§ MR. HUBBARD,in rising pursuant to notice to move for a Select Committee to inquire into the present mode of assessing and collecting the income tax, said he did not feel called upon to offer any apology to the House for attempting to remedy, as far as lay in his power, the injustice and inequality by which the incidence of 625 the tax was accompanied. That injustice which had been denounced by Minister after Minister, and by statesman after statesman, but the excuse which had been advanced to justify the continued use of this unequal imposts being the stereotyped phrase that it was meant to be merely of a temporary nature, that it was required for some great fiscal reform, or that it was necessary for the purpose of making provision for a most unhappy war. It was to last but six years, but three years, but one; and effectively the present income tax will expire with the fiscal year on the 5th of next April. At the present moment, however, there appeared to be every prospect that it would be continued for some time; and, if it were to be renewed, the question of the shape which it ought to assume was one which commended itself to the serious attention of Parliament. The House must consider what proportion the income tax bore to the aggregate revenue of the country. In the first years of its existence, the amount of the tax had borne to the aggregate revenue the proportion of £5,500,000 to £58,000,000; the proportion was at the present day £12,500,000 to a total revenue of £70,000,000, and he must be a very sanguine man indeed who anticipated that the revenue for the next financial year could be brought up to the necessary amount without the renewal of the burden which, under the head of which he was speaking, was levied on the people. It seemed absolutely indispensable to secure the revenue which the exigencies of the country demanded. But it was not simply because the income tax seemed to be inevitable that he desired to see the mode in which it was raised undergo revision. He did not mean to question the justice of the statement that it was an admirable weapon to which to have recourse in time of war, or that it produced great results; but he must contend that if it were to be laid up in the fiscal armoury, care should be taken that it should be laid up in such a state as to produce all the advantages that were required; that its edge be keen and bright; so that its use would not inflict wide and blistering wounds, and leave behind lasting and rankling resentment. Now what, he would ask, were the features of the tax which caused to be attached to it the odium in which it was generally held? It was, in the first place, said to be inquisitorial; but the complaints made against it upon that score were, he mu3t admit, in his opi- 626 nion, somewhat exaggerated, because, after all, the statement of a man's income, which was rendered necessary in the process of its collection, need be made only to a very few persons, who were bound to be secret and discreet in the performance of their official functions. Apart, however, from that admission, he could not help regarding the tax as extremely unjust and unequal in its incidence, and as tending consequently to foster and sustain an immense amount of immorality. Into the history of its operation it was unnecessary that he should enter at any length. He might, nevertheless, state that Mr. Hume had, in 1851, obtained a Committee to inquire into the subject, and had submitted to their consideration a scheme, supported by the recommendations of eminent actuaries, for removing the inequalities by which the imposition of the tax was surrounded. That scheme the Committee had regarded as impractical; but he should beg hon. Members not to run away with the idea that, because an impracticable scheme had been rejected, no means of providing for the more equitable incidence of the tax could therefore be devised. For his own part, he had endeavoured to discover some such scheme, and he thought that if a Select Committee were appointed he could submit a scheme, not only feasible in its mode of action, but which would be entitled on its merits to a full consideration. That scheme he had submitted to the same eminent actuaries, and it had been approved of by them, as a simple and feasible scheme, which would render the tax equitable so far as it could possibly be rendered equitable. In explaining his views upon the subject, he should take the word "equitable" to imply the levying of the tax upon everybody according to his means. Taken in that light, no species of taxation, he might add, could be more equitable than indirect; to which, however, there was the strong objection that its adoption to an unlimited extent was calculated to press heavily upon the labouring classes—an objection of which Sir Robert Peel, with far-sighted sagacity and laudable courage, showed he understood the force, when he undertook the Herculean task of making England the emporium of free trade and abolishing those burdens which bore upon the subsistence of the people. Following the history of the income tax from the period of its imposition by that great statesman up to the present day, he found that it had been placed before the House of Commons in 627 the light of a compensation tax, which, if levied justly, ought to be levied upon the same principle as the indirect taxation which it superseded. In dealing with that view of the case, he might be allowed to quote the opinion of the late Mr. Wilson on the subject, who, in the summary of his scheme for the equalization of the income tax, which he had been fortunate enough, a few days ago, to find in the pages of the Economist, said:—
The broad principles upon which I have proceeded may be thus plainly stated:—I have attempted to regard income, not at its nomimal amount, but in proportion as it is, from its character, actually available for immediate expenditure; because it is exactly in that relation that it would have contributed to revenue under the system of Customs and Excise duties, which the income tax has replaced to a certain extent.Such was the language of Mr. Wilson, and he felt assured the House would receive with deference the expression of the views on the subject of taxation of a gentleman whose great financial research and energy of mind had enabled him to acquire a position in this country which caused him to be selected for the discharge of those high and important duties in the performance of which his life had been sacrificed. He would now proceed to the consideration of the matter to which they had to apply these rules. All incomes must come under one of three heads. They were either the interest, rent, or usufruct of capital; or they were the product of capital utilized by the application of skill and labour; or, lastly, they were the product of unskilled labour itself. With the last category they had now no concern. They could not beneficially levy a tax from the earnings of pure labour. In the first place, the cost of collection would be enormous compared with the amount received; secondly, the impost would largely fall, as a matter of course, on the capital which employed that labour; and thirdly, it would wholly neutralize the happy results of the great change made by Sir Robert Peel. Their attention must, therefore, be confined to the two first categories he had named. With respect to the first category—namely, incomes arising from investments either in visible property or money lent on any public or private security—these comprise all that class which some persons had described as "the lazy incomes," but which he preferred to term "spontaneous incomes," because they were produced independently of any personal labour or exertion of the individual owners. All those incomes, when 628 they had been brought to their relative equality of hearing, and had had allowances made for burdens of various kinds which ought to be, but which were not, deducted from the present tax, should, in