belonging and image bearing, the church bears the image of Christ. The church is the Body of Christ, comprised of many different members yet united, as one body. One of Jesus’ final acts on earth was to pray that the church would be one in the same way that God, the Father, the Son, and the Holy Spirit are one. Unity in difference. This image offers a counterweight to how political differences are played out across the news and social media platforms. Here, to vote or think differently is often to become an enemy, or even to forfeit one’s belonging as a bearer of God’s image, another person worthy of inestimable dignity and value.

Belonging to Christ, however, is to know that belonging together runs deeper than divisions of race, gender, societal status, and political tribalism. It is to trust that my sister or brother in Christ, with whom I might strongly disagree politically, is a gift to me, a showing of Christ, that I would otherwise fail to see on my own. If Christ really is the way, the truth, and the life, then the truth is beyond my final possession of it. This does not mean indifference or relativism. As the former Archbishop of Canterbury, Rowan Williams, writes, “unity is Christ-shaped, or it is empty.” But if we can recognise one another placing our penultimate political judgements under the same scrutiny of Christ’s coming kingdom, then even in our disagreements, the church, bearing together in costly communion, reveals a belonging together that anticipates the ultimate: a world where things can only get better.