§ (1) In addition to the Income Tax charged at the rate of one shilling and twopence under this Act, there shall be charged, levied, and paid for the year beginning on the sixth day of April nineteen hundred and nine, in respect of the income of any individual, the total of which from all sources exceeds five thousand pounds, an additional duty of Income Tax (in this Act referred to as a Super-tax) at the rate of sixpence for every pound of the amount by which the total income exceeds three thousand pounds.
§ (2) For the purposes of the Super-tax, the total income of any individual from all sources shall be taken to be the total income of that individual from all sources for the previous year, estimated in the 1182 same manner as the total income from all sources is estimated for the purposes of exemptions or abatements under the Income Tax Acts; but, in estimating for the purpose of Super-tax the income in respect of any land on which Income Tax is charged upon the annual value estimated otherwise than in relation to profits, there shall be deducted (in addition to any other deduction) any sum by which the assessment is reduced for the purposes of collection under Section thirty-five of the Finance Act, 1894, or on which duty has been repaid under the provisions of this Act relating to the payment of duty in respect of the cost of maintenance, repairs, insurance, and management, and in estimating total income there shall be deducted the amount of any premiums in respect of which relief from Income Tax may be allowed under Section fifty-four of the Income Tax Act, 1853 (as extended by any subsequent enactment), and also in the case of a person in the service of the Crown abroad, any such sum as the Treasury may allow for expenses which in their opinion are necessarily incidental to the discharge of the functions of his office and for which an allowance has not already been made.
§ Sir HENRY CRAIK moved to leave out the Clause.
§ I do not apologise for asking the House to give their reconsideration to the important new principle involved in the Clause we have now come to. A few nights ago we were told in defence of a certain Clause of the Bill that it had been so changed in Committee by the alterations which had been introduced that it was absurd to reconsider the matter, but in this case the Clause has undergone no modification whatever in its provisions or form. It stands unmodified by any of the suggestions which have been made by hon. Members on both sides of the House. Several hon. Members proposed modifications which if they would not remove all the objections to it would have certainly very greatly modified them and reduced some of its worst features. The Clause comes before us unmodified without any suggestion of Amendment, and I think that we should at least hear some of the views of the supporters of the Government to enable us to understand the real purport of this Clause. I am well aware that I am speaking to a House, the vast majority of which is absolutely opposed to the views I hold, and I trust to the generosity of the House to give a hearing to one who 1183 at least is speaking under a strict sense of conscientious conviction in regard to this Clause. I am not quite sure that there are not on both sides of the House Members who have qualms of conscience with regard to this Clause, however difficult they may find it to utter them, and I am quite sure of this that whatever may be the case in this House that outside it there are an immense number of thinking men on both sides of politics, who regard this new and startling movement in our taxation with something very much akin to dismay. I know also that only a decade ago not a single responsible Finance Minister would have been heard in favour of this Clause.
§ It was unknown in any Finance Bill in this country and had never been proposed by any responsible financial authority on either side of the House. That gives me some sort of consolation when I speak in a very feeble way in opposition to it. I know very well that in standing up to oppose this Clause I may be said to be speaking in favour of certain selfish individuals of whom we hear so much who are willing that the country should undertake any expenditure, but unwilling to put their hands into their own pockets. [HON. MEMBERS: "Hear, hear."] That is a point which to my mind has been too much reiterated, and I regret to still hear it cheered on the benches below the Gangway. It is a new rôle to appear in as the representative of the multi-millionaire, and it is a rôle which, for once in a way, is exhilarating. I feel like a man whose ordinary dress is an out-of-elbow coat, who finds himself transported into the sphere of princes, kings, and emperors, but I can only say, with regard to this: that, speaking as one to whom the Super-tax does not—and cannot by any possible contingency—apply, if I were called upon to pay it upon an income of £15,000 or £20,000 a year, I trust I should be as able to exercise the same courage of my opinions as I am to-day. It is, I recognise, a serious and difficult matter for rich men on either side of the House to oppose the tax. It requires greater courage on their part to have the suggestion made that they are speaking in their own interests. But surely these ideas of personal bias and interest might now be left aside. I claim for myself, and I credit to every other Member of the House, the absolute right to have it expected that he is speaking according to 1184 what he thinks is likely to promote the welfare of the whole community. It is in that sense that I oppose this tax.
