modern Tory and the contemporary socialist are both species of conservative and neither can help the nation with its current predicament. Britain faces a battery of pressing questions and the frustrating thing is that answers are at hand. The archive of British political history contains ideas about work, desert, contribution and enterprise that, in modern forms, can guide us through the thicket. Unfortunately neither of the two main parties is drawing on this heritage. Philosophically bereft, they have nothing to say. It is a rare event when both parties turn to face their own dead past at once. The barometer of British politics usually ensures that at least one of the two is able to keep its cool. That is not so today. The chapters that follow point the way to a new destination that we might reach if we summoned the courage to start again.
2
The Fiscal Philosophers
Limehouse in the old London docks is one of the crucibles of British political life. It was there that, on 30 July 1909, David Lloyd George, Liberal Chancellor of the Exchequer, addressed 4,000 people at the Edinburgh Castle, the former music hall and gin palace that Thomas Barnardo had turned into a coffee house and People’s Mission. Lloyd George electrified the crowd with a furious defence of his ‘People’s Budget’, which had introduced taxation on wealth on the grounds that income earned was superior to income unearned. Earned income included wages, salaries and tips. Unearned income in this context referred to capital gains, interest income, passive income generated from rental real estate, stock dividends, and bond interest.
The 1909 budget increased income tax from 1 shilling to 2 shillings in the pound and introduced a ‘super-tax’ by which anyone who earned over £5,000 a year paid 6d for every pound that their income exceeded £3,000. It also proposed unprecedented taxes on the lands and the unearned incomes of the wealthy. Lloyd George’s express intention was to wage a war on squalor and wretched poverty to make it ‘as remote to the people of this country as the wolves which once infested its forests’. The most controversial measure in the budget was the proposal for a valuation of all land to be conducted and for a 20 per cent tax to be levied on the increased value of the land when it changed hands.
The protectionist Conservative party, just as it had in the case of Peel and the Corn Laws, sided with the merchant class, preferring instead to place tariffs on imports. The House of Lords also performed its class duty. On 30 November 1909 it rejected the Finance Bill by 350 votes to 75. Asquith, the Prime Minister, dissolved Parliament and the subsequent general election of January 1910 was fought on the issue of the peers versus the people. It was during this campaign that Lloyd George gave his notorious Limehouse speech, which provoked a letter of complaint from the King. The Liberals lost seats in the election but returned to government and the main argument was deemed to have been won. On 28 April 1910 the House of Lords was forced to accept the budget. The turmoil led to the removal of the Lords’ power of veto over money bills under the Parliament Act of 1911.
In Limehouse, the Chancellor raised himself to such a pitch of elevation that fiery rhetoric became known thereafter as ‘Limehousing’. Lloyd George’s act was so popular that he was approached by American theatre producers to perform it on the music hall stage. But the principles he espoused were more than great theatre. Thirteen years later, on 23 November 1922, the MP for Limehouse, who was known for his work with the poor of the area, made his maiden speech in the House of Commons. Clement Attlee spoke passionately about work being a source of dignity superior to welfare and why family was the basic unit of society. Attlee’s 1922 Limehouse declaration combined patriotism with passion for the common wealth of the citizens.
In recent times these principles have not been respected. Millions of households have instead faced the prospect of stagnating living standards. On current trends, the average British family will have 15 per cent less cash coming in by 2020 than it had in 2008. At the same time a greater share of GDP is being taken by shareholders as profit. In 1989, for every £1 that GDP grew, the median income grew by 95 pence. By 2007 the family on the median income only got 50 pence from that £1. Until 1990 if you worked harder, you got paid more; now, after you have bought the essentials, you don’t.
The introduction of a minimum wage cost no jobs, which shows that companies were paying their staff less than they could afford. In retail and distribution, in which non-unionised workers have no effective power at all, some employers are offering zero-hours contracts, under which they summon labour as and when they need it. How anyone is meant to live like this, let alone thrive, is unfathomable. Britain is creating jobs of a lower status, with lower skills, at lower rates of pay, than any of its competitor nations. It’s not an inevitable result of the market economy, because different capitalist nations have different patterns of work. It’s a choice and it is one that we could and should avoid. When the top 10 per cent of the population own almost 70 per cent of the wealth, British capitalism has a problem and we need to think again about the principles that we bring to bear on this question. We need to revive the spirit of the common wealth in Britain and, in particular, the three principles on which it should be founded: merit, enterprise and work.
Taxing Questions and Home Truths
These principles need to inform decisions about what to tax. Albert Einstein put the conundrum nicely when he was filling in his tax return: ‘This is too difficult for a mathematician. It takes a philosopher’. Choices about what to tax, and at what rate, are leading indicators of a political philosophy. The social democrat tends to see taxation as a way to restore the fairness that goes missing in a market distribution of earnings. It is more than coincidence that the left’s favourite self-description, ‘progressive’, is also the term applied to the regime by which the rich pay a greater proportion in tax than the poor. The conservative is more likely to see tax as a necessary evil.
At current prices and patterns of expenditure, the British state requires £700 billion a year. It has to be raised somehow but taxation in Britain observes no discernible principles at all. This is extraordinary. Taxation is coerced payment; it should be levied according to principles we have chosen to voice and defend. In the common wealth, merit, work and enterprise should be taxed as lightly as possible. Far too much unearned wealth falls, as John Stuart Mill said of the undeserving rich, ‘into their mouths as they sleep’. At present in this country, those who have over £1 million of income a year receive a fifth in the form of dividends, interest and property. People with an income between £20,000 and £30,000 receive less than 5 per cent in the same way, and those from the poorest households virtually nothing at all.
We should follow the fiscal principles of the People’s Budget: avoid imposts on effort and work; seek, instead, to locate idle wealth and try to place a fiscal deterrent on activity that is evidently harmful to others. The path of least resistance, the easiest way to raise cash, is to tax earnings. But income tax was never meant to be the staple source of revenue. It was introduced in 1798 to raise funds to beat Napoleon and was meant to be temporary. The mandate to levy tax still expires every 5 April, when the government has to reapply for permission with another Finance Act. Yet there is not much chance of the mandate lapsing. Of all the public revenue raised, 44 per cent comes from income tax, a levy on labour which the party of that name is always, strangely, seeking to increase. A further 20 per cent of the tax required comes from business. Consumption taxes account for a further 30 per cent.
The tax base is also heavily reliant – too reliant – on London and on financial services. London is one of only two regions in Britain, the other being the south-east of England, that generates a surplus. During the boom before the financial crash, the rest of the country was subsidised by London and the south-east. London accounts for a quarter of all the income tax paid in the country, which is three times as much as Scotland and more than the
