Taxation and the Working Class, 1915-24

by R. C. Whiting
Taxation and the Working Class, 1915-24
R. C. Whiting
The Historical Journal
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The Historical Journal, 33, 4 (~ggo),pp. 895-916 Printed in Great Britain


UniversiQ of Leeds

The working class's experience of the tax system is an important aspect of its relationship with the state. This article examines the nature of this connexion during the First World War and its aftermath when fiscal policy was subject to intense political pressure. Two themes are paramount, those of resistance and appropriation. From the point of view of governments the less tax collection encouraged class-based opposition the better. Because the level of tax payments depended on varied circumstances within social groups -caused by family size or patterns of consumption, for example- the lines of differentiation were more finely drawn than the contours of social class. Many tax payments affected the individual as a citizen within the political system rather than as a producer within the economy. The articulation of resentment about tax burdens with conflicts in the economy was not therefore automatic. However, when governments were closely involved in the running of the economy, as in the First World War, it was helpful to use the tax system as an instrument of social justice, so that efforts to generate a common purpose might not be impaired by resentment of the disproportionate gains of others. In these circumstances taxpayers might well be encouraged to see the tax system as a way of appropriating or limiting the wealth of other classes, in a way which did bring it into closer relationship with the economy.

The tax system in this period therefore straddled the economic and the political, and required the Labour movement to make decisions about strategies and attitudes. There were the questions of how far opposition to taxes could justifiably be taken, what priority it should have in the light of other issues, and whether it was a subject for p~olitical representation since it affected the working class as citizens or of trade union organization because of implications for the standard of living. But there was also the matter of how the tax system should be regarded, whether optimistically as a means of redistributing wealth or pessimistically as being essentially powerless to soften the injustices of the market. The first part of this article deals with tax resistance and its relationship to trade union strategies, the second with the development of ideas to exploit the tax system in the labour interest. This early experience of the progressive tax system under political and fiscal pressure was not wholly encouraging. Opposition to taxation by the working class met with

* I gratefully acknowledge financial support from the Economic and Social Research Council's Small Research Grants Scheme. I must also thank Dr Quentin Outram for helpful comments on an earlier draft of this article.

3 1 895 HIS 33


some success principally because it was sustained by the power and influence of trade unions, while workers became increasingly pessimistic about the value of the tax system as an instrument ofjustice. The potential for the tax system to ease grievances about inequality and so free the economy from the complications of class tension was therefore limited ; instead it seemed to reflect rather than correct the conflicts within the market place.

During the war, as a result of the lowering of the exemption level in I gI 5 and wage increases, the working class became subject to income tax in large numbers for the first time. Opposition to income tax gave workers some immunity from fresh burdens in the aftermath of the war when the demands for revenue were still considerable. In 1920 when the question of raising income tax was considered, the board of inland revenue advised against it because this 'would increase the burden of tax to a small but appreciable extent upon an enormous number of manual and other small wage-earners, and it may be felt that that result should be avoided'.' When the royal commission on income tax approached the question of the point at which incomes should be taxed, H.J. McKinder remarked that 'it leads to great animus and feeling between the classe~'.~

It was hoped that in paying income tax the working class would achieve a higher level of political responsibility and interest, and this opinion was held both outside and inside the labour movement. Herbert Smith, then vice- president of the Miners' Federation of Great Britain, argued that 'if we had more direct taxation we would have more active workers than what we have and they would know the position better'.3 But while many workers did pay up, there was considerable resistance among the more strategic sections of the Labour movement during and after the war so that sectional agitation stood for the position of the class as a whole. As J. C. Stamp observed in 1919, when remarking that direct taxation of the working class was 'full of political difficulties'

One only has to consider the problems raised at this point by the attitude of the miners and others to decide whether or not it is a politically practicable proposal that persons with incomes between A70 and A200 shall bear an average burden of A20 per head.4

Because of the way the burden of tax varied within social classes, it will be worth considering, alongside the more political aspects, the sociological question of how far the opposition had to follow the lines of differentiation

Board of inland revenue, 'Note on possible methods of replacing part of the Revenue now drawn from the excess profits duty', 17 Dec. 1920, Cabinet committee on taxation, London, Public Record Office (P.R.O.), Cabinet Papers, CAB ~~/IoI,

para. 52.' Royal commission on income tax, minutes of evidence (Parl. Papers, 1919, XXIII, pt I), Q. 6701. Smith was at this time vice-president of the Miners' Federation of Great Britain (M.F.G.B.). Special conference proceedings of M.F.G.B., 22 Oct. 1919, p. 23.

J.C. Stamp, 'The special taxation of business profits in relation to the present position of national finance', Economic Journal, xx~x,Dec. (19 I g), 409.

created by the tax system, and how far it was able to draw upon the broader- based energies generated by industrial conflict.

The imposition ofincome tax on the working class was regarded as the most important step of McKenna's first budget of September 1915.~ It involved reduction of the exemption limit from £160 to £130 annual income, with the income allowance standing at £120. The main political pressure had come from business groups anxious that the working class should make its contribution; according to the chamber of trade 'reduction of the income tax exemption limit is the most equitable way of opening up fresh sources of reven~e'.~

While there was some concern about whether the working class would take kindly to the tax, the initial anxieties were more administrative than political, and concerned the demands upon staff and the complication of the collection process. The only way to proceed in these early stages, it was felt, was to have a simple tax on wages with no provision for repayment because of irregular earnings or for child allowances, and at this point the scheme was dropped.7 When the need to raise more revenue and bring the worker into the income tax was recognized, the chief consideration was to locate the section of the working class which could be taxed relatively easily and without excessive cost to the inland revenue. The view that an annual income of £130 -£2 10s. per week -was the dividing line was confirmed by trade union leaders. According to Harry Gosling (N.T.W.F.) the worker on £130 was 'the better off man, who is getting higher wages, who is a householder, and that sort of thing. There is no trouble with him now'.' To go further down to LIOOwould have brought into the tax bracket those who changed jobs and residence frequently and who might be employed intermittently, while 'ignorance would be much more prevalent, with awkwardness and hostility in tax matters directly proportional thereto'.' Eventually the nearest match to the workers' ability to pay (weekly) and the administrative convenience of the revenue (annual assessment) was payment every quarter, and the tax proved reasonably cheap to collect (about 7 % of the total revenue of the tax).

Although manual workers were not the only group caught in the new tax band, they were the majority, being in 1918-19 nearly 70 O,(, of all such taxpayers.10 In 1919 the Treasury gained roughly £8 million from the direct taxation of wage earners, about 4 % of the total revenue from income tax. The loss from raising the tax limit to leave out the working class might appear to have been small, but the true cost was much higher than £8 million, nearer £25 million, because of the effect of carrying newly granted allowances higher

Stamp, Taxation during the war (London, 1g32),p. 49. "ull branch of the chamber of trade to chancellor of the exchequer, in 'Evasion of income tax', P.R.O., Treasury Papers, T 172/973.' Finance Bill Papers, 1915, P.R.O., Inland Revenue Papers, IR 63/54 Lloyd George, Parliamentary Debates (Parl. Deb.), 17 Nov. 1914,LXV~I,col. 360. In a 'conference between the chancellor of the exchequer, the employers and the trade unions regarding Finance Bill No. 3', 1915, P.R.O., Treasury Papers, T 17z/zzz. Fznance Bz11 PaPers, 1915,P.R.O., IR 63/54. lo Papers of royal commission on income tax, P.R.O., IR 751185,p. 348.


