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.

Article

Comment

Politics

Virtues

27 September 2024

8 min read

The emerging frontier: renewing courage in geopolitics

Narcissistic moralising needs to stop, and we can learn from Churchill too.

Emerson Csorba and Gal Treger

Emerson writes on geopolitics. Gal is a tech investor.

Military personnel, wearing camoflague uniform crowd round a computer monitor.

U.S. Space Force guardians assess a threat.

U.S. Space Force.

In August 1939, the Polish poet Kazimierz Wierzyński reflected on a “Peaceful bliss which had become Europe’s chloroform.” Yet, then as now, crises shake us from moments of calm, especially when we abandon vigilance. We let our guards down, nonchalance replacing serious deliberation toward action.

A shroud of darkness has descended on the world over recent years, with new conflicts emerging just as – or perhaps because – democratic populations turn inward. These conflicts – whether the Russia-Ukraine War, the Israel-Gaza War, or the US-UK led battles in the Red Sea – demonstrate the courage of peoples sacrificing for their nations, families, histories, and traditions.

Yet, in much of the political West, narcissism – rather than courage – has become the focal point of our culture.

Christopher Lasch describes this narcissism in The Culture of Narcissism: American Life in an Age of Diminishing Expectations as a conceit of the present. Lasch notes that we have become a consumer society focused on individual self-absorption that leads to present-focus, sense of isolation, and disconnection from history.

The psychoanalyst Erich Fromm argues in The Heart of Man: Its Genius for Good and Evil that narcissism is an attachment to “self-image,” which “distorts rational judgment.” Yet, Fromm later reflects “If the feeling which the Greek poet expressed in Antigone’s words, ‘There is nothing more wonderful than man,’ could become an experience shared by all, certainly a great step forward would have been taken.”

This wonder of man is in the freedom to act in a world that is yet to be determined.

This is a position of “deep faith.” It encourages full participation in the world, affirming the self through action, though always in relation to something much greater.

The philosopher and theologian Paul Tillich similarly states “this is just what participation means: being a part of something from which one is, at the same time, separate. Literally, participation means ‘taking part,’ in the sense of ‘sharing’ or ‘having in common.’” We play, as legendary Notre Dame football coach Knute Rockne once said, "For everyone that came before us, and everyone that will come after us."

If common history is needed as our foundation for current action in geopolitics, to what then might we turn?

We propose a refocusing and modern renewal of alliances underpinned by Winston Churchill’s A History of the English-Speaking Peoples, a project he initiated in the early 1930s as the threats of Nazism and Fascism had taken centre stage.

This refocusing reprioritises courage in geopolitics, maintaining the light amid descending darkness. It is badly needed given the modern tendency to look inward rather than to sources of value outside of the self.

This is a pathway to vigilance in anticipation of the thief in the night, who may arrive at an unexpected hour.

Churchill – recently demonised by influential conspiracy theorists – emphasises the common cultural and political heritage of the English-Speaking Peoples, including the rule of law, individual rights and parliamentary democracy, which shaped the modern world.

Churchill reminds us of the global influence of English-Speaking Peoples in spreading democratic ideals and governance structures across the world, believing that the global spread of these ideas was instrumental in shaping modern life. He underscores the unity of the English-Speaking Peoples in facing global challenges, particularly in the context of the World War he foresaw. And he viewed the cooperation between the UK, the US, and other Allied nations as crucial to the survival of freedom and democracy.

It is important, now as much as ever, that we remind ourselves of Churchill’s wise words, building on them to address with courage the challenges of our present times.

Specifically, we must adapt Churchill’s emphasis on the English-Speaking Peoples to a focus on nations working at the frontiers of Western civilisation to resist rising darkness which seeks to corrupt the good. Ones not necessarily actually speaking English too.

Building on these unique and complementary strengths, these agile nations united as upholders of the values of English-Speaking Peoples should reindustrialize, rearm, redraft and recommit to a common goal in a world of increasing geopolitical conflict.

The sharing of expertise and overall close collaboration between these agile nations can facilitate rapid preparation for conflict at any moment, proactively addressing Wierzyński's dangerous “peaceful bliss.”

In other words, this is a pathway to vigilance in anticipation of the thief in the night, who may arrive at an unexpected hour.

Renewed partnership is necessary between these nations. There is a need for these nations to re-assert their historical courage, underpinned by vital modern capabilities.

