HC Deb 19 May 1871 vol 206 cc1074-98

, in rising to move for— A Select Committee, to inquire into the mode of assessing the Income and Property Tax, and the principle on which such tax is now levied on industrial, professional, and precarious incomes, and also on incomes derived from life annuities, mines, and other sources, where a portion of the principal as well as interest is annually consumed or included in the yearly returns liable to taxation; and also into the present mode of including gross incomes without allowing for depreciation in railway, manufacturing, and other concerns; and also into the mode of collecting the said tax, and the remuneration paid to surveyors, clerks, collectors, and others; and also into the constitution and duties of the central and local Boards of Income Tax Commissioners, said, that as the income tax was now likely to be a permanent impost, from the experience of the last 30 years, it was extremely expedient that its inequalities should be investigated, with a view, if possible, to provide a remedy for the injustice of its incidence. In following out that consideration, he had purposely placed his Motion in the most comprehensive form. He must be clearly understood as not objecting to the principle of the tax; he held that it was right that a considerable portion of the public Revenue should be raised by means of direct taxation; but the mode of levying and collecting the income tax was irritating and unfair; and in the course of 25 years' experience he had seen so many examples of the injustice of its incidence, as at present imposed, that it was imperatively necessary to attempt a remedy of the evil. He believed that the income tax might be made a good tax, now that public attention had recently been directed to it, on account of the extra 2d. the Government had imposed to meet not a sudden emergency, or the expenses of a war, but of a policy undertaken on their own deliberate judgment.

Mr. Pitt's income tax was a war tax, and lasted 18 years, from 1798 to 1816. Sir Robert Peel's income tax was intended as a temporary tax; but had lasted since 1842 — nearly 30 years. From 1842 to 1853 it was 7d. in the pound, and was levied on incomes of £150 and upwards. In 1854 it was 5d. on incomes under £150, and 7d. on incomes above that amount; in 1855 it was 1s. 2d. on incomes above, and 10d. on incomes below £150; in 1856 and 1857 it was 1s. 4d. and 11½d.; in 1858 it was 7d. and 5d.; in 1859, 5d.; in 1860, 9d. and 6½d.; in 1861, 10d. and 7d.; in 1862 and 1863, 9d. and 6d.; in 1864 it was 7d. on all above £100, with an abatement of £60 on incomes under £200; in 1865, 6d.; in 1866 and 1867, 4d.; in 1868, 5d.; in 1869, 6d.; in 1870, 5d.; in 1871, 4d.; and in 1872 it would, he supposed, be 6d. The present tax violated all the four cardinal axioms of taxation laid down by Adam Smith, and particularly the one which implied that a tax should be regular and certain in amount. His definition of the term income was, that it was the amount which a person could spend during the year without diminishing his capital or his means of continuing to earn an equal income. But in levying the income tax no allowance was made for wear and tear in various kinds of work; and, therefore, there was no justice in the assessment of the tax on its present basis.

The year's ordinary rental, taken entirely from an estate in land, does not impoverish it. The year's rental taken from house property and buildings, without deducting repairs, does impoverish it. The year's rental taken out of an annuity or short lease does materially impoverish it. The year's labour of a lawyer, a surgeon, an artist, a skilled workman, or a professional man does impoverish his power to continue to earn a similar income. The year's work done by machinery, or taken out of a coal or other mine, or done by a ship, does impoverish the power of earning future income. He then referred to the inquiries of Mr. Hume's Committee in 1851, before which Mr. Mill, Dr. Farr, Mr. Babbage, and other witnesses were examined, all of whom were nearly unanimous in condemning the incidence of the tax and the mode in which it was assessed and levied. That Committee ended in a compromise; the lateness of the Session not allowing a sufficient time for discussion, and it was agreed merely to report the evidence and proceedings. He then passed on to the Committee moved for by Mr. Hubbard in 1861, when the present Prime Minister admitted the inequality of the tax and that it was impossible to defend it.

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


proceeded to quote from the Report of Mr. Hubbard's Committee; and, in allusion to one of its recommendations, suggested the desirability of levying the income tax of small tradesmen upon their rentals, rather than upon their estimated profits.

