ISJ Index | Main Newspaper Index

Encyclopedia of Trotskyism | Marxists’ Internet Archive

International Socialism, June/July 1969

Jim Kincaid

Incomes

From Survey, International Socialism (1st series), No.37, June/July 1969, pp.4-6.
Transcribed & marked up by Einde O’Callaghan for ETOL.

During their first three years in office, the Labour government managed to produce a taxation structure that was even less egalitarian than the one they inherited from the Tories in 1964. This is the major conclusion of the latest in a series of annual investigations made by the Central Statistical Office into the incidence of all forms of taxation at various levels of personal income. These are the only studies carried out in Britain which take full account not just of progressive taxes, such as income tax, but of more regressive taxes like national insurance and national health contributions, local rates, and expenditure taxes. The estimates of taxes paid are realistic in that they are based on information about the actual expenditure patterns of households of different compositions and with differing levels of income.

Table 1 illustrates for both years the very small differences between high and low income households in the percentage of income paid in taxation. Indeed between £16 and £50 a week, the range in which the vast majority of incomes fall, the proportion of income taken in taxes is virtually uniform. Even at the lowest levels of income, in the groups such as old age pensioners who are almost completely dependent on social security benefits, still, a quarter of income is taken in taxation. Table 1 shows the effect of taxation increases occurring between 1964 and 1967 – the average proportion of income taken in tax rising from Slper cent to 35 per cent over the period. However it is also clear that the impact of tax increases has fallen more heavily on the low and middle range of incomes. There was a 5 per cent rise in taxes between £16 and £19 a week, but only 1 per cent in the band of incomes above £60 a week. At the other end of the scale, people on £5 and £6 had their taxation increased, by 3 per cent and 2 per cent respectively. For only one group, £7 to £9 a week was the burden lightened. Such increases in the taxation of the very poor reflect the extent to which the Labour government have been raising extra revenue by expenditure rather than income taxes.

Table 2 provides the same information for one particular type of household, two adults and two children.

What is amazing to find in Table 2, is that the group which paid the highest percentage of income in tax was in fact those with a total income of only £11 a week. This refers to household income, i.e. will include family allowances, and wife’s earnings, if any. Two children to keep at £11 a week, and £4 10s. being taken in taxation! It was the £50 to £59 a week group which in 1967 was paying out the lowest percentage of their income in taxation. The budgets of 1968 and 1969 will inevitably have continued the trend to greater inequality in the incidence of taxation. Admittedly the fairly substantial increase in family allowances made in 1968 benefited only the lower paid families, since the children’s allowance on income tax was reduced by a corresponding amount. On the other hand, the last two years have seen substantial increases in most forms of indirect taxation, in particular the expenditure taxes that bear heavily on lower income groups. Since the end of 1967, Purchase Tax has been raised by £215 million a year, the tax on tobacco by £30 million, the tax on motor fuel (which forms part of the cost of a wide range of goods and services) by £121 million.

At the other end of the scale, the Labour government have not increased the rate of surtax from the levels to which it was reduced by Selwyn Lloyd in 1961. In 1960-61, 461,000 people paid a total of £242 million in surtax. In 1966-7, despite the huge increase that had taken place in the numbers of people with high incomes, only 358,000 people paid surtax and the return from the. tax had fallen by more than 10 per cent to £215 million as compared with six years previously. In the same period, government revenue from personal income tax rose by 80 per cent. The impressive sounding 10 per cent surcharge on surtax which was levied in 1965-66 by Callaghan in the interests of equality of sacrifice, produced only £26 million. (The total income of all tax payers assessed for surtax in that year was just over £1,900 million.)

It is difficult to arrive at any conclusion about the trend of very high incomes from official figures since these take no account of any increase in the extent of tax avoidance and tax evasion that may be taking place. The Capital Gains Tax introduced in 1965 has a maximum rate of only 30 per cent, less than the standard rate of income tax at 8s. 3d. in the £1, and much less than the various surtax rates that build up over the standard rate as incomes rise. The government have thus retained the incentive for those with high incomes to take as much of that income in the form of capital gains as they can manage. Despite these factors, the evidence is that in the early years of Labour rule the increase in the numbers of people with high incomes continued unchecked. Between 1964 and 1967 the number of people with after tax incomes of over £6,000 a year rose from 16,000 to 25,400. (£6,000 a year after tax can scarcely be achieved by anyone with a gross income of less than £12,000 a year.) Between 1960 and 1967, there was a 50 per cent increase in the after tax income of the entire population; but the total after tax income of people with over £5,000 a year went up by 150 per cent. Another indicator of increasing inequality is the extent to which unearned income derived from ownership of capital is rising faster than earnings from paid employment. Between 1963 and 1967, the money value of all earned income rose by 28 per cent, but unearned income rose by 32 per cent – and the latter figure does not include capital gains. Payments of dividends and interest alone in this period went up by 42 per cent.

The 1965 Capital Gains Tax has yet to affect the distribution of unearned income in any significant way. In the first three years of operation it produced a total return to the Exchequer of £70 million. In the year 1969-70 this tax will account for only £136 million out of a total government revenue of £15,000 million. Yet John Hughes of Ruskin College estimates that between 1966 and 1968 alone the total market value of stock exchange equities rose by well over £20,000 million.

