THE INCOME TAX.—RESOLUTION.

HC Deb 03 July 1874 vol 220 cc1016-51

MR. C. E. LEWIS

, in rising to move the following Resolution:— That, in the opinion of this House, the continued imposition of the Income Tax, except in time of war or some great national emergency, is unjust and impolitic, and it is advisable that such Tax should be still further reduced and ultimately altogether repealed at the earliest possible moment, said, that he did not think any special apology was necessary for such a Motion, except it might be in mitigation of his presumption in bringing it forward in the face of so many hon. Members who were better fitted for the task. It was a question affecting the interests of some hundreds of thousands of persons with small incomes, and therefore it was one which ought to receive the deliberate and anxious consideration of the House, and on which it was high time some decision was come to. He would not enter into the history of the present Income Tax, but they all knew that in the year 1842 it was imposed by Sir Robert Peel for three years only, but it had lasted 32 years. The amount intended to be raised for the three years the tax was to last was about £10,500,000, and, as a matter of fact, during the 32 years of its existence a sum of £300,000,000 had been raised by it. It was, in his opinion, a further justification for bringing the subject under consideration, that the House had never come to a decision whether the tax should or should not form a permanent part of our financial system. Up to 1866 the tax was from time to time levied for a period of two, three, four, and even six years by one Act of Parliament; but since 1866, it had been granted by the wisdom of the Legislature only for a year at a time, and as a matter of course had varied in amount. In answer to various inquiries, he must say there were three or four different reasons for bringing forward the subject at the present time. In the first place, we were at the commencement of a new Parliament, elected under very remarkable circumstances. First, the manifesto of the right hon. Gentleman who was head of the late Government specially placed before the country as a portion of his intended programme, the entire abolition of the tax; it, however, did not stop there, for the head of Her Majesty's present Government immediately followed suit, by declaring that the abolition of the income tax had ever been the policy of the Conservative Party. Under those circumstances the abolition of the income tax naturally occupied a prominent place in the Election addresses of hon. Members on both sides of the House, and of most of the candidates, successful or unsuccessful. Again, it was only during the last few years that any Minister had been bold enough to suggest that it should be a permanent tax. For the first 20 years of its existence, every Chancellor of the Exchequer, on the contrary, invariably presented it as a temporary measure to meet some special emergency, or to promote certain special financial plans. In 1853, so anxious was the late Prime Minister to abolish it, that he brought forward a scheme of finance extending over six or seven years, entirely for the purpose of getting rid of the tax at the end of that period. Circumstances, however, had very much changed during the last 10 years; and the right hon. Gentleman the Member for the University of London (Mr. Lowe) when Chancellor of the Exchequer, was the first to make a statement in the House that it ought to be made a permanent tax. That was a startling announcement, if good faith was to be kept between Parliament and the taxpayers; but the same right hon. Gentleman only two years ago openly proclaimed as his deliberate opinion, that it ought to be made a substantial and permanent part of our financial system.

Notice taken, that 40 Members were not present; House counted, and 40 Members being found present,