Mr. Hubbard recommended a plan, which may be briefly stated, as follows:—To assess all fixed incomes from dividends, interest, &c. at net amount; to deduct 1/12th from rent of land and of buildings, for repairs, fences, &c.; to deduct ⅙th from rent of houses for insurance, repairs, &c.; to deduct ⅕th from metallic mines, and 1/10th from coal and other mines; to deduct ⅓rd from salaries and pensions, and from profits of farms, trades, shipping, and professions; to allow £100 from rent-charge and cure of souls. The Committee, he stated, came to the conclusion that the plan suggested by Mr. Hubbard did not afford a basis for a practicable and equitable re-adjustment of the income tax, and they, feeling the dangers and ill-consequences to be apprehended from an attempt to unsettle the existing tax, refrained from offering any suggestion as to its amendment. They, however, did not examine any mercantile witnesses, although, had they done so, most of the difficulties they felt would have been removed. The recommendations of the Committee were not, he contended, justified by the facts of the case, either then or at the present time. Since that Report was made there had come into existence Chambers of Commerce in all the large mercantile communities; and lately, at a meeting of the delegates representing 44 Chambers, a resolution was passed desiring that an inquiry into the incidence of the tax should now be made, and he had to ask the Government to accede to that request. A Committee sitting on alternate days would conclude their inquiry in a month, and the witnesses who would be furnished by those Chambers of Commerce would furnish information that would make the Chancellor of the Exchequer a much wiser man than he was now with regard to this subject. Against the Report of Mr. Hubbard's Committee he would quote the evidence of Mr. Newmarch, Mr. S. Brown, Dr. Farr, Mr. J. S. Mill, Mr. Taylor—a leading authority on mining questions—Sir Daniel Gooch, and Mr. Jellicoe (President of the Institute of Actuaries). Sir Daniel Gooch instanced a remarkable case of a colliery which honestly returned its income at £4,300 a-year, but which was locally assessed at £9,600. The local assessors refused to allow deductions on account of the coal duties paid to the City of London and of agents' charges; and the central authorities refused to interfere. This and other similar cases clearly proved the necessity for a Court of Appeal. The evidence of all the eminent witnesses examined before the Committee went to prove the evils and hardships involved in the levying of the tax on precarious and industrial incomes, and, notwithstanding the opinion of the present Chancellor of the Exchequer, it was shown that these inequalities were capable of being remedied, and that the income tax was not necessarily like a house of cards, which, if touched, would come down altogether. His firm was professionally concerned in auditing and making the income tax returns of upwards of 40 manufacturing and mercantile concerns, including some of the very largest establishments in the country, and they were honestly made; but the experience thus acquired enabled him to say with confidence that the classified return of the amounts paid upon the higher incomes disclosed the practice of very extensive frauds, for the continuance of which the commercial community, represented by the associated Chambers of Commerce, declared that the Government were responsible, because it was their duty to provide a remedy and to protect the tradesman and the professional man, who made honest returns from being defrauded by having to pay more than they ought to pay, in consequence of the dishonesty of others. The Chancellor of the Exchequer, a heaven-born Minister, innocent of commercial experience, despaired of devising a remedy; but witnesses would be examined before a Committee to show that it could be done. According to the Returns for 1868–9, there were only 6,871 firms in the United Kingdom which returned incomes under Schedule D of over £2,000 a-year, and their incomes were distributed as follows:—Incomes of over £2,000 and under £3,000, 2,670; over £3,000 and under £4,000, 1,349; over £4,000 and under £5,000, 686; over £5,000 and under £10,000, 1,309; over £10,000 and under £50,000, 801; over £50,000, 56. There were many anomalies and injustices in the present system, and there were many persons who made dishonest and fraudulent returns, from which those who made honest and truthful ones had to suffer. The right hon. Gentleman at the head of the Government had, on previous occasions, declared that the commercial community were responsible for the injustice and fraud which occurred; but he (Mr. Chadwick) maintained that the present Premier and the Chancellor of the Exchequer were responsible for it, for they should provide remedies for it, and see that proper punishment followed upon fraud. The existence of such cases should, however, be quite sufficient to induce the Government to grant the inquiry which was now asked for. In Middlesex, for the year 1842–3, the Returns for land and houses amounted to £11,300,000, whereas in 1864–5 they amounted to £22,900,000. In Lancashire, for the year 1842–3, the Returns under the same Schedule amounted to £7,700,000, and for the year 1864–5, £13,200,000. In Middlesex, under Schedule D, the Returns in 1842–3 amounted to £20,000,000, and in 1864–5 to £39,000,000. In Lancashire, the relative Returns were £9,000,000 and £18,000,000. Now, in the name of those two great counties he asked for the Committee to be composed of practical men who could apply a practical remedy to the evils complained of. Under Schedule B—farms and agricultural rental—there could be no justification of the difference in the mode of assessing the rental of a farm in England, Scotland, and Ireland. Half of the gross rental was assessed in England and one-third in Scotland, while in Ireland the poor rate assessment was adopted, which was about 20 per cent off the gross value. Why not lay down a uniform, a just, and equitable mode of assessing the income tax on farmers' rental? He saw no difficulty in settling the farmers' question by adjusting the assessment and making it uniform in England, Scotland, and Ireland. There was another