Beverley Baxter's LONDON LETTER

Chamberlain's Profits Tax

June 15 1937

Beverley Baxter's LONDON LETTER

Chamberlain's Profits Tax

June 15 1937

Beverley Baxter's LONDON LETTER

Chamberlain's Profits Tax

AS A RULE in writing these letters I endeavor to deal with something that has happened or something which, in my opinion, is going to happen. Now and then, however, it is necessary to write on a subject which is in the throes of development because the consequences may be far-reaching, and it is interesting to record the events at the time of their occurring.

'I he hero of this story is Mr. Neville Chamberlain. What the end of it may be no one can foretell. All we feel at the moment is that destiny is stirring uncomfortably and events are on the wing.

And all this because Mr. Neville Chamberlain, “the man with no sense of drama,” has brought on his head the curses of the financiers, the protests of the industrialists, the open opposition of his supporters, and the sneers of those critics who always maintained that he was at heart a local councillor not fitted for the metropolitan stage of Westminster.

When you read this you will be able to fill in the details which are not yet available to me. I merely describe the situation as it was on the eve of the Coronation.

1 he annual Budget in Britain is something between a gigantic guessing game and a Cup Final. The people enter it with zest, and in every “pub” the beer drinkers discuss the prospects to the exclusion of other topics. To forecast the size of the deficit or to pick the new taxes gives the man in the bar parlor as much satisfaction as picking the winner of the Derby.

In the House of Commons everyone becomes an amateur chancellor. The year’s financial statement is studied in odd corners of the libraries and from it the M.P.’s estimate the income and expenditure of the next year. It is the favorite spring game of the frisky old Mother of Parliaments.

On the Sunday before the Budget the newspapers all feature forecasts by experts including ex-chancellors like Winston Churchill and the late Lord Snowden. The Sunday Graphic invited me to be its expert and, since nothing seems surprising after the cinema business,

I took on the task with a sort of modified rapture. It was hard work but it was fun. Other people’s millions are nice toys to handle, and when I had finished prophesying the increases in expenditure and revenue and added them up (the addition came right the third time, which I think is a tribute to Harbord Street Collegiate, Toronto), I guessed that Mr.

Chamberlain would be faced with a deficit of a mere £2 millions.

The only direct increase in taxation I had put in was another 3d. on the pound. And only a £2 millions deficit!

With a flourish of

the pen I called the article, “Mr.

Chamberlain’s Great Chance,” and ended it with the immortal words:

“I believe that Mr. Chamberlain next Tuesday will give us a cheerful Budget and that the pessimists will be confounded.”

Cheerful Anticipation

IMMENSELY cheered by this

decision, I bought some more industrial shares, entered a golf competition and drove out of bounds three times in the first three holes. After all, a man who can hit a ball in only one direction shows lack of imagination.

On Sunday I was interested to find that Mr. Churchill was also optimistic and forecast a cheerful Budget. I did not feel as clever as I had done, but my satisfaction was even deeper.

On Monday, the day before the Budget, the stock market, which had been staggering under the blows of President Roosevelt’s soliloquies on gold, staged a moderate recovery. All the experts could not be wrong and spring was in the air.

In the meantime the Iron Chancellor was closeted over the week-end in his house at No. 11 Downing Street. His sweet wife sat admiringly holding the pens like David Copperfield’s Dora. In her eyes Neville could do no wrong, and in his eyes there was nothing in life so sweet as this woman who loved him like a child, a wife and a mother.

Now at this stage I must ask you to note one of our quaint English customs.

Mr. Eden can fashion foreign policy, but in all matters of emergency or major policy he consults the Cabinet. This is what is known as collective Cabinet responsibility. It

applies to all Ministers in matters of major policy.

I3ut the Budget is the concern of only one Minister, the Chancellor of the Exchequer. Not another Minister, not even the Premier, knows what he is up to. It is understood of course that he will reveal his Budget to the Cabinet just before he brings it to the House of Commons, but the Cabinet do not criticize or alter. They are just plain “yes” men.

Last year Mr. Chamberlain revealed his secrets a week before Budget Day, with the result that someone talked in his sleep and Mr. J. H. Thomas and Sir Alfred Butt resigned from Parliament—a scandal that had an element of pity in it.