§ There is one thing that we are all agreed upon, that if it were possible to put the burden of taxation heavily upon the wealthy classes and to relieve the poor we would all alike join in any scheme which consistently with the general interests of the Commonwealth and consistently with sound financial principles, would lead to that end. I do not suppose there is a single one of us who would not be willing to tax the luxuries of the rich to the very utmost extent that they will bear. We are only restrained from increasing these taxes upon the rich, not by the fact that they hit them hard, and not by any wish to defend them, but simply because at a certain point we reach the limit beyond which the tax breaks down altogether, and that is the only limit I would propose of any tax that strikes solely at the luxuries of the rich. You are attempting here to do something completely different. You are attempting to attain that common object, taxing the rich and relieving the poor, but you are attempting it in a wrong direction. It is wrong in the first place, because it is financially wrong, and it is financially wrong in the first place because you are narrowing down unduly the basis of our national revenue. We are told on the authority of Sir Henry Primrose that the-estimate of the number of persons with incomes exceeding £5,000 is 10,000. We are making a large part of the revenue depend upon one-fortieth part of 1 per cent. of the population. Surely that, as a mere financial measure, goes against the whole principles of broad basing your taxation. Can there be any better illustration of the errors which are committed in this Budget in that direction than when the Chancellor of the Exchequer explained on Friday last that the breakdown of his financial estimate was comparatively moderate, and was only prevented from becoming a disastrous collapse by the fact that a single great millionaire was good enough to die at a convenient opportunity and place £1,300,000 in the hands of the Chancellor of the Exchequer. If this Budget has one fault more than another, from a purely financial point of view, it is that it bases more and more of our taxation upon small contingent elements in the life of the population, and upon a mere fraction of the people instead of upon the-whole people of the country—putting a 1185 burden ten times heavier upon that small class, but at the same time failing to yield any commensurate revenue to the State.
§ The second fault, and I wish I could have the full and frank evidence of ome of the experts at Somerset House, is that this Super-tax will, in all probability, break down and put out of gear the whole of the machinery of your Income Tax collection, and cripple the tax for the future—that tax upon which at a great emergency of the national life we may have to rely. You are breaking down now what has been easy before, the taxation of revenue at the source, that which has made the Income Tax so easy to gather, so perfectly smooth in working, so comparatively inexpensive, and so little perplexing to the officials. You will have to introduce an immense number of appeals and precautions, of different times when the tax is to be paid and different means by which the extent of it is to be gauged, different machinery for drawing it out of the pocket of the taxpayer, and all this will, merely as a matter of machinery, throw this smooth, easy, well-oiled machinery, which has worked so well in the past, out of gear and make it more cumbrous and more difficult in its action in the future.
§ But after all it is the general objection, economic and social, to the tax which constitutes my chief objection to it. Had it been modified as suggested by the hon. Members (Mr. Chiozza Money and Mr. Mond) it would not indeed have removed all the objections to it, but it would have made it more homogeneous with the rest of our graduations of Income Tax. It would have helped to adjust it more dexterously and more justly to the varying scales of income, and it would not have this hard-and-fast and crude form of drawing the line at particular strata of income and treating all above it on a totally different footing. But what you are doing here is to take a fixed limit of £5,000 and pronounce that any money above that is to be held on the lightest of all tenures, held merely on sufferance, and that it shall be subject to any burden which the State may from time to time put upon it on a different basis from the taxation laid on the incomes of any other portion of the community. In the first place, I would ask is it possible to take any such limit as this without looking at what the effect of the tax may be, and without considering how the burden bears upon those who are called upon to pay? Can anything be more absurd than to say that a man's power of bearing taxation is to be measured only by 1186 his nominal income or the amount he has at his bankers? Is it not possible that a bachelor without any great claim upon him, and who is in the enjoyment of £1,500 or £2,000 a year, may be better off than a man who, though enjoying greater income, has a large family, who may have children afflicted by ill-health, and who has daughters to provide for? The men who have £5,000, £6,000, or £7,000 a year are actually poorer men in some cases than bachelors with £2,000.
