Explainer

Comment

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.

Review

Books

Comment

Digital

Re-enchanting

6 May 2024

9 min read

Re-enchanting the anxious generation

The future doesn’t have to be horrible.

Krish Kandiah

Krish is a social entrepreneur partnering across civil society, faith communities, government and philanthropy. He founded The Sanctuary Foundation.

Two teenager lean against a rail, arms crossed, and laugh together.

LaShawn Dobbs on Unsplash.

I meet many anxious people as I wait for meetings in the Palace Westminster, but one in particular stands out. As I was queueing to get through security, a breathless American man rushed over asking if he was in the right place to meet the Minister of State for Universities. Once I had reassured him that he was, and he had caught his breath, I asked him where he was from and what he did for a job. He told me he was a social psychologist from New York.

Funnily enough, the night before, I had been reading a book by a social psychologist from New York. I asked the man if he had come across the author, Jonathan Haidt. He replied with a smile: “I am Jonathan Haidt.”

I chuckle when I remember that chance encounter, especially considering the title of his latest book – The Anxious Generation. The book tackles a much more serious topic than queueing nerves. It claims to show, in the words of the subtitle: “How the Great Rewiring of Childhood is Causing an Epidemic of Mental Illness”.

The Anxious Generation is a tightly argued plea to parents and educators for a radical change in the way that young people are allowed to engage with digital technology in general and social media in particular.

It follows the line of thought he began in his book The Coddling of the American Mind which argued that ‘helicopter parenting’ has led to such a fragility in young adults that universities are no longer places of open and free dialogue, but somewhere young people feel the need to be protected from ideas they disagree with. That problem was what Haidt was preparing to discuss with the Minister when we met outside Parliament.

“Embracing all this is a desire to maintain and hand on to our children an earth that offers genuine possibilities of flourishing.”

Mary Grey

The Paddington paradox

Krish Kandiah

With a tip of his hat, he brings a trace of grace to every life he touches.

07 November 2024

4 min read

The Anxious Generation makes a compelling case for the way we are failing a generation of children. It likens the social media world to another planet that we are all happily sending our children off to without first learning about or checking any of the risks linked with the potentially toxic environment. It concludes that as much as we are overprotecting our children in the physical world, we are under-protecting them in the digital world, thereby complicit in the resulting tidal wave of mental health disorders.

Haidt writes:

“Are screen-based experiences less valuable than real-life flesh-and-blood experiences? When we’re talking about children whose brains evolved to expect certain kinds of experiences at certain ages, yes. A resounding yes.”

Haidt argues that what children need is less screen time and more unsupervised play. Some might call this the re-enchantment of childhood– a rediscovery of wonder, and simple emotional connections with freedom, food, imagination, curiosity, those around them and the great outdoors. Perhaps there is healthy therapy to be found in this re-enchantment through the sharing of art, poetry, and fantasy. Maybe a rediscovery of faith and hope can help to bring healing.

Mary Grey, Emeritus Professor of Theology at the University of Wales in Lampeter, describes re-enchantment like this:

“The market’s language of desire must be replaced by reflecting what we really long for, like satisfying relationships and intimacy, meaningful communities where our values are shared, with working conditions that do not create an unbearable level of stress, enough income to cover basic and leisure needs, and planning for the future. Embracing all this is a desire to maintain and hand on to our children an earth that offers genuine possibilities of flourishing. … This is not an invitation to exchange reality for Magic Kingdoms, but to become embodied kinships of women, men, children and earth creatures in a re-imagined and transformed world of sustainable earth communities of healing and hope.”

The re-enchantment of childhood is an attractive theory. I often find myself comparing my children’s childhood with that of my own. I’m sure I played more in the garden than they do, climbed more trees, cycled more round the block, round the town, and later round the county in my spare time. I remember as a teenager getting on a bus to travel from Brighton to Durham without either parents or phones. Around the same time, I travelled to Tbilisi, Georgia with just a backpack, a map, a couple of friends and quite a lot of self-confidence. I wish that my children could experience some of the pleasures that come with fixing a bike or looking up at the stars or browsing the library to find answers, instead of just googling.

Yet, at the same time, if my children were making their way to Durham or Tbilisi today, I would certainly make sure they had plenty of charge on their phone and all the necessary mobile data roaming rights, and I would probably WhatsApp them regularly until they arrived safely at their destination.

Haidt presents a perfect story, one that explains all the evidence. He doesn’t mention anything that might challenge it, or anything that the doesn’t quite fit.

Haidt’s book touches a nerve. Not just because of my own contradictory feelings as a parent, but because of the shocking statistics that reflect the wider state of our nation’s children. With waiting lists for Child and Adolescent Mental Health Services at a record high, a 47 per cent increase in young people being treated for eating disorders compared to pre-pandemic, and an enormous leap in prevalence of probable mental disorder from one in nine children (in England aged 8-25 years old in 2017) to one in five (similar cohort in 2023), the mental health of the next generation is rightly highly concerning.