his opinion, be treated as incomes of the highest character, and subjected to the largest amount of taxation which Parliament in its wisdom should think it necessary to impose. In the next category he placed all trading and professional incomes, all salaries, offices, and employments to which personal labour attached. Into this class he should be obliged to bring not only some of the income included in Schedule D, but also some in Schedule E—namely, income derived from employment in the public service. The great distinctive mark belonging to these was that they were all industrial incomes, of which labour was an indispensable element—if the labour ceased the income ceased also. Being naturally precarious in their nature, they required large abatements to be made from them on account of the future provision which the individual was obliged to make, either for himself or for others dependent on him; otherwise, if no abatement were made before it was submitted to taxation, it was impossible that the tax could press fairly upon all classes of the tax-paying population. And here, he must say, he hoped the House would be content to deal with classes of income, and not with the cases of individual owners. He, therefore, deprecated all those invidious arguments which had the effect of confusing things totally distinct in their nature. He deprecated all ad captandum arguments and appeals ad misericordiam in favour of interesting and defenceless women, orphaned daughters, and widowed mothers, struggling on a pittance derived from the public funds; as also all contrast between such deserving persons and the selfish bachelor who, revelling in the enjoyment of a large income derived from personal exertion, would, therefore, receive the benefit of any allowances granted to industrial incomes. They must act upon large principles in this matter, and deal with the question in a large and statesmanlike spirit, and without any revival of by gone party struggles which had nothing to do with the merits of the case. Turning, then, to the first class of incomes to which he had alluded, he would quote the following opinion given by Mr. Wilson, to whom he had before referred. Mr. Wilson said:With respect to all incomes, I consider that 629 the tax should be regarded in relation to the essence of the property from which the income is derived, and not to the accident of the tenure under which it is held at any particular moment, so that all incomes are treated in relation to their source only, without regard to the tenure of their owner—excepting terminable annuities, which stand on special and distinctive ground.He asked the House to accompany him through the schedules as they stood in the present Income Tax Act. In Schedule A the first item mentioned was "land." It was acknowledged that land was taxed at a rack-rent, and yet everybody knew that rack-rent was subject to payments for insurance, repairs, and agency before the landowner could be said to have the net income available for his expenditure. He proposed, therefore, that a deduction should be made equivalent to these necessary outgoings—in point of fact to tax the net and not the gross income. On houses, to which the same argument applied, he thought there ought to be a still larger abatement, because the expense of repairs was greater than on mere farm buildings. He next came to mines and quarries, which were now rated to the income tax on the gross income without regard to the fact that such property might be in a state of rapid exhaustion. A rational man having an income of that description would ascertain the probable duration of such property, and lay by a compensation fund to keep its amount intact. The House ought, on the same principle, to allow a deduction from the income tax in order to compensate the outgoings on mines and quarries. There was nothing more in Schedule A to which it was now necessary to allude more particularly; nor was there anything to complain of in Schedule B. In Schedule B stood farms, but he did not propose to touch them, because he did not know that their occupiers at least, had anything to complain of. In respect to Schedule C, the public creditor was subject to this serious grievance, that when he happened to hold his claim on the Government in the shape of a terminable annuity, the Government took the liberty of taxing, not only the interest which he received, but the capital that was repaid to him. He wished to see that injustice terminated. Schedule D dealt with industrial or precarious incomes. In regard to these, such great grievances existed that he thought he was not asking too much if he said that an abatement of one-third of their gross amount should be allowed before they fell under the incidence 630 of this tax. He suggested that the same indulgence should be extended to all offices and employments included under Schedule E. In these schedules were included professional receipts, profits on trade, salaries, employments, offices, and all employments generally to which labour attached, and all of which were industrial incomes which ceased when labour ceased. He was not without authority in making these recommendations, because in the Succession Duty Act, introduced in 1853 by his right hon. Friend, it was provided that, in estimating the annual value of lands used for agricultural purposes, houses, buildings, tithes, rent-charges, and other descriptions of properly, yielding a fluctuating income, allowance should be made for all necessary outgoings. That was what he asked—all necessary outgoings. He asked that those who had to pay a tax year by year should have the same measure of justice awarded to them in the tax on incomes as the law awarded to them as owners of property when they came to be taxed on succession. As a corroborative circumstance, it might be mentioned that in the Income Tax Act recently promulgated in India an allowance was made on houses, but it was limited to one sixth part of the rental if the owner could show he had spent that in outgoings during the term for which he had been assessed; and when so many concessions had been made in drawing up the Act for India, it was surely not unreasonable to ask modification of a tax which pressed so heavily and so unequally at home. Again, with reference to mines and manors, the 26th section of the Succession Duty Act, provided with some degree of justice, that the yearly value of the mine or manor should be estimated on the average profits derived therefrom, after deducting all necessary outgoings during such a number of years as should be agreed on, let the same consideration qualify the tax on income derived from the same property. These were his precedents for the allowance of all necessary outgoings. He now came to terminable annuities; and here the right hon. Gentleman the Chancellor of the Exchequer had himself supplied a remedy for the evil in the 31st clause of the Act, which recited that the value of any annuity should be estimated according to the tables in the schedules annexed. He simply proposed to introduce the modicum of justice provided by those tables. He now came to the question of industrial or precarious in 631 comes. Perhaps there was no one question which now more engaged the attention of the community, and upon which opinions were more in agreement, although the modes of expressing those opinions were infinitely diversified. The universal feeling was that a considerabe abatement should be made from industrial incomes before they are taxed. Mr. John Stuart Mill upon this point said, "I would tax temporary or precarious incomes at a lower scale than permanent or certain incomes (not because of their lower selling value), but because their possessors are liable to be called upon to save something to provide for their own future years or for those dependent on them." Thus, while rejecting the scheme proposed by Mr. Joseph Hume, Mr. Mill gave a definition of his own which led to the same