§ There is nothing more ridiculous than to take an arbitrary limit as marking the capacity to bear the burdens which fall upon each member of the community. I do not mean to compare at length the case of bishops and judges, each of whom enjoys an income of, say, £5,000. In the view of some hon. Gentlemen opposite bishops are citizens who deserve no pity or consideration. Anyone knows that a bishop with £5,000 a year is a poor man who could scarcely keep up his position unless he had private means. On the other hand, a judge with the same income may live in chambers on £500 a year. It is absolutely useless to compare the capacity to bear taxation in the case of the bishop and the judge by simply taking into account the fact that each has the same income. Does the right hon. Gentleman think that £5,000 a year for one occupying the position of a Cabinet Minister is an income of overflowing wealth? I remember years ago reading an interesting report of evidence given by Lord John Russell upon the incomes of Ministers of the Crown. He told the Commission that the first time his affairs ever got into disorder and he found himself heavily in debt was after he had been several years Prime Minister of England. That shows how fallacious it is to trust merely to a fixed amount of income as a guide in estimating the burden of taxation. But, after all, what is your object in imposing this tax? You must have an object, and you must pursue it logically. You intend that your tax should equalise the burden upon different individuals—that it should make the burden bear equally upon the poor, the comparatively poor, and the rich. Well, where are you going to stop? If you have a man with £10,000 a year, you may put on a Supertax of 15s., and still leave him more able to bear the taxation than I and many others would be who have smaller incomes. If you are not going to carry out the principle of this tax to that length, it means that you are only going to hold out a fallacious bait to hon. Members below the 1187 Gangway and those whom they represent. You are going to pretend to do something in the way of making a difference between rich men. I should like to hear the opinion of the hon. Member for Blackburn (Mr. Snowden) on this proposal. He and I differ profoundly on almost all political questions, but I have the greatest respect for his sincerity and for the logical directness with which he is prepared to pursue his principles and convictions.
§
If I were persuaded that this Super-tax was right, and that it was going to be the means of bringing about the aim and object which we all alike have at heart, I would not only agree to this proposal, but insist that the Super-tax should be a real and substantial equivalent of what it pretends to be. I should insist that it should not be merely sixpence, which is only, after all, a trifling and invidious distinction with respect to rich men, but that it should be something really effecting the relief of poor men and forming a substantial source of revenue. You cannot stop here. What are the two alternatives? You may carry it to its logical end and increase the Super-tax until you do what you say you wish to do, namely, level the incomes of all the citizens of the country. If you do that, I say you will cripple all individual effort, stunt the national resources, and drive all individual interest out of the great work of the country. But you may do another thing. You may not carry your scheme to its utmost logical result. You may keep on charging merely a small and inadequate addition to the rich man. What is the result of that? It is to transform your Budget into what I and others have before asserted, namely, a rich man's Budget and not a poor man's Budget. If you put this small, fictitious, delusive, and trifling extra tax on the rich man, you will transform him into a vastly more important member of the community. Look at what happens in other democracies. Look at America, where the rich man is more important as a source of taxation. Is it not the tendency of democracy—is it not the tendency of ordinary business to regard the rich man as important. Who are the customers who are treated with the greatest respect? Is not the great customer who is content to pay ten times the profit more sought after than the ordinary customer? Do not shop-keepers go hat in hand to him and show that he is prepared to treat him with greater deference. Exactly in the same
1188
way will the Chancellor of the Exchequer and the nation whose revenue depends upon the rich man look to the rich for that revenue. If you are going to make them pay, it should be a real payment. You should get something out of them which is worth collecting. Do not let us have a merely delusive bait held out to the poor by imposing a tax of sixpence extra on the rich. What does that mean to the African or South American millionaire? It merely gives him a little extra prestige and a little more importance. It segregates him a little more from the rank and file of men who have only a bare sustenance. At the same time while it does that it does not really get out of him a sum which would equalise his income with that of others. I will not drag forward again the opinions expressed by John Stuart Mill. I will quote the words of one who is no mean politician and economist. His opinions perhaps even hon. and right hon. Gentlemen sitting on the Treasury Bench will regard as possessing some weight. The words I am going to quote were written 30 years ago, and they have since been republished:—
The cardinal truth is that the improvement of the social organism can only be effected by a moral development, and never by any changes in mere political mechanism or any violence in the way of artificial redistribution of wealth.
