LABOUR AND HOUSING—Part 15

By Eamon Dyas

The previous article in this series explained the circumstances in which the second minority Labour administration found itself when it came to power in 1929. Despite the unfavourable political and economic situation that administration managed to pass the 1930 Housing Act which, although unambitious in nature, did succeed in advancing the housing issue on a modest scale. The article also described the aspects of that legislation which attempted to address the intractable problem where council housing had remained largely affordable only for the more affluent sections of the working-class. We will now look in more detail at the fate of the last piece of Labour legislation that had the potential to be beneficial to council house provision before the Second World War. That was the proposal for a land values tax introduced by the Labour Chancellor of the Exchequer, Philip Snowden to the House of Commons between May and July 1931 and which was part of his Finance Bill (budget) that was later passed by the First National Government administration in September 1931.

The Land Values Tax of 1931

During the recession of the early 1930s at a time when hundreds of factories were facing bankruptcy and companies couldn’t pay dividends the growth in urbanisation, transport and utility infrastructure created a situation where land was dramatically increasing in value. It was a paradox of the recession that while the economy floundered the property market was vibrant. In his speech introducing his Land Values Tax Snowden recounted how the creation of new districts and town extensions in suburban areas had brought the question of land and its value to the forefront of the public’s mind. He pointed to the fact that sites had recently been sold in the centre of Liverpool at the rate of more than one million pounds an acre. In referring to the building boom he quoted a recent article in the Sunday Express which pointed out that “owners of derelict estates, farmers on the verge of ruin, business men with unimposing country seats, middle class speculators, even butchers with grazing lands – all have silently profited by the building boom. Their profits run into tens of millions.” According to the estimate of a leading estate agent at the time £120,000,000 had already changed hands.

Snowden also explained that the idea of such a tax had been part of the programme of the Liberal Party for around 40 years and had also been part of the Labour Party programme since its inception. He further stated that:

“Measures embodying it in the Conservative Parliaments have on six occasions passed a Second Reading: 600 municipalities in the country, mainly Conservative, have petitioned Parliament to deal with the matter; and conferences of local authorities are regularly held to impress upon Parliament its importance. Eminent economists have given support to the proposals: Select Committees and Royal Commissions have been appointed by Parliament to inquire into this question. Indeed, so widespread is the demand for legislation of this description, that it might almost be said that it is a question which transcends all political differences.” (Chancellor of the Exchequer, House of Commons debates, 4 May 1931).

As Snowden indicated, the idea of a land tax had a long pedigree. It was shown in part 8 of this series, how in 1909 Churchill and Lloyd George had been active in support of such an idea. Similarly, as had been argued in 1909, Snowden in 1931 asserted the principle that:

“If private individuals continue to possess a nominal claim to the land, they must pay a rent to the community for the enjoyment of it, and they cannot be permitted to enjoy that privilege to the detriment of the welfare of the community.

“Land differs from all other commodities in several respects. The land was given by the Creator, not for the use of dukes but for the equal use of all His people. A restriction in the freedom to use land is a restriction on human liberty and freedom. Land, I said, is unlike other commodities in several respects. To restrict the use of land by arbitrary will of its owner, enhances its price, raises rents, hampers industry, and prevents municipal development and the promotion of social amenities. Every increase in population, every expansion of industry, every scientific development, every improvement in transport, all expenditure of public money, indeed, every child born, adds to the rent of land. Rent enters into the price of every article produced, and into every public service.” (Ibid.)

It was felt that the owners of a commodity that possessed this unique feature should therefore contribute to the needs of the community “by whose existence the value of the land has been so largely created”. Snowden saw the land values tax as the means by which that contribution was to be made.

However, before such a tax could be imposed it was necessary to complete a record of the ownership of the land to which it would be applied. This required the creation of a governmental body charged with the task. Snowden’s proposal called for the establishment of such a body that would be composed of “a large staff” with the capacity of recording the land valuation details of  “between 10,000,000 and 12,000,000 separate hereditaments”. The cost of establishing this body was estimated at between £1,000,000 and £1,500,000 but that cost was to be spread across three financial years. 

