CAB129-78 — Page 101

Page 101 (ii) Its reference, in paragraph 9 (iv), to the effect on prices of the reduction in the food subsidies and the changes in indirect taxes in 1952. (iii) Its presentation of the relationship between wages, profits and

dividends in Section IV, particularly the tables in that Section.

In each case, the facts and statistics are presented as objectively as possible; and the tables on wages, profits and dividends (which contain no figures not already published in the Blue Book on National Income and Expenditure, 1955) are supported by footnotes designed to minimise the risk of misunderstanding and misrepresentation. The comparison between wages and salaries on the one hand and dividends on the other hand is given, in all cases, before tax. It has been suggested that figures after tax should also be given. In so far as this was attempted, the result would make the comparison even less favourable to dividends over the period 1938-54 taken as a whole; but it might also provoke the charge that the reductions in direct taxation in the last two or three years have given proportionately greater relief to dividends than to wages and salaries. In any case, however, it is impossible to compute accurately what tax is actually paid on dividends. A comparison on a "before tax basis seems, therefore, the only practicable one.

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(d) Section VI of the draft contains the real essence of the White Paper, and expounds the lesson of the last ten years which we are asking the community to apply in the period ahead. I think it is right, and valuable, that the text should recognise the inevitability of productivity rising faster in some sectors of the economy than in others. But it follows that, in those sectors where the increase in productivity is most substantial and most rapid, neither capital nor labour can expect to extract, and to share between themselves, the whole of those increases; they must allow some part of them to accrue to the benefit of the community as a whole (including themselves) in the form of lower prices-unless there is to be either an increase of prices or a distortion of the relativities of wages between industries which might be more than the workers would tolerate and would be economically disruptive in its effects. This doctrine is sound as a matter of economics, and is not likely, in itself, to be disputed. But we must realise that its implications -in terms of the wage earnings of workers in individual industries which may reflect very differing rates of productivity increase-may not be entirely welcome; and that it may be asserted that we are asking the workers (and, for that matter, the investors also) in the high productivity sectors of the economy to assist (or, as they may say, to subsidise) the rest of the community. The draft does not, of course, elicit this point explicitly. But the point is there; and we must be prepared to have it taken, and to defend our doctrine both as a matter of economics and by reference to the contribution which price stability can make to the national interest as a whole.

R. A. B.

Treasury Chambers, S.W.1,

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14th November, 1955.

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