The fact that the writer of these words is Lord Morley of Blackburn makes plain that he is not to be found as one of the protagonists on the platform of this new and revolutionary Budget.
§ Sir FREDERICK BANBURYI do not apologise for seconding my hon. Friend, because I think that this is an extremely bad tax, introducing an extremely bad principle, and one which ought to be resented to the utmost extent. The Income Tax was originally introduced as a War Tax, and I can remember when the statement used to be made in financial circles that one of the great pillars of strength in this country in its time of need was the fact that there was an Income Tax to fall back upon, and that there was also the Sinking Fund, which could be used in time of need. The Chancellor of the Exchequer is using the Income Tax for a purpose for which it was never intended, and he is introducing into the collection of that tax a novel principle which, I believe I am correct in saying, has never been introduced before in any civilised country. As an argument in favour of the Super-tax, a general statement has been made that it is right to put the burden of taxation on 1189 the shoulders of those who can bear it. I believe that words of that kind, describing a general principle without going into detail, convey to the minds of a very large number of people the idea that the Income Tax is not equally shared by all classes of the community. That is not the fact. A man with an income of £10,000 pays £500 in Income Tax. A man with an income of £1,000 pays £50. The man with 10 times the income of the other pays 10 times the tax, but the Chancellor of the Exchequer proposes that he should pay 15 times the tax, or 50 per cent. more. Why 15 times? The moment you begin to say that because a man has got a certain figure he shall pay, not in the same proportion to the other members of the community, but at a rate to be decided by the Chancellor of the Exchequer, who is to get the money you leave the door open to an unscrupulous Chancellor of the Exchequer directed by hon. Members below the Gangway to say that, and shall not be 50 per cent. more, but 200 or 300 per cent. more. There is nothing to prevent the extra 6d. being turned into 5s. or 10s., or even into a larger amount, until you appropriate all the surplus over £5,000 a year, as is advocated by certain hon. Members below the Gangway, who, I am sorry to see, are not in their places to-day. It is very easy to talk on platforms about putting the burden of taxation on the shoulders of those who can bear it; but when you come to investigate that statement in a tribunal like the House of Commons I am not surprised that hon. Members below the Gangway do not stop to take part in the discussion.
My hon. Friend has told us that the number of people whose incomes are over £5,000 a year is 10,000, or one-fortieth of 1 per cent. of the population of the country. Whatever the number it is a very small one, I believe, and it is a very dangerous principle, especially in a democratic country, to pick out a very small class and to say that you are going to put a very great part of the burden of bearing the responsibilities of Empire upon them. Everyone who has a vote ought to share in paying for the burdens and responsibilities incurred through the exercise by them of that vote. Those who have votes should not be allowed to use them in order to incur expenditure, and then put the burden of that expenditure upon a small class who are defenceless for the very reason that they 1190 have only the same power in the State as the man with £100 a year or £1 a week. Once that principle is introduced then good-bye to the commercial prosperity of this country. Why is £5,000 a year the line that has been chosen? I can see no reason except that it is the salary of a Cabinet Minister, and that the Cabinet Ministers will not be affected toy this tax.
