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Economics

29 October 2024

6 min read

How to tax ethically to avoid a two-tier society

From income tax to property and inheritance taxes, which is fairer?

Laurence Fletcher

Laurence Fletcher is a journalist at the Financial Times.

Sarah Agnew on Unsplash.

Few doubt that Chancellor Rachel Reeves will be putting up taxes when she presents her first Budget on October 30th.

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.

“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.”

Paul Williams

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 Biblical perspective that he believes offers some solutions.

He takes as his starting point a story from the gospel of Matthew, 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, he says, “completely ruined” by wealthy people from elsewhere buying second homes, 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 said.

“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.

Conviction politics is changing morality

Political dialogue gives way to animal-like culture war.

Barnabas Aspray

Barnabas Aspray is Assistant Professor of Systematic Theology at St Mary’s Seminary and University.

A severed doll head, resembling Donald Trump, lies on dirty ground.

Max Letek on Unsplash.

“We're gathering 100 MILLION signatures to OVERTURN Trump's wrongful conviction!”

I received this SMS message, along with a link, on Monday 10th June. It was the fourth message of its kind I’d received since the verdict convicting former US President Donald Trump of felony. This time, out of curiosity I followed the link. I found a lot of words in capital letters conveying a sense of extreme urgency, but I did not find any evidence or argument for the injustice of the verdict.

Trump’s conviction has been met with a torrent of reactions from people across the political spectrum. Everyone sees the event as an episode in the upcoming US election in which Trump plans to run for president. For those on the left, it’s final and conclusive proof that he is unfit for office; the evidence is clear, the courts have decided, end of story. For those on the right, it’s a further sign of the depraved depths to which the Democrats will go to discredit him; the jury was rigged, and the whole thing was a political stunt to win the election. The legitimacy of the court ruling is something nobody on the left questions and nobody on the right admits.

To me, these responses are another sign of the ever-widening gap between left and right that eats up all common ground, even the rule of law. Political victory now takes priority over truth or justice – or perhaps more accurately: victory for my side is identical with truth and justice. To concede anything to the opposing side is seen, not as praiseworthy, but as betrayal.

My comments in what follows are nonpartisan: I want to point to what is true of both sides equally: the failure of dialogue and its replacement by a warfare mentality. This change affects even what we consider moral and admirable behaviour. It is not only a problem in the US. Ever since Brexit, things have become increasingly polarised in the UK as well.

That is what “culture war” means. War and dialogue are opposites; war is what happens when dialogue has failed.

Formerly in Western nations, rival political parties offered different means to achieve the same end: a flourishing society of justice, peace, prosperity, and freedom. Politicians disagreed but they respected each other. They had faith in the political process in which they all participated. Consider as an example the letter George Bush Senior left Bill Clinton after losing the 1992 US election.

“Your success now is our country’s success,” he wrote. “I am rooting hard for you. Good luck.”

The fact that he was now president was more important than which political party he belonged to.

In such a cohesive society, the legal system was a trusted arbitrator whose decisions would be accepted by victor and loser alike. This does not mean the system was perfect. Everyone knew that justice could sometimes miscarry. But the public did not see themselves as qualified to judge that either way. How could they expect to know more than the jury?

What we are witnessing now is a return to a more animal-like state in which the goal is that my team wins no matter what. If the arbitrator rules in favour of my tribe, they are seen as executing justice. If they rule against my tribe, their ruling must by definition be unjust.

That is what “culture war” means. War and dialogue are opposites; war is what happens when dialogue has failed because both sides have been unable even to “agree to disagree.”

Reasoned debate is seen as no longer effective in light of the vile underhanded tactics of the other side (but not, of course, of my side).

In dialogue, both sides aim to uncover the truth even if the truth turns out not to be what I wanted or thought. Prioritizing the truth means that I might realise I was wrong and concede the point, even at some material cost. For example, in a property dispute, I might become persuaded of the truth of my opponent’s case and give up my claim. That may be painful, but winning was less important than justice being done. In dialogue, both ‘sides’ are really on the same side because they both ultimately want the same thing.

In war, on the other hand, the goal is to defeat the enemy and it makes no difference whether they are right or wrong – or rather, it is assumed without question that they are wrong. If words are used in war, they are weapons in disguise, not meaningful communications.

This transformation from dialogue to war changes morality itself. You are now judged, not by the sincerity of your pursuit of truth, but by how loyal you are to your tribe. Even to take seriously the opposing position is viewed like reading a propaganda flyer dropped from a Nazi airplane: don’t even read it, it will only twist your mind!

Even seven years ago, fans of Jordan Peterson were fond of the phrase “all I want is to have a reasoned debate.” Regardless of your opinion of Peterson or of whether he exemplified this, those who used this phrase revealed a desire for dialogue rather than war. But today, many of those same followers no longer say that. Now they say, “the left is out to get us and must be stopped” and their counterparts say, “the right is out to get us and must be stopped.” Reasoned debate is seen as no longer effective in light of the vile underhanded tactics of the other side (but not, of course, of my side).

What do we want from our political opponents? We want them to listen to us and to take our arguments seriously.

What role can Christianity have in this polarised society? Sadly Christians are often seen as part of the problem rather than the solution: sold out to one political party. But we should be clear that Christianity does not sit neatly on either side of the divide. That does not mean Christians should be moderate or “centrist,” as if none of the issues matter much. Christianity comes down strongly on many things, but those are spread across the political spectrum. The way Christians vote depends on which issues they judge to be the most important or pressing in the current circumstances.

Second, Christians are called to make peace in time of war. “Blessed are the peacemakers,” Jesus said, “for they will be called children of God.” Christians are called build bridges rather than burn them, to seek common ground rather than trying to obliterate their opponents. This can start with showing love and respect for the person behind the argument; by celebrating our common humanity before trying to argue a point.

Third, it means exemplifying the kind of attitude we want to see in our opponents. “In everything do to others as you would have them do to you,” Jesus told his disciples. What do we want from our political opponents? We want them to listen to us and to take our arguments seriously. We want them to stop making cheap caricatures of us and represent us at our best. We want them to break out of their echo chambers and read news from a variety of political leanings. We want them to open themselves to persuasion and be prepared to change their minds. Jesus suggests leading by example and doing those things first.

Fourth and finally, the Christian’s allegiance is to truth and justice above any tribe, any agenda. The real political situation is almost certainly complex, with much to be said for and against both sides. There are awkward facts that don’t fit our own political position; let’s admit them. The Christian commitment to truth means being ready to acknowledge the weaknesses, failings, and faults on our own side before we point the finger. It’s hard, I know. I am not perfect at it myself. But it’s a more Christlike moral standard to aim for than that of the culture warrior who excels at demolishing the enemy.

Restoring dialogue won’t be easy and may come at a high personal cost. But the cost is greater if we don’t try. My own desire is to see Christians taking the lead in the restoration process and showing the world what Christlike peacemaking can accomplish.