§ Motion made, and Question proposed, "That Income Tax shall be charged for the year beginning the sixth day of April, nineteen hundred and seven, at the rate of one shilling in the pound."— (Mr. Chancellor of the Exchequer.)
§ MR. AUSTEN CHAMBERLAIN (Worcestershire, E.)It was agreed on Thursday last when we closed the debate that we should have an opportunity to-day on this the first of the Resolutions proposed at this sitting to continue the general examination of the Budget proposals with the advantage of the reflection allowed in the interval. I confess that the results of that reflection are not altogether comforting. I said, as a first impression after the Chancellor of the Exchequer's very interesting speech, that it seemed to me that this Budget was in some respects a disquieting Budget. Further reflection only confirms me in that view; I think it is not merely a disquieting Budget, it is an ominous Budget. What is the position which the Chancellor of the Exchequer's financial statement has disclosed? He congratulates the House and the country upon a year of exceptional trade prosperity, and it follows upon a year of the same character. Yet we find there is not that expansion in the yield of our taxes which everyone would have wished to find, and which, I think, most people would have expected to find, given the premisses described by the Chancellor of the Exchequer. The right hon. Gentleman, with a very considerable surplus in his hands this year, and an anticipation —I think a justifiable anticipation—of a considerably larger surplus next year, is unable to give any remission of taxation in the current year. Further, having regard 1438 to the state of the finances, the limits he himself has placed on his activity as Finance Minister, and the demands which are made as to social reform, he cannot hold out any hope of a reduction of taxation next year. Am I not right in saying that is an ominous statement? The Chancellor of the Exchequer says he cannot deal with the surplus in such a way as to involve any permanent diminution of revenue on a considerable scale. Accordingly now, for the first time, in piping times of peace, the Chancellor of the Exchequer announces that he looks forward to a permanent income tax of 1s. in the pound.
§ THE CHANCELLOR OF THE EXCHEQUER (MR. ASQUITH,) Fifeshire, E.I never said anything of the kind. I said we must regard the income-tax, in my opinion, as a permanent part of our fiscal machinery.
§ MR. AUSTEN CHAMBERLAINI am referring to one portion of the Chancellor of the Exchequer's speech and he is answering me out of another portion, and I think he may find it hard to reconcile the two. In justifying his income-tax proposals the right hon. Gentleman said we must now regard the income-tax as a permanent part of our taxation. I will comment on that later. But I am now dealing with the statement that, having regard to the demands upon us, he cannot deal with the surplus, large as it appears to be, in such a way as to involve any permanent diminution of revenue. What is that but saying he cannot reduce the taxes from the level at which they stand; that if he has a surplus it is mortgaged, that a larger surplus would still be mortgaged, and that no surplus he can contemplate on the present taxation is sufficient to meet the demands he foresees within the near future? He took credit to himself for not promising old age pensions. I am not aware that anybody ever promised them. Who did? [An HON. MEMBER: "Joe," and cheers.] I suppose hon. Members who cheer mean to say that my right hon. friend the Member for West Birmingham did. I challenge them to produce the passage containing that promise; they cannot do it. What my right hon. friend did was to expound to the country a scheme elaborated by a non-Party committee, on a more moderate 1439 economical, and prudent basis than any which has been put before the country from any other source, and he said that that was a scheme which was simple and which anyone could understand. He for one was prepared to support a scheme on that basis, and I for another am prepared to support a scheme on that basis now. I see no reason for going back from it in any degree. It is more prudent and wiser finance, more calculated to encourage thrift and promote good conduct among the masses of the people than the non-contributory scheme, to which alone the Chancellor of the Exchequer will lend any countenance. The right hon. Gentleman takes credit to himself for not having promised a scheme. He has gone very near to promising a scheme next year, and all his friends so understand it. Perhaps the Chancellor of the Exchequer will take note of the interpretation placed on his utterance, and if he does not mean to pledge himself to old age pensions next year—
§ MR. ASQUITHMy words were perfectly free from ambiguity.
§ MR. AUSTEN CHAMBERLAINI think the right hon. Gentleman's words amount to as good a Parliamentary pledge as I ever heard. It is patent that the Chancellor of the Exchequer has no money to give away, and we have now to contemplate a permanent income-tax of 1s. in the pound. That is a deplorable thing, and I contrast it with the observations of the Chancellor of the Exchequer twelve months ago. The right hon. Gentleman said he associated himself with the declarations of his predecessors, that an income-tax of a uniform rate of 1s. in the pound—
§ MR. ASQUITHA uniform rate.
§ MR. AUSTEN CHAMBERLAINThat such a tax in a time of peace was impassible to justify and difficult to defend. Let me read on. He said—
It is a burden on the trade of the country which in the long run affects not only profits, but wages.A normal 1s. tax even with an abatement to 9d. on incomes of less than £2,000 a year still is a burden on the trade of the country, which in the long run affects not only profits, but wages. 1440 And I go on to quote the Chancellor of the Exchequer—And from the point of view of the nation it is open to the same objection as a continuance at an abnormal figure of the floating debt— namely, that it tends to destroy or at any rate to contract a most readily available reserve on which the State can draw in times of unforeseen emergency.It is true that the Chancellor of the Exchequer put in that carefully chosen qualification about a "uniform" rate of 1s., but these objections are wider and are not affected by the qualification. They apply to any income-tax the normal rate of which is as high as 1s. I venture to express a personal opinion that of all the taxes which affect the wages fund, which affect the amount of capital available for investment, and therefore react directly upon the amount of employment for the people of this country, there are none which bear with such serious weight as the income-tax. By indirect taxation you may raise what a man pays on wine, cigars, or other luxuries, and if he has not a sufficient margin of income he will reduce his expenditure proportionately, and he will continue to lay by as before; but when you come to the income-tax and tax his savings, then I think you directly deter him from increasing those savings, and he is apt to regard that as something beyond his control, and accordingly, instead of spending less, he spends what he did before; he pays the additional income-tax, and the amount he has available for investment, for the extension indirectly of employment, and for the promotion of wage-earning industries is thereby lessened. An even more serious objection is the objection taken by the Chancellor of the Exchequer last year that the income-tax is our great reserve for any emergency. Why is that so? It is because as a financial engine it is the one which you can work faster or slower, of which you can alter the speed or intensity with less disturbance to trade than any other tax—not only than any direct tax, but any indirect. The income-tax stands almost alone among our direct taxes as the great engine which the Chancellor of the Exchequer can employ to meet a temporary emergency; and I say the trifling abatement which the Chancellor of the Exchequer has given on incomes of less than £2,000 a year is altogether insufficient to relieve the strain which the income-tax payer suffers under, or to 1441 restore to the tax that elasticity for, purposes of emergency which every financier desires to see. And that is not the whole matter. It is not only the income-tax payer for whom the Chancellor's statement is full of meaning, and, as our neighbours across the Channel say, gives furiously to think. The working classes as well as the direct taxpayer must be content to pay as before. 1s the last general election already so far behind us that Members have forgotten the piteous cry put up on behalf of the consumer from a hundred Liberal platforms? Here is the Chancellor of the Exchequer of a Radical Government, with a surplus of £3,500,000, and looking forward to a further surplus next year, telling the consumer that he must continue to "pay, pay, pay." Whilst I share to the full the desire expressed by the Chancellor of the Exchequer, and felt in every quarter, to make some provision for the old age of the deserving poor, I think he is placing an unnecessary burden on the taxpayer, and an unnecessary difficulty in his own way, by the determination he has expressed not to look at any form of contributory scheme. For my part, I think he would be wise not to exclude the possibility of contributory schemes, difficult perhaps to start, but becoming, as I think they would, more popular as their provisions become known, and as the benefit earned under them began to be reaped; and I am certain that if the Chancellor of the Exchequer would proceed upon those lines, in the first instance at any rate, he would need to make a smaller draft upon the Exchequer, and would find himself less handicapped than he is by his own declaration. I think the Chancellor of the Exchequer's speech shows that we have come very near to the end of our tether on the present basis of taxation. And now comes in the cloven hoof. The Chancellor of the Exchequer says the Party opposite is a free trade Government and a free trade Party. Of course he uses the term free trade in the very restricted and imperfect sense in which we habitually apply it in this country, as meaning a Government which does not hesitate to tax your trade provided it can prove that no British subject derives any benefit from the tax, but which refuses to adopt any fiscal expedient if it could be shown that a British subject might 1442 conceivably be benefited thereby. The Chancellor of the Exchequer says that that indeed narrows his field, but only in the sense in which a wise builder narrows his field of operations to firm ground and avoids the unfathomable morass. [MINISTERIAL cries of "Hear, hear."] I wonder whether the hon. Gentlemen who cheer that statement really believe that the fiscal system of every country except Turkey and Great Britain is based upon an unfathomable morass—whether they really believe that every one of the great self-governing Colonies, the kindred nations across the seas, whose representatives are now present in our capital, have based their whole system of government on an insecure foundation, and that we, and we alone, with the single exception of His Majesty the Sultan of Turkey, have found the true way?
§ MR. LYNCH (Yorkshire, W.R., Ripon)I heard protection described by a speaker at a mass meeting of electors during the last Presidential campaign in the United States as a "grand larceny upon the American people."
§ MR. AUSTEN CHAMBERLAINI suppose the hon. Member was one of those who contributed cheers to that statement. I was not referring particularly to the hon. Member, but I am delighted to hear him. That really is characteristic of the sort of stuff that did duty on a hundred Liberal platforms. I am not going to turn aside to argue the question fully at the present moment, but I am going to make two observations which are sufficient for my purpose and will show that I do not fear to meet the hon. Gentleman on the issue he has raised. The hon. Member quotes his opinion as if he would have us believe that the American people are willing to abandon their system. Does he suppose that they are?
§ MR. AUSTEN CHAMBERLAINIf they wished to abandon it they can do so. ["No, no."] But every man who knows anything about America knows two things about it. First, that the tariff there is protectionist in a sense and with an exaggeration that no living man in this country has over suggested, 1443 and which we who call ourselves tariff eformers, and I among them, never suggested. Secondly, while the American people may desire to modify that tariff in some respects, there is not a sane man in the House or out of it who supposes that either he or I will live to see them abandon the system by which their prosperity has been attained and by which it is maintained. It is really absurd of the Chancellor of the Exchequer to suggest that a system which is practically universal outside this country is based on foundations so insecure that no British Minister would be safe in trusting to build upon them. The right hon. Gentleman said that tariff reform was strangled at the last election by the necessity which followed from it of the taxation of raw material, and it was that necessity which had proved, fatal to the movement at the last election.
§ MR. ASQUITHWhat I said was, and what I now repeat is, that the movement was entangled with and strangled by its avowed intention to tax the first necessaries of life, such as meat and corn, and what we demonstrated as its necessary consequence was that if justice was to be done to all parts of the Empire in any fair system of preference the taxation of raw material could not be avoided.
§ MR. AUSTEN CHAMBERLAINI was, it is true, skipping a portion of the right hon. Gentleman's declaration, and on it I must make a few observations. The observation as to taxation of food needs no demonstration, but only a reminder that the Party opposite will have to continue to be food-taxers unless they are false to every promise and pledge of social reform they have given—not only food-taxers on the present basis, but some of them are beginning to ask whether they will not have to increase that basis in order to provide a satisfactory system of old age pensions. Then as to raw material, I am amazed that a man of the general capability, can dour, and fairness of the Chancellor of the Exchequer, with such a clear perception of the question, should repeat in the House, after plenty of time for reflection, the fable which he industriously circulated on public platforms, that we were, now or at any other time, to place a tax on raw materials.
§ MR. ASQUITHThe right hon. Gentleman made no such proposal. What he has proposed was not the question we had to consider the question was what would inevitably follow.
