Explainer
Comment
Economics
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. 

Article
Comment
Romance
5 min read

Getting hitched should benefit more than the advantaged

Marriage’s decline impacts outcomes for all.
A bride dressed colourfully stands next to her groom, dressed similarly, as he sits in a wheelchair.
Ellie Cooper on Unsplash.

Of all the dramatic changes to Britain in the last half century, one of the least discussed is the extraordinary decline in marriage.  

The marriage rate has fallen by two-thirds in the last 50 years. It was just above six per cent in 1972 and has now been under two per cent since 2017. 

This remarkable decline has corresponded with a rise in a relatively new relation type: cohabitation. Cohabitation was extremely uncommon before the 1960s, and even by 1986 just 10 per cent of new mothers were cohabitants. It is, however, rapidly becoming the mainstream. Now 35 per cent of babies are born to cohabiting mothers, and the total number of UK cohabiting couples increased from 1.5 to 3.7 million between 1996 and 2022.  

Much of this is due to couples delaying marriage: 84 per cent of religious and 91 per cent of civil marriages are now between couples that already live together, and the average age when first marrying has climbed by 10 years since the early 1970s. But it is also due to many more couples not marrying at all. 

Opinions understandably differ on this social transition away from marriage and towards cohabitation. It is a point of progress worth celebrating that the previous societal shunning of those, especially women, who had children outside of marriage has been left in the past. However, such progress has not been without consequences. Cohabitations are less stable, on average, than marriages. Cohabiting parents are around three times as likely to separate in the first five years of their children’s life as married couples.  

This stability is not simply because wealthier, more highly educated people tend to have stable families and also tend to marry. Studies by World Family Maps and the Marriage Foundation have shown marriage to be a larger factor in family stability than either education or income.  

Nor does the stability come from couples staying together miserably.  Studies undertaken in 2017 and 2024 looked at the outcomes of couples 10 years on from considering their relationships to be ‘on the brink’. In the initial study, while 70 per cent of cohabiting couples had separated in the decade since considering themselves ‘on the brink’, 70 per cent of the married couples had remained together. Perhaps even more crucially, just seven per cent of those married couples that had stayed together were unhappy in their relationship a decade on. The 2024 study found none of the sample of married couples that had stayed together were still unhappy 10 years on. For those that had stayed together, things had improved. 

This family instability that the decline of marriage has caused is also unevenly distributed. Affluent couples – often those most likely to criticise the concept of marriage – are much more likely to marry than disadvantaged ones.  

Looking at socioeconomic groups, seven in ten mothers from the most advantaged group are married, while just a third of those from the two most disadvantaged groups are. The effect is geographic, too. Institute for Fiscal Studies research has found parents having children are more likely to be married if they are living in better educated areas. For the advantaged, it is compassionately affirmational to suggest that every relationship is equal, even though the advantaged themselves choose the most secure option of marriage: a hypocrisy only tolerated due to the potent fear of seeming judgemental. 

The consequence of this is deepening inequality: disadvantaged families are rendered more likely to breakdown, while children from affluent backgrounds are disproportionately likely to enjoy the ‘the two-parent privilege’, the substantial emotional and developmental advantages of growing up in a stable home. Melissa Kearney coined the phrase, and her evidence shows how children grow up, on average, to have better educational outcomes, better emotional and physical wellbeing, and higher incomes if they are raised in two-parent homes. 

Stable families are foundational to a stable society, and marriage is crucial to stable families.

So, why are marriage rates so much higher among wealthier couples than poorer ones, and why is this gap growing? 

We can isolate three reasons in particular, each more solvable than the last.  

Most challenging is the feedback loop effect: people whose parents, role-models, and friends have not married are unlikely to do so themselves. The demographic trend compounds itself.  

Second, and easily addressable if only the will was there, is the public messaging effect: politicians – and to some extent celebrities – have consistently told the public that marriage is unimportant. In 2017, Marriage Foundation research found that it had been a decade since a cabinet member had discussed marriage in a speech. This has hardly changed in the years since. In 2024, the only major party whose manifesto even mentioned marriage was Reform; even then the focus in the relevant section seemed to be less on marriage and more on getting ‘people trapped on benefits back into the workplace’. 

Third is the cost of weddings. A quick flick through top wedding magazines suggests that the average wedding costs upwards of £20,000. Survey evidence from both Marriage Foundation and the Thriving Center of Psychology have found that most young people view weddings as unrealistically expensive. 

This financial problem is solvable: much of the costs relate to venue hire. Unless they are having a religious marriage, a couple will need to find a venue that has gone through the bureaucratic process of becoming an ‘approved premises’. The cheapest of these are register offices which, including all expenses, still cost about £500. 

This is eminently mendable. The Law Commission proposal to reorganise wedding law around the officiant, not the venue, opens the door for a future of more affordable weddings by removing the regulatory barrier. It will also bring the law in line with that of other home nations. 

This proposal will not work by itself, though, it will need to be supported by creativity in wedding planning.  

Wedding costs can be substantially reduced by taking a DIY approach. Food, drinks, and decorations can often be coordinated amongst enthusiastic (and appropriately competent!) guests.  

Booze free weddings are a growing phenomenon, and especially good for weddings with children.  

Such ‘group-effort’ approaches often have a unique feel thanks to the high participation of guests, and people are more likely to remember events that they feel a sense of ownership of, having helped make them happen. 

Alongside this is a recommendation by the Centre for Social Justice. It proposes subsidising the necessary statutory fees for the poorest couples, up to £550 per couple. An inexpensive and hugely beneficial adjustment to improve wedding accessibility for the least fortunate.  

Stable families are foundational to a stable society, and marriage is crucial to stable families; perhaps it is time for all of us to make tying the knot easier.  

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