No reliable information is available about changes in the distribution of wealth over the past few years. The figures published by the government each year are arrived at by estimating the relative sizes of estates left by people dying in the prior year, and inferring from these figures a pattern for the whole population. It is always possible that the distribution of wealth of those who die is becoming increasingly divergent from that of the living. What is more significant is that death duties provide strong incentive for the wealthy to transfer large parts of their estates to their inheritors well before their deaths. The small decline in the extremely unequal distribution of wealth indicated in the latest figures can safely be described to an increase in the evasion of death duties. It is unlikely that the trend is very different from that indicated in Table 3 for 1960.

Table 3 shows that during the 50s there was an increasing concentration of wealth in the hands of the richest 10 per cent of wealth holders. At the other end of the scale 17 million of a total population of 34 million either have no wealth or less than £500. Note that the definition of wealth used is very comprehensive – money in the bank, cash in the hand, houses, furniture, insurance policies, are all included, as well as stocks, shares and land. Of the remaining 17 million people, nearly 14 million are worth less than £5,000. It is reckoned that in 1967 more than 50,000 people held property worth more than £100,000.

The only change made by the Labour government in estate duties is to reduce them slightly in the latest Budget. Estates valued between £5,000 and £10,000 are now to be exempt. Between 1964 and 1968 the return to the Exchequer from death duties rose in money terms by only 6 per cent – the return from all other forms of taxation increased in that period by 63 per cent.

Labour leaders have consistently refused to introduce any form of wealth tax, usually with a plea about the administrative difficulties of such a tax. This is one of the clearest indications that the leadership have abandoned any idea of creating greater equality of privilege and power in Britain. The collapse of egalitarianism as a basic part of Labour ideology is comparatively recent. Around 1960 such right wing figures as Crosland, Gaitskell and Jay were still insisting that the redistribution of wealth must form a key element in the strategy of a Labour government. The present unwillingness to redistribute earned income at least has some consistency about it, and so long as you accept that Britain’s economic problems will be worsened unless our dynamic export oriented business managers are paid more for being even more dynamic. But to leave untouched the distribution of wealth is a sell-out on the grandest scale. The degree of inequality in property ownership is staggering enough to justify the administrative inconvenience of lessening it. A recent TUC estimate is that a wealth tax of only 3 per cent per year on property holdings of £20,000 and above would draw in £1,000 million a year – enough to increase old age pensions by 50 per cent. The tax authorities cannot be too overworked if the government thinks it worthwhile (as in the current Budget) to bring in new taxes on thimbles, potato crisps, paper handkerchiefs, birdseed and salted nuts.

It is clear that the fiscal policy of the Labour government has not been determined by any consideration of social equality or redistributive justice. Increasingly the whole taxation system is being used to underpin the constraints of the incomes policy. The Prices and Incomes Board calculates that the effect of the wage freeze has been to hold back wage increases by 1 per cent per annum. At least to that extent, shop floor and trade union resistance in defence of the wage packet has been effective. But the figures in Table 1 above suggest that for many categories of workers rising taxes are cutting into income by rather more than 1 per cent each year. Over a three year period, overall 4 per cent more of income was taken in taxation. The Inland Revenue is a more effective instrument of wage restraint than the PIB and the employers combined. The government is convinced that economic growth and the international viability of British capitalism requires higher profit levels and therefore substantial relative cuts in working-class standards of living. Taxes are increased to claw back much of what the employer has been forced to concede. Hence the government’s preference for forms of taxation that bear heavily on the broad mass of workers. The increase in the flat-rate employer’s national insurance contribution from 11s 8d a week in 1964 to 18s 8d in 1969, with a further increase to be announced for this year. The tax on 20 cigarettes up from 3s 8½d in 1964 to the current level of 4s 7d. The holding constant of the income levels at which the standard rate of income tax comes into operation; in a period when money wages have been rising fairly rapidly, this has the effect of increasing even more rapidly the percentage of tax paid by average and below average wage earners. Since 1964 the returns to the government from income tax has been rising even more sharply than from expenditure taxes. (In the recent Budget tax free personal allowances were minutely raised – the Exchequer will not miss the fleabite £14 million a year, and the extra benefit to wage earners will be equally negligible.) The government have compelled local authorities to make substantial increases in the rates they levy. This tax, despite the illusions of middle class owner occupiers, is one of the most regressive elements in the British taxation system, .though would be less so if the rates rebate scheme were made to work effectively. Anyhow by the end of Labour’s first two years in office, the total revenue from local rates had already risen by 40 per cent and the trend has continued.

Part of the extra taxation imposed in recent years has gone to the social services. But much of it, in accordance with incomes policy logic, has been used to provide outdoor relief for distressed capitalists. The Industrial Reorganisation Corporation has recently been given another £150 million to subsidise mergers and efficiency. The Labour government has greatly extended the tax concession system designed to make new investment more profitable – initial allowances, investment grants, depreciation allowances. For the quarter of manufacturing industries in development areas the subsidy for new investment is now 40 per cent, and such firms receive in addition a wage bill subsidy of 48s. per man. The effect of these fiscal transfers is to increase the profitability of British capitalism at the expense of workers. The latest figures show that profits over the past 52 weeks have risen by 27.1 per cent. One of the few aims which Labour in office have actually achieved.

For workers the moral is plain. Hard won wage increases are being quietly bled off by extra taxation. The defence of working-class standards of living cannot be sustained except by a political struggle against the government as well as an economic struggle against employers.

 
Top of page

ISJ Index | Main Newspaper Index

Encyclopedia of Trotskyism | Marxists’ Internet Archive

Last updated on 15.1.2008