Blog - Church Action for Tax Justice

Covid - the great revealer

15/8/2020

A version of this article was published in Church Times

When Boris Johnson was admitted to hospital with covid-19, a number of commentators suggested that the coronavirus was a great leveller. When even heads of state can succumb to the illness, then we are all equally susceptible. The truth of course is that the virus is not the great leveller but instead the great revealer. In particular, it has exacerbated the inequalities that pre-dated this virus and it has created, or at least highlighted, some new ones.

Analysis from the Institute for Fiscal Studies has shown markedly different impacts according to pre-existing income, work, health, education, age, ethnicity and gender. It has also demonstrated new inequalities in respect of type of housing, ability to work from home, requirement to commute on public transport and access to green spaces. As their report concluded, ‘We might all be in this together, but we are not all in it equally.’ So while we are aware that from a health point of view, the virus affects older males more severely than other groups, we may be less aware that in terms of employment it is women under 25 who are disproportionately affected. Perhaps more troubling is that there is clear evidence that medical vulnerability to the virus tracks income deciles with poorer communities impacted to a much greater extent than the wealthiest. Similarly, recent analysis by the International Monetary Fund has shown that while the health effects of an epidemic/pandemic last as long as the outbreak, the economic impact on the poor can extend for at least five years beyond the life of the disease. The same economic shock is not experienced by the wealthy.

But does this matter? Is there something inevitable about inequality, that it is perhaps even God-ordained? My answer to is yes to the former, but a resounding no to the latter. There is a parallel with sin here. Yes, it is inevitable, but that does not mean that it is God’s intention. A misunderstanding of this simple truth is why we so often misappropriate Jesus’ statement that the poor will always be with us (Mark 14:7; Matt 26:11; John 12:8). In saying this, Jesus was quoting Deuteronomy 15:11: ‘There will always be poor people in the land.’ But what we miss is what the Deuteronomic passage goes on to say, ‘Therefore I command you to be open-handed towards your fellow Israelites who are poor and needy in your land.’ What we have here then is a both an empirical statement – ‘There will always be poor people’ – and an ethical imperative – ‘Therefore I command you to be generous.’ The inevitably of inequality is no more a prescription for passive acceptance than it is in respect of sin. None of us say, ‘Sin is inevitable, so why bother doing anything about it?’ Yet, for some reason that can be our attitude to inequality – one of the fruits of sin.

So how can we tackle it? Well there are many ways but at least one of them involves ending the unfair tax system that impacts both the global and national poor. Globally, it has been estimated that up to three times the amount we give in aid to Africa leaves that continent via tax-dodging by multinational corporations. Recently, the OECD has been leading a process to reform the global tax rules but many wealthy nations oppose reforms that would help the poorest. Here in the UK, the most recent analysis suggests that when all taxes are taken into account (not just income but also council, VAT, taxes on wealth) - and when we consider growth in the value of assets - then the richest in our country pay just 18% of their income in tax compared to 42% for the poorest. This is fundamentally unfair.

Recently, we celebrated the anniversary of the birth of Florence Nightingale. It was instructive to me how many of the Christians commenting on this drew attention to the care she showed the soldiers dying in Crimea. That is true of course, but what they all seemed to miss is that her real contribution was not in one-to-one care, but in the way she used statistics to analyse disease and death rates, and recommend policy solutions in response. Nightingale raised her head above the parapet of the immediate to ask the question ‘Why are so many dying?’ Hygiene standards that save countless lives today are the result. I wonder if as Christians we need to do the same. Of course, in our communities there are many individuals suffering and we must minister to them, but at the same time there is a need for some of us to raise our heads and look at the big picture of what is going on, and tackle these structural causes of inequality too. And that is what tax justice is all about.

Justin Thacker
Director
Church Action for Tax Justice

2 Comments

Richard Stainer

25/8/2020 20:11:51

I showed your article to a friend in my church who worked for PWC and is an accountant. He came back with this reply which I cannot counter as I don't have the knowledge to do so. I would love to be able to show that he is wrong.

