View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

F r F. R. 1 1
om
3

BOARD OF GOVERNORS

FEDERAL RESERVE SYSTEM

^ Q f f i c e

C o r r e s p o n d e n c e

To

Mr. Despres

Pram

Mr. Jaszi

Q J .

Date June 27, 1&1
Subject; The British Forced Savings
Scheme

A forced savings scheme was introduced i n Great Britain as a
part of the Budget f o r
The scheme applies to two classes of taxpayers: those subject
to excess p r o f i t s tax and those subject to individual income tax. 20
per cent of excess p r o f i t s tax l i a b i l i t y i s t o be set aside as a postwar
credit; and individual income taxpayers m i l be credited with an amount
equal to that part of their increased income tax l i a b i l i t y under the new
budget which i s due to the lowering of exemptions and of the earned i n come c r e d i t , A ceiling of h 65 i s imposed on the postwar credit that can
be accumulated by an individual income taxpayer.
The credit with respect t o excess p r o f i t s tax l i a b i l i t y i s a
concession to those who argued that the 100 per cent excess p r o f i t s tax
now in force i n Great Britain destroys a l l incentive for the e f f i c i e n t
conduct of business. The 100 per cent tax rate i s retained, but businesses
may now have an incentive to operate e f f i c i e n t l y , because this w i l l add
to their postwar c r e d i t . The scheme w i l l also ease the financial problems
of postwar reconstruction by putting funds into the hands of businesses
at that time.
"With regard t o individual income taxpayers, the
must have been to make more palatable the increase of the
the 2,000,000 persons who, under the new tax laws, become
tax f o r the f i r s t time, and to other low income taxpayers
i s sharply increased.

main motivation
tax burden to
l i a b l e to income
whose tax burden

The thought that the spending of these credits w i l l mitigate
the postwar slump was also a consideration in establishing the scheme.
But the h 65 ceiling provision and the particular formula used f o r determining forced savings indicate that, so far at l e a s t , there i s no serious
intention to build up a substantial amount of forced savings. The maximum
figure \vhich a married taxpayer without dependents w i l l save under the
scheme i s less than 7 Ver
income. This percentage declines rapidly
f o r larger incomes.
I t i s estimated that about L 125 million w i l l be accumulated as
post war credits of individuals i n the f i r s t f u l l year of operation of the
scheme. The annual postwar credit of businesses may amount to another
£ 50 m i l l i o n . These are moderate sums as compared with the scale of t o t a l
3
government financing, and unless the scheme i s considerably expanded the
repayment of credits after the war should not give rise to serious financ i a l problems. The manner of repayment has not yet been decided upon.