HC Deb 24 February 1891 vol 350 cc1475-503
(4.5.) MR. BARTLEY (Islington, N.)

I rise for the purpose of moving— That, in the opinion of this House, a Committee should be appointed to inquire into the Income Tax, the mode of its collection, the system of appeal, the payment of poundage for collection, and generally to report on the present working and incidence of the tax as now imposed, and whether some juster system could be adopted, by a different rate being imposed on income derived from realised capital to that derived from industry. I very much regret that I have to bring forward this Motion in the absence, from illness, of the Chancellor of the Exchequer, and under the circumstances I should have postponed it, if I had felt that it was possible to obtain any other opportunity for bringing it before the House. It is a matter which is becom- ing more and more pressing day by day, and I think it is a subject which deserves consideration at the hands of the House, with a view of getting the Income Tax placed upon a more just and equitable footing. The tax was originally imposed at the end of the last century, but it was subsequently taken off, and was not re-imposed until 1842, when Sir Robert Peel introduced it as a temporary tax, which was not intended to be of a permanent character. But from that date the tax has continued and also grown and developed. Chancellors of the Exchequer, one after another, have gradually increased its pressure. As a matter of fact, the tax is so easy to collect and the law-abiding Income Tax-payers of this country are so easily squeezed, that the incidence of the tax has never been regarded except in its financial aspect. The hardship involved in the tax, and the injury it inflicts upon the trade and commerce of the country, has been too much forgotten, although there can be very little doubt as to the unfavourable manner in which it handicaps the small traders. Many persons have a notion that it is a tax which is only paid by the rich. Nothing can be more contrary to the fact. It is true that the rich pay it, but not only is it paid by the rich, but it materially affects the lower and middle class of society. Schedule D. applies to shopkeepers, merchants, professional men, traders, lawyers, doctors, newspaper men, and to that large class of persons who are really the working bees in the industrial hive of this country, excluding perhaps, but not entirely, the working classes. The number of persons who pay the tax under Schedule D. are in round numbers 450,000, and of that number no less than 225,000, or about one half pay it upon incomes of less than £200 a year, 106,000 pay upon £200 and under £300. That fact alone proves conclusively, I think, that a very large number of the payers of the tax are in the very bottom of the middle strata. About 60,000 pay Income Tax on incomes between £300 and £500 a year, and there are altogether 386,000 out of 450,000 who pay it on less than £500 a year. This is an important fact when we consider the growth of the tax. In 1842 the tax per penny in the pound produced £850,000 a year; in 1861 it produced £1,250,000; and last year it produced more than £2,000,000 per penny. This rapid growth is due to the larger number of persons who have been brought within the meshes of the tax. From 1846 to 1874, or thereabouts, between 30,000 and 40,000 persons paid Income Tax on sums above £200 and below £300. From 1874 to 1889 the number of persons who paid the tax upon incomes of between £200 and £300 a year rose from 39,000 to 106,000, while those who paid it on incomes from £500 to £1,000 a year remained almost stationary, and those who paid upon incomes of more than £1,000 a year absolutely decreased. These figures show that the cause of the increase in the product of the Income Tax is that a large portion of the community at the bottom of the social scale is being gradually drawn within the operation of Schedule D. I do not express any opinion upon the question whether this is right or wrong, but I do hold that if the tax is affecting more and more persons who fill positions low down in the social scale, it behoves this House to take great care that the incidence of the tax should be equally adjusted and that the law should be administered fairly. It is supposed that the tax is one upon income, but the question arises—What is income? and I am unable to derive any definition of the term from any Act of Parliament. If a man sells goods over the counter he deducts from his income the cost of the materials and the amount of wages he pays. But it seems to me that that is not enough, and that he ought to deduct all the expenses that are absolutely necessary in order to produce the income. Income ought to be the net amount after a fair deduction of all charges which go towards the making up of that income. In tens of thousands of cases at the present moment the tax on income is not a tax on what ought fairly to be called income, but on a fancy sum fixed by officers who are personally interested in making the sum as large as they possibly can. I will give a string of typical cases which bears out this remark. Let me, first of all, take the case of houses. A man owns a house which he lets for £50 a year, and upon that house he is charged Income Tax upon the full sum of £50, notwithstanding that he may have to incur an expenditure of from £5 to £20 for repairs and other causes. The same remark applies to land in occupation and use. Expenses are necessarily involved, but no deduction is allowed, and the Income Tax has to be paid upon the full rateable value. Therefore the action of the Government has the effect of discouraging the possession of houses and land by persons of small means, a result socially to be deplored. Take the case of a man who pays £1,000 for a short lease, and who receives in rent £250 for six or seven years. Throughout the tenure he has to pay to the Chancellor of the Exchequer Income Tax upon the full amount of £250 a year, although a part only is really income and the rest is required to recoup the capital advanced in the original purchase. In such a case I maintain that Income Tax is not paid upon the income but on a fancy sum which is not truly represented as income. Then, take the case of cottage property. We often express a desire to encourage the improvement of cottage property, but it is a well known fact that the sums received from these cottages do not represent the real income. In some cases the outgoings even exceed the amounts received, and in no way does the rent show the actual income. Nevertheless, the Chancellor of the Exchequer demands Income Tax on the gross valuation. This is unfair, and further, out of consideration for the well-being and happiness of the people, is socially a mistake, as it discourages the building of improved cottages. I contend that it is most unfair to tax cottage property in this way. Then, again, there is the case of warehouses and other property which are only partly let. A building partly occupied with one or two rooms let and others unlet is charged Income Tax upon the entire annual value of the building. I have known houses partly let so heavily taxed that they have been emptied rather than pay the outgoings, which were larger than the rents received. There is another very large case of injustice in which property is assessed at a higher rate than the lease justifies. Let me take the case of a house let at £50 a year, the purchaser having paid no premium upon it. In numerous cases he finds himself rated at £60, so that he has to pay Income Tax upon £10 more than he actually gets. Is there any possible way in which that can be regarded as income? I know the case of a property which brings in £90 a year, but which pays Income Tax upon £120, and I believe that that is the case in regard to very many properties in London at this moment. In a case of my own, I was charged Income Tax at the rate of £300 upon property which brought in £250, but upon an appeal the extra charge was deducted. But the Chancellor of the Exchequer has now secured an ally in the London County Council, who have protested against my being rated at £250, and demand that I shall pay upon £270, although the extra sum can in no possible form be termed income. Then, again, the depreciation of machinery must not be forgotten. In fitting up a workshop a considerable sum is expended in machinery, but in collecting Income Tax nothing is allowed for the depreciation of that machinery. Surely, if I spend £1,000 in machinery which cannot last for more than five or six years, the depreciation ought to be taken into account. In regard to depreciation, there have been very extraordinary decisions. In one case in which I was personally interested—that of a large educational institute—a considerable sum of money was spent in school fittings and in making provision for renewing short leases. When the Income Tax assessment was appealed against an allowance was made for these items, and they were deducted from profits, on the ground that they were a necessary provision to replace the furniture and fittings and to renew the leases; but another Income Tax Commissioner came upon the scene, and refused to make any allowance at all. Another typical case is that of a Company which has been in operation for four years. Four years ago it made a profit of £470; the year after the profit fell to £160; the third year there was an absolute loss of £120; and last year there was a loss of £300. Nevertheless, the Company have been compelled to pay Income Tax upon the profits of each year; so that the shareholders have paid to the Chancellor of the Exchequer in Income Tax absolutely more by £60 than their entire profits during the four years. Take, again, the case of patents. A patent can only last for a limited period, but the Chancellor of the Exchequer will allow no sum to be deducted in order to