Snowden’s land values tax proposal received its Second Reading on 19 May and its Third Reading on 3 July 1931. However it seems that the Third Reading on 3 July 1931 merely established the principle with the funding to put that principle into effect being dependent on the passing of his Finance Bill (Budget). As such, its potential application had to await the later endorsement of the Budget. But even then, if the funding was to be passed as part of that Budget, given the logistics of the listing and collation of those land holdings that would be subject to the tax, there would be an inevitable delay before the time came for the application of the tax (which was to be levied annually at the rate of one penny in the pound) which was due to take place from 1933-34 onwards. Snowden envisaged that his Budget would be endorsed by Parliament by 1 August 1931 at which time the initial recording process would be initiated. The valuations thus applied to the recorded land would remain in place for the purpose of the tax until a period of five years by which time a renewed valuation would be undertaken from 1 August 1936, “and so on at intervals of five years.” He further stated that although the benefits from the tax would take a time to accrue to Exchequer there was, in his opinion, a more important and immediate advantage. That was because the existence of such a tax would incentivise the owners of vacant and inactive land to bring it into use on pain of having to pay an annual tax on it. This in turn would lead to a drop in the price of land.

As things turned out Snowden’s Budget proposals including the land values tax was not passed by the Labour Government but rather by the impromptu National Government that emerged on 25 August 1931 in the aftermath of the leader of the Labour Party, Ramsay MacDonald, dissolving the minority Labour administration the evening before. 

The intervention of the Gold Standard

By August 1931 the forces building up in the British economy were such that any further advance of the housing issue along lines previously laid down by Labour was to hit the buffers. These forces had been developing since the end of the First World War but their full implications for housing only became clear with the 1933 Housing Act introduced by Ramsay MacDonald’s National Government. That Housing Act was briefly mentioned in the previous article in this series and will be gone into in the next instalment. A year earlier Ramsay MacDonald had decided to put the “national interest” ahead of class politics by dissolving the Labour Government on 24 August for its failure to agree to the type of deflationary budget demanded by the City of London and the opposition. The demand for such a budget was the inevitable result of Britain’s adherence to the gold standard which had been re-established in 1925 during Stanley Baldwin’s second administration (November 1924-June 1929). At that time, the terms under which Britain returned to the gold standard were unique among all other nations which took such action. As The Times subsequently explained:

“Every Continental nation which was engaged in the War scaled down its obligations by devaluing its currency, France to the extent of four-fifths of the former gold value of the franc. This country alone returned to the pre-War gold parity of its currency.” (“The Gold Standard”, editorial in The Times, 21 September 1931).

The reason for this was that Britain was anxious to restore its pre-War position as a leading global financial centre. However, as Ernest Bevin observed at the time, it was to have disastrous results on its industry and the wider interests of the economy. Speaking at the annual conference of the tinplate workers in Swansea in May 1925 he said:

 “The restoration of the gold standard will, in my judgment, only result in an intensification of the unemployment problem . . . The bankers have too much power; The Cunliffe Committee [which had recommended a return to the gold standard – ED] paid too little regard to trade; and the Government adopted the view that finance must take first place.” (The speech was subsequently printed as a pamphlet: A Review of Trade Conditions and their Effects upon Unemployment, published by the T.G.W.U., July 1925. See: The Life and Times of Ernest Bevin, by Alan Bullock. Volume 1. Published by Heinemann, London, 1967, p.268).

It was in order to sustain sterling’s relationship to the gold standard in the face of a run on gold in the summer of 1931that MacDonald’s financially orthodox Chancellor of the Exchequer, Philip Snowden, had consciously designed his budget in August 1931. In compiling his budget Snowden relied upon the findings of the Committee on National Expenditure which published its report (known as the May Report) in July 1931 and which recommended drastic and unprecedented cutbacks in public expenditure.