MR. C. E. LEWIS

resumed: Another remarkable feature in the matter was that in the course of the last Session the hon. Member for Wick (Mr. Laing) argued on the broadest and most extensive grounds, in favour of the maintenance of the income tax as a permanent portion of the financial system of the country; but the challenge thrown down was not taken up by any person in authority, and a still more ominous circumstance was found in the fact that only recently the present Chancellor of the Exchequer had spoken deprecatingly of getting rid of this mighty structure of finance. That was, of course, only an indication of the difficulty which the right hon. Gentleman felt on the subject of dealing with the tax in such a way as to lead to its entire abolition. It had been said that the proper occasion on which to challenge the tax was on the introduction of a Budget. He could not, however, agree in that view. It would avail little for any hon. Member, when a Budget proposing an income tax of 2d. in the pound was laid before the House to ask, as a matter of principle, that the tax should be abolished altogether. Such a proposal would be rendered abortive by the fidelity of those who supported the Ministry, and of hon. Members generally who desired to preserve the public credit. Another reason he had for thinking the present a fitting time to discuss the question was, that the tax was now at the lowest rate it had touched since it was imposed, and it became important to consider whether it was possible to keep up the tax, with all its acknowledged evils, annoyances, and injustice, merely for the purpose of obtaining so small a sum as £3,500,000 sterling, involving the same enormous cost of collection for the smaller as for the larger amount, a cost moreover which had never been revealed to the House. On that very point the right hon. Gentleman the Member for Greenwich, speaking on the Budget of the present year, said it became important to consider whether, if the income tax was to be maintained in connection with the permanent operations of the finances of the country, it ought to be a tax of only 2d. in the pound, and he pointed out that, as the amount of the tax diminished, the proportion borne by the cost of collection to the net proceeds became rather serious. For that, among other reasons, the right hon. Gentleman hailed the introduction of the last Budget as evidently tending to the ultimate abolition of the tax. The same right hon. Gentleman, as far back as 1864 said, the public had a right to know whether the tax was to be permanent or not, and that it was not desirable that the tax should creep unawares into perpetuity; and the present Chancellor of the Exchequer, in the course of last year, said, that, in his view, Parliament ought to consider whether the tax was to be regarded only as a means of providing money for the conduct of a war, or meeting an emergency, or whether it was to be regarded as permanent. That was all he now asked the House to do. He should never have thought of calling upon the House to do anything so Utopian, as to declare that the tax was to be abolished next year, or the year after that. There was no ambiguity about his Motion; all he asked the House to do was to declare that the tax should be only imposed in the case of war or some great national emergency, and that its retention under other circumstances was alike unjust and impolitic. Without going into any abstract questions as to the relative advantages of direct and indirect taxation, he ventured to think that the history of the original imposition of the tax, and its subsequent re-imposition, proved, to some extent, the terms of his Motion. The tax was imposed, in the first place, in order to make good serious deficiencies which Pitt found in our Revenue in the midst of a war; and under very similar circumstances it was re-imposed by Sir Robert Peel in 1842. He (Mr. Lewis) did not mean to say it was simply a war tax; but he thought it should be reserved for war, or some equally pressing emergency, as was the case when it was first imposed; and he would ask, whether anyone doubted that, but for the new life given to it by the occurrence of the Crimean War, the tax would, in all probability, have ceased in 1860? The right hon. Gentleman the Member for Buckinghamshire, in the year 1858, declared his opinion that the tax ought not to be allowed to constitute a permanent feature in the financial system of the country; and, in the preceding year, the late Lord Derby urged that thenceforward the tax should be considered, as heretofore, a most efficient and useful engine in time of war, and struck out altogether in time of peace. The right hon. Gentleman the Member for Greenwich, when introducing his scheme for seven years' taxation, in 1853, said— Our principles with regard to the income tax require three things—in the first place, to marl; it effectually as a temporary tax. Reason and good sense coincided with those declarations, for it was important that this tax should be kept in reserve, and it would be most imprudent to use up in time of peace a resource which would be so valuable in the dire strain of war, and a resource which would enable us to surmount any financial difficulties in which we might find ourselves placed. Passing from that branch of the subject, he would proceed to show that the tax was an unjust one. It was unjust because in the main it taxed permanent and precarious incomes equally. Thus, an income derived from Consols, on which there were no deductions; an income derived from a farm, on which there were but slight deductions; an income derived from small house property, on which there were annual deductions amounting to 20 per cent; an income derived from an annuity, where the capital was being returned as income year by year; an income derived from a mine, the capital of which was being continually eaten into; and an income derived from some precarious employment, dependent upon health or fashion, were all taxed on the same scale. It was also unjust as regarded trades and professions, because of its inquisitorial character, for it was not a pleasant thing to ask a man to tax himself, and it was certainly not an agreeable thing to require a struggling tradesman to make a return showing what his income was, when perhaps it might afford information to a creditor who wished to ascertain what his position was. The tax was, in fact, inquisitorial upon the very class who were most likely to be injured by an inquisitorial operation; because, in the case of men who derived their incomes from house property, or from interest on stocks, the tax was deducted before the various amounts derived from different sources were paid, and, consequently, the exact income could not be ascertained; but it was otherwise with the tradesman, whose income could, if necessary, be obtained from his books. Then, there was the practice of surcharges, which, as at present carried out by the Inland Revenue authorities, were particularly harassing. Hon. Members were, doubtless, not aware that the Inland Revenue Department were in the habit of sending round to income tax collectors and assessors, circulars laying down a scale of income for all wholesale and retail tradesmen. Acting upon the statements in these circulars, the income tax assessors continually surcharged those liable to pay the tax, and the result was that sooner than undergo the trouble and exposure attendant on appealing from those surcharges, most men were content to pay the additional sum improperly demanded from them. It appeared from a Return made in 1872 that there had been 135,882 surcharges made in the previous 12 months—that in 110,000 cases the surcharge was submitted to; that there were appeals in 24,000 cases, and that in 17,000 instances the surcharge was reduced. He was by no means prepared to admit that the 110,000 surcharges submitted to were just, for the reasons he had already given; but, assuming that they were, was it not a shocking incident of the tax that 110,000 men in a year had attempted to defraud the Revenue with respect to it? One of the grounds on which he maintained that the income tax was unjust had reference especially to Schedule E. They frequently heard of the injustice of Schedule D, but Schedule D did not contain one half of the evils and oppression to be found in Schedule E. The latter was composed of persons who received fixed salaries—such as clerks in public offices, ministers of religion, and small pensioners—who, whatever might be the rise in the price of commodities, had no increase of income. The income tax, with regard to this Schedule E, was specially unjust and unequal in its operation. With reference to the income tax generally, he would ask, what could be the justice of a system of taxation which exempted one-half of the income of the country?