The attack on wealth MONEY
NICHOLAS DAVENPORT
Although the cruel deflation of the budget was welcomed in every select establishment in the City there was one aspect of it which alarmed and distressed the more conservative and ven- erable figures—Mr Roy Jenkins's attack on wealth. The special charge upon investment is, of course, a capital levy. It starts at 2s in the £ on investment incomes of £3,000 and rises to 9s in the £ on investment incomes of over £8,000. A rich family in receipt of, say, £20,000 will therefore have to live on capital this year, for it will be paying 27s 9d in the £. That is all to the good, said the Chancellor, for to the extent that wealthy people decide not to re- duce their spending it is 'the more reasonable that they should make some contribution from their capital.' The charge, he added, should not, and indeed could not, be repeated in its present form except at long intervals but that did not preclude 'further exploration of the ways in which the taxable capacity of the rich should be differentiated from that of the wage and salary earner.' In other words, he hinted thit a wealth tax was likely to come if he re- mained in power and that if it did it might be possible to reduce the highest rates of tax on earned incomes.
All this has frightened the very rich, as it was intended to do for the uplift of the de- moralised Government back benches, but it should not have surprised them. Mr Jenkins is on record as an egalitarian. Writing in New Fabian Essays (published in 1952) he remarked that British socialism with its Christian in- spiration and its debt to Benthamite radical- ism had always sought the equality of indi- viduals through a wider distribution of wealth. The case for it is far stronger today, he added, 'because the big saver is no longer of any economic importance.' I do not know whether he has changed his opinion over the years but he believed at that time that the capitalists had lost power to the managers and the trade unions and that the possession of equity shares was no longer of any economic importance. Mr Crosland said much the same thing in The Conservative Enemy.
Both misunderstand the nature of the re- markable change in the capitalist system. The capital spenders in private enterprise no longer look to the private savers for their finance but to the contractual savings institutions—the life and pension funds and unit trusts—whose money is tapped through the highly efficient Capital market. The risk-bearing, dividend- plying (or not paying) equity share is the legal device which enables our sophisticated capital- ist system to work; it has not lost importance; it has become the key to the whole machine. If dividends were frozen for any length of time the machine would stop.
While the managers of the savings institu- tions put the savings they collect into equity shares in varying amounts—from 25 per cent to 100 per cent of their total funds according to the nature of their business—they work to a common rule; they never interfere with the managements of the capital spenders except on rare occasions, such as persistent mismanage- ment or unreasonable 'sell-outs.' They realise that what makes the managements of the capital spenders efficient is the desire to accumulate equity shares and make them profitable. The massive accumulation of equity shares is therefore usually the sign of industrial or trading skill, competence and energy. If the richest accumulators were forced to leave the country through penal taxation of wealth the nation would be much the poorer.
Mr Jenkins understands this perfectly well. In New Fabian Essays he wrote: 'A sudden move to destroy all existing inequalities of wealth and income which offended a settled view of the majority of the people would have as its almost inevitable result the creation of a new class of undemocratic power-holders.' But recognising the duty of socialists to press as hard as they can for a much greater degree of equality he advocated three methods of advance —a stiffer taxation of property, an enlarged field of public ownership and a complete free- dom of entry into all occupations (the last being largely a matter of education). All three are now in motion. As regards the first he de- fined the forms which a fiscal attack upon property might take as a capital gains tax, the stepping up of death duties and a capital levy. It is interesting to see how his budget has ful- filled the dreams of the young socialist author of the 1950s.
As regards the capital gains tax he is well con- tent. The yield for the current financial year is £16 million against £7 million in the previous year and for 1968-69 he estimates £45 million. There is no question, he said, of the tax pro- ducing a negligible revenue for a costly ad- ministrative effort but he did not consider that it would now be appropriate to raise the rate of tax. In New Fabian Essays he opposed 'a very heavy tax' on capital gains as likely to have a far more disincentive effect on enter- prise than almost any other form of property taxation. The death duties, he wrote, are not open to these objections: he was in favour of stepping them up. But in the budget he said: 'Regretfully I am not able this year to attempt a major reform in estate duty.' That was be- cause of the pressure of work in the revenue departments. But he changed the law slightly, extending the period before death during which gifts are liable to estate duty.
It looks as if Mr Jenkins is contemplating his 'major reform' in capital taxation in April 1969. His intention in New Fabian Essays was to destroy large unearned incomes within a generation. He seemed to hate the idea of a fortune of, say, £10 million passing as £2 mil- lion after an 80 per cent death duty to give an income of about £80,000 a year—`big enough to support people in whole lifetimes of idle- ness.' But times have changed. Very few people today live in idleness on so-called 'unearned income.' The millionaires create charitable trusts and dispense huge_ gifts to science, medicine, art and learning of immense value to our welfare state. Oxford is full of new build- ings extending college and university life and culture in a variety of ways which the state would never have provided. A groan went up from the ignorant socialist mass when the number of millionaires rose last year but not from the intelligentsia of Oxford.
Death duties are, of course, a form of capital levy but one which the rich can legally provide against during their lifetime. Mr Jenkins in New Fabian Essays toyed with the idea of making them a capital levy in name as well as fact and imposing it suddenly without notice on a stringent enough scale 'to achieve the primary purpose of destroying all fortunes big enough to yield really large unearned incomes.' But, he asked, 'Is such a blow compatible with progress within a framework of consent?' Obviously not. If Mr Jenkins really wants to make a mixed economy work, which I am sure he does, he must give scope for the exception- ally enterprising to make, accumulate and dis- pose of large fortunes within the framework of a non-confiscatory system of taxation.
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