§ MR. AUSTEN CHAMBERLAINWe deny either that we proposed or that we would be obliged to put a tax on raw material. Has the Chancellor of the Exchequer ever studied any foreign tariff? What is the object of the modern German tariff? The object is, not to exclude all goods from the outside, but to make the imports consist as far as possible of those classes of goods which are of the most benefit to the whole community. Germany wishes to do a big foreign trade as well as ourselves, and they desire, as far as the action of the Government can guide and control it, that they should be protected so as to secure that their imports should consist of raw material or of goods on which very little work has been done, and in order that for the masses of their own people they may secure the maximum of employment and industry in their own country. Not only is it not true to say that we shall be forced to tax raw material by any principles we have enunciated, but it would be the very reverse of the principles by which we are guided to do anything of the kind Why is it that the right hon. Gentleman thinks we should be driven to it? He says that you cannot give a fair system of preference among the Colonies unless you do. That shows the total and unpardonable ignorance of the right hon. Gentleman, after we have discussed the question for two or three years, as to the nature of the preferential arrangements which are now being carried out among the great self-governing Colonies, and in which we are invited to take a mutual part. No one has attempted to show exactly how to adjust their system so that every part of the British Empire to which they accorded preference shall receive exactly the same benefit. That is not the way in which Canada has proceeded. Canada has found certain concessions it can make, and it grants, them to any self-governing Colony which will make reasonable concessions to her. She has also introduced a special Empire free list in which certain goods shall be admitted free provided they come from any portion of the British Empire. They 1445 offer such preference as they can give to any who come within the scope of it; and so shall we when the time comes. [Cries of "When?"] The man is shortsighted who thinks, because the opinion of the present House of Commons is averse from it, that the opinion of the electors on issues of which this was only one has been recorded in favour of the Government, the question is settled, and who fails to see at this moment that both at home and in the Colonies attention is concentrated upon it as it never was concentrated before, and that the question is likely to be an abiding question until we are able to settle it in this country in harmony with the general feeling of our race throughout the world. When that time comes the Chancellor of the Exchequer of the day will be free from many difficulties which beset the right hon. Gentleman owing to the restrictions by which he has needlessly bound his hands. He will then be able to raise some portion of his revenue from the foreigners who use and take advantage of our markets, and instead of imposing taxation on articles of general consumption he will be able to raise a portion of it from articles of luxury, such as motor-cars, which may well contribute to our revenue. When those days come I cannot say what the demands of the public purse will be, but the Chancellor of the Exchequer of that time will be better equipped to meet them than is the right hon. Gentleman with all the abounding prosperity on which he congratulates us, and with the surplus of which he boasts. The right hon. Gentleman said that the income-tax may now be regarded as a permanent part of our fiscal system. I agree. Then the right hon. Gentleman said that we must deal with the anomalies in that tax which previous Chancellors of the Exchequer have justified themselves for, disregarding on the ground that the tax was temporary. I am not aware, since Mr. Gladstone proposed in 1874 to abolish the income-tax, that any Chancellor of the Exchequer or any responsible politician ever thought it to be possible to abolish it altogether. It has been permanent since the decision of the country in 1874. The objection is not that the tax is permanent, but that it is permanent at a high rate, and all the right hon. Gentleman's predecessors, Mr. Gladstone, Mr. Lowe, Lord Goschen, Sir 1446 M. Hicks Beach, and Sir Stafford North-cote, were of opinion that the real way to remove the intolerable hardship from the tax and to reduce its anomalies was not by attempting differentiation or graduation, but by restoring the income-tax to; a low level. I deeply regret, after all the sacrifices which the income-taxpayers have been called upon to beat-—including the sacrifice which I myself as Chancellor of the Exchequer was bound to impose upon them—the present Chancellor of the Exchequer should tell them, although he has a surplus, that there can be no kind of general relief. That is not bad news for the income-tax-payer only. It may be bad news for the Chancellor of the Exchequer. If you announce to the income-tax-payer, and especially to the largo income-tax-payer, that you are going to keep the income-tax permanently at a 1s. in the pound—
§ MR. ASQUITHI have not done so.
§ MR. AUSTEN CHAMBERLAINWell, if you draw such a picture of your financial future, the demands you have to meet, and the limitations which you have placed upon your power of raising revenue, the income-tax-payer need not be very clever to draw that inference, and I am afraid the result of your announcement will be the withdrawal of income from the area of taxation. Bear in mind, also, that if you induce people to withdraw part of their income or capital from the scope of the tax, it is not the poor man that will profit, but the rich man. I find that in the year 1904–5 the income derived in this country from foreign sources amounted to no less than £66,000,000. It would be no exaggeration to say that probably half of that amount could be withdrawn from the purview of the income-tax if the owners thought it worth while to do so. Undoubtedly there will be a tendency under a permanent high tax, first to divert capital abroad, and, secondly, to keep the interest on that capital abroad instead of bringing it home. Indeed, I do not think it is at all unlikely that before many years have passed the revenue will suffer to the extent of £1,000,000, £1,500,000, or even more per annum, from a movement of this kind. There is another point. The right hon. Gentleman, under cover of 1447 giving relief to a single class of income-tax-payer, is going to make the tax more inquisitorial all round. He is going to require from all employers a return of their employees with their rates of salary or wages.
§ MR. ASQUITHLord Ritchie's recommendations.
§ MR. AUSTEN CHAMBERLAINVery possibly it is right. Hitherto small incomes a little above the limit of exemption, paid in the form of weekly wages, have practically been exempt, not by law, but because the revenue authorities were unable to trace them. Now, at the moment that you are boasting of relieving the burden on small payers of income-tax, you are going to tax a vast body of workmen and clerks earning small salaries weekly, who have hitherto escaped.
§ MR. ASQUITHWill the right hon. Gentleman say that they ought to escape?
§ MR. AUSTEN CHAMBERLAINI do not complain in the least of the interruption, but I say you are going to tax thousands who were not taxed before. Who are these people? They are people in fluctuating or uncertain employment. My answer to the right hon. Gentleman's question is that I think in applying to these people the income-tax in its full force, as it is applied to others, you are dealing out very hard measure to them, because of the very uncertain tenure of their employment and of the wages which they earn. It has been the practice till now to confine the income-tax to people whose appointment is by the year, and who, therefore, had a certain prospect before them. Now you are going to collect the tax from persons whose employment may be terminated at a week's or a day's notice. The precariousness of the employment is a good reason for the distinction; and I think the right hon. Gentleman is ill-advised, in the interest of the tax, in endeavouring to drag this class into his net. In fact, there is no remission of taxation; there is only a shifting of the burden. Is the right hon. Gentleman sure that it is any fairer? In regard to differentiation, he has shifted his ground from permanent and precarious to earned and unearned income. How does he justify 1448 his differentiation between earned and unearned? The right hon. Gentleman says that it is anomalous that A, who has £1,000 a year from Consols, and B, who earns £1,000 a year in a profession, should be taxed alike, because while A can spend the whole of his income, knowing that, should he die, his widow and children will still have £1,000 a year, B must put aside something to make a provision in the event of his death for his widow and children. That, surely, is based on the difference, not between earned and unearned, but between permanent and precarious. The moment the right hon. Gentleman puts his proposal on that ground he is bound to treat the income, not from the point of view whether it is due to personal exertion or not, but from the point of view whether the temporary possessor of it has the permanent disposal of it. Take the case of pensions. Is there anything more decidedly earned income than a pension, whether you look upon it as deferred pay or as an enforced provision for old age? A civil servant serves you during thirty or forty of the best years of his life, and you pay him a salary which may be more than adequate if he is a third-rate man, but below his value if ha is a first-rate man; and, though I know from personal experience these men receive constantly the most tempting offers from the City or elsewhere, they prefer, quite apart from the honour of serving the State and the Crown, to remain in the service of the State because of the pension, which is part of the condition of their service. How can any Chancellor of the Exchequer for one moment say, differentiating between earned and unearned incomes, that a pension earned by forty years of service is unearned income? How can any Chancellor of the Exchequer for one moment say that it is right to differentiate between earned and unearned incomes and say that a pension earned by forty years' service is unearned income? There is no answer to that. The Chancellor of the Exchequer's answer was that he had an open mind. I think he said that after the discussion the other evening, and after observations such as I am now making, but I think in matters, of this importance so intimately associated with the merit of the change, the Chancellor of the Exchequer ought to have an answer of his own, at any rate a 1449 suggestion, to make at a very early stage, and before we part with this Resolution I think we ought to be told what are his general intentions in regard to these different questions. Take every kind of money charge, life annuities, younger sons' portions or a widow's endowment charge upon an estate. How will the Chancellor of the Exchequer apply his principle in those cases? Say an individual has £1,000 a year for life from any of those sources. Is he in the same position as the man who has £1,000 a year in Consols? No, Sir. Can he, in the first place, spend as freely from that thousand as the owner of Consols, if he has to put aside part of that income every year in order to provide for those who come after him because his income ceases with his life? The Chancellor of the Exchequer cannot draw the line which I understand he is trying to draw, without inflicting far greater hardship and creating far greater anomalies than any which exists under present arrangements. There is another class of income which has not been mentioned in our debates hitherto. How does he propose to treat incomes from patent rights? I make an invention, I patent it, and I am fortunate enough, we will assume, to have got hold of a really valuable commercial idea. I am offered £20,000 down for it, but I prefer to take royalties. When I take royalties, will the right hon. Gentleman treat my royalty as earned or unearned income? It is an annuity for fourteen years, during which period the patent will run. There is no fresh exertion on my part, there is one act of earning and one only, that of invention. How is the Chancellor of the Exchequer going to treat it, how is he going to treat my remuneration? Will he treat it differently whether I take it in annual payments as royalties or in a lump sum down? The moment you try to find an answer to this question you see how complicated and difficult is the distinction which the Chancellor of the Exchequer is trying to draw. If you treat it as earned during the fourteen years the patent has to run, will you give the same treatment to every wasting investment? You must give the same treatment to copyright, and to wasting assets in industrial concerns. If you treat the annual payment as earned you cannot logically deny the same treatment to the 1450 man who, instead of taking the annual payment, takes the lump sum and invests it. You can make a distinction between temporary and permanent income; but if you try to make a distinction between the two cases of earned and unearned income, you find you cannot do anything of the kind. Then again, what about leasehold? How does the right hon. Gentleman intend to treat incomes from investments in leasehold properties? It is a very common form of investment with people of very moderate means. What is he going to do with incomes from that source? If the Chancellor of the Exchequer justifies the distinction he has made, he must include all incomes from wasting securities like leasehold properties. I repeat my question, how is the right hon. Gentleman going to treat a landowner who manages his own estate, but does not farm it? Every morning my table is covered with letters from people who will have hard cases created by the proposal of the Chancellor of the Exchequer. They ask me to ventilate their grievances or they come to me for sympathy which I attempt to give them. I have two cases here, one is that of a gentleman who writes to say that two years ago he gave up a salaried position in order to devote himself to the management of the estate which he owns, with a gross rental of a little over £1,000 a year. Supposing that man was earning £1,000 a year on somebody else's estate the Chancellor of the Exchequer would take from him an income-tax of 9d.; how is he going to treat him when he earns £l,000 from his own estate? [Laughter.] I really do not follow the reason for that laughter, and perhaps the hon. Member opposite will tell me how my question is ridiculous.
SIR T. P. WHITAKER (Yorkshire, W.R., Spen Valley)The difference between the man who earns an income of £1,000 by rendering service, and the man who derives £1,000 from an estate which he manages is surely very evident. The one man is earning £1,000, the other is collecting income and the cost of doing it might be 2½ or 5 per cent.
