Six Months Pregnancy
By NICHOLAS DAVENPORT A GREAT sigh of relief went up from the City when it found that the capital gains tax-so recently talked up to elephantine proportions-had become the mouse of a 'speculative gains' tax. Who could object to an imposition so mild and reasonable as this? Not retrospective--even if the 'bull' or 'bear' trans- aytion was entered into the day before the Bud- get! Losses to offset .gains-not only in the same tax year, but in subsequent years by carry- forward! Not chargeable on movable property or on a house owned and occupied by the seller! The period---three years for land and only six months for securities! All you have to do to avoid being charged is to run a Stock Exchange speculation for seven months. The extra month apparently makes it socially harmless. Mr. Lloyd wisely said that he could not estimate the yield of this tax. He must fear that it will be the same yield that Lord Dalton obtained IV he n he put a 10 per cent. tax on bonus issues- which was precisely nil. I cannot imagine any fool being found to pay it- except by accident and even then the accident of a gain taken within six months can be prevented by the manipulation of a loss.
The Stock. Exchange as an institution will, on the whole, be worse off. 'turnover will decline. I have just heard Mr. Nicholas Kaldor on the air claim that market turnover will increase be- cause brokers will be busy selling to establish losses. This is the sort of silly joke that a clever economist would make. The fact is that 10 per cent to 20 per cent of the daily turnover on the Stock Exchange has nothing to do with invest- ment; it is 'professional' buying or selling for a very quick and small turn. If these gains are to be subject to income tax and surtax the deals will never be done. To convert them into seven- month deals would require finance which is not usually available.
-Further, the professional 'stag' is killed stone dead by this tax. Hence new issues will never see the 'huge turnover they used to enjoy. Fortu- nately Mr. Lloyd has protected scrip issues and 'rights' issues by allowing bonus shares and 'rights,' if sold at a profit, to be regarded as having been acquired when the parent shares (in respect of which they were issued) were ac- quired. I do not therefore suppose that any com- pany will find it much more clifficult to raise money from its shareholders or from the public just because Mr. Lloyd has put the 'stag' out of business and discouraged the 'professionals' of Throgmorton 'Street from day-to-day gambling in its shares. But there is no doubt that in future markets will lose some degree of freedom and that jobbing prices will not be as close as they used to be. And the Stock Exchange can also complain that' Mr. Lloyd's refusal to reduce the 2 per cent. stamp duty will continue to drive foreign investors out of the London market. The City had fondly hoped that if domestic turn- over in Throgmorton Street had to be restricted by a capital gains tax, foreign dealings might be encouraged and increased by a cut in stamp duty to per cent. All this may mean the end of the jobbing system.
If Mr. Lloyd failed to see that what makes the capitalist system tick is an active, free capi- tal market, he still refuses to see what makes the economy tick. His neutral Budget, neither adding to nor withdrawing purchasing power, but still pursuing an excessively deflationary policy of a huge • Budget surplus, faithfully carried out the old false doctrine of the Treasury that domestic demand has to be held down in order to allow exports to grow. But we all know that exports rose in 1959 when Mr. Amory allowed domestic demand to expand in 1958 (and so to reduce output costs) and that exports have been stagnating in the last twelve months, prob- ably because, the home trade has been stagnat- ing (or falling in some cases) and so raising output costs. There is, however, one bright ex- ception to Mr. Lloyd's depressing pursuit of a false deflationary economic doctrine. In his praiseworthy attempt to rationalise purchase taxes (on the abolition of the 10 per cent. sur- charge) he has lowered some and raised others. In particular he has reduced the top rate of 55 per cent. to 45 per cent. on motor-cars, radio and television sets and brought down the 271 per cent. rate to 25 per cent on household goods such as gas and electric fires and cookers, re- frigerators and washing machines. This un- doubtedly comes to the relief of the consumer durable goods which previously had to bear more than their fair share of the burdens and re- straints placed on consumer spending in periods of monetary crisis. Mr. Lloyd will now see how exports can expand in trades where he has en- couraged domestic demand to rise. But will he learn from it?
There is no economic objection to the new purchase taxes imposed on confectionery, soft drinks, cider and ice-cream. Why these goods escaped purchase tax for so long can only be explained b■ sentimental or puritanical reasons which ha \ e no real validity in the harsh facts of economic life. It was to be expected that in giving up his surcharge Mr. Lloyd would con. sok-late the extra 10 per cent. in the duties im- posed on tobacco and alcohol (now 500 per cent. on cigarettes and 400 per cent, on gin). But why consolidate it on petrol? Perhaps he is sill contemplating a rationalisation of in direct taxation and moving towards a more general sales tax which will not discriminate so much in favour of some and against others in our domestic consumer trades. Certainly Mr. Lloyd fancies himself as tax reformer and has promised to prepare a rationalised system of direct taxation (complete with corporation tax) for next April. There is something awe-inspiring in the contemplation of this tough, stubborn Chancellor steadily preparing his tax reforms for 1963 oblivious of popular clamour (except in regard to Schedule A) and utterly regardless of the false economic doctrine which condemns this country to the bottom of the European table for growth.
Previous page
