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.
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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.

 

Essay
Comment
Politics
10 min read

England needs a written constitution that defends against populism

A new resolution acknowledges what forges a sense of right and wrong.
A wide angle picture shows a king and queen on thrones before many people in ceremonial clothes.
The Opening of Parliament.
Roger Harris/House of Lords, CC BY 3.0, via Wikimedia Commons.

New Year is often a time for reckoning and resolutions. Nations, no less than individual persons, would benefit from such an annual reckoning with themselves.  

If in life we must always strive to find some Aristotelian ‘golden mean’, between recklessness and timidity so it is in the life of states and nations. Many countries have been brought into ruin by the excess of misdirected appetites and wrongly-ordered desires: demagogues inflaming the people; oligarchs seeking to turn the res publica – the ‘public thing’ – into their own personal fiefdom. Revolutions, corruption and public lassitude are the wages of such sins. Ultimately, it ends in the death of the state itself: the collapse of all legitimate authority into warring gangs, while refugees flee, if they can, to the borders. 

Many countries, conversely, go through their lives in cowed timidity, until they end up in an old age of regret, having never achieved their full potential. These nations do not necessarily collapse, but slowly decline – unable to reform themselves, locked in a vision of their past that was better than their present or any imaginable future.  

 England is at risk of both these dangers. On the one hand, a reckless reactionary populism, which has long laid dormant, but has been unleashed since 2016. It threatens to abandon all prudence and overthrow all restraint, to attack the civil service and the courts, to reject Human Rights, to corrode civic discourse, and to set aside all procedural propriety, until we end up sodden in the gutter of despotism. On the one hand, a persistent constitutional conservatism stands in the way of the necessary, long overdue, reforms which would breathe life and vitality back into an old, tired, country, and would give our institutions the strength to resist such destructive forces.  

Nations, like people, can experience decisive moments of what might be termed repentance. When they wake up in the gutter – their capital city bombed, their army disbanded, their people starving – they can turn from the paths which took them to that place, and find a newness of life, a new hope, embodied in a new constitutional order. This is what Germany, Italy and Japan did after 1945. They can also experience a kind of conversion, away from false principles to truer ones, as much of Central Europe did after the fall of the Berlin Wall.  

I am using theological language here to describe merely civic and political attitudes, which is always a dangerous thing to do. It would be a misreading of my intent if one were to conclude that I conflate a well-ordered polity with the Heavenly City. Nevertheless, a well-constituted polity, in which freedom and justice, peace and the common good, are not only treasured but actually – to some practical extent – achieved, is an inestimable blessing. We should strive to obtain it.  

A well-constituted polity is based upon the principle of ‘public government’. The state is a public entity, belonging to the public, in which public office is a public trust to be used for public ends, and where citizens in public life must be faithful stewards of the public good, for which they are responsible to the public. 

Democracy is our shorthand term for this arrangement, although it is a rather clumsy one. Democracy, properly understood, is not unlimited majority rule, nor the unconstrained rule of the person elected by the majority. It is, rather, a complex political system that combines representative and responsible government with civil liberties and the rule of law.  

Populism is a caricature of democracy. Populists attempt to undermine the barriers that restrain abuses of power. Their attempts to weaken the judiciary and civil service, sideline those who disagree with them, infringe fundamental rights, centralise power, and restrict public dissent, must therefore be seen as attacks on democracy. They put arbitrary power into the hands of particular persons. 

England’s position is not that of Germany in 1945. It might, in some ways, be analogous to that of Central Europe in the 1990s. Much of England today looks like I remember my first visit there then: the same grey faces, the same cheap clothes, the same visible effects of bad housing, bad food, and lack of opportunity. If anything, England is worse off, because at least those countries had hope of better days ahead. No one yet has imagined an English future better than its past.  

England has been let down by a failed ideology – that of neoliberal capitalism, which, as Dr Abby Innes points out, is every bit as rigid and doctrinaire as the official Marxist ideology of the former Communist states. England has been let down, too, by decades of corrupt, incompetent, short-sighted and careless government. The symptoms of misgovernment can be seen in England’s economic record, its social problems, its crumbling infrastructure and over-stretched public services.  Outside the Customs Union and the Single Market, England is isolated from its European neighbours.  The country is not living up to its potential.  

This should spur us to consider the weakness of English democracy. As currently established, the state often fails to serve the common good. The English do not live in a well-constituted polity with ‘public government’ as its foundation, but in a fiefdom-state that has been cut, privatised, deregulated into near oblivion.  

If it were only a matter of specific individuals, or of one party, the problem could easily be fixed. But the country has not only been let down by this government or that government, by this party or that Prime Minister. It is the system of government, the constitutional order as a whole, that has failed us. 

Restoring England’s hope for the future, its prosperity, and its quality of life, must begin, then, with the improvement of English democracy, and that with a refoundation of its constitution. This is hard to hear, because, as Mr Podsnap put it in Charles’ Dickens 1864 novel Our Mutual Friend, ‘We Englishmen are very proud of our constitution, Sir. It was bestowed upon us by Providence. No other country is so favoured as this country.' It is hard to admit that something is broken, when once it was so highly prized – indeed, so intrinsically bound up in England’s sense of national identity. 

