Clare Bryden. Tax for good: Zacchaeus as social reformer. Church Times, 30 September 2022. Available on Church Times website (paywall).
Clare Bryden looks at how taxation can be used to make a fairer society
TAX is not perhaps something that springs to mind when considering ethical finance. Throughout history, taxation has usually been framed negatively.
In the Christian Aid publication Tax for the Common Good: A study of tax and morality, the Professor of Theological Ethics at the University of Exeter, Esther Reed, notes how “Early Christian thinking was shaped in an environment where taxes were oppressive and administered rapaciously. Taxation was a sign of subordination and oppression.”
During the Middle Ages, the Domesday Book was ostensibly a survey by King William I of his conquered territories; in reality, it was a comprehensive tax ledger. The British opposed income tax because it required the disclosure of personal income, an unacceptable intrusion by government into private matters. In 1696, the Window Tax was introduced instead as a proxy (abolished in 1851), and income tax was permanently introduced only in 1842.
The British government’s imposition of taxes on the American colonists was a key grievance that led to the Revolution: “No taxation without representation”. Of course, the country’s new government introduced its own taxes. As Benjamin Franklin wrote, “In this world nothing can be said to be certain, except death and taxes.”
In more modern times, many have quoted the aphorism “Taxes are what we pay for a civilized society.” Warren Buffett has campaigned to pay a fair share of tax in the United States. And, in an interview with The Times, J. K. Rowling said that she chose to remain a domiciled taxpayer “to be citizens [with her children], with everything that implies, of a real country.”
At this year’s Greenbelt, John Bell, of the Iona Community, said: “It is a privilege to have enough money to be able to pay tax. I would give more if it would be used for the common good, to feed the poor, house the homeless, and care for asylum-seekers.”
“Christian people have always been obligated to ask about how money is acquired and used: the purpose of property-ownership, trading practices, notions of value, the meaning of money, and more, in ways that prioritise concern for the poor and disadvantaged,” Professor Reed writes in Christian Aid’s report Tax for the Common Good. “While no single Christian policy on tax can be pieced together from biblical texts, the evangelical imperative to ‘give back to God the things that are God’s’ (Mark 12.13-17) is encountered not only in the personal realm but also the realm of civic obligations.”
Those civic obligations today are divided into direct and indirect taxes, levied on objects, activities, and people.
Direct taxes are imposed on income or wealth, according to existence or ownership, not according to commercial use, and they are paid directly to the Government. Vehicle excise duty and council tax are among direct taxes, and income tax, capital gains tax, and corporation tax are taxes on earnings or profit.
Indirect taxes, such as VAT, are imposed on transactions. In theory, they allow for a decision whether to engage in these transactions, but there is little freedom over whether to buy food, say; so some essential goods and services are exempt from VAT. Indirect taxes are not paid directly to the Government, but to the provider of the goods or services.
Governments tend to prefer indirect taxes, as they are less obvious to the taxpayer, and are wide-ranging. But they do not provide certainty over revenue, and can contribute to price inflation. They also tend to be difficult to collect and regressive.
Both direct and indirect taxes are required to fund the state. In 2021-22, the UK Government raised £823 billion from taxes (plus £91 billion in other receipts). Income tax accounted for about 28 per cent, followed by National Insurance (NI) contributions and VAT, at about 20 per cent and 17 per cent; then corporation tax at about eight per cent.
TAXES are powerful levers, and fiscal policy is the art of pulling these levers to achieve desired outcomes, such as a more sustainable and just world.
First and foremost, justice can be served through raising funds to pay for public services. Universal health, education, and other public services reduce the gap between rich and poor.
Then progressive taxation acts to shift the burden from people with a lower ability to pay to people with a higher ability. Income tax is more progressive than NI contributions, and can be designed so that higher rates are imposed on people with higher incomes. Conversely, regressive taxation lowers the tax burden on richer people, or shifts to a more regressive tax, such as VAT.
Fiscal policy varies greatly between rich countries, as does inequality. An economist at the New Economics Foundation (NEF), Lukasz Krebel, says: “Scandinavian countries show that more progressive tax policies are possible, and desirable, because they do improve social outcomes.“
In the UK, income-tax rates have varied hugely over time. During the Second World War, the government recognised that the tax system had to signal that all the country was in it together; so the highest rate of income tax peaked at 99.25 per cent, and remained at about 90 per cent through the next two decades. After a brief dip, it rose again during the 1970s oil-price shock.
Then oil and gas were discovered in the North Sea, and Margaret Thatcher came to power. While Norway ploughed its petrol-tax revenues into infrastructure projects, Thatcher chose to reduce income taxes, from a 33-per-cent base rate and 83-per-cent top rate to 25 per cent and 40 per cent by 1988. Today, the basic rate is 20 per cent, and the top rate is 45 per cent, and inequality is stark and widening.