§ MR. AUSTEN CHAMBERLAINI have given more than one answer to the hon. Gentleman. I really want the Committee to take this case fairly into consideration. I put the case of a man 1451 who, being a land agent, earns his £1,000 a year in that capacity. He then inherits an estate, and having been trained as an estate agent, he proposes to manage his own estate and not to employ anybody to do it for him. In order to do that he has to give up a salaried position which he has occupied, and where he was taxed at 9d. I ask the Chancellor of the Exchequer how he is going to tax him when, instead of earning £1,000 for managing somebody else's estate, he earns £1,000 for managing his own? The hon. Member who interrupted implies that it would be equitable to tax him the full 1s. in the one case and 9d. in the other. The owner who manages his own estate fills the position of factor, agent, master of works, or estate manager, and if he, by managing his estate, earns £l,000 he does so by just as great personal exertion as many a shopkeeper or many a manufacturer, who makes a much greater income. How are you going to draw any distinction in equity between the two cases? Here is another case. A man writes to me and says that he is the owner of small property in town. He tells me that for his net income of nearly £2,000 a year he has to to collect rents of very nearly £4,000 a year gross. He has to go round to collect rents and interview tenants, giving up to the work five or six days a week in order to manage this small house property estate. How are you going to treat him? The Chancellor of the Exchequer in his reply the other day said that in such a case it would be for the individual to prove that the income arose from personal exertion. The Committee I hope, will not allow the measure to pass in that form, it would be grossly unjust. It would mean that it would leave to any Income-tax Commissioners or Board of Inland Revenue a width of discretion that would enable them to enforce an entirely different law in one part of the country from that prevailing in another, and an entirely different law in one class of circumstances from that prevailing in another, and I think that the Committee must decide what is fair and equitable in these circumstances. I do not want to weary the Committee with more detailed cases. I will make one general observation. Of course the right hon. Gentleman's £2,000 limit is wholly illogical, it is a matter of convenience on general grounds, and he 1452 is entitled to say that any man who has £2,000 a year does not need consideration, but on every ground of equity and logic, if the distinction between earned and unearned income is to be maintained I must enter my most serious protest against a proposal of the Chancellor of the Exchequer which, while nominally making a concession, withdraws about one-half of it with the other hand. He says that where a man has an income of less than £700, he is entitled to abatement upon that, and that the abatement will be taken from the earned portion of his income. I will take the position of a person with a small income of £300 a year, one of the people whom the right hon. Gentleman and hon. Members opposite desire to help. Suppose, as one of my correspondents says, £150 is derived from investments and £150 is annual salary. He is entitled to an abatement of £160 because his whole income does not exceed £300. You take the abatement off his earned portion and accordingly you deprive him of any benefit whatever under the concession which the right hon. Gentleman nominally makes to people with small earned incomes. There are not many cases so neat as that which I have just described, but there are a vast number of people who will be affected in that way, and who, if the Chancellor of the Exchequer persists for reasons of administrative convenience in taking the abatement off the earned portion of the income, will be deprived of any benefit from the Chancellor of the Exchequer's change, although they are the very class of people whom he wishes most to benefit. Then there is another question which is familiar to the House and which becomes of increasing importance as the Chancellor of the Exchequer modifies the incidence of the tax. Why are husband and wife to have their income lumped together for the purpose of income tax? In the case of a husband with a very large income and a wife with a small income it may teem rather absurd lo allow her an abatement when she enjoys the benefit of the husband's large income; but when you legislate to provide for that case you legislate for a bad case in such a way as to make bad law. For one case of that kind there are a thousand cases of the other kind, where you get a working man and working woman who up to the moment they marry are exempt from income-tax, and 1453 when they marry and are fulfilling the duties of good citizens, contributing, we may hope, to the strength and security of the State, you strike at them for the first time through the income-tax. The hardship became greater as abatement became a, more important and permanent part of the system, and now, when, in addition to the abatement, you undertake to make a differentiation, it is a gross injustice to lump two small incomes together and treat them as one for the purpose of income-tax. I have said enough to show how difficult is the task on which the Chancellor of the Exchequer has entered. I have heard his Budget described by a not unfriendly critic of his as a humdrum Budget. I have ventured to reply that no Budget is humdrum which attempts to differentiate between incomes derived from different sources. It is not what you would call a typical Radical Budget. It is a scheme intimately associated with the proposals of an hon. friend lately a Member of this side of the House, now temporarily excluded, Sir George Bartley, who year after year pressed them on successive Chancellors of the Exchequer, as Mr. Hubbard had done before him. It is not a Radical proposition; but it is a proposition which enormously complicates the tax. It not merely increases the complexity of your machinery, but it introduces a whole-series of complicated problems which it is evident the Chancellor of the Exchequer has not attempted to solve, has not yet solved, is not yet willing to tell us how he proposes to solve.
§ MR. ASQUITHWhy do you say that?
§ MR. AUSTEN CHAMBERLAINBecause you said you were waiting till the close of this evening's debate before deciding.
§ MR. ASQUITHwas understood to say he had decided.
§ MR. AUSTEN CHAMBERLAINThe Chancellor of the Exchequer has got a decision in his mind. The Committee is entitled to have that decision announced to it at the earliest moment. If the Chancellor of the Exchequer knows how he is going to treat these different classes of property, and has a reasoned 1454 policy in regard to these points, surely we are entitled to know what that policy is without any further delay. I apologise to the Committee and thank them for their indulgence. These are matters in which I naturally take a very great interest. I looked carefully into the question of differentiation with no unsympathetic eye when Chancellor of the Exchequer; but, like so many of my predecessors, I abandoned it, not because I thought it in theory unjust, but because I thought it impossible to arrive at a practical working decision which would be fair as between party and party, and do what it was its object to achieve. What I concluded and what I now hold is that the only true remedy for all the anomalies and grievances of the income-tax is to get it back to a low figure and keep it at that low figure.
§ THE PRESIDENT OF THE BOARD OF EDUCATION (Mr. MCKENNA,) Monmouthshire, N.The right hon. Gentleman has just made an interesting speech, and I do not think there will be any complaint on this side of the House as to the manner in which he has attempted to criticise the Chancellor of the Exchequer. But I do not think the complaint he makes is quite justified. He complains that our income-tax proposal will involve very great difficulties. Surely the right hon. Gentleman is aware that difficulties are inherent in the income-tax law and they exist to-day. The right hon. Gentleman's latest difficulty is that of husband and wife, but the ex-Chancellor of the Exchequer when he was in office had that difficulty pressed upon him with great force by the hon. Member for Hammersmith, and of course he must be fairly familiar with it. That difficulty is not now increased. On the contrary, to a certain extent that difficulty will in the future be reduced, because if the joint income of husband and wife is less than £2,000 a year it will only be taxed as earned income to the extent of 9d. in the pound instead of 1s. As the right hon. Gentleman has not thought fit himself to remove the difficulty, he is no doubt familiar with the argument in defence of the present law on that point. He has asked about certain very minor matters. The right hon. Gentleman desires to know how the Chancellor of the Exchequer proposes to deal with the inventor who is receiving a royalty for his 1455 invention. The form in which the inventor receives payment is a deferred payment on sale. If he were paid so much money down for his invention he would naturally have to pay 1s. in the pound, because his invention would represent property and it would come under the property tax. For work done and paid for within the year a man with an income of less than £2,000 a year would have to pay 9d. in the pound. When income is derived from accumulated property, and not from something on which a man is working at the time, he pays on the property rate. The principle is perfectly clear. I do not think there will be much difficulty in dealing with royalties upon the same basis.
§ MR. AUSTEN CHAMBERLAINWill the right hon. Gentleman say what he means by the same basis? Does he mean 1s. or 9d.?
§ MR. MCKENNAI mean 1s. in the pound. The right hon. Gentleman asks a question about the landlord working his own estate. The landowner is now dealt with under two schedules. Under Schedule A he pays 1s. in the pound, and he will continue under our new proposal to pay that amount. As a farmer the landlord although working his own property would pay under Schedule B, and he will continue to pay under that schedule, and if his total income is less than £2,000 a year he will pay 9d. in the pound. There is really no inherent difficulty in these cases, and they have to be treated as a matter of principle, and when that is done the difficulties will in practice disappear. The principle upon which the right hon. Gentleman has proceeded is to apportion the burden of the income-tax according to the ability to pay. Of course the exact proportion cannot be discovered by any Chancellor of the Exchequer, but what he says is that the present method of calculating the income tax departs widely from that principle. It is said that income may be precarious whether derived from investment or from work. But under the present law precarious income in either case is treated alike, Although it may not be possible to; distinguish between certain income from investment and precarious income from investment, we can at any rate distinguish the precarious incomes from work; 1456 and why should we be precluded from making a reduction in favour of the form of precarious income that is derived from work simply because it is impossible to distinguish between the certain income derived from investment in the funds and the less certain income derived from investment in a railway? There is this great distinction between the two classes of income—the man who is deriving his income from investment has not got to work for it, and the energy of his mind and hands can be devoted to some other form of exertion. If a man is deriving his income from funds or from railway companies so long as he derives it in that way he has got to pay 1s. in the pound. The man engaged in industry whether he labours with his hands or his mind is absorbing all his powers in earning and his income is specially precarious and he must take special pains to provide for his own future and that of his family. The ex-Chancellor of the Exchequer goes on to say that the true remedy is to reduce the amount of the tax. I could not help remembering when I listened to that statement that the last Chancellor of the Exchequer to increase the income-tax was the right hon. Gentleman the Member for East Worcestershire himself. I agree with him that all taxation is disagreeable, and if the business of the nation could be conducted without an income tax I am sure we should all be pleased to get rid of it. But the income-tax is necessary, and to argue that the best way to get rid of these anomalies is to reduce the tax when for the purposes of the year it is necessary to continue it, is asking the House to agree to a mere idle proposition and one which does not assist us in the discussion of this problem. The right hon. Gentleman suggested that if you left the tax at a shilling there would be danger of evasion. What is the experience on that point? There might be danger if the income-tax payers-thought that they were being unjustly treated. I am certainly one of those who think that if you suddenly impose a very high rate of tax on a very limited class of persons that limited class would do the utmost in their power to evade the tax, but experience is altogether against the view that persons in this country would attempt to evade a tax of a shilling. The product of the tax is higher now than it has ever been before. The product of the tax was not reduced when the tax 1457 was increased to 1s. 3d. There is in this country no sense of unfairness with regard to the income-tax. Persons who have to pay it may grumble, but I have seen no criticism of the proposal of the Chancellor of the Exchequer which suggests that it is unfair to reduce the rate of tax on those who have incomes of less than £2,000 a year which are obtained from work. He said that the amount of £2,000 might be increased. I have seen criticisms of that kind, but no criticism to the effect that rich persons would consider that they are treated unfairly by the reduction now made. When the right hon. Gentleman talks about capital, on account of an income-tax of a shilling, being transferred from this to other countries, I would ask him to name the other countries to which capital is to be transferred. If he looks across the Channel he will find that in France dividends are taxed not at 1s., but at 2s. in the £. If he turns to any country where there is a field for investment, he will find that the burden of taxation is at least as heavy as it is in this country, and so far as I can learn, instead of capital being removed from here and transferred abroad, the whole experience is exactly to the contrary. Foreigners invest money far more readily here than in their own countries. The right hon. Gentleman spoke of the income-tax as a reserve for emergencies. I do not think he has fairly considered the present proposals as they affect the income-tax from that point of view. The income-tax, after all, is only at a shilling. In recent years it has been at 1s. 3d. in an emergency, and during wars previous to the last it has been at 2s. It cannot be held that a shilling represents the emergency limit. If it were increased to 2s., we should be able to derive an income of over £30,000,000—a provision for war far greater than any provision the country made during the course of the last war. How do the present proposals affect the income-tax as a reserve for emergency? What is the great resistance to an increase of the income-tax? The great resistance arises from those persons who are earning a difficult livelihood and who have to make provision for their wives and families and for their own old age. It is from the very persons who are now relieved by the reduction from 1s. to 9d. that the great resistance arises. The 1458 income-tax is now divided into two categories. There is the income-tax which may be described as a tax on property which is collected at the source. Then there is the portion which in the main falls under Schedule D—the income-tax which is difficult to collect and to increase. The division between the two categories renders the income-tax far more elastic than before, and when emergency requires the shilling could be increased to 1s. 3d., 1s. 6d., or 2s., as in our past history. There would be far less difficulty now than in the past when there was a uniform rate. The right hon. Gentleman complained that the Chancellor of the Exchequer contemplated no reduction in taxation generally. What are the facts as to the financial conduct of affairs during the last two years compared with the preceding two years when the right hon. Gentleman was himself a member of the Government in power? What has my right hon. friend done already? The coal tax has been abolished—a tax on industry. A reduction has been made in the tea tax. There has been a larger provision made for the repayment of Debt than ever before in the history of the country. More than that, he has taken on himself on the annual Estimates a charge which hitherto has been met out of loans, and he is now paying off, of the loans raised by the right hon. Gentleman opposite, on the Estimates, no less than £2,000,000 a year, in addition to the Sinking Fund of the National Debt. My right hon. friend has now reduced the income-tax where it fell most heavily. He has really in fact from the right hon. Gentleman's point of view acted at once in the most conservative manner, in restoring the credit of the country, and in repaying the Debt for which the right hon. Gentleman and his Party were responsible. He has at the same time reduced taxation in the manner I have described, and he has made definite provision for a social reform which was promised by the right hon. Gentleman opposite, but which was always refused on the ground that there was no money to meet it. What more could the Chancellor of the Exchequer do in two years? Is it reasonable to complain that he does not make any further reduction in taxation which the country at this moment can very well afford to bear. You cannot have it both ways The right hon. Gentleman says that the 1459 Chancellor of the Exchequer has his remedy. He says: "Widen the basis of taxation, and then you will be able to reduce taxation and find room for your other reforms." I can only say that it is somewhat late in the day for the right hon. Gentleman to come forward with any such proposal. He charges my right hon. friend with total and unpardonable ignorance of scientific tariffs. I must confess that I share that ignorance. Some years ago there was started with great pomp and ceremony a Commission which was to instruct us in the nature of scientific taxation. That Commission has held innumerable meetings. It has had many distinguished and experienced persons on its body. It has issued various Reports on various subjects, but not one word has it said on scientific tariffs. The whole object with which that Commission was appointed has failed, and we are still waiting for a scientific tariff. I am in total ignorance of what the right hon. Gentleman means by a scientific tariff as applied to this country. I know what he means as applied to Germany, but would the right hon. Gentleman translate the German tariff into the system of this country? ignorance on this subject is unpardonable, it is not we who have to seek pardon. It is the Tariff Commission which has refused to enlighten us. I think I am justified in saying that the right hon. Gentleman makes a fundamental error when he argues about this country from the experience of other countries. I, for one, frankly state that I consider that other countries are mistaken in establishing their fiscal policy on a protective basis, but that is not the question for us to consider. What we have to consider is not what is done in Germany or the Colonies, but what is good for this country. The right hon. Gentleman has not made any suggestion as to what he considered would be a right tariff for us to adopt here. Whether in view of a protective policy, or a policy of Colonial preference, the suggestions ofthe right hon. Gentleman are purely fanciful. They have no basis either on experience or on any plan we can understand. What we have to go by in considering the right hon. Gentleman's proposal in the light of his speech, is the system we had under the right hon. Gentleman when Chancellor of the Ex- 1460 chequer, and the definite changes proposed to be made in that system now. I think I have said enough to show that the fears expressed with regard to the reduction of the income tax in certain cases from 1s. to 9d. are quite unjustified, and to dispose of the suggestions—for they were nothing more—that all that has been proposed by my right hon. friend, and far more, could be met by a protective tariff, the details of which have never been stated to us.