grievance under Schedule A, in being compelled, if they fed and sold cattle, to return themselves as cattle dealers. Another grievance felt by landowners and farmers, and one capable of immediate adjustment, was where farmers who borrowed money to drain or improve their lands, to be repaid by instalments, income tax was charged both on the payment of interest and principal. Now, the Government itself lent money for drainage and land improvement, and the income tax was deducted from the re-payments tip till 1853, when a Bill was passed preventing income tax being deducted on repayments of principal, and only allowing the deduction on interest paid. Why should this difference exist between loans by the Government and loans by the great land improvement companies? The testimony of the actuaries had clearly shown the practicability of remedying this injustice; an injustice further aggravated by the fact that the Government had allowed the question to rest for 10 years without having attempted to find any remedy for the grievance. He would now call attention to the case of large trading companies and railway companies, and show how the policy of Government, in refusing to allow deductions for depreciation, had a demoralizing effect on the trade and commerce of the country. No business, such as that of a cotton-spinner, engineer, flax-spinner, or shipbuilder could be carried on without replacing the depreciation in machinery and plant year by year. He was not now touching on the question whether precarious incomes should be assessed in the same way as other incomes, but to Schedule D and commercial incomes, and if the Committee were appointed, he would show how the Chancellor of the Exchequer was hoodwinked, because of his ignorance of commercial matters, and he declared that in nine cases out of ten the railway companies in the United Kingdom cajoled and deceived the Chancellor of the Exchequer They very properly returned the income tax on the dividends they paid to the shareholders after the payment of all expenses, and after providing for depreciation and the replacement of rolling-stock in every possible way; but an ordinary trading concern, claiming depreciation and replacements, would be very quickly told by the Chancellor of the Exchequer that they must pay upon the sums for which they demanded those deductions, as well as upon the whole of their profits. He thought that he had said enough to show the injustice of the incidence of the income tax and the capability of remedying that injustice, and now he would say something of the administration by which the income tax was levied and collected. The Commissioners at Somerset House were respectable and intelligent persons; but, though they had to deal with matters of account, they never thought of calling in experienced accountants to advise them in the question. With regard to the clerks of the Commissioners, he had to make a complaint against the Chancellor of the Exchequer. Up to a comparatively recent period the clerks were paid a poundage on the amount of tax collected, and the consequence was that the clerks in London, and in all the great centres of commerce, got many thousands a-year, because the increase of the tax increased their remuneration, without causing them any additional labour; but the collectors of the tax, an important body of officers, received only a miserable poundage of 1½d. in the pound, and when the income tax was reduced to 4d. in the pound the Government had to give £47,000 to make up something like a tolerable payment to the collectors. As those officers were so badly paid, it could not be matter of surprise that some of them should occasionally be defaulters. Representing as he did on this question the associated Chambers of Commerce, he entreated the Government not to oppose the Motion he brought forward, but to allow a Committee of the House to inquire into this great national subject. It would be a relief to the Premier to find that the commercial community would come forward to sustain their integrity and to assist the Government in punishing evil-doers, whose frauds were to a large extent capable of detection. The Committee might inquire (1) into the mode of hearing appeals, in regard to which there were great complaints in country districts; (2) whether the tax should not be levied yearly on the actual net profits instead of on the three years' average as at present; (3) whether allowance should not be made for wear and tear of machinery and depreciation in works, plant, ships, and railways; (4) whether deductions should not be allowed for re-payment of principal in the case of life annuities, short term annuities, leaseholds, and land improvement, and other loans; (5) the general incidence of the tax; (6) whether any and what alterations should be made in the case of incomes under Schedule D; (7) whether the assessment on farmers in England, Ireland, and Scotland should not be equalized; (8) whether the system of assessing the tax on farmers according to rental could not be applied to small tradesmen, shopkeepers, and others; (9) whether the principle of charging succession duty was not applicable in other cases; (10) whether the allowance made in respect of life assurances should not be extended to other prudential savings; (11) the Committee should also investigate the system of paying collectors by poundage, and the payment of the Bank of England and other departments for collecting the tax. They should consider whether the system now adopted of levying additional rates in order to replace the defalcations of collectors should be continued, and whether collectors should not be required to give ample security, and be appointed directly by the Government; (12) the Committee should consider whether the income tax should not now be regarded as a permanent tax, discarding the subterfuge of supposing it to be temporary, by which we had for 20 years been prevented from redressing its inequality; (13) the Committee should inquire whether penalties and punishments should not be imposed for false and fraudulent returns, in order to secure the equitable incidence of the income tax throughout all classes. The hon. Member concluded by moving for the Select Committee of which he had given Notice.


