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Economics

29 October 2024

6 min read

How to tax ethically to avoid a two-tier society

From income tax to property and inheritance taxes, which is fairer?

Laurence Fletcher

Laurence is a journalist at the Financial Times.

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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Justice

Redemption

15 May 2025

4 min read

The case of Peter Sullivan proves once and for all why we shouldn’t bring back the death penalty

It’s not the wrongly convicted who are redeemed when justice is done - it’s all of us.

George Pitcher

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

A court sits, with judges raised above the others.

The Court of Appeal.

Judiciary.uk.

The quashing of the conviction this week of Peter Sullivan, who served 38 years in jail for a murder he did not commit – along with the release in 2023 of Andrew Malkinson, cleared of rape after 17 years inside – are deeply shameful. They are revolting stains not only on our judiciary, but on all those who politically invigilate it and on the rest of us who elect them. We should all be deeply ashamed.

As we peep through our fingers at these terrible travesties of justice and the lives that have needlessly been wrecked, it’s natural to ask what we do next. In the absence of time travel, we can hardly make it up to Messrs Sullivan and Malkinson.

But we can grapple with what they mean to us for the immediate future. Probably the first and easist thing to say is – if I may not so much mix a metaphor as summarily execute it – that they should hammer legislatively the final nail in the coffin of the death penalty.

Sullivan would doubtless have swung for the murder of florist Diane Sindall in 1986 that he did not commit, if execution by hanging (or by other means) had not been abolished in 1965. True, rape hasn’t been a capital offence since 1841, when the penalty became transportation (which was almost as irreversible as death).

But Malkinson’s case rather makes the point: The very fact that he was still incarcerated meant that he could be released. Let’s take a case in which no such remedy was available – Derek Bentley, say, who was hanged in 1953 for allegedly abetting the murder of a police officer and exonerated, a trifle late, in 1998.

The arguments of thornproof and white-knuckled proponents of the death penalty may be as swiftly dispatched as they would wish such innocent victims to be. They were probably “wrong ‘uns” anyway. Their sacrifice would have discouraged others from committing heinous crimes. The taxpayer shouldn’t have to pay for their decades in the slammer. Well, pah. Try telling any of that to the Sullivan family.

But these are not, to my mind, the biggest issues and, enormous as they are, that must make the biggest pretty gargantuan. I wish to address the business of redemption.

But we can ransom the present to redeem our future.

Now, when I mention this word to those holding the pitchforks, prodding people they despise towards the scaffold, they usually assume I’ve come over all pious and priestly. And I suppose I have. But they invariably misunderstand what we mean by redemption.

The assumption is that the victim of the miscarriage of justice can be redeemed if they are still alive. Their life is in some way redeemed from suffering. That’s true, so far as it goes, but it’s not really what we should mean by redemption in these circumstances.

The Latin root of the word refers to the buying back, or the paying of the ransom, of a slave to enable his or her freedom. The ancient scriptural usage of the word relates often to the saving actions of the Hebrews’ God, in redeeming his people from slavery in Egypt, and to the Christian culmination of that redeeming work at the cross (totally uncoincidentally, both events are commemorated at the Jewish Passover, that first divine covenant being, in Christianity, fulfilled in the second).

The debate down the ages has substantially concentrated on to whom the ransom of that latter redemption was paid. For some, it was paid to a vengeful and wrathful God, for others to a somewhat gullible Satan, who took the bait of pay-off. Either way, a debt was paid which released humanity from bondage and slavery.

The theology of this can only be satisfactory to a proportion of people who read it, whether believers or not. The important matter is to whom the act of redemption is of value. A slave who died building a pyramid for a pharaoh doesn’t seem to have been redeemed in any more meaningful sense than the young Bentley being pardoned 45 years after he was hanged. Exoneration isn’t redemption.

In the Christian tradition, it’s significant that the compilers of the gospels and the books thereafter develop less the idea of ransom to explain the cross, than the idea of deliverance from bondage that was its result.

And there the answer, rather than the victims, hangs before us. We can’t redeem the injustice of the past, anymore than we can give Sullivan and Malkinson back their lost years. But we can ransom the present to redeem our future.

To those who claim that murderers and rapists “get off” because of “loopholes” in the law, we say there are no loopholes, only the law. And we’re all enriched when we get the law right. So, ultimately, it’s not the wrongly convicted who are redeemed when justice is done and they’re finally released. It’s all of us.