Explainer

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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.

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Comment

Feminism

Leading

23 October 2024

5 min read

Can Kemi really have it all?

For female experiences to mean something, we need to be part of something bigger.

Sian Brookes

Sian Brookes is studying for a Doctorate at Aberdeen University. Her research focuses on developing a theological understanding of old age. She studied English and Theology at Cambridge University.

A woman works at a laptop on a desk surrounded by picture frame.

Kemi Badenoch campaigning.

Kemibadenoch.org.uk

Apparently Kemi Badenoch is unfit for leadership due to a ‘preoccupation’ with her children. Such comments are hardly a surprise. After all, she is both a mother and a woman vying to be in a position of power. Since the beginning of time women have been mothers, but women haven’t always been in positions of power. So it is not surprising that some people have problems adjusting to the change. But it isn’t just Robert Jenrick who finds this adjustment difficult. In my experience, most women find it hard too. Becoming a mother is a beautiful but body-breaking, exhaustion-inducing and identity-questioning process. And that is just in the first few months. Add to that the expectations of also having successful careers as well, and it is no wonder we find it hard.

Kemi Badenoch’s response, naturally and rightly, was to show how capable she is to lead the Tory party alongside her maternal responsibilities, whilst challenging the view that just because she is a woman she is more responsible for her kids than a man with similar age kids would be. But her lack of acknowledgement of the hardship involved in being a mother and having a successful career does leave an awkward silence around what is an ongoing imbalance in many relationships when it comes to holding the fair share of parental, household and professional responsibilities.

This relentless pursuit of the ability of mothers to do everything else as well as being a mother says something about what we expect from women in our society. We need to prove that it is possible to be a woman and do all the things men have traditionally done. Yet sometimes I do wonder if we make it harder for ourselves. Is it our own expectations which make this thing called being a woman much harder than it needs to be?

Perhaps she is valuable not because of what she does or the choices she makes and what that says about the feminist cause, but because her worth lies elsewhere.

I’ve been blessed with the task of raising three boys, but I think about my friends who are raising little girls and the hopes they have for them. The hopes that they will grow to defy the expectations placed on them because they are female; to counter the oppression put upon them by breaking through the ceilings that may be built over them by others, to become whatever they want to be; engineers, consultant doctors, CEOs, even builders or plumbers if they so desire.

At the same time, (if the girls want them), they are expected to build families and loving safe homes. All of the things our mothers hoped for us and their mothers before them hoped for their own daughters.

Yet now, alongside those hopes for domestic fulfilment, so many other expectations have been added. Of course, the obvious solution to this, as Kemi has argued, is for men and women to share the load on both sides – to build the home and work life in a way that benefits both in the partnership. But the fact remains that relatively speedily in the course of historical development, we have come to a position where we are all expecting to have it all, all the time. And especially for our girls – we want them to be strong, powerful, successful, fruitful and productive all at once.

Now, this is not to say that we should revert to a time when only women ran the household and only men inhabited the professional domain. But sometimes perhaps it’s OK for a woman just to be a mum, if that is what she wants. She doesn’t have to also show the world she can be everything else as well. Some would criticise that decision as selling out on the relentless need to fight for equality with men. But not everything a woman does has to demonstrate some ideological end in fighting for equality, as though that is what gives her value as a woman. Perhaps she is valuable not because of what she does or the choices she makes and what that says about the feminist cause, but because her worth lies elsewhere.

Whatever we do, we do it to witness to a love, a truth which goes beyond whatever we can give to the world.

Many of the friends I spoke of earlier who have those little girls chose to have their daughters baptised as babies. This act of infant baptism puts the stake in the ground for the belief that before they could do anything, before they could prove their worth as a female member of society demonstrating all that power, strength, purpose and ability to right all the wrongs of the past, they were loved and valued beyond measure, without condition.

As a girl, and before they grow to be a woman, maybe a mother, and then potentially the leader of a political party, they are a child of a God who values them not because of what they have done or will do, but because they are His child. At the same time, this doesn’t mean we sit back and do nothing – it’s central to the Christian faith to fight injustice and overturn oppressive powers, but this is never achieved by human action alone as though the weight of the world falls on our shoulders, it is done by bearing witness to a God who has a better plan for the world and for society than we could ever dream or imagine. It is only when we realise this that the burden might be lifted from all the women fighting for all the things we are supposed to fight for.

Of my three closest friends in the church, one is (currently) a stay-at-home mum, one a doctor, one a vicar. As for myself, I am studying for a PhD in theology. We also all spend a lot of time looking after children, cooking and doing the dishes (as do our husbands). And yet, when we reflect together, these choices feel less statements of how we might be empowered or not as women, but more the result of a belief that whatever we do, we do it to witness to a love, a truth which goes beyond whatever we can give to the world. And so, we can each celebrate what we “do” because in each offering of ours can be found meaning, purpose and life beyond our own abilities, even our own individual actions. Perhaps, this is better than any kind of feminism you find around these days, because it allows us each to do the small thing in front of us without loading more on ourselves than we can bear alone. Only together, and only in knowing we are part of something bigger than ourselves, can our variety of female experiences mean something. In this way of living, being a woman feels very free indeed.