[BILL 190.] SECOND READING. (Hansard, 3 May 1886)

§ MR. BARTLEY (Islington, N.)
said, he wished to draw attention to the unequal manner in which the Income Tax was levied under the existing system. If some persons successfully evaded the tax, that was no reason why others should be called upon to pay in excess. There were many cases in which the Income Tax was not clearly defined, and on which Income Tax was paid to a higher amount than the income actually received. The Bill provided that the tax should be levied on profit or gain; but he knew an instance where a tradesman, having made for two years a loss and for three years a profit of only £8 a-year, had had during that time to pay Income Tax at the rate of about £50 a-year. Another tradesman, who had become bankrupt owing to bad trade, had been charged Income Tax up to the very last year on £3,000 per annum. Cases of this sort were very numerous, and he thought something ought to be done to prevent their recurrence in future. One institution with which he was connected afforded a typical instance. A Company had been started to establish an institution for the education of women, and it had succeeded. They had set sums aside for depreciation of property—such as leases and of furniture—and these were treated as income by the collector. But in this particular instance the first collector for the first five 231 years had made an abatement for these items; the second collector, in the succeeding five years, would not allow any abatement on either item; while the third collector, in the third five years, permitted an abatement on only one item—namely, the depreciation of furniture. An Insurance Office with which he was connected always made an annual Return of their income, coupled with the statement that the bulk of their income was derived from investments which already paid too high a rate of Income Tax. If an Insurance Company or a savings bank made no profit at all, the case was harder still when it was called upon to pay Income Tax. A North Country savings bank which held about £400,000 in small deposits paid in Income Tax about £500 a-year, although it made no profits at all. Up to 1878 the Inland Revenue returned to this Company the Income Tax on its investments. The National Penny Bank was established about 11 years ago with philanthropic objects. It had never yet paid its way or paid a dividend, and the shareholders had spent £13,000; and yet they had in the 11 years paid nearly £2,000 in Income Tax, which was the amount that would have been levied on a flourishing business that had earned £72,000. This year the bank would pay £600, although it had not made 1d. of profit. This was not taxing income for profits, but it was taxing philanthropic institutions. With regard to house property, he ventured to assert that in London and other large towns a great number of houses were assessed at the present time a good deal above what could be absolutely got for them. One in Blackfriars Road, which was unlet for years, and for which, therefore, no premium was paid, was hired for one of the institutions he had referred to at £140, and was assessed at £154; another was hired at £45, and was assessed at £54. The right of appeal in such a case was practically useless. Rating could not be taken altogether as indicative of value when it was in excess of what property would bring in. If by combination all London were reduced one-tenth on its assessment, that would not damage local rating; but it would enormously reduce the amount London would pay to the Chancellor of the Exchequer, and he (the Chancellor of the Exchequer) 232 would not be satisfied with such an arrangement. Neither had he the right to claim taxes upon a larger than the real value, even although the house might be rated in excess of that value. There was much property that was only partially let. If it was let for a part of the year the Income Tax was reduced; but if only a part of a house could be let there was no reduction. A house which brought in £53 was assessed at £100, and the tax upon that value was claimed. In another case property brought in £33, and yet paid Income Tax on £100, which was at the rate of 2s. in the pound. This plan of charging necessitated the closing of houses that otherwise might be partially let for working-class tenants. Some said that all unlet property ought to be taxed, and he did not say he objected to that in theory. That, however, was a question of itself, and until it was law it was no argument in favour of the present system by which, when property was only partially let, it should be assessed for Income Tax at its whole value. No doubt, the Chancellor of the Exchequer was in great pecuniary difficulties; but a system which made people pay more than they were entitled to was not a system which should be encouraged by the Government. The reason why these excessive demands were made was, to a great extent, that collectors and officials associated with the work of assessment were paid by poundage. This Bill provided for the payment of collectors by a poundage of 1½d. He hoped that clause would be amended in Committee. All associations for Income Tax reform objected to the poundage system, as based upon an immoral principle. It admitted personal interest into the determination of the amount of assessment. Men were tempted unwarrantably to increase assessments for their own pocket, and thus taxpayers were individually subjected to unjust charges. Poundage was not payment for efficient services, but for the raising of assessments. The pressure upon officials and collectors was greater with a high tax than with a low one; the poundage produced more when a tax was 8d. than when it was 3d., and yet it involved no more work or trouble. He trusted the Government would consent to do away with this poundage system. The right of appeal was in most cases a delusion, 233 for the Commissioners were led by the collectors, who understood the rules, and worked them hardly against complaining taxpayers. He had to appeal himself to Somerset House; but although he met with every courtesy nothing came of it. His conviction and that of others concerned was that the whole system of poundage ought to be done away with; that the system by which Local Commissioners were elected should be altered; that the means of appeal should be revised; and also that it should be made clear that the payments of the tax on incomes did not exceed the real amount which the person paying it had earned. The tax was now a permanent one; and, seeing that in a time of peace it was 8d. in the pound, it was more than ever necessary that it should be levied in a fair manner.

§ MR. GREGORY (Sussex, East Grinstead)
considered the appeal made by his hon. Friend deserved the earnest consideration of the Government. He (Mr. Gregory) had also to remind the Chancellor of the Exchequer of the promises he received when he brought his Motion forward on the 19th of March. Until this Bill was read a second time he could not place his proposals on the Paper. He believed he could have carried, his Motion; but he did not wish to take any step that was hostile to the Government. He trusted that sufficient time would be given between the second reading and the Committee stage to consider his proposals, and fairly and fully discuss them.