I rise, Sir, to second the Motion of my hon. Friend, and I venture to express the hope that, if the right hon. Gentleman the Chancellor of the Exchequer be about to oppose this inquiry, he will adduce more forcible arguments than those which he thought it was worth while to use when he was defending the justice of the incidence of this tax against the assaults of an hon. Friend of mine a year or two ago. On that occasion the right hon. Gentleman based his defence of an unadjusted income tax upon the well-known canon of Adam Smith, that— The subjects of every State ought to contribute towards the support of the Government in proportion to their respective abilities—that is, in proportion to the revenue which they respectively enjoy under the protection of the State. The right hon. Gentleman argued as though by "revenue enjoyed" Adam Smith meant income "abstracted altogether from the idea of the sources whence it comes, and the purposes for which it goes." But surely the use of this word "enjoyed" ought to have induced the right hon. Gentleman to pause before accepting such an interpretation. You cannot speak of "revenue enjoyed" when a portion of that revenue is not revenue at all for purposes of enjoyment, when it is the mere replacement of capital already expended, or when it must go to keep the soul and body of the human machine which earns the income together. And therefore it is that all economists, except the right hon. Gentleman agree in this, that before you tax a man's revenue, derived from labour, he has a right to ask that you should make several deductions from the sum taxed—1st, for the maintenance of the actual labour which is its source—that is, what the labourer requires to maintain him alive, and without which the labour would absolutely come to an end. If you are about to tax the earnings of a steam engine, you would certainly deduct from the gross earnings the price of the coal required to keep the machine at work. And in the actual income tax you have already sanctioned this principle of deduction by declaring that small incomes—that is, those which are barely enough for the subsistence of the labourer—shall not be taxed at all. And it is the recollection of a second principle of exemption, sanctioned by the tax as it is, which leads me naturally to speak of the second deduction which you are bound to make before taxing any income earned by personal exertion. If a man insures his life he is allowed to deduct from his returns for such insurance up to a certain proportion of the whole sum returned. But the labourer is just as much bound to lay by against the occurrence of sickness and old age as he is against the occurrence of death. He had no right to enjoy that portion of his income representing this insurance, and you have no right to tax it under the head of income enjoyed, for the State has no right to assume that men will be absolutely reckless and improvident when experience shows that the majority are not so; and it has no right to teach improvidence by basing its taxation on the assumption that everything which a man receives as income he is morally at liberty to enjoy—that is, to spend. Then, Sir, comes the third deduction which we must make before we tax the proceeds of labour—that is, for the replacement of the capital already expended in the education of the labourer. Economically considered," says Professor Rogers, "the maintenance and education of labour are as much an investment of capital as the charges incurred for draining a field or for constructing a machine. But, Sir, there is a fourth deduction which I contend we are entitled to make from incomes derived from trade, and that is, as an insurance against certain of the losses of trade. So long as the income tax was levied, not on the assumed profits of each year, but upon the average profits of three years, there was some provision against excessive assessment. But this proviso has ceased. It often happens that the trader makes less than nothing by his trade during the financial year, and it is no answer to say that during those years he is not required to pay income tax, for the positive loss of such year is an absolute diminution of his capital, and that loss has to be made up out of future profits, and until it is made up such profits are not a proper object for taxation, because they do not constitute revenue enjoyed. Our position, then, Sir, is this — that until you have made these few deductions from gross income, you have no right to tax it, because it cannot be regarded as "revenue to be enjoyed," and therefore as no true measure of a man's ability to contritribute to the support of the State. We hurl back, then, at the right hon. Gentleman the maxim of Adam Smith, and we contend that, while he tells us that he is taxing us in the name of Adam Smith, he is trampling that respectable economist under his feet. And it is no answer to us to say that there are difficulties in the way of re-adjustment, and that by no system of re-adjustment can we hope to arrive at absolute justice as between man and man. In dealing with the subject for purposes of taxation, you cannot pretend to deal with individuals, but with broad classes, and the question is not can we make this tax fall justly upon everybody, but can we reduce the sum of its necessary injustice to a minimum? Because you despair of doing justice to everybody that is no reason why you should attempt to do justice to nobody. Nor is it any answer to say that there is a natural tendency in all taxes to re-adjust themselves. In his admirable memorandum, the late Mr. James Wilson exposed this fallacy, and illustrated it by a comparison with the result to the consumer of similar changes in the customs— Suppose," he says, "that professions are untaxed in relation to real property by 1½ per cent, and trades by ¾ per cent, is it possible to conceive that in any length of time self-adjustment would take place by raising a physicians fee from 20s. to 20s. 3¼d., and the cost of a lawyer's letter from 6s. 8d. to 6s. 9¼d., or the profits of a trade which at present are 8 per cent by the inappreciable amount which a difference of ¾d. per cent on the income would make on the amount of the trade from which the profit is derived? It would be as reasonable to argue that a reduction of ¼d. a pound in the tea duty would lead to a reduction in the price of tea sold at 5s. per lb. We contend, then, that this tax, as at present levied, is glaringly unjust—that it has not re-adjusted itself through time; and we do not hesitate to say that so completely does it affect that natural justice upon which all fiscal canons are based, that but for one circumstance in its recent history, public feeling would have been too strong for the right hon. Gentleman, and would have compelled long ago either its re-adjustment or its repeal. That circumstance is the fact that until recently this tax has been rapidly on the decline. So long as this process was going on, so long as the end of the tax appeared to be clearly in view, so long as there was a large class exempted from its operation altogether, and who believed that their exemption would be perpetual, so long did you succeed in clipping the wings of agitation. But what are the circumstances now? The tax has ceased to decline. It is no longer even stationary. In one year, in order to meet the exigencies of an economical Government, it leaps up 50 per cent, and this under a Chancellor of the Exchequer who declared himself to be the foe of exemptions. With what confidence can those who are at present exempted from the pressure of this tax regard their future immunity while they see a Chancellor of the Exchequer sitting there who talks loosely about exemptions, and who regards with complacency what he is pleased to call the justice of this tax. No, Sir, the whole attitude of this movement has changed very much for the worse since the time when the right hon. Gentleman, the First Minister, made his celebrated declaration that— It was on all hands agreed that the tax was not adapted for a permanent part of your fiscal system unless by re-construction you could remove its inequalities. For years and years the right hon. Gentleman used to apologize to the country for the re-imposition of a tax which he knew to be unfair, and which we were only told to tolerate because its days were numbered, and its extinction sure. I remember that the right hon. Gentleman went through the solemn form of abolishing this tax annually, and then again, with a flourish of rhetoric, restoring it to life. "The tax is dead," exclaimed the right hon. Gentleman; "God save the tax." Contrast all this with what happens now-a-days. The tax has no longer the decency to die once a-year. The Chancellor of the Exchequer comes down to the House not to bury the tax but to praise it. The tax is just, the tax is sound, the tax is wise, and Adam Smith is solemnly invoked, in order that he may give his final and inexorable verdict against us. And, under these circumstances, Sir, I have great pleasure in seconding the Motion of my hon. Friend.