result. Still, though people differed in their mode of arguing upon these questions, they all had that common-sense view of justice which should be applied in practice. Then, again, as to the measure of justice to be applied, one man proposed to tax one-half of such incomes, while another suggested the taxing of only three-fourths. Seeing how very great was the accumulation of property through saving, and that economy was exercised in a much larger proportion by the industrial part of the community than by those who occupied positions of affluence, and had nothing to do but to spend their money, he came to the conclusion that if of spontaneous incomes one-tenth was saved, of industrial incomes four-tenths were saved. He proposed, therefore, a concession of one-third upon the incomes of the industrious classes before they were rated in harmony with the more certain incomes. He had been led by a series of calculations founded on what was stated by Mr. Porter, in his Progress of the Nation, to adopt this proportion. In 1852 the question of a revision of the income tax was mooted in that House, and in the following year a new Income Tax Act was passed under the auspices of his right hon. Friend. In the 54th clause a concession was introduced for the first time—that a saving of one-sixth out of any income, if invested in the purchase of a life or deferred annuity, should be deducted from the income before it was brought under the incidence of the income tax. This was his precedent—this was his justification. Parliament had no right to treat the whole industrious classes as children, saying to them that if they were 632 economical and saved their money, and invested it in a policy of life insurance, or a deferred annuity, a special indulgence would be given to them. The industrial community had a right to exercise their economy in any particular channel they selected—whether they invested in life assurance, or in any annuity, or in the funds, it amounted to the same thing; though, perhaps, the man who invested in the funds might by the operation of compound interest make a rather larger sum than he who invested in a Life Assurance. Having once admitted the principle of a deduction, Parliament had no right to tie them down as to the way in which they should exercise their economy for the purpose of receiving the amount of deduction conceded. There was but one thing he found fault with in this clause. Instead of one-sixth he would make it two-sixths, and nothing could be better than its effectual application. The same indulgence he found was given in the Indian Income Tax; so that the principle had been adopted by the Members of Her Majesty's Government in several successive stages; and it would be very agreeable to the House to apply it in a still more expansive manner at home. Now, as to the mode of assessing industrial income, when the House considered that subject some years since, Mr. Hume proposed to charge interest—say, at 3 per cent—upon the capital, or assumed capital, engaged in industrial professions, to capitalize according to the age, or (in ignorance of the age at sixteen two-thirds years' purchase) the residue of profits, after deduction of interest, and then to charge the income tax. A trader having £10,000 capital, and making £900 a year, would be treated thus by Mr. Hume's process, the income tax being 3 per cent:—Profits, £900; charge interest, £300 on capital of £10,000; capitalize £600, at sixteen two-thirds years' purchase, £10,000; total, £20,000; interest at 3 per cent, £600; income tax at 3 per cent on interest, £18. Mr. Hume's plan was founded on correct principles, but it was too intricate for working well in practice, but the same result might be better attained by more simple machinery. The plan for a limited assessment on industrial incomes which he had ventured to advance was founded on the assumption that comparatively with incomes of a higher class two-thirds only were expended, and the assessment he recommended was therefore limited to two-thirds; thus, in the above 633 case, of the £900 returned as profits £600 would he assessed at 3 per cent, or £18 without requiring either the capital or the age of the trader to be communicated. Another grievous feature of the operation of the tax in its existing shape was the immense amount of fraud which attended its collection. He was sure that the Chancellor of the Exchequer, who had so lively a sense of what was just and honourable, could not fail to regard with intense pain what he believed to be the necessary continuance of a tax which involved the perpetuation of such a mass of immorality among the trading classes. The amount of delinquency which came to light was immense, and it might well be supposed that the amount which did not come to light was still more extensive. It was obvious that Schedule D did not return anything like what it ought to do. The fact was that people felt they were being robbed, and when a man was smarting under injustice, whether that injustice came from a private individual or from a Government, he would endeavour to do justice to himself in his own way. The only remedy was so to alter the tax as to make it, as far as possible, fall with equal weight upon all classes of the community. It was a consummation devoutly to be wished that a consciousness of being wronged should be removed from men's minds; and he believed that if Parliament dealt fairly they would find integrity in return. He wished to call the attention of Parliament to another clause, and to its curious and paradoxical effect. It was a curious fact that, as the Act now stood, two men earning the same amount of income might pay the tax in very different proportions, without a violation of the law on one side or the other. For example:—Two men might, in ten years, each make £100,000, hut one might pay twice as much to the Exchequer as the other, one might make an income of £10,000 in each of three successive years, and, of course, he would pay income tax upon that amount. The other might make £5,000 the first year, nothing the second, and £25,000 the third. His aggregate income would be £30,000, and the average, as in the other case, £10,000; but in the first year he would pay upon £5,000, in the second he would pay nothing at all, while in the third the Act would not require him to pay upon more than £10,000, or his average income for three years. A more absurd piece of legis- 634 lation in the way of taxation was surely never enacted; and this portion of the Act, the 133 s. of 5 & 6 Vict. c. 35, at all events, ought not to be left in its present shape. But that did not touch the immense amount of guilt to be found in the income tax returns. One of the witnesses examined before Mr. Hume's Committee, who had been himself a merchant, made the following statement:—The merchant makes his own return. The greatest indulgence is in that respect shown him by the State. Merchants and professional men make their own returns at their discretion, and whatever the return is it is hardly possible to find out whether it be true or not.The witness, therefore, expressed the opinion that, in consideration of the opportunity thus afforded to merchants and professional men to cheat the Exchequer, they ought to be satisfied with the income tax in its present shape. The mercantile community looked upon such evidence with extreme disgust, and the last thing which a man possessed of any notion of morality or integrity would do would be to avail himself of the subterfuge suggested to him by the witness in question. There was an objection raised to the adjustment he proposed in an assumed "special contract with the fundholder," he had looked carefully into that question, and was satisfied of its irrelevancy. The clause alluded to (41 Geo. III. c. 3. s. 15) enacts, "That the said Annuities shall be free from all taxes, charges, and impositions whatever." In its letter this enactment has been repeatedly violated, but its spirit