HC Deb 26 April 1904 vol 133 cc1244-58

"That Income Tax shall be charged for the year beginning the 6th day of April. 1904, at the rate of one shilling."

Resolution read a second time.

Motion made, and Question proposed. "That this House doth agree with the Committee in the said Resolution."


thought the present opportunity might with advantage be taken of asking for some fuller explanation of the action of the Government in reducing the income-tax by fourpence in one year and imposing another penny in the next. The right hon. Gentleman the Member for Croydon must have imagined that he would have a much stronger following in the Cabinet than proved to be the case. In the case of the ordinary man in the street the first impression he had about the matter was that the Government did not know their own minds, because one year they reduced the income-tax to 11d. and then, without any good reason, another penny was placed upon the income-tax. He thought they ought to have some fuller explanation in regard to this unsteady attitude of the Government. He wished to know what the attitude of the Government was with regard to graduation. Almost invariably the Chancellor of the Exchequer expressed his sympathy with the general principle of the graduation of income-tax, and they had had the statement of the right hon. Gentleman the Member for West Bristol in favour of taking some action in regard to it. Wore they now to understand that the Chancellor of the Exchequer had closed the door altogether so far as any inquiry with regard to this matter was concerned? The occasion was more opportune now because the right hon. Gentleman had announced the appointment of a Committee to consider the income-tax question. As the right hon. Gentleman the Member for West Bristol was to be Chairman of that Committee, surely the Chancellor of the Exchequer might extend the reference to the Committee so as to enable them to inquire also into the question of graduation. He wished to know were they to regard the right hon. Gentleman as a friend of graduation? He hoped the Chancellor of the Exchequer would do something in the direction of having some investigation with a view to a still further extension of the principle of graduation.


said he hoped the Chancellor of the Exchequer would again make some reference, based upon the income tax returns, to the general prosperity of this country as compared with other countries. The income-tax figures afforded a striking illustration of our prosperity as compared with Prussia, but our figures were not complete. The returns of the Inland Revenue showed that 792.000 persons were individually assessed to income-tax, but the amount paid by them was only one quarter of the whole amount raised. There was no means of estimating from the Report of the Inland Revenue Commissioners what the total number of persons paying income-tax was. It was possible that the Chancellor of the Exchequer might be able to give to the House some estimate. It was an extraordinary thing that in Prussia, which had a population very nearly the same as our own, there were only 400,000 income-tux payers with an income of over £150 a year, whereas in this country 792,000 persons paid but a quarter of the total income-tax, and many income-tax payers had an income over £1G0 a year. They had got in this country a taxable income out of all proportion to the taxable income in Germany. With regard to the question of graduation in Prussia, a very stringent system of graduation was adopted which carried the tax down to incomes of £15 a year. In spite of the assessment being so low there were only a little more than 3,000,000 persons assessed altogether, which was an indication that the bread-winners of at least half the population did not reach an income of 17s. 3d. per week. It was conceivable that they might compel every person to make an individual return of his total income. If they published the return it would be more or less true, and upon that basis it would be possible to graduate the income-tax, but unless the returns were published they would have no guarantee that the statements would be accurate. He suggested to the right hon. Gentleman that he should consider the possibility of publishing the income-tax returns so that they could all take an interest in seeing that their neighbours gave accurate returns of their incomes. It would be astonishing to find how in certain trades incomes would go up by leaps and bounds if the returns were published. There were certain trades which at the present time scarcely came under the income tax law at all, and did not make any return. He did not think the surveyors of taxes pursued people home sufficiently, they did not inquire as to what rent they paid because they might very well assess upon the basis of their rent. He knew of cases in which £45 and £80 a year were paid in rent and no income-tax had ever been paid. He had been told by a surveyor that £50,000 a year was lost to the income-tax in. London alone through builders foremen not being assessed. He thought the ordinary income-tax form ought to be more intelligible. It should be an offence for which a man should be made to suffer if his form was not properly filled in. Where no form was filled in inquiries should be made as to the amount of rent which the assessable person paid. If those methods were pursued they would get a more or less accurate individual return.

