War-Time Financial Problems

by Hartley Withers

Perhaps, however, it would be more correct to say that those who put the scheme forward did not ignore this drawback to it, but rather liked it, for reasons quite irrelevant to the objects that they were apparently pursuing. A good deal of prominence was given about the same time to the question of a levy on capital in the New Statesman well known to be the organ of Mr Sidney Webb and other members of the Fabian Society. These distinguished and very intellectual Socialists would, of course, be quite pleased if, in an apparent endeavour to pay for the war, they actually succeeded in securing, by the Government's acquisition of blocks of securities from property owners, that official control of industry and production which is the object of State Socialists.

It will be noted, however, in this scheme that no mention is made of any forms of property to be accepted by the Government in lieu of cash except securities and mortgages on land. Items such as furniture, books, pictures and jewellery are ignored, and in one of the articles in the New Statesman, discussing the question of a capital levy, it was distinctly suggested that these commodities should be left out of the scheme so as to save the trouble involved by valuation. Unfortunately, if we leave out these forms of property the natural result is to stimulate the tendency, lately shown by an unfortunately large number of patriotic taxpayers, of putting money into pearl necklaces and other such gewgaws in order to avoid income tax. If by buying fur coats, old masters and diamond tiaras it will be be possible in future to avoid paying, not only income tax, but also a capital levy, it is to be feared that appeals to people to save their money and invest it in War Bonds are likely to be seriously interfered with.

Unfortunately, the Statesman was able to announce that the appeal for this system of taxation had been received with a good deal of sympathy by the Chancellor of the Exchequer, and the next stage in the history of the agitation was the publication on Boxing Day in several of the daily papers of what appeared to be an official summary, issued through the Central News, of what the Chancellor had said to the deputation of Labour Leaders introduced by Mr Sidney Webb, which waited on him, as already described, in the middle of November. Having pointed out that he had never seen any proposal which seemed to him to be practicable for getting money during the war by conscripting wealth, Mr Bonar Law added that, though "perhaps he had not thought enough about it to justify him in saying so," his own feeling was that it would be better, both for the wealthy classes and the country, to have this levy on capital, and reduce the burden of the national debt when the war was over. It need not be said that this statement by the Chancellor has been very far from helpful to the efforts of those who are trying to induce unthrifty citizens to save their money and put it into National War Bonds for the finance of the war.

"Why," people argue, "should we go out of our way to save and take these securities if, when the war is over, a large slice of our savings is to be taken away from us by means of this levy on capital? If we had been doubting between the enjoyment of such comforts and luxuries as are possible in war-time and the austere duty of thrift, we shall naturally now choose the pleasanter path, spend our money on ourselves and on those who depend on us, instead of saving it up to be taken away again when the war is over, while those who have spent their money as they liked will be let off scot free." Certainly, it is much to be regretted that the Chancellor of the Exchequer should have let such a statement go forth, especially as he himself admits that perhaps he has not thought enough about it to justify him in saying so. If the Chancellor of the Exchequer has not time to think about what he is going to say to a Labour deputation which approaches him on an extremely important revolution in our fiscal system, it is surely high time that we should get one who has sufficient leisure to enable him to give his mind to problems of this sort when they are put before him.

In the course of this review of the forms in which suggestions for a levy on capital have been put forward, some of the difficulties and injustices inherent in it have already been pointed out. Its advocates seem as a rule to base the demand for it upon an assumption which involves a complete fallacy. This is that, since the conscription of life has been applied during the war, it is necessary that conscription of wealth should also be brought to bear in order to make the war sacrifice of all classes equal. For instance, the Emergency Workers' pamphlet, quoted above, states that, "in view of the fact that the Government has not shrunk from Compulsory Conscription of Men," the Committee demands that "for all the future money required to carry on the war, the Government ought, in common fairness, to accompany the Conscription of Men by the Conscription of Wealth."

This contention seems to imply that the conscription of men and the conscription of wealth apply to two different classes; in other words, that the owners of wealth have been able to avoid the conscription of men. This, of course, is absolutely untrue. The wealthiest and the poorest have to serve the country in the front line alike, if they are fit. The proportion of those who are fit is probably higher among the wealthy classes, and, consequently, the conscription of men applies to them more severely. Again, the officers are largely drawn from the comparatively wealthy classes, and it is pretty certain that the proportion of casualties among officers has been higher during the war than among the rank and file. Thus, as far as the conscription of men is concerned, the sacrifice imposed upon all classes in the community is alike, or, if anything, presses rather more heavily upon those who own wealth. Conscription of wealth as well as conscription of life thus involves a double sacrifice to the owners of property.

This double sacrifice, in fact, the owners of property have, as is quite right, borne throughout the war by the much more rapid increase in direct taxation than in indirect. It is right that the owners of property should bear the heavier monetary burden of the war because they, having more to lose and therefore more to gain by a successful end of the war, should certainly pay a larger proportion of its cost. It was also inevitable that they should do so because, when money is wanted for the war or any other purpose, it can only be taken in large amounts from those who have a surplus over what is needed to provide them with the necessaries and decencies of life. But the argument which puts forward a capital levy on the ground that the rich have been escaping war sacrifice is fallacious in itself, and is a wicked misrepresentation likely to embitter still further the bad feeling between classes.

Nevertheless, Mr Bonar Law thinks that, since the cost of the war must inevitably fall chiefly upon the owners of property, and since it therefore becomes a question of expediency with them whether they should pay at once in the form of a capital levy or over a long series of years in increased taxation, he is inclined to think that the former method is one which would be most convenient to them and best for the country. This contention cannot be set aside lightly, and there can be no doubt that if, by making a dead lift, the wealthy classes of the country could throw off their shoulders a large part of the burden of the war debt, such a scheme is well worth considering as long as it does not carry with it serious drawbacks.

It seems to me, however, that the drawbacks are very considerable. In the first place, I have not seen any really practicable scheme of redeeming debt by means of a levy on capital In so far as the levy is paid in the form of surrendered War Loans, it is simple enough. In so far as it is paid in other securities or mortgages on land or other forms of property, it is difficult to see how the assets acquired by the State through the levy could be distributed among the debt holders whom it is proposed to pay off. Would they be forced to take securities, mortgages on land, furniture, etc., as the Government chose to distribute them, or would the Government have to nurse an enormous holding of various forms of property and gradually realise them and so pay off debt?

Again, a great injustice would surely be involved by laying the whole burden of this oppressive levy upon owners of accumulated property, so penalising those who save capital for the community and letting off those who squander their incomes. A characteristic argument on this point was provided by the New Statesman in a recent issue. It argued that, because ordinary income tax would still be exacted, the contrast between the successful barrister with an Income of £20,000 a year and no savings, who would consequently escape the capital levy, and the poor clergyman who had saved £1000 and would consequently be liable to it, fell to the ground. In other words, because both lawyer and parson paid income tax, it was fair that the former should escape the capital levy while the latter should have to pay it!