Mr Krebel believes that the tax burden needs to be extended, and more placed on income from investments and assets.
At present, it is more tax-efficient for company directors to take income in dividends than in salaries. The head of movement and partnerships at Tax Justice UK, Sara Hall, has argued that capital gains tax needs urgent reform so that income from wealth is taxed at the same rate as income from work. Tax Justice UK estimates that reform would raise an estimated £14 billion a year. The organisation is also calling for an annual wealth tax, together with the Patriotic Millionaires UK.
A wealth tax is applied to assets: cash, savings and investments, property and land, trusts, company ownership, and so on. The window tax was a wealth tax on property. To some extent, the Council Tax is, too.
The Green Party MP Caroline Lucas refers to a Tax Justice UK poll that suggests that “a wealth tax is hugely popular with the public — including Tory voters.” She says: “The 2020 Wealth Tax Commission estimated a tax on millionaires of just one per cent would raise £260 billion over five years. We just need the political will to make it happen.”
The All-Party Parliamentary Group on Land Value Capture, of which Ms Lucas is a member, is developing mechanisms to capture increases in land value which arise from public investments. Land-value capture partly funded the Queen Elizabeth Line (then known as Crossrail). It can apply to smaller projects, too. Even a housing development will cause adjoining land to rise in value.
This is a rare example of a hypothecated tax in which the revenues from the tax were earmarked for a specific expenditure. Mr Krebel suggests that hypothecation is usually messaging to sell a policy to the public: an NI increase does not directly “pay for the NHS”; neither does the “road tax” fund roads.
Nor would revenues from the proposed “Robin Hood tax” on financial transactions be paid directly from rich to poor. It would, however, oblige businesses to contribute more. More effective still, argue Tax Justice UK and the Fair Tax Foundation, would be closing the loopholes that enable tax avoidance, and crack down on tax evasion by both individuals and companies.
Tax evasion is illegal, but not policed well enough. Tax Justice UK successfully campaigned with Transparency International and other partners for the introduction of an economic-crime Bill, Ms Hall says. The networks manager of the Fair Tax Foundation, Mary Patel, says that “financial transparency — things like beneficial ownership disclosure, full financial reporting — they’re key not just to reducing the risk of tax evasion, but to fraud as well.”
Tax avoidance is legal, but Ms Hall points to Tax Justice UK and Fair Tax Foundation polling that found that more than 80 per cent of respondents thought that it was morally wrong.
Companies operating in developed countries benefit from the infrastructure and legal system funded by the government, and should contribute through paying tax, Ms Hall says. “Ending global corporate tax-dodging would bring in an estimated £13.5 billion a year.”
Likewise, companies exploiting resources in developing nations should contribute through tax. Zambia, one of the poorest countries in the world, is losing desperately needed billions to tax dodging by multinational mining companies.
Professor Reed has stated that “there is no direct route from biblical references to taxation to international compliance regulations.” Nevertheless, “the injustices resulting from the lack of adequate international agreements needed to outlaw tax havens and prosecute the exploitation of loopholes for tax dodging are clear.”
After years of stalling, at last it seems that international agreements have emerged: 137 countries have joined an OECD agreement for a 15-per-cent global minimum to start in 2023. Multinational firms will have to pay tax wherever they operate and generate profit.
The Fair Tax Foundation has developed both a Fair Tax Mark, for UK and international businesses, and the Councils for Fair Tax Declaration.
Councillor Martin Pearce persuaded Exeter City Council to sign the Declaration, which indicates support for companies that demonstrate good tax practice. “Government procurement legislation is our biggest challenge,” he says. “There is a change going through Parliament that has stalled in the House of Lords. . . But the soft power of a key institution in the city should not be underestimated, to nudge and get others to adopt. . .
“Councils of different sizes [have signed up], from Bingley to Birmingham, which has the biggest municipal budget in Europe; so, if they can do it, anybody can.”
Councils can affect more than procurement. Ms Patel mentions the resolution filed recently to Amazon through investors, to get the company to adopt more transparent financial reporting now. That resolution was partly filed through the Greater Manchester Pension Scheme and a Roman Catholic investment fund, the Missionary Oblates of Mary Immaculate. Although it was unsuccessful, it garnered higher levels of support than expected. Campaigns asking for disinvestment from fossil fuels could be extended to tax avoidance.
AT THE time of writing (last Friday), the UK corporation tax rate is at 19 per cent: higher than the 15-per-cent global minimum, but, nevertheless, substantially lower than income tax. The increase to 25 per cent (which would still have left it the lowest among G7 nations), due in April 2023, was axed the mini-Budget, announced last Friday. The Prime Minister has said that she will press ahead with plans for the UK to be a low-tax economy.