Amendment proposed, To leave out from the word "That" to the end of the Question, in order to add the words "a Select Committee be appointed to inquire into the mode of assessing the Income and Property Tax, and the principle on which such tax is now levied on industrial, professional, and precarious incomes, and also on incomes derived from life annuities, mines, and other sources, where a portion of the principal as well as interest is annually consumed or included in the yearly returns liable to taxation; and also into the present mode of including gross incomes without allowing for depreciation in railway, manufacturing, and other concerns; and also into the mode of collecting the said tax, and the remuneration paid to surveyors, clerks, collectors, and others; and also into the constitution and duties of the central and local Boards of Income Tax Commissioners,"—(Mr. Chadwick,) —instead thereof.

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


, as one of the Committee of 1861, said, he wished to see the House take a more practical view of the question than that which had been submitted to its consideration by the hon. Gentleman who brought forward the subject; but in saying that he would allow that the hon. Gentleman had said many things to which he had long been accustomed to listen, and to which he was quite willing to accede. He had, however, in his opinion, given in more than one respect a very exaggerated representation of the objections entertained to the income tax by those on whose behalf he spoke. In the Motion itself the hon. Gentleman proposed to invite the attention of the Committee to seven different subjects; but before he sat down he had increased that number to no less than 15 or 16. The hon. Gentleman also stated that the Committee would be able to complete the evidence taken before them in a month; but, considering the magnitude of the subject, he would put it to the House whether, if it was necessary to enter into an examination of it at all, the present period of the Session was one in which any Committee could be expected to devote itself to the prosecution of such an inquiry in a manner which could be regarded as satisfactory? The House was now on the eve of the Whitsuntide holidays, such as they were; and it was scarcely to be expected that the Committee, if granted, could be nominated before the end of the next week, and, if some of the usual discussions with respect to its composition occurred, probably not until a still later date. Well, it would then commence its labours, perhaps, when June was somewhat advanced; and how, he would ask, was it possible to do justice to the important subject with which it would have to deal during the remaining portion of the Session? He doubted, besides, whether a Committee of 15 Gentlemen could be got to give their time to the question, or whether an hon. Member, well fitted to act as Chairman, could be found sufficiently disengaged to accept that position. But, independent of the objections which he entertained to the appointment of the proposed Committee, he wished to recall to the notice of the House certain circumstances which had been referred to by the hon. Gentleman himself—he alluded to the fact that the subject was one which had already undergone examination at the hands of no less than three Committees. A Committee was appointed in 1851, of which several hon. Gentlemen whom he was happy to see still in the House were Members. That Committee was re-appointed in 1852—that was to say, another Committee sat on the subject. Again, on the Motion of his hon. Friend (Mr. Hubbard), a third Committee was appointed in 1861, and, looking at the names, professions, and occupations, of the witnesses who were examined before those Committees, he ventured to say that, as the principles on which the present income tax was levied had not changed since its first imposition in 1842, as the whole of those principles were thoroughly investigated, and as every witness capable of giving evidence on the question was called before those Committees, and nothing was left over for future examination, it was impossible that any Committee could now obtain information more ample or of a different character. Official gentlemen, representatives of the Board of Inland Revenue, commissioners of various kinds, surveyors, and two gentlemen from the United States gave evidence before the Committee of 1851; and in 1852, the number was largely extended, embracing seven actuaries; while in 1861, Mr. Hubbard, Mr. Newmarch, Mr. Coleman, and several others (whose names the hon. Gentleman mentioned) were added to the list. He did not, under these circumstances, believe that it would be possible now to adduce any further evidence, calculated to lead to more careful conclusions; or to afford more general knowledge on the subject than was already at the command of the House. If, nevertheless, it was now the commencement of the Session, and there were sufficient time for the purpose, he should be glad to see a Committee appointed, to which the evidence taken before the three Committees he had mentioned should be referred, which should be charged to examine it, and report its opinion to the House as to whether any modifications could be introduced into the manner of assessing and collecting the income tax. He must, however, observe that, arguing as the hon. Gentleman had done so vehemently against the mode in which the tax was at present levied, he had, notwithstanding, altogether declined to inform the House what was the scheme which he himself would propose, while he was prepared to go into Committee to find fault. But, be that as it might, if he would ask next year for the appointment of such a Committee as he had just suggested, he should be happy to give him his support. When he heard of 44 Chambers of Commerce urging the hon. Gentleman to move for inquiry, he wished to know whether they possessed the Reports on the subject which had been presented to the House, and, if so, whether they had read them? Let hon. Gentlemen during the Recess thoroughly examine the evidence, and then let them come before Parliament, with distinct proposals of what they intended to submit to the Committee; or, if they preferred it, let them crystallize their ideas in the form of a Bill, and then the House would have something to deal with; but he, as one who had considerable experience in this matter, deprecated going into a Committee fishing for information, which would be simply a waste of time. The hon. Gentleman had referred to the sum awarded to the Bank of England for collecting the income tax. The hon. Gentleman was probably not aware, or else he had forgotten, that there were 250,000 accounts in the ledgers of the public Debt, and 20,000 accounts of the Indian Government, upon which dividends had to be paid twice in the year, and that consequently upwards of 500,000 distinct sums had to be deducted every year; and he apprehended that there was no one in that House, however rigid an economist he might be, who would say that the collection of the Revenue shown by these deductions ought to be undertaken by any establishment without remuneration.