§ Mr. LLOYD-GEORGEYes, they are.
§ Sir F. BANBURYNot unless they have private means of their own.
§ Mr. LLOYD-GEORGEIf they have even £5,001 in the year.
§ 4.0 P.M.
§ Sir F. BANBURYDoes the right hon. Gentleman propose to pay on £5,001 in future? If so, I will withdraw my remark. I am not making any personal observation. It might be quite possible that a Cabinet Minister would have no means except his salary. But, leaving all that out of the question, why should a man with £5,001 a year pay £50 more than the man with £5,000? Are we to understand that £5,000 a year is a sufficient sum in the estimation of the right hon. Gentleman for anyone in this country, and that anything above £5,000 is a sum which is not necessary for the person who has it, and which can be appropriated by the State for the purposes of the State? If they say that, then why do they stop at 6d.? Why do not they take more? Unless there is some reason of that sort in the £5,000, what is the point of drawing the line at that sum? Again, why should £3,000 be deducted from that £5,000? That seems to me to be the most illogical proposition that was ever made by any Government introducing a tax of this sort. Why, because you have got £5,000 a year, should you deduct £3,000 a year before you become liable to the Super-tax? Does it mean that in the opinion of some Members of the Government £3,000 a year is all any man ought to have, and that this is the beginning of a principle on which later it will be said, "£3,000 is as much as a man ought to have. We think he can live comfortably on that, and anything above that can be taken by the State whenever they happen to be in a tight place"? There must be some reason in the mind of the Government for the deduction of £3,000, but certainly it is not apparent in the Bill, or, so far, in any of the speeches made either by right hon. Gentlemen or by the Government, or by any hon. Members below the Gangway who support them. 1191 An illustration has been given many times in the City of London which is very familiar to anyone who has ever considered the subject. We will take two men who are in partnership in the City of London, and whose business returns them a net profit of £11,000 a year. They divide that sum between them, each receiving £5,000. At the end of the year, before they divide the £11,000 between them, they determine to set aside £2,000 for the purpose of increasing their capital or extending their business, or something of that sort. They put that £2,000 aside, so that their income is £4,500 a year each, instead of £5,500. But the Income Tax collectors would say, "Your net profits are £11,000. You divide that equally amongst yourselves, and you are liable to a Super-tax." But suppose these two people turn themselves into a limited company, as I believe they can, though I am not quite certain about the law—I think, however, that I am right in saiyng that two people are allowed under the law to turn themselves into a limited company—what happens? They say, "Our net profits are £11,000, but we will put aside £2,000 as a reserve fund, or for extending the business, or for any other purpose connected with the company, and we will declare a dividend of £9,000." The two shareholders will, therefore, receive £4,500 a year—exactly the same sum as the two partners would have received; but the two shareholders will not be liable for the Supertax while the two partners will. I am sorry to see that there is not a Law Officer of the Crown here, but probably the right hon. Gentleman the Financial Secretary to the Treasury (Mr. Hobhouse) is as good as a Law Officer, and I challenge him to controvert that statement in any single detail. "What will the result be? The result, of course, will be that a large number of people will turn themselves into limited companies, a thing which I myself do not think at all good for the commercial prosperity of this country. I think those hon. Members who have been engaged in business will agree with me that it is not to the advantage of the country generally that everybody should turn themselves into limited liability concerns in order to escape the exactions of the State. I do not wish to go into the question of the difficulty of collecting the Super-tax. A Select Committee of this House sat three years ago upon the question of the Super-tax. They went very fully into the question, and the opinion of the majority 1192 of that Committee was against the imposition of such a tax. One of the ablest Civil servants of his day, I think I am right in saying, Sir Henry Primrose declared against the imposition of this tax.