Table I. Taxation of incomes and allowances 1919-20

% of Income incomes Allowances as % Average range, L taxed of taxable income tax paid, L

Source: Report of board of inland revenue, Cmd 1083 (P.P. 1920,XVIII),table 64.

up the income scale if the exemption limit was to be raised.'' It was also politically useful, since it created fewer problems for a chancellor when pressing demands upon businessmen if he could point out that the working class was also paying some tax on incomes.12

The operation of the income tax on wage earners was complicated by the effect of allowances, rather than by any significant changes in the rate of tax (which went up from IS. gd. to 2s. gd. in the & from 1916-1 7). A child allowance of £25 was extended to wives for the tax year I gI 8-1 9, and both were increased in 1919-20, the wife allowance going up to £50, that for a first child to £40, succeeding children still attracting £25. From 191 7-18 it was also possible for a taxpayer to claim for a child maintained by him but not his own, and it was suggested that 'This provision will undoubtedly give relief to a large number of wage earners.'13 Allowances could also be claimed for clothes and essential equipment. Many earning above £130 did not pay tax at all because of the allowances they received. For those earning between £130 and £160 (i.e. in the new tax band) 25 % of wage earners actually paid tax in 1916-17, and 32 % in 1918-19 Further up the income scale a higher proportion of workers paid income tax. In 1919, for example, it was estimated that about 58% of the miners in the South Wales coalfield earning over £130 p.a. actually had to pay tax.14 The effect of allowances in reducing the tax liability of those in working class income levels is shown for 1919-20 in Table I.

It is important to examine the effect of changing allowances on a dynamic pay structure. Without allowances an exemption limit which remained unchanged would clearly have increased the tax liability of the worker as his pay improved. But if aliowances themselves increased substantially (as they

Deputation of Triple Alliance to chancellor, 4 July 1919, P.R.O., T 172/1ooo, p. 15. Deputation of South Wales Miners' Federation (S.W.M.F.), to chancellor of exchequer, 20 Sept. 1917, in P.R.O., T 1721982, p. 13. l3 E. Nott-Bower and N. Warren Fisher, board of inland revenue, to chancellor, 20 Aug. 1917, P.R.O., T 172/g82.

l4 'The South Wales miners' income tax', notes by G. R. Stenson, 3 Dec. 1919, in P.R.O., T 172/982. The effect of allowances is also outlined in B. Waites, A class society at mar, England 1914-1918 (Learnington Spa, 1987)~ pp. 107-8.

TAXATION AND THE WORKING CLASS Table 2. Tax liability of engineers and miners, p.a. % of income paid in tax

1918-19    1919-20
Single man    4.1 (of E222)    5'4 (of E270)
Married man with one        
child    I .6    I .8
Miners (South Wales)        
Single man    4'3    (of A3271    5'7    (of A3901
Married man with one        
child    I .8    2'3
did for a wife and first child in 1g 19) then the impact of pay increases on tax liability would have been diminished and 'fiscal drag' offset, at least for those who could claim these allowances. Calculation of actual earnings is difficult for the war-time period but estimates are offered here in Table 2 for the highest paid categories in two relevant occupations, skilled engineers on piecework and coal-getters in mining.15 The two examples chosen for each occupation are a single man, receiving allowances only for clothing, tools, life insurance premiums and trade union or friendly society subscription (total L20 p.a.) and a married man with one dependent child who received an additional L50 in I g 18-1 g and &go in I g 19-20 in family allowances.

Because of the difficulties of estimating pay, and the fact that certain allowances for equipment and clothing were negotiable and not statutory, the above figures do not carry precision, but they do indicate the broad picture. The single man was in a very different position from his colleague with dependants because of the allowances, which also weakened the effect of marked rises in pay on tax liability. With larger families there was a further diminishing of tax burden; in I g1g a married engineer with two dependent children paid only 0.62 % of his income in direct taxation; the miner who was similarly placed only 1.3 %.

In opposition to demands that the exemption level be raised, the Treasury briefed its chancellors (principally Bonar Law, but also Austen Chamberlain) to stress the effect of the allowances in removing working class family men from liability to income tax. Indeed by 1920 it had become customary to refer to income tax at the lower levels as a bachelor's or spinster's tax. But this did not mean that the incidence of the tax was negligible. According to the 1921 census, 35.2 % of all men in the 20-50 age range in the Rhondda were single, and in Glamorgan as a whole 5 1.2 % of all families in the same age range either

l5 These are estimates from A. L. Bowley, Prices and wages in the United Kingdom 1914-20 (Oxford, I~ZI),tables LIII, LV, pp. 154, 156 and assume 260 shifts per year. The figures for engineering workers come from M. L. Yates, Wages and labour conditions in British engineering (London, 1938))

p. 151, where piecework earnings are assumed to be 24% above those of time rate workers.


had no children, or only one.16 So the insulation of the working class from income tax by the operation of tax allowances was far from complete simply because the family with three children which enjoyed such exemption was far from universal. The effect of income tax was increased when it fell on lump-sum back pay, as was the case with the miners' Sankey award in 1919.

It has been necessary to establish the effects of the allowances because they were one part of two contradictory tendencies within the sociology of working- class taxation. On the one hand, there was the obvious tendency of the tax to operate across occupational boundaries (at the higher income levels). As the ministry of labour's report to the cabinet of 10 October 1917 noted: 'The question is a serious one, not only on account of the widespread nature of the agitation, but it is also one in which the discontented in all industries have a common interest'.'' Had there been, as originally intended, a flat tax on wages, this opposition might have spread further. But, on the other hand, with the introduction of family allowances, differences in family structure within the working class and across occupational divisions might have been expected to assert themselves. The development of the income-tax agitation saw the tension between these two aspects: on the one hand the yoking of the issue to trade union activity which treated the workers as a common group; on the other hand, the efforts of the tax authorities to use allowances to fragment the opposition as a much cheaper way of handling it than increasing the level of exemption for all low-income taxpayers.

The incorporation of the income tax protest into trade union affairs was not an automatic development, since the drift of many discussions in 1g 15 was to try to detach the operation of the tax from conventional industrial relations. The inland revenue wanted to assess the tax but get the employers to collect it.'' This was firmly resisted by both sides, neither the employers nor the trade- union leaders wishing to add any fresh element of dispute.lS Apart from the employer making a return of all those earning over LI30 per year, the worker was involved with the tax authorities purely as a citizen and not as a trade unionist. Actual practice tended to follow legal formality and schemes to use employers in the deduction of tax invariably ended in failure."

Some wanted the trade unions to remain completely detached from income tax matters and not to assist members in any way in their dealings with tax officer^.^' But this was not widespread, and most trade unions acted as channels for grievances and as negotiators about the allowances which certain workers might claim. In South Wales the involvement went further than elsewhere with lodges appointing a member, a sub-collector, to act with the local tax collector. According to one of their leaders, George Barker, 'our men

l6 Census report for Wales, 1921,Rhondda U.D., table 14,p. 29. Census report ofdependency, orphanhood and fertility, table 3, p. 184 (Glamorgan).

l7 G.T. 2266, in P.R.O., CAB 24/28.

l8 Committee on tax liability at £130 by quarterly assessment, in P.R.O., IR 63/57.

l9 P.R.O., T 172/222.