Both MacDonald and Snowden dismissed any counter-proposals from Ernest Bevin and Walter Citrine of the T.U.C. which involved either an exit from the gold standard or a devaluation of sterling and expressed their determination to push through with the deflationary budget claiming that was what was required for restoring the confidence of the financial markets in sterling. Those budget proposals were put to the Labour Cabinet on 24 August, which endorsed them by a vote of 11 to 9. But although the cabinet had narrowly endorsed Snowden’s proposals the fact that many of the cabinet dissenters included some of the most popular personalities in the wider Party, together with the opposition T.U.C. General Council, led MacDonald to dissolve the cabinet and, together with the Conservatives and the Liberals immediately formed a National Government. In this manner he secured what he felt would be a stronger foundation for an endorsement of Snowden’s budget as a means of sending a message of government unity to the financial markets. As part of this effort the cabinet of the new National Government initiated a vote of confidence on itself on 8 September, which it won with the support of the twelve Labour members who now occupied positions on the ministerial benches. Then, two days later on 10 September the House passed Snowden’s deflationary budget (the Finance Act) which included the land tax proposals that for the most part had been separately debated in Parliament the previous May-July. 

However, all the actions on MacDonald’s part and Snowden’s deflationary Budget failed to placate the markets and on 20 September 1931, with the City of London continuing to hemorrhage gold, Snowden did what only a few weeks earlier he had refused to do at the behest of the T.U.C., and withdrew Britain from the gold standard. This was followed by MacDonald announcing a General Election for 16 October 1931. That election was, to all intents and purposes, fought on the basis of the Conservatives and the Liberals (together with MacDonald’s ex-Labour supporters) forming a united National Government front against the Labour Party. It resulted in a dramatic drop in Labour Party parliamentary representation from its 289 MPs in 1929 to 46 plus five Independent Labour Party MPs and Josiah Wedgwood who stood as an Independent. (It also resulted in the loss of the seat of the new Labour Party leader, Arthur Henderson). 

Although the Labour vote declined by around one-fifth that loss translated into the Party losing four-fifths of its seats. The main reason for the disparity between the fall in votes and the loss in terms of Labour seats was the existence of anti-Labour local pacts between the Conservatives and the Liberals.

“Type-of-contest comparisons with 1929 offer some indication of the widespread incidence of pacts among the National parties. The pattern of the 1929 election had been one of genuine three-way competition for the vote. Then, 447 Labour candidates had contested seats against Conservative and Liberal opponents. In 1931 only 79 did so, and of those only 14 were defending their seats. Despite the dissensions within the constituent parties of the National government and the incidence of notorious ‘dogfights’, accommodation was the rule in seats where Labour was the target. It was in these where straight fights were overwhelmingly achieved. There were 434 constituency contests in which a sole National candidate had a ‘free-run’ against Labour. Conversely, there were only 93 instances of more than one National candidate contesting the same seat.” (The National Government, 1931-40, by Nick Smart. Published by Macmillan Press Ltd., 1999, p.33).

This meant that the candidates supporting a renewal of the National Government held 554 seats in the new parliament with the Conservative component consisting of 473 of those seats making it the most unbalanced Parliament since the Great Reform Act. However, despite the Conservative Party holding the whip hand, no doubt aware of the prospect of the Government needing to implement what was to be the unsavoury substance of Snowden’s budget, felt it would be best if the new government was seen to be led by someone who was not one of theirs. Consequently, they endorsed MacDonald in the role of continuing Prime Minister with the power to nominate his own cabinet. At the same time, MacDonald was compelled to maintain the credentials of the National basis on which he and the Conservatives as well as the Liberals had contested the election and went on to fill nine of the 20 posts in the Cabinet with non-conservatives. Among them the most important was the appointment of Neville Chamberlain as Chancellor of the Exchequer as a replacement for Philip Snowden who, after losing his seat in the October election was elevated to the peerage and appointed Lord Privy Seal in the new government. Chamberlain’s appointment as Chancellor was indicative of the change in emphasis of the new government from Snowden’s Free Trade perspective to Chamberlain’s protectionist position.

The new orientation of the National Government soon began to find its legislative expression with the Abnormal Importations Bill of November 1931 followed by the Import Duties Bill of January 1932.