provide for a sinking fund, which would only be equitable, seeing that the patent is not allowed to extend for more than a certain number of years. A medical officer in a Union receives, as a rule, a very small salary, but, as a matter of fact, in assessing Income Tax, he is not allowed to deduct from the salary his expenditure for drugs and other things that are necessary in visiting the poor. Their income is small, but the Chancellor of the Exchequer insists upon levying the tax upon the gross income. Life annuitants form a very large class of persons in this country, but an enormous sum is raised from their incomes every year, and devoted to the decrease of the National Debt. But is it fair that a life annuitant should contribute towards the Income Tax in the same proportion as another person whose capital produces an income in perpetuity? Let me take also the case of life insurance. The Life Insurance Companies invest their money in various ways; but on every penny they invest they have to pay Income Tax. The interest received from life insurance investments amounts to £6,000,000 a year, but the actual profits are very little more than £2,000,000. Therefore, as a matter of fact, the State is taxing life insurance three times more heavily than an ordinary business would be taxed. The same state of circumstances applies to banks. A penny savings' bank with which I am connected pays in Income Tax what would pay a 4 per cent. dividend upon the capital, and, as a matter of fact, for some ten years when no profit at all was made, and during which time it cost its shareholders some £10,000 to carry on, it paid over £2,000 as Income Tax. These are only a few out of a variety of cases which I might select to illustrate the extent to which the hardship bears; but I think I have said enough to prove my case up to the hilt—that the Income Tax, in thousands and ten of thousands of cases, is not a tax upon income at all, but a fancy sum levied at the hard rale of the Income Tax collectors. Now I come to the second point on which I wish to detain the House for a few moments, and that is as to the mode of collecting the tax, about which the greatest possible discontent exists. It is a startling fact that there are societies in existence for the purpose of assisting men to get their Income Tax fairly adjusted. A man pays a certain sum; the society takes steps to get the Income Tax reduced, and takes remuneration according to the amount they get taken off. Surely that indicates something very wrong in the system of collection. There are four officials concerned in the payment of Income Tax. The Surveyor of Taxes is paid by salary, but all the other officers are paid by poundage; and the result is, if even you have a difficulty or complaint, the Inland Revenue turn you over to the local people, and the local people turn you over to the Inland Revenue; and between the one and the other you can rarely get what is a reasonable adjustment. The great charge we have to make against the collection of the tax is that three of the officials—the local assessor, the local collector, and the clerk to the Commissioners—are all paid by poundage; and, therefore, all have an interest in getting assessments raised to the utmost possible amount. We pay the sum of £200,000 a year to the local collectors and assessors as poundage, and the sum of £80,000 to the clerks to the Commissioners. Upon what plan do these people work? A firm or individual sends in a Return, and without giving any reason the local officials perhaps double or treble the amount returned. I have known cases in which men have sent in a Return which has been doubled or trebled by the officials who did not condescend to give a reason for their action. A collector once boasted that a few years during a time of depression he increased the receipts for Income Tax in his district by 33 per cent. It is urged that individuals can easily appeal against the assessment of the collector. There is, as a matter of fact, nothing worse than the system of appeals. The Local Commissioners are often rival tradesmen and merchants of those whose appeals come before them. They have no knowledge of how to conduct such delicate inquiries, and are entirely guided by their clerks or local collectors. The appellant is not allowed to be assisted by a lawyer, and after he has stated his case—probably he is a business man and not accustomed to such proceedings—he is compelled to retire from the Court; but the local officials, who are as personally interested in the result of the inquiry, usually remain and advise the Commissioners, thus reducing the appeal to a perfect farce. The Committee I wish to see appointed ought to inquire into this question of appeal, and suggest some more satisfactory method. In 9 cases out of 10 the Commissioners do exactly what they are told to do by the officials, and against the decision, except upon a matter of law, there is no appeal. The next question is whether the time has not come for some change in the mode of assessing incomes, whether it is only fair and reasonable to draw some distinction between incomes derived from current labour, and incomes derived from the result of past labour, or capital, or wealth. The two classes of income have been described as industrial and spontaneous income—industrial income being income derived from present industry, and spontaneous income being income derived from the result of past industry. This is no new idea. In the year 1842, when Sir Robert Peel re-introduced the Income Tax, Lord Brougham urged that such a distinction should be drawn. It was then thought that the tax was but a temporary expedient, and so this subject was shelved; but as the tax has now remained for 50 years, and is practically a permanent impost, it is time to re-consider the question. If this distinction were drawn, the great bulk of the difficulties in the collection of the tax would disappear. It is comparatively easy to fairly tax spontaneous incomes. It is easy to determine the amount invested, therefore the difficulty would be very much less if the scheme I suggest were adopted. The man who derives his money from wealth is in a totally different position to the man who has to earn his living and get it by present industry. A man who has to get his living by present industry, must provide for the future, must insure his life and do a number of things that the other man need not do. It is clear that the man with a spontaneous income may freely be called upon to pay on a very different scale to the man who has to earn his living. Many of those men who get industrial incomes have to work a good many years before they really obtain the practical result of their work. It often happens that, before a man receives the full results of his industry, he has to endure years of loss; but in the time of his prosperity he is not allowed to make deductions for these inevitable losses. Of course, it spontaneous incomes are taxed on a higher scale, it will be necessary to make special provision with regard to the very small incomes, such as those possessed by widows, orphans, &c., as is now done by the rebatement on the tax of £120 under £400 a year. In a Return presented to Parliament, No. 345 of 1885, there is a statement made as to the difference of amount derived from spontaneous and industrial incomes. It is shown that about three-tenths of the gross receipts from the Income Tax are paid by the industrial incomes, and about seven-tenths by the spontaneous incomes. Supposing that the Chancellor of the Exchequer were to say that no industrial income should be taxed; three-tenths of the Income Tax would disappear. The Chancellor of the Exchequer would lose about £4,000,000 a year, a sum which 3d. in the £1 on spontaneous income would more than make up the deficiency. I have always held that capital even now is not paying its full share of the burden of taxation. I apprehend, however, that this abolition of Income Tax on all industrial incomes would be an extreme thing to do; but supposing that the Chancellor of the Exchequer were to say that he would taks off Income Tax from industrial incomes, on all incomes under £500 a year, the practical result would be that the right hon. Gentleman would lose Income Tax on about £40,000,000, or about £1,000,000 a year. Three farthings in the pound on spontaneous incomes would make up the loss, and a penny would leave a margin; but the benefit to the trading community, to the small tradesman, the small professional man, would be immense. The relief would benefit no fewer than 386,000 families connected with the working trade and industry of the country. I think I have shown that the time has come to consider this great question by a Committee of the House. Some persons have advocated a graduated Income Tax. No doubt such a tax has a great fascination for the poorer people of the community, but any one who has considered the subject must be convinced that in this country, at any rate, it would be practically impossible to collect such a tax. It could not be collected at its source, and the amount of evasion which would ensue would be such as to render its collection practically impossible. It is possible, however, although it may be difficult, to separate the industrial from the spontaneous incomes, and by doing so the change will lead to a much fairer arrangement of the tax; and it is also possible to arrange the Income Tax so that it shall be a tax on income and not on a fancy amount. If the Government grant the inquiry I am sure that they will confer a benefit on a class, next to the artisan class the most numerous in the community and a class by whose industry, energy, and enterprise this great Empire and its trade has been largely built up, and without whose contentment and prosperity we can hardly hope and expect that our trade and commerce will extend and continue.

