How benefits, once granted, become irreversible: a peculiar anecdote
25 November 2016
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Economic Theory
Economic Theory
Tax and Fiscal Policy
19 November 2024
When politicians ‘give’ us things, it is very difficult to take them away again. Here is a little-known case in point.
In 1947 Hugh Dalton, then Chancellor of the Exchequer, used the budget to raise tobacco duty very sharply, by nearly 50%. This was largely to save foreign exchange at a difficult time, and to raise revenue: at that time the health dangers of smoking were not widely accepted. Indeed, during the war that had just ended, those in the armed forces had been provided with ‘smokes’ as part of their ration.
Dalton’s measure was, technically, a ‘regressive’ tax, in that it hit the poor relatively harder than the rich. Unsurprisingly, voices were raised against this. In particular, politicians were concerned about pensioners. Many of them were habitual smokers and the new charges would be a significant chunk out of what were then pretty meagre state pensions.
Accordingly Dalton was persuaded to institute what now seems to us a bizarre process of subsidy. On application to the Post Office, and signing a declaration that the tobacco was for their own use, pensioners would receive ‘tobacco tokens’, enabling them to purchase tobacco at the pre-duty-hike price.
This subsidy continued for eleven years, during which the number of pensioner-smokers benefitting rose from 1.4 million to 2.6 million, with the cost to the Treasury rising year on year. Eventually Harold Macmillan’s government decided to bite the bullet and scrap tobacco tokens. It fell to the lot of Enoch Powell, then the Financial Secretary to the Treasury, to lead in Parliament. The debate was to be a stormy one. The government was accused of ‘penny pinching from the poorest of the poor’, imposing a ‘heavy blow and a great hardship’. Dalton, by then on the backbenches, claimed that his measure had ‘brought great comfort and satisfaction’ to millions. Powell was accused of ‘sniggering’ and ‘sneering’ as he listened to the highly emotional case being made to continue with the subsidy.
It’s a long time ago and it now seems ludicrous that politicians should have ever sought to subsidise smoking. Certainly by 1957, when the repeal debate took place, you would have thought the end of tobacco tokens would have been seen more widely as sensible.
But today the opposition to removing a benefit – any benefit – is stronger than ever. Once again our Chancellor has resisted the opportunity to take the axe to pensioner benefits such as free bus passes and winter fuel allowance, benefits which are becoming increasingly anachronistic when pensioner incomes are rising every year and the poverty rate amongst over-65s is lower than amongst those of working age. When some Chancellor eventually has the courage to do something about these benefits – let alone breaking the ‘triple lock’ on state pension increases – he or she will find that the anger faced by Enoch Powell in 1957 will be nothing compared to the Twitterstorm of confected outrage and abuse the Government will face.
In 1947 Hugh Dalton, then Chancellor of the Exchequer, used the budget to raise tobacco duty very sharply, by nearly 50%. This was largely to save foreign exchange at a difficult time, and to raise revenue: at that time the health dangers of smoking were not widely accepted. Indeed, during the war that had just ended, those in the armed forces had been provided with ‘smokes’ as part of their ration.
Dalton’s measure was, technically, a ‘regressive’ tax, in that it hit the poor relatively harder than the rich. Unsurprisingly, voices were raised against this. In particular, politicians were concerned about pensioners. Many of them were habitual smokers and the new charges would be a significant chunk out of what were then pretty meagre state pensions.
Accordingly Dalton was persuaded to institute what now seems to us a bizarre process of subsidy. On application to the Post Office, and signing a declaration that the tobacco was for their own use, pensioners would receive ‘tobacco tokens’, enabling them to purchase tobacco at the pre-duty-hike price.
This subsidy continued for eleven years, during which the number of pensioner-smokers benefitting rose from 1.4 million to 2.6 million, with the cost to the Treasury rising year on year. Eventually Harold Macmillan’s government decided to bite the bullet and scrap tobacco tokens. It fell to the lot of Enoch Powell, then the Financial Secretary to the Treasury, to lead in Parliament. The debate was to be a stormy one. The government was accused of ‘penny pinching from the poorest of the poor’, imposing a ‘heavy blow and a great hardship’. Dalton, by then on the backbenches, claimed that his measure had ‘brought great comfort and satisfaction’ to millions. Powell was accused of ‘sniggering’ and ‘sneering’ as he listened to the highly emotional case being made to continue with the subsidy.
It’s a long time ago and it now seems ludicrous that politicians should have ever sought to subsidise smoking. Certainly by 1957, when the repeal debate took place, you would have thought the end of tobacco tokens would have been seen more widely as sensible.
But today the opposition to removing a benefit – any benefit – is stronger than ever. Once again our Chancellor has resisted the opportunity to take the axe to pensioner benefits such as free bus passes and winter fuel allowance, benefits which are becoming increasingly anachronistic when pensioner incomes are rising every year and the poverty rate amongst over-65s is lower than amongst those of working age. When some Chancellor eventually has the courage to do something about these benefits – let alone breaking the ‘triple lock’ on state pension increases – he or she will find that the anger faced by Enoch Powell in 1957 will be nothing compared to the Twitterstorm of confected outrage and abuse the Government will face.
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It shows the prevalence of an emotional reaction over a rational one, and the need to fight the corner of reason much harder.
Additionally the issue of concentrated benefit but diffused cost needs to be set out more clearly so that the cost of subsidies is better understood and attributed, by highlighting what else could be done with the money.
In an increasingly complex public policy world it could be useful or even essential to do the equivalent of tax hypothecation to subsidy, thereby directly linking the subsidy cut to additional spending.