§ I now come to the most interesting item—namely, the income-tax. In last year's Budget I estimated that the income-tax, if the basis had remained unchanged, would have yielded £32,500,000 in 1907–8, or an increase of £900,000 over 450 the Exchequer receipts in the preceding year. But, as the Committee remembers, the basis of the tax was altered by reducing its rate from 1s. to 9d. on the earned incomes of all persons whose total income from all sources does not exceed £2,000. The estimated loss to the revenue from this differentiation I put down at £1,250,000 for the year, and I further reckoned that a sum of £750,000 would be lost to the year's revenue through delays in collection in consequence of the change in the law. On this account the estimated yield of the tax for 1907–8 would be £30,500,000, or £1,100,000 less than the actual receipts in the preceding year. The payments into the Exchequer last year on account of income-tax amounted actually to £32,380,000, being £1,880,000 in excess of the Budget estimate and actually £780,000 in excess of the sum paid before the alteration of the tax in the preceding year. It is desirable to analyse these figures in order to see what the explanation of them is. I estimated the relief to the taxpayers as the result of the differentiation at £1,250,000. Here again I have to thank the officers of the Inland Revenue for their extraordinary prescience in these matters. It is actually £1,240,000—a difference of £10,000 between the estimate and the actual result. That is a subject matter of congratulation and of commemoration. The number of taxpayers who participated in this relief of differentiation was approximately 750,000. But the zeal and efficiency of the Inland Revenue officers have been so admirable that, instead of the arrears being £750,000, the whole of that sum was brought in and collected within the time. The result, therefore, is this. The tax which would have been raised on the amount of profits, in excess of the estimate, disclosed within the year at the old rate would have been £2,370,000. The loss by differentiation was £1,240,000, leaving a balance of £1,130,000. If you add the amount of £750,000 allowed for delay and as arrears not collected within the financial year, you get the figure £1,880,000, which represents the actual excess over the estimate. How has this been brought about? I see it often stated, and it is commonly supposed, that the reason why the benefits of differentiation have cost so little is due to 451 the more stringent regulations with regard to the disclosure of salaries of employees and others in the Finance Act of last year. That is not the case. These provisions have produced, I admit, a certain amount of additional revenue; but the main cause of this remarkable increase is to be found in the differentiation clause itself. The mere offer of the lower rate of tax has sufficed to increase the amount of income submitted. Thus I may say that differentiation has worked, not only a financial, but a moral reform. The gross income brought under review in 1906–7 was £943,000,000. In 1907–8 (the differentiation year) the amount was £980,000,000, being an increase of £37,000,000 in the gross income brought under review for the year, compared with an average increase of £14,000,000 in in the three preceding years. I have often heard it said, and I fancy it is a common belief, that the income-tax in this country is at the rate of 1s. in the £. It is nothing of the kind. The average rate of the income-tax per £ during the year which has just concluded was 9 6d., a little over 9½d., as compared with an average rate of 10d. in the two preceding years. I hope I may say, without undue self-complacency, before I depart from this matter, that differentiation, always deemed to be just and fair, was for sixty years strongly denied by almost every great authority to be workable in practice. Differentiation has been proved by experience to be not only practicable, but smooth and easy in its operation; and it has in fact paid for itself, and it has removed, once and for all, the most obvious and crying grievances and inequalities—I do not say all of them by any means—but the most crying grievances and inequalities which have marred the equity and clogged the efficiency of the income-tax as a permanent instrument of revenue.
§ Now, Sir, to sum up the first part of the account, the total revenue derived from taxation, as hon. Members will see by the Table, was £130,320,000, or £268,000 more than the corresponding revenue of the preceding year, and £2,635,000 more than the Budget estimate. The non-tax revenue amounted, as the Table shows, to £26,218,000, being an increase of £1,068,000 over the Budget estimate, and of £1,234,000 over the corresponding 452 revenue of 1906–1907. The revenue derived from the Post Office and Telegraph Service exceeded the Budget estimate by £300,000, a very satisfactory increase, and showed an increase over the preceding year of £875,000. The Post Office ascribes this increase to an all-round extension of business and not to any one specific cause. Under the head of "Miscellaneous," as hon. Gentlemen will see, the excess of receipts over the estimate is no less than £658,000, and to it is mainly attributable the surplus of the non-tax revenue. The receipts from the Mint, which I estimated at £210,000, realised £721,000. For some years before 1906–1907, as I said last year, the Exchequer receipts from this source showed a steady decline and they seemed about to disappear altogether. I think that was the case when the right hon. Gentleman opposite was at the Exchequer. But a sudden revival took place in 1906–1907, largely owing to an exceptional demand for silver coin for the West African Colonies and Australasia. That was thought by the authorities to be a spasmodic revival, but it has continued since. In West Africa, I am bound to say, these coins are largely used, not as a currency, but as articles of ornament. In 1907 the shipments of silver to West Africa and Australasia exceeded those of 1906 by more than 50 per cent. Those, I think, are all the observations I have to make in order to account for the very large difference between the estimated revenue and that which has been actually received.