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

Comment

Digital

General Election 24

Politics

7 June 2024

4 min read

Are we really our vote?

Elections exacerbates the worst of our digital personality.

Jamie Mulvaney

Jamie is Associate Minister at Holy Trinity Clapham, London.

A AI generaed montage shows two politicans back to back surrounded by like, share and angry icons.

The divide

Nick Jones/Midjourney.ai.

All the world’s a stage. Never more so than in a general election. Amidst the usual stunts and gimmicks of political leaders in election season (and much of the drama unintended or badly scripted) we too have become the performers. It doesn’t matter that Rishi and Keir are ‘boring’ - the digital space has created platforms for us also to posture and present our political positions. But in acting for the crowd, I worry that we’re losing a sense of who we are.

If fame is the mask that eats the face of its wearer, then we’re all at risk of losing ourselves. Absurd! You might say, I’m not famous! But we have become mini celebrities to our tens and tens, if not hundreds or thousands of followers. Every post, story, or reel is an opportunity to project who we are and what we’re about, and what we think. Times columnist James Marriott goes so far as to write that ‘the root of our modern problem is the way opinion has become bound up with identity. In the absence of religious or community affiliations our opinions have become crucial to our sense of self.’

A recent study by New York University shows that many people in America are starting with politics as their basis for their identity. They say, "I'm a Democrat or a Republican first and foremost", and then shifting parts of their identity around like ethnicity and religion to suit their political identity. I’ve stopped being surprised when I see someone’s Twitter bio listing their ideology before anything else that might be core to their identity. But are we really our vote, or is there more to us than that?

The platform is a precarious place to position yourself, as is the harsh glare of the smartphone blue light.

If politics is the mask that we are presenting to the world, then we are engaging in a hollowing out of our representative democracy. Who needs an MP if we’re all directly involved? Don't get me wrong – I'm not in favour of apathy, inaction, or even lack of protest. But we elect members of parliament because we can’t all be directly engaged all of the time. Speaking all the time, about all of the things. Strong opinions used to be the possessions of those who had too much time on their hands… now you can be busy watch and pass on a meme in a matter of seconds without proper reflection and engagement. And so we’ve imported the very worst of student politics into our everyday digital lives and identities.

Student politics is the often-formative, immature peacocking of ideologies one way or the other. It also often reduces others to caricatures, and the campus culture has increasingly become one that cancels rather than listens and illuminates. And so, the loudest voices dominate and intimidate others to comply. Someone I barely know recently sent me an invitation to reshare a strong opinion on social media. We’ve never spoken about this topic, and they have no idea if I've in fact developed an opinion on it. Marriott writes, ‘For many, an opinion has achieved the status of a positive moral duty… the implication: to reserve judgement is to sin.’ And without a merciful judge, sin means shame: not just what I do is bad, but who I am is bad too.

The dopamine hit we get from these short bursts of antisocial media use is killing us. Martin Amis said that 'Being inoffensive, and being offended, are now the twin addictions of the culture.' That was 1996. Now engaging in politics in the era of the smartphone, we are addicted to the current age’s offended/being inoffensive dichotomy. Like the drug that it is, wrongly used, it will disfigure us as it propels us to play the roles the crowds want. The platform is a precarious place to position yourself, as is the harsh glare of the smartphone blue light.

Every general election transforms the wooden floorboards of school halls into holy ground.

Countless commentators have offered the wisdom that you are who you are when nobody’s watching. But we’re all watching, all the time. First, we had the Twitter election, then the Facebook election, and now political parties have recently launched accounts on TikTok (all the while wondering if they are going to try to ban it). What we need is a post-social media election. If the world is facing impending doom, then we don’t need doomscrolling to help. Whether it’s activism or slacktivism, our politics need not be our identity. We need a greater light source that reveals our truest selves, and helps us to be fully ourselves. This ‘audience of one’ is a much simpler, if not easier, way to live.

After all, a secret ballot means nobody’s watching, and we don’t have to broadcast our vote, unless we really want to. On the 4th July, the ‘only poll that matters’ is private. We step out of the spotlights of our screens, and we cast a vote for the kind of leaders we want. Every general election transforms the wooden floorboards of school halls into holy ground.

We’d do well to treat the online world as a sacred space too, and each person as a sacred person. Perhaps it’s time not only for a general election, but also a personal election: to step out of the spotlight, and the light of our phones, and quietly cast a vote for who we want to be.