Explainer
Comment
Economics
6 min read

How to tax ethically to avoid a two-tier society

From income tax to property and inheritance taxes, which is fairer?
a pile of coins.
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. 

Essay
Comment
Politics
War & peace
7 min read

What it takes to travel from ceasefire to peace

With Bertie Ahern, Kevin Hargaden explores an unlikely journey.

Kevin is a social theologian studying ethics and economics.

A TV graphic labelled 'ceasefire' lists bullet points
How the news was reported in 1994.
RTE.

August 31st marks the thirtieth anniversary of the historic IRA ceasefire. After decades of effective civil war in Northern Ireland, on this day in 1994, the nationalist paramilitary force announced “the complete cessation of military operations” and declared that they looked forward to a just and lasting settlement with “a spirit of determination and confidence”. While not without interruptions, that ceasefire has led to more than just a cessation of conflict. While still fragile, Northern Ireland has a functioning parliament, closer ties than ever with the Republic of Ireland, and the dissident threat – still present – is marginalised. 

One of the remarkable elements of that day at the end of summer 1994 was how unlikely it seemed just a year before. The intensity of “The Troubles”, as the conflict is called, varied over the years but a series of atrocities in 1993 left an already traumatised population in a state of desperation. In March of that year, the IRA exploded bombs in the market town of Warrington. This callous attack clearly sought to strike terror into the hearts of English civilians – people who had no real connection to whatever injustices had been inflicted on the nationalist communities of Northern Ireland. Two children, Jonathan Ball and Tim Parry, were killed and almost sixty people were injured.  

Another IRA bombing, in October of that year, caused outrage and disgust across Britain and Ireland. Again, hitting a civilian population, the Shankill Road bombing had been intended to target Loyalist leaders but ended up devastating a fishmongers. Ten people were killed.  

Brutal responses followed from the Loyalist side. Five days after the Warrington bomb, the Ulster Defence Association murdered four construction workers and a week after the Shankill Road bombing the same organisation descended upon a Halloween party held in a bar in rural Derry, killing 8 people and leaving 12 with dire injuries.  

Along with many other atrocities, the year ended with most people on the island dreading another generation of pointless violence. But below the surface, intense grassroots efforts and official negotiations were beginning to bear fruit.  

The viewer is bound to see the peace process that emerged as a kind of miracle. How could forgiveness reign in the face of such savagery? How can a society build a future out of the wreckage of such a past? 

This story is told vividly in the BBC documentary Once Upon a Time in Northern Ireland. Spread across five episodes, the show does not intend to offer an encyclopaedic analysis of how the Troubles emerged. Instead, it focusses on the experiences of the ordinary people embroiled – whether intentionally or not – in the conflict. The effect is deeply moving, even overwhelming at times.  

So often, our culture engages with war and conflict as abstract concepts to be debated. Even in the context of active, live battle, we are typically presented with “talking heads” offering expert opinion. But in Once Upon a Time in Northern Ireland you get to hear from the people who planned the attack, or who conducted the arrests, or who were just trying to buy some fish for dinner when a bomb exploded in the shop. This direct testimony from those were caught up in the Troubles allows the viewer a visceral understanding of what is at stake, without having to understand the centuries of colonialism, conflict, and oppression that generated the civil war. That human trauma, that is glimpsed in great poetry or felt as an echo in a folk song is captured in this series directed by the award-winning James Bluemel. 

There is a stubborn misunderstanding that the Northern Irish conflict was “Catholics against Protestants”. Once Upon a Time in Northern Ireland disposes of this myth, if in part by showing how those two groups were never distinct. It was a complex conflict fuelled by land and ideology, traumatic history and conflicting cultures. Religion was a component of course, but expressed through the lens of sectarianism, the almost racial animosity that grew up between the opposing tribes, the marker that differentiated them. When one man, named Michael, is shown tending gently to the racing pigeons he keeps, the effect is incongruous in the extreme because his story is one of unimaginable despair.  

He was raised Catholic; his mother was Protestant. She had ten children. And one day, two women showed up at their home and took his mother away and she never returned. The IRA killed her. It wasn’t because of her views on Papal primacy or biblical authority. Something even more absurd and terrifying was at work here, a hatred that at some point did not even need justification.  

