Selective Torment

The British have seen their steel industry nationalized and denationalized; now it is going to be renationalized. Their beer has been taxed almost out of their gullets, the cigarettes out of their pockets, and the gasoline out of their tanks. It is hardly worth the bother trying to get rich at home, and even if an Englishman succeeds, he is forced by exchange controls to spend like a miser abroad. In addition to all these torments, the Selective Employment Tax went into effect last week.

An Odd Instrument. S.E.T. is so odd an instrument that when it was introduced last May by Chancellor of the Exchequer James Callaghan, M.P.s of all parties, who had been ready to whoop into battle, were virtually stunned into silence.

The tax is deliberately discriminatory. It is intended to drive manpower from the service industries, which have attracted seven times as many workers as other branches of industry since 1960, and channel them into manufacturing, thereby increasing desperately needed exports. This is to be done by taxing service industries for each employee and giving a bonus to manufacturing industries for each employee.

Since the machinery for handling such a tax did not exist, Callaghan handed the job to the Ministry of Social Security, which will collect S.E.T. funds by selling stamps to be affixed to national-insurance cards. But the ministry has no ready way of determining which company rates help and which rates a penalty. So it will collect from all businesses--$3.50 a week for adult male workers, $1.75 for adult females and boys under 18, and $1.12 for girls under 18.

1,000 Bureaucrats. Obvious service industries, from banking to barbering, will pay the tax and forget it. But other companies can apply to the Ministry of Labor or the Ministry of Agriculture for refunds. Businesses adjudged to be in manufacturing will get back the money they paid, plus 30%. Another category, including agriculture, fisheries, communications and transportation, will neither be penalized nor subsidized. Employers in this group will contribute to S.E.T., then get back exactly what they put in.

In all, $3.1 billion in S.E.T. funds will change hands in the first year, and if everything goes according to plan, and after 1,000 newly hired bureaucrats in the three ministries have finished shuffling papers, the net result will be an estimated $670 million in additional government revenue and a subsidy of $370 million to manufacturers.

Fast Footwork. S.E.T. is fraught with paradoxes. Its numerous critics note, among other things, that candy floss makers are given the tax break provided for manufacturers, but export agents, who contribute directly to Britain's earnings abroad, are taxed as service types. The whole tourist industry, Britain's fourth largest foreign-exchange earner, will be penalized as a service enterprise.

Many businesses are doing some fast footwork to avoid or soften the blow. The easiest solution is to raise prices. Thus, brewers have suggested that publicans charge a penny a pint more for beer, and the Hairdressers' Federation suggests an increase of sixpence a haircut. Hotels are also announcing or considering price hikes. The London Hilton calculates its wage bill will rise by $2,800 a week.

As for the really rich man, he is not about to send his faithful retainer off into manufacturing. Oil Millionaire Nubar Gulbenkian, who will be paying S.E.T. for his three grooms, three gardeners, two secretaries, butler and valet, says, "What, sack the poor devils? Good heavens, no. I'll just have to pay."

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