'The starting of the manual wage earners' income tax in South Wales', P.R.O., IR 751182.

'' Lancashire delegate to M.F.G.B. conference proceedings, 22 Oct. 1919,pp. 21-8.

9'" thought it better if anyone had to know their own business it should not be known by an outsider'." Because of anxieties about the ability of the workers to cope with the tax system, revenue officials spoke to lodge meetings about assessment and c~llection.~~

But there was little evidence of George Barnes's fear that the workmen would not be able to pursue their rights against the inland revenue: 'The men are keenly alive to their rights for repayment, and when a man is out of work for a quarter and has paid three quarters and there may be a balance of abatement or child allowance due to him, he usually claims it. ' From the early stages it was clear that the tax was going to generate friction. 'There was a great deal of intelligent heckling at the meetings with the lodges and even then it could be noted that though the tax was loyally accepted there was a strong undercurrent of opposition to it'.24

This opposition was initially concerned with increasing allowances for equipment and travel, as the most practical way of reducing liabilities, but by the summer of 1917 it had become a movement opposed to the reduction of the exemption limit. Opposition was evident on Clydeside, in the North, the Midlands, parts of London and South Wales. The principal workers involved were the miners and engineers, with others following their example. In both 191 7 and 1919 there was some refusal to pay income tax along with the demand to increase the exemption limit. However, by the autumn of 1919 a

. .

royal commission on income tax with working class representatives was sitting which had the exemption limit under review, and the issue was regarded as in abeyance except by those in South Wales.25

Some of the strongest opposition to the tax had come from the miners, particularly in South Wales, and it is appropriate to consider the question in relation to the dynamics of that union. Two different views emerged. The Miners' Federation of Great Britain (M.F.G.B.) wanted the protest confined to demands for raising the exemption limit, the figure increasing as the time went on: £160 in 1917; £200 in 1918; and £250 in 1919. This seemed to be all that the issue warranted. To risk more direct action was not regarded as worthwhile, particularly as bigger targets, such as nationalization, suggested the need to husband resources. The second view, that of the South Wales Miners' Federation (S.W.M.F.), wanted to withhold payment of tax on a large scale and even to strike in order to press the case.

Refusal to pay the tax developed in South Wales in mid-1917 at the Abertillery and Blaina districts with the miners' own sub-collectors being 22 M.F.G.B. special conference, 26 Sept. 1917, pp 57-62. 23 Lewis Merthyr Lodge minutes, 15 Aug. 1916; Clydach Merthyr Lodge minutes, 19 July 1916; Rhondda No. I district monthly report, 20 July 1916. These records are held in the South Wales Coalfield Archive, University College Library, Swansea. 24 For Barnes see Purl. Deb., 24 Nov. 1915, LXIV, col. I 18; for the reactions to income tax see P.R.O., IR 751182. 25 For the position outside South Wales see the ministry of labour reports to cabinet, 26 Nov. 1919 (CP 258), 21 Jan. 1920 (CP 486), in P.R.O., CAB 24/94 and 96, respectively. For South Wales see Lewis Merthyr Lodge minutes, 14 Nov. 1919 and S.W.M.F. special conference proceedings, 8 Nov. 1919, held in the South Wales Coalfield Archive, University College, Swansea.


withdrawn and the collection of income tax at a standstilLZ6 According to one of the tax inspectors in Wales 'The syndicalists are fairly strong and very influential in Abertillery which is the most turbulent miners' district in the Kingdom', and although at this stage the number refusing to pay was only 8,000 out of roughly 71,000 who were liable to tax in the coalfield, the government was concerned: 'The dangers of turning taxation into a mere subscription list dependent on the mood of the taxpayer need not be laboured. '27 The opposition in the coalfield was enough to carry a resolution against the payment of any tax (direct or indirect) at a special conference of the S.W.M.F. in October 191 7, and early in 1918 the South Wales group tried to give the question further prominence by asking that the Triple Alliance tackle income tax, along with food prices, 'by whatever means necessary'.28

It was at this point that the greater pressure from South Wales began to meet resistance from other districts in the M.F.G.B. Reference of the tax question to the Triple Alliance was accepted, but only to keep the peace in South Wales, anxieties being voiced about pushing too hard, and using the alliance for purely political questions.29 For most of 1918 agitation was muffled. The acute anxiety about the German offensive had a dampening effect on all labour agitation and the Triple Alliance postponed their meeting with Lloyd George about income tax, and only the Welsh protested about this. A Scottish miner agreed about the injustice of paying income tax but not 'when the very existence of the country is at stake, whilst we are fighting for our very existence as a nation'.30

In 1919 income tax again attracted hostility beyond South Wales, but when the S.W.M.F. wanted to press the matter after the royal commission had been appointed the divisions re-appeared. For a Lancashire delegate 'it affects only the single men, and it is not as big as South Wales makes it', and Smillie, the President of the Federation agreed 'it is not of the importance it has got in South Wales at the present time'. He feared imprisonment for non-payment provoking strikes (as it had done at the Llywynpia colliery in June ~g~g), which would threaten the bigger prizes : 'We may be face to face with an issue a thousand times more vital than the income tax, and it behoves us to keep our ranks secure'.31 Although rebuffed by the M.F.G.B., refusals to pay continued in South Wales and by December 'the collection among the miners is almost negligible although the notices have been out for weeks'.32

'"otes by Stenson, superintending inspector for Cardiff, 7 Sept. 1917, P.R.O., T 172/982.

'' N. Warren Fisher to chancellor of exchequer, 'Limit of exemption from income tax', 7 Sept. 1917, in P.R.O., T 172/982.

special conference proceedings, 8 Oct. 1917; M.F.G.B. special conference proceedings, 28 Feb. 1918, pp. 53-7. 29 M.F.G.B. special conference proceedings, 28 Feb. 1918,pp. 53-7, speeches of Lancashire,
Nottinghamshire and Scottish delegates. 30 M.F.G.B. executive committee minutes, 8 May 1918, p. 8, and 16 May 1918, p. 17;
conference proceedings, I June I 91 8. 3f M.F.G.B. special conference, 22 Oct. 1919,pp 21-8. '' Rhondda No. I district monthly report, 19 Nov. 191 7; Stenson, 3 Dec. 1919,in P.R.O.,
T 172/982.

Although it was intended to create an impossible amount of work for the magistrates by withholdkng tax due (and deduction of arrears from wages was assumed to be too big a risk for the government to resort to it) the Welsh miners were also balloted on whether to strike over the issue. The margin in favour was too narrow (470 majority of 146,144 votes) to go ahead with a strike, and the M.F.G.B. declined to ballot the whole of the Federation. Gradually, by early 1920, the South Wales miners began to pay the tax again, as the success of sectional action receded.33

Outside South Wales the limited impact of income tax had been recognised and the issue seen as secondary to other concerns. Part of the reason for this may be the state of union politics in general rather than anything to do with taxation in particular. South Wales was a particularly discontented region during the war, and the S.W.M.F. saw a number of left-wingers achieve office. Most of those engaged with the income tax issue were on the left: Noah Ablett, George Barker, A. J. Cook, Frank Hodges and James Winstone. The odd man out was Vernon Hartshorn who during the war became increasingly moderate, and by the summer of 1919 he seems to have become less convinced of the merits of pushing the matter to a strike.34 The campaign to go beyond the demand for restoration of the old exemption limit to the abolition of all taxes on wages (including indirect taxes) in 1g 17 was organized in the lodges and