Motion made, and Question proposed, That, in the opinion of this House, a Committee should be appointed to inquire into the Income Tax, the mode of its collection, the system of appeal, the payment of poundage for collection, and generally to report on the present working and incidence of the tax as now imposed, and whether some juster system could be adopted, by a different rate being imposed on income derived from realised capital to that derived from industry." —(Mr. Bartley).

(4.53.) SIR J. COLOMB (Tower Hamlets, Bow, &c.)

After the very exhaustive and clear speech of ray hon. Friend, it is not my intention to trouble the House with many remarks. I regret the absence, through indisposition, of the Chancellor of the Exchequer on this occasion, because the House is thereby deprived of the benefit of the great knowledge and experience the right hon. Gentleman would otherwise have been able to bring to bear on the question. I am sure the House will feel that my hon. Friend is quite justified in bringing this matter forward, for we all are aware of the friction, annoyance, trouble, and loss which arises from the present system under which the Income Tax is assessed and collected. I particularly want to deal with Schedule D, and to confirm by a few figures what my hon. Friend has said as to that Schedule being an increasing contributory to the Income Tax. I find that while the annual value of property and profits assessed under Schedule A has increased by £50,000,000 in 20 years, Schedule B has only increased by little over £750,000, Schedule C by something under £10,000,000, and Schedule D by over £123,000,000. There is a matter respecting appeal which affects Income Taxpayers under Schedule D much more adversely than it affects the Income Taxpayers under other Schedules. Nowadays time represents money, and the loss of time, annoyance, and worry inflicted on the more ignorant, the less cultivated, and the less knowledgable portion of the community is greatly aggravated by the present system of appeal. I think the real question underlying my hon. Friend's Motion is the definition of the classes who fall under Schedule D. In the part of London with which I am most conversant there are many houses in the middle of a dense population unoccupied for reasons resulting from the system of taxation to which my hon. Friend has referred. That in itself is a matter which deserves serious inquiry. There is one matter connected with the incidence of taxation to which my hon. Friend did not refer, and it is that there is an important class of people who altogether escape from the payment of Income Tax. Large trading firms in this country are required to pay heavy Income Tax and all sorts of Local and Imperial Taxes, but foreign firms doing large business in the home markets, and making large profits in competition with English firms are only required to pay Income Tax upon the salary of their agent in England. I trust the Government will give the Committee my hon. Friend asks on behalf of the small traders and of the lower end of the Income Taxpayers. I maintain the hon. Member has made out a very substantial case, and I heartily second the Motion.

(5.0.) MR. T. H. BOLTON (St. Pancras, N.)