This year Mr. Chamberlain did not open Pandora’s Box until the night before the Budget: The Cabinet gazed at the secret gems and turned their eyes away. No one talked in his sleep.

Next day we turned up in force, for there are no absentees on Budget Day. Foreign ambassadors, Peers of the Realm, and members of the public crowded every inch of the space.

There was more than the usual sense of history that always hovers like a low-lying mist over the palace on the Thames. This was to be Mr. Chamberlain’s sixth and last Budget. He had taken on the nation’s finances in the crash of 1931, and now he was to hand over a vigorous and healthy Britain to his successor while he prepared to move into No. 10 Downing Street, where his wife w'ould say: “Welcome to your new home, Mr. Prime Minister,” and they would both smile because it is human to be happy when the summit is reached.

Only one thing disturbed me. During the preliminary question hour Mr. Chamberlain stood unperceived behind the Speaker’s chair and looked grimly ahead of him. Likewise the Cabinet sat and stared into space. Had something gone wrong? Had the “experts” blundered?

In a Buoyant Mood

AT 3.45 p.m. Mr. Chamberlain rose in his place to cordial and apprehensive cheers. I have never seen him so vital or so sure of himself. His voice, which is not resonant, easily filled the House. As per custom, he reviewed the nation’s finances for three quarters of an hour, because nothing must be said about the next year’s plans until the Stock Exchange is closed.

But what a story he told in that forty-five minutes! What is there in the soil of this little country, in the hearts and heads and hands of this people that makes them dominate the world in production, in finance, in shipping, in courage, in endurance and in imagination?

“Think what a Budget I could have introduced today,” said the Chancellor, “if the armaments race of Eufópe had not forced us to undertake the tremendous ^defense expenditure to which we have set our hand.”

That was the only reference he made to the bitterest disappointment of his life. What a thrill to have taken the nation in six years from the swamplands of economic collapse to the firm uplands of financial recovery and to be able to say: “I lay down my task as Chancellor because it is now completed and to mark the end of the story I announce a reduction of £30 millions in taxation.”

Let his severest critic pause' for a moment and savor the cruel disappointment that was in Neville Chamberlain’s heart at that hour.

“Now,” said the Chancellor, “we must face next year with all its implications.”

Suddenly his austerity changed into an unexpected gaiety. He told us that many correspondents had tried to solve his difficulties for him. Here were some of the suggestions: An increased tax on beer (“Quite right, too!’’ from Lady Astor), a tax on bachelors (loud cheers from all married M.P.’s), a tax on cosmetics (cries of “Shame!” and much laughter from the 200 bachelor M.P.’s). The game went on until we were all roaring with laughter.

Continued on page 34

Continued from page 20

Never had we seen the Iron Chancellor in so buoyant a mood. “It’s not even going to be 3d. on the income tax,” said the chap next to me. I wished that I had bought more securities.

Still smiling, Mr. Chamberlain began his estimates. Trade was good and he counted on income tax, even without any increase, giving him another £12 millions, super-tax another £2 millions or so, and death duties so much more.

Nevertheless he would have to increase the income tax by 3d. which “will, after all, make it the nice round figure of five shillings in the pound instead of four and nine pence.”

ITe paused. His deficit was now only £2 millions. He spoke of it with almost affectionate contempt. What was a miserable £2 millions in a Budget of nearly £1,000 millions? His attitude toward it was like that of a man who has carried a grand piano upstairs and finds that he has still to pick up his collar stud. It was a 100 to one that he would leave the deficit to the chance of a boom Coronation year.

And then came one of the biggest Budget shocks in British political history.

“It is only fair,” he said in effect, “that those who are making profits out of our armament expenditure and are benefitting directly or indirectly from it should contribute to a National Defense Fund. I propose a special profits tax whereby all companies and firms whose profits are more than £2,000 a year shall take as their standard the average of the years 1933-3435 and shall pay me a percentage of their tincrease above that figure, rising to as much as thirty per cent for those companies whose profits exceed a fifteen per Pent increase.”

Angry Outburst

TN SIMPLE terms, that was a condensa-

tion of what he said. A terrible silence gripped the House. A Socialist laughed and pointed at the grim faces of the Tories.

“As it gradually becomes operative,” said the Chancellor, “I estimate that it will produce £2 millions this year and £25 millions the next.”

