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
Community
Nationalism
5 min read

I protested against the Unite The Kingdom protest

The need to see one another

Thomas is a writer exploring the intersection of faith, politics, and social justice.

CCTV footage show two rival protests divided by a line of riot police.
CCTV image of the rival protests on Whitehall.
Met Police.

I don’t know why I was so concerned about the horses. I kept noticing them swaying through the sea of shivering bodies. I was so drawn to them that I tried to take a photo, a rare occurrence for me, but I was too far away. The horses riders, dressed in full riot gear, were being pelted with beer bottles. Maybe the horses were getting hit too, but it felt like they were recoiling on behalf of their riders. 

In front of the horses, engulfing Trafalgar Square, were tens of thousands of “Unite the Kingdom” protestors. From what I could see, they were predominantly white men. Many of them were dancing and waving flags, but a sizeable contingent was furious, drunk, and insisted on attacking any unfortunate police officer in their way. 

Behind the horses, lining the streets of Whitehall, were five thousand counter-protestors, including me. Unlike our opposite numbers in Trafalgar Square, we were trapped, surrounded on every side by St George’s flags, Union Jacks, and, oddly, some Georgian flags too. Maybe the shop had sold out. To my right, I could see the counter-protestors defiantly dancing. To me left, I could see a group chanting “Nazi scum, off our streets” whilst swearing towards the St George’s flags. 

There in the middle, I found myself feeling a curious mixture of discomfort, sadness, and anger. Uncomfortable because I’d been trapped for four hours, stuck on a continuous cycle of rinse and drain. Sad, because I knew that much of the “Unite the Kingdom” violence was built on misinformation and the scapegoating of refugees, a group I know well, and because this fog of violence blew over the counter-protestors as they hurled insults towards the St George’s flags. And angry, because figures like Elon Musk were using their extraordinary wealth and influence to spread fear and lies: “Whether you choose violence or not, violence is coming to you. You either fight back or you die. You either fight back or you die. And that’s the truth. It’s only a matter of time till that happens to towns and villages. It will spread. And no one will have any peace.” Over the years, I have spent many hundreds, if not thousands, of hours with refugees and asylum seekers, both in my home and at my church. I had experienced no violence. In that moment, I was surrounded by “leftists”, socialists, and trade unionists, and the only violence I was experiencing was from the glint of beer bottles raining down on the police two hundred meters away. 

I was grateful for the interruption of an elderly lady asking if she could get past. I’d been asked a number of questions throughout the day, primarily because I was one of a group of four Christians holding signs like “Jesus was a refugee”, “love thy neighbour”, and “I was a stranger and you welcomed me”. At the start of the protest, an older lady and a young man joined our circle. The young man asked “I’m glad to see there are some Christians here. What do you think of Christian nationalism? Your religion doesn’t feel much like Jesus?” He was a brave Saudi Arabian refugee with a bright smile, earnestly questioning the fractures in my community of faith. Taken aback by the poignancy of the question, I fumbled a response before being rescued by one of my friends. 

Protest signs written on cardboard.
Tommy's protest signs before the rain.

 

After a while, the older lady started speaking. “Sorry for interrupting. I used to be a Roman Catholic, but I’ve lost my faith. On days like this though, I always want to pray. I don’t feel much hope for the church. A while ago, I went into a catholic church. I asked if the church could do anything about the divisions in our community and the anger at refugees. The priest shrugged and said no. I’m glad you’re here.” Her short, staccato sentences mirrored the tension of the day. I told her about how our church serves refugees, how I struggle with the anger of days like today, and how some of us have forgotten that the bible tells us to welcome the stranger dozens of times. As they walked away, I felt touched by the honesty both the young and old had gifted to four strangers, and I was glad to be carrying our smalls signs of hope. 

The megaphone brought the present back into view with another question. “Could everyone please get ready to leave up the left of Trafalgar Square?” it said. The police had cleared a path for us to leave, the sea of flags artificially parted by riot gear. We were escorted to Green Park tube station, at which point we turned off towards Oxford Street. My wife remarked at how quickly normality returned. I was devastated by the day, but felt too tired to weep. I wasn’t quite the same Tommy that I’d been that morning. The man who shares my name, and the chaos he wrought on my city, had turned a dial in me a little further than it had been turned before. 

I knew that I would have more days like this. In the midst of my discomfort, sadness, hope, and fear, I knew that I was supposed to be there, holding my soggy “Jesus was a refugee” sign, shivering in my damp clothes, and praying under my breath. I knew that I needed to gather other reluctant protestors alongside me, holding their own soggy signs and praying their own prayers. 

And I also knew that there was a better way to carry this fragile message of unity in our increasingly fragile land and increasingly fragile time. As a half-British, half-South African man, I’ve had the privilege of growing up with the stories of the anti-apartheid movement, stories which steward the hard-earned truth that defiant, tenacious, persistent love is the only antidote to hatred, misinformation and fear. As Desmond Tutu once said, “when we can accept both our humanity and the perpetrator’s we can write a new story”. Saturday left me feeling that we desperately need a new story, and that requires us to look beyond the swaying horses and see one another clearly. 

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