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

Church and state

Creed

Politics

8 February 2024

6 min read

The Church and the State need to disagree on asylum seekers

Politicians don’t always get how church and state relate, but both have a vital and different role to play when it comes to immigration. Graham Tomlin explores the age-old tensions between clerics and politicians

Graham Tomlin

Graham is the Director of the Centre for Cultural Witness and a former Bishop of Kensington.

A woman dressed in a blue suit sits at a table talking and gesticulating with her hands.

Then Home Secretary Suella Braverman, answer to a parliamentary committee, December 2022.

House of Lords, CC BY 2.0, via Wikimedia Commons.

As we all know, Suella Braverman thinks the church is aiding and abetting bogus asylum seekers. The case of the Afghan migrant Abdul Ezedi, who carried out an acid attack on a woman and her children and reports that residents of the Bibby Stockholm barge were attending churches nearby has added fuel to the former Home Secretary’s charge that churches are naively supporting the asylum claims of immigrants to the UK. Everyone on the right of British politics seems to have weighed in to the issue, from Nigel Farage to Priti Patel, Robert Jenrick to Melanie Phillips. Now, even the left has joined in. Keir Starmer has indicated he would close loopholes for those who falsely claim conversion if he becomes Prime Minister (quite how he will do that is not explained).

I feel personally invested in this story. When I take confirmation services as a bishop, quite regularly these days, among the list of candidates, there will be Iranian or Syrian refugees who have apparently become Christians, waiting in line among the 12-year old schoolkids, the new parents who want spiritual help in bringing up their children and the elderly man approaching death who realises he needs do something he’s been putting off for years.

I have confirmed several Iranian refugees. I can’t look into their heart, or even my own to guarantee all of them were genuine converts. Yet I have seen their desperation to escape an oppressive regime, and although some may have started out coming to church to improve their chances of asylum, in the process some of them at least, have found, to their surprise, real faith. Several that I know have gone on towards ordination in the Anglican Church. If that is a ploy to get past the immigration system, it does seem to be taking things a bit far.

It’s hard not to think the attack on the church is some kind of retaliation for the bishops’ opposition to the government’s Rwanda scheme. But underneath this argument there are deeper issues at play.

The wrath of God is more severe than the wrath of Suella. And the generosity of God is wider than the Home Office.

This dispute is in reality another outbreak of the age-old tension between the Church and Caesar. In the early years of the church, Roman emperors never really understood Christianity and thought they could use it for the purposes of the Roman Empire just like they were used to doing with the pagan cults.

Yet the Christians had other ideas and higher loyalties. As Augustine put it, the loyalty of the church is ultimately to the City of God rather than the earthly city. And in time, they developed a careful understanding of the way the church related to the state.

So when it comes to immigration, the church will always take a different approach from the state. St Paul, in the very early years of the Christian Church, wrote: “Welcome one another, therefore, just as Christ has welcomed you.” In the very foundations of the Christian faith was this idea that even though we humans were moral and spiritual vagabonds, God has extended us a welcome into his presence. So woe betide any Christian who failed to welcome others into their fellowship if they wanted to join.

If the Christian life was a matter of imitating and displaying God's ways in the ordinary business of life, then hospitality became one of the core Christian virtues. As one early Christian writer put it: "Do not neglect to show hospitality to strangers, for by doing that some have entertained angels without knowing it." To risk offending an angel - a messenger of God – was a bad idea. The wrath of God is more severe than the wrath of Suella. And the generosity of God is wider than the Home Office.

Now of course such hospitality could be abused. The New Testament also has warnings about naively welcoming scoundrels who speak falsehood and lies: "Do not receive into the house or welcome anyone who comes to you... for to welcome is to participate in the evil deeds of such a person." So, the early Christians were told to be on the lookout for fakes, just like clergy today. Walk down a street with a dog collar and you are a magnet for people telling you that they have lost their wallet and could you give them the train fare to visit their dying mother in Newcastle. With their doctrines of sin and the deceitfulness of the human heart, vicars should know more than most that not every claim to charity is genuine. Yet that dose of realism always took place in the context of a presumption to welcome. To think the best of people not the worst. To give people the benefit of the doubt.

The state on the other hand has a different role. Later political theology developed more nuanced ways of putting it, but it goes back to St Paul’s claim that civil authorities are “God’s servants, agents of wrath to bring punishment on the wrongdoer.” It is their job to be suspicious, to investigate fully, to winkle out fake claims and to set proper limits, while tempering justice with mercy and be willing to welcome the genuine person in need. And wisdom is found in the tension between the two. It was always a mistake for the church to act like the state, being overly suspicious and critical. It was equally a mistake for the state to act like the church, being overly optimistic about all claims to asylum or innocence.

So, when asylum seekers turn up at church asking to be baptised, the local vicar should not act like an agent of the state, assuming they are all bogus, just wanting to fiddle the system. She must act out of loyalty to her faith which tells her to welcome the stranger. The immigration officer on the other hand, whether he happens to be Christian or not, has to play it differently. Of course, there needs to be proper scrutiny of people's application for asylum - that's why we have an immigration system and quite right too. But vicars are not immigration officers. Their job is not start out by doubting motives but to act out the welcome of God, even if it draws the ire of the Daily Telegraph. This is the way that church and state should work together, one reminding the other of the Kingdom of God - a whole different way of life where welcome and grace takes centre stage. The other, conscious of the human tendency to deceive, being rightly cautious.

Suella's problem is, at root, a theological one. She hasn't understood the way Christian faith works. She hasn't understood the relationship between the church and the state. And let's be honest, sometimes in the past, the Church has tried to play the role of the state as well, which is equally a mistake. There is an inevitable tension in this relationship, where sometimes the church will believe the state is being too harsh, or the state will believe the church is being too soft, as we have seen in recent times. But it's one of those creative tensions where each side needs the other.

Perhaps in other, wiser ages, we understood this delicate balance between church and state, and the careful work that went into defining their relationship. Maybe it's time to recognise the role that each plays, not just for the sake of a healthy social life, but for the sake of those people who come to our shores desperately seeking a new life – whether with good motives or bad.