—for he believed he was justified in saying that there was that amount of exemption, because the wage-earning classes, whose incomes amounted to one-half the aggregate income of the country, were altogether exempted from the impost. It was obvious that the producing power of the tax grew less as it increased in amount, as was the case in the middle of the Crimean War, for then all sorts of attempts were made to escape it. Another point, which showed the impolicy of retaining the tax in the time of peace was, that it was a direct encouragement to the Government to waste the public money. The right hon. Gentleman the late Prime Minister had, in a speech made in that House in 1864, said, he could not conceive how principles of public economy could prevail together with an abnegation of the principle that the income tax should not be retained in times of peace, and 12 months ago the right hon. Gentleman who now deservedly occupied the distinguished position of Chancellor of the Exchequer had said that if the income tax were always ready to hand, economy would not be studied as it otherwise would; for if any Government found themselves in a strait, they could always fall back upon it as a resource, and get out of the difficulty by putting on an extra penny. Again, he objected to the continuance of the income tax on the ground that it tended to promote fraud, and in that respect also he could cite in his favour the opinion of the right hon. Gentleman the Member for Greenwich. Men were placed in the position of taxing themselves, and it was notorious that under this system incomes were often largely understated, and the tax was to a great extent evaded. He would ask the House to consider whether, with an income tax of 1s. 6d. in the pound, a man would sit down with his ledger and make a correct return. Would a person, even of good sound moral fibre, always make out a return that would satisfy his own conscience? Was not this the true explanation of the notices which so frequently appeared in The Times, that a gentleman had sent the Chancellor of the Exchequer £2 3s. 4½d. as arrears of income tax? He would maintain it would be impossible to keep to an income tax of 2d. in the pound, producing £3,500,000, and that if it were to be a permanent tax it must be larger or otherwise must be taken off altogether. It had been truly said that this system of the income tax was a positive penalty on honesty, and it was a positive premium on dishonesty. There was frequently a very remarkable fact cropping up. There were such things as "claims for compensation" in the ease of demolished buildings, which might afford an opportunity of gauging the dishonest returns that were sent in. Professor Levi had stated the case of a large block of buildings being pulled down, in which the Income Tax Commissioners had discovered from the claims sent in for compensation, that they were greatly in excess of what they should have been according to the Income Tax Returns, and this they believed was far from an exceptional case. In this instance, the documents showed that the returns were made at £73,642, while they ought to have been £171,307, showing a deficiency of £97,000, or 130 per cent. It was impossible that professional men could safely calculate what they had made, unless they went on the simple ground of what they received. Then let them consider the very heavy expense of assessing and collecting the tax, which, although the House had no precise information on the subject, must be very great in proportion to the amount of revenue raised. Was it necessary for him further to urge the injustice and the impolicy of retaining the income tax, except in times of emergency, when it had been repudiated by every Chancellor of the Exchequer since it was proposed by Sir Robert Peel, and had also been condemned by two most laborious Select Committees of the House, one of which—Mr. Hume's—had sat three years? All manner of expedients also had been suggested to make the tax fair, just, and equitable, but without success. It was suggested that Schedule D should be abolished, and the other Schedules retained; but would it be fair to charge income tax to a man having £20,000 in the Funds, on which he received only 3 per cent. and allow a man who had £20,000 invested in his business, which might be returning 20 per cent. to escape altogether? A vast amount of capital was invested in trade, in shops, and in manufactures, and to allow it to go untaxed was out of the question. Again, what was to be done in the case of the parson who was charged with income tax under Schedule A? He was only a life tenant, and his income ceased on his death. To abolish Schedule D, and leave the clergyman and the owner of short leases to pay under Schedule A would clearly be only to substitute one set of evils for another. Some authorities advised that the minimum upon which the tax was paid should be increased. He did not think it a wise suggestion, nor, in his opinion, were those who advocated it, or the House, aware of the effect upon the revenue of exempting incomes under £300 a year. The taxable income under Schedule D, in 1872, including mines and quarries, was £153,000,000. If all incomes under £300 a year in Schedules D and E were exempt, the taxable amount of income would be reduced by £50,000,000, or one-third. The same proportion would hold good in regard to Schedule A, which contained a large number of persons having a small income from fixed property. The consequence would be that an exemption at the line of £300 would reduce the taxable income by £100,000,000. Such an operation would positively aggravate three of the evils of the income tax. It would offer a direct tendency to fraud to the 67,000 persons in Schedules D and E, whoso incomes were between £300 and £600, and whose interest it would be so to manipulate their incomes as to bring themselves below the £300 line. Secondly, this temptation being known in the Inland Revenue Office, it would be met by additional surcharges and assessments. And thirdly, the inquisitorial character of the tax in consequence of these surcharges would be increased and intensified. The effect upon the Inland Revenue Office itself would be to overwhelm it with claims of exemption. Another suggestion was to graduate the tax, and the Committee over which the hon. Member for the City of London had presided, had recommended that incomes should be divided into spontaneous and industrial incomes—the latter contributing two-thirds, whilst the former would be assessed at the full charge; but that suggestion had to be abandoned. If any one doubted that the income tax pressed very hardly upon the community at large, he might be referred to the remarkable speech delivered by the right hon. Gentleman (Mr. Lowe) in 1872. The late Chancellor of the Exchequer then told the House that there was no class of the community so severely pinched by taxation as the lower class of income tax payers. The right hon. Gentleman, who was not a man likely to give way unduly to sentiment, added that he was really shocked by the letters he received from persons in the position of gentlemen mating piteous appeals to give them time, or excuse them on the ground that they did not know where to lay their hands on the money they were called upon to pay. In Schedules D and E there were not less than 510,000 persons who returned their incomes as under £300 a year. Let the House remember the difficulty which many persons of fixed means had in keeping up a respectable position, in paying house rent, and educating their children on such sums. It might be asked, why this tax had existed so long, and had been so patiently borne. The reason was because it had been held out by successive Ministers and statesmen that it ought not to be made a permanent tax. In 1873, the present Chancellor of the Exchequer said that the income tax had remained, like Mahomet's coffin, suspended between the idea of a permanent and a temporary tax. People were, he added, beginning to say that it was not such a wild idea to get rid of the income tax altogether; and the House had a right to know what was the view taken by the Government on this subject. There was not the slightest ground for delay in speaking upon the subject, and the country ought to be dealt with fairly and openly. He did not, as he had said before, ask the House to commit itself to abolish the tax next year or the year after, but only to come to a clear and deliberate decision on this subject, and to determine whether the income tax should be a permanent impost, or whether it should not be at the earliest possible moment erased from the Statute Book. The hon. Member concluded by moving the Resolution.