* MR. TREVELYAN (Yorkshire, W.R., Elland)

said he had taken some interest in the question of the income-tax and the speech made by the Chancellor of the Exchequer. In the year 1902 he himself raised the question of the graduation of the income-tax and he got a vague sort of suggestion from the then Chancellor of the Exchequer to the effect that if possible the question should he inquired into by the Committee which the right hon. Gentleman the Member for West Bristol was then going to appoint. Next year the subject was raised by his hon. friend the Member for Flint Boroughs, and on that occasion the right hon. Gentleman the Member for Croydon, who was then Chancellor of the Exchequer, said he did not wish to refer the question to the same Committee which was going to be appointed, but the right hon. Gentleman the Member for West Bristol, who was to be the Chairman of that Committee, said he hoped to offer an opportunity of taking evidence on that subject. Now the right hon. Gentleman the Member for Croydon was to have the Chairmanship of the Committee which was not yet in existence. They were now told that the Committee was not to inquire into the question of graduation. He thought they had been rather put off with expectations during past years. This time, however, the Chancellor of the Exchequer had come to the conclusion that the matter must be looked at seriously. He supposed that what had brought him to that opinion was the speech made the other day by the right hon. Gentleman the Member for West Bristol, If the Chancellor of the Exchequer was so certain that his officials could prove the inutility of attempting a graduation of the income-tax he might as well have an inquiry into the subject, and let it be proved to everyone interested that the scheme was impractical, for, after all, they were faced with the rather serious situation that in peace time the income-tax was to stand at a shilling. It had actually been raised from the lower point to which it got after the conclusion of the war. It was really a very important circumstance that the small income-tax payer knew that in peace time there would be a shilling income-tax without any prospect of it being reduced, and that, in war time it would be raised to something very much above the normal. It began to look as if a shilling would be the normal unless some way could be found of relieving the small income-tax payer. Under these circumstances it would be well that the small income taxpayer should feel some certainty that the large income- tax payer could not out of his luxury pay more than he was doing at present. The arguments of the right hon. Gentleman in the speech in which he put forward the official view that a graduation of the income-tax was not desirable were not convincing. He said that it would be inquisitorial. That was an old argument, but after all there were classes in the community who had to declare their incomes as it was. He could not think that there would be any serious objection to making people belonging to a class who obviously possessed large means declare their possessions. The right hon. Gentleman went on to say that they would offend powerful interests by it, and that it would be unpopular. Perhaps they would offend powerful interests, but they would hardly make it unpopular, because if they were to succeed in levying the tax it would only result in increasing the popularity of the tax, by making it unnecessary in time of peace to lay this excessively heavy burden on the small taxpayer. The last argument the right hon. Gentleman used was that he did not think it would be worth doing. He thought the figure the right hon. Gentleman named as the money which would be got out of the graduation of the income - tax was £1,500,000. He did not wish to discuss at this point the deductions which he proposed to make in reaching that figure.


That was the maximum without deductions.


I thought that was after deductions.


I have made no estimate of deductions. I said that was the highest figure we expected to get, and that you must make allowance for evasions.


said that assuming £1,000,000 would be got in the first instance from the tax, it did not seem to him that this was a sum to be altogether despised. Of course in the finance they had had in recent years when £2,000,000 or £3,000,000 were spent on new battleships at a time when our supposed possible enemies were in such a condition that if they entered into war they would be unable to tight with their full force, the Government thought nothing of £1,000,000, but in the good old economic days the addition of that amount from any tax would have been thought a considerable matter. He thought the right hon. Gentleman might give a little more consideration to the feeling which was very largely prevalent in the House that this tax would be a desirable one if it were possible, and would put it to the test of examination by the Committee he proposed to appoint.

MR. GEORGE WHITELEY (Yorkshire, W.R., Pudsey)

said he had always entertained the opinion that although a graduated income-tax was very beautiful in theory it was really almost impossible to cany it out. He would not say that it was entirely impossible, hut it would be very difficult to accomplish. They had at present in the death duties a kind of deferred or accumulated income-tax that was graduated, He wished that, instead of putting a penny on the income-tax at the present juncture, the Chancellor of the Exchequer had raised the death duties, as he thought they would in some measure bear raising. It would be a much less objectionable system if some Government official were appointed to hear and decide appeals, and a further appeal might lie to a higher referee. At present it often happened that a man who appealed against his assessment had to show his books to his trade competitors, which was a great injustice. He would hail with delight the appointment of such an official. He thought the poorer class of people1 frequently suffered great hardship by paying income-tax which they ought not to pay. This arose from their ignorance of the way to appeal against the tax He hoped the procedure in this connection would he shortened and made more easy so that persons who were not liable would be able to get remissions without the long procedure to which they had been accustomed in the past.

