Retrospective taxation

John Campbell’s biography of Margaret Thatcher refers to her taking a well-worn copy of Hayek’s Constitution of Liberty from her handbag and telling a seminar at the Centre for Policy Studies: ‘This is what we believe’.

In that great book, Hayek discusses the Rule of Law. He says: ‘As a true law should not name any particulars, so it should especially not single out any specific person or group of persons.’ He goes on to say: ‘[It] came to be recognised, as Parliament began to act as arbitrarily as the king, that whether or not an action was arbitrary depended not on the source of the authority but on whether it was in conformity with pre-existing general principles of law. The points most frequently emphasised were that there must be no punishment without a previously existing law providing for it [and] that all statutes should have only prospective and not retrospective operation…’

How far short of that ideal the coalition government has recently fallen, with its deplorable proposal to take £500 million from Barclays Bank in respect of a tax-avoidance transaction which was, apparently, entirely legal. I can’t believe Lady Thatcher would approve.

In 1970 I published a pamphlet, based on a speech to the Society for Individual Freedom, entitled ‘We’re All Nazis Now’. The title, of course, was derived from Sir William Harcourt’s well-known assertion on introducing estate duty in 1894, ‘We’re All Socialists Now’. I was pointing out how many practices of the UK government at the end of the 1960s resembled those of the German Nazis between 1933 and 1945.

In that pamphlet I wrote: ‘Retrospective taxes are a favourite Nazi practice. … There is no difference in principle between taxing people on income that was not legally taxable at the time it arose, or at higher rates than were then in force, and fining, imprisoning, or even executing people for so-called “offences” which were not legally offences at the time they were committed.’

It is disappointing – to put it mildly – to see a modern British government resort to this obnoxious practice once again. No one would expect today’s Liberal Democrats to be ‘liberal’ in the classical sense, but one might have hoped that the Conservative majority in the coalition government would have more respect for the principles of the Rule of Law.

Towards the end of his life, Hayek remarked that, in the course of a long life, his opinion of politicians had steadily gone down. I know how he felt.

14 thoughts on “Retrospective taxation”

  1. Posted 12/03/2012 at 12:01 | Permalink

    According to wikipedia (I just happened to be checking last night this for an interview I am doing tomorrow), it was at the Conservative Research Department that Thatcher got the Constitution of Liberty out when some speaker was giving a speech about the importance of pursuing the middle way. If somebody can clarify this, I would be grateful.

  2. Posted 12/03/2012 at 13:45 | Permalink

    @Philip: I’m guessing she hadn’t read the appendix!

  3. Posted 12/03/2012 at 14:45 | Permalink

    My information about the venue comes from p. 365 of vol. 1 of John Campbell’s biography. He references p. 174 of Thinking the Unthinkable…’ by Richard Cockett. I think that must be somewhere on my carpet, but it is not immediately to hand!

  4. Posted 12/03/2012 at 16:03 | Permalink

    I have just checked p. 174 of Thinking the Unthinkable, and it appears that Philip is correct. The incident apparently took place at the Conservative Research Department in the summer of 1975.

  5. Posted 12/03/2012 at 16:53 | Permalink

    Quite interesting, Campbell used the source and got the venue wrong. I assume he knows the difference

  6. Posted 12/03/2012 at 22:10 | Permalink

    Quite interesting, assuming the 1975 date is correct, how early in Mrs. Thatcher’s period as leader of the Conservative party this assertion of ‘what we believe’ came. Can one imagine David Cameron or Ed Miliband subscribing to a similarly coherent body of philosophical beliefs?

  7. Posted 13/03/2012 at 18:00 | Permalink

    I assume you are all aware that the Braclays Story is not the first time this government is using retrospective legislation for taxation purposes, and not just against big organisations like Barclays. They are using it to attack the average man in a very aggresive way. See BN66 or Section58 finance act 2008.

  8. Posted 13/03/2012 at 18:41 | Permalink

    Agreed, there are many examples of British governments using retrospective taxation. Indeed, I wouldn’t be surprised if it turned out that every single post-war government has done so. But I wouldn’t seek to blame the present coalition government for the 2008 Finance Act — that would be carrying retrospection too far! It is salutary to remind ourselves of Alan Bullock’s comment: ‘Hitler never abandoned the cloak of legality: he recognised the enormous psychological value of having the law on his side. Instead he turned the law inside out and made illegality legal.’ As Bastiat said: ‘The safest way to make the laws respected is to make them respectable.’

  9. Posted 14/03/2012 at 13:06 | Permalink

    Sorry I agrre I wasn’t clear in my post, I don’t blame them for the act, what I blame them for is that in opposition they were against section .58 and a specific member of the current government fought hard to get it removed. However now in power and in the position to do something about this stand behind the act and refuse to even acknowledge their previous opposition to it, let alone reverse it as previously suggested.

  10. Posted 21/03/2012 at 07:36 | Permalink

    This is quite disgusting. Any retrospective taxation that intentionally penalises taxpayers, despite said taxpayers being completely within the letter of the law when their tax returns were submitted, is abhorrent. This cannot be allowable in this country, surely?!??!? The US outlaw such retrospection in the constitution! One principle of British taxation is the goal of certainty for the tax payer. This must exceed all other considerations, even the bonus of whichever HMRC officer that introduced the retor aspect to section 58 of te Finance Act 2008. It does not surprise me that such a measure arose during Gordon Brown’s administration. What does shock me is the present government permitting to to continue.

  11. Posted 21/03/2012 at 11:24 | Permalink

    I once had an altercation with Quintin Hogg [Lord Hailsham], who was then my MP (for Marylebone), about the 1965 War Damage Bill, which retrospectively changed the law to penalise the Burmah Oil Company. The Conservative Opposition supported the proposal. I said, in a public meeting of the Conservative Party, that it was disgraceful and he said crossly that it was only an obscure piece of Scottish legislation. He then asked me whether I was a member of the Conservative party, to which I replied “Of course not!” We parted on bad terms! So retrospective taxation in this country is not new; nor confined to taxation.

  12. Posted 22/03/2012 at 13:26 | Permalink

    @Philip: were you able to confirm where the Thatcher book wielding took place? Nobody in the office here seems to think it was at the CPS.

  13. Posted 22/03/2012 at 15:15 | Permalink

    @ryan – It must have been CRD I think as that is what the source that Campbell cites incorrectly actually says.

  14. Posted 22/03/2012 at 18:22 | Permalink

    Thatcher used windfall (retrospective) taxes on banks and oil companies in 1981. Justifiable as they were unduly benefitting from her monetarist policies whilst the rest of industry was suffering

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