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Alongside the United States as the focal point, these nations are Canada on the Arctic frontier; the United Kingdom as a Northern frontier; Poland as the Eastern frontier; Israel as the Southeastern frontier towards the Eurasian landmass, and Australia, with its recent experiences confronting neighbour China, on the Far East frontier.

Each of these nations serves as a regional center of power and influence: Canada in the Arctic and Atlantic; the US into the Caribbean and broader Latin America; Israel in the Middle East with the Abraham Accords and North Africa; Poland into Central and Eastern Europe, and Australia in the Indo-Pacific. Each of these nations possesses vital agility, given their small geographical sizes or populations.

These frontier nations respond to United States CIA Director William Burns’ 2023 Ditchley Lecture, in which he focused on “[hedging middle power countries who] see little benefit and lots of risk in monogamous geopolitical relationships. Instead, we’re likely to see more countries pursue more open relationships than we were accustomed to over several post-Cold War decades of unipolarity.” The focus here is courage with a long-term view, building a frontier-focused alliance rather than seeking relations based on short-term material interest only.

In this frontier model, it is currently Israel demonstrating the courage to uphold the values captured in Churchill’s account of the English-Speaking Peoples. Hamas’ brutal October 7th attack was predicated on the notion that over the last decades, Israel transformed into a consumer society, focused on short-term economic incentives and leisure pursuits. Israel provides technology and experience in fighting modern wars of various types, as well as persistence and proactiveness that other nations must quickly recover.

Canada is historically a frontier nation of courage, reflected for instance in its contributions to WWI and WWII victories, as well as in the often-quiet contributions that Canadians make to peacekeeping efforts across the globe. But Canada can take bolder action, given its strategic Northern location and proximity to the Arctic, with its vast natural resources including critical minerals supply and its vast freshwater reserves. It can become a more influential global player amid trade wars, helping reduce dependence on Chinese resources.

The United Kingdom’s combination of common law, property rights, financial markets and freedom of the press are important strengths. As Nigel Biggar finds in his Colonialism: A Moral Reckoning, the UK has historically championed free markets generating economic opportunities for diverse peoples; established peace where internal strife previously existed, protected the rural poor from wicked landlords, and provided civil service and judiciary systems to reduce corruption.

Poland, as noted by Radoslaw Sikorski in a recent speech, shares with the United Kingdom “the same strategic vision. It is based on the fundamental assumption that international law is the guardian of peace and stability.” Poland also “consistently supports close, comprehensive cooperation between the UK and the EU’s security and defence frameworks” with continued focus on strengthening its military capabilities. And, of course, Poland is keenly aware of the threat of war which which is ever-present on its border.

Australia has, over the last decade, demonstrated evident success in facing the threat of China on its doorstep, this ever-present threat producing a group of leaders across government, private and media sectors that are as sharp, worldly and realist in nature as any in the Commonwealth.

Renewed partnership is necessary between these nations. There is a need for these nations to re-assert their historical courage, underpinned by vital modern capabilities. C.S. Lewis, in his famous Screwtape Letters, shows that “courage is not simply one of the virtues, but the form of every virtue at the testing point, which means, at the point of highest reality.” Each of these frontier nations has historically demonstrated success in the face of testing.

Our focus cannot be narcissistic moralising – too often the case in today’s geopolitics – which is the product of the serpent’s advice in the Garden of Eden, in which our eyes will be opened as we “become as gods knowing good and evil.” We must not allow others to twist our sense of history, such that we begin to exalt ourselves in the present moment rather than adopting attitudes of service, sacrifice and worship of that which is unfathomably greater and farther-reaching.

Instead, it must be – as we have seen with Churchill, and as described by Dietrich Bonhoeffer in his incredible commentary on the story of the Garden of Eden, to act.

As Bonhoeffer writes, “If the Holy Scripture insists with such great urgency on doing, that is because it wishes to take away from man every possibility of self-justification before God on the basis of his own knowledge of good and evil… The error of the Pharisees, therefore, did not lie in their extremely strict insistence on the necessity for action, but rather in their failure to act. ‘They say, and do not do it.’”

The frontier model we propose facilitates such action, prepared with the necessary capabilities and coordination for the considerable challenges before us.

We must remember that to participate in the world with deep faith – courage – has been and always will be the basis for human freedom.

Indeed, this is the task of the nations: united by the common heritage of English-Speaking Peoples, acting with faith in the good, always at the frontier.