With a few more words he ended his speech and sat down. Without a cheer, the Government supporters began to file out.

In the lobbies there was an angry outburst from the bewildered Tories. Everywhere one could hear: “Incredible!’

“Insane!” “This is Communism!” “It won’t work!”

So the excited chatter went on. Then the ugly word “unjust” took the place of all the others. I went to my office to consider with Lord Kemsley on the attitude of our newspapers toward it. That most chivalrous and considerate of all newspaper proprietors looked at me with a rueful smile: “This is going to be difficult for Neville,” he said, “but how splendid of him to take this unpopularity on his own shoulders instead of leaving an impossible task to his successor.”

The next morning there was a wild break on the Stock Exchange. Values fell by a hundred millions, by two hundred millions. As luck would have it, the brokers’ accounts arrived in the morning post. I looked at the prices of the shares I had bought, now ten or twelve points down.

At noon I lunched with a friend of mine who is a man of means. “I am cleaned out,” he said. “I shall have to start life over again.”

Lord Grenfell, who gave up the army for a financial career a few months ago, strolled over. “I have been working on this all night with my slate and pencil,” he said. “According to my figures, Neville will get £800 millions the first year and £2 billions the next. So we ought to get our income tax refunded.”

We laughed. So did a lot of people. There was something grimly funny about it.

Bombarded By Industry

TWO NT G FITS later a harassed debate reached its climax. For two days he had stood bombardment from finance, industry and sustained attack from his own supporters in the house. Sir Robert Llorne, once Chancellor and now one of our greatest industrialists, had riddled the profit tax from top to bottom in debate. It was an excellent idea, he said, to set a trap for companies making armament profits by taxing their increase over the standard of 1933, 1934 and 1935, when armaments were not doing well, but the trap set for those companies would catch the shipping firms emerging from years of bad trade. It would catch rubber companies which had paid no dividends for years and were at last seeing daylight. It would penalize gold and copper companies whose properties and shareholders were in colonies but whose boards sat in London. It would warn all such companies not to be registered in London, and thus boards would sit elsewhere and there would no longer be an inducement to give orders for equipment to British factories. It would penalize new companies starting up which would need their profits for reserve. On the other hand, tobacco combines and chain stores which make huge profits always, would be able to conceal any appreciable increase and thus contribute nothing to the tax.

I joined in the hunt with the others, and urged an increase of the company income tax on all industry rather than try to work a plan that was, “ill-considered, unfair, and confiscatory in character.” So the dingdong went on, and markets sagged, collapsed, got up, fell down, then remained

steady like the drunkard who has embraced a friendly lamp post.

Half defiant and more than a little hurt, Neville Chamberlain faced his critics. This was his army in revolt, the army that he had so soon to lead. The legend of financial superman liad faded. There was no one to shout “Vive l'Empereur." Quietly he reviewed various criticisms that liad been made. He said the panic in the stock market had been grotesquely overdone. He said the principle of his tax was right. And then suddenly the Iron Chancellor showed that he was only human.

“Under the conditions of secrecy,” he said, “which are imposed on the man who makes the budget. I had not the chance to discuss the profits tax with leaders of industry as I would have liked to have done.”

It was more than a little pathetic. The mask was off and the chancellor was no longer the infallible genius who required no advice more expert than his own mind could give. He would not abandon the tax, but would see that there was no injustice done. There would be this concession and that concession, this adjustment and that alteration. Socialists jeered and shouted that he was in full retreat from his own supporters.

The Government pack heard his statement quietly, but asked for further assurances. And as I write this article, there it rests. The stock market, a little ashamed of itself for its hysteria, is recovering confidence. My securities are rearing their heads gingerly, like soldiers in a trench after a shell has gone by. The mad speculation that was going on has been checked. Mr. Chamberlain is still considering concessions and alterations, but will not abandon the tax. Is it possible he foresaw the reaction to his proposals and was determined to bring about the stockmarket slump in order to prevent a real crash later on? I do not think so. In my opinion he was precipitate, and it will be difficult for him to recover his prestige, but am I right? I was wrong about the cheerful budget. I was wrong when I backed myself to win the Carlton Club golf handicap. Is it possible I am wrong about Mr. Chamberlain, too? Well, at any rate, F have told you all about it, and you ought to know the answer by the time this appears in Maclean's.