was expressed by Mr. Pitt thus,—We do not tax the funds, we lay no charge upon that property, which alters or varies its relation to any other description of property in this country.The proposition he now made had for its object to bring all properties to their just value with reference to taxation, and that was just the principle which Mr. Pitt laid down in 1798. The House would see that the main conclusions at which he wished to arrive were—First, that spontaneous incomes should be assessed upon the net instead of the gross rental; and, secondly, that upon industrial incomes an abatement should be made of one-third. He believed that the amount of abatement which he proposed might be stated as follows:—upon land, one-twelfth; upon houses, one-sixth; and upon industrial incomes, one-third. An important question was the amount of loss which the revenue might 635 sustain from the adoption of such a measure of reform. There would undoubtedly be a diminished revenue arising from land and houses—although the new modes of assessment which had been recently mooted might go a considerable way in supplying the deficiency so created; but, with respect to schedule D, upon which he proposed to make the largest abatement, he was persuaded that the amount of loss would be little or nothing at all. He had that confidence in the innate integrity and justice of Englishmen that he believed they would, when fairly treated, act fairly in return, and that the Government would get as much out of two-thirds of the assessment, under such a system as he had suggested, as from the whole assessment at present. The Income Tax Act, it might be said, was a very large measure, and its reconstruction would be a work of great magnitude. He admitted that; but, still, he thought that the measure of reform he had invited them to consider might be given effect to by very brief and simple provisions. It would only require the following enactments:—1. That an allowance from the rack or valuation rent of lands be made of one-twelfth for necessary outgoings. 2. That an allowance from the rack or valuation rent of houses be made of one-sixth for necessary outgoings. 3. That an allowance be made upon the rents or royalties of mines, quarries, and ironworks, for diminished value, and for the replacement of capital. 4. That upon tithe rent charge, besides the parochial rates, an allowance shall be made of 5 per cent for repairs, insurance, and agency, and when care of souls is annexed a sum of £100, as curate's stipend. 5. That upon profits of trades, professions, and salaries, and offices and employments having duties discharged by the holder in person, an allowance be made of one-third prior to assessment. 6. That section 133, 5 & 6 Vict., cap. 35, be repealed. 7. That all trade returns shall state the amount of interest paid on borrowed capital, the same to be assessed on the full amount thereof. 8. That for the purpose of assessment to the income tax the interest of the capitalized value of all annuities terminable with years or life shall calculated according to the Tables 1 and 3, appended to the Succession Duty Act. It was with some anxiety, but not without confidence, that he submitted the Resolution to the decision of the House. He said "with some anxiety," because he was 636 deeply impressed with the magnitude of the interests at stake, and well aware how vitally important it was to the finances of the country that the mode of taxation by which they were supplied should be regulated by equity and common sense; and should carry with it the sympathies of the people. And he could not but feel a deep solicitude for that which he valued above the wealth and material prosperity of the country—he meant the honour and the integrity of the mercantile class to which he himself belonged.
§
Motion made, and Question proposed,—
That a Select Committee be appointed to inquire into the present mode of assessing and collecting the Income and Property Tax, and whether any mode of levying the same, so as to render the tax more equitable, can be adopted.
§ THE CHANCELLOR OF THE EXCHEQUERSir, the task which I have to perform has at any rate an agreeable commencement, because it is my duty to acknowledge in the face of the House, that there is no one better entitled than my hon. Friend to submit this most important and most intricate question to the notice of the House, inasmuch as he is a man qualified for the work equally by his position, by his character, and by the high reputation which he has acquired in the discussion of questions of political economy. Having said so much of the person who makes the proposition I wish that I could continue in a similar strain; but I must confess that both the proposal of my hon. Friend for a Committee of Inquiry, and more especially that which it is not possible to separate from his proposal of a Committee—namely, the particular nature of the plan which he has submitted to the House, and which is to be the text and guide of the inquiry sought for—compel me to pursue a different course. I shall not enter into any general statement of opinions about the income tax, My own opinions upon it—as far as they are general opinions—have been declared long ago, when I formerly held the office which I have now the honour to fill; and I am not aware that I have in any respect departed from them. I should also say of my hon. Friends Motion that I shall not look so much at its terms and its technical character tits to what is its avowed object. No doubt many questions arise in connection with the assessment and levying of the income tax, which may be inquired into by Committee with more or less of utility, but at any rate without any peculiar diffi- 637 culty or danger. If, for example, we were to take the question of the arbitrary standard, so to call it, which has been fixed for levying the income tax under Schedule D—a system which the Legislature has established according to the best of its information and belief, but which of course involves many points open to discussion; if we were to refer to the question whether the income tax should be collected half-yearly or quarterly; these and many other matters might be the subjects of inquiry by a Committee without raising any difficult or dangerous questions. But these are not the subjects to which my hon. Friend wishes to direct our attention; and I must say that I think he has done wisely in confining himself in his speech to the exposition of his main purpose, because either he or his Committee would be distracted from that purpose by mixing with a question so grave and so deep as that upon which he has just now dilated those other matters which refer, in comparison, to the merely technical details of administration. My hon. Friend's proposal is that different rates of tax should be laid upon the different schedules. He has stated that in a manner which gives a colour to his proposal for a Committee: nor can the House vote in favour of his Motion without attaching at least a provisional sanction to the plan he has sketched for reconstructing the income tax. My hon. Friend has himself stated this point in a most candid and ingenous manner; for he said that he could not ask for a Committee from this House if he was not prepared to preface that demand with the submission of a plan which should be apparently unexceptionable in its main outlines and general principles. The demand for a Committee of Inquiry is a very grave demand—at least it is a very grave one for those who take the view that is taken by Her Majesty's Government with respect to any plan which shall alter the main structure of the income tax by imposing different rates of tax upon the different schedules. To a Committee of General Inquiry, particularly if generally desired by the House, they might not have seen—I ventured upon a former occasion to intimate that I did not think they would see—any vital objection; but, at present, the issue which we are to join must