§ *SIR CHARLES DILKE (Gloucestershire, Forest of Dean)said that in order that the debate might not be too long it would be necessary for every Member who spoke to confine himself to some particular portion of the speech of the right hon. Gentleman. He would not attempt to traverse the arguments of the late Chancellor of the Exchequer. His purpose in rising was to put some questions to the Government and to examine the Budget from the point of view of the future finance of the country. His right hon. friend the President of the Board of Education had declared that the principle of the Government was the distribution of the burden between the taxpayers according to ability to pay. The general canon of ability to pay was applied to the income-tax in particular. The desire of himself and some of his friends was to make their position clear so far as the future was concerned as to the extent to which the Budget was based, or was likely to be based next year on the principle of ability to pay. There was no relief within this Budget, some of them thought, where relief might have been given. It had been shown to demonstration that there was over-taxation of those who were least able to pay, such as the agricultural labourers, as well as an insufficient weight of taxation thrown on those whose ability to pay was greatest. The right hon. Gentleman pointed, very justly, to the continued elasticity of the income-tax, to the increased utility of the income-tax as a war tax, as against the plans of the other side. The Report of the Committee had shown that they would be able at a time when they had public opinion behind them to raise money by a heavily graduated tax. The late Chancellor of the Exchequer had made the basis of his speech one which was likely to turn up 1461 in their debates all through the discussions on this Budget. When the Liberal Party wanted to have debates on tariff reform at a time when they might have been useful for the enlightenment of the country they never could got them. It would be a pity now to was to all their time with sterile discussions of tariff reform when they might be discussing the Budget proposals. The late Chancellor of the Exchequer seemed to base his view on a greater productiveness of our fiscal system which would enable us to have a low income-tax, and to tax the foreigner. But let them take the nearest protectionist countries—France and Prussia. France raised a larger proportion of her revenue from direct taxation than Great Britain did; and other taxes in the nature of an income-tax which French statesmen were now trying to raise were much heavier than ours. In Prussia they had a 2s. income-tax—1s. for Imperial purposes, and 1s. for local purposes. But it would be found that the adoption of such tariffs as theirs did not reduce their contributions to the income-tax. The late Chancellor of the Exchequer made another remark which was directed against the Budget as a whole for this year and that for next year, to which he wished to make an allusion before he came to the present Budget itself. They all on the Ministerial side of the House rejected the view that in dealing with old age pensions the Government should adopt the plan recommended by the late Chancellor of the Exchequer. They thought that the arguments adduced against the thrift and contributory plan were overwhelming. Of the other hand that rejection was important, because of the great expense involved by it. He himself would offer the most uncompromising resistance to a scheme of old age pensions based on thrift and contributions, and would fight it to the death, because it would be monstrously unjust against the poorer classes of men and women workers. That was a remark by the way; but he wished to put it on record in view of what might take place next year. He did not want to deal with the Budget as a whole; but one remark he wished to make arose out of what he had said as to the equality of contribution. He thought that those who contributed the most according to their means, the agricultural labourers, did not receive 1462 the relief which they ought to have. His right hon. friend had said that they could not touch the sugar duties this year for reasons which might possibly be misunderstood abroad. He would, therefore, note that he assumed that the Government were going to act on their pledge to denounce the Sugar Convention at the earliest possible moment. But when considering a Budget for two years he was very much afraid that the argument put forward by his right hon. friend might affect his power of dealing with sugar next year. He must enter a caveat against the proposition that the House of Commons was committed to the idea that duties on articles of consumption by the poorer classes and by agricultural labourers were to be continued for all time. They were all delighted that his right hon. friend was going to deal with the intercepted revenue for local taxation. At the same time, he would like to ask the right hon. Gentleman one or two questions. The right hon. Gentleman's argument was that his desire was to free the hands of the Chancellor of the Exchequer; and that rather looked as though in any future development of new sources of taxation, these would be treated as Imperial and not as for the benefit of the local authorities.
§ MR. ASQUITHsaid that no one was more strongly opposed to that than himself.
§ *SIR CHARLES DILKEsaid that it was assumed by some that, before the matter could be settled, it was necessary to wait until the question of valuation should be dealt with. His own difficulty-concerned not valuation but boundaries. If the urban authorities were to be given new sources of taxation the present boundaries could not stand, and, therefore, the control of the Chancellor of the Exchequer or some one representing the whole country would be requisite. It was quite clear that by this Budget they were not committing themselves on that point; and it was to be hoped that new sources of local taxation might be discovered. As the alternative was the use of the income-tax by localities, he pointed out that all other countries were throwing local taxation on the income-tax. In this country they must contemplate a heavy income-tax for local purposes or discover new 1463 sources of taxation. He now came to the income-tax in the Budget of this year. His right hon. friend had told the Committee that the Select Committee were unanimously in favour of upholding the necessity of the differentiation he had proposed. That was going rather far, though strictly speaking that was so. Some people came to differentiation as the main thing they wanted; other people who wanted graduation only came very reluctantly to differentiation. He admitted freely that the description that the hon. Member for Spen Valley had given of what had occurred was that the Report of the Select Committee did not accurately represent the opinion of any one Member of the Committee; while the hon. Member for East Edinburgh said that the Report was not logical; it was the result of discordant views, and that that was the reason why it was accepted. That was a little like the case of the Thirty-Nine Articles. It was difficult to say whether the Puritan majority of the House or the Bishops disliked those Articles most in the time of Queen Elizabeth, but they were accepted. Paragraph 13 of the Report of the Select Committee said that it was not desirable that the total revenue to be derived from their income-tax should be less than under existing circumstances, and that the tax should be raised in other directions to compensate for any loss. His right hon. friend was extending the principle of declaration. At the present moment all those with an income below £700 a year, who were in the vast majority, had to make a full declaration in order to get the benefit of the reduction. The right hon. Gentleman called upon others to do that which some did now, which the London newspapers did now, namely, to return the wages of all employeés, yet in some cases they were not to return their own income if it was above £2,000 a year. The recommendations of the Committee were contradictory and were not clear. The words used on two pages of the Report were not the same, and one of those recommendations was carried only by his casting vote. The recommendation of the Committee of 1905–1906 was repeated by the unanimous recommendation of his Committee. That was not enough for many of them. As many as seven voted for the strongest possible reform, so that nearly half were in favour of the fullest possible return for income-tax in the country. Was there anything to be said 1464 against that? He admitted it might be difficult to obtain these full and free returns if it was for the purpose of increasing a man's taxation; but for the purpose of obtaining relief these declarations might easily be required. It was suggested that there was evasion at the present time on the part of some of those who returned income under Schedule D, and they felt the effect of those evasions, of which all in their individual capacity were aware. He was not going to allude to the formidable evidence enforcing the necessity for universal declarations which came before his Committee and was not allowed to be published, but let them take the evidence published by the former Committee of 1905–1906. The late Chancellor of the Exchequer told them that if they had a high income-tax or even continued it permanently at a shilling there would be evasion; but was there no evasion now? The Chancellor of the Exchequer put very high the advantage which they obtained by collection at the source, but no one desired to part with collection at the source. It was not necessary for graduation to part with collection at the source. He, for one, only agreed to differentiate, as it was proposed in this year, if it was to be confined to incomes in the lower portion of the scale. The hon. Member for Paddington contended that the death duties ought not to be connected with income-tax, but though there were eases in which they were not connected, there were others where both income-tax and death duties pressed in an equal degree, and there were cases in which they were connected. It had been shown beyond dispute that the power of getting income-tax by death duties was least in the lower scale. There was some ground, therefore, for treating differentially the incomes below £2,000. Many of them had yielded to differentiation below the £2,000, with all its difficulties, and they were great; they had yielded, as they would not yield in the upper portion of the scale, because there graduation and differentiation came into competition; and it was graduation many of them wanted. There had been some attempt to put the individual case, but it was useless to fight long on the individual case, because it was quite possible to find great hardships in individual cases in every tax that had ever been imposed. Up to the present the difficulty had been looked at either from that point of view 1465 or from the point of view that there was a risk of creating greater injustice. In 1894 Sir William Harcourt, one of those Chancellors of the Exchequer who always refused to accept differentiation, quoted these words—
Unequal measure must be dealt to persons whose circumstances are equal, and equal measure must be dealt to persons whose circumstances are unequal.They were those of Sir Stafford Northcote, accepted by Mr. Gladstone and Mr. Lowe, who all thought that there was a risk of creating greater injustice than existed at present. There was ground, he thought, for differentiation provided it was understood that differentiation was not to be extended as graduation might be extended, to the upper portion of the scale. Sir H. Primrose yielded to differentiation; he showed conclusively that the machinery of the department did not adapt itself to the distinction based upon the nature of precarious incomes, and therefore if they were to differentiate it must be on the basis which the Chancellor of the Exchequer had adopted and not upon that of the precarious nature of incomes. They should put in some words of caution to prevent differentiation being brought in over £2,000, and to prevent graduation being ruled out, and he desired to make it clear that some of them could only accept differentiation on that principle. The Report of the Committee of 1905 made it clear why some of them denied universal deductions. It said—There are many kinds of income to which this system of assessment at the source can not be applied at all, or can only be very imperfectly applied, as for instance, the profits derived from a private business, the income derived from a profession, and certain descriptions of income derived from abroad. In order to ascertain these incomes the Government has to rely largely upon self-assessment by the taxpayer. Unfortunately, there is abundant evidence to show that in the sphere in which self-assessment is still requisite, there is a substantial amount of fraud and evasion.What was the evidence of Sir Thomas Hewitt? He was asked whether it would not be an improvement to compel everybody to make a return, and he agreed. He was then asked, "You are of opinion that evasions are extending considerably," and he said, "Yes I know it is so. I can speak absolutely and positively." They must also remember what was said by Sir Felix Schuster, that the belief people had in their minds was that the 1466 Government collected everything at the source. That very fact tended to defeat the object of assessment at the source, and to prevent people remembering to make a return in the case where money came to them from abroad. There were many rich people who did not know whether the tax was paid upon such incomes or not, and so easy-going people would fill up nil upon the form without inquiry. Sir T. Hewitt had called attention to the fact that, according to a case which had been decided, the Government had very considerable powers now of forcing people to produce their accounts. They heard a good deal about the inquisitorial character of the tax, but that inquisitorial character was only in order to make all people do what most people did—make a fair and honest return. Those people who did not pay upon a fair and honest return ought to be made to do so, for otherwise the honest people had to pay more. It had been shown that a startling amount of back duty was recovered at the present time, a very small proportion of which was treble duty, but referred almost entirely to evasions under Schedule D. There were, however, other schedules besides Schedule D which were the subject of evasion. Looking at the evidence showing the enormous evasion of the income-tax and the easy way in which people failed to make any return of their dutiable property on the ground that other people did the same, he thought that not too much ought to be made of the boast that virtually the whole of the tax was gathered at the source. Those who had looked into the subject were aware of the enormous amount of property that escaped the payment of income-tax at present, and a great deal of the tax would be gathered if precautions were taken to see that everyone made a declaration of his income from every source. But that end could only be attained by frankly accepting what was called an inquisition as to the amount of income derived from all sources. It had been suggested that graduation, an increase of the death duties, and inquisitorial declarations would result in the flight of capital from this country. To what country was capital to go? The death duties were being increased in Germany and France, and indeed it was a race among foreign Powers as to whose death duties should 1467 be placed at the highest point in respect of great properties. But surely it was desirable to consider whether causes other than the amount of the income-tax did not eventually settle the ultimate destination of capital. In Monaco, for example, there was no taxation; in France direct taxation was the highest in the world; but no one had ever detected the flight of anyone to Monaco in order to escape taxation.
