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Economics
Politics
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.
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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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Essay
Culture
Middle East
Politics
7 min read

Democracy and the authorities that exist

Should we insist on democracy in the Gulf?

Andrew Thompson

Andrew Thompson MBE is an Anglican priest who served in Kuwait and the United Arab Emirates.

Three members of the Oman Shura sit in it's chamber and hold their hands in prayer
Members of Oman's assembly - the Shura.

I once participated in an American University forum looking at Gulf states and the development of democracy. Underlying the barely disguised criticism of political processes in the Arab world were three assumptions. Firstly, that there was an assumption that everyone understood which model of democracy was being referred to. Secondly, that this model should be a desirable universal goal for all nations to aspire to. Finally, that democracy works and is ‘good’. 

The first assumption is quickly undermined when one does a brief survey of democratic processes in European countries. There are no two countries which have a similar modus operandi when it comes to conducting elections. Which democratic model should one aspire to? 

On the second assumption, I was reminded that the very concept of democracy as touted by Plato was already flawed. In Ancient Greece, the public decision-making process excluded women, peasants and slaves. The elite Athenian men who got to occupy the space of power on Pnyx Hill, were already wealthy and privileged. 

Similarly, the US constitution, with its line “All men are born free and equal, and have certain natural, essential, and unalienable rights” did not include women and slaves, thus undermining the slogan  ‘a government of the people by the people’. 

It would seem that even today in the west, the democratic process still favours the elite and excludes certain categories of people. 

Their emphasis is on values-driven leadership; these values predate Islam and were forged in the harsh climate of the desert. 

So how do we define democracy?  

While academics cannot agree on one definition, there is a recognition that most democracies have one main feature: that they include a transparent, accessible and inclusive process by which citizens can appoint their governments.  

Free and inclusive elections are not a feature of Gulf states.  The authorities in Gulf countries are often criticized for their suppression of their political opponents and flagrant abuse of human rights. While several Gulf countries do hold elections, they tend to be limited in terms of who can participate, and once elected their roles in office tend to be more advisory rather than that of a decision maker. 

So how do governments in the Arabian Gulf work? 

Each Gulf state is led by a ruling family who secure their position within a rentier state economy, by sharing their largesse from the oil industry with their citizens. Failure to be generous with their tribal allies would lead the ruling family into a potential conflict. A future challenge is what happens when the oil runs out. How will ruling families secure the loyalty of their citizens? 

In the United Arab Emirates (a federation of seven semi-autonomous regions headed up by a ruling sheikh), I have learned their style of governance is rooted in centuries of tribal wisdom. Their emphasis is on values-driven leadership; these values predate Islam and were forged in the harsh climate of the desert.

Bad leaders generally don’t last long in tribal societies. 

The quintessential Arab leader should serve their people with humility, wisdom, integrity, courage and generosity; these personal leadership qualities have underpinned Arab tribal culture for millennia. The eminent historian and pioneer sociologist, Ibn Khaldun (1332-1406) describes in his seminal work The Muqaddimah, observes the importance of ‘assabiya (public consensus or group cohesion) as the glue that holds successful societies together.  He went onto describe how Arab societies achieved consensus. The most common form was the council of elders or a shura, in which the representatives of the tribes came to a common decision.  It was a shura which appointed the first Caliph after the death of prophet Mohammed. This concept exists to this day in modern Oman, whose government describes their version of parliament as a shura. It is a matter of debate as to how representative of the people the shura is, but the point is that in Islam there is a process which exists which seeks to reach consensus or ‘assabiya. It is worth noting that the concept of ‘assabiya is reflected in Rousseau’s political philosophy of working towards the common good and will of the many. For the record, Rousseau was not a believer in democracy. 

