THIRD READING. (Hansard, 4 May 1888)

§ MR. W. E. GLADSTONE (Edinburgh, Mid Lothian)

I do not intend to detain the House at any great length, but there is one point I deem to be of great importance in respect to this Bill, and on which I must make some remarks. I mean the Wine Duties. I am not going to repeat any of the objections taken on former occasions to the proposals of the right hon. Gentleman the Chancellor of the Exchequer (Mr. Goschen), but I am very desirous to say nothing that will increase in any way the difficulties with which he has to contend. I regret very much, and I think it possible he also regrets the vigorous manner in which his majority came up to support him, and the circumstances under which it was swollen even beyond its ordinary limits, when this question was formerly discussed; because I am not without a suspicion that my right hon. Friend would not have experienced any very keen or poignant regret if the feeling of the House about the measure had been such as would have enabled him to recede from the position he has taken up. What I wish to impress upon him is that, as he has shown a disposition to mitigate the effect of it, I hope he will lose no time in proposing the amending legislation now before us. The right hon. Gentleman must be sensible that the trade is necessarily thrown into a state of confusion and stagnation by the present state of things. It does not follow that because an alteration has in former times appeared impossible, it is still impossible, because I know that in the course of administration and experience sometimes modes are found of overcoming difficulties which have long appeared to be insurmountable. I have a good deal of misgiving as to the plan by which the right hon. Gentleman the Chancellor of the Exchequer proposes to mitigate the effect of the tax he is about to lay on, and to restrict it to the more expensive wines; but I most cordially hope he may succeed in that purpose, and I trust he will lose no time in making his attempt, because it is quite evident that if anything can be done it may be done with great despatch as well as after considerable delay. The other question on which I wish to say a few words is the condition in which the Death Duties are left in the Vote now before the House. At the time we debated this subject before, I 1422 began by stating that the relation of the Death Duties to personalty, after the new enactment has come into operation, as compared with the Death Duties on realty, would be that of about three to one, and afterwards, having found myself in a certain error as to the sum I ought to have calculated and not taken into view, I pointed out that that would not materially modify the calculation I had made, and that the relation would still be nearly that of three to one. On reconsideration I am not at all inclined to modify my original estimate, but shall be prepared to contend that the rate upon personalty as compared with realty after those changes have taken place—I mean for Exchequer purposes, because, of course, if we include the local contributions the charge becomes much heavier—will be three to one. But what I wish to call attention to is the reason which has been alleged on certain occasions for maintaining the inequality—namely, that land is unduly taxed in other respects. Now, that proposition I wish to meet with the most unqualified contradiction of which Parliamentary argument admits. There is no unjust taxation upon land whatever which can be pleaded to sustain the inequality in the Death Duties, and I will state to the House why. The only two points which have been alleged, or which I believe can possibly be alleged, are these—first, the Land Tax; secondly, the Income Tax. Now, with respect to the Land Tax, I must say it requires much Parliamentary courage, I think, to urge on the part of the land that the incidence of the Land Tax upon land constitutes an inequality as between the owners of land and the owners of other descriptions of property in respect to taxation. The Land Tax represents a portion of the condition on which they hold the land. They did not obtain the land gratuitously, but for services. Undoubtedly they got rid of those services upon very easy terms, but the Land Tax is a relic of those services. It is impossible, in my opinion, to make the smallest claim on account of the Land Tax for compensation in any other form. But in respect to the Income Tax, I was myself the inventor of the doctrine that the landlord, under Schedule A, paid more than the normal rate of Income Tax, and I do not recede from that doctrine. It is, indeed a doctrine which 1423 applies unequally. In Ireland it does not apply at all. The Irish landlord does not pay a 6d. more, I believe, than the nominal rate of the tax. In Scotland the incidence has been altered since I said that on the average the payment of the landlord might be taken at 9d. as the equivalent to 7d., by allowing to the landlord permission to deduct public burdens which at the time I spoke would not be deducted. As regards England, however, the matter remains very much what it was. I will not enter into details, but it is certainly true, in my opinion, that the landlord in England to a great extent, and in Scotland to a considerable extent, pays more than the nominal rate of Income Tax. Yes, Sir, but why was that argument produced on the part of the landlord? It was produced in order to meet the counter-argument of those who insisted that the trades and professions and the fluctuating and transitory incomes of the country are placed at a cruel disadvantage in comparison with land. That is an opinion which, whether true or not, has at times unquestionably had the assent of a majority of Members of this House, though it never was the law; and I make no doubt whatever that upon some future occasion the proposition which now slumbers for a while as a mere opinion will come forward and become a practical question. I may remind the House that at the time I urged this subject upon the House Mr. Disraeli had been Chancellor of the Exchequer, and what had he done? He had proposed an Income Tax of 7d. upon land, but reduced to 5d. upon trades and professions. It was to counteract that argument I pointed out that the landlord paid more than the nominal rate; but if that over-charge upon the land in respect of Income Tax is to be taken as a set-off against the severe operation of the tax upon trading and professional incomes and fugitive and transitory incomes, it cannot do duty over again. In 1853, when I entered that plea on behalf of land, the whole Tory Party in Opposition supported a Motion made by Sir Edward Lytton (afterwards Lord Lytton) attacking the plan of the Government simply on the ground that they proposed to re-impose the Income Tax without applying a remedy to the tremendous inequality between permanent and transitory incomes. I, therefore, wished to place on record, as a perfectly 1424 indisputable argument, that it is impossible to make use of the condition of the landlord under the Income Tax as a justification of the inequality of the Death Duties. This is a subject so important that it is absolutely certain, in my opinion, to become again a practical question before the House in future Sessions, if not in the present Session. My desire is to see established a perfect equity and evenness as between the Death Duties upon land and personalty respectively, otherwise, in my opinion, the result will be to raise in a very serious form a claim of the trading and professional classes in this country for relief under the Income Tax itself, and I by no means feel sure that if landlords as a body choose to raise that controversy they will not before they issue from it find cause to regret it. I will not make any general remarks on the Bill, the progress of which I do not wish to slacken; I am anxious that the proposal promised by the right hon. Gentleman the Chancellor of the Exchequer shall not be delayed, and that the right hon. Gentleman shall lose no time in the attempt he has gallantly undertaken to make a distinction between cheap and dear wines.

