Cripps & Soda

Last week Chancellor of the Exchequer Sir Stafford Cripps walked into the House of Commons and presented his first budget. He was a brisk and confident man, for passage of ERP in the U.S. Congress helped him meet Britain's most pressing economic problem--the shortage of dollars. But how to check inflation? And how to induce people to work harder when there was still too little in British shops to buy? Cripps was characteristically clear and crisp. M.P.s did not like all he said, but they enjoyed the performance. When Cripps had finished his 2 1/4-hour speech, Winston Churchill (who had listened with eyes shut and feet resting on a table) rose and said: "... A comprehensive, lucid statement. ... It was refreshing. . . ."

Dash of 'Honey. For his own refreshment during the reading, abstemious Cripps kept by his elbow, in place of the more customary alcoholic fortifier, a tumbler of orangeade spiked with honey. The House was amused. The M.P.s were also amused when he said: "I propose to abolish the excise duty ... on unsweetened table water. [This] is mainly a tax on soda water, which I do not drink. . . . Very little soda water is drunk neat in this country today. . . ." The Tory Daily Mail dubbed the budget "Cripps & Soda."

But the Cripps budget was not all fun & games. To combat inflation, Cripps planned to take from taxpayers $1 1/3 billion more than the government would spend. The surplus removed from the pockets of potential spenders would be used to reduce the national debt.

Another Cripps object: "To provide the maximum incentive we can afford for greater production." His proposals offered rather more incentive to workers than to capital: lower income tax rates in the lower brackets; bigger earned income credits; lower purchase taxes on items like haberdashery, vacuum cleaners, washing machines, shaving soap; lower entertainment taxes.

Once for All? The incentives for capital lay more in what Cripps refrained from saying than in what he said. He did not (as many investors and businessmen feared he would) increase the tax on business profits, put a ceiling on dividends, or tax capital gains. But he had a shocker for those who live on investment incomes--a special tax on rents, dividends and interest, which Cripps promised would apply for only one year. This "capital contribution," graduated up to 50%, on top of the high regular income tax rates, would send many an investor's total tax far beyond 100% of his income.

Well-to-do Lady Mountbatten, for example, who gets about $240,000 a year from investments totaling $8 million, pays $220,000 in income tax. This year she will pay an additional $120,000 capital contribution. That looked very much like a capital levy of $100,000. Cripps did not call it that. "The contribution," he said, "is considered to be a charge on capital, and in many cases there will, in fact, be no other way of paying it." The tax will hit about 125,000 investors, bring in more than $400,000,000 (balancing an equal amount of revenue lost by lowering taxes on small incomes).

Cripps called his new gadget a "special once-for-all levy." But the conservative Daily Telegraph assailed it as "class legislation of the worst type. ... A budget professedly designed to stimulate incentive studiously ignores the risk-taker." Indignant investors were reminded that when Sir Robert Peel proposed an income tax in 1842 he had said: "I think it just to limit the duration to three years."

Voluntary Conformity. To the Labor Government, however, the new tax was not only an attractively easy way of raising a lot of money, but a soak-the-rich sop to trade unionists whom it has asked to accept wage freezes (TIME, Feb. 16). Fortified by Marshall Plan aid, which Cripps hailed as "a light and hope to the freedom-loving peoples of the world," Britain's Socialist Government felt that it was safely over some of the political rough spots, too. Russia's grab for Europe had rallied even most left-wing Laborite rebels behind the government.

Nonetheless Cripps knew that, in the long run, recovery and the Labor Party's fate depended as much on British workers' willingness to hold the wage line as it did on any other measures in his budget. Said he: ". . . We must remember that the economic plan is not something of which any Government can guarantee the execution. ... In some matters, the Government can assist in bringing about the desired results; in others, it must be for the people themselves to conform voluntarily to the needs of the situation."

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