HMT series 3: fiscal policy, 2014-2015

Taxing investment income: lessons from the 20th century  
11 February 2015

Janette Rutterford, Professor of Financial Management, Open University Business School

There is renewed interest in the taxation of investment income and wealth, with political parties proposing different tax rates or allowances on capital gains and inherited assets in particular. This seminar explores the relationship between taxation and investment valuation in the twentieth century. This relationship has sometimes had unexpected side effects; causality has been in both directions. Some argue that the early 20th century emphasis on earnings in the US led to the US taxation of companies separately from individuals and hence ‘double’ taxation of dividends both at the corporate and investor level. In contrast, the complexity of – and frequent changes to – the UK tax system affected how investors chose to value shares. Until 1965, companies’ profits and investors’ dividends were both liable to income tax. Many investors failed to appreciate the concept of total return on equity or the importance of earnings and capital gains as well as dividends. UK government taxation policy, which was aimed at optimising investment decisions made by companies and not by individuals, had unexpected and complex effects on British investors’ ability to value equities through such measures as multiples of earnings (PE ratios) or the value of the likely stream of future dividends. Even after the introduction of corporation tax, the importance of advance corporation tax (ACT) distorted the valuation of pension fund investments. This seminar addressed the unintended consequences of taxation changes and considers what lessons can be learnt from past decisions.

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Taxing wealth: lessons from the Meade Report on The Structure and Reform of Direct Taxation 1978   
21 January 2015

Martin Chick, Professor of Economic History, University of Edinburgh

Following the publication of Thomas Piketty’s Capital in the Twenty-First Century and given the renewed political interest in the taxation of wealth, this seminar revisits the 1978 Meade Report on The Structure and Reform of Direct Taxation. This committee, chaired by the economist James Meade, developed the earlier work on expenditure taxation by economists such as Nicholas Kaldor. While many of the Meade Committee’s recommendations were subsequently implemented by the Thatcher governments, the committee’s imaginative proposals for the taxation of wealth were very firmly rejected by the incoming Conservative government of 1979. In this seminar, the origins, debates and achievements of the Meade Committee were analysed, and their relevance to current concerns with income and wealth inequality discussed. 

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Read Professor Chick's opinion article, Taxing Wealth published 13 February 2015.

Why do fiscal constitutions change? British experience since the 19th century
17 December 2015

Martin Daunton, Professor of Economic History, University of Cambridge  

The economist James Buchanan drew a distinction between limited in-period debates over taxation which are not central to politics, and shifts in the fiscal constitution which are deeply contentious, before the codes and rules of the new parameters are accepted as ‘natural’ and self-evident. Constitutional change occurred on a number of occasions – the reintroduction of the income tax in 1842, of differentiated and progressive income tax between 1906 and 1910, and the changes associated with the Thatcher government. Are we now at a similar point, where a more technical approach to taxation and public finance with relatively low public engagement gives way to a much more ideological and public debate? This seminar addressed the question of when and why in-period discussions give way to constitutional change, and what lessons there might be for the present.

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How can we improve the skills of our workers? Lessons from the 1960s    
29 October 2015

Dr Hugh Pemberton, Reader in Contemporary British History, University of Bristol

Long-standing concerns about the poor level of skills in the UK workforce have become more pressing as a consequence of globalisation. On-the-job training has long been bedevilled by an Olsonian ‘collective action paradox’: more and better trained British workers would be a public good, but free-riding by firms is endemic because it is easier for companies to recruit already trained workers (if necessary from abroad) rather than invest in training themselves. The result is a downward spiral in which good firms cut back on training their workers. The answer might be for government to act to solve this collective action problem. This has been done before, with a training levy and rebate system instituted in the 1960s, with backing from the Treasury.That system achieved much, but its implementation also had some problems. What can we learn from them? 

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View Professor Pemberton's handout


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