Out of the Black Case

Even the outward forms of British tradition got bent again last week as Chancellor of the Exchequer James Callaghan took the Labor government's annual budget to the House of Commons. Instead of the shabby red leather case, passed along from one Chancellor to another for decades, he carried in a new and ominously black one. From it he produced the most unexpected tax plans since Sir William Harcourt introduced death duties in 1894.

Bitten Bettors. With Britain struggling to defeat inflation at home, modernize its outmoded industrial plant, and raise exports so as to end its balance-of-payments deficit, most of Callaghan's countrymen were braced for higher income, sales, tobacco and liquor taxes, and perhaps higher down payments on installment purchases. They got nothing of the sort.

Instead, following the controversial U.S. example, Callaghan set up machinery for "voluntary" curbs on British investment in the developed countries of the sterling bloc--Australia, New Zealand, Canada, Ireland and South Africa. He confirmed a 21% tax on gambling, effective Oct. 24, a tax on casinos starting Oct. 1, and a widely anticipated increase in corporate income taxes, from 35% to 40%. Britain, said Callaghan, will also ask West Germany to absorb the $224 million-a-year cost of keeping British troops there.

Though the country's imports are still growing faster than exports, the Chancellor promised that Britain will scrap its 10% tariff surcharge in November. The surcharge on imports has run into much criticism, particularly from Britain's trading partners in the European Free Trade Association.

By all odds, Callaghan's greatest surprise was a "selective employment tax," aimed at redistributing Britain's strained labor supply to provide more goods for the export trade--without causing unemployment at home.

Milking Millions. Starting in September, all British employers will be taxed $3.50 a week for each man on their payroll, and smaller amounts for women and boys ($1.75) and girls under 18 ($1.12). The differential is meant to nudge firms to hire more women, boys and girls. Manufacturers of such exportable products as chemicals, metals, ships, autos, textiles, clothing, furniture and printing will get a rebate starting in March of $4.55 per man, thus giving them a cost-lowering government bonus of $1.05 per worker.

Such other industries as transportation, communication, fishing and agriculture will be repaid what they are taxed. Service industries, from barbers to bankers, will get no refund at all. Though the scheme will milk $882 million out of the British economy during the fiscal year ending next April, the government still expects its $25.7 billion budget to run $800 million in the red.

Callaghan sat down to a silent House of Commons, which had expected harsh measures, but instead found them merely bewildering. Commented the London Times: "There was even an air of disappointment, as though the Commons were flagellants who had just had their whips confiscated by a benevolent abbot." Next day the critics were heard from. Businessmen predicted that the payroll tax would drive up the cost of living. Union leaders predicted that the bonus to manufacturers would increase the already serious problem of labor hoarding. The influential Economist simply dubbed the budget "fatheaded."

Britain typically relies on special instead of general tax boosts, raises only 48% of its government revenue through corporate and personal income taxes, as against 60% in the U.S. Rates, on the whole, are steeper than in the U.S. Britain's 40% corporate tax compares to 48% in the U.S., but personal income taxes reach 91% on all earnings above $36,400 v. a top of 70% on incomes above $100,000 in the U.S. Now, Britain has embraced deliberately discriminatory taxes to tinker with its troubled economy. That may well prove a high price to pay in order to placate foreign creditors without sacrificing prosperity, for it still fails to dig at the roots of Britain's problem: lax management and hidebound labor.

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