in the main be not whether we are prepared to adopt the precise details of my hon. Friend's plan, but whether we are prepared to give encouragement to the principles which are at the bottom of those details and which 638 formed the substance and data of his speech. I do not think that Her Majesty's Government would be justified in assenting to the proposal of an inquiry so prefaced, avowedly and without disguise holding up the banner which my hon. Friend has lifted upon this occasion, unless they were prepared at least to say that they saw no difficulty of a character approaching to danger in any countenance of a plan founded upon such a basis. I do not wish to ruffle the sensibility of an author, but I think that my hon. Friend is entitled to less credit for originality than he seems to think. It is my fate almost daily to receive financial suggestions identical in their purport from scores of gentlemen, each of whom believes himself to be the original and sole parent of the idea he puts forward. That is not quite my hon. Friend's case; but I see opposite me two right hon. Gentlemen who may substantially claim some of the credit which is to be given to his plan. The right hon. Gentleman the Member for Wilts (Mr. Sotheron Estcourt) proposed in the Committee of 1852 that the tax under Schedule D should be three-fourths of the tax under Schedule A. My hon. Friend proposes that it shall be two-thirds. The difference between them is not great; but such as it is it was very nearly split by the right hon. Gentleman the Member for Bucks, who, on the part of the Government, proposed in 1852 that the tax under Schedule D should be 5d., and that on Schedule A 7d. in the pound. The authority of the right hon. Gentleman, lent at that period for a moment to a plan substantially like that of my hon. Friend was, I think, subsequently—I must say to my great satisfaction—withdrawn. But my hon. Friend substantially reproduces this proposal, that we should proceed to adjust by deduction—for he does include another feature in his plan—that we should proceed to adjust by deduction the several payments of income tax in most, at least, of the different schedules, and to establish a great difference by a very great deduction in the case of Schedule D. That, I think, is a very fair description of the general character of the plan of my hon. Friend. I will not enter at large upon the financial portion of the speech of my hon. Friend; but I must say that I was struck with the sanguine temperament which appeared to have dictated it. For how did he treat the case of Schedule D? He says that there are enormous evasions in Schedule D, because persons engaged in 639 trades and professions feel that by this law they are robbed. My hon. Friend feels deeply the immorality attending the collection of the income tax; he knows that that immorality is concentrated in Schedule D, and he proposes to reward Schedule D by a reduction of one-third of the tax. But what a sanguine view my hon. Friend takes of the morality of the English people! He says,—
They commit this peccadillo because they feel that they are robbed by the law; but if you will only deduct one-third from the tax, which they are liable to pay, it will set it all right again,You will recover and recoup, he says, the one-third of the tax leviable under Schedule D, surrendered by law, in consequence of the honesty of the taxpayer, moved by this appeal to his feelings. The offer must be of precisely 33 per cent—that is the standard, that is the temperature, which is necessary to bring him up to par in morality. I must confess that I entirely differ from my hon. Friend with regard to his opinion as to results. As I have spoken of the immorality under Schedule D, I must not omit to state my conviction that a large portion of those who pay under it pay every farthing that they ought, and in many cases of doubt rule the doubt against themselves; but there is no doubt that all the roguery in the country lurks in the folds of that schedule. In the year 1853 I produced before the House the undoubted case of the residents of a particular street in London, who had returned their profits for the income tax, and had also returned them for compensation; and who had, in the latter case, returned them at ten times the amount which they had returned for their former purpose. I ask my hon. Friend, does he think that these worthies who were unfortunately not individuals, for they were inhabitants of a street taken together—does he think that the magical and soothing effect of his 33 per cent would have been such that they would have raised their statement of profits ten times, or does he think that perhaps the truth was between the one-tenth which they sent in for income tax and the ten-fold sum which they demanded for compensation? If so, it is clear that these gentlemen would have been sad losers by my hon. Friend's proposal, because to come up to the true standard of their profits they would have had to add infinitely more than one-third to their assessments. I must say I think parts of the speech of 640 my hon. Friend were calculated to exercise influence over the minds of the tax-payers under Schedule D. It is certainly a strong expression to say that they cheat the Exchequer because they feel that the Legislature is robbing them; and I felt sorry to hear that expression used, for it is not impossible that one of these wavering consciences, when in doubt as to the return which he should make on the next issue of assessments, may recollect that a gentleman of my hon. Friend's high character declared in his place in Parliament that he was robbed by the Legislature, and may find some comfort and encouragement in the operation of reducing his profits from the sanction which he may think he derives from that statement. But when my hon. Friend went on to comment upon the inefficiency of Schedule D in making every man tax himself—omitting to state that no man is taxed higher than his income in any one year, and that the benefit of averaging is given to him whenever the average is in his favour—instead of telling us that the Legislature robbed the taxpayer under Schedule D, he ought, I think, to have drawn a more just and generous inference, and to have stated the length to which the Legislature has gone to diminish, in some degree, the severity and inquisitorial nature of the tax, exposing itself to criticism, violating uniformity, and introducing a positive anomaly into the enactment in order to mitigate the incidence of the tax on the traders of this country. That, however, was not the use he made of his argument.Let us now look at the proposals of my hon. Friend. He proposed to proceed in the most agreeable manner by a method of deduction. He goes first to one man and says, "I deduct so much from you;" he next goes to another and says the same, and from the last, under Schedule D, he makes an enormous abatement. It would be a most pleasant process to go about deducting all day—to give to every man his relief. The landlord under Schedule A might think that you were not sufficiently liberal to him in deducting only one-twelfth; but it is impossible to criticise too closely the plan of my hon. Friend—it was conceived in a spirit of such unbounded generosity. Lands were to have one-twelfth, houses a sixth, mines something which none of us sitting here exactly understood, and Schedule D was to have a third. But who is to pay for these deductions? I want my hon. Friend, when he makes 641 these captivating speeches, to write on the frontlet of the financial edifice which he constructs this grand and true doctrine—"The abatement of one man is the taxation of another." If you take away 1d. to relieve somebody under Schedule D, you must put 1d. on somebody else. It is not enough to say, in general terms, "Such is my confidence in the morality of the English people that they will pay up, and set the account nearly right;" that I can assure you is not the way