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.

Column

Ageing

Character

Comment

Politics

3 July 2024

5 min read

What the Joe Biden story tells us about growing older

Rather than mimicking the young, the elderly witness to a life well lived.

Graham Tomlin

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

Joe Biden holds a fist to his chest as he stands and speaks.

Biden at the CNN presidential debate.

President Biden has had a few bad days at the office recently. Time and again, he seems to freeze in public, stumbles over his words, as his voice falters and his sentences tail off. At his first public debate with Donald Trump, he looked just like a man in his eighties, struggling to remember facts, his mind not as alert as it once was. Which, come to think of it, is exactly what many people in their eighties are. And Trump is no spring chicken either. Questions around age dominate the American Presidential election like never before. This is a story of not of two elderly gents in a bar arguing over their fading memories of the past, but between candidates wanting to be the most powerful man, in charge of the most forbidding military and economic powers on the planet.

Old age creeps up on us slowly. To tell when it starts is hard to say. Yet we all know how it ends. Old age is a kind of preparation for death, a slowing down of faculties, a loss of control, a gradual diminishing of powers, preparing us for a new kind of life beyond this one. As a result, in our achievement-oriented age that doesn't believe in a life beyond death, we are tempted to ignore the elderly, shutting them away in residential homes, out of sight and out of mind.

Yet they were valued for what they were – signs of where we are all heading, their stories as object lessons for the young in how to live well (or badly).

Old age, however, is not a slide into passivity. Even as powers diminish, elderly people still have significant agency – keeping the mind active through reading, walking to the shop to buy bread, keeping in touch with relatives, even getting out of a chair as the end draws near can take as much resolve and determination as the more complex tasks of our youth, and are every bit as heroic and human as the more impressive achievements of our sprightlier years.

Former cultures respected the elderly for the experience gained, as members of the community to be looked up to, respected and valued. Teenagers were not considered as the moral arbiters of the future but as immature human beings who still have a lot to learn. The old were given pride of place as those who had gained the wisdom of years. Not that that wisdom was always apparent - the elderly can become cantankerous, repetitive and self-focused as powers diminish. Yet they were valued for what they were – signs of where we are all heading, their stories as object lessons for the young in how to live well (or badly).

The one time when we do place elderly people front and centre, is when they are able to do the things that young people can. Adverts regularly depict old people jumping out of planes, playing rugby, strumming electric guitars - doing the things that young people typically do. Old people who can pretend that they are young are praised to the hilt. Elderly people who lose their memory, their train of thought, stumble and repeat themselves are looked on with pity, not respect. When they do both it confuses us – which is why everyone is worried about Joe.

Part of the wisdom of old age is to recognise when it has come upon us, and what its distinct calling is. In a strange echo of our culture's attitude to the elderly, Joe Biden seems desperate to tell himself and others that he's perfectly capable of doing the job of President, a job that would come much more naturally to someone 20 years younger than him. Surely the wiser and more sensible course would have been to recognise the signs of time, and halfway through his presidency, to have announced that he was not standing again, triggering a leadership race among the Democratic Party so that a new candidate could be ready for the Presidential election without all the doubts about age and capacity in mind.

So, caught between ignoring old age and yearning for lost youth, how then, are we to value the ageing process? After all, one day, it will come on all of us who manage to avoid a premature death.

The main task as the years pass and the shadows lengthen, is to be there for the young,

If we remain active throughout our lives, that activity changes over time. As someone well into my sixties, approaching old age (or perhaps already in it – it is hard to tell?) I recognise my body creaks and does not adapt as it once did. I can't do all that I could in my 30s or 40s. Over time, callings change, and recognising that is part of the wisdom of life. The Christian ethicist Oliver O'Donovan suggests that the calling of old age is to "stand by the side of youth." Elderly people have the task "to show to the young how their generation, the only earlier generation to which the young have direct access, has conceived its tasks and tackled them. If the young are to form their world effectively, they will need models to inherit and to build on."

The prime task of old age is not to withdraw into some retirement village, playing golf every day, going on endless holidays, living the life we wanted to live in our 40s but couldn't because we had to work. It is not to enjoy retirement as a kind of secular heaven, a reward for a lifetime of hard work, with pleasures abounding. There may be time for some of that, but the main task as the years pass and the shadows lengthen, is to be there for the young, not to tell them what to do but to be a witness of a life well lived - or sometimes an object lesson of a life lived badly – often both at the same time. It is to be a sign of how another generation managed to navigate the complications and complexities of life and how for those who have a faith, as a witness to how God has proved faithful over time, space and the shifting sands of culture. And that involves focus from both sides. The younger need to value, respect and prize the elderly for what they offer as a model of life lived and complexity negotiated, and the old need to recognise their changing role as it creeps upon them with the passing of years.

The calling of the elderly is just as important as that of the young or even the middle-aged. Yet it is different. We need to value our older people, not because they can do the things younger people can, but because they are object lessons in how to navigate life, and how to prepare for the next one.

Getting it muddled up helps no one.