Mr Krebel, of the NEF, says that “There is a kind of low-tax economy already in a sense for big corporations, [if] not necessarily for working people.”
“What I’m about”, Ms Truss says, “is growing the economy. And growing the economy benefits everybody.”
Mr Krebel disagrees. “That’s in theory, maybe, but in practice the growth doesn’t have equal distribution.”
Ms Lucas takes a long-range view: “We can’t keep pursuing infinite growth on a planet with finite resources. We certainly need more growth of the right things: a secure energy supply, comfortable homes for all, thriving communities. But . . . measuring success in terms of Gross Domestic Product has exacerbated so many of the crises we find ourselves in today.”
Although tax levers could be applied to move towards a more sustainable economy, at the moment they are tipped in favour of the fossil-fuel sector.
“The UK has one of the most lax tax regimes in the world for the oil and gas sector,” Ms Lucas says. In 2019, companies paid 12.5 times less tax for a barrel of oil produced here, compared with Norway, for example. This year, for the fourth year in a row, Shell paid no UK tax on North Sea oil and gas production. “A serious tax on North Sea windfall profits would raise £13 billion,” Ms Lucas says.
The cost-of-living crisis exemplifies how tax levers might be pulled. At the time of writing, the proposal is to cap energy prices for an average household at a maximum of £2500 a year, and wholesale prices for non-domestic users from October to March 2023, but the full detail has not been announced.
Mr Krebel considers some options. “Tax cuts are not the right response to support people’s incomes,” he says. Abolishing Rishi Sunak’s increase in NI contributions “reduces one source of revenue for the Government, and in cash terms the bigger benefits will be to those on the higher incomes; so is not a well-targeted measure.”
Similarly, the removal of five-per-cent VAT on energy is also dwarfed by the doubling, at least, in energy costs. A fixed-rate cash payment would be more progressive, but NEF argues for measures targeted at people on low incomes, such as increasing Universal Credit.
As for how the price cap would be funded: “Borrowing more by the Government is actually not a bad answer,” Mr Krebel says. “But, in terms of raising some revenue to balance the government spending and taxation over a longer term, there are taxes that would be beneficial. . . The proposal for a windfall tax is something that Tax Justice UK have argued for before, and NEF have supported. . . If you ever wanted to tax these windfall profits, now is the time.”
MS LUCAS thinks that the windfall tax should not be a one-off: “It should pave the way for a carbon tax, levied on every tonne of carbon dioxide released. This critical lever could help shift us fairly towards a clean, green economy.”
Care needs to be taken when designing green taxes. Congestion charges are in effect fees that rich people barely notice, poor people can’t afford, and delivery companies can pass on. In theory, road-fuel duty would reduce air pollution and carbon emissions; but, in practice, it is a revenue-raising instrument, because we are locked into car use.
Many believe that it would be more effective to invest in better urban planning and public transport, cycling and walking, across the board. At Greenbelt, Ms Lucas mentioned the frequent-flyer levy (starting at zero for the first flight, but increasing for every subsequent flight taken within a year) proposed by the citizens’ Climate Assembly UK. This would be more progressive than the current flat-rate air-passenger duty. But there is still no tax on aviation fuel, which requires international support, negotiated through the International Civil Aviation Organization.
The Green New Deal, proposed in 2008 and supported by the All-Party Parliamentary Group on the Green New Deal, draws these and more strands together, aiming for rapid decarbonisation of our economy while also rapidly reducing inequality. Its proposals include investment in clean energy, transformation of food production and the transport infrastructure, and an overhaul of the tax system, which takes a wide view of how the economy is managed and how fiscal and monetary policy work together, down to detail such as adding green conditions to tax relief on pension saving.
What you can do
1. Pay tax, if you are an individual or a company director.
2. Get informed:
- New Economics Foundation on tax: neweconomics.org/search?search=tax
- Wilkinson and Kate Pickett “Spirit Level” Equality Trust: equalitytrust.org.uk/
- Caroline Criado Perez Invisible Women, chapter 13: “From Purse to Wallet”.
- Green New Deal Group: greennewdealgroup.org
3. Write to your local council and MP about Fair Tax:
4. Add your voice to campaigns for tax justice:
- Tax Justice UK: www.taxjustice.uk
- Fair Tax Foundation: fairtaxmark.net
- Ecumenical Council for Corporate Responsibility: www.eccr.org.uk/church-action-for-tax-justice
- Low Incomes Tax Reform Group: www.litrg.org.uk
- Robin Hood tax: www.robinhoodtax.org.uk
- Land Value Tax: www.landvaluetax.org
- Make Polluters Pay: makepolluterspay.co.uk
- Climate Damages Tax: www.stampoutpoverty.org/climate-damages-tax