I think the House is much indebted to my hon. Friend (Mr. Bartley) for having introduced this subject. There is a very strong feeling of dissatisfaction as to the way in which Income Tax is assessed and collected and also as to the mode in which appeals are conducted. Many people are very unfairly assessed, and they have very little opportunity of getting redress; at all events there is so much trouble in getting redress that they very frequently submit to pay a good deal more in the shape of Income Tax than they ought to pay, rather than undergo the inconvenience surrounding an appeal. I can confirm what the hon. Gentleman has said as to the unfairness in the assessment. I know that in the case of cottage property the absence of allowance for repairs inflicts very great hardship upon owners. I am acquainted with a part of the country in which there are many old cottages the repairs of which are so considerable that they very nearly absorb the whole income derived from the property. With some owners it has been a question whether they would not pull the cottages down; but if they did, much suffering would be occasioned to many poor people. If we are to keep the people in the rural districts the question whether some special relief cannot be given in such cases as I have mentioned is deserving of the serious attention of the Chancellor of the Exchequer. Reference has been made to the difference between assessment on the gross rather than upon the net income derived from property. The present system is very unfair. Then there is the question of a fair allowance for property while unlet. It will be said one can get an allowance from the Surveyor of Taxes in respect to empties, but there is the greatest possible difficulty in getting the matter properly adjusted. It would be much better if the parish assessment and the Income Tax assessment were both upon the net, so that there could be an actual assessment on the actual income. I hope the Government will see their way to grant a Committee. I believe a Committee would discuss the matter in a practical way. Although the appointment of the Committee might not lead to very much change in connection with the Income Tax, it would, I am persuaded, lead to a practical redress of several grievances which are of an irritating and objectionable character. I was sorry to hear my hon. Friend make an unfavourable observation with reference to a graduated Income Tax. Many of us believe that a graduated system is not only feasible, bat fair, reasonable, and just.


I only said it was not practical.


We think it is practical. I trust that observation of my hon. Friend will not influence any of my hon. Friends on this side of the House to look with disfavour upon his proposition.

(5.10.) MR. C. W. GRAY (Essex, Maldon)

I am very glad the hon. Member for St. Pancras has said a word as to the Income Tax levied upon cottages in the country. Everyone will acknowledge that it is most important that our agricultural labourers should as far as possible be provided with good cottages; one of the reasons which induce the agricultural labourers to come up to the great centres of industry is that the cottages in some of the rural districts are not as good as we wish them to be. I am sure Radicals, even though they are not very friendly to the farmer or the country landlord, will agree that there ought not to be anything in the way of taxation which prevents a landlord providing decent cottage accommodation for the labouring people in his neighbourhood. But the point to which I particularly wish to draw the attention of the Government is the process of appeal open to farmers who think they have a grievance with reference to Schedule B, or, if they are the owners of the land, to Schedule A. If farmers are dissatisfied in respect of the Income Tax they are called upon to pay, they are informed that they can state their case before the Commissioners on appeal day. It often happens that a man farms land in different parts of the country, and very likely the Income Tax one considers unfair is in reference to a small area of land. To appeal against the tax, the man may possibly have to go many miles, and wait for hours, it may be in the draughty passages of an inn, until his case is called. The sum in dispute may be only £1, and many farmers say, "Rather than lose a day rather than go 20 or 30 miles, and spend hours in a draughty passage, I will pay whatever is required of me." Whether this Committee be granted or not, I implore the Government to consider most seriously whether, as regards the people in rural districts at all events, they may not, in the first instance, be allowed to state their case to the Commissioners in writing. That would be a great boon to a large number of men. If the Government kindly give answer to this question of mine when replying from the Front Bench, I, as a farmer, shall be very much obliged.

(5.15.) MR. SYDNEY BUXTON (Tower Hamlets, Poplar)

