Article
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.
kelly-sikkema-wgcUx0kR1ps-unsplash.jpg

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.

 

Related articles

Article
Comment
Politics
5 min read

Politics needs some deep stirring emotion

In politics, the struggle between our reason and desire is a fair fight.
A young woman in a blue suit stands at a wooden box in a parliamentary debating chamber looking upward while speaking.
British Youth Council parliamentary debate.
British Youth Council.

“The government you elect is the government you deserve.” So goes the famous quote, variously attributed to Thomas Jefferson, Joseph de Maistre and George Bernard Shaw. Of all these thinkers, Maistre is perhaps the most interesting, describing the business of government as a kind of religion, a political “faith” – one complete with dogmas, mysteries and even ministers.  

Maistre was, somewhat surprisingly amid the turmoil of eighteenth-century France, a staunch monarchist. His argument was that, if the authority of a political leader was only a product of social convention, then that authority would always lack a sufficient degree of legitimacy, leaving the door wide open for violence and strife. His solution was to defend the divine right of kings. This was a controversial position, as much then as it is now.  

Aside from his famous quote about elections, Maistre’s political philosophy is oft-criticised as polemical, hearkening back to a golden era of European monarchy that never really existed. Nevertheless, within his writings, Maistre laid bare a reality that we often prefer to keep veiled: that our political will is as much about what we find to be emotionally compelling as it is about what we find to be rationally convincing, indeed, the latter is very much dependent on the former. The more social scientists are able to demonstrate the reality of subtle phenomena such as confirmation bias, unconscious bias, and racial prejudice, the more we see that we are often being governed by pre-cognitive or non-cognitive instincts, even those of us who like to think that we are better than that. In the end, we have to concede that when it comes to politics, as with so much else, the struggle between our faculty of reason and the desire of our heart is a fair fight.  

  

“They have few standards by which to judge between falsehood and truth in revolutionary movements.”  

Amy Buller
You may also like

In 1930’s Europe, there was certainly a lot of emotionally compelling politics around. Fascinated by the language and culture of the German people, thinker and educator Amy Buller made repeated visits to Germany from the 1920’s onwards, often accompanied by reading parties of British academics, church leaders and university students. In those decades, as the political landscape of Germany began to shift, her purpose became less about countryside walks and studying, and more about the facilitation of urgent, open and honest dialogue between Buller, her fellow travellers, and their German counterparts in the churches and universities wherever she had contacts. As Hitler rose to power, and even before the full horrors of Nazism became widely known, Amy was compelled to find out why so many people, especially young people, were being attracted by what she saw as a “brutish” ideology.  

In 1943, amid the violence and destruction of World War II, Buller published a book, Darkness Over Germany, which gives a first-hand account of the many people that she and her travelling parties had met, and the conversations that had taken place. Like Maistre, Buller proposed that without God, politics was a dangerous kind of faith in something, one that tended towards violence. In the introduction to her book she writes of “…the tragedy of a whole generation of German youth, who, having no faith, made Nazism their religion.”  

It’s common these days to hear complaints about the political apathy of the young, with polls commonly reporting that only about 50 per cent of British 18 to 24-year-olds are intending to vote in the next General Election. However, there are those who raise the caution that this may not be a symptom of apathy, so much as a symptom of the cultural and structural injustices that put barriers in the way of young people engaging with our nation’s political life. Young people are not likely to “believe in” a political system from which they feel excluded. As Buller’s writing notes – when this happens, young people are likely to put their “faith” in something else.   

Maistre’s solution was perhaps too extreme for modern sensibilities: asking the politically minded populace to believe that their leaders were imbued with the authority of God, by God. In the twentieth-century, Buller took a more moderate view. As the Nazis began to view her with suspicion, trips to Germany became increasingly difficult to arrange, so she travelled elsewhere to places such as Hungary and Bulgaria. Wherever Buller went, she found more and more young people who wanted to talk to her about their political hopes and ideals. Summarising the whole, Buller suggested that Europe’s political landscape was eschewing “shallow rationalism” and instead being shaken by a “deep stirring” of emotion, particularly among young people. She recorded the observation: 

“They all want change, and they all want a chance to play a part in that change, but so few have any religious faith, which means that they have few standards by which to judge between falsehood and truth in revolutionary movements.” 

In a recent report, published by the Jo Cox Foundation, increasing the public’s “political literacy” was highlighted as a key response to prevent the outbreaks of abuse, intimidation and violence towards elected officials. As any educator will tell you, literacy is a two-way street – it includes not only the “shallow rationalism” of knowing information, or knowing where to access information, but also the ability to communicate that information effectively to others. Such communication comes from a much deeper, embodied kind of knowing, one which requires one to have assimilated knowledge and worked with it, feeling its malleability, and testing its apparent truth-claims against an internal standard of what is true and false, or right and wrong.  

For Buller, this internal standard was inextricably linked to faith. To the end of her life, she remained open minded as to what form this faith might take, albeit her own religious practice was firmly Christian. Cumberland Lodge, the educational charity she set up to promote her aims, was from the start open to those of all faiths and none, and she warmly welcomed dialogue between those of different faith groups, including atheism. But in 1943, as Amy Buller looked with hope towards the prospect of a post-war Europe, she summed up the political landscape as follows:  

We are now faced with the greater task of bringing healing to the nations, including our own, I am convinced this cannot be done without a faith in God adequate to the tremendous task of reconstruction.  

Given Amy Buller’s open-mindedness, one can read the word “God” in this statement its broadest possible sense, as referring to whatever moral compass one takes as an internal standard of what is true and false, or right and wrong. But the point remains that the political will is therefore not a matter of rational thought, or not only of that, but is an expression of feelings and instincts that run far, far deeper.  

Related articles

Related topics
Politics