The wrath to come

Nicholas Davenport

With industrial profits bound to fall substantially in 1974 and with the near-certainty of a world trade recession I have been amazed to see the industrial share index floating above 300 (high 509 in January 1973). It was entitled to show relief that something like civil war had been averted by the accession of a minority Labour Government but investors have nOW got to do some hard thinking about their future under the Labour manifesto. Mr Wilson has affirmed that he is going to carry out the manifesto: "I regard Myself," he said, "as the custodian."

Quis custodiet ipsos custodes?'

Presumably the Liberals see themselves as the only party able to restrain the custodian. Certainly, they would vote against the ridiculous nationalisatinn proposals of the Labour manifeL Mr Wilson could not do the Arabian 'act of confiscation ovei the North Sea but he could tighten tilp the Tory proposals over taxation and set up under Lord Balogh, now an Energy minister of state, a corporation tri• buy all the oil and gas from the British sector. But he must not try to take over a majority interest in the individual prospecting companies. As we are running into a deficit this year on our balance of PaYments of the order of £3,500 Million and as North Sea oil is the n, nly British asset which foreign Lenders would now accept as good collateral it is clear that the Government must avoid all action likely to upset their confidence in our financial integrity and soundness. Fortunately Mr Wilson has appointed to the Duchy of Lancaster as his financial adviser the

oderate and wise Mr Harold

Le. ver whose reputation for finanal acumen stands high abroad. under his guidance sterling has a ,r9och better chance to ride the flancial storms, provided Lord qha I ogh does not pose as the

of North Sea oil.

What is worrying the Stock 'x.change is the coming budget With its promise of wealth tax, gifts tax or surcharge on investTrient incomes. Mr Healey antnLounced at the party conference

at he would increase taxation

"rettY steeply. Most economists Would be horrified. With the „c.onomy moving into recession, '0"fltn the quadrupling of the price Oil being equivalent to a tax

deflation of some £3,000 million, with Mr Barber's cuts in public expenditure being equivalent to a doubling of VAT, there is no economic case for extra taxation in April. The National Institute of Economic and Social Research in its new Bulletin suggests that they would normally have recommended reflationary action in the coming budget but in view of the fact that output has been depressed much more than disposable income by the miners' strike and the threeday week — leaving a temporary inflationary gap which will be bridged by lower stocks and exports and higher imports — they think that a neutral budget would be the right course to take, provided there is a clear intention of taking reflationary action later in the year if unemployment continues to rise as they think it will.

,ree with the National Insti .,.4 views but I expect nevertheless that Mr Healey will increase taxation by 'soaking the rich' as his militant left wing is pressing him to do. He will certainly remove the concessions made to the rich by Mr Barber over children's holdings and interest payments against tax. I have been examining the Liberal Party manifesto to see how far it would support the disagreeable Labour taxation which the City fears. I find that it would support quite a lot. It laid emphasis on the fact that "our present society is grossly unfair in its distribution of wealth and material rewards between capital and labour, between class and class." Their scheme for the redistribution of wealth is virtually the Tory scheme for a negative income tax. They favour a progressive scale of tax on all income exceeding the credits and allowances and they propose a gift and inheritance tax to replace estate duty. So they would not oppose Mr Healey if he introduced in his budget — not having had time to work out a wealth or gifts tax — a surcharge on investment income. After all, Mr Barber did a soak-the-rich act when he put a surcharge on surtax. A surcharge on investment income — as Stafford Cripps carried through when he was Chancellor and Mr Jenkins in 1968-69 — is in effect a wealth tax, for the victim would normally pay by selling securities. Not a pleasant prospect for the stock markets! I need hardly add that any differential tax on investment 'income is all the more inequitable seeing that investment income is simply earned income which has been saved.

As regards company taxation the Liberals would support any vindictive measure coming from Mr Healey. Their manifesto actually declared that prices, dividends arid average earnings within a company should be limited to an agreed annual rate of increase and that any company which increased prices faster than that rate would suffer an extra surcharge on its corporation tax. 'Excessive dividends and profits payouts would also be penalised by a tax surcharge on a sliding scale according to the amount by which such increases exceeded the norm. If such a scheme could ever be made workable it would, of course, drive a lot of free private enterprises out of the country.

It would also drive a lot of labour to foreign climes. To restrain inflation the Liberal manifesto recommend that if average earnings per person, including fringe benefits, within a company rose faster than the agreed annual rate, then both employer and employee would have to pay an extra surcharge on their graduated National Insurance contributions.

The Liberals seem keener on industrial partnership than Labour. They maintain that employees should be recognised as members of their company just as shareholders are and should be entitled to share in the election of directors on equal terms with shareholders. Works councils should be set up at plant level with wide powers to negotiate pay and conditions of work. Finally employees, they say, should share in the profits of the company and the growth of its assets. This, of : course, is a divisive proposal, creating enmity between those workers whose employers make losses, or are public boards who can't make profits, and those lucky workers whose employers are prosperous tycoons or monopolists or financial wizards. • It shows how ill-thought-out are the Liberal ideas of industrial partnership.

Labour's proposals for company taxation will surely be more workable and straightforward They will penalise profits identified with monetary inflation, such as the "obscene" profits of the banks, and increase corporation tax for the period during which the official price indices register a national inflation. They will hardly have to depend on Liberal support to carry such measures through the House of Commons.