DR. LUSH

seconded the Motion.

Amendment proposed, To leave out from the word "That" to the end of the Question, in order to add the words "in the opinion of this House, the continued imposition of the Income Tax, except in time of war or some great national emergency, is unjust and impolitic, and it is advisable that such Tax should be still further redueed and ultimately altogether repealed at the earliest possible period,"—(Mr. Charles Lewis,)

—instead thereof.

Question proposed, "That the words proposed to be left out stand part of the Question."

MR. GRANT DUFF

who had given Notice of an Amendment to the Resolution, to leave out all the words after "Tax" in order to add the words "is alike just and politic, unless and until some other direct tax can be substituted for it against which-fewer valid objections can be stated," and which the Forms of the House prevented his moving, said: No part, Sir, of the remarks which I wish to submit to the House with reference to the Motion of the hon. Member for Londonderry will consist of a panegyric on the income tax. I am quite aware that many and serious objections can be made to that impost, and ready to allow that the way to make it perfectly fair in its incidence has not, as yet, been discovered by any financier. All that I would wish the House to affirm, if it were possible to divide on my Amendment is, that bad as the income tax may be, it would be very unjust and inexpedient to abolish it, without substituting for it some other direct tax less objectionable in its character. It is clear, Sir, that if we abolish the income tax and have not a succession of quite extraordinary surpluses, we must do one of four things—we must diminish our expenditure to the extent of our loss of Revenue; or we must add to our indirect taxation to that extent; or we must devise a new direct tax or taxes as lucrative as, and less inconvenient than, the income tax; or else we must have recourse to a composite scheme formed out of at least two of these expedients. As to the first of these possible plans, I do not think the House is prepared for so large a reduction in the Army and Navy, or in one of them, as would be necessary if we were to sacrifice the income tax without some equivalent; and even if it were, the classes not affected by the income tax would surely insist on having their share of the relief arising from our diminished expenditure. As to the second plan, it is entirely contrary to all recent policy, notably to that abolition of the sugar duties which I congratulate my right hon. Friend opposite on having had the good fortune to effect. As to the third plan, I am quite prepared to agree to that solution of our problem when we have it solved. I have every hope that some direct tax, or combination of direct taxes, better than the income tax will some day be laid before us; but no one has yet, in this matter at least, spoken, le mot de l'enigme. But if there are objections to each of these three plans, there are not less grave objections to a composite measure made up of some reduction of expenditure, some increase to indirect taxation, some new direct taxation, or any two of them. Supposing then, for want of something better, we determined to keep the income tax, whose defects are known, instead of trying some new financial expedient which may have far greater inconveniences, what could we do with it? What compensation might we have for its admitted evils? I reply, that we could do with it in the future as we have done in the past, that is, by no means resolve to keep it to all time as a part of our ordinary taxation, but retain it, at least, until we have made the rest of our fiscal system accord with right reason, and expediency. Is our fiscal system now what it ought to be? Can it be defended as theoretically correct even by those who think best of it? It is clear that it cannot, and I make haste to admit that there is not the most distant chance of our arriving, in any time to which the politician as distinguished from the political philosopher can look forward, at a thoroughly defensible system, by which I mean such a system as any committee of men of business acquainted with finance would propose to adopt if they were not hampered by historical accidents. But although we cannot expect to arrive, perhaps for ages, at a perfect system, we may be continually though slowly approaching it, and in order that we may do so, it seems to me absolutely necessary to keep the income tax, or forthwith to put in its place, some direct tax which will be as efficient and as easily increased. The three great requisites of a perfect system seem to me to be that it should provide easily and amply for the ordinary annual outgoings of the State, and be capable of rapid expansion in emergencies; that it should in no way hamper the trade of the country; and thirdly, that it should be consistent with perfect security to the pub-lie creditor. Now, the first of these objects is quite attained by our present system, and might, I should think, be equally attained by even more imperfect systems than ours. The much-abused income tax is the very portion of it, be it observed, which makes it so readily expansive. The second is not attained, and cannot be attained as long as our indirect taxation is anything like as great as it is now. It would be wasting the time of the House to point out at any length the inconveniences of the Customs and Excise duties; but although these inconveniences are acknowledged, very little has been said about them in this place for a long time, and what is said in this place gets so much more rapidly, so to speak, into the circulation of the body politic, than what is said anywhere else, that I may be excused if I recall them in a few sentences. We are in danger of forgetting that although we have done much to reform both Customs and Excise, and although both Customs and Excise are necessary evils at present, and probably for a long time to come, yet they are, still, evils, and great evils. We are in danger of forgetting that Customs and Excise duties are exceptionally costly to collect; that they give an advantage to the large over the small capitalist; that they prevent the opening of new sources of supply; that they have prevented, and perhaps still prevent, the creation of new outlets and inlets for commerce round our shores; that they have closed, and still to some extent close to us, foreign markets by provoking retaliatory duties. I wish every hon. Member of this House would read an admirable paper on this subject by Mr. Cliffe Leslie, which must be in the hands of many of us, for it was largely circulated by the Cobden Club. From it, with the permission of the House, I shall read a short summing up of the evils of the Customs duties— An inevitable consequence of Customs duties is to involve the State in a series of dilemmas, with only a choice of great evils. It must either grant unrestricted liberty of importation and exportation to every spot on the coast, and along the rivers of the kingdom, thereby entailing an enormous army of tax collectors and intolerable cost of collection, or it must limit direct foreign trade to selected places, thereby disturbing the natural order of things and obstructing the development of numerous localities. It must either exact immediate payment of the duties on importation, thereby wasting capital, harassing merchants, and mulcting consumers, or it must establish the system of bonding, and encounter a fresh dilemma, between covering the kingdom with warehouses and Customs officials, or confining the advantages of bonding unfairly to particular places. It must extend the duty on any particular import to all its possible substitutes, thereby incurring heavy cost in collecting unproductive imposts, on articles of which the main uses, moreover, may not be those which it was intended to tax; or else the tax must be confined to the principal import, in which case it may be evaded by substitutes, thereby depriving the public of the best article without profit to the State. And now with regard to Excise— You impose an Excise duty on British spirits, meant to tax only the drinkers of spirits, and to balance the duty, you must tax foreign spirits, thereby shutting your manufactures out of Continental markets, and impeding the progress of free trade throughout Europe. To collect your Excise duties you stop invention and improvement, not only in the production of the articles taxed, but in all the arts and applications in which the products are used or to which analogous improvements might be transferred. As with the tangled web we weave, when once we practise to deceive, the ramifications of loss and mischief following from one false stop in finance are endless. The loss in many instances may be slight, but all the wealth of England is an accumulation of small savings and small gains.…. About 42 millions sterling are annually advanced by producers and traders in payment of Customs and Excise duties, which otherwise would be productively employed and reproduced, yielding wages as well as profit at each turn of the capital. What is lost, therefore, by the bare advance of the duty is not merely profit, but the entire revenue that would otherwise be reproduced. It will not, I presume, Sir, be disputed that at this moment, under what is popularly described as a system of perfect Free Trade, we are raising more money off our trade than we ever did in the days of Protection. People say, however, that our indirect taxation is raised in a far less inconvenient and oppressive way than it once was, and that it now falls only upon things which are more or less in the nature of luxuries. The first of these statements is quite correct, and no reservation has to be made with regard to it. The second is in a sense, correct, but a reservation has to be made with regard to it, and the reservation is this. True it is that our present indirect taxation falls only upon things which are to their consumers more or less, in the nature of luxuries, but how much does it affect the labour of the country? Can there be a doubt, for instance, that even the taxation on an article of luxury like high-priced claret is more or less an injury to the unskilled labourer, if only by diminishing to some extent the demand for his labour, in helping to convey the claret to the persons by whom it is consumed. I think, then, that the greatest compensation for keeping on the income tax is the diminution in our indirect taxation which we may make thereby; and, first, the getting rid of as much of our Customs duties as we can without injustice to our own producers. So far as is possible, I think we should do this by falling back, as soon as circumstances permit, upon the policy which was so brilliantly inaugurated by the Commercial Treaty with France in 1860. That policy, as I understand it, was this. Mr. Cobden said, ever since the repeal of the Corn Laws, and the other tariff reforms of Sir Robert Peel's Government, I have been waiting to see whether foreign nations would not follow the example of England. I have seen one foreign statesman converted after another; but still fiscal legislation on the Continent does not improve. The interests hostile to Free Trade are too strong. Let me see what is to be done by a system of commercial treaties absolutely antithetic to the old commercial treaties, the type of which was the Methuen Treaty. Let me see whether all Europe cannot be entangled in the meshes of Free Trade. He set to work, and the result can be stated in a sentence. I quote from a well-known pamphlet on commercial treaties, published by the Cobden Club— By means of this network, of which few Englishmen seem aware, while fewer still know to whom they owe it, all the great trading and industrial communities of Europe—namely, England, France, the Zollverein, Austria, and Italy—constitute a compact international body from which the principle of monopoly and exclusive privilege has been once for all eliminated, and not one member of which can take off a single duty without all the other members at once participating in the increased trading-facilities thereby created. Now, Sir, that is the policy I want to see carried forward. If my right hon. Friend opposite sees his way to diminishing or abolishing next year any of the existing Customs' duties, without any communication with foreign countries—and the smaller Customs' duties, those on chicory, coffee, figs, ginger, plums, prunes, together with the trifles which make up the head of "miscellaneous" seem ripe to be swept away—I should be too glad to see them go; but with regard to the larger Customs' duties, there are arrangements which other nations are, or were recently, eager to make, which, while benefiting them, would make our own tariff more consistent with principle, and would further open to us the markets of the Continent. Take, for instance, the case of spirits. It is asserted by German Free Traders that we still keep up, without knowing it, a protectionist duty in favour of the English as against the German distiller, owing to the method in which we countervail, and only as we suppose countervail, a portion of our Excise duty. They ask for an inquiry, and promise if, on inquiry, it turns out that their complaints are well founded, to give us in return for a rectification of procedure, in strict conformity with our own principles, very considerably increased facilities for exchanging our produce with theirs, by the abandonment of certain of their import and export duties, especially their import duties on raw iron, flaxen yarn, and soda, and their export duty on rags. Then, to take the case of wine. It is notorious that a very moderate sacrifice of Revenue under this head, would a short time ago have opened to us the markets of the Peninsula, as they never were opened before, and I have no reason to believe that the situation is in any way altered. Very recently, I believe, the Portuguese Lower Chamber rejected some proposals of their Government which would have been advantageous to our industry, simply because we were so obdurate about their wines. Then, take the case of tea. My right hon. Friend the Chancellor of the Exchequer, and my hon. Friend who represents the Foreign Office in this House, know well that our diplomatic position with reference to the Tea duty is very difficult, and not indefinitely tenable. We prohibit the Chinese by treaty from levying more than 5 per cent export duty on tea, while we levy a very much heavier import duty on it. Sooner or later that arrangement will have to be revised, and such is the growth of the Indian tea industry that very soon we shall have a demand to diminish or abolish our Tea duty, on the plea of justice to India, and be able, perhaps, in yielding wholly or partially to the demand, to make stipulations for the advantage of Manchester. It is unnecessary to multiply examples, but I think I may assume that there is still a considerable field for the development of the great and beneficent policy of commercial treaties, and that until all has been done in that direction which remains to do, the question whether we should keep the income tax, or some tax like it, as a part of an ordinary taxation, can hardly be said to arise. Some object to this policy as fettering our fiscal liberty, but no great harm can come of fetters which only compel to the doing of what is in itself advantageous. A German economist has well said— That both contracting parties become tied, for a given time, to the respective tariff reforms on which they have agreed, is an advantage into the bargain. It helps over the danger of a reflux of public opinion arising from the trials of the first years. There is no law of political economy that does not want some time before its beneficial action can take place in full swing. In particular, division of labour wants time for supplanting competition. Whoever resolves upon free trade instead of exclusion, must resolve at once upon extending the experiment over some time. He therefore sacrifices no liberty of action if he binds himself to do so in the face of another. The development of that policy, and the acquirement of the free breakfast table, or something very like it, which will be one of its results, will obviously confer immense benefits on the poorer part of our population, both in diminishing their outgoings and in increasing the demand for their labour.

Notice taken, that 40 Members were not present; House counted, and 40 Members being found present,

