ECONOMICS AND THE CITY
The economics of envy
Nicholas Davenport
One thing is clear. By bringing al a wealth tax and a gifts tax Mr Healey is not going to realise his professed aim, which he defined as greater social and economic equality." You do not make the poor richer by taking money away from the rich and handing it over to the Public sector. You will probably Make them feel poorer because prices generally rise in this inflationary world when the government has more money to spend. For example, Mr Healey's grab may enable Lord Balogh, our sheikh of the North Sea, to spend more money on nationalising oil companies drilling in the North Sea, which will merely add, as I have said, to the budget deficit, to the money supply and to the inflation. But to be fair to Mr Healey, he never really intended to take money away from the rich to give to the poor. He merely wanted to make the rich 'squeal With anguish.' This he will no doubt do, for when a millionaire is left With only 2 per cent of his income after paying the income taxes he Will eventually have to pay £11,500 a year under Tax A or £19,000 a year under Tax B if the wealth tax becomes law. Mr Healey will find that the economics of envy is bad economics. The rich have usually laid out their money in order to produce More wealth and employment. They will now lay it out to produce less wealth tax — and less employment. I have known many businessmen who, after the last borrowed and invested money in a new enterprise which they were able to sell after the exercise of much skill and hard work, to an established big company like ICI or Imperial Tobacco for a million or tWo. There will be no such incentive when the wealth tax is law. If the government really intends to run a mixed economy it must give the private enterpreneur a chance to make a million without a capital tax — not just £100,000 which is the tax-free limit they propose. The idea that the wealth tax will Make for a fairer society is, of course, a big joke. It will make for a madder society. It may make some rich men hand over a lot more money to their wives, on which no gift tax is payable, who will then be tempted to have affairs with impecunious lovers when they get bored with married life. (At least the impecunious lover is given a spur.) Or it may make some rich collectors who have bought 'art' hide their treasures in a loft or box-room in case an estate duty man comes snooping around. Or it may make an angry millionaire put his Renoir in the boot of his Rolls and travel to Switzerland. I see that Mr Hugh Leggatt, an art expert and secretary of Heritage in Danger, has remarked: "It is the resurgence of the same philistine spirit which was rampant in the Civil War when the greatest art collection in the world, that of Charles I, was dispersed by government policy." flt probably feels, as I do, that the new levellers of today are imbued with the same feeling of envy as the Puritans of the seventeenth century.
It seems extraordinary that a government which Mr Wilson claims to be the most brilliant he has ever had should be prepared to upset the British way of life for so little return to the Exchequer. The Green Paper estimates that of the two scales of wealth tax suggested Tax A would have yielded in 1972 between £200 and £275 million and Tax B between £350 and £425 million. According to the Financial 'Statement of 1973/4 surtax brought in £305 million, capital gains tax £320 million, death duties £405 million and income tax just over £7,000 million. Mr Healey might, of course, rejoin: Just wait until I have had the chance to raise the rates of tax. After all, income tax started at fid. in the £.
Estimates of the distribution of wealth are notoriously difficult to compile. The Green Paper admits that these estimates should be used with considerable caution. Mr Healey asserted in his television interview that 1 per cent of the population owned 25 per cent to 30 per cent of the wealth of the country. I do not believe it. If they did they would appear extraordinarily powerless when 1 per cent of the population, who happen to be miners, are able to hold up the whole country to ransom by strike and picketing action. Appendix 2 to the Green Paper suggests that forces are at work which are making for a considerable redistribution of wealth. For example, it claims that the wealthier 1 per cent of the population held 38 per cent of the national wealth in 1960 and that in 1974 this had fallen to about 25 per cent. For the wealthiest 5 per cent of the population the proportion falls, it says, from 64 per cent to 53 per cent over the same period. While these estimates are guesswork they do suggest that a redistribution of wealth is going on without any need for Mr Healey to give it a push. This is not surprising seeing that the miner's strike, the three-day week, the reelection of Mr Wilson and the domination of Labour policy by the Marxist socialists led by Mr Wedgwood Benn — the trouble about Benn is that he really is the thin edge of Wedge in Marxist socialism — has caused a catastrophic fall in equity shares. According to the latest Stock Exchange calculations the market value of listed British companies has fallen since March 1973 from over £52,000 million to £27,000 million as at June 30, 1974 a drop of over £24,000 million. So the wealth tax will be levied on rich shareholders who have already seen 54 per cent wiped off the value of their holdings in British industry. It will certainly make them less enterprising in future.
The burden of my complaint is not that I favour inequality, which is and always will be a fact of human life in any society, capitalist or Communist, but that the best way to make the poor richer is to encourage business to create more wealth and employment.
The CBI has just published a very pessimistic Industrial Trends Survey which spoke of "a striking collapse in business _optimism". The CBI regret that the Government proposes to bring in a wealth tax at a period of such crisis in British industry. They are worried by the adverse effect it will have on the ability of smaller busnesses to develop and by the disincentive effect upon ambitious, pushing business men who hitherto have contributed so much to the national wealth by building up new companies and trades. They are also worried by the danger of its adverse effect on farming. Farmers are a very individualistic lot of business people. They are just the sort who would sell their business in a huff and go to live abroad — and certainly stop developing their business above the £100,000 capital limit. I must repeat — the economics of envy is bad economics for the nation.
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