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 Fletcher 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.

Article

Assisted dying

Comment

Culture

Politics

3 December 2024

5 min read

The assisted dying debate revealed the real role of Parliament

MPs from areas where people are vulnerable and at risk were more sensitive to the dangers.

M. Ciftci

Mehmet Ciftci has a PhD in political theology from the University of Oxford. His research focuses on bioethics, faith and politics.

An MP stands and speaks in a parliamentary debate.

MP Diane Abbott speaks in the debate.

Parliament TV.

What would be the effect of allowing assisted suicide for those ‘people who lack agency, the people who know what it is to be excluded from power and to have decisions made for them’, asked Danny Kruger MP, as he wrapped up his speech? ‘What are the safeguards for them? Let me tell the House: we are the safeguard—this place; this Parliament; you and me. We are the people who protect the most vulnerable in society from harm, yet we stand on the brink of abandoning that role.’

His words capture an important aspect of Friday’s debate: what is the point of Parliament? Do MPs meet to turn public opinion polls into policies? If the majority are in favour of something, do MPs have nothing left to do but to follow the public and sort out the fine details? We might instinctively say ‘Yes!’ It seems right and democratic to treat those whom we elect as people we select and send to do our bidding. And the polls do seem to show the majority of people supporting assisted suicide, at least in principle – although there are good reasons to be sceptical about those figures and about the conclusions drawn from them.

But there are numerous times when the majority are known to be in favour of something but politicians refuse to endorse it. Polls repeatedly show that a majority are in favour of reintroducing the death penalty. Why might it be right for MPs sometimes to ignore what the purported majority thinks and to use their own judgement?

Because Parliament is not just a debating chamber.

An older way of referring to it was to call it the ‘High Court of Parliament’ because ‘parliament, classically, was where individuals could seek the redress of grievances through their representatives,’ as law lecturer Dr Robert Craig writes. It performed its function admirably in response to the Horizon scandal: a legitimate grievance was brought to its attention, and it responded to redress the wrongs done to the sub-postmasters by passing a law to ‘overturn a series of judgments that could only have been obtained, and were only obtained, by a toxic, captured and wilfully blind corporate culture’.

Friday’s debate featured many MPs who understood what they were there to do. They acknowledged the ‘terrible plight of the people who are begging us for this new law’ as Danny Kruger said. But they also spoke up for those who were in danger of being harmed and wronged by the bill: the disabled and the dying, and all the vulnerable who were not there to speak on their own behalf.

Many echoed the concerns expressed by Diane Abbott about coercion: ‘Robust safeguards for the sick and dying are vital to protect them from predatory relatives, to protect them from the state and, above all, to protect them from themselves. There will be those who say to themselves that they do not want to be a burden. … Others will worry about assets they had hoped to leave for their grandchildren being eroded by the cost of care. There will even be a handful who will think they should not be taking up a hospital bed.’ And evidence of coercion is hard to find and trace: ‘Coercion in the family context can be about not what you say but what you do not say—the long, meaningful pause.’

An analysis shared on X by law lecturer Philip Murray found an association between the level of deprivation in a constituency and how likely a Labour MP was to vote against the bill. He also shared figures showing that 2/3 of MPs from ethnic minorities voted against it. In other words, MPs from areas where people are vulnerable and at risk were more sensitive to the dangers of helping people to kill themselves.

The second reading of the bill on Friday was a crucial moment for them to decide whether the bill would fix an injustice or whether it would itself cause harm.

But it seems that many MPs did not appreciate what the debate was about or what they had gathered to do. Layla Moran MP said: ‘The media are asking all of us, “Are you for or against the Bill?”, but I urge hon. Members to think about the question differently. The question I will be answering today is, “Do I want to keep talking about the issues in the Bill?”’ But James Cleverly MP intervened: “she is misrepresenting what we are doing at this point. We are speaking about the specifics of this Bill: this is not a general debate or a theoretical discussion, but about the specifics of the Bill.” He was right to be impatient. Unlike the Oxford Union, the vote has consequences. Parliamentarians are not there merely to debate. As the term ‘High Court of Parliament’ suggests, when MPs (either on their own initiative or as a government) propose bills, what they are often doing is conveying a plea to redress some grievance, and their debates are to decide whether to respond by making laws to grant justice to the wronged.

The second reading of the bill on Friday was a crucial moment for them to decide whether the bill would fix an injustice or whether it would itself cause harm, because the scrutiny that the bill will undergo in the following stages is not likely to be as rigorous as with government bills. As a Private Member’s Bill, the assisted dying proposal is free to be scrutinised by a committee selected by the MP who has proposed the bill, i.e. Kim Leadbeater. When the bill reaches the stage for a final vote in the Commons at the third reading, no further amendments can be made and the time for debate is likely to be short.

It is rare but bills are sometimes defeated at the third reading. With eighteen abstentions on Friday and at least thirty-six MPs claiming they might change their minds later, there is still hope.

Each sitting of the Commons begins every day with a prayer by the Speaker’s Chaplain, who prays that MPs ‘may they never lead the nation wrongly through love of power, desire to please, or unworthy ideals but laying aside all private interests and prejudices, keep in mind their responsibility to seek to improve the condition of all mankind.’

We can only hope and pray that at their next opportunity, MP will consider this bill in light of their responsibilities as the country’s High Court, charged with protecting the most vulnerable in society from harm.