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Andrew Glyn

What became of Labour’s wealth tax?

(January 1975)

From Militant, No. 285, 2 January 1975, p. 3.
Transcribed by Iain Dalton.
Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

Labour’s Programme for Britain [1972] pointed to the “gross mal-distribution of wealth in Britain today” [page 21] and said “we shall therefore introduce a wealth tax, consisting of an annual levy on the large concentrations of private wealth.” As the Government’s Green Paper explained it [in August 1974] “the fundamental purpose of the wealth tax is to make the distribution of the tax burden accord more closely with taxable capacity and thereby contribute to the creation of a more equitable society in which social divisions characterised by differences of wealth are reduced and in which social and economic power created by the possession of wealth is less concentrated than at present.” [page 20]

Up to date figures provided by the Royal Commission on the distribution of income and wealth give some indication of present degrees of inequality. In 1972 the top 1% of income receivers got 6% of total pre-tax income and the top 5% got 17% (1st Report, Table 15). Nor does taxation at the present do much to reduce the share of the best off; as the report says (paragraph 150) “the effect of all taxes on the distribution is small, with the progressive effect of direct taxes (income tax, national insurance contributions) ... largely offset by the regressive nature of indirect taxes (on commodities).” Since so many people have virtually no wealth at all the degree of inequality in this respect is even greater than for incomes. The Royal Commission calculated that in 1974 the top 1% and 5% of the population held roughly one quarter and one half respectively of total personal wealth (Table 49).

Of course the apologists of capitalism point to the fact that there has been some reduction in the degree of inequality (for example the richest 5% probably held around two thirds of total wealth in 1960 – Table 45). But this has been largely due to the spread of ownership of consumer durables, like cars and houses, as workers secured some improvement in their living standards [by 1973 these items accounted for more than one half of personal wealth]. The rise in house prices, and fall in share prices, have reduced the value of ordinary shares, which represent control over the key sections of British capital, to not much more than 5% of total personal wealth – a sure indicator of the declining fortunes of industrial capital. But of course it is this section which is decisive for controlling the whole economic system and ordinary shares are unequally distributed as ever – the top 0.6% of wealth owners held 54% of privately held ordinary shares in 1973 (Table 31) and the proportion of land they hold is greater still.

The Green Paper of 1974 proposed a wealth tax with rates beginning at 1% on wealth in excess of £100,000 rising to either 2½% or 5% on wealth in excess of £5 million. (Labour’s Programme had talked of £50,000 being the lower limit and inflation could not justify doubling the exemption level). The question was referred to a Select Committee of the Commons to “hear the views of those directly affected and of anybody else.”

CBI pressure

The views of those ‘directly affected’ came in thick and fast, taking up well over one thousand pages. The CBI described the proposals as “confiscatory” because “the combined burden of income and wealth tax could, after allowing a reasonable margin (!) for living expenses, exceed the net income of the tax payer in a single year, forcing a sale of assets.” (As though this was not precisely what a tax aimed at reducing private holding of wealth would have to do). The CBI proposed that income plus wealth tax should not take more than 70% of income. They tried to frighten the Committee with a horror story of how the owner of a business worth £½ million could find himself after 35 years owing more in deferred wealth tax than his business was worth. The Inland Revenue pointed out, that with less ludicrous assumptions than the CBI’s, he would have £900,000 left. The City Tax Committee warned that without a ceiling “the flow of money and able executives out of the country will continue.” The Institute of Directors called it an “oppressive and inequitable tax.” The Stock Exchange thought that “abiding damage could be inflicted on the delicate balance of the mixed economy ... The Government seeks to increase investment in industry, but it is effectively prohibiting the flow of capital through the Stock Market by the existing and proposed taxation policies.”

Perhaps it is not surprising that the Committee wilted under this pressure. The Chairman’s draft, meant to represent some kind of balance between the views of the Committee, but not adopted due to the absences of two Labour members, proposed a string of concessions as compared with the Green Paper – on forestry, works of art, aggregation of husbands’ and wives’ incomes, limiting tax for owners of businesses, the starting rate (½% was suggested). It was even argued that the revenue should be used “for the reduction of the high rates of tax on earned income.” (So that effectively some wealth owners would pay more tax while directors and managers with ‘earned’ income would pay less). The Labour members’ own report contained many of these concessions in less extreme form, while Maurice MacMillan’s followed even more closely the promptings of big business, and only Jeremy Bray stuck out for more or less the Green Paper proposals.

The Financial Times reported (December 11th) that “it now seems unlikely that the Government will take early action to introduce the tax in any form,” mentioning “the small sum at stake (£100–£200 million on Douglas Jay’s draft as compared with £300–£400 million on the stiffer Green Paper set of rates) the possible effect on business confidence and the administrative problems involved.”

Obviously this is a particularly transparent case of the Labour Government yielding to the pressure of big business, and the Labour Movement should demand that the Government implements a wealth tax along with the other measures in its programme. But it would be wrong, now that the prospect of early action has receded, to foster any illusion that the implementation of the Green Paper proposals would have fundamentally changed British society.

The Labour Party has not been contemplating a wealth tax sufficiently sweeping to force the capitalist class to hand over its shares to the Government, and if it did their response to the modest Green Paper proposals would be as nothing to what would follow. In any case if the objective is, as it should be, to remove power from the owners of industry there is nothing to be said for even a punitive wealth tax, which would take many years to have this effect. A programme of nationalisation with compensation according to need would give much less time for opposition to be mounted and the economy to be disrupted and is therefore a much more effective alternative.

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