Let me for one moment deal with the financial aspect of the question. The Chancellor of the Exchequer is aware that he estimates the yield of this tax for this year at £500,000; for next year £2,250,000; and the third year at £2,500,000. Dealing entirely with the financial aspect of the question, I ask the Chancellor of the Exchequer why he did not put a penny on the income tax? That would have brought in something like £2,700,000 at once, a larger sum than he will secure according to his own calculation in two years from now. It would not have altered the incidence of the tax, and it would not have entailed a further burden upon the office, because the collection of this Super-tax must cost a great deal more than merely the imposition of an extra 1d. upon the existing Income Tax. Having done that, the right hon. Gentleman would have got his money far easier than he is doing now, and he would not, in my opinion, have opened the door to a very dangerous principle, which he may, perhaps, not desire to extend, but which, as certain as I am addressing you, Mr. Speaker, will be extended in years to come if hon. Members below the Gangway get greater power in this House than they have now. I feel very sincerely that this is an extremely bad tax, that the principle of it may go much further than anyone now contemplates, and that if it does it means our overthrow as a great commercial country. I believe that if you want to make this country prosperous you should encourage money and wealth to come over here and to remain here. I remember a speech made by my right hon. Friend the senior Member for the City of London (Mr. Balfour) in which he said what we were suffering from in this country at the present moment was not too few rich men but too many poor men. I thoroughly agree with him in that. I think the hon. Member for Preston opposite told us that we should all be in cages or up trees, or something of that sort, if, for the last thousand years, there had not been frugal men who had saved from their earnings and thus started the capital which is at the root of the prosperity of this country. I have always been led to think that it is meritorious to save and to work hard, and to hand down to one's children 1193 the business or fortune, or whatever it may be, that is to be inherited. The right hon. Gentleman has struck a blow at that. The right hon. Gentleman says to a man, "If you save money, if you become prosperous, I am going to take a large slice of it." He says, "If you do not exercise self-denial, if you do not work hard, if you choose to work only sufficiently hard to obtain what you want, and if you save nothing out of it, then you will be put in a favourable position; but the moment you begin to lay by for the future, the moment you wish to work as hard as you can, the moment you devote the whole of your energies to work and to save as much as you can as the result of your work, then," the right hon. Gentleman says, "you are not a credit to the country, you have got more than you ought to have, and I am going to take some of it to waste on the Labour Exchanges, or foolish ideas of that sort."
I hope that the few remarks that I have made will sink into the ears of the right hon. Gentleman. I do not think I shall convert him, but I do hope that some hon. Members opposite, who, I believe, really share the sentiments to which I have given utterance, will quietly, behind Mr. Speaker's chair, seek to impress upon him that he must be a little careful in the way in which he is attacking the capital of the country. A tax of this sort may seem to the superficial observer not to amount to very much. It may be said: "What does it matter? The man who has got £5,000 a year under this tax has got to pay another £50." Yes, but it is not the £50; it is the fact that once this is introduced it is certain, as certain as I am speaking to you at the present moment, that it will be extended. That is the fact which causes me and many others to regard this tax with fear. If we could think that we were governed by, we will say, a great potentate, whose will was law, and if he were to say: "I am going to take from you"—as I believe was done in the days of the Stuarts, days to which we appear to be going back—"a certain amount for certain objects," if I thought that was going to be the end of it I do not know that I would have got up and made the speech which I have delivered to-day; but it is, I again repeat, because it is as certain as anything can be, that, once this pernicious principle is adopted, any Chancellor of the Exchequer who desires to be popular, or thinks it will be popular, will try 1194 to avail himself of this tax, which can only be resisted by an extremely small portion of the population. I have much pleasure in seconding the Amendment proposed by my hon. Friend. I do not know whether he is going to a Division; we are in such a small number here that it does not make very much difference whether we divided or not; but I could not allow this Motion to be made without doing what little is in my power to assist my hon. Friend.