in which we must deal with the hard and rigid figures of finance, that are necessary to square the income of the country with its expenditure. But my hon. Friend says he will deal with classes. I suppose he will not deny that by his scheme Schedule A is to be more highly taxed in proportion than any other. If you make deductions of one-twelfth and one-sixth on the two great elements, lands and houses in Schedule A, and if from Schedule D you deduct one-third, or twice the amount, it follows that you raise the taxation on Schedule A relatively to Schedule D. I should be very sorry to commend my hon. Friend to the purgatory of reading Parliamentary speeches, especially such as have been delivered by myself; but in a responsible position, and endeavouring to convey the results of the best inquiry which the Government of the day could make, I did state to the House that, at that moment, with a 7d. income tax, while Schedule D paid 7d. on the net income, Schedule A paid not less than 9d. Has my hon. Friend examined into the question, or why does he think it would be just to impose further burdens on Schedule A? He says you ought to take one-twelfth, or about 8 per cent, off lands. A deduction to that extent would in some cases be insufficient, while, in others, it would be exorbitant and wholly unnecessary. In Scotland, for instance, where most of the charges are borne by the tenants, why should the landlord have one-twelfth deducted? As to the article of agency I cannot at all admit that it forms a legitimate deduction. If a man does not choose to take the trouble of collecting the proceeds of his own property he is not to expect that the charge which he thus incurs will be allowed him. In cases, more over, where the landlord does not pay for repairs, 8 per cent would be an extravagant and needless boon; while, in many cases, if he be liable to them, the allowance would be inadequate. My hon. Friend's calculations with regard to houses break 642 down utterly. It is totally impossible to make anything like an average of repairs. They may depend on twenty things—on the building materials, on the nature of the particular climate, whether wet or dry; on the rentals of the houses, and the classes of occupiers. In many instances 5 per cent would be an ample allowance for repairs; in others 25 per cent would not be sufficient to cover the reduction in value. What then becomes of my hon. Friend's promise to remove injustice and inequalities? Nobody denies the inequalities of the present tax; I cannot pretend to deny them—I do not seek to disguise them; but my hon. Friend, by coming in and giving a positive boon to some taxpayers, where it is not required, would aggravate the sense of injustice which would be felt in cases where the incidence of the tax is at present regarded as unfair. It has always been a popular notion that different classes of income should be subjected to different rates of tax; and it is possible that this House may some day be drawn into a Resolution in favour of such a plan—and, indeed, it would have been more convenient if my hon. Friend had adopted that course instead of moving for a Committee of Inquiry—a Bill based on such a Resolution may even be brought in; but I tell my hon. Friend that never will such a plan as he has proposed stand the scrutiny to which it would be exposed before it could possibly receive the sanction of the House. My hon. Friend proposed, with regard to mines—the property, of all others, which is most intricate and difficult to comprehend, except under the most favourable circumstances—that every mine in the United Kingdom should be valued with a view to the imposition of income tax, and that the valuation should be renewed from, year to year. Why, to attempt to obtain anything like trustworthy accounts of the value of the different interests in particular mines would, in the first place, lead to such an amount of fraud as would flood Schedule A as well as Schedule D with immorality; and, assuming the valuation to be made in the best and most satisfactory manner, it would double, treble, or quadruple the incidence of the tax by the expenses necessary for arriving even at a proximate conclusion. My hon. Friend finds an argumentum ad hominem in the Succession Duty Act, which provides, with inspect to certain branches of real property, that valuations should be made with allowances for outgoings. But under 643 the Succession Duty Act we were dealing with property which was not to pay small amounts every year, but which was to pay a large amount on the average once in thirty-five or forty years; and it is perfectly intelligible how, in the one case, it might be well worth while for the tax-payer to incur the heavy expenditure inseparable from a valuation, while in the other such an outlay would be unwarranted and unnecessary. There is a provision for valuation in certain cases. There is a provision for entering into an examination of outgoings in order to fix the amount. And, by-the-by, I must remind my hon. Friend that when Parliament passed that Act we did not say that outgoings should be estimated at one-sixth or one-twelfth, but we said that there should be an examination of what the outgoings were. What was a perfectly good plan in the case of the succession duty would, from the nature of the case, be a totally impracticable one in the case of the income tax. In Schedule D my hon. Friend says there must be a deduction of 33 per cent—a deduction on everything in that schedule; but there is to he no deduction in Schedule A. I say no deduction, because the compensations which my hon. Friend proposes would be much more than balanced by the additional burden which Schedule A should bear in consequence of the relief to Schedule D. But in Schedule D there is to be a uniform deduction of 33 per cent; and in this way my hon. Friend proposes to cure an injustice and get rid of an anomaly. Now, let me see how my hon. Friend cures the injustice and gets rid of the anomaly. There are many businesses under Schedule D worth twenty-five years' purchase. ["No, no!"] I do not pretend to say that they are all of so fixed a character that each is worth twenty-five years' purchase. ["No, no!"] I do not mean to say that this is the average value of trades and businesses. I speak now of businesses of the highest class, and I say you may find some under Schedule D which are worth twenty-five years' purchase. The profits of a banking business are in many cases worth twenty-five years' purchase. From that downwards you come to what are worth fifteen, what are worth ten, what are worth five, and what are worth less than five. My hon. Friend proposes to apply a uniform deduction of one-third to the whole. If hon. Gentlemen who hear me think twenty five years' purchase too high for any business, let them 644 take any figure they like. It is not necessary for me to state what figure I consider to be the correct one. It is enough for me to say that there is an enormous difference in the values; and that, if I take the best business under Schedule D, it is worth five or six times as much as the worst business; but my hon. Friend proposes to make a reduction of 33 per cent on the best and to put the worst on only the same footing. If you can make a deduction which is compensated for without any unjust burden being placed in another direction, that is very fair; but if everything which my hon. Friend takes off of anybody must be put on somebody else, then I say his plan only aggravates the evil which it professes to cure. And what persons are to bear the brunt of my hon. Friend's plan? They are the funholders. He has invented a deduction for the landlord, he has invented a deduction for the owners of mines, he has invented a deduction for the holders of houses, and he has invented a deduction for persons in business; but he admits that he has no deduction for the fundholder. And who is the fundholder? The fund-holders are a body of £300,000, and