I think the House owes a debt of gratitude to my hon. Friend for bringing this Motion forward, for whatever view may be taken of the principle of the Income tax, there can be no doubt of its importance, not only to the individual taxpayer concerned, but to the taxpayers at large, because I believe if this tax were placed upon a fair basis we might derive from it a larger proportion of Imperial taxation, and some relief might be given under other items of revenue. I understand that my hon. Friend does not in any way desire to affect the Income Tax itself. In principle it is an admirable tax, easily raised or lowered as necessity may demand; it is invaluable as a tax upon property, and as such ought to find a prominent place in our taxation system. My hon. Friend and those who support him have brought forward this Motion in the belief that the time has arrived when an inquiry should be made into the incidence of and mode of levying the tax. There are two reasons for appointing a Committee, one on the ground of administration, which is largely a departmental matter, and upon which there is much dissatisfaction throughout the country, and upon which the Committee might certainly recommend improvements. But the second is the more important reason, and it has been referred to by my hon. Friend, namely that in the manner in which it is assessed this tax falls with much greater weight upon the precarious than on the permanent income—with more severity upon skill and labour than upon property. The reply which I suppose will be made to this argument will be that no plan has yet been devised by which this difficulty can be overcome, and no scheme has been elaborated by which every individual in a class shall be fairly taxed. Further, it may be said with considerable truth that there are compensating advantages in regard to other branches of taxation, and that property pays a considerable proportion of taxation in addition to what is paid by these precarious incomes in the shape of death duties, from time to time increased, so that the burden on property is proportionally increased. But it is just because no one has yet been able officially to propose a practical scheme where by the levy of the tax can be reformed that we ask for this Committee. For the last 30 years there has been no inquiry into this question, and, as has been pointed out, the two former inquiries, in 1851 and 1861, were really not genuine inquiries to a large extent, not bonâ fide inquiries. That of 1851 was an abortive Committee; that of 1861 was appointed against the wish of the Government of the time, and strongly opposed by the then Chancellor of the Exchequer, and had not a fair opportunity of inquiring properly into all the great questions affecting the tax. We have had the tax in existence for 50 years, and there has been no inquiry at all on the subject for 30 years. Surely the accumulated experience of 50 years, and the increased intelligence of those who levy the tax, will be able to throw some light on the question of administration, if not on the mode of framing the assessment. But I have another reason for desiring the appointment of the Committee. The Income Tax, this great source of revenue, was imposed specifically and practically as a temporary tax. It was originally imposed by Mr. Pitt as a War Tax, and again re-imposed when war again broke out after the Peace of Amiens, as a temporary tax. It was again re-imposed by Sir Robert Peel, and again as a temporary tax, and so much so that, instead of endeavouring to improve the basis upon which it was assessed and levied, he simply copied, almost word for word, the clauses from the Act of 1815. Again, as marking thus more its temporary character, he gave no reduction or abatement on the lower class of incomes. He did not desire to complicate his temporary tax with these abatements; he simply levied 7d. in the £1 on all incomes over £150. Further, the tax was imposed and re- imposed time after time as a temporary tax, and Government after Government hoped and believed they would be able to get rid of it. So long as it was thought to be a temporary tax there was not the same reason, necessity, or desire for its reform as there is now. But I think that we all feel, even if there had not been the rejection by the country of the proposal of the right hon. Gentleman the Member for Mid Lothian in 1874 to abolish the Income Tax, we all feel that the tax has lost its temporary character, and I am quite sure that the right hon. Gentleman opposite will not say it is ever likely to disappear as a source of revenue. Therefore we argue hat as the tax was imposed with all its faults in a rough-and-ready way, as a temporary tax, now that it has become a permanent tax it is the duty of the Government and of Parliament to inquire into the whole system of administration, into the incidence and assessment, to see that it is placed upon a fair basis. In one matter I do not agree with my hon. Friend. He desires that the Committee should also look into the question of exemptions, and, as I understand, desires that all individual incomes, or all incomes under £500, should be exempt from the tax. That would relieve a very large number of persons, but would, I think, be a great mistake. I think it was a mistake to raise the limit of exemption to £150, at which it stands now, because I think that so long as it is leviable—of course in the case of weekly wages it is not possible—but so long as it is leviable upon defined profits and salaries the tax ought to extend as low down as possible. Let it be fairly graduated from the bottom by means of abatements, and in the same way, be graduated as high up as it is possible to take these abatements. I should be sorry if the Government accepted a proposal to relieve the lower scale of incomes of the tax. Nor do I altogether agree with my hon. Friend behind me (Mr. Bolton.) I would have the tax graduated to a certain point. My hon. Friend seems to think it might be graduated from top to bottom, but this, though I do not say it is impossible, would be inexpedient. At the present moment a large proportion of the tax is practically self-collecting and self-assessing, being raised at the source and compara- tively without friction. While, if you graduate it, every individual must return his individual income, upon which return the Income Tax must be levied. Such a system as that would lead to considerable evasion, and, I think give rise to a great deal of additional irritation and difficulty of collection. I assert, however, that the Government could go a good deal further than they have gone in graduating the tax at the lower end of the scale, and I do not see why we should not have a system of graduation extended up to, say, £1,000. The collection would not be rendered more difficult, for the onus of proof would be on the parsons assessed. I would extend the system of abatements, but not the system of exemptions. I hope the Government will accept the proposal, and that now the tax has assumed a permanent character, it will be carefully and thoroughly examined, and that in the future we shall derive an increase, not a diminished revenue, from this source, for I believe it is in principle a most valuable tax, though I take exception to some of its details.

(5.27.) MR. ATKINSON (Boston)

The tax is valuable because it is so easily raised, and hence it is that it has been resorted to as a War Tax, and I think it should be the desire of all friends of peace to get rid of the tax. There is really need of reform in the administration and incidence of the tax. I am old enough to remember that when it was imposed by Sir Robert Peel he gave a direct pledge that it should not be a continuous tax, and certainly, of all taxes that ever have been imposed, this has caused the most irritation and heartburning. I would add my voice to the voices of hon. Members who have spoken in request to the Government that they will consent to the appointment of this Committee, that the subject may be comprehensively examined. When we bring forward instances of hardship under the existing system of levy, we are met with replies from successive Chancellors of the Exchequer that they admit the particular grievance complained of, but that it is only part of a large subject which, if dealt with at all, must be dealt with altogether. Well, here is a favourable opportunity for that; let the Chancellor of the Exchequer avail himself of it and, instead of his lending his large intellect to schemes for harassing the banking interest, I would suggest to the First Lord that he should ask his right hon. Friend to attend to this grievance which has been a grievance to all Chancellors of the Exchequer and everybody else who has paid Income Tax for the last 30 or 40 years. As it is admitted that the present Chancellor of the Exchequer has been the greatest success in the office of all those who have filled the post during that period, we may rely upon his being able to do what none of his predecessors have been able to accomplish, and deal with this subject in a manner satisfactory to the vast number of persons concerned. At the same time I beg to offer a suggestion to the Leader of the House—a suggestion that will occur to us all as we look at the empty benches usually occupied by Representatives from Ireland. I take it that means that they do not pay the tax and are not interested. I would suggest that the tax should be levied in Ireland as it is in England. The hon. Member who spoke last said this tax should not be applied to weekly wages. Bat why not? As a ship-owner and ship-builder, I have known cases where rivetters and boiler makers have earned as much as £5 per week. If there comes a time when the question before the country is whether we shall go to war or not, the question is settled by these men who receive weekly wages and I maintain that these are the people who ought to be made to feel what it is to have the screw put upon the Income Tax in order to pay the cost of wars. I say these men have no right to decide these questions at the polls unless they pay their fair proportion of the cost. The Income Tax Commissioners will tell you that they communicate with the employers of clerks, and ask them to furnish a return of all those who are receiving weekly or monthly salaries of such amount that they get in the course of the year sufficient to bring them within the grasp of the Income Tax collector. Why should not these weekly wage earners—who in times of prosperity can afford to drink champagne, and who are much better off than the small tradesmen of the present day—pay their share of the Income Tax? The boilermaker who earns £5 a week, or £260 a year, has not to dress in black cloth, and his children are going to be provided by hon. Gentlemen opposite—if they get the opportunity—with education free. Why is he to be exempted from Income Tax, while the man who earns £150 a year as a tradesman, and makes bad debts, and has to wear black cloth and to send his children to school and pay 2d., or 3d., or 4d. a week for their education, has to pay the tax? It may be said that it is a political necessity, and that neither side dare take the working man by the throat, and force him to bear his fair proportion of taxation, but that for mere Party purposes they are bound to say to him, "You shall not pay Income Tax because we want your vote at the next election." That is an unworthy motive, and I hope that the Government and the right hon. Gentleman the Member for Derby will not admit this principle. I hope they will say, "If there is a Committee we will serve on it and will look into the matter with a view of doing justice, and will propose that all people should be liable to pay Income Tax whether they receive their earnings weekly or not." I think I have made two valuable contributions in the form of suggestions to this Debate, and if the course I recommend is adopted, I feel sure the Income Tax will not be a permanent tax. I feel certain that as soon as Irishmen and working men are made to pay this tax they will "improve" it off the face of the earth as unjust. So long, however, as they are not compelled to pay they will go with a light heart into wars, as they know that we and not they will have to pay the piper. I trust that the Government will give us this Committee, and that the Chancellor of the Exchequer and wise men on both sides of the House will be able to devise some system of taxation which will be just. The Mover of the Resolution said he did not believe that capital contributed its fair share. No, Sir, it pays more than it ought to do compared with the man whose labour pays nothing. If there is an adjustment, I predict that it will not be against capital, but as against the labour of these men whose votes are so eagerly touted for by hon. Members on both sides of the House.

