The Board of Inland Revenue published last Wednesday a survey of personal income for 1959-60 which for the first time interprets the results of the three five-yearly surveys of incomes since the war. The survey confirms the view that the differences in the incomes of different classes in this country remain substantial. Even the city staff of The Times pointed out that his “hardly adds up yet to an egalitarian society.”
In Britain, there are over 21 million tax-payers, married couples being counted as single tax-payers. The total working population is about 24 million. The survey divides them into five groups and the top fifth further into four subgroups of over a million each. It emerges from the survey that anyone with a pre-tax income of £1,460 a year belongs to the privileged five per cent. In fact the average income of this group was £2,740 a year. The bottom 20 per cent earned less than £366 in 1959-60.
According to the survey the disparity was somewhat reduced in the ’fifties since the total pre-tax income of the top one million hardly rose in real terms while the incomes of the tax-payers as a whole increased by three to four per cent a year. The main reason for making static the incomes of the top class is that trading profits, investment dividends and professional earnings rose little more than half as much as the total earned income in the ’fifties. This rise was devoured by an increase of about 50 per cent, in prices.
The Figures
In general terms trading profits and professional earnings accounted for 9.9 per cent of the total national income in 1949-50. The figure dropped to 7.7 at the end of the decade. This fall may at least partly be accounted for by the rise in capital allowances from eight per cent of gross profits to 12 per cent. Capital allowances are excluded from the above figures. Similarly the investment incomes share of the national income dropped from 12.3 per cent in 1949-50 to nine per cent in 1959-60. One statistician, Mr HF Lydall, calculated some time ago that whereas in 1938 the top one per cent got 16.2 per cent of the national income its share had dropped to eight per cent in 1957. This conclusion was also based on the figures of the Board of Inland Revenue.
Two points, it seems to me, would be of some interest to us in India in view of the widespread belief that Britain is an example of a traditional form of democracy evolving into a social democracy. The first question is the extent to which the drop in the share of the top class in the national cake is the result of political decision and the second whether this trend has come to stay. The answers to both suggest need for caution.
The drop in the share of the top class is largely the result of important social changes wholly independent of political decisions. One important change is that in 1938 there were nearly 1.9 million insured workers registered as unemployed and 1.3 million receiving public assistance. Now the number of the unemployed is around 500,000. An expansion in the number of people employed automatically raises the proportion of income going to wages and reduces that of unearned incomes. In the ’fifties the working population rose by over two million.
Another significant change is that while in 1938 the number of “gainfully employed” married women was placed at 800,000 it had increased to 3.5 million by 1958. In all nearly 8.5 million women are employed. This again has increased the share of the wage sector of the economy.
Unemployment
Since it is not possible to repeat once again a reduction in unemployment of two to three million and there is now little scope for the further employment of wives and mothers in view of the upward trend of the birth-rate, it cannot safely be assumed that the past trend would automatically continue.
The claim that high taxes on the rich inevitably redress the inequalities has been asserted so often by so many that hardly anyone examines it any longer. Also in India we have too idealised a picture of British business. In point of fact it resorts as strenuously to tax evasion as its counterparts in other countries. One familiar method is the execution of deeds in favour of various members of the family. The Royal Commission in 1955 estimated that some 75,000 such deeds were then in existence. They represented a total tax relief of £12.5 million. The practice has continued. It has been estimated that in 1958 such deeds reduced the tax liabilities of the rich by £16.5 million. By 1960 the figure had risen to £20 million.
In his book “Income Distribution And Social Change” Professor Titmuss drew attention to the problem of private companies which has now become well known on account of the revelations in connection with Peter Rachman’s slum empire. The procedure is simple. Any business man fearing surtax forms himself into a company and votes himself a salary of £2,000 beyond which he is liable to surtax. If profits fall in subsequent years he can continue to draw at the rate of £2,000. Alternatively he can divide the income among his children or relations. If necessary he can form not one but several companies.
In Britain one can buy a registered company for £25. Among speculators in property it is common practice to buy a dozen or two of such ready-made companies. Christine Keeler formed herself into a company when the Profumo scandal produced a large income from her life story and interviews to newspapers. In 1953 over 13,000 new companies were registered. In 1960 the figure had gone up to over 30,000.
Death duty which is claimed to be the great equaliser can be avoided equally easily. The islands of Jersey and Guernsey do a roaring trade in a special type of mortgage. An investment of one million pounds saves £800,000 in death duties. A correspondent of The Times estimated in June 1961 that such investment in Jersey totalled £10 million and was continuing at the rate of £100,000 a week.
It is perhaps natural for the Labour party to blame the Conservative government for it all. Only it is doubtful if a Labour government can take steps to reduce inequalities in any significant sense. The familiar remedy of nationalisation is out. The Labour leadership cannot go back on the commitment to re-nationalise steel and road haulage, not because it remains convinced about the economic advantages of the proposed measure, but because it is keen to avoid a revolt by its left-wing. The important point is that it is only too well aware that it would forfeit middle class support if it ever sought to extend the scope of nationalisation.
Reinvestment
It has taken the Labour party 12 long years of wilderness to live down the impression that it stands for higher taxation and austerity. A programme of austerity is neither necessary nor desirable because it is clear now that only rising demand at home can put industry in a strong position to compete in the export markets. Higher taxes are not easily reconciled with the need for continuous rise in the level of reinvestment by the private sector to keep pace with the technological innovations. One reason why the rate of economic growth in this country has been slow compared with other advanced countries is the lower level of investment – at around 15 per cent, compared, for example, with 24 per cent in West Germany,
From the recent pronouncements of Labour leaders it appears that they plan primarily to tackle three problems if they are returned to power: housing, higher benefits for the aged and the infirm and education. Their ability to do so would largely depend on effecting savings in defence expenditure and modernising the tax structure so that the yield rises without an increase in rates. Their success would certainly mean extension of the welfare state but it would not produce an egalitarian society. In fact it is doubtful if an egalitarian society is any longer the Labour party’s goal. The goal might be better described as an affluent society.
The Times of India, 31 August 1963