The blame has been levelled in many different directions: COVID lockdowns, school league tables, excessive homework, helicopter parenting, screen time, and general disenchantment in society at large. Some even say the increase is directly related to the increase in public discussion and awareness about mental health disorders.

For Haidt it is social media that is public mental health enemy number one. However, he does admit he is not a specialist in children’s mental health, child psychology or clinical psychology. This has led to some criticism about his conclusions. Professor Candice L. Odgers, the Associate Dean for research into psychological science and informatics at the University of California challenges head on the central argument of Haidt’s book. She claims:

“...the book’s repeated suggestion that digital technologies are rewiring our children’s brains and causing an epidemic of mental illness is not supported by science. Worse, the bold proposal that social media is to blame might distract us from effectively responding to the real causes of the current mental health crisis in young people.”

Similarly Henna Cundill, a researcher with the centre for autism and theology at the University of Aberdeen, wrote last week in an article for Seen and Unseen:

“From a scientific perspective, the argument is a barrage of statistics, arranged to the tune of ‘correlation equals causation’. “

Cundill and Professor Odgers are right to be sceptical. Sometimes we let our commitment to a story shape the way that we read the evidence. If there’s one thing I remember from A- level statistics it is that causation and correlation should not be confused. In his bid to add urgency and cogency to his argument, Haidt presents a perfect story, one that explains all the evidence. He doesn’t mention anything that might challenge it, or anything that the doesn’t quite fit. It is not a scientific treatise - which is both the book’s strength and its weakness.

Nevertheless, many of the recommendations Haidt suggests are wise and helpful. Even Professor Odgers, to some extent, agrees.

“Many of Haidt’s solutions for parents, adolescents, educators and big technology firms are reasonable, including stricter content-moderation policies and requiring companies to take user age into account when designing platforms and algorithms. Others, such as age-based restrictions and bans on mobile devices, are unlikely to be effective in practice — or worse, could backfire given what we know about adolescent behaviour.”

Therein lies the issue. Because of the lack of evidence for the causes, all we are left with – even from the experts – is what may or may not be likely to be effective in practice.

I wonder if this paucity of robust scientific evidence stems from the fact that the issues facing the next generation are even more complex than we could ever imagine.

The truth is that hype, hysteria and horror are more likely to gain traction than humdrum and happy medium.

Every generation is different from the last. My own youth in the UK in the late 1980s when I became part of the video games and micro-computers subculture was just as much a mystery to my parents and teachers. My generation’s problems were blamed on everything from the microwave to Mrs Thatcher to the milk that we drank following the disaster at Chernobyl.

It seems to me too simplistic to demonise the technology. It’s an easy sell, after all. In fact, whenever there is a major technical shift, horror stories are created by those who believe the dangers outweigh the benefits. Mary Shelley’s Frankenstein seems to be a reaction to the industrial revolution. The nuclear threat led to movies about Godzilla and 60-foot-tall Amazonian women. The advent of the internet brought us the Terminator films.

The truth is that hype, hysteria and horror are more likely to gain traction than humdrum and happy medium. Yet, despite the many and serious problems, the rise of new technologies, even social media, also have much to offer, and they are not going away soon. Instead of demonising new technology as the problem, perhaps we need to find ways to turn it into the solution.

And perhaps there are glimmers of hope. I like the fact that my children are connected to the wider world, that they know people and languages from more diverse places than I ever did. I like that they know what is going on in the world way before the 9 o’clock news. I like the fact that they are on the cutting edge of advancements I will never experience in my lifetime. I like the fact that they can get their homework checked by AI, that they don’t need to phone me up every time they want to try a new recipe, that we can grumble together about the football match in real time even when we are on different sides of the world. I like that they can browse the Bible or listen to podcasts about history while they are waiting at a bus stop. I like the fact that they have libraries of books at their fingertips, that they can disappear into fantasy worlds with a swipe and don’t have to spend hours at the job centre when they need to find work. And I love the fact that my children and their friends are rediscovering board games, crochet, embroidery and hiking and taking them to a whole new level because they are learning these crafts from experts around the world.

I sincerely appreciate that Jonathan Haidt cares about the real and desperate problem of youth mental health. His book adds weight to the pleas of those of us advocating for urgent investment into this area. It reminds us of the world beyond the digital borders and it gives us hope that the re-enchantment of childhood is not impossible.

However, the solution to these complex issues cannot be found in nostalgia alone. We cannot turn back the clock, nor should we want to. The past had problems of its own.

I would love someone to write a book that looks forward, that equips young people to live in the worlds of today and tomorrow. If, by some strange coincidence, Jonathan Haidt is reading this article and is in the process of writing that book, I do hope I will bump into him again to thank him.