the great mass of these are persons holding £20, £30, £40, or £50 a year. The great bulk of them are people holding life interests—poor annuitants. My hon. Friend declines to deal with individuals; he says he deals with classes. Take as a class the persons with small incomes—persons whose incomes may be £100 a year, and whose interests are but for a short term, whose lives may not be worth five years' purchase; and my hon. Friend proposes to aggravate on these people the burden and percentage of the tax in order that he may deduct 33 per cent from the income tax payable by the wealthiest London banker. If the object of the House be to cure an injustice and get rid of an anomaly, I do not know what arguments may hereafter be in vogue, but the arguments used by my hon. Friend are not those by which the financial proceedings of this House have hitherto been directed. I wish to treat with the utmost respect the feelings of those who I know entertain—and honestly entertain—the idea that an equal rate of income tax is unjust. I have always felt that that sentiment is not supported by reason, and such has been the opinion of much greater men who have had to deal with this tax. But the opinion, though it is not supported by reason, is deeply rooted in the popular mind; and it has always 645 appeared to me that the only legitimate conclusion to be drawn from the fact is, that it amounts to a very strong objection to the use of the income tax as a permanent impost. Necessity drove us to the income tax in 1842, and necessity has attached us to the use of it. ["No, no!"] When I used the word "attached" I meant not as a bridegroom is attached to his bride, but as a captive is attached to the car of his conqueror. Many other Gentlemen, however, hold a very different opinion; they think that on the whole the income tax is a convenient instrument for raising a revenue. Upon that question I will not at present enter; but I assure my hon. Friend and those who think with him that I think great respect is due to the feelings of those who are undoubtedly impressed with the belief that the general arrangement of the tax is unjust, while I am of opinion that it is incapable of improvement. My hon. Friend has stated that this question is one between Schedule A and Schedule D. I do not regard this as a mere Motion for inquiry, because after his speech it is impossible to separate the inquiry he asks for from this proposal itself. The case, I say, lies between Schedules A and D, because Schedule C can scarcely be taken into account when we consider its numbers. I think my hon. Friend was not successful in dealing with the case of the fundholders when he reminded us of the Act which provides that no tax should be levied on dividends paid on money lent for the public convenience. It may be that in form you have not kept faith with the public creditor, but in everything else you have; because laying the tax on the individual is mere machinery. You have merely required him to pay the same proportion of his income as any other person pays, and no more; but when my hon. Friend proposes that the fundholder with £500 a year shall pay the income tax on the full amount, while he makes a deduction from the landowner of one-twelfth, of one-sixth from the owner of houses, and one-third to the rich banker, he will find some difficulty in reconciling such a state of things with either the letter or the spirit of the law. He is sailing very near the wind. The main question, however, is between schedules A and D. Before the House comes to the conclusion that the arrangement of the income tax ought to be altered in the manner proposed by my hon. Friend, I would entreat them to consider what we did in 1853. The Government of Lord 646 Aberdeen was then in office. It was then shown, by an argument which was never disputed, that Schedule A already paid 2d. in the pound more than Schedule D. The Government then said that if they removed from those incomes which were the product of exertion a portion of their burden, it must be placed on those which were not the product of exertion. Of course if it were not for that, there would be no disposition to criticise the matter very strictly. An exemption was, however, in favour of a certain portion of incomes (within a limit of a sixth), applied to life assurance. His hon. Friend said there were fifty objections on the ground of free trade to that exemption; and he hoped that his hon. Friend (Mr. Hubbard) would profit by his own objections, and not attempt to meddle with the income tax. His hon. Friend would recollect, and he hoped the House would recollect, that it was in reference to this precise subject—not the question between land and personalty, but the question between fixed property and those incomes which did not proceed from fixed property—it was for the purpose of redressing that balance that the Succession Duty Act was introduced. There was an opinion, which had received countenance from the proceedings of former Governments, and which prevailed widely both in the House and in the country, that the bearing of our taxation, taken as a whole, not only admitted but called for some increase of the relative burden to be laid on fixed property, and it was for the purpose of meeting that feeling that the Success on Duty Act was introduced. We said, "We know not how to reconstruct the income tax, but we can apply means for increasing the relative burden on fixed property." I think the passing of the Succession Duty Act may be taken as fairly setting at rest any question of this nature. I hope my hon. Friend will also hear in mind that we were in hopes we had got rid of what are called questions of class legislation. He knows very well that no plan of this kind has ever obtained authoritative support. It was pressed upon Mr. Pitt, and rejected by him as entirely impossible; it was also pressed upon Sir Robert Peel, and rejected by him. This House appointed a Committee to examine into the subject. The Committee sat for two years and made no report, and the only plan submitted to the Committee has been condemned to-night by my hon. Friend himself. Gentlemen of the highest intelligence, who were 647 thoroughly conversant with the subject, went into that Committee predisposed to some alteration, but they came out of it thoroughly convinced that the thing was impracticable in itself; and, if practicable, would be mischievous. My hon. Friend ought to bear in mind that this is, after all, a question which sets class immediately in conflict with class. If is a question, "You shall pay more—I shall pay less;" and the mode in which he would give effect to the principle is most objectionable, and the principle itself is fraught with danger to the country. The House of Commons has been at all times ready to adopt every practicable method of lightening the operation of the income tax in those cases where it bears most hardly. To such cases as I have mentioned—those of the poorest payers of the tax—the attention of the House may be directed with advantage, without the slightest apprehension of introducing a dangerous principle in operation, or giving rise to unreasonable expectations in the country. But I do hope that while the House retains the anxiety to apply practical remedies in cases of hardship, they will remember the great social dangers which arise from agitation and the excitement of expectations which cannot he fulfilled, and likewise the enormous importance of the fiscal instrument with which they are undertaking to meddle. These objections appear to me to apply in the fullest force to the plan of my hon. Friend. That plan, as I say, is stamped on the Motion which he has made for a Committee of Inquiry, and the Government, believing that no good could arise from a Committee of Inquiry so undertaken, but that it must result either in evil or in disappointment, cannot do otherwise than recommend the House to put a negative on the Motion of my hon. Friend.