A. J. Cook, chairman of the Lewis Merthyr joint committee, took a leading part in these discussions, aided by Ablett. Reference to the tax question to local Labour parties was deliberately f~restalled.~~

Ablett led the S.W.M.F. argument at the M.F.G.B. conference in October 1919 (for refusing to pay tax) and George Barker was leader of the Abertillery miners who had withheld tax in 1917. Moderates in the S.W.M.F. like Thomas Richards and William Brace, were much less keen to force the tax question so far.36 The failure of

A. J. Cook to be elected vice-president in the summer of 1919 was predicted to be a reason for renewed agitation; according to the local inspector of taxes 'defeat will cause the extremists to resort to the Income Tax again and it will be a potent weapon to use against Bra~e'.~'

To be a 'potent weapon' the attention had to be kept on the exemption limit -which applied to all taxpayers -and away from the effects of allowances for wives and children on lessening burdens for family men. At the same time as lodges were helping miners by claiming allowances for clothes

33 S.W.M.F. executive council minutes, I I Dec. 1919for voting figures; Rhondda No. I district monthly report for decisive vote against taking any further action, 20 Dec. 1919,and arranging for repayment with the tax authorities. 34 S.W.M.F. conference, 26 Aug. 1919.

35 The campaign began in 1916.See Lewis Merthyr joint committee minutes, 6 Sept., 4 Oct., 16 Nov., 1916,20 Nov. 1917. Brace and Richards withdrew the S.W.M.F. resolution to refuse to pay tax, in place of one of the M.F.G.B. executive council to await the report of the royal commission on income tax.

M.F.G.B. special conference, 22 Oct. 1919,pp. 4-6, 2 1-8.

" Stenson to R. V. N. Hopkins, 16June 1919,in P.R.O., IR 751185. Cook was heavily defeated for the office of vice-president in June 1919,when younger candidates of the left did badly. See M. G.Woodhouse, 'Rank and file movements among South Wales Miners 191-1926' (unpublished D.Phi1. dissertation, University of Oxford, 1969))p. 178.

g04 R.C. WHITING and equipment -and here trade union pressure was very evident, since levels of allowances were determined principally by the bargaining strength of local unions and not by objective need3' -they also had to draw a veil over the differentiation between single and married men. A good example of this arose with the report for South Wales of the commission of inquiry into industrial unrest, which was widely regarded as being the fullest of a rather unsatisfactory series, and which made reference to the income tax question. The circumstances surrounding the inclusion of the tax section show how far the leadership were trying to minimise the impact of the allowances. The chairman of the commission was D. Lleufar Thomas, a stipendiary magistrate for the Rhondda, and the Cardiff tax inspector found that he had been much influenced by Hartshorn and Hodges, then a miners' agent for the Garw valley :

They stampeded the stipendiary as I discovered he knew little about income tax and nothing about the increase of child allowance from LIOto A25 with its consequent effects. It is a pity a tax official was not called in to give the facts as those I incidentally mentioned to Mr Thomas rather astonished him.3Q

Hartshorn, when giving accounts of a deputation to the chancellor, Bonar Law, in August 1917, also made no mention of the granting of the wife's allowance.

The tax authorities were particularly keen to use the allowance for a wife to differentiate between the single and married men and so exploit what was thought to be a powerful division in working class society. According to a sub- collector 'if an allowance were given for a wife it would rend the Federation from top to bottom as there is bitter hatred against the single men'.40 This was not entirely fanciful: in evidence to the royal commission on the income tax, Shirkie of the T.U.C. favoured a tax specifically on bachelors, and during the parliamentary debates on income tax in 19 15 Barnes had suggested that it be confined to bachelors as far as the working class were ~oncerned.~' The tax authorities tried to use the sub-collectors in South Wales to weaken resistance to the tax in 1917 by spreading information about the wife's allowance:

I [Stenson, the Cardiff tax inspector] spent Wednesday evening with Mr Tom Parry, one of our own sub-collectors and a thoughtful and well-read miner -36 years of age. He has a sound insight into the leaders and the miners ...he is not sure 20 of the men know the ins and outs of the tax question and how little it affects them personally in the main. Mr Parry ...thinks that the agitation will receive a heavy blow, as the effect of the Chancellor's statement that he would consider a wife's allowance and the line it draws between the bachelor and the married man has not yet been appre~iated.~'

38 H. W. Houghton and G. R. Carter, 'Income tax on wages by quarterly assessment', Economic Journal, XXVIII (191 8), 33.

39 Stenson to deputy chairman, board of inland revenue, 7 Sept. 1917, in P.R.O., T 172/982.

40 Stenson to chairman of inland revenue, 19 Aug. 1917, P.R.O., T 1721982.

41 R.C. on income tax, minutes of evidence (P.P. 1919,XXIII, pt I), QQ. 9302, 9330; Barnes in Parl. Deb., 23 Sept. 1915, LXXIV, COI. 649.

42 Stenson to deputy chairman, inland revenue, 7 Sept. 1917, in P.R.O., T 172/982.

In fact the wife's allowance had little impact upon the South Wales agitation. The miners were happy to claim it, but even when the allowances had been increased for 1919-20, opposition to the tax does not seem to have been confined to single men. The support for a strike over income tax (itself a major step), although it did not include all taxpayers, nonetheless extended to between a third and a half of the coalfield and must have gone beyond the bachelors. There was some justification, therefore, for the representatives of the S.W.M.F. claiming in evidence before the royal commission on the income tax that 'the married men, and the single men, as far as we are concerned, always go together '.43

The campaign for a universal L250 exemption level was in the end unsuccessful, the royal commission on income tax recommending that figure only for married couples and not the bachelors. But the way in which this was to be done suggests that the trade unions had achieved some success in presenting the tax issue as one which affected all workers (by focusing on the exemption level which applied to all income) rather than one, which because of the operation of allowances, differentiated on basis of family size or marital status. The commission decided to follow the trade union perspective by merging the allowance for a wife with the exemption level because it was 'most desirable to specify separately the exemption which is to be allowed to a bachelor and the exemption which is to be allowed to a married couple'. According to the commission it was all a matter of appearances:

The effect produced by this method will be exactly similar to the effect of allowing an abatement of the same amount on the exemption limit, plus allowances for family obligations, as the present system, but we consider it would be well to emphasize the fact, not always brought home to the taxpayer, that a married couple with an income within the appointed limit are definitely exempt from the tax, although their income lies above that of the bachelor.44

This discussion of the role of the S.W.M.F. has shown how it was possible to influence the tax agitation to some degree by masking the differentiating effect of the allowances. Also important was the willingness of certain officials to press harder than most what was undoubtedly a genuine grievance, and to respond to the working class income taxpayer as a trade unionist rather than leaving him to fend for himself as an individual citizen. This latter aspect can be confirmed by the counter example of the Amalgamated Society of Engineers (A.S.E.). The engineers were, along with the miners, those most affected by the change in income-tax exemption Resolutions were passed at branch level and the union as a whole was implored by some members to take a more aggressive line in favour of a £250 exemption limit. In some areas, notably at Barrow, there was refusal to pay. What was missing

43 R.C. on income tax, minutes of evidence (P.P. 1919, XXIII, pt I), Q. 2576.

44 Report 0JR.C. on income tax (P.P. 1920, XVIII), para. 245, emphasis added.

45 For an indication of this see the list of letters and resolutions sent to the chancellor of the exchequer in Aug. 1917,in which those from the A.S.E. are prominent, in P.R.O., T 172/g82.


was any attempt by the tier above the most local level in the union's organization, the districts, to take up the tax issue. When the miners' agents in South Wales were criticized for taking such a prominent part in the withholding of tax the A.S.E. was cited as a union which intervened far less between the members and the tax authoritie~.~~

And so the translation of the tax question into a trade union problem was crucial for making an impact upon the authorities, although such a development depended very closely upon the strategies or politics within particular unions.