§ The CHANCELLOR of the EXCHEQUER (Mr. Lloyd-George)The hon. Baronet who has just sat down was in a most grave and solemn mood. He warned us that we were going back to the days of the Stuarts, and the real danger that a tyrant might arise in this country who would extend this vicious principle and bring about the downfall of the country.
§ Sir F. BANBURYHe has arisen.
§ Mr. LLOYD-GEORGEThe hon. Member is flattering some individual, whoever he is, very considerably. I do not think he need apprehend that I will tell him why. This very pernicious principle has been enshrined in our taxing laws for the last 50 or 60 years. It has been introduced not by wild, revolutionary politicians, but by one of the gravest statesmen who ever had to rule this country—Sir Robert Peel.
It was introduced at a time when he was head of a powerful Conservative Ministry, and contained the very principle which we are extending now—that is, the principle of differentiation between the scale upon which you are to levy direct taxation according to the income of the individual. After all, I do not see any difference in principle between levying an Income Tax of 2½d. on a man who has got £200 per year, because I think it is barely that, and levying an Income Tax of 9d. on a man who has got £700 per year, and a still higher Income Tax on a man who has got £1,000 per year. All that principle is embodied in the Income Tax law, and it has been embodied and adopted by successive statesmen of Liberal and Conservative Administrations. Nobody has ever discovered, until the hon. Baronet to-day, that it was a principle of a most dangerous character, and that it may end in disaster for this country. His suggestion is that it penalises thrift, because, he says, the moment a man begins to save, and begins to enjoy a larger income than he otherwise would have, down comes the Income Tax Commissioner and says, "As long as 1195 you are unthrifty we only charge you 3d., but the moment you begin to save we charge you 6d., and if you save still more we charge you 9d., and if you are so thrifty and frugal in your habits that you can actually save £5,000 per year you will have to pay 1s. 4½d." Now the hon. Baronet says that that is discouraging thrift, but it has been part of the law of this country, and an essential part of the fiscal system, for 50 or 60 years, and on the whole I think we have done rather well. I do not know that thrift has been discouraged, and I am not sure that people have been persuaded from putting by out of their income and investing and piling up wealth. I am sure the hon. Baronet ought to know. I wonder whether he has ever been discouraged from frugal habits owing to the fact that merely because instead of earning £160 per year he is, we will say, above £700, and that because of that he will have to pay a little more Income Tax. These things are surely not sufficient to turn a man against thrift. If you were to say to a man, "If you are so foolish as to make this £6,000 per year you will have to pay actually 1½d. in the £ more for your Income Tax," I do not really think that because of that he would be frightened. Has the hon. Baronet ever tried the matter? Has he ever gone to a man and said, "Here, we will give you £6,000 more, but you will have to pay an extra lid. or 2d. in the £ Income Tax"? I really think the man would close with him if he made the offer.
We had a couple of very solemn orations. The hon. Member for the University of Glasgow (Sir H. Craik) delivered a speech, and I am not quite sure what his objection is, because the first part of his speech or diatribe against the tax was not quite consistent with the second part. His first view was that a man with £7,000 per year was very much poorer than a man with less, that in fact the less a man had the richer he was. He said that the man with £7,000 per year might have a family, and the man with £2,000 a year might be a bachelor, and that the bachelor with £2,000 per year would be very much better off than the man with £7,000 per year. That applies to all the grades of the Income Tax. In fact, he was very sorry for the very very rich man, and said that the man with £10,000 per year might be very very badly off and exceedingly poor, while the man earning about £200 or £300 per year had generally something to spare, but that the moment such men went up to five or six or seven 1196 hundred they were rather badly off. As far as I can see, his arguments really amount to this, that the graduation is the wrong way, and that instead of charging 3d. to a man with £400 per year and 1s. 6d. to the man with £20,000 per year, you ought to put it the other way, and you ought to charge the £20,000 man 3d. and the man with £400 per year 1s. 6d., because he is better off, and if a man is so unfortunate as to be a millionaire, he ought to be exempted altogether. In fact, instead of having a limit of £160 you ought to have a sort of £50,000 per year limit, and a man coming within that unfortunate category ought to be exempted from taxation altogether.
