Nothing as sensitive as death and taxes

There maybe nothing as certain as death and taxes, but equally there are few topics as sensitive. Tax and wealth are difficult subjects to gain cross-party political consensus on and, given the power of tax on supply and demand within the market, everyone has a strong opinion.

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Yesterday we saw headlines on the need for an overhaul of the UK tax system, but do we have the politicians prepared to take this on? Justin Welby proclaimedOur economic model is broken. Britain stands at a watershed moment where we need to make fundamental choices about the sort of economy we need. We are failing those who will grow up into a world where the gap between the richest and poorest parts of the country is significant and destabilising.” Welby’s remarks were made as part of the Commission on Economic Justice, led by the think tank IPPR. The Commission’s full report and recommendations will be published in 2018, but will include calls for:

  • a fairer and simpler tax system, that incentivises economic ‘goods’ like investment and employment and dis-incentivises ‘bads’ like pollution and property prices. It suggests that taxes could be ‘hypothecated’ or earmarked for health and social care.
  • a better distribution of wealth, potentially through new taxes and a sovereign wealth fund to better distribute national wealth

Coincidentally, Liberal Democrat Leader, Vince Cable also spoke at the Resolution Foundation think tank, hosting an event on the rise of inequality of wealth and income in the UK. Warning that too much inequality is bad for us all, ‘doing economic harm’, Cable called for a review of taxes, including on inherited wealth. However, Cable himself admitted that tackling inequality is a politically fraught issue.

Globally, rising inequality is of growing concern due to its effect on development. In Tearfund’s research into how we might achieve a ‘restorative economy’, where economic growth does not come at the cost of people or planet, tackling inequality is essential. While inequality between countries may have reduced, inequality within countries is on the rise. Organisations like the International Monetary Fund have found that countries with high inequality suffer from slower growth than those in which incomes are distributed more equally – and that redistributed income has a neutral effect on GDP growth.  

Within the Restorative Economy we recognise the need for a rebalance of the tax system similar to that of which the Commission for Economic Justice mentions. Tax is one of the biggest levelers available to government for influencing behaviour and reducing inequality. If developed countries like the UK are to meet their commitments within the Paris Climate Agreement, we ought to shift more of the burden of taxes on to activities we want to discourage (such as carbon emissions, pollution, waste or excessive concentration of wealth), and away from those activities we want to encourage (such as work).



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