MR. GRANT DUFF

resumed: If, however, we retain the income tax for the purpose of taking off taxes which press more heavily upon the lower than the upper portions of society, the time will soon come when we shall have to reconsider our exemptions, and, above all, to face the question whether there is any insuperable objection to taxing weekly wages. The experiment has been tried for us in Prussia, where it is said perfectly to succeed, and that although, as has been well pointed out, the Prussian lower classes have at the same time to bear a tax which we have not—and thanks to our very different geographical position, I trust never will have—the tax of blood, that compulsory service which sends a large portion of their youth into the ranks every year, and subordinates all the arrangements of social and family life to military considerations. The right hon. Gentleman, who was lately at the head of Her Majesty's Government, said, in 1853, when Chancellor of the Exchequer— To my view, it is a right and Expedient principle—taking it in connection with all the circumstances of the case—that we should not trench upon what I would call the territory of labour,"—[3 Hansard, cxxv. 1390.] and he defined the territory of labour by the figure of £100 a-year. That was perfectly sound doctrine 21 years ago; but it would be doubtful doctrine now, when so many millions of annual taxation have been removed from the shoulders of those who have less than £100 a-year; and it will be still more doubtful doctrine when we come to that "free breakfast table" of which I have just spoken, and towards which the Budget of this year has made another long stride. Doubtless, there are inconveniences to be faced, and prejudices to be got over, in taxing weekly wages. Some people even imagine that it would be dangerous to do so. I do not believe that, but even if I did, I should think that it was just one of those cases in which we should say with Napoleon—"We have reason on our side, and when reason is on our side, it is right to run some risk." Nothing can be less wise, either for States or for individuals, than to base their conduct upon two wholly antagonistic principles. If our electoral legislation is to be based on the principle that our working classes are saints and sages, and our fiscal legislation on the principle that they are so foolish and ignorant that they must be cheated into paying a fair share of the current expenses of the State, it seems to me that we are in a very perilous condition. I utterly disbelieve, however, in the impossibility of making the working man contribute directly to the immediate and obvious necessities of the year which is passing over his head, when those necessities have been recognized as immediate and obvious by his own Representatives, though I can quite understand his grumbling if he had to pay, in the shape of a direct tax, the interest of that National Debt which was run up in past times by the general madness of all classes, but which false teachers will always be ready to tell him was run up in days when he and his had no influence and no responsibility. It is the existence of this great National Debt which is the only valid argument to my mind for keeping up any indirect taxes at all. If we had only to provide for our ordinary expenditure, I would say that we should sweep away all our Customs and Excise establishments, thereby saving largely, and developing our trade in geometrical ratio. As we have, however, this enormous debt, I should like to see our indirect taxation gradually reduced by the methods I have alluded to, and others, until it falls exclusively upon those luxuries, such as spirits and tobacco, which may easily become hurtful. But out of these, and especially out of spirits and tobacco, we should get as much as we possibly can, consistently with not increasing smuggling and illicit distillation. When, by making our indirect taxation fall entirely upon these, and, though less heavily, upon beer and wine, we have set free—if I may use the expression—the elbows of our trade, so far as our great debt will allow, we should begin to think of devoting a larger portion of what we raise each year to bringing our Debt within manageable compass; but I think that as long as this country goes on steadily getting richer, and seeming likely to continue to do so for a long time, it would be doubtful economy to do more than we now do towards diminishing our Debt, if we at all risk by that process making these Islands a less desirable place for the skilled artizan, and for the capitalist to live in. On these two classes, and on the high and general education of our people, depends our national future. We must remain or become great as the workshop of the world, as the emporium of the world, as the reservoir of the capital of the world, and as the university of the world, if we are to remain great at all in comparison with other nations, which in point of climate, and in many other respects, are more highly favoured. Our destiny, if we are to remain great, is to be an infinitely grander Holland combined with an infinitely grander Venice, and to that end we must walk warily now, and keep the four great advantages we have got. Those advantages are—first, the start given us by our having adopted, comparatively early, a comparatively wise fiscal legislation; secondly, the start given us by our mineral resources, which one day, no doubt, but not yet awhile, will be exhausted; thirdly, the start given us, and which we never ought to lose, by our geographical position—incomparably the best suited for a commercial emporium in the whole world; and fourthly, the start given us by our unique, but still pitiably misused, educational foundations. To give up the income tax at this moment, without imposing a less objectionable and as easily increased direct tax, would, in my opinion, be most unwary walking, and would injure, more than any change in our fiscal legislation which I ever remember hearing proposed in this House, the present and future prosperity of the country.

MR. HUBBARD (London)

heartily agreed with the hon. Gentleman who had introduced the subject (Mr. C. E. Lewis) in all the anathemas he had launched against the inequality of the operation of the tax. Upon that point no two persons would be found to disagree; and the hon. Member might almost have spared himself the trouble of appealing at considerable length to the promises of Ministers of finance and Statesmen who during the last 30 years had promised from time to time that the tax should be taken off. What we should consider was not whether such promises had been made, but whether it was for the interest of the country that the tax should be wholly abolished. He could not admit the fact of its special utility as a war tax as a reason for not attempting to remove some of its defects.

Notice taken that 40 Members were not present. House counted, and 40 Members being found present,

MR. HUBBARD

continued: There was no doubt that the tax was inquisitorial, but if it carried with it large national advantages, they should consider how far the objection on the score of its inquisitorial character might not be in other respects compensated. From the remarks made by the hon. Member for Elgin (Mr. Grant Duff) upon indirect taxation, it might have been thought that he was speaking, not in the year 1874, but in 1844, before Sir Robert Peel effected the vast change which had been made in our fiscal system. No argument was needed to prove the im-policy of taxing the necessaries of life; but if, instead of taxing grain, butter, and cheese, they taxed gin, brandy, wine, and tobacco, the consequences in a national point of view were very different, and Governments all the world over had found it expedient to tax such articles for the sake of morality as well as of the revenue. It could not be said that our indirect taxation now pressed with undue severity on the working classes, because the taxes paid by those classes on the spirits, beer, and tobacco they consumed was of a voluntary character, and need not be borne by them unless they chose. He was not prepared, therefore, to sweep away taxation in the manner proposed. The charge on the working classes was by no means onerous, and he could not, for the purpose of obtaining what was called a "free breakfast-table," consent to sweep away taxes that he considered necessary for the Revenue. The cost of collection might be greater in the case of Customs than in that of the Income Tax, but still it was not onerous. The Customs and Excise raised no less than £35,000,000 sterling, including the licences required for the sale of articles charged. It was often said that they ought to lighten the springs of industry and to grease the wheels of progress, but there were instances in which our fiscal system imposed weights upon the springs, and poured sand into the wheels instead of oil. Some of the Stamp duties were of a most oppressive character, as, for example, those on foreign bills, those on all securities which were transferred, whether on the mortgage or sale of land, or on the sale of other investments and stocks. No assistance was rendered by the Government to those financial or industrial movements, and the Government ought not to levy a tax upon them. Those duties were vicious in their character, and he invited the attention of the Chancellor of the Exchequer to them, with a view, at least, to their modification. But if those imposts were to be scrutinized and reduced, could they ask the Government to bind itself to remove the income tax? It was important at that period of the Session, and with the Recess approaching, that there should be no false expectation in the mind of the country in regard to what was to be done with the income tax? He was of opinion that the Government would not act wisely in giving up the income tax altogether, and, so far as he had understood the speech made by the Chancellor of the Exchequer when introducing the Budget, he did not believe they had any intention of doing so.

Notice taken, that 40 Members were not present; House counted, and 40 Members being found present,

