Mr Chamberlain’s Retreat

Press, Volume LXXIII, Issue 22109, 3 June 1937, Page 10

Mr Chamberlain’s Retreat

It is a very unusual yetreat with which Mr Neville Chamberlain has begun his administration and the more unusual because it is only a few days since he announced, as Chancellor of the Exchequer, the terms upon which he was prepared to modify the disputed tax measure. This tax upon profits directly or indirectly increased by the Government’s rearmament expenditure was by far the most striking feature of a very simple Budget. It presented, in fact, no other features of greater interest than measures to check tax evasion and a 3d increase in the income tax; so that it is no exaggeration to say that Mr Chamberlain has been driven first into concessions and then into full retreat from the only Budget proposal that embodied an important policy decision. It meant, of course, that the Government asserted the right to withdraw from industry a share, of profit derived from special expenditure in the national interest; and it is an assertion which only very impetuous thinkers will deny. It is significant that objection has been based, according to cabled reports, more and more on points of unfair incidence, and so on, and less and less on the grounds first taken, for example, by Conservative politicians who protested against Mr Chamberlain’s “ Socialist ” brigandage. , It is significant, equally, that Mr Chamberlain covers his retreat with a statement which maintains the principle. Part 3 of the Finance Bill, he says, will not be proceeded with in committee; meantime, the new Chancellor, Sir John Simon, will “work out 11 other proposals for a simpler tax upon the pro- “ fits of industry,” to yield not less than £25,000,000 in a full year. If he were preparing to abandon the principle he would hardly specify “ the profits of industry ” as the source of the revenue to be obtained; nor would he mention the wish of industry to have it “un- “ derstood that it did not challenge the pro- “ priety of finding the amount. . . from profits.” Nevertheless, the retreat is an extraordinary one—perhaps one to which, in future, may be traded no small extent of change in the practice of Parliamentary government. Mr Chamberlain’s decision, in his transition from the Chancellorship to the Premiership, will be very likely to modify the attitude of future Chancellors and other Ministers, embarrassed between their care for prestige and authority and their care for the support and willing assent of the House of Commons. It is not going beyond the obvious facts of the situation to see m it the strengthening of the grip of the House upon policy, and financial policy in particular —a useful change in a period when the power of the House, as distinct from the power of the Executive, has distinctly declined. As for the tax proposals themselves, they could be, and were, quite simply explained in general form. The tax was to fall on trades and businesses showing a profit above £2OOO in accounting rears andiittr a£tap Atuul fii ana it

was to apply to profit increases measured, optionally, against the average profits from 1933 to 1935 or against profits reckoned as a percentage on capital. The tax was scaled to rise to a maximum of one-third. Lord Hirst, president of the Federation of British Industries, at once judged the impost as “very reasonable”; but it proved unsafe to judge the tax by its principle and a simple summary. The tax machinery was complex; moreover, its severity in incidence varied not merely from industry to industry but from unit to unit, not necessarily as the principle of the tax would require it to vary but capriciously and unfairly. For an obvious example, an industry or a unit exceptionally hard hit by the depression but making fresh and marked progress might be heavily taxed; and the tax might very easily punish the courage and enterprise in reorganisation to which the recovery might chiefly be ascribed. Another industry or unit, not so hard hit, might well benefit more directly and' extensively from rearmament and yet, through inertia and mismanagement, show a smaller margin of increased profit,-or none; and its want of desert would spare it from the new tax. Such examples, in kind and number, have multiplied as investigation has proceeded; and it is clear that the machinery changes which Mr Chamberlain proposed Were not enough to prevent their occurrence. It remains to be seen what more flexible and discriminating machinery can be substituted. The necessity of finding it is obvious, for two reasons. One is that such a tax is really desirable, as Mr Chamberlain first argued, to check the unhealthy speculative developments of boom finance. The second is that the country has been presented by a National Government with the policy of 'controlling the private profit to be made out of a national emergency; and the abandonment of the policy would be politically disastrous.