§ MR. A. J. BALFOUR (City of London)submitted that there had been cases of the flight of capital from France to Switzerland and from France to the United States.
§ *SIR CHARLES DILKEsaid that there was a fashion in these things in France confined for the most part to the idle rich, but not found among the business people. There could hardly be a fear of the income-tax in France, where, by the showing of M. Poincaé, the average income-tax, under other names, was already for national purposes, nearly 8£ per cent. There was a wish to see a heavy income-tax shifted and placed on a reasonable basis; but the moving of capital from France through the fear that another tax would be introduced was not a tenable view. The evidence available, at any rate, did not provide justification for the view of timidity with regard to the shifting of capital from land to land. He admitted that it would be difficult to collect a large amount of money here by means of a graduated super-tax against the will of the trading community, though by means of degression a much larger sum of money might be collected from the income-tax than was now procurable without the fear of causing capital to flow into other countries. The main ground on which he supported the Budget of this year was that it kept the door open, and that not a word had been said which made it difficult in the future to adopt the principle of graduation within the income-tax itself. He hoped that his right hon. friend would see his Way to do something to meet the fears that he had expressed as to the future. They could not contemplate even the spending of £20,000,000 on old age pensions if it involved keeping up permanently such enormous indirect taxation as now existed, for example, on 1468 the agricultural classes. In addition to the tea duty, there was the sugar to duty, which was a very serious hindrance to the industry of the country; and when they looked at the nature of the tobacco duties, how they pressed heavily on the tobacco consumed by the poorest of the poor, and the beer and licensing duties, it was assuredly difficult to justify the permanent retention of indirect taxation on such a scale. In the circumstances of this year his right hon. friend was justified in the course he had taken, but next year he hoped that something might be done to meet the views that he had urged.
§ *MR. STUART WORTLEY (Sheffield, Hallam)believed the Chancellor of the Exchequer had to a great extent underrated his opportunity, and the resources available to him, for dealing with the sugar duty this year. If he were before them with a clean slate, he would have a surplus, on the basis of existing taxation, of £3,433,000, and if he added the £600,000 increased estate duty he would have £4,033,000. Taking that as his clean slate, and after providing £200,000 for necessitous schools, he calculated that if the right hon. Gentleman made no further proposals, he would this year have a surplus of £4,583,000, and next year of £5,183,000. These figures would enable Mr. Asquith this year to take 2s. 2d. per cwt. off sugar, leaving the tax at 2s., or next year to take off 3s. 2d, and leave the tax at 1s. There was another alternative. It must be borne in mind that sugar was the raw material of important British industries. The right hon. Gentleman might give a rebate on sugar used for the purposes of manufacture, either of confectionery or of mineral waters, or of other commodities. In that way he would give the sugar manufacturers no greater advantage than was now enjoyed by the manufacturers of tobacco in this country, who paid on their raw material a duty of 3s., while the importer of manufactured tobacco had to pay as much as 3s. This concession would enable British manufacturers to supply the consumer at lower prices than if the Chancellor of the Exchequer made a small remission on all imports of sugar. As had been pointed out, the danger was that this Budget was to be connected with a future series of Budgets, and there was a chance that the question 1469 of the sugar tax might be altogether drowned out by the magnitude of other questions. The right hon. Gentleman had used two sentences in his speech to which he would draw special attention. The right hon. Gentleman said—
I intend to treat the income-tax as a permanent part of our fiscal machinery,and he also said—I cannot part with the one million and a half of money. I shall need the money for the future I shall need it next year.It was not out of any absolute unkindness to the right hon. Gentleman or from any malicious intention that he dwelt upon the personal pronoun "I," which was the nominative case of those interesting paragraphs. It was necessary to make this reference in order to remind the Committee of the object in view. It might be perfectly right to aim at continuity in these Budgets, but that did not mean that the right hon. Gentleman had any right to issue promissory notes to embarrass his successors. How did the Chancellor of the Exchequer know that it would be he, or even a colleague of his, that would have to deal next year with the £1,500,000 that he pretended thus to pledge in advance? That observation applied to both the right hon. Gentleman's proposals as to income-tax and old age pensions. For the life of him he could not see why the Chancellor of the Exchequer stopped the differentiation at incomes above £2,000 a year. It might be that the Select Committee had recommended some such limit, but with the utmost respect to that Committee, he could not find that there was anything about it contained in the reference to them. It was really not a question connected with practicability; they did not say it was a question connected with practicability, and the evidence did not show that it was connected with practicability. It was really a question which ought to be settled by the Chancellor of the Exchequer and the House itself without reference to any Committee. The fundamental distinction was that the capital value of the asset taxed was not the same, and that disparity applied throughout the whole scale. He knew what was in the minds of the Committee, and in the mind of the Chancellor of the Exchequer. What weighed upon their minds was the 1470 bugbear of the too prosperous brewer, the man who got so rich that they had to disregard the fact that it was by his personal exertions that he was making money. But the mere fact of the brewer's riches was no argument except in the case where the very success which had produced the riches had also, by creating a good-will, given permanency to the income; and, in that case, the claim to differentiation disappeared. The true distinction was not between earned and unearned income, but between temporary and continuing income—continuing, that is, independently of the life of the recipient. In the case of temporary income, they ought not to stop at £2,000 a year, in giving the advantage of differentiation, because however rich the recipient might be, the income died with him, or ceased when his personal capacity to earn it ceased. Its permanency should not depend upon its magnitude; it depended on the earning capacity of the individual himself. A continuing income might be an earned income, but yet not deserve the favour of a differentiated rate. To tax the temporary income on the higher scale, though temporary, and only because it was largo, was really to introduce graduation without having the honesty to say so. One advantage of differentiation over the whole scale, that was to say above £2,000, was that they would get the full declaration of income from all except those who had no temporary income at all. In connection with the two paragraphs which he had quoted from the right hon. Gentleman's speech, he had also to consider the proposal with regard to old age pensions. Before they made promises about old age pensions two things had to be said. They ought not, to promise old age pensions unless and until they could actually appropriate money to answer them. The Committee would observe that he used the word "until" as well as "unless." His second proposition was that they ought not to appropriate for old age pensions money got by reductions of the Navy. He was old fashioned enough to believe that money got by reductions of the Navy ought to be disposed of either by remission of taxation, or by payment of Debt. Only in that way could we preserve our defensive power. If they remitted taxation, they restored the money to fructify in the pockets of the 1471 people, with the certainty that if they called for it again, in order to increase our naval strength—and who could say that they would never need to do that?—they would only be laying on the people burdens that experience had already shown they could bear. If, on the other hand, they used the money to pay off Debt, they were creating in advance the best of all possible war chests against future naval attacks, the mere knowledge of the existence of which, in the minds of any whom it might concern, would be the best conceivable security that no such attack would be adventured. But if they pledged for ever, for old age pensions, or for any other perpetual or irrevocable charge, money saved by reducing the Navy, they would not be able, in case of need, to bring the Navy to its former strength without putting on new taxes, or raising the rate of old ones. He onfessed that he shared the uneasiness of his right hon. friend the Member for East Worcestershire, that the Budget meant that the income-tax was not only to be a permanent institution, but was also to be maintained at the present or even a higher rate; also, that it was to be administered in an increasingly inquisitorial way. In the scheme of the Chancellor of the Exchequer, they were getting further and further away from the policy of making the same people find the money for the public service who spent the money. That was why he did not think that the Budget tended very much in the direction either of justice or of economy.