Even among the miners' leaders views were clearly divided about the status of the tax question, and whether it was a political or industrial matter. Herbert Smith, for example, argued against the South Wales interest by suggesting that 'this matter ought to be settled, not by talking about national action, but by marking the ballot paper, when you have the opportunity of marking it, intelligently'.47 But although the meshing of the tax question with vigorous industrial action varied from union to union, it was as a trade union problem that the issue had made its impact on the tax authorities.

The fuss about income tax was wearisome to those who had heard Labour's expressed preference for direct over indirect ta~ation.~' It now looked as though the workers simply did not want to pay any tax at all, but shift it onto other shoulders. How impressive were the arguments on the labour side? Restoration of the A160 pre-war limit, and subsequently, the demand for a higher level of exemption, was supported in a variety of ways. The Liberal

M.P.s who joined Labour on this in the parliamentary debates (principally Sydney Arnold) argued that the exemption level should be one which ensured the physical efficiency of the worker. But the efficiency argument -which was susceptible to fairly precise calculation about physical requirements -was rarely heard from the trade union side. More often the argument was for a point to establish 'at least a pre-war standard of living' enabling a worker to provide adequately for his wife and family, which was a far more general proposition.49 When trade unionists were questioned before the royal commission on income tax the distinction between a subsistence income which should remain free of tax, and a surplus which could bear it, became blurred,

46 The Lancashire delegate to the M.F.G.B. special conference of 22 Oct. 1919 referred to the fact that engineering workers appearing before the courts for non-payment received no help from the A.S.E. For examples of assistance to miners in tax cases see Lady Windsor Lodge minutes, 9, I I, 24 July 1918. For evidence of the grievances of engineers about income tax see A.S.E., Monthly Journal and Report, Sept. 191 7, 54; Jan. 1918, 58-59; May 1919, 31, 73.

47 Special conference proceedings, M.F.G.B., 22 Oct. 1919, p. 23.

48 For example, Bonar Law, chancellor of the exchequer: 'We are not to tax manual workers indirectly. We cannot tax them on their amusements; we are not to tax them on their articles of consumption, food, clothing, or anything of that sort: and then you say not by direct taxation, although direct taxation is the form which you favour.' Deputation of Triple Alliance, P.R.O., T 172/1ooo, p. 12. Philip Snowden also felt that the trade unions' claim for relief from direct taxation was indefensible when allied to pressure for the removal ofindirect taxation; workers, he felt, had to make some contribution through taxes. Labour and National Finance (London, ~gzo), pp. 102-3.

49 For Arnold's views see Purl. Deb., 23 Sept. 1915, LXXIV, ~01s. 610 ff. S.W.M.F. executive committee minutes, 14 Dec. 1917, 3 May 1919.

and instead the notion of a comfortable living wage was floated.50 Carrying forward the pre-war standard was inevitably complicated by changes in the cost of living and this topic was confused by the tendency of official figures, until the report of Lord Sumner's committee in October 1918, to exaggerate the increase in the cost of living.51 But even on the more modest interpretation of such increases, the exemption levels demanded by the unions lagged behind inflation. In 1919 restoration of the pre-war level required a limit of at least A288 rather than the £250 asked for. Moreover, the point was made that the workers were being taxed on nominal and not real pay increases, and this could not be answered simply by referring to the effects of allowances, as Bonar Law ~onceded.~'

In the main the trade union side kept clear of the wider ramifications of their proposals, especially insofar as they required the heavier taxation of groups already carrying significant burdens.53 Occasionally, reference was made to the 'what's left' principle of taxation, that attention should be paid not to the rates of tax paid nor to the effect at the margin, but to what was left over at the end of the day to meet necessary as opposed to wasteful and morally reprehensible e~penditure.~~ was one

This way of justifying high taxation, but when miners actually started paying tax they showed as much sensitivity to rates at the margin (especially on overtime) as those of other classes, and refused to consider what was left over when tax was paid.55

The trade union argument had little to do with principles of taxation or statistical calculations about the cost of living, and much to do with simply shifting unwanted burdens. Direct taxation, of even relatively small amounts, had proved to be highly 'visible', as Smillie recognized: 'This taxation of incomes is not a tithe of the taxes they have to pay but the fact of it being direct taxation has kicked up more rows than anything which has taken place previously.' Those pushing the income tax complaint conceded that small amounts were involved, but pointed to additional goals worth striving for:

We are mindful of the fact that.. .we are talking about a mere bagatelle of income tax

50 R.C. on income tax, minutes of evidence (P.P. 191 9, XXIII, pt I), 91 73-94.

QQ51 See G. R. Askwith, Industrialproblems and disputes (London, 1920), p. 414 for trade unionists ignoring the more modest figures for cost of living increases provided by Lord Sumner's committee. For the committee's report see Working classes cost of living committee (P.P. I 91 8, VII),


52 Hartshorn: 'All these people who have that pay increase and are brought under the tax are simply being taxed on the extra cost of living; they have simply to pay the tax with money that has been allowed them on account of the extra cost of living ...'. Bonar Law: 'I admit the strength of what you say just now; I had not seen the point.'

S.W.M.F. deputation to chancellor, in P.R.O., T 172/982, pp. 17-18.

53 R.C. on income tax, minutes of evidence (P.P. 1919, XXIII, pt I), 9124. (William Clark) : 'You are aware of the fact that more than 10s. in the i(: is taken from large incomes now by the state in income tax alone? Shirkie (T.U.C.):No, I am not aware of that.

Q. 91 25: Well, you should be.' 54 See P. Snowden, Purl. Deb., 14 Oct. 1915, LXXIV, COIS 1323-4: Smillie, Triple Alliance

deputation, P.R.O., T 172/1ooo, pp. 18-19. 55 Report of ministry of labour to cabinet, 17 Sept. 1917, G.T. 8184, P.R.O., CAB 24/88.


on wages. But we do know that the workers of this country are being saddled with hundreds, if not thousands of millions of pounds through the process of indirect taxation and we want to shift that off the shoulders of the workers and get it placed in the proper quarters.56

How far was the energy generated over income tax used to wider effect, either to get rid of other taxes or to make forays into capitalist wealth by encouraging new taxes for others to pay? I will turn first to indirect taxation.

Indirect taxation hit the working class far harder than income tax. In 1919 Herbert Samuel showed that a married man with three children earning £200 paid over 10% of his income in indirect tax and would not have been liable to income tax.57 In 1913, assuming a halving of money income because of wartime inflation, the burden was roughly 6%. Income tax, demanded and extracted by a government official, was therefore far more visible than the much heavier indirect tax impersonally carried, as it were, on a packet of cigarettes. For some, this was the attraction of indirect taxation; according to the steelmaker, Sir Hugh Bell, 'a tax on commodities is levied without the contributors being aware of its existence and so is levied without much grumbling is possible in this way to get something towards the maintenance of the state out of the poor and indeed the poorest classes'.5s Does this mean that the real taxation of the working class was successfully carried on through indirect taxation, arousing little hostility amongst the industrial workers, while the much more insignificant income tax took all the flak?

