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6 min read

How to tax ethically to avoid a two-tier society

From income tax to property and inheritance taxes, which is fairer?
a pile of coins.
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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4 min read

Millions of children go hungry in a country that dares to call itself godly

The gospel of national greatness is less about grace and more about political grit

George is a visiting fellow at the London School of Economics and an Anglican priest.

A sand drawing shows an unhappy child's face with the tide coming in from below
A sand drawing for a child poverty campaign.
Barnardos.

If anything, the UK – and more specifically England – is becoming a Christian country again. But not necessarily in a good way. The rise of Christian nationalism mirrors the American experience, with Christian symbols such as the cross weaponised against asylum seekers and the knuckle-draggers under them, marching as to war. 

But there are still many non-belligerents who would stake a claim to our Christian nationhood. Wiser counsels such as the historian Tom Holland. Or Danny Kruger MP, who spoke to a near-empty chamber in parliament recently, before defecting from the Conservatives to Reform UK, about a Christian restoration, envisioning a "re-founding of this nation on the teachings that Alfred made the basis of the common law of England." He may need to explain that slowly to Nigel Farage. 

But by what measure do we claim to be a Christian country? Here’s one: Child poverty. It’s very hard to make a case for a state being foundationally Christian in principle if significant numbers of its children go hungry. And the UK shamefully ranks among the worst of the world’s richest countries in this regard, with our children’s poverty rates rising by 20 per cent over the past decade – defined as those living in a household with less than 60 per cent of the national median income, so currently less than about £19,000 a year.  

That’s some 4.5 million living in poverty, or 9 in a typical classroom of 30. Unless action is taken the number will push five million by 2030. Anecdotal evidence from teachers is truly shocking. Children arrive hungry at school with empty lunchboxes to fill and feed family at home. The UK ranks below poorer countries such as Poland and Slovenia, which are currently cutting their child-poverty rates, and well ahead of other wealthy nations such as Finland and Denmark.  

It’s a national disgrace. Christologically, it also fails the minimum threshold for a nation that supposedly holds that the kingdom of heaven belongs to children. In damp and sub-standard housing this winter, lacking nutritious diet and prone to ill-health, heaven will have to wait for these British children. 

The same gospel tells us that the poor are always with us, which may make us resigned to it. But political complacency won’t do. If there is always relative poverty against great riches, then the true measure must be what we’re trying to do about it. The damning answer to that seems to be very little. 

It’s actually worse than that. The circumstance is one of our own deliberate, political making, exacerbated by the then chancellor George Osborne, who introduced the two-child benefit cap in 2017. That limited benefit payments for families claiming Child Tax Credit or Universal Credit for more than two children. It was part of Osborne’s pantomime wicked-squire act, as he repeatedly told us with a straight face that “we’re all in this together”. It was also borderline eugenics, because one of its effects was to limit the breeding of “lower orders”, the benefit cap disproportionately hitting the budgets of working and ethnic-minority families. 

With Osborne’s selective austerity and social-engineering drive long gone, it’s well past time for a Labour government to do something to rectify such social injustice. Current chancellor Rachel Reeves must abolish the two-child benefit cap in her November Budget. With other welfare cuts prevented by Labour’s summer backbench rebellion, the question inevitably squawked by right-wingers is how that will be paid for. 

 Opposition parties relish the prospect of Reeves welching on pre-election promises not to raise taxes on working families. And abolishing the two-child welfare cap could cost £3.5 billion a year. 

There are creative ways and means. Veteran chancellor and former prime minister Gordon Brown – the unsung hero of the 2008 worldwide financial meltdown, without whom we wouldn’t have an economy to do anything with – proposes fairly taxing the excess profits of the £11.5 billion gambling industry, which enjoys VAT exemptions and pays just 21 per cent tax, compared with 35-57 per cent in other industrialised  countries. And if more money is needed then remove some of the interest-rate subsidy enjoyed by commercial banks when they deposit money at the Bank of England. That is what social justice looks like (gambling also costs the NHS £1 billion-plus in harms, so it’s time for the industry to pay up). 

That points to some fiscal answers. There are other actions that must be taken this autumn, at political conferences and on any platform available to those with a public voice and conscience. It’s good to see Stephen Cottrell, Archbishop of York and stand-in primate of England in the absence of Canterbury, laying into the two-child limit and benefit cap. 

Both Cottrell and Brown tell heart-breaking stories of children’s poverty in the UK. We must fight it and ensure that Reeves’ forthcoming Budget does so. As the children’s commissioner for England, Dame Rachel de Souza said recently that millions of children are living in “almost Dickensian levels of poverty”. The irony is that in Dickens’ time we were called a Christian country. 

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