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.