The conventional wisdom at the end of the war assumed that indirect taxes could not be avoided by the working class. Herbert Samuel announced in the course of his paper on taxation, 'I have followed all previous investigators in assuming that the taxes on commodities are paid by the consumer'.59 Alfred Marshall, in his essay on taxation in After war problems (1917) argued that 'every such tax (on ordinary commodities) tends to be shifted forward onto the user'.60W. E. Layton, editor of The Economist suggested that the only way to avoid an indirect tax was to consume something else, and it was the impossibility of doing this with certain items that generated the revenue.61 This was the basis of Labour's dislike of indirect taxes: they fell on consumers irrespective of income and, because of the essential nature of the goods, could not be shifted. It looks, then, as though part of the practical value in the labour

56 Smillie at M.F.G.B. special conference proceedings, 26 Sept. 1917, p. 62: Hartshorn at

M.F.G.B. special conference, 28 Feb. 1918, p. 54. 57 'The taxation of the various classes of the people', Journal ofthe Royal Statistical Society, LXXXII, ~t 11 (19191, 176-7. 58 Committee on the national debt and taxation, minutes of evidence (non-par]., 1927)~II 598, para. 22. 59 Samuel, 'Taxation of the people', p. 149. 'National finance and taxation', in the earl of Cromer and others, After-war problems

(London, 191 7), p. 326.'' Committee on national debt and taxation, minutes of evidence, para. 10, pp. 176-7.

909 demand to extract more revenue from income tax rather than indirect taxes was that the former was more open to forceful negotiation than the latter. However, by the 1920s reservations were being expressed about the extent to which indirect taxation stayed with the working class yet generated little effective sense of grievance. It was argued that indirect taxation might become a factor in wage bargaining and so affect Britain's economic performance by entering into wage costs or, at the very least, damaging industrial relations. Wage theory itself was in a state of flux at this time. When emphasis was placed on the general conditions of demand and supply in setting the price of labour, which specific wage bargains could not ultimately affect, then the burden of indirect taxes seemed separate from wage determination and therefore immoveable. But with the growth and spread of collective bargaining trade unions were recognized to have some impact upon pay within the broad limits set by economic conditions.

W. H. Coates, in evidence before the Colwyn committee on the national debt and taxation in 1925, remarked that 'the whole question of the fixation of wages is extremely difficult and not subject, so far as I can see at present, to any precise determination of measurement', but he elaborated more fully on why indirect taxation could not be regarded as harmless in its effect:

I think it has only come to be recognised in recent years that in the determination of wages many factors do enter in, and that the amount ofindirect taxation which is being borne is a factor in the struggle. For that reason I am opposed, and have been opposed in the past, to increasing indirect taxation, because it has always seemed to me that it does tend to precipitate disturbances in the Labour world, and also because it does, I think, at once enter into the cost of production and militate against our position vis-aais the world as an exporting nation.62

The question of how far the cost of living had entered into wage determination was clearly crucial. The war, with rapid price increases, government control of wages and erosion of customary relations between the pay of different groups of workers brought the cost of living firmly into play. The board of inland revenue, in a memorandum of 1922, noted that because wages had caught up with prices, the working class had been able to maintain consumption despite higher indirect taxation. In 1918-20 the shifting of indirect taxes onto the general stream of income was at the expense of profits and salaries, both of which were depressed in relation to wages.63

The relevance of cost-of-living sliding scales to the shifting of indirect taxes is less precise than might at first appear. It is true that a cost-of-living index which embodied taxable goods would assist at least a partial shifting of the taxes concerned, but these sliding scales did not necessarily determine the movement of pay very closely. In an upswing unions wanted to overcome the lags between wages and prices (since prices had to rise by a certain number of

62 Ibid. Q. 9097. W. H. Coates was at this time director of the intelligence and statistics division of the Inland Revenue. He later became a director of I.C.I.

63 'Industry and the weight of taxation', in P.R.O., T 172/1230, paras. 46-53. There is useful discussion in J.W. F. Rowe, Wages in practice and theory (London, 1928)~ ch. 10.


points before wages did), and employers wanted to do the reverse in the downswing. In the aftermath of the war the pay of the railwaymen exhibited the former tendency and the builders' wages the latter.64 The regard for the cost of living more generally and the notion of a living wage probably exerted a more powerful effect upon pay than the scales themselves.

In the switchback conditions of 1918-22 gains and losses were unevenly distributed across occupations: 'the real wages in the wool industry were stable, whereas in printing they rose by almost a quarter and in iron and steel they fell by more than one-fifth'.65 For occupations where real wages were falling indirect taxes were being borne; some alleviation was evident where real wage gains were protected. After the war employers naturally wanted to bring wage determination away from broadly applied cost-of-living factors and back to constraints imposed by conditions in their particular industries. The pay award made to the engineering industry by the industrial court in March 1920, for example, threw its weight onto the side of what an individual industry might be able to afford, rather than onto a close connection with the cost of living. But this view was not widely shared, John Hilton arguing that 'it will be agreed by all except a few irresponsibles and wreckers that the recognition of the cost of living as one element in wage determination is a distinct gain of permanent value'.66 Even though there had been sharp reductions in wages during 1920-2, this deflation was regarded as abnormal:

if on a longer view regard be had to the future beyond the existing state of trade, and to the power of organised labour in more normal conditions, it would be bold to assert that heavy additional indirect taxation could be kept on the wage earning classes in more than a modest degree.67

The same point had been made in a discussion about turnover taxes as a possible source of revenue :

The tax would normally fall upon the consumer, that is to say, in the main part upon the working classes. In the case of the poorest section of the community (e.g. the Old Age Pensioner) the burden would remain there, and would definitely lower the standard of living. Among the more powerful working classes the tax would consolidate the claim to retain the existing high money wages or even set in motion a claim for increased wages, and would thus be likely to embarrass trade, embitter the relations of Capital and Labour and check the movement towards lower price levels.68

Even if there was to be a diminution of real pay 'their [the workers'] tendency

64 H. A. Clegg, A histoy of British trade unions, uol. 2, zgrr-1933 (Oxford, 1985), pp 319-21.

Clegg, Trade unions, p. 336.

66 Minute by Mr John Hilton regarding the industrial court award for the engineering trade. P.R.O., Ministry of Labour Papers, Lab 2/758/2, reproduced in Conflict and consensus in British industrial relations, Harvester Microform (Brighton, 1985) Hilton was director of statistics, ministry of labour, and later professor of industrial relations at Cambridge. See also R. Lowe, Adjusting to democrag. The role of the ministy of labour in British politics 191639(Oxford, 1986), p. 101.

67 'Industry and the weight of taxation', P.R.O., T 172/1230, para. 53. 'Note on possible methods of replacing part of the revenue now drawn from the excess profits duty', P.R.O., CAB 27/101, p. 169.

to Ca'canny is likely to be strengthened, so that in the end industry may lose more by diminished output than it gains from diminished taxation'.'' Labour's position regarding indirect taxation had therefore become more complicated. The burden of indirect taxation had usually been pursued by considering matters of principle (was the proper proportion to direct taxes 50-50, 30-70, for example) or of fairness (was the regressiveness of the taxes outweighed by the desirability of even the poorest making some contribution to revenue). But, increasingly, pragmatic questions of power and the economy had become part of the argument; would the trade unions be able to shift the tax by putting up wages, and what would the costs of such efforts be, even if ultimately unsuccessful? At a time when business interests were keen to reverse the trend of direct taxation being responsible for a greater share of revenue, this view of the tax authorities of the risks of such development was an important advance for labour, even though the ability to resist was unevenly spread across the workforce.