(5.37.) MR. JEFFREYS (Hants, Basingstoke)

I must say I think the Income Tax a fair one when properly assessed. In collecting the tax from the land the principal collector has an annual salary, but all the sub-collectors are paid by poundage, therefore it is to their interest to raise the amount as much as possible. Generally speaking the Income Tax is assessed on the basis of the Poor Rate, but that rate is collected on the net value instead of the gross, and the difference between the net and the gross in regard to the poor rate varies from 15 to 25 par cent. according to whether it is assessed on land or houses. I should like to know why the Income Tax could not be collected in the same way. In the case of houses and cottages, as was pointed out by the hon. Member for St. Pancras, great expanse has to be incurred in order to keep them in repair. All cottages must be kept in repair, but that being so, why should not some allowance be made from the gross assessment of the Income Tax in respect of them? If that were done no one would mind paying the tax. The Income Tax is a tax the people groan at in the country because they have to pay it without receiving that for which it is a consideration, namely, the rents. As to other securities, stocks for instance, the Income Tax is only paid on the net income. In regard to land you pay whether you receive income or whether you do not. Then, as to appeals, though you have to pay the tax in January the appeals do not come on for several months, and it is often months even after a successful appeal before you recover the money. That is a great hardship, especially in the case of farmers who farm their own land and who have to pay the property tax under Schedule A and then pay again under Schedule B for the same property though very often there is very little return from the property. With regard to what has been said as to a graduated scale of Income Tax, that sounds very plausible, and it might be a good thing if it could be carried out; but I do not think it would be practicable, because Englishmen would not stand the interference, and the prying into their incomes that would be necessary in order to carry the system out successfully. No man would like to be asked how much his income was, and the system would be considered too inquisitorial, and would not be popular. I wish strongly to urge on the Government the desirability of accepting the Motion, so that the Income Tax assessment may be made in a more reasonable manner.

(5.44.) THE FIRST LORD OF THE TREASURY (Mr. W. H. SMITH, Strand, Westminster)