The Westminster Model of democracy is not without its virtues. Its origins can be traced far back into English history. Yet it did not develop into maturity in England alone. Bagehot was carried around the world, read under palm and pine, and drilled into the ruling classes from Vancouver to Colombo. The Westminster Model owes much to Magna Carta and Simon de Montfort’s ‘Model Parliament’ of 1295, but it owes just as much to the developments of the Victorian age: (nearly) universal suffrage, political parties, manifestos, and the establishment of a permanent, professional and non-partisan civil service.  

The transformation of Empire to Commonwealth ended British rule, but not the British way of ruling. Westminster Model democracy had to be set down, of course, into a written, supreme-and-fundamental law, through which all the essentials were faithfully reproduced. If you want to discover the Westminster Model of democracy at its peak, read the constitutions of Belize or the Solomon Islands.

The rejection of written constitutions has been a prevailing English conservative principle since Burke. However, it leaves us defenceless against authoritarian reactionary populism. 

The irony is that those who are most comfortable with the imperial legacy are also those who are doing most to destroy public government at home. While fetishizing ‘The British Constitution’ and ‘Our Eight Hundred Years of Unbroken History’, the populist right rejects the principles and the values upon which that achievement rested. Just as they seek to create a pastiche of 1950s Britishness (absent of strong workers’ rights, strong unions, a generous welfare state, and publicly owned utilities and services), so likewise they seek to create a pastiche of the 1950s British Constitution, without the self-restraint, moderation, decorum, public service ethos, and high levels of social trust and cohesion, which made that system of complex unwritten rules work.  

The Blair-Brown reforms of 1997-2010 are a particular target of reactionary ire. The Human Rights Act mitigated, although it did not remove, the absolutism of Parliament. It gave the people who have little voice under a purely majoritarian system – ‘the weird, the wicked, the weak’ – a means by which to challenge the exercise of power. Devolution broke the prevailing English notion of British uniformity: it not only allowed Scotland and Wales to have a (muted) political voice and some (tightly constrained) freedom to craft their own policies, but also forced England into a reckoning with its own national identity. So far, this has played out mostly through the doubling-down on what the former Labour MP and scholar of English identity John Denham calls ‘Anglo-centric British nationalism’. The Tory – and Reform UK – constitutional agenda is obsessed with restoring the unlimited power of Parliament and of reinforcing the Anglo-centric British state. 

As we can see, from every NHS waiting list to every pothole in the road, the Anglo-British state is no longer working very well. It has all the vices of its past, and few of its virtues. A return to the pre-1997 status quo ante is impossible – it would be like trying to retake Hong Kong. Parliamentary absolutism tempered by the ‘good chaps’ theory is no longer a viable option. Either we must accept an untampered absolutism – which is the agenda of the reactionary populist right – or else we must deepen constitutional reform, and arrive at a new constitutional settlement which accepts that the British Imperial state, oriented to the needs of maritime imperial commerce, is over, and that an English nation-state, oriented to the common good of the ordinary people of England, is now needed.  

This entails a new, democratic, constitutional foundation. Small-c conservatives might baulk at this. The rejection of written constitutions has been a prevailing English conservative principle since Burke. However, it leaves us defenceless against authoritarian reactionary populism. Moderate, sensible, responsible conservatives should learn to think differently about written constitutions. Paradoxically, constitutionalism strengthens the state. By bounding and limiting state power, and providing a robust system of responsibility, accountability, and restraint, constitutional government actually enables the state to draw upon a deeper well of public legitimacy.  

What would English identity look like, if it were forged between the Channel and the Tweed, and not between the Nile and the Irrawaddy? What might an English constitution look like, and what values and principles might inform it?  

A constitution for England must recognise that England is a society of many faiths and none. It is, however, an acknowledgment that Christianity has forged and formed not only our institutions, but also our understandings of right and wrong. 

In addressing the last of these questions, the Christian tradition has much to add to the conversation.  

Christian theologians and political philosophers have spilled a lot of ink, in the past two millennia, on questions of good government, on the relationship between church and state, and what it means to be a Christian and a citizen of an earthly state.  

There seems to be an assumption – amongst both supporters and opponents of written constitutions – that a written constitution would have to be based on secular values. This stems, in part, from our ignorance of our own Westminster Model constitutional tradition. The constitutions of the United States and of France might be strictly secular, but the constitution of Antigua and Barbuda claims to be ‘founded upon principles that acknowledge the supremacy of God’, while that of Tuvalu explicitly refers to ‘respect for Christian principles’.  

This is not a bid for theocracy. A constitution for England must recognise that England is a society of many faiths and none. It is, however, an acknowledgment that Christianity has forged and formed not only our institutions, but also our understandings of right and wrong. To give all that up would produce an ethical vacuum in society, which will be filled only with ever more grotesque forms of exploitation.  

The cardinal ethical principle of constitutional democracy is a recognition of human dignity. At the origin and foundation of all institutions, and laws, and norms, we find ourselves having to cling to the fundamental command that Christians call the Golden Rule: ‘Do unto others as you would have others do unto you’. If we abandon that principle of human dignity, there is no solid ground on which to build a decent, well-ordered, democratic polity. Perhaps then we can build a new ‘Jerusalem’ in England’s grey and drizzly land. 

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