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September 28, 2004

Money Talks? Once It Whispered, Now It Shouts

Posted by William D. Rubinstein

British attitudes towards wealth have changed more than those to virtually any other subject, argues Prof. William D. Rubinstein, a leading academic expert on the history of the rich in the UK and the author of Men of Property: The Very Wealthy in Britain Since the Industrial Revolution.

Prof. Rubinstein argues that both the political right and the left in the UK have long displayed an antipathy towards wealth. In the twentieth century the tax system was increasingly used to penalise the rich; whilst in 1900 the rich could expect to keep 97% of what they earned, by 1948 this had fallen to only 35%. Attitudes towards wealth changed in the 1980s, argues Prof. Rubinstein; it suddenly became acceptable to be rich, acceptable to unapologetically pursue wealth. The political expression of this was however only found on 11 March 1988, when Nigel Lawson cut the top rate of tax to 40%.

To what subject have British attitudes changed the most over the past fifty or sixty years? Without question, most people would, with little hesitation, suggest some such subject as sex, religion, the aristocracy, or the like. Let me put the view here that high up on any list must be the British attitude towards money-making, making money, and wealth.

Obviously, it was always the case in this country, and probably throughout the Western world, that earning an income was always pursued as a necessity, while, as the Duchess of Windsor famously put it, one could never be too rich or too thin. Plainly, too, since Britain experienced a commercial revolution in the eighteenth century and then the world's first industrial revolution, this pursuit was, for some, highly successful. Moreover, Britain's landed aristocrats were among the very richest men in Europe, and were synonymous with princely display and high living.

Nevertheless, I think that it is also fair to say that, down to very recently indeed, British society and its cultural norms, often did their best to hide, conceal, and deplore any naked money-making aggrandisement as impossibly vulgar or exploitative. This attitude was shared in different ways by both the political right and the political left. The former viewed the undisguised drive to money-making as the province of vulgar, uncouth nouveaux-riches, societal outsiders, and pushy newcomers whose climb to the top would not bear too close an inspection. The latter viewed the accumulation of great wealth as inherently exploitative and anti-social.

This attitude was also shared by the press, and, for this reason, we have no 'rich lists' of the wealthiest persons in Britain until about 1980. (One assumes that the fact that the Northcliffes and Beaverbooks would certainly have appeared on any such list was a factor.) Britain's wealthy always purported to be 'gentlemen', with an understood code of conduct, and with education at a public school or Oxbridge as among the primary markers of being well-off, or as seeming to be. Naturally there were always 'self-made men' of extraordinary wealth in Britain during the past two hundred years, but in only a few cases did they become well-known merely for being very rich, unlike America's super-wealthy.

In the United States, the billion dollar fortune of John D. Rockefeller I (1839-1937) was probably the first thing anyone learned about him. One must really think hard to find a British parallel to this kind of fame. The richest Englishman of the early twentieth century was probably Sir John Ellerman(1862-1933), a mysterious, self-made ship-owner and financier who left the incredible sum of 37 million when he died during one of the worst years of the Great Depression, nearly three times as much as the second-largest fortune ever left in Britain by probate down to the 1970s. Ellerman spent his weekends in Eastbourne, and it is recorded that small children were taken by their parents to see the mansion of 'the richest man in England'. But Ellerman's case is so unusual as to be very noteworthy, and very different from the normal state of affairs.

Together with the cultural and ideological prejudice against being rich it should be noted just how difficult it was, during much of the twentieth century, to amass a great fortune in Britain. The reason for this lay in the confiscatory levels of taxation which existed for many decades: probably few people now realize just how stringent and hard-hitting levels of direct taxation were until very recently. Basically, from about 1940 - if not earlier - until about 1965 it was essentially impossible to make a really large fortune in Britain if one were totally honest about paying one's taxes. In 1900, if one had earned an income of 10,000 - which at the time was a colossal income, equivalent to over 600,000 today, of the kind enjoyed only by tycoons, landed aristocrats, top Q.C.s, and the like - after paying one's income tax its happy recipient kept no less than 9667- that is, nearly 97% of what one earned. Even during the pre-1914 Lloyd George period, when the rich allegedly screamed with rage at (in their view) the unbelievably high rates of taxation put in place by Asquith's Liberal government, the rich still kept nearly everything: in 1913, someone earning 10,000 still kept 9242 after taxes.