§ *SIR T. P. WHITTAKERsaid he regarded the Budget speech of the Chancellor of the Exchequer as one of the soundest and most courageous he had listened to since he had been a Member of the House. The speech of the ex-Chancellor of the Exchequer proved that it was a strong Budget. The Opposition seemed troubled at the idea that the income-tax was likely to be a permanent one at a shilling. It was quite true that the Chancellor did not say it would be kept permanently at that figure, but he did say that the income-tax would be permanent. Some of them, he might say, had arrived at that conclusion twenty-five years ago. After the experience they had had of Tory finance, the way in which the late Government piled up the debt of the country, and the cost of the Army and Navy, it might be 1472 expected that the income-tax would be high. Having separated earned from unearned income the Chancellor of the Exchequer would be able to raise one portion altogether independently of the other. At times of national emergency, it would be much easier to raise the Is. income-tax than it would have been if that tax involved those earning smaller incomes as was the case at present. He did not share the fears which had been expressed on this point. The ex-Chancellor of the Exchequer had said that he was afraid the effect of the change would be that money would be invested abroad, and that incomes would go there as well. He did think any trouble would arise from foreign investments, because they would only suffer if the income from those investments did not come back to this country, and those likely to invest such incomes abroad were very few indeed. As a rule the men who inherited their wealth lived pretty well up to their incomes. The man who invested large sums of money abroad was generally the man who was making money pretty freely, namely the great business man. He was not the man who would be likely to invest his income abroad simply because there was a heavier income-tax placed upon it in this country. He could do far better with it in his own business concerns here. The right hon. Gentleman opposite seemed very much troubled about the returns being demanded from employers stating the salaries they paid. That simply amounted to this—that because a number of people who ought to pay did not pay but evaded payment, he thought it was a great pity that the law should be made effective. He did not think any sufficient reason could be given why he should sympathise more with the working man earning £180 a year than he did with the clerk earning the same sum, and if the clerk paid income-tax he thought the working man ought to pay also. It was rather a curious argument to object to a change the aim of which was to make the law more strict. Under the present law a great many evaded the tax altogether, and the right hon. Gentleman thought they ought not to be made to pay. He did not think that was the way to deal with the position. If it was thought that wage earners ought not to pay income-tax, then by all means let the 1473 House alter the law in that direction. He thought this provision for getting a return from the employers might deal to a limited extent with working men, but it would also deal with a large class who were earning considerably more than £160, but did not pay income-tax because they were difficult to got at. Surely it was only good business that they should ascertain from employers what were the incomes of those they employed in order that they might be taxed accordingly. The right hon. Gentlemen the Member for the Forest of Dean defended the use of the phrase "earned and unearned" as distinguished from "permanent and precarious." He thought the former was much the better term. It was quite true that there were difficulties and differences in regard to incomes which were derived from annuities, leaseholds and mining securities, as compared with incomes derived from Consols and other high class securities. We were, however, a practical people. Parliament had to go on definite lines, and they could not go into endless distinctions. There was a clear distinction between earned incomes and those derived from investments, whether precarious and permanent or not. The right hon. Gentleman the Member for East Worcestershire bad given as an illustration the case of a gentleman who followed the business of an estate steward and received £1,000 a year for managing an estate. That estate must have been bringing in considerably more than £1,000 a year, because no landlord would pay £1,000 a year to a steward unless the income was very large. According to the illustration that steward gave up his position and managed an estate of his own which brought him in £1,000 a year, and it was contended that it would be unjust to tax such an income on the higher scale. The suggestion was, of course, that both positions were the same, and that in each case the income was earned. But such was not the case. The management of his own estate might occupy only a very small proportion of his time, and therefore his income would be derived not so much from actual work, but from property left to him, and surely there was all the difference in the world between the two cases. Then the light hon. Gentleman seemed very much troubled about the person deriving his income from 1474 a lot of small property, and suggested that on an estate worth £2,000 a year the amount collected in rents, rates, and taxes might amount to £4,000 a year. In such a case the rates and taxes would be deducted, and there would also be a strong case for deducting the cost of collection. The balance would be income from the property, and in no sense earned income, and he would only be taxed on his net income The right hon. Baronet the Member for the Forest of Dean had expressed an opinion in favour of graduation by degression. That meant that if they fixed a maximum tax of 4s. in the pound on incomes of £40,000 a year, and everybody below that was to pay less than that maximum, they would be obliged to collect the maximum tax from everybody, and then return to everybody, except 250 millionaires, some portion of the tax In some cases they would have to return 3s. 11d. out of the 4s. He thought that system a cumbersome and impracticable method, because it meant taking from the people tens of millions of money, holding it for a considerable time, and then returning it. His opinion was that if they were to graduate the rate of tax on large incomes it would have to be done by a super-tax. In regard to differentiation it had been said that £2,000 was an arbitrary figure. And so it was. If they selected any limit at all it would be arbitrary, but it did not follow that it would be undesirable. Some of them no doubt would have preferred to carry the differentiation further, but there were many difficulties in the way. At the present time there was no difficulty whatever in dealing with professional incomes like those obtained by lawyers, architects and others, because they were very simple. A salary was an earned income, and he thought they would all agree that they included amongst earned incomes the incomes of the small traders. They could not argue that the small shopkeeper did not earn his income, but in his case they had to take into consideration the capital invested in his business, and that was not quite the same tiling as a salary. The difficulty was that the higher the scale went and the larger the income from a trade or business the greater would be the element of capital. The man making a large income from a business often had a large amount of capital in it. Consequently it became very difficult, unless 1475 they were prepared to call upon men in business to return the amount of their capital and make an allowance for the capital, deducting it from the total income, and treating the balance as earned income. That system would be complicated and difficult, whereas, as a matter of rough justice, if they took £2,000 as the limit— he was quite willing to go up to £3,000— they would be dealing with incomes which were very largely earned. If they went right through the scale beyond £2,000 they would find themselves landed in very great difficulties. Let them take, for example, the case of the Rothschilds. They were in business and they earned their incomes, but they all knew that those incomes were also very largely a return upon capital. If they were to include all traders as earning their income they would have to include such people as the Rothschilds, and it was absurd to argue that the Rothschilds should pay at a lower rate than a widow with a large family who had been left £750 a year which she derived from investments. In the case of a successful barrister earning from £5,000 to £10,000 a year he thought it would look a little anomalous if he were to pay income tax of 9d. while a widow with children had to pay 1s. He did not care which way they went, they would have anomalies and difficulties, but on the whole the limit of £2,000 would work fairly well. All they could do was to decide on broad lines and then do substantial justice. Any scheme would lend itself to detailed and carping criticism. After all, the object of taxation was to get money, and it must be got in substantial sums. Little riddling distinctions were a nuisance. They cost more in collecting than they were worth. The Chancellor of the Exchequer wanted money in a lump. A considerable difficulty arose from the case of limited liability companies Many small traders formed their businesses into companies, for family and personal reasons, and they derived an income from them which, if a private income, would entitle them to come in under a lower scale. He did not know what the Chancellor of the Exchequer's decision on that might be, but his own view was that they would have to charge the incomes from companies as incomes from investments. He was afraid they could not go into details and separate 1476 earned from unearned incomes there, and he thought that view might be justified on the broad ground that, if men took advantage of the law to place themselves in a special position for particular purposes of their own, they must consider this extra rate as part of the price they paid for occupying that position. There was a point to which, as he happened to have personal knowledge in regard to it, he would like to draw the attention of the Government namely, that at the present time a great many people who borrowed money and paid interest upon it deducted the income-tax from the interest. A very large number of those people had incomes under £700, and did not pay the 1s. rate of tax; but they always deducted the 1s. It did not matter to the man who received the interest, but it was lost to the public revenue. That applied very largely to insurance companies. That difficulty was going to be accentuated by the new differentiation. It was not for him to suggest a way out of the difficulty. It was a point which ought to be dealt with, because it might cause a leakage in the revenue. With regard to the death duties, he thought the increase which had been made was a most equitable and desirable one, and the only complaint which he made was that it was very modest. He saw no reason why the increased rate should only come on after the first £1,000,000. Why should it not apply to the whole estate and not only after passing the first £1,000,000? As he understood the proposal it was that the rate was to be 10 per cent. on an estate of £1,000,000, and if a man left £1,500,000. the rate was to be 10 per cent. on £1,000,000 and 11 per cent. on £500,000. He did not see any reason why it should not be 11 per cent. on the full amount. As to the reduction of Debt, that was where he thought this was a courageous Budget. Nothing paid better than paying off Debt. The recent fall of securities was largely owing to the great increase in national expenditure. The figures showed that the national expenditure raised by taxes in the ten years between 1887 and 1896 was £784,000,000, while the amount in the ten years between 1897 and 1906 —the latest decennial period for which the figures were available—was £1,286,000,000, an increase of about £500,000,000. The expenditure by local 1477 authorities in the United Kingdom in the ten years from 1884 to 1893 was £691,000,000. In the ten years from 1894 to 1903 the amount was £1,181,000,000, an increase of £500,000,000, or nearly double. [An HON. MEMBER: All the better.] Was it all the better? Most wise people arranged their expenditure according to their means. The result was a great fall in the value of securities, amounting to at least another £500,000,000. "What did that mean? He was not expressing any opinion as to the wisdom of any particular capital expenditure. This fall in the value of securities meant that the available capital of the nation was £1,500,000,000 less. [Cries of "Not at all," and "It is largely productive."] Yes, it was £1,500,000,000 less capital available for investment and use in trade. The issue of Consols and Government stock, and the increased trade produced an increased demand for money from the market already depleted to the extent of that £1,500,000,000; therefore the price of money went up, and every municipality was suffering because they had to pay more for their money. And therefore he rejoiced that the Chancellor was going in for improving the national credit. Many Members were returned to that House with a great cry for economy, but he found that a great many of them were voicing a good many demands for expenditure. The right hon. Gentleman opposite said that the working and consuming taxpayer must pay for social reform, and he understood that that was a reproach. He thought, however, that it did not he with the right hon. Gentleman to reproach this Government with anything in that direction, because he proposed to raise the revenue by taxes on imports, which would be taxes on the working and consuming citizen. The right hon. Gentleman preferred a contributory scheme of old age pensions, but he thought he would find it would be extremely difficult, costly, and almost impracticable to carry out such a scheme. The difficulty of getting any contribution at all from the poorest and least settled section of the community would be almost insuperable. Reference had been made to the taxes on sugar and tea, but he would point out that there was a great difference between that kind of taxes and the kind of taxes which the right hon. Gentleman advocated. 1478 He himself did not like the tax on sugar, but, at any rate, it was a tax on the whole article. If, however, a tax were put on only the wheat and corn which came from foreign countries, leaving wheat and corn from the Colonies and British possessions to come in free, it meant that the price of the whole wheat and corn consumed in this country would be increased, while a revenue would be obtained from only a very small portion. Another thing was that, if they were to look forward to anything like a satisfactory scheme of old age pensions and other social reforms, they would want a very considerable revenue. He remembered the right hon. Gentleman the Member for West Birmingham admitting that he would never have gone into the question of tariff reform but for the purpose of gaining revenue for old age pensions. At the same time they were told that we were to be a self-contained Empire, and that only foreign wheat and corn and manufactured goods were to be taxed. He could not help wondering where the money for old age pensions was to come from when we became self-contained and imported no corn on which tax was paid. It was said that there was to be no tax on raw material; but had the right hon. Gentleman opposite considered the difficulty of finding out what a raw material was? Steel plates and bar iron were the raw materials for making machinery; leather was a manufactured article of the currier, but the raw material of the shoemaker; dyes and chemicals were manufactured articles, but the raw material of the dyer and manufacturer of many articles. Were all these things to be taxed? It seemed to him that the Budget was a sound and courageous one. As he had said, if they were to look forward to anything like a satisfactory scheme of old-age pensions, they would want a very considerable revenue, and while he did not agree as to what was meant by a contributory policy, he thought they ought to look for contributions through taxation towards those pensions from all classes of the community in proportion to their means.