MR. HUBBARD

resumed his argument by pointing out if taxes were not to be paid indirectly on consumable articles they must be paid directly in the form of an income tax. The legacy, probate, and succession duties being accidental in their character could not be relied upon for an equable contribution to the public Revenue. The income tax, although it was objectionable as it was now levied, had, he considered, many advantages. The total income taxed was about £350,000,000, and of this a very large portion was assessed upon from money invested in the public funds, under Schedule C, and upon rents assessed under Schedule A. Under both those Schedules income was taxed at its source, before it reached the hands of the owners. The principal difficulty that presented itself to his mind had reference to Schedule D, and he thought that difficulty might be much diminished by assessing the profits of public companies in their dividends, just as dividends were assessed under Schedule C, a course of proceeding which would tend so far to minimize the objections felt to the Schedule. He admitted that the power of self-assessment would always be a very delicate one to exercise, but in his opinion the greater part of the dishonesty in making returns to the income tax was due not so much to immorality and a desire to defraud, as to the fault of the tax itself and the desire of the people to do themselves justice, as they believed, even at the expense of truth. The number of fraudulent and evasive returns was very small when compared with the total number of returns made. Thus out of 490,000 persons liable to the tax, 362,000 made returns, and only about 135,000 were surcharged. Of that latter number 25,000 persons appealed, and 7,000 of the appeals were dismissed, principally on the ground that the regulations of the Inland Revenue Department had not been complied with. The fact of the payment of "conscience money" was a striking, and, as he thought, a most creditable feature in the English character; indeed, it was only in a country where a high state of civilization and a great regard for morality prevailed, that an income tax on the present system could be collected at all. Nine-tenths of the dishonesty to which reference had been made was owing to the essential vice and injustice of the tax; and if the Government could present the country with a system which imposed the tax equitably it would dispose of the difficulties in which the question was involved. The hon. Member for Londonderry had urged that the income tax should be kept in reserve as a resource in time of war, which was so far an argument in its favour, as meaning it was worth keeping: but he (Mr. Hubbard) maintained that if an income tax founded on more just principles than the present one could not be devised, the sooner the tax was abolished altogether the better. He objected strongly to a scheme for graduating the tax, by which larger incomes should be taxed on a higher scale than smaller incomes. The great thing in a measure of this kind was to adopt a course that would satisfy the country that justice was intended and did prevail. It was impossible that any individual Member could carry a question of the kind against a strong and determined Government, but if Ministers would themselves introduce an improved system, they would not have the slightest difficulty in carrying it out. He would tell the hon. Member for Londonderry that he did not think it fair, under the circumstances, to call on the Government to give any decision on the subject now. The principal objection to the tax was really directed against a portion of Schedule D, and with regard to the point, he believed it would be perfectly possible to construct a system which would carry out a satisfactory adjustment. He would ask the House not to support the Motion of the hon. Gentleman, or rather he would appeal to the hon. Gentleman himself not to press it to a division. He admitted that the existing system was unjust, and, therefore, he did not wish to see it maintained indefinitely, but he would rather leave the question in the hands of the Government during the Recess, in the hope that they might be able to devise a plan which would be satisfactory to the House and the country.

SIR JOHN LUBBOCK

said, he thought the evident desire to count out the House, and the fact that when the late Prime Minister appealed to the country on this question, he was defeated by a large majority, did not bear out the statements made of the unpopularity of the income tax. It was urged that the tax should be abolished, because it was a war tax; but it would be as logical to abolish the impost in a time of peace because it was a war tax, as it would be to abolish the Army and Navy; and if the tax was to be relied upon in time of war, its machinery should be kept going in time of peace. Though he could not accept the Resolution proposed by the hon. Member for Londonderry, he had never disguised from himself the strong arguments which could be brought against the income tax. The tax was said to be inquisitorial, unpopular, and unjust. But there was no tax against which grave accusations could not be brought. The objections to indirect taxation were also very great, and before the House was really in a position to condemn the income tax, they ought to be satisfied that the other taxes were not even greater offenders. He did not, then, deny that the income tax had many disadvantages, and, indeed, he might almost be said, using Voltaire's expression, to support it only as the cord supported the criminal. Still, some taxes must remain, and before they abolished the income tax on account of its demerits, they must satisfy themselves that they could replace it by a better. They were told that the income tax was unjust for two principal reasons; firstly, because it fell equally on temporary and permanent incomes; and, secondly, because the same rate was imposed on income derived from individual exertion as on that from real property. But the first objection held good only as long as the tax was temporary, and manifestly did not apply to it if permanent. As regarded the second objection—namely, that the income tax fell more heavily upon professional and mercantile incomes than on wages or on real property, that in itself was no doubt unfair. But, on the other hand, if other taxes fell especially on consumers, and our rates on real property, the very inequality in the income tax might be an advantage, as tending to counteract corresponding inequalities in other taxes. No single tax, indeed, was just in itself and in its primary incidence; our whole system was based on compensating inequalities. The income tax had now been in operation for more than 30 years, and salaries, payments, annuities, &c, had been adjusted with reference to it. But though it was true that the incidence of taxes in the long run regulated itself, it was not the less true that it was a work of time, and that any sudden alteration of system might be most unfair as between class and class. It would be unjust to repeal a tax which fell on the rich, while leaving untouched others which, like the duty on tea, pressed more heavily on the poor. Again, the burden of our local taxation fell mainly on real property. Now, in the last Parliament, the hon. Baronet the Member for South Devon (Sir Massey Lopes) brought forward, and carried by a large majority, a Motion in favour of relieving the rates, and, consequently, real property, from a portion of the burdens which at present fell upon them. Those proposals had been partially acted on by the present Government, and accepted by the majority of the House. But those who took that view could not consistently support a proposition for the simple abolition of the income tax, which was mainly attacked on the very ground that it pressed most severely on that description of property which could not be reached by rates. Those general considerations must not be overlooked, and, moreover, as it was never desirable to over-state a case, it must be admitted that there were some compensating provisions in the law as it now stood to which sufficient consideration had not, he thought, been given. The attacks on the income tax derived much of their force from the fact that incomes derived from trades and professions paid the same nominal amount as those from lands and houses; but it must be remembered that in the case of professional and industrial incomes, the amount was taken, either on an average of three years, or on the actual amount, at the option of the payer. This was a great advantage, estimated by the Inland Revenue Office as equivalent to about 30 per cent deduction. Any system, on the contrary, which recognized a general remission to all incomes derived from trades and professions would grant the same boon to the sleeping partner in a great firm as to a tradesman whose income was dependent on his health, and must, therefore, be more or less precarious; but the option to which he had referred was a concession just where a concession was most needed. The case of land and houses was the very reverse. Here the tax was charged on the gross income, without any deduction on account of the out-goings for repairs, insurance, &c, which had been estimated by high authorities at over 10 per cent for land, and from 15 to 25 per cent for houses. Taking Schedule A all round, they could not be estimated at less than 15 per cent. But that was not all. Under the present system, while real property and professional incomes nominally paid the same rate, the former in reality paid on 20 per cent more than the not income, professions on considerably less. The whole system of taxation must be considered in reference to the question. The Customs and Excise duties fell with the greatest severity upon the labourer and artizan classes, who were exempt from income tax; and with reference to local rates, the House and the Government had acted upon the policy that real property was unduly taxed in proportion to other descriptions of property. There had been a great many suggestions made with a view of meeting the injustice of the income tax, but it appeared to him that none of them showed a satisfactory solution. On the contrary, he thought it was more than probable that if they began to touch the system of the income tax, they would be compelled to do the very opposite of that which they desired to effect. Again, while the assessment of an income tax on stocks and shares was very simple under the present system, it would be difficult to devise any other direct mode of levying a tax on them which would not be very difficult, if not impossible. The experience of America had brought out in a striking manner the difficulty of enforcing any direct tax on personal property. The Committee recently appointed by the Legislature of New York, under the presidency of Mr. Wells, had issued a very able Report, in which, after carefully detailing the results of their own experience, and examining that of other countries, they expressed their conviction that to levy a direct tax on personal property was a financial impossibility. Indeed, the more it was attempted to secure completeness of assessment by declarations and oaths the more injurious did the system become. Those who advocated a modification of the income tax generally did so, on the ground that industrial incomes were charged too heavily in proportion to those derived from land. But it must be remembered that an immense amount of landed property was in settlement or under entail. Under the system proposed, all such property, instead of paying on the income, as it did now, would be taxed only on the life interest, and would, therefore, pay less than at present; besides which, such an arrangement would give a stimulus to settlements, which was in itself far from desirable. It was, moreover, generally the large estates which were entailed—this plan, therefore, would encourage entails and discourage small investments in land. Again, if any such changes were made, it would be impossible to continue to levy the tax, as at present, upon holders of the public funds. As a matter of public faith and national engagements, they must be placed in the most favourable position, and must be permitted the full advantage of any reductions and remissions. In fact, while the attacks on the income tax arose mainly from an idea that landowners and stockholders paid too little in proportion to industrial incomes, if they valued at all they must value life interests in land, and if they exempted at all they must exempt fund-holders. In considering these questions, they must not overlook the fact that as between class and class all inequalities of taxation had a great tendency to right themselves. The income tax was no new tax; all those engaged in trades or professions had entered into them under this tax; and, in fact, the greater the inequality the more necessary it was to consider whether they would not produce a new wound in order to remove an old scar. If an old inequality had been removed by time, to allow for it again was to create a new one. The hon. Member for Londonderry had told them that in his opinion, in spite of the injustice and inequality of the income tax, there were times when it was necessary for the well-being of the country. If that were the case, it appeared to him (Sir John Lubbock) the proper course was to keep the tax as low as possible in times of peace, but to keep the machinery going, so that we should have something to fall back upon in time of necessity. He had listened with great interest to the able speech of the hon. Member for Elgin (Mr. Grant Duff), who showed how much remained to be done to complete that system of free trade to which this country was so much indebted. With reference to it, he would not now enlarge on the advantages which might ensue from the removal of some of the smaller Customs' duties, nor would he dwell on the great importance of reducing our Debt during the present period of prosperity. These considerations, however, ought not to be altogether overlooked. Moreover, there was great inconvenience in committing themselves to such a decision at this period of the year. They were, still nine months from the close of their financial year, and he would be a bold man who would venture to predict what might occur in the meantime. Under these circumstances, then, glad as he should individually be if the income tax could be abolished, it was impossible for him to support the Resolution now before the House. He therefore hoped the hon. Member would be satisfied with the discussion that had taken place, and that the Motion would not be pressed to a division.