The consequences of each callous and brutal attack rippled outwards, affecting not just the victims but their loved ones and then their community. By the end of the five episodes the viewer is bound to see the peace process that emerged as a kind of miracle. How could forgiveness reign in the face of such savagery? How can a society build a future out of the wreckage of such a past? 

That was their baseline assumption throughout – no one at the table was “happy with the fact that thousands of people had been killed and maimed.” 

This exposes one of the limitations of the format of the series. By placing the perspectives of ordinary people at the centre of the narrative, profound truths are exposed. But the mundane details of how the peace process developed – why it was the IRA agreed to a ceasefire and how things developed from there to the Good Friday Agreement and the years since – are unaddressed. Perhaps a sequel is required where the politicians and diplomats who made that possible are given the chance to tell that story? 

One of the undoubted architects of peace in Northern Ireland is Bertie Ahern, who was the Taoiseach (Prime Minister) of the Republic of Ireland from 1997-2008. I sat down with him to do just that – to hear his recollections of the process that brought about peace. Since his youth, he had always taken a keen interest in Northern Ireland – “I took a particular interest in the Civil Rights movement when we were in school; that was before it got into the violence.” Raised in a Republican family just north of Dublin city centre, once the Troubles began, it was hard “not to be subsumed into everything that was happening on the island.” As he became a political leader, he was keenly aware of how the violent conflict exacerbated underlying problems – even his vision for economic regeneration in the Republic was blocked because “part of the reason that it was difficult to get investment and to get people to come here was the Troubles.” 

As he remembers the process, it would be misleading to think it popped out of nowhere in the 1990s. There had been attempts through the years, notably with the Sunningdale Agreement in 1973 and the Anglo-Irish Agreement of 1985, but also through less publicised conversations between the peacemakers and paramilitaries, like the conversations led by Fr Gerry Reynolds at Clonard Monastery – which began to generate movement. He attributes the ceasefire to the Downing Street Declaration that was orchestrated by the British Prime-minister John Major and Ahern’s then boss, Taoiseach Albert Reynolds, on December 15, 1993. That showed a serious willingness from London to engage, and the 1994 ceasefire was the result.  

But when the ceasefire broke down in 1996, all that work dissipated. “That was a disaster, really.” With the election of Tony Blair, Ahern suggested they “take it up again”. With a concerted focus – “I was nearly doing the Northern stuff full-time” – progress was restored. He remembers that the negotiations involved ten different parties, including the British and Irish governments and the active and influential participation from the American government and “went on practically non-stop from September 1997 to Good Friday 1998.” The strategy sought to be as inclusive as possible – “we would try and get everyone in” – and “to be as comprehensive on the issues” as possible, so that no issue was off the table. Patience and resilience were central. Although there was “a huge amount of conversation and talks up to Christmas, it didn’t really gather momentum until February.” 

With the “totality of all the issues out on the table”, the dialogues began to bear fruit. How draconian legislation might be rolled back, how paramilitary prisoners could be released, how demilitarization would proceed and how the police could be reformed. He remembers that negotiations on that question – the reform of the corrupt Royal Ulster Constabulary police force – went on deep into the Good Friday night, April 10th. When an obstacle appeared, the London and Dublin governments reminded people of the goal of stopping the violence. That was their baseline assumption throughout – no one at the table was “happy with the fact that thousands of people had been killed and maimed.” The second guiding principle was that “you have to try to treat everyone with dignity, regardless of what views they have.” And slowly, rapport was built up between people who had been combatants.  

When the agreement was finalised, a kind of euphoria followed. “That week we were just at it night and day; we had been at it night and day since March.” But the celebrations, as intense as they were, did not linger. The agreement had to be passed by popular referendum in both the North and the Republic of Ireland. And the work continued even after that. Ahern notes that it took years to achieve an agreement “and then another ten years to implement it”.  

But the effort was undeniably worth it. “I think the big success of the Good Friday Agreement was that the Troubles have by and large ended.” And the story of how that happens traces back to a cassette tape released in August 1994 announcing the IRA ceasefire.