Article
Economics
Politics
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.
kelly-sikkema-wgcUx0kR1ps-unsplash.jpg

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
Character
Creed
Leading
Politics
5 min read

World leaders can learn a lot from Pope Leo

Graham Tomlin was at the Pope's inauguration in Rome. This is what he noticed.

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

A VIP couple stand and talk with the Pope.
Usha and J.D. Vance meet the Pope after his inauguration.
Vatican Media.

On Sunday morning, along with a host of bishops, patriarchs, priests and assorted others, I was led around the back of Peter's Basilica in Rome, into the cavernous spaces of that extraordinary building.

As we walked through the echoing church with the sunlight slanting through the windows like shafts of light from an angelic realm, our small group of Anglicans waited for our turn to walk out into the blinding sunshine. The names of the churches were ticked off like a game of ecclesiastical bingo: “Coptic Orthodox Church of Alexandria? OK.” Syriac Orthodox Church of Antioch? – This way please. “Armenian Apostolic Church – just wait a minute…” 

As we moved through the front doors of the Church, the first thing we saw was a crowd of 200,000 people stretching as far as the eye can see. Behind us was the imposing face of St Peter’s, that great monument to Catholic supremacy and authority. The world’s media looked down from the balconies above us. Opposite our seats were the rich red velvet chairs ready for President Zelensky, J.D. Vance, and the heads of state of numerous countries across Europe and beyond.  

As we walked out, I turned to a friend in our group, and instinctively said to him, “you'd need to be someone of remarkable humility not to let all this go to your head.” 

I couldn't help thinking of Robert Prevost, who was about to walk through these doors, a man who was made a bishop in 2015 - only became a cardinal two years ago, and was now to find himself the focus of rapt attention by this vast crowd and millions of others on TV, as the spiritual leader of 1.4 billion Catholics, catapulted from relative obscurity to being the most famous man in the world within a couple of weeks. 

St Peter’s is designed to impress. The piazza in front of the church is surrounded by imposing statues of apostles, saints, martyrs, and fathers of the church, all looking down on proceedings below. It was this church that inadvertently triggered the Reformation, as a fund-raising scheme for its construction involved selling some indulgences in Germany that raised Martin Luther’s fury. The frontage, with its soaring pillars, grand windows, sumptuous balconies and rich tapestries, is meant to overawe you. Inside, the space is huge, with vast windows letting in the light, stunning works of art everywhere. This was a display of the Renaissance papacy, leading into the Counter-Reformation, the confident Baroque spirit that announced the triumph of the Church over all its enemies. 

A Pope with a streak of vanity would be a dangerous thing. Everything points to the power of this position – the successor of Peter, the one on whom the rock of the Church was to be built; the leader of the largest body of Christians in the world; someone instantly recognisable across the globe, to whom world leaders have to come, cap in hand. No wonder some popes in the past have become political manipulators, vying with emperors and kings over who has more power.  

Yet these days, the Catholic Church sounds a humbler note. Pope Francis started the church down a line of ‘synodality’, inviting other voices into the church’s deliberations rather than just male priests. Pope Leo seems to want to continue down that line. 

Referring to his election he said: 

 “I was chosen, without any merit of my own, and now, with fear and trembling, I come to you as a brother, who desires to be the servant of your faith and your joy, walking with you on the path of God’s love.” 

The tone was not of self-aggrandisement, asserting the power of the position. There was no strategy to dynamically change the church and the world. No grand design to use the levers of power to shape society according to his vision. Instead, this was about unleashing a more elusive and uncontrolled force: the power of self-denying compassion.  

As Pope Leo put it: 

“The ministry of Peter is distinguished precisely by self-sacrificing love, because the Church of Rome presides in charity and its true authority is the charity of Christ. It is never a question of capturing others by force, by religious propaganda, or by means of power. Instead, it is always and only a question of loving as Jesus did.” 

Now that’s different from the way popes have sometimes spoken in the past. The Church has no power other than the power of love – the kind of self-sacrifice seen in the life of Christ. If the pope ‘presides’, as Presidents do, he ‘presides in charity’. A little different from some other Presidents I can think of.  

Admittedly we don’t know much about him yet, But Bob Prevost strikes you as a humble man. Someone who can turn down a place at Harvard Law School to go instead to serve the poorest communities in Peru for 20 years, sleeping on the floor of huts, travelling by donkey to remote villages, unnoticed and obscure, suggests a distinct lack of self-importance. You don’t canvas to become pope, announcing your candidacy, working your way up the ranks, arguing your merits to the electorate. Instead, you get on with what you do, and if the call comes, you follow it.  

As Pope Leo, he will need that humility as he takes on this role for the rest of his life. He will need it to resist the subtle lure of the deference others offer him, the adulation he will receive wherever he goes, the buildings he lives in, the magnificence of the popes who went before him, the way people will hang on his very word. The temptation to think that Bob Prevost is, after all, a mighty big fish, someone whose talents have got him to this point will be strong.  

But if he gives in to that temptation, he will slip back into the run of the mill way of the world, lording it over those he oversees. He seems aware of the slippery nature of such a position. Whoever was called to be the successor of St Peter, he said, needed to exercise oversight “without ever yielding to the temptation to be an autocrat, lording it over those entrusted to him. On the contrary, he is called to serve the faith of his brothers and sisters, and to walk alongside them." 

It was Jesus who said:

“Among the nations, their rulers lord it over them. But it is not so among you. Whoever wants to be great among you must be your servant.” 

Other Presidents, prime ministers and patriarchs could take a leaf out of that book.  

Celebrate our 2nd birthday!

Since Spring 2023, our readers have enjoyed over 1,000 articles. All for free. 
This is made possible through the generosity of our amazing community of supporters.

If you enjoy Seen & Unseen, would you consider making a gift towards our work?

Do so by joining Behind The Seen. Alongside other benefits, you’ll receive an extra fortnightly email from me sharing my reading and reflections on the ideas that are shaping our times.

Graham Tomlin
Editor-in-Chief