I think the House generally will share the regret expressed in the speech of my hon. Friend the Member for Bow at the absence of the Chancellor of the Exchequer on the present occasion; and if there is one Member of the House who regrets that more than another it is the unfortunate First Lord of the Treasury, who is bound to fill, however unsatisfactory, the place of the Chancellor of the Exchequer in order to answer the speeches made in support of the Motion before the House. I will do the best I can to give expression to what I believe to be the sentiments of the Chancellor of the Exchequer with regard to the Motion. My hon. Friend has made a most interesting statement, and has exhibited the inequalities which prevail in regard to the Income Tax, and has dwelt upon the dissatisfaction which exists in many quarters as to the incidence and method of its collection. I fully admit the charges he has made, and I admit that there is a good deal of dissatisfaction. I am afraid it is hardly possible or conceivable that we could impose any tax of this character which would not create dissatisfaction, and which would not be disagreeable to the person who has to pay it. The fact of the case, however, is that the Income Tax is now regarded as one on which we must place considerable reliance in the adjustment of the finances of the country. It must be admitted that, under the able guardianship of past Chancellors of the Exchequer, the Income Tax has been a method by which great relief has been afforded to the industries of this country, and great advance has been made in the material prosperity of the country. I do not say that if we could do without it altogether it would not be a still greater advantage; but when we look back on the course of finance during the last 50 years, I think it must be admitted that, with all the inconveniences and all the dissatisfaction and all the inequalities, the Income Tax has, nevertheless, been an instrument by which enormous relief has been afforded to industry, and an enormous amount of pressure upon the general business and trade of the country has been averted. My hon. Friend spoke of the poor taxpayer. I sympathise with him most heartily in the appeal he has made on behalf of the poor taxpayer; but I observed in his speech, and that of the hon. Member for Bow, an absence of any allusion to the relief which the poor taxpayer obtains so far as Income Tax is concerned. The hon. Member for Poplar was the only speaker in the Debate who referred to that relief. As my hon. Friend knows, persons whose income is under £150 are exempt from the tax, and I believe this same class of persons are generally relieved from the House Tax, so that it cannot be said that the House of Commons, or past Chancellors of the Exchequer, have been insensible to the pressure which rests upon the poor taxpayer. But, in addition, up to £400 an allowance of £120 is made, so that a person having an income of £200 only pays on £80; a person having an income of £300 only on £180, and an income of £400 pays only on £280. It is, therefore, inaccurate to say that the circumstances and condition of the poorer middle class have not been considered by past Chancellors of the Exchequer. My hon. Friend referred to numerous Returns that have been made on this subject, and I think that he will not be surprised when I tell him that, not having expected to speak on this subject, I have not been able in the last two hours carefully to examine those Returns. But, no doubt, he is perfectly accurate when he comes to the general conclusion that there has been a decrease of large incomes as shown by the Income Tax Returns, and an increase of small incomes. But, instead of speaking of this as a matter for regret, I think that it will be a matter of satisfaction to the House that the Income Tax Returns disclose the fact that there is a large class which is increasing in wealth and coming within the purview of the Income Tax who, formerly, were not assessed because they did not possess incomes sufficiently large to render them liable to pay. I think, therefore, that my hon. Friend is under a misapprehension; it is not that these people have been dragged into the Income Tax, but that they have risen into the payment of Income Tax, and that they are better able to bear a share of the taxation of the country than they were a few years ago, when they only paid indirect taxation. In fact, it is another evidence of the prosperity of the country in which we ought to rejoice. My hon. Friend spoke of the necessity of deducting all the expenses necessary to produce the income, and he is under the impression that sufficient allowance is not made in this respect in making up accounts to show what the income really is. I am under the impression that a tradesman in making out his income under Schedule D is fully justified in claiming any expenses he incurs in the production of that income, as a set-off against the gross income. It would be absurd that a man should not be entitled to set off as against gross income the wages paid, and the manufacturing costs he has incurred. I notice that in the first part of his Motion, and in his very moderate speech, my hon. Friend referred to the question of houses; that is to say, to realize property; but in his Motion he speaks of a different rate being imposed on income derived from realized capital to that derived from industry. But I would remind him that a house is realized capital. He proposes that there should be a deduction of 10 or 20 per cent. in the case of houses. But this is realized capital, and therefore my hon. Friend desires to make not only a reduction in favour of incomes derived from industry, but also desires to make a reduction on incomes derived from realised capital. I only refer to this to show the extreme difficulty of the subject in which my hon. Friend has embarked. He says that income derived from industry ought not to pay the same rate as income derived from realized capital, and at the same time he says that on incomes derived from realized capital there is to be a reduction. There have been cases of hardship in connection with the question of Income Tax which have been examined by Committees and Chancellors of the Exchequer in times past. I do not say that it is impossible to find remedies for these grievances; I know that my right hon. Friend the Chancellor of the Exchequer has been examining and considering the question from every point of view. But to say that there are grounds on which, without further examination, a Committee should be appointed to give relief to industrial incomes and to realized capital, I think would not be very wise. My hon. Friend referred to the case of houses which are assessed at an amount in excess of the rates paid. I know that is a considerable grievance—that it is a double grievance. It is more serious so far as the rates are concerned, for the rates may be 4s. or 5s., while the Income Tax is only 6d. in the £1 but that is a matter which can only be dealt with on the question of general valuation, but it shows the necessity of some measure dealing with valuation. My hon. Friend asked that depreciation shall be considered. I trust that at some time the Chancellor of the Exchequer will consider these hard cases; but if you go into the question of Income Tax it is not possible to avoid meeting with hard cases; but neither is it possible to deal with the matter from the point of view of hard cases, to remedy which past Chancellors of the Exchequer of great ability and great desire to meet all possible grounds of complaint have found it to be impossible so far as they were concerned. My hon. Friend spoke of the grievance of being assessed by the ordinary Commissioners or by the general Commissioners. If my hon. Friend can bring forward some plan that shall secure the taxpayer being assessed by a perfectly independent tribunal, I am sure that the Chancellor of the Exchequer and the Government will be only too glad to accede to his suggestion. Who are the Commissioners to whom there is an appeal? They are gentlemen nominated from the Commission appointed under the Land Act passed at the beginning of every Session. They are practically the nomination of the neighbourhood or district in which the taxpayer resides. I have not heard that there are any complaints against the system under which they are appointed, anomalous though it may be. The Land Act Commissioners appoint from among themselves every year gentlemen who act as Income Tax Commissioners. They receive appeals and attend to them. But I would remind my hon. Friend that the Income Taxpayer has an alternative if he wishes. There is a body of Com- missioners at Somerset House, paid public officers, and if the taxpayer desires to be assessed by them, he is at full liberty to apply to them, and to decline to be assessed by the general Commissioners. He can also, on being assessed by the general Commissioners, appeal to the special Commissioners. I only mention this to show that though there may be trouble and a sense of injustice, such as all men feel who may consider that they are unfairly taxed, there are methods provided under the Income Tax Act by which they can get redress. They can appeal in their own neighbourhood if they choose, or they can appeal to a Government Department. I have gone into this to show what the present system is; I do not say that it is perfect, or incapable of amendment; and if my hon. Friend will only be so good as to suggest a better, we shall be very glad to consider it. My hon. Friend says, "Appoint a Committee." We have had Committees on this subject before, and I venture to submit to the House that a roving Committee to look for methods which are not even suggested by my hon. Friend is not likely to have any very satisfactory result. The suggestions and complaints which have been made have been brought forward on previous occasions, and were examined by strong Committees without any really satisfactory results. Now, Sir, the hon. Gentleman has contended that a distinction ought to be made between income derived from realized capital and income derived from industrial pursuits, but the hon. Gentleman has also indicated that past wealth ought to be relieved of some of the charge it already bears.


I in no way intended to imply that. I stated with regard to houses that the net income of a house let at £50 a year is not £50. The expenses connected with it may be £10 or £20, but the income derived from that house would not be £50, but the smaller sum obtained after deducting the expenses.


