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

Race

7 March 2024

4 min read

Claims of institutional racism let politicians off the hook

They need to be mindful of something else baked into our institutions.

George Pitcher

George is a visiting fellow at the London School of Economics and an Anglican priest.

A TV roundtable discussion with five people against a backdrop of Parliament.

Politicians and pundits discuss the Lee Anderson issue.

Racism charges have recently divided very neatly along political lines. Tearing chunks out of each other at the Despatch Box, prime minister Rishi Sunak and Labour leader Sir Keir Starmer have both bet their houses by playing the race card on each other.

Starmer claims the Conservative Party wallows in Islamophobia, having withdrawn the whip from its former deputy chairman for stating publicly that Islamist extremists control the Mayor of London. For his part, Sunak, yah-boos back that Labour didn’t have a runner in the Rochdale by-election, after suspending its candidate for peddling an anti-Israel conspiracy theory.

Rochdale was duly won by the famously pro-Arab former Labour MP George Galloway. Sunak wants us to hold that Labour is as antisemitic as it was under Jeremy Corbyn.

So there we have it. Labour is antisemitic and the Tories are Islamophobic (not a good word, but the currency of the moment). Pick your prejudice and vote accordingly at the general election.

Whatever the validity or otherwise of these claims, it’s in the interest of both parties to accuse their opponents of being rotten to the core with these attitudes. It doesn’t really work for them to claim that Sunak personally is an Islamophobe or Starmer an antisemite.

This has to be about the whole political parties over which they preside. It’s really about institutional racism. So when a Conservative MP, Paul Scully, has to apologise for calling some parts of Birmingham and London “no-go areas” for non-Muslims, it’s taken as a reflection on Conservatives as a whole.

Similarly, it’s an insufficiency to criticise particular journalists for their reporting bias; a former BBC director-general has to call the entire corporation “institutionally antisemitic.”

The apartheid governments of South Africa were systemically racist, the Conservative and Labour parties – and the BBC which reports on them – are not.

I have a big problem with these generalisations. The political parties contain racists of both kinds, antisemitic and Islamophobic, as well as very many members of no racism at all (thankfully). And I happen to know from personal experience that the BBC operates an informal policy of equal-opportunities bigotry – there are as many Islamophobes as there are antisemites in the organisation, though together they amount to a small minority (again thankfully).

There is, consequently, no institutional racism in these places of work, though they are all rich in the employment of racist individuals because, alas, so is the world.

Institutional racism was a term coined in the Sixties, but it really only gained traction as an indictment of the Metropolitan Police in 1999’s Macpherson Report into the racist murder of teenager Stephen Lawrence.

I was uneasy with that terminology then and remain so now. Police officers are (or can be) racist; the constabularies for which they work are not. If they were so, they would train their officers to be racists – and they didn’t and do not.

Their training may have been rubbish in all sorts of ways, but there is a world of difference between omission and commission. The apartheid governments of South Africa were systemically racist, the Conservative and Labour parties – and the BBC which reports on them – are not.

Our politicians might be mindful of that, whatever their faith or none. And they might like to note some of the imperatives of its teaching

Two matters stem from this. The first is simply that individuals are responsible for racist attitudes, not the organisation for which they work, although those organisations have a duty to call out racists in their midst.

The other is to recognise what we are, institutionally and systemically. The UK’s uncodified constitution has two Churches established in law, the Church of England and the Presbyterian Church of Scotland. The monarch is the supreme governor of the former, as well as head of state.

That is simply the way it is and, this side of disestablishment of the Church, it follows that (in England and Scotland at least) we live in a Christian country, however few of its inhabitants now attend its churches. In short, Christianity is baked into our systems and institutions.

Our politicians might be mindful of that, whatever their faith or none. And they might like to note some of the imperatives of its teaching: care for the afflicted in the story of the Good Samaritan; the welcome of strangers in the report of the Syrophoenician woman who seeks crumbs from the table; the love of neighbour; Paul’s universalism.

This (and much else besides) is meant, in law, to define who we are. We might expect an elected servant of the state such as Lee Anderson, the Tory suspended from his party for claiming a Muslim power grab of London, or Azhar Ali, the Labour candidate similarly booted out for claiming that Israel conspires to murder its own citizens, to know something of the national creed that defines our parliamentary democracy.

That parliament doesn’t contain institutionally racist parties, any more than the BBC or our police forces are systemically racist. Rather, we should hold individuals to account, whoever they are. Because, ultimately, claims of institutional racism let individuals off the hook. Institutional Christianity does not.