MR. FAWCETT

said, that the hon. Member for Londonderry in his able speech had truly said that the question of the repeal of the income tax occupied altogether a different position from what it had formerly done in consequence of the recent Elections; and considering the prominent position which the subject held before the public at the time of those Elections he (Mr. Fawcett) was afraid the people of this country would not put a very favourable interpretation upon the attempt of the Government to get rid of the Motion by a side-wind, as evidenced by the four attempts just made to count the House. The people might say that each party, in bidding for support, made promises which they could not fulfil. The right hon. Gentleman the Member for Greenwich promised that if he were returned to power at the head of a majority, he would repeal the income tax, while the right hon. Gentleman now at the head of the Government, who might have objected to dispose of the tax by a preliminary ple-biscitum, but instead of that he out-Heroded Herod, and declared that the total and unconditional repeal of the income tax had always been a settled point of the policy of the Conservative Party. Only one interpretation could be put upon those Election addresses, and the country thought that the two great parties were equally pledged to repeal the income tax. When the hon. Member for Elgin (Mr. Grant Duff) came forward with his Amendment, he (Mr. Fawcett) thought that the House was on the eve of a great financial disclosure, and he could by no means understand how the hon. Gentleman had remained a passive Member of an Administration which had promised if the country gave them a majority to repeal the income tax. He was quite aware of the objections urged to the income tax. It was in some respects inquisitorial; its collection was vexatious; in point of political economy it was unsound, because it was a tax upon prudence. These objections did not, however, apply to the entire tax, but only to one form of it. What the House had to consider was this important issue—would the abolition of a particular tax make our financial system on the whole more just and equitable in the burden it imposed upon the people? The House seldom heard anything, for instance, of the inequalities of the duty on tea. Yet, as it was not an ad valorem duty, it pressed with undue weight upon the descriptions of tea consumed by the poorer classes. Moreover, every man did not contribute to the tax in proportion to his means, the married man with a family contributing more to it than the single man, and so on. Would, then, the total and unconditional repeal of the income tax leave our fiscal system more just and equitable? When it was proposed unduly to increase the income tax he (Mr. Fawcett) protested against it; and when the late Chancellor of the Exchequer proposed to meet exceptional expenditure entirely by the income tax, he took every opportunity of protesting against that proposal as one which was grossly unjust and one which would fatally weaken the best guarantees for economy. But if he saw a tendency to go to the other extreme, he should be wanting in duty if he did not protest against such a proposal with equal earnestness. If the wish of the hon. Member for Londonderry were gratified, almost the whole revenue of the country would be raised from the commodities of of ordinary consumption. The Excise produced £28,000,000 and the Customs £20,000,000, and if the income tax were abolished, with the exception of stamps, nearly the entire revenue of the country would be, as he had said, raised from house-keeping expenditure—or in other words, from commodities of ordinary consumption. Let the House consider for a moment the onerousness of some of the duties affecting articles of ordinary consumption by the poorer classes, as compared with the value of the articles consumed by the richer classes. On tobacco there was a duty of 400 per cent. while the duty on foreign cigars was only about 10 per cent. With regard to wine, cheap claret paid a duty of 15 per cent. while the high-priced claret drunk by the rich was only taxed at the rate of 1½ per cent. With regard to beer, the malt duty, with reference to the value of the article, was not less than 50 per cent; and the spirit duty was equal to 100 per cent. The tea duty was 23 per cent on the poorest qualities, while it was only 10 per cent on the finer qualities consumed by the rich. Could anyone pretend to say that the taxation of the country would be rendered more just if the income tax were entirely repealed? He entreated those hon. Members who were joining this agitation to demand the entire and unconditional repeal of the income tax, seriously, to consider what they were doing. If they once convinced the people of this country that the wealthy classes were anxious to shift from their shoulders any burdens they ought to bear—if they once entered on that path of financial injustice, their footsteps would soon be followed by those who would demand a tax on realized property. In that case they might depend upon it the least numerous class would go to the wall. They might gain a victory, but it would be dearly bought and would inflict great injury on the future of the country. The question became all the more important when viewed in connection with the subject of local taxation and the grants from Imperial funds in aid of local expenditure. The hon. Member for Londonderry had said with great truth, that it was almost impossible to keep the income tax at the present point—it must either be abolished, or placed at an amount where it would be worth collection. He (Mr. Fawcett) thought the Chancellor of the Exchequer never made a greater mistake than when he reduced the tax this year from 3d. to 2d., and he fancied that the Revenue Returns had already taught the right hon. Gentleman a lesson on that subject. No doubt it might be said that if the matter had been in other hands, they would have had no income tax at all at the present moment. But what said the Chancellor of the Exchequer himself? He said that mighty structure of the income tax, which had raised £250,000,000, which had enabled great fiscal reforms to be carried out and conferred great benefits on the country, was not to be lightly destroyed on six weeks' notice; but the right hon. Gentleman must see that after six weeks' notice, having reduced the tax from 3d. to 2d., although he did not destroy the structure, he gave its foundation a very rude and serious shaking. It was obvious, for every penny they took off the income tax they left all the disadvantages of its collection untouched, and left it as inquisitorial as before; therefore in proportion as they reduced it, they added to the arguments for its total repeal. He would be the last to maintain it could not be made more just in incidence and equitable in collection; but there was no reason why temporary income should be taxed at a lower rate than permanent income. An investment of £10,000 in an annuity of £600 for 20 years, and one of £10,000 in a permanent annuity of £800 a-year represented exactly the same amount of property; and why should the £600 be taxed at a lower rate than the £300? There was no arithmetical argument for distinction between permanent and temporary incomes derived from the same source. The question, however, was different if they supposed the temporary income to be uncertain, and do-rived from professional labours, and it was worth considering whether inequality could not be reduced by a rough deduction. If it was proved that there was a real desire to make the tax more equitable and its collection less annoying, much of the supposed opposition to it would cease. What was required was to raise the limit of exemption. He was astonished to hear the hon. Member for Elgin—a Member of the Government which pledged itself to abolish the tax—proposing to extend it to the wages of artizans; but its collection would be impossible, and such extension would mate the tax more unjust. It was a cardinal principle of taxation that every man should be taxed in proportion to his ability to pay, but in opposition to that principle, those with incomes between £100 and £400 were taxed far more in proportion to their ability than those with higher incomes; and if the tax were extended to smaller incomes, the inequality would be increased. He would therefore raise the limit of exemption to £200, so that a man with £250 would pay on £50. The proposal to tax the wages of artizans, moreover, was if not unjust, at least impracticable, although many artizans and skilled mechanics by the aid of their families earned more than curates, half-pay officers, and others who paid income tax. Any circumstance which tended to promote the wealth and prosperity of the country tended to bring additional wages to the artizan, but it did nothing to raise the income of the clerk, the annuitant, the half-pay officer, the widow, and the curate, which every year, as the prosperity of the country increased, became less valuable. That, he thought, was a strong reason for relief in the way of deduction. It was not popular to say anything in favour of the maintenance of the tax, but he could not resist the conclusion, that if the income tax were repealed a heavier burden of taxation would be thrown on classes already unduly burdened, and that many whose wealth was the greatest and could best afford to contribute to the revenue of the country would escape taxation altogether. He trusted, in conclusion, that what took place in reference to this tax at the General Election would be buried in oblivion. It was then a moment of excitement; and because in a moment of excitement, one great party Leader promised abolition, and his great rival opposite endorsed that promise, let them not abandon a tax which, in the words of the Chancellor of the Exchequer, had conferred so many advantages on the country, and enabled great reforms to be carried out. If the tax were abolished, it would be impossible to say that our system of taxation would remain as satisfactory as it was now, and as he had before observed, there would spread far and wide the notion that the wealthy were anxious to shift the burdens from themselves, and they would see those who had the majority of political power retaliating with certain financial proposals which it would be extremely difficult to resist. He did not wish to press the House or the Government to a hasty decision, but he hoped that the subject would be taken into consideration during the autumn, and that the Government would not carelessly surrender this part of the revenue, but, on the contrary, that the Chancellor of the Exchequer would devote the abilities, which all recognized, in order to see whether the income tax could not be rendered less worrying in its collection, and more equitable in its incidence, and whether, instead of abolishing the tax, some further fiscal reform could not be carried out which would be more beneficial.