the author does not produce a plausible, practical solution about how to deal with the unequal impact. He brings up the unfair tax system (a hoary old chestnut) and then quotes some very dubious statistics as fact. "Here in the UK the most recent analysis suggests that, when all taxes are taken into account, the wealthiest pay 18% of their income in tax, the poorest 42". This sentence is reproduced as a headline at the top of the article.
However, when we read into the detail of the article we find that the value in the growth of assets is taken into account in the calculations. There is no definition of "the richest" nor of the "poorest". The author also gives no basis for his calculation of the growth in assets. In this context it is relevant that if someone had invested £10,000 in a UK FTSE tracker fund in the year 2,000 when the FTSE was standing at around 7,000 and had kept his investment throughout, it would now be worth around £6,100, with the fall in the value of the stock market. No growth there. Of course some shares have done better than others, the US market has done well and we don't know what other assets our richman example might have owned.
A number of studies have shown that by far the greatest portion of a person's wealth is tied up in his home. The value of residential property in this country is far higher than in most other countries.
It would therefore be instructive to look at a sample richman with an income of £100,000, some investments, say £100,000, and a house worth £800,000. Depending on what allowances and reliefs he is entitled to, he will be paying 40% tax on a reasonable proportion of his income and will also be liable to NI. It is therefore not unreasonable to estimate that he would be paying £30,000 in income tax and NI. The article includes VAT and Council Tax. Our example could be paying £3,000 in Council Tax and if he spends say £20,000 pa on VAT goods and services his VAT bill would be £4,000.
Out of his income of £100,000 he will pay, in total, tax of £37,000 (£30,000 plus £3,000 plus £4,000), a rate of 37%. This is plausible because we know that the total annual tax take of the UK is around 36% and this includes corporation tax and other taxes.
If we then assume that the house has risen in value by 10% and the investments by 5% we add £85,000 to our illustrative income, bringing it up to £185,000. We assume he is not liable to capital gains tax, so his tax bill remains at £37,000. The percentage on £185,000 however drops to 20%. This is quite close to the 18% quoted in the article. However, imagine the outcry if the Government tried to tax the increase in the value of a person's home, as if it were income, when he was still living in it! Hardly anybody would argue that it was fair.
The author must know this and to use a figure, based on an unworkable assumption that the increase in the value of a person's home should be included in someone's taxable income, is disingenuous.
Let us now examine the percentage quoted for one of "the poorest". Again no definition is given. Let us take someone living in rented accommodation on £12,500 pa. 42% would come to £5,250,leaving the person with £7,250 to spend. This is unrealistic.
In reality such a person would not be paying income tax and would probably have no liability to NI, either. To survive, much of their income would be going on food, which carries no VAT, and energy, with 5% VAT. Their VAT bill would therefore be low, say £600, and if they paid council tax that would probably be at the lowest band, say £1,200.
On this income, our example would be entitled to a number of rebates, credits and reliefs, but I don't know sufficient to be able to estimate these. If we ignore these reliefs and just look at the percentage before reliefs and credits it is £1,800 on £12,500 which works out at 14.4%. If we include the value of rebates and credits the percentage will fall.
To be credible the author needs to show how he ever came up with 42%.
To show such dubious figures as 18% for the richest and 42% for the poorest in a headline, with no caveat, smacks of fake news and shows no integrity. If this is what the organisation "Church Action for Tax Justice" puts out, it is an example of why Christians are amongst the "least trusted" professions.

Any thoughts?

Justin Thacker

26/8/2020 10:22:40

Thanks Richard for posting your comment. Here is our response:

The practical solution your friend craves is to foster a fairer tax system. On the specifics of what that looks like consider our proposals in A Fair Share for a Fairer World. All of the proposals there are practical if there existed the political will.

The statement about the wealthiest paying 18% and the poorest 42% is taken from this article. http://www.taxresearch.org.uk/Documents/WealthTaxData420.pdf which also provides the definitions of poorest and wealthiest, namely top and bottom income deciles.

The data sources for the wealth increases are given in the paper. Of course, it’s possible to identify specific individuals, or specific portfolios where the value of wealth has decreased but on average as the paper shows there have been significant net wealth increases over the last ten years – until the corona induced recession at least.

On the issue of tax rates – we were not arguing that the increase in value in someone’s home should necessarily be taxed immediately during their lifetime, though some form of annual net wealth tax should be considered. Our point is the same one made in the article where these figures come from so I will quote it verbatim:
“In addition, the fact that increases in the value of homes and pensions may not result in immediate cash benefits to those who own them does not mean that such increases do not contribute to the overall increase in the financial wellbeing of those who gain: both the sense of security that such increases in wealth provide, and the means that they afford to live in greater comfort at some time in the future have direct impact on the manner in which those enjoying them both feel in the present, and on their actual behaviour with regard to consumption and lifestyle choices. As such they cannot be discounted in any discussion on current taxation.”

In other words, the growth in value in homes does contribute to financial well-being. This does not mean it should be taxed in the same way as income – and we have never suggested that it should – but it should be factored in. That is our point. There are numerous ways in which it could be factored in, but the current problem is that it is not considered at all.

And on the 42%, the details are in the article which is based on ONS figures, but to illustrate one inaccuracy in your friend’s statement, the poorest pay approximately 10% of their income on VAT, not the 5% he assumes. So I would point him to that resource and see if the critiques then still stand.

Thanks again for raising this.

Covid - the great revealer

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