MONEY • Taxation galore

NICHOLAS DAVENPORT

One of those foolish things happened in the City last week. When the news came through that the 34- per cent ceiling on dividend in- creases was to be removed at the end of the year brokers began to buy the leading shares as if it meant the end of the bear market. Now 31 December or 31 January or 28 Feb- ruary could bring the end of the bear mar- ket but not because of Mr Diamond's announcement about dividends. Precious few companies could increase their dividends today. Most are finding it hard to maintain them. Some will be compelled to cut them. And, as Mr Diamond reminded the Com- mons. if any company were to increase its dividends immoderately and its profit growth appeared to be based on 'excessive market power' it would be referred to the Prices and Incomes Board. In other words, it would be stopped. What is more, the -rm., who pro- fessed to be shocked by the un-freezing of dividends, were reassured that if profit and dividend income went up too fast the Government could resort to extra taxation. The -ruc were rash to raise the issue seeing that between 1965 and 1968 dividends paid to shareholders fell by about £50 million while wages rose by nearly £4,000 million.

This makes me question whether a bull market in shares can be re-started without a change in the taxation climate. Mr Jenkins, who has imposed more taxation than any previous Chancellor in an effort to shift resources from consumption to exports, is well aware of the limits of taxation. In a newspaper interview some six weeks ago he said: 'I certainly do not believe that high direct taxation, now very widely spread over the community, is a desirable thing in itself. It is a necessary thing at certain levels but I do not want it to be any higher than it need be'. I doubt whether we can expect much relief from him next April except for the lowest incomes, but he did say in this in- terview that the Labour party's thoughts about a wealth tax are related to the 1970s. 'It is not remotely on,' he added, for the remainder of this Parliament.'

Much, however, is expected of the Shadow Chancellor, Mr lain Macleod, if he follows Mr Jenkins. I went to the Albert Hall last week to hear my ex-editor make one of his brilliant incisive speeches to the assembled throng of embattled directors. He told them that if he were Treasury overlord the sum of taxation would become a smaller percen- tage of the GNP. He would, take less by direct taxation but more by indirect taxation in the form of some general sales tax. He had not made up his mind about the value added tax. but Professor Wheatcroft was making a full report on it (God help us all, we have had too many reports on VAT already and the Professor does not thrill me!). It will be necessary, he added, to have some new sales tax, because he proposed to abolish SEI (Loud cheers!) He would keep on corpora- tion tax and capital gains tax -but in modi- fied form. He wanted to remove the tax dis- incentives for the hard workers and wealth creators etc etc.

A comparison of taxation in the UK and the industrial nations of the West was given in a bulletin last August by the late un- lamented DEA. It was based on returns to the OECD. The social security contributions were rightly included because they are compul- sorily levied by governments and the figures

ffolkes's industrial alphabet W is for Wildcat Strike

also included local as well as central govern- ment taxes, but excluded taxes on capital such as death duties and capital gains. The

interesting result was that total taxation in the uic was just on 38 per cent of the GNP—

would 33-1- per cent suit Mr Macleod?—and that this percentage was actually lower than those of Sweden, Norway, France, West Ger-

many and Holland but higher than in the USA, Canada, Japan and Italy. Sweden was top with 46 per cent followed closely by France with a little over 45 per cent.

But in the tmc the direct taxation of income by way of surtax jumps up in an outrageously punitive manner as earned income rises over 1:15,000 a year, so that the clever hard-work- ing executive has no incentive to take on difficult jobs of great responsibility. Out of an extra £10,000 on top of an existing £15,000 he would net only £875. A country

which drives its ablest and most ambitious

men abroad because it does not pay them to take on the most important and difficult jobs

and at the same time drives its laziest and most self-indulgent married men on to the dole because it does not pay them to work is

on the sure road to decline and disaster.

Every Chancellor must be aware of this dan- ger, especially one whose party presses him

to redistribute wealth. I have long been con- inced that in an advanced industrial nation like the Inc a re-distributive tax policy is an economic irrelevance—and could be economically harmful.

Before Mr Macleod makes up his mind would he please consider two points raised

by his former financial correspondent. By all means abolish the absurd discriminatory clauses of the SET but there is a lot to be said for keeping a tax levied alike on all labour employed. It could well be less than the present SET, which raises £600 million

but it is an easy tax to collect and it is

fair to put a tax on a scarce commodity to encourage universal economy in its use. No one should be exempt from it, not even

charities. The second point is the adminis- trative simplicity in collecting a general sales

tax as compared with VAT. The NEDC made a study of the VAT system in France, Ger- many, Denmark and Holland and published their conclusions last August. They did not produce a majority vote for or against but they were impressed by the complication of collecting VAT in fractional instalments at every stage of the productive process. The number of collecting points could be up to two million against 65,000 in the purchase tax system. About 8,000 extra civil servants Would be needed to administer it! They con- luded that VAT should only be introduced fter a reform of the whole tax system.

Any tax reformer may well be abashed by his task. A Chancellor has to find money to ay for about £12,500 million of expenditure.

s taxes on income bring £6,900 million and n expenditure £6,355 million. Of the former ncome tax accounts for £4,880 million and unax for only £240 million, corporation tax aking up the balance with £1,805 million. re .is the first opportunity for reform. bolish surtax and regrade income tax so hat it does not become penal in the high rackets. (Mr Macleod would also abolish C discrimination against unearned income.) the taxes on expenditure tobacco brings Over i1,000 million and drink £780 million

both over-taxed—but purchase tax only

0 million. Opportunity here for a general es tax? I can see no serious opposition t of course from the Queen who, aving no income tax to come down, would

be 'in the red'.