said, he wished to say, as an humble Member of the Committee of 1861, that after spending many months in anxious inquiry, he had come to the same conclusion as the hon. Member for the City of London. The investigation of this question opened up the whole subject of taxation; it was impossible to inquire into it by itself, and if conducted as it ought to be the inquiry would be long and laborious. The Members of the Committee of 1861 were fully determined to make a full and impartial inquiry; and he could say for himself, that he went into it with opinions very much the reverse of those with which he came out. In that Committee, Mr. Hubbard had offered himself as a witness; but if he broke down it was in his endeavour to prove that a distinction existed between incomes derived from trade and other realized property—there being some trades and callings which had such a character of permanency, that the incomes from them could not be distinguished from the incomes derived from landed property. The hon. Member who introduced the question (Mr. Chadwick) spoke of the unfairness of the assessment on incomes under Schedule D, as distinguished from other Schedules. But the hon. Gentleman appeared to have forgotten the great uncertainty which attached to incomes under A and B, as well as D. It was stated in the Report of the Committee of 1861, that those assessed under A, B, and C, could not help themselves; but it was quite certain that persons assessed under Schedule D gave every doubtful point in their own favour. For instance, in London, under Schedule D, 1d. in the pound after 12 years produced simply as much as before, which showed either that the trade of London had not increased, or else that it was carried on under unprofitable conditions; but neither alternative could be admitted to be true. The conclusion was that, if they wished the income tax to be honestly met, they should put on a fair and moderate tax—the lower the better. As the circumstances which had led to the present increase were exceptional, he hoped the increase would be exceptional also, and 6d. in the pound, he thought, should not be exceeded in this country.


said, that Mr. Hubbard's views were very strongly against the present mode of assessing the income tax. He could confirm the statement of the hon. Member for Macclesfield, that a widespread feeling of dissatisfaction prevailed among the traders and professional men in the provinces as to the unequal and unjust incidents of this tax. A Committee of that House would be quite competent to investigate this subject, and, in his opinion, the time had arrived when a deliberate and careful inquiry into the matter had become necessary—more especially, as 10 years had elapsed since the last Committee sat. He must say there was some weight in the objection as to the advanced period of the Session; but if the right hon. Gentleman the Chancellor of the Exchequer would assure the House that he would be willing to consent to the appointment of the Committee about the commencement of next Session to consider this most unequal, immoral, and dishonest tax, he should be perfectly satisfied.


thanked the hon. Member for Macclesfield for bringing this subject under the notice of the House; but pointed out the inconveniences that would result, considering the state of Business, from the appointment of the Committee he asked for at the present time, when the time of hon. Members was so much occupied. With the hon. Member who spoke last (Mr. Norwood), he thought sufficient time had elapsed since the inquiry in 1861 to make further inquiry necessary, and he hoped that the hon. Member would receive an assurance from the Chancellor of the Exchequer that Government would be willing that a Select Committee to consider the subject should be appointed early next Session, when he (Mr. Hermon) would give the hon. Member his hearty support.


said, he approved of the Motion, as he thought it well that all such theories should be fully inquired into. He should like to see a better mode of collecting the income tax organized, as if that were not done, in his opinion, the only alternative would be to abandon Schedule D altogether. He thought that the owners of large property would find it to their advantage to consent to be taxed to the extent of 1s. or even 2s. in the pound, in order to relieve the trade, and the brain, and muscle of the country from taxation. The subject was one which demanded most patient and careful inquiry.


said, that the present mode of assessing the income tax was most unjust and unfair, and for that reason it was a matter that must sooner or later be inquired into; he should, therefore, support the Motion. The hon. Baronet (Sir Frederick W. Heygate) had urged that there was no ground for the Committee, because those who were called on to pay under Schedule D frequently evaded it; but that was no argument in favour of the present mode of assessment; an evasion of the tax was permitted because it was felt that its incidence was unjust, and that which would, in other circumstances, be regarded as a criminal act, was regarded with leniency. The hon. Baronet also said it was impossible to modify the incidents connected with Schedule D, because the claims of incomes under that Schedule were diverse. He admitted that was so, and that those incomes would require a different mode of assessment; but what was said with regard to the incomes of clerks of £300 per annum and under, and that of clergymen whose means terminated with their lives, were they to be assessed on the same principle as those of men deriving their incomes from money in the funds? The argument of the hon. Member for the City of London, that it was too late to grant the Committee, was no answer at all, because the evidence taken before this Committee might be referred to the Committee on its re-appointment next Session. The grievance complained of was increased by the fact that the income tax was now levied prospectively. It often happened that clerks and servants liable to pay income tax under Schedule D, paid on incomes they never received. Clerks and servants might, from no fault of their own, be discharged after they had been assessed, and thus be called on to pay in respect of an income that never accrued. For these, and for many other reasons, he thought the Committee ought to be granted.