Exactly so; but I think if you deduct 10 or 15 or 20 per cent. from the amount of past wealth you must find that amount somewhere else; and this means that for the accommodation and for the allowances you may make on industrial income, by some means or other, other people will have to pay an increased tax in the place of those who are relieved. I should like to mention one fact that has only been glanced at by the hon. Gentleman, and that is that the net Income Tax raised under Schedule D, which represents the industrial income of the country, is £5,500,000; but past wealth contributes in the shape of Death Duties and stamps on deeds and bonds no less a sum than £10,300,000 in the course of the year. My hon. Friend will say, "But that is a charge on past wealth." Well, Sir, it is a charge on the acquisition of property; it is a charge paid by realized capital, either in the shape of land or in the shape of movable property, every year; so that the duty on capital on death or transfer equals an additional Income; Tax of 1s. in the £1—that is to say, 1s. in the £1 on the annual income derivable from realised capital. This is a fact which appears to be not very generally known, or if it is generally known it is one which has not been made a matter of observation. But, Sir, an impression obtains that this realized capital is in the possession of the rich people. I am perfectly ready to acknowledge that there are a great many rich people who possess a large amount of realised capital, but in dealing with it you must bear in mind that the enormous majority of owners of realised capital are poor people. If you lay down the principle that you are to tax realized capital at a rate exceeding 1s. in the £1, at which realized capital is now paying, you must consider the case of those who are dependent upon very small incomes derived from realized capital, and I will venture to suggest that there is hardly any class in the community who deserve more consideration and, I may say, commiseration than the class of poor persons with only a small income derived from realized capital. They have to educate children, and have no other means whatever of obtaining a livelihood by industry, owing to the absence of education, or to the fact that they are widows or orphans. We have hardly a conception, I think, of the large amount of capital which is held by poor persons in all the great industrial undertakings in the country. It is customary to speak of the great Railway Companies as the great financial enterprises of this country, but in reality the Railway Companies are trustees for a number of poor people, and, therefore, any legislation which we might contemplate should take into consideration the fact that the enjoyment of the incomes which such persons possess may be very seriously affected by a mistake made in reference to the character of the matter with which we are dealing. I have information from the Bank to the effect that in 1888 63,356 dividends were paid on amounts of Stock of £333 or under, 28,007 dividends on £666 and between that amount and £333, 56,983 dividends on amounts of Stock between £666 and £3,333. Here we have something like 150,000 dividends, each less than £100 per annum. I will only trouble the House with one more set of figures. In the case of depositors in the Post Office Savings Bank for the year ending December 31, 1889, the number of accounts was 46,993, and the amount of Stock held £4,175,634, making the average sum invested £88. I only mention these figures in order to induce the House not to deal rashly with what appears to be enormous realised wealth, for in doing so we should be creating a great hardship for these people. Now, Sir, my hon. Friend has also asked that the mode of collection should be inquired into. He objects, and objects with considerable force, against the principle under which poundage has been paid to clerks and collectors. Well, Sir, my right hon. Friend the Chancellor of the Exchequer has already made a statement with reference to that, and my hon. Friend has referred to it; but an inquiry into the system is no longer necessary, as it is to be abolished. We all agree that it is not a system that can be defended, and that it ought to be abolished. I do not know that I need detain the House any longer. In the absence of the Chancellor of the Exchequer, I can only say to my hon. Friend and the House what I believe the Chancellor of the Exchequer would say himself, and that is—that we think that this inquiry at the present moment would not be proper. We do not see that we could place before the Committee any scheme which would direct inquiry into a useful channel. I cannot help referring for a moment to the Report of the Committee which sat in 1861. In the Report of that Committee it is stated— The attention of your Committee on the present occasion has been mainly directed to another scheme proposed by their Chairman, and explained by him both in written memoranda and in oral evidence, the principal features of which appear to be as follows:—

  1. "1. A proposal to make net instead of gross income the basis of assessment to the tax, not ascertaining the net income by an account of actual outgoings, but assuming it by a deduction, founded on an average, from certain classes of gross incomes.
  2. "2. A proposal to divide all incomes into two classes, of which the one shall comprise incomes called spontaneous, and the other incomes called industrial, and to tax the former upon the full amount of the net income and the latter upon two-thirds of that amount.
  3. "3. A proposal to distinguish in certain cases between the interest of invested capital and the repayment by instalments of the invested capital itself, and to levy the tax upon the interest only, and not upon the repaid portions of the capital."
Now, Sir, this Committee, which everyone will admit was a strong Committee, by a majority of 7 to 2, came to this conclusion— Your Committee, however, after full consideration, have arrived at the conclusion that the plan proposed by their Chairman does not afford a basis for a practicable and equitable readjustment of the Income Tax, and they feel so strongly the dangers and ill-consequences to be apprehended from an attempt to unsettle the present basis of the tax, without a clear perception of the mode in which, it is to be reconstructed, that they are not prepared to offer to your honourable House any suggestions for its amendment. This tax having now been made the subject of investigation before two Committees, and no proposal for its amendment having been found satisfactory, your Committee are brought to the conclusion that the objections which are urged against it are objections to its nature and essence rather than to the particular shape which has been given to it. The members of that Committee were Mr. Hubbard, the Chancellor of the Exchequer (then Mr. Gladstone, I think), Mr. Cardwell, Mr. Sotheron-Estcourt, Mr. Lowe, Mr. Baxter, Sir Stafford Northcote, Sir William Heathcote, Mr. Pollard-Urquhart, Mr. Cave, Sir F. Heygate, and Mr. Crawford. I think it will be admitted that that was as strong a Committee as could be nominated at the present day, and, for my part, I am inclined to think that that Committee arrived at a just conclusion. I am inclined to think that the hardships of the Income Tax, so far as they exist, can only be dealt with successfully by a Chancellor of the Exchequer with a full sense of his personal responsibility, and with a full desire to remedy any grievance that may be supposed to exist. I am sure the present Chancellor of the Exchequer is fully conscious of that responsibility, and I know that the subject has engaged his attention for a long time past. I know, moreover, that he is not the man to hastily make any recommendation to the House, and I earnestly ask the House not to imperil the basis on which the Income Tax stands, but to leave to the Chancellor of the Exchequer and the Government entire and complete responsibility for the financial arrangements that may be necessary from time to time. In answer to my hon. Friend the Member for Maldon (Mr. Gray), perhaps I may be allowed to add that if any improvement is shown to be possible with regard to appeals in country districts, it shall certainly be made.

(6.15.) The House divided:— Ayes 106; Noes 161.—(Div. List, No. 63.)

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