Article

Economics

Politics

24 October 2024

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.

Laurence Fletcher

Laurence is a journalist at the Financial Times.

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.

Explainer

Culture

Gaza

Israel

Politics

2 June 2025

5 min read

Politics is the only way to solve the tragedy of Gaza

Trump is not the first person to want to create a Riviera by the Mediterranean.

Graham Tomlin

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

A sign projected on to the Houses of Parliament reads: how many is too many.

A projection protest sign, London.

Christian Aid.

Whichever side you take in the Israel-Gaza conflict, the stories can't help bring a sense of desperation. Images of starving children, the fate of Jewish hostages still held in darkness - either way, this remains a place of unimaginable suffering. And meanwhile, the bombs keep dropping, people die, and Hamas retains its hold.

Among Israel’s friends, voices have been murmuring a radical solution to the problem of Gaza. Donald Trump’s plan was to raze the territory to the ground, shift 50 million tonnes of debris and displace its people to neighbouring countries to build the ‘Riviera of the Middle East’ in what had until now, been Gaza. The plan might have been met with some amusement when it was aired, but it gave permission for many within Israel to think similar thoughts.

Bezalel Smotrich, the Israeli finance minister, recently claimed that after the Israeli operation, “Gaza will be entirely destroyed” and its Palestinian population will “leave in great numbers to third countries.” Many within Israel seem to think the stubborn, Hamas-ridden enemy living next door needs to be eradicated. To a population weary of decades of conflict, fearing that there will never be peace while Hamas remains in Gaza, and aware of how difficult it is to winkle out the Islamic terrorist group while the Palestinian population remains there, you can understand the attraction of this radical solution.

However, the Israelis might have good reason to be cautious. And that is not a counsel from their opponents - but from their own history.

In the early 130s AD, the boot was on the other foot. It was the mighty Gentile Roman Empire that ruled over the same patch of land, which they were soon to call Palestina. Jews were a minority, but they still harked back to their long roots in the land, the days of Joshua and King David, and even more recently to the Jewish Hasmonean kingdom 200 years before - the last time before the modern state of Israel that Jews were in control of the land.

The emperor at the time, Hadrian, passed through Jerusalem in 130 AD, along with his entourage and his lover, the young slave boy Antinous. He started to paganise the city, erecting statues of gods and emperors, even of his young favourite, all of them offensive to Jewish sensibilities. The smouldering resentment soon erupted with a revolt led by a fierce and determined Jewish fighter, Bar Kokhba. This was the second Jewish uprising after the earlier one in the 60s that had led to the destruction of the great Jewish Temple in Jerusalem by Titus, under the reign of the emperor Vespasian in 70 AD. For the Romans, one revolt might just be tolerated, two was too much.

Hadrian came to the same conclusion as Bezalel Smotrich – a rebellious territory had to be erased from the map, although this time, it was Jerusalem that was to be eliminated, not Gaza. Its Jewish population was to be scattered, its name deleted, and memories of past glories buried for good.

And so, in 135 AD, the bulldozers moved in. Jerusalem was effectively flattened, and a Roman city built on its ruins. Aelia Capitolina was its new name, a smaller city, yet decadently built around the worship of Greek and Roman gods, with splendid gates, pagan Temples, a classic Roman Forum, expansive columned streets – not quite the Riviera of the middle east, but maybe the Las Vegas. ‘Jerusalem’ was scrubbed from the map.

At the centre of the sacred Jewish Temple Mount, Hadrian erected a statue of himself. He deliberately planted a statue of Aphrodite over the very spot where the early Christians insisted that the death and resurrection of Jesus had taken place – where the Church of the Holy Sepulchre stands today. Circumcision was outlawed, many Jews were killed, and those remaining were banned from the city, dispersed anywhere where they could find shelter. In fact, the map of the Old City of Jerusalem today is still marked by this design, with the two main Hadrianic streets diverging south from the Damascus Gate, with archaeological remains of the Roman city still visible for visitors.

Yet of course it didn’t work. No-one calls it Aelia today. People's attachment to land goes deep. The Jews could not forget their roots in this patch of the earth's surface. As Simon Sebag Montefiore put it: “the Jewish longing for Jerusalem never faltered”, praying three times a day throughout the following centuries: “may it be your will that the temple be rebuilt soon in our days.”

Palestinian attachment to land is similarly strong. Nearly 80 years after the creation of the state of Israel in 1948, families still cling on to the keys to homes that were taken from them during that traumatic period. Like the Jewish yearning for Jerusalem, they too, like people across the world, have a deep attachment to ancestral lands, which go back to the ‘Arabs’ mentioned in the book of Acts, to whom St Peter preached in the early days of the Christian church.

Executive decisions by distant rulers such as the emperor Hadrian or President Trump might seem like neat solutions to intractable problems. But they seldom work in the long term.

The famous biblical injunction ‘an eye for an eye, a tooth for a tooth’ was meant not as an encouragement to violence but the exact reverse. It was mean to set a limit to the development of blood feuds, which could, out of anger and trauma, so easily lead to disproportionate reaction and never-ending vendettas. When St Paul wrote “Beloved, never avenge yourselves, but leave room for the wrath of God; for it is written, ‘Vengeance is mine, I will repay, says the Lord’”, he was recalling an ancient piece of Jewish wisdom that set limits on human capacity to sort out intractable problems by violence. He knew a better way: “Do not be overcome by evil, but overcome evil with good.”

Luke Bretherton, Regius Professor of Moral Theology at Oxford and a Seen & Unseen writer, argues that there are really only four ways you can deal with neighbours who prove difficult: you can try to control them, cause them to flee, you can kill them, or you can do politics – in other words, try to negotiate some form of common life, as ultimately happened in Northern Ireland, South Africa, and so many places of long-standing conflict.

Politics, the business of learning how to live together across difference, is messy, complicated and hard work. Especially so when there are deep hurts from the past. Yet, as the failure of Hadrian’s radical solution shows, there is no real alternative in the long term.

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