said, he thought that a great many of the subjects which had been raised in this debate deserved the consideration of the Government, and that it was extremely desirable that, in some way or other, they should be inquired into. Of course, the Government was always placed in this position—that it derived its information chiefly either from the department of the Revenue which collected this tax, or from persons who wrote to the Chancellor of the Exchequer, and who were not very well informed on the subject; and so, in neither case, had they the chance of obtaining that more general opinion which is acquired from a consideration of both sides of the question. He was therefore quite ready to admit to the hon. Member for Macclesfield that it might be very desirable and very proper that the Government should further examine many of the subjects which he had mentioned, and with respect to which it was possible that improvements might be made; but the question before the House was—should they appoint a Committee this Session, in the very sweeping terms of the Motion of the hon. Member for Macclesfield, in order simply to enable 44 Chambers of Commerce to supply the House with information on certain points. Without wishing to put forward dilatory pleas, he thought the House could not help feeling the great force of the observations of the hon. Member for London (Mr. Crawford), and that it would be impossible, with the enormous quantity of labour before the House, to do justice to the subject if it undertook it. Nothing led him to suppose that the hon. Mover or Seconder of the Motion had the slightest regard to his convenience in the matter; but if a Committee were appointed, it would be his bounden duty to pay the most unremitting attention to it; and he assured the House that it would be almost impossible for him to do that without disregarding those other arduous duties which were equally obligatory on him. He had a large Department under his care, and also duties to perform in that House; but he would state to the House his opinion on the subject, and then suggest a course which, on the whole, he thought it would be most judicious for the House to adopt. He divided the subject into two parts—one part related to the larger questions which were involved in the income tax, and the other related to the question which principally occupied the speech of the hon. Gentleman who made the Motion, and that was collection and matters of that kind. Now, as to the first of those questions, the House might exercise its own discretion as to the appointment of a Committee; but he undertook to say this, and he spoke not without knowledge, that there was no subject probably in the whole range of political economy, or the practical administration of the Government, that had undergone a more thorough or sifting inquiry than the general abstract principle on which an income tax should be founded. He felt perfectly confident that, if a Committee were appointed, the result they would come to, after a great deal of labour and a great deal of trouble, would not be different from the result that had hitherto attended such investigation—that was to say, they could come to no other conclusion than that, if an income tax must be maintained, it must be a uniform tax. Whatever might be said as to the incidence of the tax under the different Schedules, they would find, when they came to weigh what was said on both sides, that the arguments entirely preponderated in favour of a uniform tax—in fact, that on no other plan could an income tax be supported; of course another plan might be tried, but he thought it would be exceedingly ill-judged. At any rate, it would not be expedient, in the present Session, to appoint a Committee to inquire into a subject on which there was hardly any Gentleman that had not the means of forming an opinion. The Report of the Committee appointed on the Motion of the present Prime Minister, the Reports of Mr. Hume's two Committees, and the Report of the Committee of 1862 furnished a mass of arguments and investigation on this subject, and left nothing to be done. He thought, if any Gentleman would go through these Reports, he would be of opinion that if an income tax were to exist, it could exist only on the condition that it should be uniform. The hon. Member for Huddersfield (Mr. Leatham) said that Adam Smith, speaking of an income tax, stated that a man should be taxed according to his ability—that was to say, according to the income he enjoyed. A hundred years ago the word "enjoy" was nearly equivalent to the word "possess," and clearly meant no more than that a man might be taxed according to the income he possessed, just as persons now talked about "enjoying" bad health. Even if that were not so, Adam Smith was not an infallible authority; but none of the witnesses who had been examined had ever ventured to put on the passage that had been quoted such a construction as that of the hon. Member. If, however, there was to be an income tax, hon. Members must not require too much from it. The nature of an income tax was to put a tax on the revenue which a man had, without reference to the sources from which it was derived, or the purposes to which it was applied, and unless hon. Members were prepared to adopt that view, an income tax could not be supported. If they attempted to look back and to make a difference in taxation, according to the source from which the income was derived, whether from realized property or from a trade or profession, or in any other way, they were really not imposing an income tax, but a one-sided and bungling kind of property tax; if, on the other hand, they looked to what a man did with his money, they were not imposing a tax on income, but rather on expenditure. The only way to clear the ideas of hon. Members on this subject, was to view the tax as one neither on property nor on expenditure; but simply as a tax on income—that was to say, on property after it had been created and before it arrived at the state of being spent — at the point of time which, according to metaphysicians, whom it puzzled, was going from the past into the future. That being the abstract theory, he would point out one application. The House was aware that all the funded Debt was borrowed under an express promise from the Government that it should be subject to no tax or deduction whatever. That, however, did not prevent an income tax being levied on dividends, and that plan, which had been acted on for upwards of 70 years, had been acquiesced in by the fund-holders. If a distinction were now made between the various schedules, a difference would be made according to various properties; and in all the schemes that had been brought forward, it was proposed to put the highest tax on the income of the fundholders. That, however, was contrary to Mr. Pitt's principle, and would be a direct breach of the Parliamentary guarantee. The first effect of making a differential income tax must, therefore, be to exempt dividends from taxation; for the existence of a uniform income tax was the only possible condition on which such income could be taxed. Assuming, then, that the House wished to retain the income tax, he desired to point out how that would be impossible unless it were to be continued as a uniform tax, to which result he was sure that all investigation would lead; and that being so, he came to consider the best course he could recommend to the House. The hon. Member for Macclesfield said he had great experience of this subject, and all who heard his speech must be convinced that he had taken great pains to investigate its practical working. The information he had communicated to the House would be valuable to the Government, and it would better answer the hon. Member's purpose if, instead of a Committee being appointed at the fag-end of a Session, his information was considered by the Government. If the hon. Member would furnish a correct list of his 13 articles of grievance, with any comments he might choose to make, he (the Chancellor of the Exchequer) would undertake, without waiting for a Committee, to make a most searching investigation into such of them as were not of a speculative or theoretical nature. One other subject, which was well worthy of consideration, was that of re-casting the Income Tax Act, which was in a very clumsy and antiquated form. From the fact that the whole of the documents connected with it were burnt during a fit of enthusiasm in the House of Commons in 1816, the whole subject was left in great doubt and confusion; and, without accepting the suggestion of the hon. Member to make the tax a permanent one, but leaving to it its present annual character, it would be quite possible for the House to pass a law which should regulate that tax, the House still retaining a control over its annual amount. If the hon. Member would accede to this suggestion, and he was not satisfied with what would be afterwards done, he could then consider whether he would press his Motion at the beginning of a future Session. He hoped, however, that the House would consider he had fairly met the hon. Member, in promising to do what he could to remedy the evils of the present system; and that the hon. Member would not think it necessary to persevere with a Motion, which could not have the effect of bringing the matter to a decision, at all events during the present Session.