MR. LABOUCHERE (Northampton)

held that if graduation was a sound principle in the case of the death duties it was sound in the case of the income-tax. At present rich men did not pay proportionately so much as men who were only moderately well off, and a distinction ought to be made between income from investments and income from trade or professional sources, as the spending power of the latter income was less than that of the former. A person who derived his income from a trade or profession would wish to lay by something for his wife and children, whereas one who derived his income from investments was not obliged to do so. It seemed to him that the question of graduating the income-tax should not be absolutely excluded from the inquiry which was to take place under the Chairmanship of the right hon. Gentleman the Member for Croydon. The inquiry should be of the broadest and widest character. His hon. friend had suggested that the incomes ought to be published. Why should they not be published? Why should a man be ashamed to let his income be known, unless he wanted to defraud his creditors. In most, eases these incomes were got honestly, and in some cases dishonestly. Many people followed the advice of Sir Pertinax Macsycophant to "make money honestly if you can, but make money." There were a very great number of persons who are called by the common term "snobs." They were ostentatious people, and delighted in being thought wealthy. He believed that the revenue would profit considerably if such people were obliged to state their incomes publicly: they would put themselves down as being worth a great deal more than they were. Hon. Gentlemen opposite had always opposed letting the public know what was the income derived from land. These sort of people lived in swaggering style in large country houses, when they had mortgaged the whole thing, and had nothing to bless themselves with. The consequence was that when a man wanted to buy an estate he had to spend large sums of money which went into the pockets of the lawyers in investigating titles. It was on that account the present bad land system was maintained. There were other cases in which the revenue would profit. Very often when a person's income was going down hill, be was rather inclined to increase his credit by wishing it to be believed that he was making a great deal of money. He remembered fifteen or twenty years ago the case of the failure of a private bank in London. The private banker had been insolvent for a long time, and made a good thing out of it. When he was dying he said to his sons, whom he had taken into partnership. "Do as I did, always. Do not tell anybody about the true condition of affairs. Directly the breath is out of my body go and pay a large amount of probate duty." The sons followed this advice, and lived in wealth and splendour for many years.

In the same way there might be a gain from taxing persons who wanted to keep up their credit, It was done in the State of New York, where there was a tax upon capital which was practically an income-tax. Suppose a man had got £100.000 invested in perfectly good securities which yielded him £4,000 a year he was taxed on the produce of the £100,000. But the man who got £4,000 a year from his profession or trade was only taxed according to the number of years value of that£4,000, which might be ten years or something of that sort. The whole thing worked out infinitely better than the English system, where no distinction was made between incomes derived from investments and money derived from trade profits or the exercise of a profession. He thought accumulations should he taxed far higher than they were, because, after all, why should a man have money from his father or his mother? There was no particular reason for it. While a man was on this planet he was the owner of his own money, but when he went out of the planet he had nothing more to do with that money. The State said in this country "We will carry out your testamentary disposition of your money": but in other countries the State said. "We will oblige you to leave it to your children." As a matter of strict right, all that money ought to go entirely to the State. The existing practice was a concession made to those who disappeared out of this world.


The hon. Member is getting a good deal beyond the income-tax.


said he was afraid he was; but from the discussion which had taken place between the Chancellor of the Exchequer and the hon. Member for King's Lynn, he seemed to gather that upon this Resolution hon. Members might talk on everything they liked.


I would remind the hon. Gentleman that by general agreement the discussion on the income-tax is on the footing that it is a continuing tax.


said he was glad that the Speaker had given that ruling. He had been getting tired of the vague and general observations of hon. Members. Therefore he said. "Let us get to business." He regretted he had been somewhat out of order; although he would have liked to have gone on and explained to the House the primary principles of property.


said that while he cordially agreed with the suggestion that there should be a graduation in the income-tax, he differed from the hon. Gentleman who introduced the subject as to the method. So far he agreed with the hon. Member for Northampton that a man dependent on a professional income, and who had children to provide for, should pay less than a man who had no family. He would say that bachelors who could spend their money as they liked, or waste it, should be handsomely taxed; that a married man with a large family, say, of ten children, should pay less than a married man with only two children; while a married man who had no children should be taxed very severely indeed. Hon. Members might laugh, and he knew that bachelors would not like his plan; but he believed that it would have the support of the vast majority of the people of the country. He wanted this system of a graduated income-tax to be brought home to the right hon. Gentleman the Chancellor of the Exchequer, if the right hon. Gentleman wished to being in a perfect income-tax graduated so as to be approved of by every member of the community. He made a present of the suggestion to the Chancellor of the Exchequer, and hoped the right hon. Gentleman would bring it before the Committee which was to be appointed to investigate into the whole question.


