§ So far, I have indicated a net increase in revenue for this year of some £51 million, but I have to bear in mind that some moderate incentives are required to encourage production, and that we must have a sufficient absolute excess of revenue over all payments out to enable us to diminish the inflationary pressure. It is, therefore, necessary, as a special measure, to increase the revenue on the Inland Revenue side. Various attractive suggestions have been forward for a capital levy, but from the administrative point of view, a capital levy—in the ordinary sense of those words—is impracticable at the present time. It would be impossible to effect the valuation of all the capital assets in the country without a very large increase in the staff of valuers; and that staff is already very short for the jobs that it has got to do. Moreover, the assessment and collection would take years, and could be of no immediate value to the Revenue.
§ On the other hand, it is undoubtedly right—and I am sure the Committee will agree with me in this—that those who possess large capital assets should make some contribution to help the country in this emergency. Some of them are now spending those assets in a manner that is distinctly inflationary in its effect. It has, of course, long been the practice to tax capital by means of Death Duties, which, together with Surtax and the higher ranges of Income Tax, represent the taxation of wealth following the general principle of fixing taxation in accordance with the ability to pay.
§ I now propose to make a special once-for-all levy, which will be largely payable out of capital, and will be based on the investment income of individuals for the year 1947–48. Investment income for this purpose will include all rents, dividends, interest, and other such payments. A contribution arrived at in this way avoids all the difficulties of valuation which beset a capital levy. It will cover all forms of income-producing capital, but not other forms. This is essential, if it is to avoid the delay and difficulties of a capital valuation.72
§ The contribution will apply only where the taxpayer's total income from all sources exceeds £2,000, and, in addition, his investment income exceeds £250. Thus, no persons of moderate means will be liable, and no purely earned income will be liable, however large it may be. The scale of duty will appear in full in the Financial Statement, but it will begin at 2S. in the pound on the slice of investment income between £250 and £500, rising to a maximum of 10s. in the pound on investment income exceeding £5,000. Provided that the total income exceeds £2,000, as I have said, a person with an investment income of £500 will pay only £25; with an investment income of £2,000 the charge will be £425; and a person with an investment income of £5,000 will pay £1,625. There will be a marginal relief to ensure that the contribution payable does not exceed the excess of the total income over £2,000.
§ As this contribution is something we are specially asking for to meet an internal emergency, it will not fall on capital held in this country by people who are neither resident nor domiciled here. Persons domiciled abroad, but resident in this country for the year 1947–48, will be liable to the special contribution if they have been ordinarily resident in this country for the last 10 years. I would emphasise that this is not an annual tax, but a special contribution for a special purpose. I recognise fully that regular taxation of this character would have a marked dis-incentive effect on saving, which is certainly not what we want.
§ Necessarily, the administration of this contribution will be spread over some period of time—but it is of great importance that it should be paid promptly, so that its full effect can be felt as soon as possible. The due date for payment will be 1st January next, when the Surtax for 1947–48 becomes due; but I would appeal to everyone liable to this contribution to make a payment on account to the Inland Revenue, in advance of assessment. I propose, in order to encourage this prepayment, that advance payments should carry a discount of 2 per cent. net per annum up to the 1st January, 1949. Interest will be charged on payments in arrear.
§ The contribution is considered to be a charge on capital, and in many cases there will, in fact, be no other way of 73 paying it. Provision will, therefore, be made to enable the contribution charged to be recovered from capital, where the income and capital are in different hands. For example, in the case of trust income, there will be a provision enabling the contribution to be paid out of the capital of the trust. The full yield of the contribution will be £105 million, of which I have written £50 million into the Estimates for this year—though I much hope that, with the co-operation of those liable and the advantages of the discount, we shall be able to collect considerably more than that before the end of the year.