§ THE CHANCELLOR OF THE EXCHEQUER (Sir WILLIAM HARCOURT) (Derby)
said, the appeal which had been made to him by his hon. Friend (Mr. Gregory) was a fair one, and the House certainly ought to have an opportunity of seeing his clauses before this Bill passed through Committee. He undertook that that should be so. So long as there was practical protection in the case of reversions and remote contingencies, which did not naturally reveal themselves to the collectors of the taxes, he admitted the principle for which his hon. Friend contended was a perfectly fair one. With reference to the speech of the hon. Member for Islington (Mr. Bartley), he would not go into the details of all the cases alleged; but he could undertake that, if they were laid before him, he would have them care- 234 fully examined. He entirely agreed that, onerous as the burden of the Income Tax must be, it was the duty of the Government to see that it was levied without a sense of injustice. It was the interest of the Government, above all, to see that that was done. With regard to the class of cases where it was said a man paid Income Tax where he derived no profits, if a man made high profits the first year, considerable profits the second year, and none the third year, the principle was to take the average. Therefore, in the circumstances of the case, he would gain the advantage; for, suppose it happened that there was a small profit the first year, large profits the second year, and high profits the third year, the average would still be taken on an average of the three years. Though it was considered an apparent injustice, it was fairer to take an average. Then, as to houses, the fair criterion was the actual value of the house. As to the case of the Insurance Offices, he was really not prepared to enter into that until he knew the circumstances. On getting the facts he would carefully examine into them in connection with the officers of the Inland Revenue. In all these cases the principle had been tried out in the Courts, and the officers acted on the principles laid down. As to the question of poundage, the Government officers and collectors were not paid by poundage. The system of poundage only applied to local collectors. There was no desire on the part of the Government to exact a higher rate through that system. When a proposal was made some years ago by the Government to alter the system Members came down, under the pressure of the persons interested in the poundage system in the various localities, and mobbed the Government out of their proposals. If, however, the hon. Member would privately give him a guarantee that they should have a majority in any attempt they might make to alter the system, he would promise him that he would at once set to work to make the endeavour.

§ MR. TOMLINSON (Preston)
said, there was one class of property which was felt to be very hardly treated in the matter of Income Tax, and that was mining property. Collieries, in assessing their profits, were not allowed to deduct anything for depreciation, and 235 that was felt to be a great hardship. That class of property was peculiar, because, in many cases, they had minerals which lasted for, perhaps, 20 years, and then were worked out; and, therefore, it was necessary that the whole of the money expended for the purpose of extracting those minerals from the soil should be recouped with interest during those 20 years, and there were really no profits till allowance was made for depreciation of the capital expenditure. He hoped the Government would take that point into their consideration. As the Income Tax was now permanent, it ought to be assessed as fairly as possible. This consideration applied also to the House Tax. At present, where a house was occupied partly for business and partly for residence, the assessment was laid upon the whole house. That was not fair.

§ MR. F. S. POWELL (Wigan)
said, there was another point which pressed hardly on the owners and lessors of mines. This was that these persons had to pay Income Tax in exactly the same way, and to just the same extent, as if the rent and the property would last for ever, whereas the contrary was the case. That was a point which had been brought before him on many occasions, and it was one that was felt to be a great hardship by many mine owners. He trusted that when any changes was made in the incidence of the Income Tax some relief would be afforded in that matter.

§ MR. ROUND (Essex, N.E., Harwich)
said, that he was desirous of calling the attention of the right hon. Gentleman the Chancellor of the Exchequer to the injustice which attended the collection of the Income Tax under Schedule B. He believed that a considerable sum was taken from the pockets of landholders unfairly, upon supposed profits, which had not been made. It was difficult for many occupiers to produce accounts, though he was aware the exemptions were considerable in the case of small occupiers. He should like to ask a question which he had often heard raised, but never answered—namely, on what principle of justice or equity Scotch occupiers of land were assessed, under this Schedule, at a less amount than English occupiers? It was the fact that Englishmen were assessed upon half their rent, where Scotch farmers were 236 only assessed upon one-third. These last few years were times of unexampled depression in the agricultural districts; and he appealed to the right hon. Gentleman to remedy this inequality, by assimilating the assessments in England to those in Scotland.

§ SIR WILLIAM HARCOURT
said, that, no doubt, the assessments under Schedule B appeared at first sight extremely anomalous in England, Scotland, and Ireland, the charge being made not on the annual profit, but on a certain proportion of the rental. If the hon. Member would look at the 28th Report of the Inland Revenue Department of last year he would find the whole history of the circumstances under which the assessments were made, and would see that the method was introduced at the time when the assessment was first adopted, because it was supposed that farmers at that time did not keep books. Therefore, there was a sort of arbitrary assessment, on the assumption that the profits of the farm bore a certain proportion to the rent. A fraction was taken in England, a different fraction in Scotland, and, he believed, a different fraction in Ireland. But the hon. Member was aware that a person was not bound by that system. If he elected to pay on profits he might do so.

§ MR. WARMINGTON (Monmouth, W.)
remarked that though all the capital employed in mining operations might be lost, the owner went on receiving his royalty all the same, whether the mine succeeded or not.