said that the hon. Member for Northampton desired rather to postpone meeting his obligations to the State until he went to another planet- He confessed he preferred to keep the income-tax as at present, and to take the contributions of the hon. Member for Northampton at once. In Committee he explained the reasons for which it appeared to the Government impossible to refer the question of graduation to the Committee which they were appointing. He did not believe that the proposals for graduation or differentiation which had been put forward were practicable, or would bring any appreciable relief to the revenue. Mr. Gladstone argued strongly against differentiation, and the Member for West Monmouthshire only a couple of years ago said that the objection to graduation was not so much on principle, but that as a matter of administration it was impossible. It would, the Member for West! Monmouthshire observed, make it necessary to call upon everybody to declare the whole of his income, and that was an extremely disagreeable thing. If we took such a step we should find it impossible to ascertain whether taxpayers made a true return or not. The right hon. Gentleman the Member for West Monmouthshire pointed out that the great advantage of the income-tax at the present time was that so much was collected at its source. That was our safeguard. If we destroyed it or largely increased the extent of the inquisition which we now had to make into the means of individual taxpayers, the measure would be most inimical to the continuance of the income-tax and most damaging to its yield. The hon. Gentleman below the gangway had asked whether he could supplement the comparison which he had drawn between the wealth of the country in the present year and its wealth twelve or fourteen years ago. He was afraid he could not add anything to that comparison, which he believed to be perfectly accurate. The hon. Gentleman raised some further question with reference to the evasion of the payment of the income-tax by some of those who should pay it. The question of evasion was the first point in the reference to the Committee over which his right hon. friend the Member for Croydon would preside. Of course there was a certain amount of evasion. It took place in those cases where it was not possible to catch the income at its source, and where it was necessary to some extent to rely on a personal return. In some of those cases he believed there was very considerable evasion. His right hon. friend gave an instance which was of a sensational character, and he himself had heard of similar instances from friends of his own. They must not, however, expect immediate results in this matter from the recommendations which the Committee might make, nor must they put their ultimate expectations too high, because, after all, of the whole amount of income liable to tax only a small portion was self-assessed and liable to evasion. He hoped his right hon. friend and his colleagues on the Committee would be able to do something for the revenue in that respect, and also, perhaps, to do something to alleviate or remove the grievance of income-tax payers in other directions.

MR. THEODORE TAYLOR (Lancashire, Radcliffe)

said he regretted that the Chancellor of the Exchequer did not see his way to refer the question of differentiation and graduation to the Committee, all the more as they had had some encouragement from the right hon. Gentleman the Member for West Bristol the other day. Although a year or two ago the right hon. Gentleman refused to consider the question from a practical point of view, he now thought it was worthy of consideration; and he hoped the present Chancellor of the Exchequer would consider the matter. He did not understand the Chancellor of the Exchequer to say that the principle of differentiation and graduation was wrong if it could be applied; and as they now asked only for an inquiry he regretted the question was not to be referred to the Committee. He even yet hoped that the right hon. Gentleman might take that course. If he refused because it might have the effect of deferring a decision on the other questions submitted to the Committee, that was a reasonable ground; but the Committee could be reappointed and given a mandate to consider the question. The other day the right hon. Gentleman told the Committee that in his judgment the effect of attempting to graduate the income-tax was to be disastrous to the tax as a great instrument for yielding revenue; but he would point out that the tax was already graduated by the present system of abatement. He would suggest that the Chancellor of the Exchequer should consider, if he had an opportunity of introducing another Budget—and he would prefer the right hon. Gentleman to have that good fortune to any other right hon. Gentleman opposite—whether the present system of graduation as shown in the principle of abatements might not be usefully extended. They were all agreed as to the desirability of graduation; the only question was how far it was practicable. It was a matter of equity, as rich men were better able to pay a larger proportion than poor men. The present was not an inappropriate time at which to follow the lead of such an able and experienced financier as the right hon. Gentleman the Member for West Bristol, especially as indirect taxation was being increased. The principle of abatement might well be extended from £700 to £1,500 or £2,000.