§ *MR. EVELYN CECIL (Aston Manor)said he quite agreed with what had fallen from the right hon. Baronet the Member for the Forest of Dean, that it was necessary for them to 1479 some extent to limit their remarks; and he proposed to address the Committee in that sense. The three most prominent features of the Budget were:— first, the establishment of the income-tax as a permanent part of our fiscal system; secondly, the determination to increase the death duties upon those who were too few to unite in resistance; and thirdly, the non-interference with indirect taxation, which the Chancellor of the Exchequer admitted he could not afford. These three points showed that the Chancellor of the Exchequer had a nervous feeling that he had come to the end of his resources. He could not but think that the Chancellor of the Exchequer's proposal to make a permanent 1s. income-tax—for that was what it came to, although he demurred officially to the simple statement —was a very dangerous departure. They had heard over and over again what were the economic objections to an income tax it all, and that it could only be defended as an emergency tax. They knew that it was a tax on capital, and in that respect paralysed enterprise, and affected wages. The most eminent statisticians, such as Sir Robert Giffen, were insistent upon relieving it. Mr. Gladstone himself had repeatedly condemned it in emphatic words, as a dangerous, vexatious, and demoralising tax, which affected the trade and industry of the country more than any other; and yet, that was the tax which the Chancellor of the Exchequer intended to impose on the country as a permanent tax. What was going to happen in the event of an emergency arising? Was it to be increased to 1s. 6d. in the pound and proportionately to 1s. 3d. in the pound to those whose incomes were under £2,000 a year? If so, that was a very serious outlook for the country. War was not the only emergency which might arise. For instance, if the cost of the Chancellor of the Exchequer's scheme for old age pensions was under-estimated, as it easily might be, an emergency might arise ten or fifteen years after it came into operation which would necessitate the provision of large additional funds, and it would be very undesirable that the whole of these should come out of the income - tax. It would dislocate the industries of the country. He did not think hon. Gentlemen on the Ministerial Benches properly appreciated how strong also was the sense of injustice that many 1480 people might feel in regard to the increase of that tax, and in consequence he was not at all sure that it would not be evaded oven with the reduction on earned incomes which was proposed. It would certainly be evaded from that sense of injustice if it were to be raised to 1s. 6d. or 2s. whenever there was an emergency. The President of the Board of Education had said that he could not see how it could effectually be evaded. His information had been drawn from reading the Report of the Select Committee, in which Sir Henry Primrose had pointed out that it would not be at all difficult for people to evade the tax. The evidence pointed to the probability that people here would transfer their capital to other countries, would transfer their property to their children in their lifetime, and that the revenue front their investments abroad would be reunited to them direct instead of through their bankers. The President of the Board of Education asked to what countries they could transfer their capital and not be subject to income-tax. He would suggest the principality of Monaco, Canada, or the United Stales, and he really did not see what there was to prevent people who were so minded from transferring a large portion of their property from this country to other parts of the world, and thus not only evade any increase of the income-tax, but also the 1s. in the pound they were paying at the present lime. The proposal of the Chancellor of the Exchequer would be likely to frighten away the people who had been described as "the idle rich" the very people whom he desired to catch, and they would evade the tax. Moreover, rich people would also take into account the death duties—which the Chancellor of the Exchequer was increasingly—as part of the gross taxation they paid, and that also would influence them. There was some evidence before the House that the taxation of this country, taking the income-tax and the death duties together, was probably higher, certainly as high, as that of any other country. At any rate he read with considerable interest the evidence of Mr. Bernard Mallet, who had made a special study of income-tax in this and other countries, and had arrived at the conclusion that the effect of our present system as to combination of the death duties and income-tax was 1481 already practically equal in severity, for differentiation, to that in force in any foreign country or colony. If that was so, was it surprising that people should take the course referred to in the evidence of Sir Felix Schuster, who said that certain investors had to his knowledge made inquiries in regard to, and had already placed investments in the hands of bankers in New York and Paris. That meant that there was a tendency to evasion already manifesting itself among certain income-tax payers. It appeared to him from the evidence of exports who were acquainted with the subject, therefore, that it was far from certain that the Government would not low as much as they gained by putting on an increased income-tax, as they would frighten away the very people out of whom they wished to get the money, and they would find the, money they wished to secure slip through their fingers. Of course, the real question was the point at which they would resist, and he said in his humble judgment that the point of resistance had been reached now that the proposals of the Government had been put forward. If the Committee thought differently he could only say they must wait and see what occurred in the future. The Chancellor of the Exchequer had drawn a distinction between earned and unearned income, but he doubted whether that distinction would be received quite so popularly as the right hon. Gentleman was disposed to believe At all events, he had had one or two very interesting letters from his constituents upon the subject, and they could certainly not be called millionaires. He thought that the small tradesman and employee viewed the question from a standpoint which had not been sufficiently discussed in the House. In a letter which had reached him two days previously it was said—
A man or woman may work hard for thirty or forty years, save a little money, and invest it, and then just in their declining years they are to be taxed far more than the young, strong, and healthy man who is able to work.He was sure that there was a widespread feeling in the country that the Government were going to tax incomes from investments with that result. He thought the distinction which the Chancellor of the Exchequer made between earned and unearned income was an 1482 unfortunate one from that point of view and was not likely to be popular. He considered that the Chancellor of the Exchequer by requiring a compulsory declaration of income from men with incomes of over £2,000 a year would lose the co-operation of that class. There was nothing that an Englishman resented so much as prying into his private affairs for a purpose which he did not consider necessary, and he did not think that any man would calmly sit down to give the Chancellor of the Exchequer, or anyone else, a full and complete declaration of his income from all sources when it would not benefit him in any way and was only made in an inquisitorial manner for the purpose of taxing him more highly in the future. He thought that the Chancellor of the Exchequer, therefore, would find that his arrow had been shot in vain. He approved, however, of the right hon. Gentleman's proposals for the reduction of Debt, as he thought they were statesmanlike and excellent, and he also approved of his proposal to sweep aside the barrier which divided local from Imperial taxation. Then as to the remedy for the present state of things, for they were ready to propose one from that side, they could not agree with the right hon. Gentleman's wild declarations about free trade. He did not know, for instance, why he could not abate some of the incidence of taxation, say, upon chocolate and cocoa imported from the Colonies, which was heavily taxed. He did not know, moreover, why there should not be a reduction of the tea, coffee, or sugar duties upon goods coming from the same quarter. It was ludicrous that under our boasted free import system manufactured chocolate was protected and taxed on importation here 2s. 3d. to 8s. 6d. more than raw cocoa. He supposed the answer was that the Free Trade Party would not touch anything which savoured of colonial preference. He was sorry that that had not been done, but he felt certain that the time would come when the country would insist upon it, and it might be left to his Party to carry out what the Party opposite had completely declined to do, their idea of a remedy being to broaden the basis of taxation. The only breadth of this character, however, that appeared to the Chancellor of the Exchequer's sight 1483 was that the income-tax payer had a good broad basis to his back, upon which he intended to apply his rod. He thought the Opposition remedy was infinitely better, and that was tariff reform and colonial preference. Hon. Gentlemen seemed to forget that when the 1s. duty on corn was taken off nobody was ever heard to say that he was richer for it; on the contrary, he thought it would be an advantage, from the point of view of Empire, to have some duty of that kind. If the colonial corn was allowed to come in free it would be the foreign producer who would pay the 1s. or 2s. duty which might be imposed, because the foreigner must come down to the price of the colonial. If a scheme of that sort were adopted it would be much more efficacious than the proposals of the Chancellor of the Exchequer.
§ THE CHANCELLOR OF THE EXCHEQUER (Mr. ASQUITH,) Fifeshire, E.I rise now because unfortunately later on in the evening before the close of the debate I have another engagement elsewhere which I am obliged to fulfil, and as I do not wish to be regarded as disrespectful to the late Chancellor of the Exchequer I wish to notice the speech he made at the beginning of the debate. In one respect I set a very bad example to the Committee which has been universally followed by, I think, every speaker in the debate. I made a very long speech on Thursday last, and during the whole time I have been in the House to-day I have not heard a single short speech except that of my right hon. friend the President of the Board of Education. I am going now to try to repair my bad example by compressing what I have to say into the fewest possible sentences. I rise really for the purpose only of removing misconceptions due, I am afraid, to want of clearness in some of the language that I myself used, though I did my utmost to make it clear; misconceptions which are prevalent outside, and which to some extent arc reflected in the speech of the right hon. Gentleman opposite. For instance, I said in emphatic terms when introducing the Budget that we must face the fact that the income-tax had now become an integral part of our fiscal machinery. The right hon. Gentleman did not quarrel with that, but he translated it into something entirely different, namely, 1484 that I suggested, which I never did, that the income-tax was to be treated as a tax that was to remain permanent at, at least, 1s. if not something more. I defy any one to find a single sentence in my speech to justify that contention. At any rate that is not my view, and indeed it would be a most illegitimate use of political prophecy on my part to attempt to forecast what five, ten, or fifteen years hence the fiscal system of this country might be. I am budgeting, as I said on Thursday last, for the next two or three years, and it is in reference to that situation and that situation alone that what I said then and what I say now applies. Another question was put to me founded on an entirely different apprehension by my right hon. friend the Member for the Forest of Dean. I said I thought that if we were going in for a policy of social reform, which costs money, all classes of the community must contribute their share of the expense. That I think, isself evident, and I am certain there is not a representative of the working classes in this House who will not admit it to its fullest extent. I said further, in regard to two principal indirect taxes upon necessaries of life, namely, the sugar duty and the tea duty, that I did not feel I could make any remission in them consistently with the general object I presented to the House. That object is two-fold. In the first instance, we have imposed on us the duty, both by the exigencies of the country and by our own declarations and pledges, to make a manful, courageous, and exceptional effort to repair the public credit. I put that in the forefront at this moment as the duty of the Chancellor of the Exchequer. The right hon. Gentleman has only to remember that in consequence of the South African War we have an addition to the National Debt of £130,000,000 to see that any Chancellor of the Exchequer who duly appreciates the gravity of the national situation is bound to make a solemn appeal to the House of Commons to forego remission of taxation in order to help him to relieve and mitigate this tremendous burden of debt. That is my first object. What is my second? My second is to provide the nucleus of a fund for social reforms, and in particular for making a start with that which I believe everyone, on both sides of the House, agrees is the most urgent instalment of social reform. I cannot fulfil 1485 those objects unless I ask the country and the House, as I do ask them, to make some sacrifice by foregoing remission of taxation this year. Of course, I know that the right hon. Gentleman opposite would tell me, in fact, I rather anticipated it in my speech, that I was a purblind and fanatical devotee of an obsolete system of fiscal philosophy, and that I had only to raise my vision to a wider horizon to see that there were large tracts of untaxed territory which were only awaiting the attention of a Chancellor of the Exchequer. I used an expression that seems to have given some pain to the right hon. Gentleman when I said that we were limited in our area of taxation. The right hon. Gentleman said that there was other ground, but I confess I prefer ground which is sound to ground which is boggy. The right hon. Gentleman differs from that, and complained that I should have been so disrespectful to a system of fiscal policy which prevailed in many continental countries and in a large number of our Colonies. But we are not missionaries or professors to lecture other countries on what they ought to do. The question is what should be done here in the United Kingdom. It is not necessary for the purposes of the free trade argument—I suppose I have made more speeches on the subject than any man in the House during the three years the controversy lasted, and I cannot charge my memory with having laid down on any single occasion any abstract principle as to the necessary superiority of free trade in all countries at all times and under all circumstances—it is sufficient for our purpose to say that here in these islands we cannot live and cannot carry on our industries; cannot keep our command of the markets of the world, and cannot keep open this the largest market in the world for foreign and Colonial products; cannot maintain the position which lies at the root of the foundation of our prosperity, unless we adhere not only to the doctrine but to the practice of free trade. The hon. Gentleman who has just sat down has told me where I might find the resources to make it possible to remit part of the income-tax, reduce the sugar duty, and perhaps to repeal the tea duty. Where am I to find those resources? By adopting a system of what is called Colonial preference. That is to say by taxing food products— 1486 corn, meat, butter, and the rest, the necessary staple food of the great majority of our population—which come from foreign countries at a higher rate than those which come from our Colonial possessions. But you cannot do justice even on the broadest and roughest scale between the different parts of the Empire unless you supplement preference on food by preference on raw material. South Africa, for instance, does not send food, but wool and hides, the raw material of some of our greatest industries. What answer can you give to South Africa when she complains that you have given a preference to Canada and Australia and says that she also is entitled to some share in the benefit of the arrangement entered into in the interests of the Empire for the purpose of strengthening its bonds? I have never seen any answer to that argument, and no answer has ever been given to it from that bench or anywhere else. The essential difference between the sugar and tea duties, which I agree are grievous taxes which, weigh heavily on the class of our population least able to bear the burden, and those other taxes which it is proposed to substitute for them, is that they have this merit, that substantially the whole of the added price which the consumer pays, owing to the tax, goes into the Exchequer, whereas under the old system of the protective duties a large part of the added price which the consumer pays would be intercepted by the favoured interests. That is the reason why we stick to what the right hon. Gentleman regards as an antiquated system. The right hon. Gentleman complains of the inquisitorial developments in the income tax which were outlined in my Budget speech. I have no paternal pride in the matter at all. This inquisitorial arrangement, which I am accused of having invented, is substantially founded on the suggestions of the able Departmental Committee appointed by the right hon. Gentleman himself, which sat for two years, and which was presided over by that clearheaded and excellent man of business, Lord Ritchie, whose loss we all deplore. It is a strange perversion of some observation I suppose I happened to drop, to say that I propose the abolition of the three years average in arriving at the amount to be paid by the income-tax payer. I have suggested nothing of the kind; it would be a 1487 monstrous thing to do. What I am going to ask the House to sanction—and it will be very beneficial to the revenue and do no harm to anybody if it is carried out—is to repeal Section 133 of the Act of 1842, which enables a man, if in his year of assessment his income falls below the amount of the three years average, to make application to have part of the amount paid refunded. This involves a loss to the revenue, and there is really no loss to the taxpayer if his year of assessment is unfruitful, for that year will, of course, come into the calculation for the next three years, and there is no reason whatever for going through the complicated system of refunding That is the arrangement we propose, following, not exactly the recommendation, but the spirit of the recommendation, of the Committee. I have been censured for having an open mind. I do not know why. I remember a Government that lived on an open mind. The late Prime Minister reproaches me with not having an open mind; the late Chancellor of the Exchequer because I have an open mind.