said, he thought it idle to suppose that this subject could be put aside, by the offer of the Chancellor of the Exchequer to consider mere abuses. It would not do to attempt to silence the just complaints which were made in reference to this tax, by saying, with a sneer and a taunt, that the hon. Member for Macclesfield was a young Member, and had not that experience of Parliamentary affairs which others possessed. Mr. James Wilson, one of the ablest men who had ever been in the House, had drawn up a Memorandum, in which he broadly divided into three classes the income that was liable to taxation; and he proposed to deduct 10 per cent from enjoyable incomes, by which he meant incomes derived from rent of land or interest on money, 50 per cent from the wages of labour, and 25 per cent from that combination of labour and capital which afforded the income of the mercantile classes. Mr. Wilson, however, was not pedantic in his definitions; he would not pretend to infallible accuracy, but sooner than make a blind, undiscriminating rule of uniformity, he would lay down three lines which were approximate to accuracy. What Mr. Wilson said was that we ought to find out the expending power of those who were taxed, and it was never too late to discuss this question with that object. The hon. Member for Macclesfield would not be justified in accepting the offer of a mere inquiry into the abuses in the collection of the income tax; that was not what was wanted, for it was not the general wish to retain the tax, unless it could be made more just and equitable, instead of being directly favourable to particular classes. No prudent man would spend all the income he derived from labour, but a man living on the rent of land, or the interest of money could do so; and therefore they could not regard £100 derived from realized property as they could £100 derived from labour of any kind. It was said, of course, that to remedy these defects was impossible; but it was only "impossible" to remedy the inequalities complained of, there was reason to hope that they might be got rid of.


said, that if the Chancellor of the Exchequer entertained the grievances of 40 Chambers of Commerce, he must be prepared to entertain those of the 100 Chambers of Agriculture, which complained of the "inequalities" under Schedule A, where the tax was charged on hundreds of thousands of pounds of property assessed above its actual value, because of the difficulty of resisting the assessments, while similar wrongs were perpetrated under Schedule B. The profits of an occupier of land were assessed on the half of his rent, and for the last three years the great body of the farmers in the country had paid property tax on imaginary profits, which they had not received; for the last three years had been three years of loss. Therefore, if the right hon. Gentleman listened to the representations of the Chambers of Commerce, he would have to encounter objections from every class of payers of income tax. He had voted for the appointment of the Committee in 1861 to inquire into this subject, and had carefully watched the proceedings of that Committee, and the conclusion he came to was that the sooner the income tax was got rid of the better, and that if it must be continued, it ought to be levied at a low and at an uniform rate. After the investigation which this subject had received, it devolved upon anyone who reopened it, to propose a fair solution of the difficulties by which the question was surrounded, and no proposition of that character was submitted on the present occasion.

Question put.

The House divided:—Ayes 56; Noes 47: Majority 9.

Armitstead, G. Dalway, M. R.
Ayrton, rt. hon. A. S. Davies, R.
Barnett, H. Denman, hon. G.
Baxter, W. E. Dickinson, S. S.
Bristowe, S. B. Dowse, R.
Brown, A. H. Duff, M. E. G.
Bruce, rt. hon. H. A. Enfield, Viscount
Campbell, H. Forster, rt. hon. W. E.
Cardwell, rt. hon. E. Fortescue, rt. hon. C. P.
Cholmeley, Captain Gavin, Major
Craufurd, E. H. J. Gladstone, W. H.
Crawford, R. W. Grant, Colonel hon. J.
Dalrymple, C. Grieve, J. J.
Guest, M. J. Morley, S.
Hamilton, J. G. C. Nicol, J. D.
Heygate, Sir F. W. Parker, C. S.
Heygate, W. U. Potter, E.
Hibbert, J. T. Seely, C. (Nottingham)
Hodgson, K. D. Sherlock, D.
Hughes, W. B. Stacpoole, W.
Hurst, R. H. Stansfeld, rt. hon. J.
James, H. Storks, rt. hn. Sir H. K.
Johnston, A. Villiers, rt. hon. C. P.
Knatchbull-Hugessen, E. H. Williams, W.
Winterbotham, H. S. P.
Lefevre, G. J. S. Young, G.
Lowe, rt. hon. R.
Lubbock, Sir J. TELLERS.
M'Clure, T. Glyn, hon. G. G.
M'Lagan, P. Greville, hon. Captain
Miller, J.
Akroyd, E. Lopes, H. C.
Anderson, G. Macfie, R. A.
Bective, Earl of M'Laren, D.
Birley, H. Maguire, J. F.
Bowring, E. A. Martin, P. W.
Bright, J. (Manchester) Mellor, T. W.
Brise, Colonel R. Mundella, A. J.
Burrell, Sir P. Norwood, C. M.
Candlish, J. O'Brien, Sir P.
Carter, Mr. Alderman Palmer, J. H.
Charley, W. T. Pim, J.
Clay, J. Reed, C.
Cross, R. A. Smith, R.
Delahunty, J. Talbot, C. R. M.
Dillwyn, L. L. Talbot, J. G.
Dimsdale, R. Torrens, W. T. M'C.
Dixon, G. Whalley, G. H.
Fowler, R. N. Wheelhouse, W. S. J.
Gore, J. R. O. White, J.
Gray, Sir J. Whitworth, T.
Gurney, rt. hon. R. Winn, R.
Hambro, C.
Henry, M. TELLERS.
Hermon, E. Chadwick, D.
Johnston, W. Leatham, E. A.
Lea, T.