THE CHANCELLOR OF THE EXCHEQUER

said, he would not attempt to challenge the discretion of the hon. Member for Londonderry in having brought forward his Motion at the present period of the Session, or the terms he had thought fit to select for it. It could not have been in better hands; but, at the same time, while recognizing the great importance of the subject, as well as the value of the debate which had taken place upon it, he claimed on behalf of the Government that they should not be fettered in their discretion by any premature pledge on that subject. He would make that claim not only on behalf of the Government, but he might venture to ask the House to make the claim for itself; because if the House should now, at the end of the Session, when nothing practical could be done, commit itself to an abstract Resolution of this character, they would find themselves hampered when they came to consider the financial proposals of next year. He had no complaint to make as to the language which had been used during the debate; but he could not help remarking that there had been throughout the debate almost an unusual amount of reference to speeches previously made, and declarations said, to have been made by different Members belonging to both sides of the House; and the Government were asked now to take, or not to take, certain steps with reference to those declarations. The language both of the late Prime Minister and the present Prime Minister had been quoted, and also his (the Chancellor of the Exchequer's) own; and whilst he was not prepared to speak for others, he could say for himself that he was prepared to abide by any declaration he had made on the subject; but, whatever might have been the language that was used during the elections on the one side or on the other, either by the late or by the present Prime Minister, he was not prepared, either for the one right hon. Gentleman or for the other, to admit entirely the accuracy of the construction which had been put upon their language, and whatever may have been the language used on the occasion, he denied that the verdict delivered by the country was either of the character which had been supposed, or of a precipitate character. He believed that when Her Majesty's Government came forward in the beginning of the Session to make their proposals, they fairly reflected the opinion of the country in saying that the moment was one at which it was desirable they should pause; that they should commit themselves as little as possible to any embarrassing principles; and that they should leave the full and careful consideration of the whole system of the taxation of the country to be brought forward deliberately, and, after full reflection, next year. He was not at all prepared to admit that, in reducing the income tax to 2d., the Government, as had been stated that night, had shaken the tax to its foundations, or shaken it at all. On the contrary, the Government reserved to themselves, in the most entire manner, their liberty to deal with that and other taxes in such a manner as upon full consideration and a comparison of the different parts of our fiscal system they might think to be expedient and desirable. That was the only way in which a Government would be justified in dealing with financial questions. It was impossible for the Government, at any time, however hon. Members might press their particular views, to deal with any particular tax imposed only for fiscal reasons, without taking into consideration the whole system of taxation of the country. Therefore, when the whole question was how the Government were to deal with our fiscal system, the matter could not be argued piecemeal. Even the proposal of the late Prime Minister was not simply one to abolish the income tax; it was a proposal to re-cast, to a great extent, the system of taxation, to re-adjust it, not only for the purpose of getting rid of the income tax, but of dealing with local taxation and certain portions of indirect taxation also. So with respect to their fiscal system that year, the Government reminded the House that one of the great questions was the question of local taxation. The hon. Member for Londonderry referred to something he (the Chancellor of the Exchequer) had said last year, to the effect that the Government ought to declare its intention with respect to the income tax. It was true, he said, that they ought to declare their intention with respect to the whole subject of direct taxation, including local taxation, as well as the income tax: and he would say now, it would be the duty of the present Government when they came forward, as he hoped they would be able to do next year, with proposals for a general scheme of taxation, to take these two subjects into consideration together, and make their proposals with regard to them. All they had done that year was to leave themselves free to deal with these questions as they might think fit, and as the House might think fit; and they had asked the House to abstain from pledging itself to any particular course for the future. He did not accept the condolences of the hon. Member for Hackney (Mr. Fawcett) on the state of the Re-venue, and, at the same time, he was very sorry circumstances did not permit the right hon. Gentleman the Member for Pontefract (Mr. Childers) to put his Question that evening. But whenever the Question was put, he hoped he should be able to give it a satisfactory answer. It had been said that the Government was doing a great deal of mischief by cutting down the income tax to so low a figure. He was not now prepared to express an opinion whether 2d. was a proper figure to keep the income tax at in time of peace, and when there was no special call in other respects on them; but he would remark, the lower the figure of the income tax, the more profitable in proportion was the yield; and hon. Members would be struck by that fact, if they looked at the Return of this quarter's Revenue, and remarked how much greater in proportion was the yield of the first quarter, which was a rema- net of the 3d. income tax, than that of the first quarter of last year, when it was a remanet of a 4d. tax. There was a good deal more to be said for a low rate of income tax than might at first sight appear. In the first place, there was less temptation to evasion; and, secondly, as the income tax was spoken of as an unjust tax, or as pressing more heavily on some than on others, the inequality was very much diminished when they raised only a small proportion of the revenue from it, because that inequality might be very much mitigated by the mode in which they raised our Revenue in other directions. He hoped the House would pursue the same wise policy now towards the end of the Session as it had done in the beginning, and not ask the Government to place itself in an inconvenient position. He had expressed on this subject the settled convictions of the Government from the time they had taken office; and they were entirely in accordance with those which he had himself, for some time past, put forward.

Question put.

The House divided:—Ayes 139; Noes 38: Majority 101.