§ THE CHANCELLOR OF THE EXCHEQUER (Mr. GOSCHEN) (St. George's, Hanover Square)

I quite agree with my right hon. Friend the Member for Mid Lothian (Mr. W. E. Gladstone) as to the importance of despatch with regard to the Bottled Wine Duties, and I accept his challenge that I should lose no time; indeed, I have this day been engaged with the permanent officials of the Treasury in elaborating a plan by which our views can be carried out. I admit the difficulties, but I hope they may be overcome. My right hon. Friend had felt that there is force in the suggestion that the Income Tax falls much more heavily upon land than upon other property. Now, in 1853 the right hon. Gentleman did apply the argument that it was as 9d. to 7d. as a counter-argument with regard to Succession Duty. He may not be prepared to do so now, but at that time he made a long, a powerful, and an elaborate argument to show that this position of the land with regard to the Income Tax ought to be taken into account with regard to the Succession Duty. The right hon. Gentleman says that position still exists. I should like to show 1425 the House how that operates. Let me show how the additional Income Tax operates in the case of a mortgage. Suppose a man has land of a gross value of £2,000 a-year, mortgaged to the extent of £1,000 a-year. The owner will pay the tax on £12,000, which at 6d. means paying £50. He will recover from the mortgage 6d. on £1,000—that is, £25. Thus he will pay himself £25. But, inasmuch as the net value of the estate is £2,000, minus 20 per cent, or £1,600, all the income he really enjoys, after deducting the mortgage interest of £1,000, is £600 a-year. Thus he pays £25 on £600, or 10d. not 6d., in the pound. Supposing this process to continue for 13 years, the owner of the estate would have paid £130 too much, not reckoning interest. If at the end of that time the property changed hands—and, as a matter of fact, it does not change hands nearly as often as once in 13 years—the successor would pay 1½ per cent on the life interest. The average life interest is 13—years' purchase of the net value. Therefore he would pay on £600, multiplied by 13½ equal to £8,100. One and a-half per cent on this would be £121 10s. The argument is that he pays only half what he would pay if he succeeded to personalty; therefore, he pays £120 too little. But, on the other hand, the property to which he succeeds has been paying £130 too much Income Tax. Thus, through the additional payment of Income Tax, he puts himself precisely in the same position in this case as if he had paid the full Succession Duty. The right hon. Gentleman feels the weight of this argument; but he wishes now—differing from his own argument in 1853—to take into consideration the temporary nature of profits under Schedule D as compared with permanent profits under Schedule A. He is apparently thinking of the permanent profits made in 1853 on land; but I doubt very much whether land can now be regarded as yielding as permanent a profit as business does. But how about the Funds, and dividends on Railway Shares and Debenture Stocks? Land alone is paying on the gross income instead of on the net. This question will have to be argued out; but there are strong grounds for holding that the Income Tax presses with especial weight at present on the landed interest, and the right hon. Gen- 1426 tleman will be met on that point on future occasions whenever he enters upon it. He has not attempted to-night to argue that land is paying only in the proportion of one to three as compared with personal property in respect to the Death Duties. I will not now argue that question either. But the fallacy of his contention arises from his taking, not the owner but the land into view. He arrives at his conclusion as to the proportion of three to one by taking the whole of the land, and he looks at the land on one side and to personalty on the other in reckoning how much the land ought legitimately to pay. I gave the right hon. Gentleman the reference to the Report of the Inland Revenue Board, which he specially praised, in order to show that the Land Tax was taken in as a charge on land, although not as a charge on the individual owner if you compare him with the owner of personalty. I admit that the question that the right hon. Gentleman has raised is one of the greatest importance, not only as between Imperial and local taxation, but as between the various forms of property; and I quite agree with him as to one important point which ho touched to-night—namely, that visible personalty and the case of leasehold property ought to engage the attention of Parliament.

Question put, and agreed to.

Bill read the third time, and passed.