said he objected on principle to the graduation of the income-tax. To his mind it would be most unjust to the taxpayer and most injurious to the State. He also believed it would interfere with the collection of the tax, now one of the easiest and cheapest of taxes to collect. He would point out to the hon. Member that a rich man might have children, relations, and a number of other persons dependent on him, although he himself would not consume a greater part of his income that would be consumed by a man with £500 a year. After all, a rich man could only eat one breakfast, and from that point of view alone it would be unjust. Further the Income-tax Commissioners pointed out in their Report for 1902–3 that the gross income brought under the review of their Department was £866,000,000, and as the Chancellor of the Exchequer had stated, that was only about one-half of the come of the country. The income of the country might, therefore, be taken at £1,800,000,000, all told. Of that £1,800,000,000 only £600,000,000 was taxed at all. In other words, two-thirds of the income of the country did not pay income-tax at all. Therefore, as it was, it was bad enough on the third that paid; but if graduation were adopted the only result would be that a greater burden would fall on a third of the one third that now paid, and a larger proportion of the tax would be paid by a smaller number of people. That would be extremely dangerous, as the object was to have as largo an area and as small a tax as possible. The hon. Gentleman said truly that there was a certain graduation already in existence: but it was very small indeed; and only affected small incomes, and a comparatively small proportion of the entire yield of the tax. The difficulty would begin when they proceeded to apply graduation to the larger incomes. During the last four or five years this graduation had had precisely the result he had anticipated. As a matter of fact, only about one-third of the income of the country paid the tax, and if graduation were introduced, the tax would fall on a much smaller number of people. His belief was that they would have a further decrease in consequence of the graduation which was recommended by the hon. Member opposite. His suggestion would be to make the rate smaller, and extend it over a larger area. Exemptions and abatements of income-tax already extended too far. The way he would increase the yield of the tax was to reduce it in rate and spread it over a much larger area. If they decided to make everybody declare the whole of their income before making the reduction, they would enormously increase the expense of collection.


thought hon. Members who had asked for an inquiry with reference to the graduation of the income-tax, must have forgotten the powerful speech of the right hon. Gentleman the Member for West Monmouthshire when he first introduced the death duty. At that time the right hon. Gentleman made a most searching examination into all the circumstances attending the possibility of a graduated income-tax, and he concluded that it would be almost impracticable and would be attended with such enormous cost, that it would swallow up any gain there might be to the revenue. They never could get over the diffculty that they would never be able to compel a return of the whole income. The whole force of the Inland Revenue officials could not do this, and it was for that reason that the death duties were imposed and were graduated. He agreed that graduation of the death duties might be carried further, but he thought that was the only way in which they could have graduation at all. His hon. friend the Member for Northampton had talked of the difficulty of discovering Incomes derived from land. He could tall his hon. friend that land yielded no income.


thought they ought to be given a little more information by the Chancellor of the Exchequer upon this question. If the right hon. Gentleman had given them such a promise at an earlier stage the debate would have been shorter. There were many difficult points connected with this question which would make it impossible for them to discuss the matter properly until they had placed before them the Report of a Committee of inquiry. The limit of exemption now was £160, but he was disposed to agree with the hon. Member for King's Lynn that this was too high a figure. He thought the time had come when that point also might be inquired into by a Committee. He agreed that it was rather futile for a few Members of the Opposition to declaim against direct taxation because when they took a division the Opposition were divided, and twenty or thirty of their number generally voted with the Government. He preferred that they should be solid when they voted and they ought to discuss more and divide less. It was simply nonsense to think that the poor were relieved by exemption from income, tax if that exemption were purchased by great increases in the taxation on the necessaries of life. When they put taxes upon such articles as tea, tobacco, beer, and sugar, the poor man did not know exactly what he paid. The standard of exemption in Germany was £45 a year, and at a time when they were putting on taxes in such a lavish way it was not altogether outside the pale of discussion to consider whether the working classes would not be relieved if they had to pay their taxes directly. He would like his hon. friends to define what they meant by this system of graduation and where the limit was to be fixed? He was pretty familiar with the tables of incomes given in the Inland Revenue returns and he was amazed at the vast amount of income which was caught between £1,000 and £5,000. Above the latter figure incomes were few comparatively and if they went beyond £10,000 he questioned whether they would have a large field at all. In Ireland they could count upon their fingers the incomes above £10,000 and in a lesser degree the same state of things existed in Scotland. Even the number in England above £10,000 were very small. He thought during the interval the Chancelled of the Exchequer might consider the advisability of appointing a Committee. The proposal now made to the country was that we should submit to an increase of one penny upon the income-tax, but he remembered two years ago the right hon. Gentleman the Member for West Bristol spoke with horror of an income-tax of 1s. in the £. The right hon. Gentleman made all his speeches on economy down at Bristol, but he never supported proposals in the direction of economy in the House of Commons.

And, it being half-past Seven of the clock, the debate stood adjourned till this Evening's Sitting.