The fate of the Land Values Tax under the National Government

In the meantime, the fate of Snowden’s Land Values Tax was being determined by his replacement as Chancellor of the Exchequer, Neville Chamberlain. Since the General Election of 16 October the Conservative press and the landed interests had mounted a high intensity campaign for the repeal of Part III of the Finance Act – the part that contained the land values tax. In response to this campaign, on 8 December 1931, Neville Chamberlain made the following statement to the House of Commons:

“The Government have given careful consideration to the question of proceeding with the valuation provided for in Part III of the Finance Act, 1931. As the House knows it was estimated that the total cost of the valuation would be from £1,000,000 to £1,500,000. A certain amount of money has already been spent but the great bulk of the expenditure is still to come. In the meantime the need for economy has become paramount and the Government feels that, in present financial conditions, they would not be justified in incurring further expenditure upon an object which, in any case, could not produce any return for a considerable time.

“Without prejudice therefore to the merits of the plan, which have not been under consideration, the Government propose to suspend the work upon the valuation and to disperse the temporary staff which has been engaged in connection with it. The necessary legislation will be included in next year’s Finance Bill.” (House of Commons Debates, 8 December 1931).

Clement Attlee for Labour responded immediately to this statement. He reminded the Chancellor that the requirements of the Land Values Tax had been an order of the House of Commons as per its passing a vote by the House as part of the Budget (Finance Act) just three months earlier and that the Chancellor in refusing to comply with that order was acting as a dictator. While technically, Attlee’s charge (backed by Aneurin Bevan) was correct the Parliament that had passed the Finance Bill (Budget) which had included the proposal for the Land Values Tax three months earlier had been dramatically altered as a result of the General Election of 16 October. That election had left the Conservative Party in complete domination of Parliament as a result of its overwhelming majority. Yet, despite holding that overwhelming majority, the Conservatives under Baldwin were compelled to maintain the “National” character of the Government as it had contested the election on that basis. As such it was inhibited from introducing a new Finance Bill (Budget) so soon after that election and so was compelled to adopt a more devious route when it came to neutralizing any prospect for the implementation of the Land Values Tax.

In doing what he did Chamberlain could then claim that he was not attempting to defy Part III of the Finance Act but rather simply, in the interest of economy, not to authorise the expenditure that was necessary to establish the basis on which the Land Values Tax could be implemented. This enabled him to claim:

“There is no breach of the law here at all. The operative part of the Act is that which prescribes that the tax, according to Section 10, is to be levied for the year ending the 31^st March, 1934. The tax is to be collectable on the 1^st July 1934, provided that the valuation is complete in time to allow the tax to be collected on that date, and provided that in the meantime this House does not alter the Act so that the tax shall not be collectable on the 1^stJuly 1934. Therefore, it does not matter whether the valuation is completed or not or whether it is completed at some time in the future, so long as it is completed in time to enable the tax to be collected on 1^st July 1934. Obviously, this valuation cannot proceed unless there is money to pay for those who are engaged in the valuation. That money will not be forthcoming unless the House votes the money, and that money will not be voted by the House unless the Government ask the House to vote it. The Government informed the House this afternoon that it does not propose to ask the House to vote that money.” (Ibid.)

By this means the tax was effectively hobbled within a few months of it being endorsed by the House of Commons. As to the promise from Chamberlain that “the necessary legislation will be included in next year’s Finance Bill” subsequent events reveal that the implied meaning was not the meaning that was actually applied. The necessary legislation was indeed included in the 1932 Finance Act but it simply amounted to a suspension of the Land Values Tax. A situation that prompted one arch-Conservative, Sir Gilbert John Ackland-Troyte, to propose an amendment which would repeal rather than suspend the working of the tax. In making his case for its repeal he said:

“Everyone thought that as soon as the election took place and a new Government was returned the Land Tax would immediately be abolished. The Lord President of the Council, speaking on 13^th June, said: ‘I can say one thing about it – that if we get back to power, that tax will never see the daylight.’ Speaking on 18^th June, he said: ‘I am not alarmed about the Land Value Tax, because I do not believe that tax will ever come into existence. If we come in, it certainly will not.

“The present Government, instead of fulfilling expectations we all held, have tried to fob us off by simply postponing the operation of this tax. If they think they can satisfy us with that, I say that we are by no means satisfied, and will not be satisfied until these provisions are removed from the Statute Book. If not successful this year, we shall try again next year, when, I hope, we shall be successful. As long as these taxes remain on the Statute Book, they can be put into force in a very short time and with practically no Debate. They are causing a great uncertainty and difficulties with regard to mortgages and things of that sort.” (House of Commons debate on the Finance Bill, 26 May 1932.)

