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.

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30 April 2024

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Stephen Timms: still on mission

The MP on five decades trying to prove a Christian Tory wrong.

Robert Wright

Robert is a journalist at the Financial Times.

A man in a suit turns to look at the camera and behind him is a gallery of large painting

Stephen TImms MP.

The day before the February 1974 election, the first in which he was old enough to vote, Stephen Timms says an elder at the Brethren assembly that he then attended – near his home in Fleet, in Hampshire – took him aside. The Brethren are a non-denominational, non-conformist evangelical Christian movement.

“You will be voting Conservative, won’t you?” Timms recalls the man asking.

The assumption surprised Timms, who had thought there was an “obvious connection” between the social justice elements of Christ’s teaching and parties that sought greater equality. He told the elder – Mr Gilmour – that he would be voting Labour.

The incident was an early sign of how Timms, now 68, would spend a life that has brought together an evangelical Christian faith with attachment to the Labour party.

His career has taken him as high as the Cabinet – where he was Chief Secretary to the Treasury for a year in 2006 and 2007. He became Sir Stephen in 2022. He also has a reputation as one of the MPs most dogged in pursuing case work for constituents. That commitment nearly cost him his life in 2010 when a constituent, angry at his support for the Iraq War, stabbed him twice at a constituency surgery. Timms is standing again at the coming general election for East Ham, the constituency which, with some boundary changes, he has represented in various forms since 1994.

“I suppose I’ve spent 50 years trying to prove Mr Gilmour wrong,” Timms says. “[He was] a delightful man but I never agreed with him about that.”

There is a “very clear trend” of economic justice in the biblical message, which the Labour party represents and seeks to realise, Timms goes on, over coffee at an arts centre in his constituency.

“The Christian roots of Labour are absolutely clear,” he says, pointing out that Keir Hardie, the party’s first leader, was an evangelical Christian and many of its other founders were Methodists. “I’ve always seen Labour values and Labour aims as wanting to realise that commitment to economic justice which is such a clear thrust of the Bible.”

He sees no attempt in the Conservative party to realise that vision, he says.

“It’s just not a subject of interest, I don’t think,” Timms says of Conservative supporters. “For people in the Conservative party, there are concerns about maintaining order and respectability and all those things and I can understand how you might find those in the Bible. But I don’t think that’s what the Bible is about.”

“His argument to me was, ‘You believe in God; we believe in God; we think you should go for this’.”

Timms’ attachment to his small area of East London is almost as strong a thread in his story as his Christian and Labour party commitments. He first came to the area while a maths student at Cambridge, in the summer of 1976, as part of a two-week mission by the Christian Union of Emmanuel College to Forest Gate. It was a formative experience.

“It was the first time I could see how what I believed could shape my life,” Timms recalls.

He returned to the area in 1978 when, after leaving university, he was recruited by Logica, then an information technology and management consultancy, working in the west end of London. He joined the church that the 1976 mission had planted – now called Plaistow Christian Fellowship. He continues to attend the church with his wife, Hui-Leng, originally from Singapore, who was also part of the 1976 mission.

His joined the local Labour party.

“Very quickly, I was asked to be the secretary of my local branch Labour party, which was Little Ilford branch, and then very quickly after that I was asked to be the secretary of the constituency Labour party,” Timms recalls.

Timms was chosen as an office bearer, he believes, because of his neutrality in a bitter feud. Left-wing activists had tried to oust Reg Prentice, Labour MP for the constituency, then called Newham North-East. They claimed he was fundamentally a Conservative. Long-standing local activists had successfully defended him. Both sides had been left dismayed when Prentice subsequently defected to the Conservative party.

“It was a terrible mess,” Timms recalls.

His first elected office was as a councillor on Newham Council, fighting in an unusually high-profile council byelection in 1984. The party had, surprisingly, lost the three Little Ilford wards to representatives of the then Liberal-SDP Alliance. But it emerged that two of the Alliance councillors had given false addresses and there was a byelection.

“Ken Livingstone came down; Neil Kinnock came down,” Timms recalls, referring, respectively, to the then Labour leader of the Greater London council and the Labour party nationally. “We threw everything at it.”

Timms was leader of Newham council when, in 1994, the previous MP, Ron Leighton, died of a heart attack. After being chosen as the Labour candidate, Timms won the subsequent byelection, in June 1994.

His connection with his church has remained critical, he says. A group in the church offered to pray with him every month when he became a councillor. They increased the frequency to weekly once he became leader of the council.

“We still do that and that has been a very important source of support for me through all the ups and downs of the intervening 34 years,” Timms says.

Yet it was not a foregone conclusion that an evangelical Christian would form such a strong bond with, first, Newham North-East and then East Ham, as the constituency has been known since 1997. The seat has, according to the 2021 census, the eighth-highest proportion of people – 41.2 per cent – identifying as Muslim.

Timms insists the tension is less than it might appear. The first person to urge him to stand as an MP following Ron Leighton’s death was the chair of the Alliance of Newham Muslim Associations, he says.

“His argument to me was, ‘You believe in God; we believe in God; we think you should go for this’,” Timms recalls.

There are points of connection between different faith groups in the area, he adds. He has a particularly strong connection with Bonny Downs Baptists Church, in Beckton, which has an active food bank and many other social ministries.

“If you look at the people who around this community are really doing things to help here, it’s the faith groups,” Timms says. “It’s Bonny Downs Baptist Church; it’s some of the Muslim groups.”

“I certainly see what I’ve been doing in politics as a calling, as part of what I came here first of all to do, which is to take part in a mission,”

Timms’s sense of affinity with his Muslim constituents, however, did not prevent the most distressing incident of his career – when Roshonara Choudhry tried to kill him at a constituency surgery in Beckton in May 2010.

Medical staff described the two stab wounds, to his stomach, as “life-threatening” and Choudhry is serving a life term for attempted murder. She had been radicalised by online Islamist extremist sermons and acted because of Timms’ vote in favour of the 2003 Iraq war.

“It was a very, very unpleasant episode,” Timms says, with characteristic understatement.

In March this year, he says, he received a reply from Choudhry, part of a correspondence that began after she wrote to him expressing remorse for her actions.

Even the stabbing, however, underlined the community’s goodwill, Timms insists.

“I was absolutely inundated after that episode with people sending cards and good wishes – including Christians saying, ‘We’re praying for you’, and quite a lot of similar things from Muslims saying, ‘We’re praying for you for a speedy recovery’,” he says. “I hadn’t had that experience before of Muslims telling me, ‘We’re praying for you’. So it left me with a stronger sense, I think, of being supported by my Christian and Muslim constituents, which I appreciated very much.”

Timms nevertheless remains an unapologetically partisan politician. He wants a Labour government under Keir Starmer, he says, to resolve problems he says have built up over 14 years of coalition and then Conservative government since 2010.

“I think the country is in a sorry mess,” he says. “I think we very urgently need a change of direction. I think that the prescription that Keir Starmer has set out offers a hopeful way forward.”

Timms, who is currently chair of the Commons work and pensions committee, says he would be “delighted” to return to a ministerial role in a Starmer government. He is standing as an MP again in the hope of being able to support a new Labour government.

“It would seem a shame to leave just when we might be on the brink of a Labour government again,” he says.

Nevertheless, the way he links his work as an MP with his Christian faith sets him apart.

“I experienced a calling to be in this area,” Timms says.

As far back as when he came to East London, his thinking about faith, what to do with his life and politics were all “intertwined”, he adds.

“I certainly see what I’ve been doing in politics as a calling, as part of what I came here first of all to do, which is to take part in a mission,” Timms says.