§ MR. AUSTEN CHAMBERLAINI did not reproach the right hon. Gentleman for having an open mind; be gave me to understand that he had no mind on the subject at all, though he subsequently corrected that impression. I was criticising the attitude I understood him to have adopted, that he had not made up his mind, and had not formed any opinion on the subject, until he then spoke.
§ MR. ASQUITHI do not in the least object to the interruption. As a matter of fact, there is no doubt that the arguments are nicely balanced upon this question of pension. It may be treated as deferred pay, and, it may be argued, is therefore entitled to the lower rate; or it may be treated as accumulated savings—accumulated, no doubt, by compulsion, the recipient not being a free agent, accumulated on his behalf by somebody else—and when he comes to the enjoyment of this, at his time of retiring, it may be argued that it should be treated as property and taxed on the higher scale. There is a great deal to be said on either side, and therefore I think I am not acting disrespectfully towards the Committee when I say that before I fully make up my mind I shall 1488 be glad to hear what is to be said on either side. My sole object is to avoid imposing a grievance, and at the same time I do not want to admit a principle of exemption which may be capable of indefinite and illegitimate extension in other directions. The right hon. Gentleman has put several concrete cases, most of which, not all, have been dealt with by the President of the Board of Education; but there was one point in reference to which he sought to score against me. He said I had departed from the terms "precarious" and "permanent" incomes which I had formerly used, and that now I propose to take as the real test or criterion of incomes—entitled to the lower or subject to the higher scale—whether they are "earned" or " un earned." Well, I frankly admit I am indebted to the Committee for their remarks on the subject, and I am convinced that the latter is the more logical arrangement for differentiating between the two classes. It is better understood, in popular parlance, as explaining what we want to have, namely, that the income taxed at a lower rate shall be that which is earned by personal labour or exertion. The other night I illustrated my argument by reference to the hardships that arise under the existing system, which taxes both earned and unearned income at the same rate. I pointed out how hardly this bore upon the man who makes provision for his old age. I was not contending, and I do not think I was understood as contending, for more than that the lumping the earned and unearned incomes in one category was doing an obvious and undesirable injustice. No doubt there will be many cases brought forward; the right hon. Gentleman is not the only recipient of letters on the subject. It is a very odd thing—and I cannot but refer to it—that you never in these cases get a single expression of gratitude in these letters from any of the people of the class whom by your legislation or your change in taxation it is intended to benefit. On the contrary, the moment you make a proposal, which it is not denied will be an immense boon to a large number of people, you are overwhelmed with letters containing objurgations and indignant remonstrances from people who have been paying the shilling all their taxpaying lives, and who did not know they had a grievance until, finding themselves near the border 1489 line of differentiation, they cry out to be allowed to come over to enjoy the relief. That is the character of the correspondence. I say frankly you can find nothing approaching mathematical or, as old philosophers would call it, strict distributive justice in this class of case; the perplexities and complications of human nature and society and industry are so great that no wit of man has over yet conceived a perfectly logical system. All we can do is to try something that will be a nearer approximation to justice than the present system. I have studied the subject, and shall continue to study the subject, with as much sympathy as I can command —and there have been large drafts upon my reserve of sympathy; I shall study all such cases in the hope that, if they can be brought within the equity of the change, they may in some form be brought within the exemption. What used to perturb Mr. Gladstone, as will be seen by reference to his statement on the Budget of 1852—I think it was—and as will be seen from the passage of the Report which has been read of the Committee of 1861—a rather colourless Report, drawn up, apparently, by Sir Stafford Northcote—what used to perturb Mr. Gladstone was the picture of the poor widow with £150 or £300 a year, left by her husband, with which she had to bring up her children and give them a start in life. Mr. Gladstone could not help contrasting this picture with that of a bustling young and energetic professional man who, though really making the same income, could look forward to a considerable improvement of his position in the future. This was the case Mr. Gladstone constantly quoted, and it was a case which impressed the House of Commons. But let the Committee remember that extensions of our illogical and haphazard system of exemptions and abatements have enormously reduced hardships of this character. The poor widow whose income is £300 does not pay 1s. income-tax; she has an abatement of £160, and only pays on £110, and the rate in fact comes to 5½d. in the pound. The additional relief in a case like that, with this measure of differentation, would be almost infinitesimal. In point of fact you get rid of almost all—I will not say all—but by far the most serious cases of hardship by the exemptions rising as; high as £700, and, on the other hand, by 1490 keeping the limit at£2,000. Confining ourselves within these limits we get rid of the most oppressive burdens existing, and, without predicting or prejudging what hereafter may be the figure of the tax should it become a permanent part of our fiscal system, I ask the Committee to accept the proposal put before them as one which, on the whole, is a long-delayed and much - needed measure of practical justice to the taxpayers of the country.
§ *MR. HICKS BEACH (Gloucestershire, Tewkesbury)said that with regard to the question of differentiation, neither the Chancellor of the Exchequer nor the President of the Board of Education had given the Committee any information whatever as to the bearing of the incidence of the death duties upon it. Anyone who had road the Report of the Select Committee must have been impressed by the evidence given by Sir Henry Primrose, who pointed out that, although the income-tax did not of itself provide for differentiation, yet differentiation was provided for indirectly by the stamp duties, the house duty, and the death duties. Some very interesting tables were laid before the Committee showing exactly what effect the death duties had in regard to differentiation He would like to draw the attention of the Committee to the figures given in those tallies. Sir Henry Primrose produced a table which proved that the estate duties really amounted to a very heavy burden on the inheritor of an estate; and his figures showed that a person who succeeded to an estate worth from £1,000 to £10,000 bringing in an income of £40 to £400, really paid a charge on his annual income of 9d. in the pound. In the case of estates worth £10,000 to £25,000 that charge amounted to 1s. in the pound; £25,000 to £50,000, 1s. l½d.; and £50,000 to £75,000, 1s. 3d. Those were very striking figures, and they ought to be seriously taken into consideration. He thought some reason ought to be given by the Government for not following the advice of the Commissioners of the Board of Inland Revenues, who were in favour of adhering the system of differentiation afforded by the death duties instead of adopting the present proposal. Mr. Bernard Mallet also showed by another table that a person who 1491 inherited an estate bringing in £200 a year paid 2.60 of his whole income annual charges, whereas a person earning a similar income only paid 1 per cent. of his income. In other words a person who inherited an estate bringing in £200 a year paid 2.60 times as much as the person who was earning £200 a year. A person inheriting an estate worth £500 a year paid 5.64 of his whole income whereas the possessor of an earned income of £500 a year paid 3.50. An income from an estate of £700 paid 6.64 and an earned income of £700 4.50, and so on up to £2,000, when the unearned income paid 7.40 and an earned income of that amount 5 per cent. Those calculations were based on the estate duties only, and did not include charges under the legacy succession and settlement estate duties; and if those were taken together the proportion would be very much higher. Those were very important points, and he submitted to the Committee that if the Chancellor of the Exchequer had determined to carry out a system of differentiation it would have been much more simple to have readjusted the scale of these various duties. What he suggested would have saved an infinite amount of trouble and expense, and would have avoided a very great feeling of injustice which would undoubtedly be experienced by those who came just outside the limit. This differentiation would compel a person to pay upon his savings and he would be penalised, whereas if the death duties were adopted to carry out the principle of differentiation the person who would have to pay the penalty would not be the man who earned the savings, but the person who inherited them. He was under the impression that the right hon. Gentleman the Member for the Forest of Dean had stated that the Committee which considered the question of the graduation of the income-tax were in favour of this differentiation. He did not think that was correct, because what the Committee reported was that the system was practicable; but they did not report that it was desirable; and nobody who read the evidence put forward by the officials of the Board of Inland Revenue could come to any other conclusion. Sir Henry Primrose, when asked whether he was in favour of the new system of differentia- 1492 tion said that he was not, and that if anything was done in that direction it should be done by means of the death duties. As regarded earned and unearned incomes, he agreed that the Chancellor of the Exchequer had adopted the best terms. The terms suggested were permanent and precarious incomes or incomes derived from investments or personal exertions. It was obvious that many incomes derived from investments were anything but permanent, and incomes derived from personal exertions were often very precarious; and those distinctions would have led to very great difficulties. The hon. Member for the Spen Valley Division had clearly pointed out that there would be considerable difficulty in the case of small traders to find out what part of their income was derived from personal exertions, and what part was the result of the investment of their capital. He was strongly in favour of the differentiation not being put higher than £2,000. With regard to the case of an owner managing his own estate, he did not think that point had received a fair answer. The President of the Board of Education had said that nothing new had happened in such a case, because the landlord was assessed under Schedule A and the farmer was assessed in his profits under Schedule B. That was quite true, but it did not touch the question of how much time a man managing his own estate spent upon it. At the present moment the landlord paid far more in excess of his share of taxation than any other income-taxpayer; because anyone who knew anything of the management of an estate was aware that the allowance made in respect of upkeep was totally inadequate. A landlord was always assessed on the gross rental of his farms, upon which he was allowed a reduction of ⅛ upon land and ⅙ on buildings. He submitted that those two abatements were not by any means a fair proportion of what the owner actually spent upon the upkeep of his estate. If a landlord managing his own estate was not to be treated as earning his income the least they could do was to give the landlord a fair abatement in respect of the upkeep of his estate and of the time he spent upon its managment. The question of the effect these stages, 1493 would have upon the actual revenue was a very important one. It was impossible for the Chancellor of the Exchequer to estimate correctly what the actual difference would be. One thing was, however, undoubtedly true, and that was that there would be very many hard cases and much injustice would be felt by those people who came just outside the limit. He instanced the case for example of two men earning by their own personal exertions £1,900 a year each. One of them had accumulated no savings, but the other by careful expenditure and economical management had managed to save a sum which brought him in £200 a year from investments. That income from his savings would bring him over the limit and he would not be able to claim any abatement on the earning clause, while his friend who had not saved anything would be able to claim an abatement. That was a great hardship which would certainly lead to discontent. He was afraid under these proposals people would be tempted not to furnish proper returns of their income, or else they would be tempted to divide up portions of their income and invest them in separate funds amongst their children. In that ease people might keep themselves below the limit and claim abatements. All these things would have a very considerable effect on the revenue of the Chancellor of the Exchequer.
And, it being a quarter past Eight of the clock, and there being Private Business set down by direction of the Chairman of Ways and Means under Standing Order No. 8, further Proceeding was postponed without Question put.