With regards the impact of the tax on housing provision he reminded the current Chancellor, Neville Chamberlain, what he had originally said about the tax when it was being given its Second Reading in May 1931:

“On 19^th May last year, the Chancellor of the Exchequer was talking about the damage done by the tax. He said: ‘No one knows how much that depreciation is going to be, and I am perfectly certain that the doubts, the uncertainties and the anxieties that people will feel about what the effect of these proposals is going to be, will have just the same effect upon housing development as the disastrous proposals of the right hon. Member for Carnarvon Boroughs in 1909-10 [reference here to Lloyd George’s proposals], when the increase in new houses was brought down from an annual average of 119,000 to only 72,000.’” (Ibid.)

Chamberlain fails to supply a source for his figures but it appears to be an annual average which embraced the years of the war – something that obviously had an adverse impact on house building at that time. It also fails to take account of the political obstruction from Conservative and land interest dominated local councils to Lloyd George’s plans nor the fact that the type of housing constructed under those arrangement were of a higher specification to what went before.

It should be noted that the Prime Minister, Ramsay MacDonald saved himself the embarrassment of being present during the debate by being elsewhere. As for the leader of the Conservative Party, Stanley Baldwin, his contribution to the debate included an explanation of why there was no need for a Conservative-dominated Parliament to repeal the land tax part of the 1931 Finance Act at that time:

“With regard to this Act, we all remember what took place in the House of Commons. In the National Government there are five Members who were Members of the Labour Cabinet when this Act became law. The matter has been considered and discussed among us. Members of the National Government, fully conscious of the importance of the cause for which they were returned by the country to serve, are anxious, so far as is practicable, without sacrifice of principles, to hold together; give and take. What is the present effect of this Statute? It is a Statute in coma. For this Parliament there can be no prospect at all of there being a land tax or land valuation, so that apprehension ought to be removed.” (Ibid.)

The amendment for a repeal of the Land Values Tax failed and it was retained on the Statute Book for the time being. But as one M.P. described it at the time, it had effectively been “put into hibernation.” It remained in a Conservative imposed “hibernation” until 1934 when it was finally repealed on 5 June of that year. In the course of the debate on its repeal the Red Clydesider and Labour M.P., Neil Maclean, in the course of his contribution to the debate said:

“The Land Tax provisions of the Budget passed by the Labour Government have been allowed to fall into disuse. Indeed they have never been put into operation. Last year the valuation provisions passed away and this year the power to tax disappears also. The attention given by the Government to this question seems to have been of a rather cavalier character. The Chancellor of the Exchequer made practically no mention in his Budget speech of the repudiation of the Land Tax. The Prime Minister who in the past has been one of the strongest propagandists of the taxation of land, is not in his place tonight and was not in his place during earlier Budget discussions when this matter was raised by several Members. I understand that the right hon. Gentleman has a reason, justifiable to him, for being absent tonight in that he has a dinner appointment. I should have imagined that having, in his past political life, spent considerable time and energy in advocating this principle of land taxation to the public, and having fought to get it made part of the legislation of Parliament, the right hon. Gentleman would have considered this occasion of sufficient importance to forego even such an appointment and come here and tell us exactly what has happened behind the scenes to justify this transformation. This legislation passed by a previous Government was not, we were told, to be touched by a National Government. It is now being scrapped by this Government which has evidently ceased to be national, and has become solely Tory and landlord in outlook.” (House of Commons debates, 5 June 1934).

There was a certain symmetry in the way in which the earlier legislation involving a land tax introduced by Lloyd George in 1909 had been repealed by a Conservative-dominated Coalition Government in 1920 after its application had been hindered by the obstruction of landlord influenced local authorities and the First World War, and a similarly Conservative-dominated Coalition Government was later, in 1934, to repeal the 1931 Labour proposals for a land tax. Thus was ended the last measure by a Labour Government that would have been of assistance to local authorities in the area of social housing provision until after the Second World War.