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.

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Comment

Leading

Politics

22 May 2024

7 min read

Leaders wanted for these testing times

We need leadership that is famous for fifteen miles not fifteen minutes.

Elizabeth Wainwright

Elizabeth Wainwright is a writer, coach and walking guide. She's a former district councillor and has a background in international development.

A deflated looking woman stands aside from a protest rally, holding a small doll of herself that reads Recall Knope'.

Local leadership: Leslie Knope serving Pawnee, Indiana.

We are in a year of elections – locally, nationally, and in the US, and I have been wondering whether it’s true that we get the leaders we deserve, whether political leadership has always felt this way – this detached, divisive, even dangerous? More about ambition than integrity, about individuals more than our common life? Where might we find leaders that can take us into an increasingly hard to navigate, uncertain world?

I find myself thinking back to local leadership and difficult conversations I was involved in as a district councillor. These were often conversations about priorities, and money – mainly, the fact that there wasn’t enough of it, and what there was continued to be pared back and back until only the absolute essentials were covered. Many council tax bills have recently gone up, usually with an explanation of the reason for the rise. Local authorities in Scotland recently voted for a council tax freeze but only after the promise of funding from the Scottish government to make up the shortfall. During my time on the council, we would write letter after letter to government ministers seeking clarity about grants or cuts. When extra funding was announced we were pitted against other councils to bid for meagre pots of money, taking time away from officers who were already stretched too thin. Each councillor, each officer, each member of the community we served had their own idea about how to approach budgeting and spending. Sometimes those ideas aligned, but often they did not. Councils are in an impossible situation.

And yet decisions made at this level impact us all. National leaders might set the direction, but local leaders steward and implement and envision and listen – they are close to the people they serve, their decisions impact us all day-to-day: councils are responsible for things like children’s services, highways, housing people, parks and pools, and lots more

The people who have played the biggest role in my life have been the people that made me feel valued, seen, heard, capable.

Conversations about how to fund local authorities are difficult at any time, but especially so now, with crises coming from every angle – cost of living, climate change, ongoing post-covid recovery, austerity, and so on. To be a leader now – nationally yes, but especially locally, means making sure that essential services keep functioning despite lack of funding or clarity from government, and whilst also tackling climate change and all the other pieces of our fragmenting world. To be a leader now who shows vision and humanity and care despite the seemingly cynical and hurting spirit of the age – is, I think, a test of the meaning of leadership. This test of leadership doesn’t just face local and national government though. It faces all of us right now as we contemplate an unknowable future.

Essayist Ralph Waldo Emerson believed that “our chief want is someone who will inspire us to be what we know we could be”, and we are all capable of helping others be what they can be – whether a neighbour, a colleague, a community, a team, an organisation, others we come into contact with; we can all lead. Author, poet, and civil rights activist Maya Angelou said that “people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” The people who have played the biggest role in my life have been the people that made me feel valued, seen, heard, capable. They have seen who I am, and who I could be, and they walk with me as I move in that direction. I think the best leaders do this too.

It is not glamourous, but, like a lighthouse that shines by just staying where it is, it calls people, lights the way, watches, serves, guides.

In contrast, the worst leaders seem to cling to traditional ideas of power, to control more than setting people free, to achieving their goals through any means necessary. I think of authoritarian regimes that rig elections and limit freedoms, and corporations that pursue profit at the expense of employees and the environment, and political campaigns that prioritise controlling the narrative over informing people. These embody warped leadership traits. And these warped ideas of leadership are given airtime, they fuel our news and our social media feeds and our anxiety. They make us angry, but they can also disempower us and close off the possibility that there is another kind of leadership, one more aligned with the Old English root of the word ‘leader’, meaning ‘one who guides and brings forth’. There are, though, places we can look that point to that other kind of leadership – to something more beautiful.

One place is my own doorstep. Here, there are people that see a need and organise people to fill it – whether hunger, loneliness, lovelessness, this is a kind of roll-up-your-sleeves leadership, the kind that is famous for fifteen miles not fifteen minutes. It is not glamourous, but, like a lighthouse that shines by just staying where it is, it calls people, lights the way, watches, serves, guides.

I try to hold on to the fact that we do not need to wait for national elections to call forth the kind of leaders we want.

Another place is the gospel, where again and again Jesus turned traditional ideas of leadership upside down. He taught that it must serve, not be served; that it can be great through humility not self-importance. He criticised religious leaders for seeking prestige and personal gain. And Jesus did not just teach this stuff, he lived it – he washed the feet of his disciples, he empowered them rather than wielded authority over them. He lived as a shepherd that leads and tends his flock with his love. He laid down his life for his friends, for all of us. And this I think is where leadership starts to look a lot like love. Jesus showed how true leadership that transforms individuals and communities, that heals division and brings people together, is led and motivated by love, not power. He taught that leadership without love is hollow and even harmful. He showed that leadership, and the love that fuels it, guides and inspires and cares for people. We need these kinds of leaders now more than ever. My own experience tells me that hard conversations become easier to navigate when care, humility, and listening are present.

In the UK, many of us are trying to get the measure of Rishi Sunak and Kier Starmer. An Ipsos poll in February explored how the public view these and other political leaders – a significant number were unclear about what they both stood for, but Starmer was ahead of Sunak in various leadership traits including experience, capability, strength. I want to know what other traits we’re seeking and demanding of our leaders nationally, locally and in ourselves. On the council I served on, I saw elected councillors asleep in meetings, ill-prepared, voted in because people did not think their vote or questions or care made a difference. On some level at least we do get the leaders we deserve – those we are prepared to be curious about, and call out, or encourage, or demand more of; more than just the ability to stay awake during meetings, more than just capability and strength, but also aliveness, care, compassion, humility, love.

We need to demand more of our national leaders, especially now. But I try to hold on to the fact that we do not need to wait for national elections to call forth the kind of leaders we want. We can call them forth in ourselves, in each other, in our communities – these are the leaders that impact us closely, every day. I think of some of the best leaders I have known: theirs was a leadership of passion more than position, invested in people more than prestige, offering both humility and vision – a combination that feels hard to find in our current political landscape. They call to mind what writer and aviator Antoine de Saint-Exupéry said, that: “if you want to build a ship, don’t drum up the men to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea.” Good leaders will help us see and navigate this endless ocean, these present storms – cost of living, conflict, division, ecological and economic unravelling. They remind us, like the gospel does, that the ship is a means to an end – one of new horizons, of togetherness, of love for this beautiful wide world.