So far the concern has been with resistance to taxation by trade unions. This had implications for other classes to the extent that their burdens were increased by the working class's unwillingness to pay But how far did the working class, either through the trade unions or the Labour party, try to press for tax changes which would be placed directly upon the shoulders of others?

The excess profits duty seemed to create the opportunity. True, it was a war tax like no other, and this was one of the most powerful reasons advanced for its repeal after 1918. It had been part of a political bargain with the trade unions to ensure that business did not 'make money' out of the war. Three factors, however, made it a live issue in the discussions which took place about the nature of taxation after the war. First, it had generated a very high revenue, &2-300 million per year, a quarter of wartime revenue; second, it had proved to be feasible, requiring only the addition of clerical assistance rather than more full-time staff; third, the pressing need for revenue after the war brought any successful tax into play, and therefore some kind of peacetime tax on business profits suggested itself. As one perceptive American observer noted in 1920:

The British Excess Profits Duty, if not the first of these special profits taxes, is certainly in many respects the greatest and best of them all ...Its future place in the British financial structure constitutes one of the most acute problems confronting the British government today."

The simple solution of continuing the duty into peacetime was not a real possibility, even apart from its special identity as a war tax. The duty was a tax on profits made during the war in the light of pre-war performance. There

69 'Industry and the weight of taxation', P.R.O.,T 172/1230, para. 62.

'@ Economic Review

R. M. Haig, 'The taxation of excess profits in Great Britain', American Supplement, x (1920), 3.


was no 'normal' profit against which high profits might be assessed. This historical reference point worked increasingly against the firms employing new capital as against older firms which were more likely to have a higher pre-war standard below which excess profits duty was not charged. Moreover, whenever profits dipped below the pre-war standard (even before actual losses were made) rebates were allowed from duty paid in other years, and this reduced the yield of the duty to the Treasury in the post-war years.

But while it was not practicable to consider excess profits duty as a permanent peacetime tax, there was considerable interest in having some kind of tax on profits. The board of inland revenue had a graduated profits tax under discussion in November 1918, and in the Commons in May 1919 the Liberal J. S. Holmes argued that 'if taxation were so enacted that surplus profit would come to the state and to the common good, then I suggest that much of the prevailing discontent would disappear'." J. C. Stamp, who had been largely responsible for the success of excess profits duty during the war, wrote in favour of a business profits tax in the Economic Journal for December 1g 19. The notion of a 'surplus ', over and above the income necessary to bring the factors of production into operation, as a target for taxation was associated with J. A. Hobson, at this time a member of the Labour party's advisory committee on trade and finance. Stamp, in his essay on the graduated profits tax, pointed out how closely his proposed tax came to finding Hobson's surplus and later, in 1924 before the Colwyn committee, Hobson agreed with him:

Q. 1649 Stamp: Can you suggest any other scheme than that which I put forward of making your surplus a practical way of taxation?

Hobson: No, I do not think I can. I think that was a good way to approach it.''

The war might have been expected to give further encouragement to Labour to press for peacetime taxation ofprofits. There was plenty of evidence of profits at levels far beyond an adequate return for risk, to which Labour newspapers frequently drew attention. 'Profiteering' was a widely used slogan which, if rather imprecise as an economic concept, as a moral commentary tended to bring all profits into question, as the ministry of labour reported to the cabinet: 'The popular adoption of the word "profiteering" and the application of it to particular abuses of profit-making has, however, contributed to bring profit into wider disrepute'.73 The idea of a graduated profits tax was not only thought to be in line with the outlook of Labour's theorists but also of broader appeal to the working class:

Labour has no doubt more ambitious schemes for dealing with the profits of industry, but it is difficult to imagine that the representatives of this class would not welcome the proposal, except perhaps a few extremists who will be satisfied with nothing short of state ownership. It may well be that Labour more than any other class will feel that

71 Purl. Deb., 19May 1919, CXVI, ~01s.334 ff.
72 Committee on national debt and taxation, minutes of evidence, Q. 1649.
73 27 Aug. 1919,G.T. 8059, P.R.O., CAB 24/87.

the principle of the state taking a share of excess profits should not be allowed to fall into abeyan~e.'~

This was precisely why industry had cause for anxiety. Its representatives did not want to see excess profits duty translated into a more permanent tax to which Labour might become committed. Any new taxation of industry would be likely to become permanent 'because it would be very difficult hereafter with labour troubles and so on for industry to be able to get an alteration, in any particular basis of something which had been a reconsidered taxation of industry '.'j But the Labour party and the trade unions showed no interest in proceeding along these lines. It is true that the Labour M.P. William Graham, speaking in I 920 on the corporation tax introduced in that year's budget, suggested that 'it may be necessary in future for governments with a large social outlook to extend this tax' but such pronouncements were rare.76 Snowden was primarily interested in income tax and death duties. Hobson's notion of a taxable surplus had been applied to business profits by Stamp, not by Hobson himself. The war had certainly made the economy more visible and the status of profit more vulnerable, and the rate at which excess profits duty was levied became a central feature in political negotiations between Labour and other politicians. During the war there were demands from Labour for increases in the rate of the duty and indeed, one of the ways in which Lloyd George secured support from Labour in the formation of his coalition in I gI 6 had been a promise for a I oo % profits tax. There was some relief when a rate of 80% seemed sufficient for the purpose. When Austen Chamberlain reduced the rate in 1919 to 40% he used the 'violent and bitter and rather threatening opposition by the Labour Party'" as a reason for refusing further concessions to industry.

But these points should not hide the fact that the general experience of excess profits duty had not been encouraging for the labour interest. 'The Excess Profits Tax is not a sufficient check on greediness' noted the Yorkshire Fact09 Times," and there were doubts about whether such taxation would land where it was intended. 'The government has no assurance that any new

74 N. Warren Fisher to chancellor of the exchequer, 30 Nov. 1918, in P.R.O., Budget Papers, T 171/162.

75 A. H. Kilner, of Courtaulds, deputation of F.B.I. to chancellor of exchequer, 7 Feb. 1919, P.R.O., T 172/1004. The proposal was eventually shelved at least in part because Lloyd George was concerned about the effects upon newspaper proprietors, and therefore upon the standing of the government. See note of 14 Apr. 1919 bound in correspondence between N. Warren Fisher and Austen Chamberlain, 21 Mar. 1919, in P.R.O., T 171/162.

'"n Purl. Deb., 2 I Apr. 1920, CXXVIII, ~01s. 477-8 During his speech Graham was keen to insist upon the immunity of the Co-operative Society from the corporation tax, and anxiety about the Co-op's assets had steered the Labour party away from a capital levy which might have touched business as well as personal assets. There has not been space here to deal with the Co-op, but there is every reason to suppose that it exerted a restraining influence on Labour's aggressive tax strategies, because of its own potential vulnerability to them.

