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

Ambition

Comment

General Election 24

Politics

18 June 2024

5 min read

Is it really time to “go for the jugular”?

How to handle political enemies.

Henna Cundill

Henna is a researcher with the Centre for Autism and Theology at the University of Aberdeen.

A screen grab of a news paper report with a headline and picture. The headline reads: 'Go for Keir Starmer’s jugular to rescue campaign, Rishi Sunak urged'.

The Times' 16 June headline.

The Times.

As the election campaigns trundle down the hill to election day, poll trackers have shown little meaningful change for weeks. Amongst my friends and acquaintances, I can find barely anyone who is bothering to read the campaign coverage. No doubt, news editors are just as bored as we are with the same-old, same-old. Perhaps it is they who are leaning on commentators to spice up their language, saying things like it is time to “go for the jugular”. Are they straining for headlines by provoking candidates to stop waving manifestos and start lobbing personal attacks? (And did anyone stop to consider the irresponsibility of such language, following the awful, violent murders of MPs Jo Cox and David Amess?)

It is very uncomfortable to have enemies, which only makes it all the more astonishing that anyone ever goes into politics – professional enemy-making, if you will. And there is an incredible subtlety to the business. As a politician, one needs to be a convincing enemy to one’s enemy, but at the same time, a convincing friend to one’s enemy’s friends (in the hope that they might switch their allegiance). Then, if elected, one must serve a whole constituency, including many ‘enemies’ who didn’t actually vote for you, and probably never will. In such a complicated game of gregarious gymnastics, and with the ever worrying rise of violence and threats against MP’s, how on earth does a politician maintain any reasonable sense of safety and of self?

An enemy who has lost his temper is one of the few people that you can trust to tell you the truth about yourself.

Reflecting on this, I wonder whether the game of politics gives a fresh insight into those very famous words that Jesus once said: “Love your enemies.” This instruction has long baffled and inspired the great thinkers of this world. Why would Jesus say such a thing? Some focus on the way in which loving one’s enemies benefits the lover. Desmond Tutu, for example, said, “Love your enemy: it will ruin his reputation.” Or Mark Twain, somewhat more cynically, said, “Love your enemy: it will scare the hell out of them.” There are many others I could quote here, but the general theme is one of power. Loving empowers the lover to keep going in the face of hate, and it is surely the only way an MP can get through the day, serving so many people who didn’t actually vote for them.

But looking at those who speak of enemies, there is another general theme that can be identified, one which pre-dates Jesus’ command to love enemies, and one that is to do with the way in which they help to define us. The Greek Philosopher Antisthenes is reported to have said that an enemy who has lost his temper is one of the few people that you can trust to tell you the truth about yourself. As a thinker, Antisthenes was famously cynical, one who very much subscribed to a “what doesn’t kill you makes you stronger” kind of vibe, even welcoming ill-repute because it could help one to grow in virtue.

Given the popularity of Greek Philosophy in the first century, it is possible that many of Jesus’ listeners had Antisthenes pithy advice, or something like it, in the back of their minds when Jesus uttered his famous words. Of the many ways to understand “love your enemies”, some may have heard it as a reminder that enemies do us a kind of service. They help us to define ourselves, giving a profound (if somewhat uncomfortable) reflection of how we appear to others. Of course, enemies are biased. Like a distorted mirror, they over emphasise our bad propensities and overlook the good. But taken in the right spirit, this serves as a foil to our friends and acquaintances who may well distort the uncomfortable truth about ourselves in the opposite direction.

Perhaps it is no bad thing for our politicians to admit their mutual enmity – not in the sense of tearing each other down but in the sense of sharpening each other up...

As a young adult, I was given the advice not to fear enemies, but to divide them up into two categories: enemies in residence and enemies in exile. The exiled ones are the ones who are simply dangerous or nasty – the bullies, the gossips and those who may tend towards violence. To love these people is to pity them and to pray for them, but also to keep them far enough away so that they cannot do you harm. Enemies in residence, however, are the useful ones. These are the enemies that you keep just close enough so that you can hear what they have to say. They will scrutinise your words and your actions, they will cast doubt on your motivations, and they will scoff at your ambitions. All of this is both miserably uncomfortable and highly valuable, sowing just enough seeds of self-doubt that you check yourself, analyse yourself and strive to be the best that you can be.

Perhaps Antisthenes was on to something: when it comes to harsh critique from enemies, what doesn’t kill you does indeed make you stronger. And perhaps this is one of the ways to interpret Jesus’ words, “love your enemies” – in the sense of loving what they do for you in terms of personal growth. If this is the case, then perhaps it is no bad thing for our politicians to admit their mutual enmity – not in the sense of tearing each other down but in the sense of sharpening each other up, of spurring each other on to be the best, most clearly defined versions of themselves that they can be.

So, it is fine with me if there are enemies in politics: a person with enemies is a person who knows who they are and what they stand for. Enemies should, as Jesus advised, love each other enough to do the job properly and fairly – (this is no inlet for cowardly keyboard warriors). But even so, I didn’t care for the cheap, headline-grabbing phrase “go for the jugular” – it all sounds unnecessarily violent. As much as we and our politicians should love one another enough to be enemies, let us not love one other to death.