§ MR. WHALLEYregretted that he had not risen after the right hon. Gentleman the Member for Buckinghamshire, that he might have had an opportunity of submitting his views, humble as they were—but still the result of conscientious feeling and earnest inquiry and consideration of the subject—to the House, before the right hon. Gentleman the Chancellor of the Exchequer had spoken, that he might have had an opportunity of replying to his (Mr. Whalley's) views and plans. Those views and plans entirely superseded all the objections which had been stated by the right hon. Gentleman. The plan he would submit in a very few words to the House was 648 simply that such portions of the revenue as required to be raised by the property and income tax, over and above what can be raised by the indirect system of taxation, should be raised in the same mode and upon the same principle as the poor rate; thus entirely relieving schedules A and B. The vestries, which for this purpose were somewhat analogous to Committees of the House of Commons, had power, by the statute of Elizabeth, for raising the money required for local burdens from the income of land or the profits of tradesmen; but they always levied it on the land, knowing that where-ever they placed it, it must ultimately fall on the land itself. This plan might be extended; and when he proposed that it should be adopted in place of the present mode of levying the income tax, he would point to the evident justice, expediency, and prudence on the part of landowners for such a course. In answer to what the right hon. Gentleman had said as to the succession duty being a settlement of this question, he would observe that from the earliest period the land was the sole source from which the burdens of the State were to be defrayed. In Charles the Second's reign, however, the land was relieved from a portion of its burdens, and in William the Third's it was relieved of a still further; and then, by an Act of Parliament, the I valuation was fixed so that the land tax yielded an invariable sum of only about a million a year, instead of a much larger sum which it would have yielded if the assessment varied with the increased value.
§ MR. HUBBARDsaid, the Chancellor of the Exchequer charged him with want of originality in the scheme he had proposed: but neither was the right hon. Gentleman himself original; he had heard him deliver the same speech before, and, although it was so long as 1853, it had never since been absent from his thoughts. The Chancellor of the Exchequer had not treated the question before them on its merits, hut had endeavoured to meet the force of the arguments which he had used by a mere reference to the effect which might be produced on particular classes. He (Mr. Hubbard) had deprecated invidious references to extreme cases, but the Chancellor of the Exchequer, he was sorry to say, had not thought proper to take the same course. The right hon. Gentleman endeavoured to get up a feeling of sympathy for the fundholders, as persons in the position of women and children and 649 small annuitants; but it was not statesmanlike to single out individuals and claim on their behalf the rejection of a measure like the present, as if it were calculated to benefit the rich alone. He had himself stated what he thought was the true fiscal policy, and whether it were adopted now or not, he was satisfied the country would sooner or later make its voice heard, and would not consent to an income tax framed as the present income tax was. He wished the House to understand that he did not desire to confine the Committee to his own plan. He thought he had sufficiently guarded himself from any such imputation; but the truth was that his right hon. Friend would not have been satisfied whatever course he might have taken. If he had simply asked for a Committee his right hon. Friend would have referred to Mr. Hume's Committee, and pointed out how little it was able to do after sitting for two years, and would have charged him with having no plan. He had brought forward a scheme that was plain and feasible, and he was told that to grant a Committee would be to identify it with his scheme, and that the House ought not to commit itself in that way. The House knew the terms of the Motion which he had submitted, and it was on the terms of that Motion alone that he asked them to decide.
§ SIR STAFFORD NORTHCOTEsaid, he wished to explain to his hon. Friend who had just spoken the course which he should feel it his duty to pursue if he pressed his Motion to a division, and to express the hope that after the speech of the Chancellor of the Exchequer, and the expression of feeling on the part of the House, he would not ask them to divide. The nature of the proposal his hon. Friend had made was one that it would be quite impossible to carry out to a satisfactory result. They could not separate the appointment of the Committee from a favourable reception of his plan, and he could not shut his eyes to the fact that there were many objections to the adoption of that plan. The inequalities to which it would give rise were sufficiently obvious. Take the case of Schedule D, in which his hon. Friend proposed a reduction of 33 per cent. Schedule D included incomes not only from trades hut professions; but a great income derived from a trade in which a large capital was employed would be put on the same footing with that received by a lawyer, who, by a day's ill-health might 650 be deprived of his income altogether. His hon. Friend had discharged his conscience by bringing forward this subject, and had given the House an opportunity of considering his scheme. He hoped he would be satisfied with having done so, and not put his friends to the pain of voting against him.
§ Question put,
§ The House divided:—Ayes 131; Noes 127: Majority 4.