" Deputation of F.B.I. to chancellor of the exchequer, 5 July 1919, P.R.O., T 172/1oo4. For the place of the profits duty in relations between Lloyd George and Labour see the note by Lord Piercy, 'note ofconversation with J. C. Stamp about excess profits', 17 Mar. 1917, Piercy papers, British Library of Political and Economic Science, 1/40. '' 28 Mar. 1918.


tax will not be made a pretext for the levy on the public of enhanced prices of much more than the returns to the Exchequer' argued the addendum to the ministry of reconstruction's report on trusts in 1918, written by Ernest Bevin, Hobson, W. Watkins and Sidney Webb.79 If anything, excess profits duty legitimated high profits rather than removed them. Labour had plenty of evidence during the war that businessmen could protect themselves by passing on the duty to the consumer in the form of higher prices, or by burying profits in generous depreciation allowances, or lavish repairs to plant. As one by- election candidate put it, 'What has been the excess profits tax except back- door profiteering? '''

Even when the special conditions of wartime had passed, the trade unions still believed that taxes on manufacturers or retailers were passed on to the consumer. The T.U.C. described the process this way in 1924:

They pass it on and arrive at the amount to be passed on by their common understandings about prices. .. there are organisations of tradesmen, milk vendors, grocers, drapers and all manner of people, who do get together in their own way. They do not have public mass meetings, they do not go in for propaganda like the working classes; but they have their own ways and means, usually in a very quiet way -I will not say in the dark -of getting together and deciding round about what prices are going to be.81

This explanation is noticeably different from the way in which economists in the Labour party treated the question. Both F. W. Pethwick-Lawrence and Hugh Dalton -who did most to shape the party's ideas about taxation -were far more doubtful about whether manufacturers would all be in a strong enough position in the market to pass on the tax to the consumer. And so while working-class criticisms of excess profits duty had a good deal of substance, they did not require pessimism about any tax on profits, particularly when the peculiar conditions of 1917-19 had passed. Dalton's reservations about Chamberlain's corporation tax are also revealing. He argued that it fell primarily upon the ordinary shareholder, whose earnings fluctuated with profits, rather than on the fixed-interest preference shareholder, and also discriminated in favour of those who held gilt-edged or war loan The tax therefore weakened the incentive to take risks, and set up inequities between property owners. And so the interest of the Labour movement in the taxation of business profits was much exaggerated by both business and government, but whereas on the trade union side this was born out of frustration that such taxes never seemed to hit the target, the economists in the Labour party did see them having some effect, but doubted whether the consequences were desirable.

'' Report on trusts (P.P. 1918, XIII), p. 13. Tom Myers, during the Spen Valley by-election campaign, Yorkshire Factory Times, 27 Nov. 1919.

Committee on the national debt and taxation, minutes of evidence, Q. 5020. Pethick-Lawrence's views were given in evidence before the Select committee on the increase of wealth (war) (P.P. 1920, VII), Q. 3504. For Dalton see his Principles ojpublicfinance (London, 1923)~

P. 99.

This distinction appeared more powerfully when the Labour interest tried to pursue the wealth of other classes by taxing private capital and not business income. This involved a substantial shift of emphasis, away from an ouuriiriste concentration on the evils of high profits to a more socialist attention towards the translation of income into propertied wealth and its transmission across generations by inheritance. This became Dalton's own territory, and his major contribution to the developing outlook of the Labour party. Dalton believed that insufficient attention had been given to inequality of income from property compared to income from work. Capital levies after the war (which, while helping to repay war loan also had the potential to re-distribute wealth) and enhanced death duties were the ways of attacking this wealth, and it was to these schemes that Dalton devoted his attention, and not to the taxation of business profits.83 But just as Dalton had been anxious about the effects of profits taxes on the risk-bearing shareholder, so the severe taxation of property (and particularly inheritances) was seen as a way of promoting more dynamic lifetime profit-seeking by removing the deadening hand of easy unearned gains. The taxation of capital would leave untouched, or even stimulate, the pursuit of business profit, which was not necessarily in tune with the working class industrial perspective.

There was hope of course, that taxation of inherited wealth would have a beneficial effect upon the psychology of the working class by removing a sense of resentment and encouraging industrial harmony. But there was doubt even among sympathetic commentators whether inheritance taxes would have this effect: 'it is inequality of reward and the multiplying power of wealth which excites curiosity, not so much that particular part of it which may be due to the inheritance system'.84

The emerging polarity between a socialist focus on the continuities of wealth beyond the industrial process and a working class interest in the rapidly-made gains at the point of production should not be exaggerated, for the T.U.C. and the Labour party did make a capital levy part of their formal During the war this proposal -in the form of the 'conscription of wealth' -had been supported by the working class as a quidpro quo for military conscription, and in the aftermath was seen as a way of reducing the national debt. It was therefore rooted very much in wartime conditions, and while it was sometimes argued that the workers had died in the trenches while the rich had stayed at home and invested in war loan, it was difficult in fact to claim that class-based injustice lay at the heart of it. It was a question of generations not classes the young died, the old stayed at home; the producers of the 1920s had to pay the war loan holders of 1916, for example. While Dalton's interest in the idea remained strong, there is little sign in the T.U.C.'s evidence before the Colwyn committee in 1925 that the trade union side had kept up with the developing

83 See H. Dalton, Some aspects ofthe inequalip of incomes in modern communities (London, 1920), and

B. Pimlott, Hugh Dalton (London, 1985)) esp pp. 138-44.

J. C. Stamp, 'Inheritance as an economic factor', Economic Journal, xxxv~(1926), 363. Clegg, Trade unions, p. 233.

91~ R.C. WHITING arguments about a capital levy.86 This is not to argue that the Labour party's interest in capital taxation (whether through a capital levy or upgraded death duties) was misplaced; rather, it is to suggest that the evidence is weak that such taxes would have the function of easing working class resentment at the inequalities of income in industry.

This article has emphasized the tensions imported into the tax system by the wider conflicts in British society during the war and its aftermath. It provides a corrective to the view of patriotism and compliance which is gained if the focus is on the large amounts of revenue raised for the war. It also indicates limits to the integrative potential of the tax system. Events in 1916-20 showed that as the tax point moved down the income scale it engaged not only with the diverse and disaggregated interests of the middle classes but also with the effectively organized working-class interests. This had not been an automatic outcome. Within the Labour movement there had been those who had believed that the workers should fend for themselves as taxpaying citizens, and the benefits of a working-class income tax had been shared by the dour Herbert Smith and the virtuous Philip Snowden. But in the end the balance which impressed the tax authorities was the view that the working class should be spared a burden of income tax and treated circumspectly with regard to indirect taxes, a conclusion which depended on the linking of tax opposition with class conflict in industry. Equally there was no strong evidence that the working class was convinced about the ability of profits taxes to hit the wealth of others, nor that it was imbued with the same enthusiasm for taxing personal wealth as middle class socialists. It was unlikely then, to see the fairness (or otherwise) of its economic position to be much alleviated by the tax system. Because of the extent to which governments tried increasingly to soothe grievances about pay by non-wage payments and benefits, particularly during efforts at wage restraint, this approach to the tax system was to make the political management of the working class more rather than less difficult after '945.

86 This point, and the Labour party's interest in the capital levy, is dealt with in more detail in my essay 'The Labour party, capitalism and the national debt, 1918-24', in P. J. Waller (ed.), Politics and social change in modern Britain. Essays presented to A. F. Thompson (Brighton, 1987), pp. 140-60.

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