Freeman

ARTICLE

High Taxes in Britain

MARCH 01, 1956 by JOHN HEFFERNAN

Mr. Heffernan is an economic journalist and director o] the London financial newspaper, City Press.

The british, called by Napoleon a nation of shopkeepers, have become a nation of tax payers. The number liable to tax has climbed to a peak of five out of six workers.

Over a third of the income of the average worker is extracted from his pocket in rates and taxes. The tax on incomes is steeply progressive, rising from 11¼ per cent to the standard rate of 42½ per cent, then on up to 87½ per cent for top earnings of a man getting more than $42,000 a year.

The burden of tax is six-fold the prewar level for a married man with two children who earns a modest $2,800 a year.

Penalized heavily, along with the skilled workers and top executives, are the companies or corporations. And yet they are the ones responsible for the greater part of economic activity and progress in Britain. In 1954, for 638 leading companies, four times as much was taken by the government in taxes as went to owners as dividends. From 1938 to 1953, the tax load increased by 956 per cent, while payment to the fund suppliers and risk takers—dividends and interest—rose only 43 per cent.

Mr. Julian Crossley, Head of Barclay’s Bank, recently said: “If a man succeeds he is faced with the obligation of paying surtax, a tax which is so steeply graded that it must seem to many hardly worth-while making the extra effort to merit further promotion.”

And as Lord Chandos, formerly British Cabinet Minister Oliver Lyttleton, said not long ago” “Present taxes remove all incentive to earn above about £4,000 ($11,200) a year net.”

Mr. L. S. Hargreaves, chairman of a cable company, says that the “rabid tax collector . . . thinks nothing of keeping us working night and day to satisfy his rabid demands.”

The situation is well summed up by Mr. J. Gibson Jarvie, head of a financial trust, who said last August: “Taxation of companies and individuals is so burdensome that it threatens to break us. The government takes too large a share of our incomes. In the higher brackets taxation practically amounts to confiscation. More than half our profit goes in taxation. In effect the whole of our organization has for more than six months out of the twelve months been working for the government. and in addition practically every member of the organization has had to pay part of his earnings in tax!”

And he said further that “inflation will continue just so long as our vast over-taxation supports profligate State spending.”

Escape from Taxes

British people are reacting to these burdensome taxes in three ways. Some rebel in peace, which means that they no longer risk venture in enterprises and no longer work hard for pay that would mostly be taken from them. Some leave the country, for greater opportunities elsewhere. Some—and this is a new, encouraging development—are openly fighting for their rights to keep more of what they produce away from the rabid tax collector.

The peaceful rebels have posted their accomplishments every day and year, in the sluggishness of British productive progress. All the British people, including the taxgatherers and the tax spenders, help bear the brunt of going without what is not produced.

Those who emigrate from these savage taxes include the British companies with overseas interests who find it profitable to move out. Most of the Rhodesian copper mining enterprises, for instance, have emigrated in the past five years. And there are many, many others which have escaped the tax collector in the same way.

Individuals have also chosen exile. In Britain the nobility has suffered with others under the lash of the taxgatherer. So many of them with inherited wealth yet having minds active enough to enable them to earn a living and increase their wealth have found “the game is not worth the candle” in Britain. A curious result has been that the tiny English Channel Islands—where the tax is only 20 per cent and not 87½ per cent—have attracted so many English peers that it is said, “There hardly seems room to hang up a coronet in Jersey.” There Lord Louth runs a photographer’s business, Lord Decies a tea room, the Earl of Jersey has big catering interests, while Lord Kenilworth and Lord Stanley of Alderley are also to be found on this island which only has a population of 50,000. It is a holiday resort and scope for enterprise is limited. But if peers of the realm engage in finance or industry in Britain, their inherited wealth would already have put them in the top tax paying class so that the tax on their additional earnings would reduce their net earnings to a nonsensical figure.

Those who have remained under the yoke of taxation have recently been stirred anew into open rebellion by legal means. For instance, the heavy burden of tax has finally led a group of British businessmen to establish the Council for the Reduction of Taxation. Run by a chartered accountant, Commander Hyde Burton, the Council has the support of many leaders of finance and industry.

Having long said virtuously, “I’m not interested in politics,” British businessmen have at last found that these high taxes must be paid anyhow. One person alone can abstain from politics, but he cannot abstain from taxes until he and enough other persons somehow free themselves from the yoke. He now sees that he has a duty to support the capitalist system on which Western civilization is based. He sees that not only is it up to him to put his hand in his own pocket to support educational work in defense of his property, but also his company advertising might well be directed to explaining how business really works under capitalism. He has come to see that failure to put forth the capitalist case is to commit political hari-kari both personally and companywise.

How the Income Tax Came to Britain

The income tax is a modern invention in Britain and was so small as to seem unimportant at its birth. In 1884, Gladstone first hinted that such a tax was to become permanent.

Gladstone, in an earlier election campaign, had promised among other things to repeal the tax, which was a mere fraction of one per cent. He lost the election. Back in office later, he sourly but prophetically said:

“The matter was referred to the country at a General Election. They declined the offer of abolishing the tax that was then given them, and I can promise that a sufficient number of years will pass over the heads of English-men before they will have another opportunity of abolishing it.”

As to the progressive aspect of taxation, Gladstone said that it was “tending to communism.” By undermining economic prosperity and property rights, that is exactly what high progressive taxes are doing in Britain today.

In addition, high taxes have undoubtedly conspired, together with social security, to sap the will to work—the real tragedy of high taxes in Britain. Instead of working harder, the family man goes home to watch TV while the younger man takes his girl for a walk or spends more time in sport. Hard work, instead of retaining its status as a Victorian virtue, is now treated with scorn. Why work when taxes and public subsidies like housing and medical benefits reduce both the incentive to work and the apparent need? Sapping the will to work and to save is fundamentally immoral.

There are other indirect moral effects of high taxes, too. For example, it is no accident that there is a high volume of betting in Britain. Taxes take away the rewards of extra effort so much that risking small bets for a chance of large tax-free betting gains has special attraction.

High taxes even undermine the family—the basis of a Christian society. They drive the mother out to work to earn a mere $15. In order to get an extra $15, her husband would have to work long enough to earn $23, as $8 would go in tax. So we see the unhappy spectacle of mothers neglecting their children while they go out to work, while fathers work only 35 to 40 hours a week.

Such is the plight of Britain today as she fights against communism for the survival of Western civilization. In this fight she is handicapped by oppressive taxes, about which even the British Chancellor of the Exchequer, Mr. R. A. Butler, has become concerned. He labels as folly the policy of heavy progressive taxation which he says “acts as a very positive discouragement of extra effort.” And beyond that, it is not only immoral but is also the tool of socialist method, undermining the ability of Britain to resist both a frontal attack by Russia or the establishment from within of open communism.[]


Competition can no more be done away with than gravitation. Its incidence can be changed. We can adopt as a social policy, “Woe to the successful!” We can take the prizes away from the successful and give them to the unsuccessful. It seems clear that there would soon be no prizes at all . . .

 

William Graham Sumner, The Forgotten Man’s Almanac

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March 1956

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