It is ‘assabiya which leads to tribes offering their allegiance to a ruling sheikh, once they are persuaded of the legitimacy of his ‘fitness’ to lead.  Although Gulf dynasties have been established for several generations, it is not automatically a model of primogeniture. For example, the position of the Emir of Kuwait is supposed to be shared between two alternate branches of the Al Sabah family. On the other hand, the de facto ruler of the Emirates was the first son of the third wife on account of his political acumen and clear leadership skills.  

Upon the death of a ruler, the family will seek to identify an elder within the family who displays the merits and qualities desired in a leader. These qualities are essential in holding the allegiance of most of the tribes. An incompetent, selfish or vicious ruler will swiftly disrupt the ‘assabiya and lose the allegiance of the tribes. There is a system of sorts, of checks and balances to ensure for the most part a benign ruler who will hold the best interests of their people to heart. 

And it works well, as attested by the common man on the street. in the UAE there seems to be a genuine respect, even affection for many of the ruling families. 

The Gulf States would be the first to say that they are not democracies, but their histories have demonstrated that overall, their countries have flourished, and political stability has been consistent.  Bad leaders generally don’t last long in tribal societies. 

Yet, there is still a conviction held by western governments that life in the Gulf states would improve if they adopted democracy as a way of life. While this sentiment may appear to be admirable, in reality, when democracy has been hoisted on Arab states it has not ended well. 

Western politicians simply do not understand the context in which hostile, militant and organized Islamists lurk. 

Kuwait was the first Gulf state to adopt a semblance of democracy and their media are among the most independent in the region.  Yet the country’s commitment to move towards democracy, as an attempt to integrate with the global economy, has backfired. The Kuwaiti democratic processes have enabled a highly organized and elected Islamist group which has consistently paralyzed the Kuwaiti parliament and thwarted their pro-western policy ambitions. 

It is ironic too, that where Middle Eastern countries have embraced democratic processes, the elections have been won or successfully contested by political parties who would be seen as threats to the Western world.  Hamas in Palestine, the Muslim Brotherhood in Egypt, the Hirak Islamist group in Algeria and the AKP in Turkey.  All these supposedly democratically elected parties have faced opposition and concern from Western nations. In some cases, western powers have actively conspired to bring down elected governments in order to defend their interests. Iran is a case in point. 

It would seem that democracy in the Middle East is only acceptable in the west if the ‘right’ people win it. 

The democratic experiment in Iraq came with a high cost in terms of loss of lives, and the jury is still out on whether the Iraqi parliament can deliver a national agenda in which security and prosperity can be enjoyed by all their citizens. 

It is for this reason that a senior Emirati leader recently explained at a press gathering, that the pressure to adopt democracy as a model of government in the Middle East is unreasonable. Western politicians simply do not understand the context in which hostile, militant and organized Islamists lurk. 

“Why would anyone want to buy into a system that would inflict a country with the likes of the leaders you have now?” 

That said, things are changing. The UAE sponsored Marrakesh Declaration which seeks equal citizenship in Muslim majority countries for religious minorities is clearly a step in the right direction for ensuring protection for all. 

Should we then insist on democracy in the Arabian Gulf?  

For thousands of years, the Arabs have had their own mechanisms of selecting leaders. They do not see the need to adopt western democratic procedures which are potentially likely to disrupt the economic prosperity and security of their citizens. 

St Paul once wrote the following words in the context of an oppressive Roman Empire, ‘the authorities that exist have been established by God’. While Christians cheerfully apply this teaching to support their democratically elected leaders, it is worth asking, ‘should this not apply to the leaders of the Gulf states too’? 

Meanwhile, back in the American University, a bewildered Emirati student whispered to me during a particularly strident presentation on the virtues of democracy, “Why would anyone want to buy into a system that would inflict a country with the likes of the leaders you have now?” 

His words gave me pause for thought and led me to question what we assume to be a self-evident truth, that democracy should be the aspiration of all countries.  Should we insist that Gulf states adopt democracy as their mode of governance? Would democracy work in the Arabian Gulf economy and culture? 

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