The First World War changed everything, in particular by creating an unprecedented national debt which had to be repaid in part every year regardless of any other circumstance, so that in 1927, at the height of the 'roaring twenties', the man on 10,000 kept only 6968, despite the fact that a right-wing Tory government was in power, there were no foreign threats to Britain of any kind, and the pound was worth only half of what it had been in 1913. The Second World War proved even more disastrous, piling another huge burden of debt on top of the previous one, destroying much of Britain's wealth-generating infrastructure and its overseas markets, and producing the 1945-51 Labour government, which was determined to create a comprehensive Welfare State while keeping Britain a (kind of) great power, with a huge military apparatus. Taxes now reached truly extraordinary levels. In 1948 the man lucky enough to receive an income of 10,000 (now worth one-third or less of its value in Edwardian times) kept only 3501. When the Conservatives returned in 1951, although many of its leaders would have dearly loved to have slashed taxes dramatically, the predominant ideology of 'One Nation' Toryism, committed to maintaining most of the Welfare State measures put in place by Labour, fear that drastic cuts in public spending would mean electoral suicide, and the government's ongoing commitment to a significant world-wide political and military role, meant that taxes were cut only marginally. In 1958, for instance, the man on 10,000 kept only 4341.

Along with unprecedented levels of income tax went equally high rates of death duty, which for decades totalled 75 per cent on substantial estates. While death duties are widely regarded as a 'voluntary tax' which few of the rich ever pay, in fact avoiding them is not as easy as it seems, and sooner or later almost all substantial fortunes are brought into the taxation net to some extent. Through these twin taxation pincers of astronomical levels of income tax and of death duties, by the mid-1950s it could be argued that something like 'socialism' had come to Britain, with the very rich virtually eliminated as a class. In 1953, for instance, one Inland Revenue officer was widely reported in the press as claiming that there were only thirty-six millionaires left in Britain, that is, persons with an after-tax income of 6000 (sic) or more, representing, according to him, a pre-tax income of 56,000 or more, the approximate income generated by a fortune of 1 million! Even if these figures exaggerate the actual state of affairs and omit a great deal of concealed wealth and undeclared income, it seems apparent that, by the 1950s, Britain's rich were being squeezed into extinction. It is probably no coincidence that the alleged decline of Britain as a great economic power accompanied these stratospheric levels of taxation. On reflection, high taxation probably had as much to do with Britain's industrial decline (as many see it) as the usual suspects named by economic historians such as poor management and excessive trade union power.

While direct taxes were indeed cut to a certain extent in the 1970s, both major parties remained committed to a vastly larger public sector than virtually anyone would advocate today. The Heathite Tory party, allegedly committed to the free enterprise vision of 'Selsdon Man', proved wholly unable to free itself from the post-war economic consensus, while Labour drifted far to the left, with even moderates like Denis Healey gleefully claiming, in the mid-1970s, that the rich would 'howl with rage' at his tax regime. Can anyone imagine a Labour Chancellor saying this today, or what the response would be?

While a fundamental change did indeed come under the Thatcher government, it did not come at once, and it is important to remember that 'Thatcherism' did not embrace a full-bodied commitment to tax cutting, and to ending the long-standing hostility to the accumulation of wealth, until years after it first came to power. To be precise, the most important expression of this change may be dated specifically: 11 March 1988, when Chancellor of the Exchequer Nigel Lawson cut the top marginal rate of income tax to only 40 per cent - a level unknown since the 1930s - and the standard rate to 25 per cent. Clearly a result of 'Reaganomics' in the United States, Lawson's tax cuts were in my opinion the most important and successful economic measure carried out by any government during the post-war period, and was, in my opinion, more significant than anything else in transforming Britain's economy from probably the weakest in Europe to certainly the strongest. As it takes up to ten years or more for the positive effects of a far-reaching change of this sort to work its way through the economy, paradoxically and regrettably the image of Britain as foredoomed to economic failure was still prevalent on 'Black Wednesday', 16 September 1992, the notorious occasion when Britain left the ERM in panic and disarray, helped by the near-insane decision of John Major, when Chancellor of the Exchequer, to join in the first place. Paradoxically, it was just then that Britain was in the process of emerging strongly to economic health; tragically for the Conservative party, the legacy of 'Black Wednesday' paved the way for many of the electoral disasters which have befallen it ever since.

These cuts in taxation both led to, and were indicative of, an enormous cultural change in our attitude towards wealth and income which occurred at about the same time. At some point in the 1980s, the chattering classes ceased to regard making money as ipso facto a criminal pursuit, and, indeed, came to regard it as a rather interesting, and presumably by definition profitable, way of passing the time. Heroic contemporary wealth accumulators like, say, Sir Richard Branson, came to be seen as admirable rather than criminal. The Labour party accepted Thatcherism, and, indeed, promised to create an even more favourable business climate than the Tories. These changes are indicative of what has surely been one of the great and perhaps unnoticed social changes in Britain of recent times, the transformation of attitudes towards wealth.

William D. Rubinstein is professor of modern history at the University of Wales - Aberystwyth. He is the author of Men of Property: The Very Wealthy in Britain Since the Industrial Revolution.


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