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.

Voting is much more than a token gesture

The political practice can capture something heavenly.

Joel Pierce

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

A sign reading 'polling station' stands by the entrance to a church.

Red Dot on Unsplash.

What makes an act sacred? Who it excludes, or who it welcomes? I found myself pondering this looking at the thin metal discs in the box I’d pulled off the shelf. I’d seen their tagged under glass at Scotland’s National Museum. Now, in an archive housed in the old kitchen of our rural community’s school, I had my first chance to touch what was once called “the open sesame to the bliss of so great a mercy”, a Church of Scotland communion token. Now items for collectors, filling drawers in local history museums, they once were the necessary payment for participation in one of the rites at the heart of Christian worship. They were the coin that verified that its holder’s faith and morals had been examined by an elder of the kirk and been found satisfactory.

Holy Communion, or the Eucharist as it is called in other churches, has its origins in the Last Supper, a meal of bread and wine Jesus shared with his disciples on the night before his crucifixion. Christians may disagree on the exact meaning of the meal, but all hold that it is, in some way, sacred and central to the Christian life and the recognition and celebration of Christian community. Communion tokens were but one example of a strategy that Christians have employed time and again to ensure that the mystery and sacrality of the meal is properly recognised: stopping the wrong sorts of people from participating in it. Ironically, in this we have often been much more discerning, or perhaps discriminating, than Jesus himself. The companions he chose to initiate the practice were a quarrelsome lot. They were mostly provincial fishermen more concerned with establishing their place in the new kingdom they imagined Jesus would establish after overthrowing the Romans than in participating in the meal with due reverence and seriousness.

All who came were for that day, in that room, in that act, equal. All who came were welcome. No one was turned away.

A year later, I found myself sitting behind a table in the rear of our community’s nursery. It was election day for the Scottish Parliament, and I had added polling clerk to the miscellany of part-time jobs I had taken after finishing my studies. We had all arrived early to ensure that we had time to wrestle enough string and cable ties together to secure the polling station sign around the ancient tree that marked the entrance of the nursery’s car park before polls opened at 7am. It was the first, and only time I have worked a sixteen-hour day, and my exhaustion at the end of it probably contributes to much of it being a bit of blur. What I do remember is the flow of people: mums in smart blouse and skirt combinations with kids in tow, fitting us in first thing before a stop by the childminder’s on the way to the office; tradespeople and farmers catching us between jobs, their trousers still spattered with paint or mud; scions of the local aristocracy; proud parents bringing teenagers to vote for the first time once the school day ended; a couple with a young baby, asleep for now, arriving just before closing, “We’re not too late are we?”.

My fellow poll workers, two old hands, knew most of our customers by sight. I knew a few, mainly other parents I had met during school and nursery drop-offs, but it didn’t matter as the rite was the same for all. They would approach the table, give us their name and address, and once a line was drawn through them on our roll, they were given the elements, two ballots, one to vote for their constituency Member of the Scottish Parliament, and another to vote for their preferred party. All who came were for that day, in that room, in that act, equal. All who came were welcome. No one was turned away. All that was needed was their word that they were who they said they were. Once the ballots were completed, we made sure they put each in the correct ballot and then they were out the door, on to the rest of their day.

Perhaps it is also true that sometimes, as much by accident as intention, we happen upon a form or practice in our shared political life which captures something of heaven.

As someone who did my first voting in the United States, I was a little stunned the first time I cast a ballot in the UK. Instead of having to use a black ink pen to assiduously fill in ovals on a ballot that felt like an extended multiple-choice test, all I needed to do was make a single penciled ‘X’ on a half sheet of coloured paper and make sure it wound up in the secure box. Was that it?

As I’ve reflected on that experience and had a few more goes of voting here, I have come to appreciate the elegance of the British approach. Instead of making the voter feel like an overwhelmed bureaucrat having to make a couple dozen underinformed choices on matters as diverse as national representatives, state laws, school boards, and local ordinances, the simplicity of the UK ballot means that what is centred is the social meaning of the act itself. We may be differentiated on all other days by class, culture, income, region, or football club allegiance, but in this act we come as close in our political practices as we ever do to touching something which Christians know, something which Christians sometimes see as they share Communion, that all these distinctions are ultimately passing, that beyond them each one of us is imbued with a dignity which the greatest worldly failure cannot take away from us and to which the greatest worldly success cannot add.

There is a school of thought in political theory which says that all our most important political concepts are actually secularised theological ones. They say, for example, that our exalted ideas of state sovereignty find their origins in our forebears’ understanding of God’s. Theologians draw various lessons from this approach, some worrying that what it really reveals is that we have made an idol of the state. They may be right, but perhaps it is also true that sometimes, as much by accident as intention, we happen upon a form or practice in our shared political life which captures something of heaven. It is not wrong, I think, to accord such secular practices a certain level of sanctity. It is not wrong to call the principle of ‘one person, one vote’ in some sense sacred.

No longer are we allowed to trust that people are who they say they are. They are assumed to be imposters until they produce a piece of paper which says otherwise.

But once that sacredness has been granted, we face a very similar problem to the one faced by those early Scottish reformers regarding Communion. How do we ensure this sacredness is protected, that it does not become debased? A traditional answer has mirrored the reformers’ approach to communion: erecting hurdles to ensure that only the truly worthy are allowed to participate. The unmaking of this approach has been the slow work of centuries as the franchise was eventually extended down the social and property ladder to all male citizens and, then, belatedly, to all women as well. What I experienced at the polling station that day was a miracle secured by many years’ of struggle, reform, compromise, and collective recognition that what has made this act sacred is not its exclusion, but its welcome. In this it has mirrored the welcome of most contemporary Communion services in the Church of Scotland where participants are, to be sure, asked to approach the act soberly, having examined themselves and made confession to God, but where the default is to trust that people have done so. No longer are people considered unworthy until proven otherwise by their possession by a metal disc.

When I first heard of the possibility of the introduction of Voter IDs at polling places, my mind immediately flew to how such laws were aimed in the United States. Like here, there is little to no actual evidence of voter fraud there, but in a country where the archaic system of the Electoral College means a few thousands votes in the right state can decide a presidential election, there is a real threat that such laws will sway election results. Here the influence of such laws is less clear. While they do seem to have a small effect of driving down participation, at last year’s local elections four pre cent of eligible non-voters cited the ID requirement as the reason they did not vote, recent election results have not been dramatically out of step with opinion polling.

What I do worry about losing with these laws is a little bit of the elegance and dignity which has previously imbued the UK system. No longer are we allowed to trust that people are who they say they are. They are assumed to be imposters until they produce a piece of paper which says otherwise. It is a small change, but one which nudges the rite closer to being just one more bureaucratic transaction, a bit more like picking up a package or going to the bank, than one of our most important public rites. It is a precaution that seeks to preserve the sacredness of the act, but is chipping away at what it is that makes it sacred.
If I wind up working in a polling station on July 4th, I will dutifully check every voters’ ID prior to handing them a ballot. I will send friends and neighbours home to get theirs if they’ve forgotten it. I will be careful to bring my own. I am sure if I had lived in former times in Scotland, I also would have been careful to remember to take my communion token to church. Those are the rules of admittance and the rite is too important to skip. However, I will mourn a little for what has been lost and hope for more places where we recognize the possibility of the sacred dwelling in our practices of welcome, recognition, and trust rather than exclusion.