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
Climate
Comment
Sustainability
5 min read

What “drill baby drill” really means for the world’s poor

Climate jargon pales in comparison to hard, hot and harsh realities.

Jane Cacouris is a writer and consultant working in international development on environment, poverty and livelihood issues.

forest tree-tops break a mist.
Forest in Cameroon.
Edouard Tamba on Unsplash.

“Drill, baby, drill,” declared Donald Trump during his inauguration speech in January to roars of Republican approval, going on to sign executive orders to “unleash” the American oil and gas industry to do just that: drill. This, even though the United States is already the largest crude oil producer of any other nation, according to its own Energy Information Administration, and has been for the past six years in a row. 

Fossil fuel combustion is undeniably the largest source of greenhouse gas emissions worldwide says the IPCC, with oil accounting for about 34 per cent of global CO2 emissions from fossil fuels. And World Economic Forum statistics show that the lowest income countries produce only one-tenth of emissions but are the most heavily impacted by climate change.  

Something doesn’t seem very fair here.  

Many of us are aware of the statistics and policies and rhetoric around climate change. It is all buzzing around in the background of our lives, in the news, on social media and in opinion pieces like this one. But if we’re honest, it is all still theory for most of us living in the Global North.  

On a recent work assignment, involving research in remote communities in Southern Cameroon, I found the true extent of climate crisis is hard hitting and very real. According to the IMF, Cameroon is ranked 16th in the world in terms of countries most vulnerable to the impacts of climate change, partly due to its geographical location. 

High levels of rural poverty and the country’s economic dependence on agriculture, which employs over 70 per cent of the population adds to this climate vulnerability. But the government statistics and climate jargon, worrying as it is, paled as I discovered the reality of rural Cameroonians’ lives. Lives that depend almost solely on the productivity of the land, and therefore on the weather. Lives that have no Plan B when the climate is unpredictable.  

The communities we studied live in rural villages many kilometres from any urban centre, and rely entirely on natural resources for their livelihoods. They depend on traditional rain-fed agriculture, hunting for bush meat, and collecting non-timber forest products such as tropical fruits, insects, medicinal plants, herbs and honey from the dense forests near their dwellings to survive.  

The effects of the changing climate have been felt by them for some time. During periods of water scarcity, which is becoming more unpredictable and prolonged, local streams dry up, meaning crop yields fail, such as corn, groundnuts and cassava, and families go hungry. Fishing yields dwindle. The work burden for women rises, as they have to travel further to collect water for drinking, washing and cooking. Poor roads with inaccessible tracks during heavy rain events, or non-existent roads, prevent communities from accessing markets, health care and external support, making them isolated and more vulnerable to climate impacts. 

With the science predicting rising future temperatures and higher seasonal variability in their region, these communities will only become more vulnerable, mirroring the story of millions of other people around the world. They must adapt to survive. The alternative is not surviving. Devastatingly, this is a very possible future outcome.  

I’d say the UK is standing on the side lines in the playground, looking on.  

Why should wealthy, powerful nations mostly responsible for global carbon emissions, not only refuse to compensate those at the receiving end of resulting climate change, but actively seek to cause more damage? It echoes of a bully in a school playground, inflicting suffering on a smaller child, gaining in popularity, power and self-confidence as a few egg them on, others stand by, whilst the receiver of the abuse summons all their remaining strength simply to survive and make it through another day.  

So where does the United Kingdom stand in the playground?  

In terms of domestic climate policy, the UK must meet net zero by 2050, in line with the target set out in UK legislation, i.e. in twenty-five years from now, total greenhouse gas (GHG) territorial emissions must be equal to the emissions removed from the atmosphere. On paper, it seems the UK is on track to achieve this. GHG emissions have halved since 1990, driven by investing in renewable power and phasing out coal in the electricity sector. However, as WWF and others have pointed out, this figure has a glaring omission. Products including clothing, processed foods and electronics imported into the UK are counted as the “manufacturing country’s emissions,” not the UK’s. This is known as “offshoring.” And according to WWF, between 1990 and 2016, emissions within the UK’s borders reduced by 41 per cent, but the consumption-based carbon footprint only declined by 15 per cent, mainly due to goods and services coming from abroad.  

In terms of climate finance for the world’s poorest nations, the UK pledged to spend £11.6 billion between 2021 and 2026, and the government recently said it remains committed to meet this pledge. However, the pot from which this climate finance must come, the UK’s overseas aid budget, was slashed in recent months from 0.5 per cent to 0.3 per cent of national income to prioritise defence spending. Meanwhile, climate experts and charities are warning that what the world needs now is stronger global solidarity in the face of the climate crisis, rather than national self-interest. I’d say the UK is standing on the side lines in the playground, looking on.   

Trump professes to be a practicing Christian… I wonder what would Jesus have to say about the way America and other wealthy nations have dealt with the climate crisis? One of Jesus’ most well-known and powerful teachings was to love your neighbour. The parable of the Good Samaritan in the Bible demonstrates the way we should treat our neighbours; acting with love, compassion and mercy, not only towards those we know or who live in our friendship network, community or country, but towards every human being, regardless of nationality, background or social group. In the context of climate change, Christians are called to love our global neighbours. This includes supporting the world’s poorest communities to thrive, speaking up on their behalf, demonstrating love through political and social action. Jesus certainly doesn’t teach us to put ourselves “first.”  

Imagine a world where every nation signed up to Jesus’ teaching on how to treat our neighbours. Would climate change abruptly halt, human suffering stop and global peace prevail? In truth, probably not, because humanity is imperfect and we get things wrong even when we mean well. But if the intention was there, and if world leaders looked to Jesus’ lead on this, there is little doubt we would be many steps closer.  

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