That was the first part of his speech, but there was such a distance in point of time between that and the end of his speech that the hon. Gentleman quite forgot to be consistent. When he came to the second part of his speech he said, "Here you are taxing a very small class, and that is very unfair; you should not tax a small class." "But," he said, "what is it you are taxing? A mere nothing." He said, "What is 6d. but a fraction," while in the first part of his speech he said it was crushing, and that the extra taxation we are putting on the man he could not bear at the present moment. But when he comes to the end of his speech he says, "What is 6d.?" His countrymen are not wont to regard 6d. with that measure of contempt which seems to be poured upon it by the hon. Member. I agree it is a very modest sum. We claim that the whole of the Budget is reasonable in its demands, and that really nobody can complain. I agree with the hon. Gentleman that 6d. is nothing to those very rich people, and I think he rather made out a case for the Budget in that respect. "Oh; but then," he said, "it is a very bad principle," and he quoted some very high authorities, for whom I certainly have as great a respect as the hon. Gentleman. No one could have more respect for Lord Morley, whom he quoted, but the quotation was quite irrelevant. It is instructive as long as you put it in the proper place, but it really had very little to do with the Super-tax. The hon. Member said we were going to tax a very small class, and that that was very dangerous. I think there is another part of the hon. Member's speech which shows how little dangerous it is. He says to put the burdens of taxation on a small class is a bad principle, and that it will end in disaster. I do not think he need fear disaster. He himself gave the best answer to that. He said, 1197 "Look at all those millionaires," and spoke of the Chancellor of the Exchequer going cap in hand to them, and that all the tradesmen deferred to them and take off their caps. After all what that means is that those men in great positions of wealth have a position which is out of proportion to their numbers. They will get absolute fair play, and a good deal more from everybody.
When you come to the principle of this Super-tax, the hon. Baronet (Sir F. Banbury) said, where did you get your £5,000? I have got it from the Report of the Committee which sat on the matter, and I see that he has got a neighbour there who was a member of that Committee, and really I think he might have asked a few questions from his neighbour before he put some of those questions. I find that the hon. Member to whom I refer did not vote against the matter.
§ Mr. G. D. FABER (York)I was a member of the Committee, but I did not coach the hon. Baronet. He does not want coaching.
§ Mr. LLOYD-GEORGEThat is exactly what I say. I was complaining that the hon. Baronet before he got up had not asked a few questions of his neighbour who knew all about this, and who could have answered those questions.
§ Mr. G. D. FABERI am not his keeper.
§ Mr. LLOYD-GEORGEI think the hon. Baronet ought to congratulate himself on the fact that he is in very good charge. The hon. Baronet asked a question as to the £5,000. It was part of the Report of the Committee to which the hon. Member (Mr. G. D. Faber) was a member, and I find that he did not divide against the main conclusions at the end.
§ Mr. G. D. FABEROne or two other Members present were also on that Committee, and we did take diverse views. The conclusion at which we arrived was not a unanimous conclusion, but we agreed to differ.
§ Mr. LLOYD-GEORGEI agree that there was a good deal of difference of opinion about methods, but what really strikes me, on carefully looking through the matter, is that there was no Division at all upon the main conclusions. There may have been differences about machinery and about methods and about amounts, but there was no challenge of the main conclusion, and there was no Division upon it. There were several Divisions in the course of the considerations of that 1198 Report, but there was no Division on the main propositions. One of the propositions is:
Graduation by Super-tax is practicable if it be desired to levy a much higher rate of tax on large incomes, of say, £5,000, than has hitherto been charged. A Super-tax on personal declaration would be a practice able method.The sum of £5,000 is mentioned there.
§ Mr. G. D. FABERMay I say that the question before the Committee was practicability, not advisability.
§ Mr. LLOYD-GEORGEThe passage which I have quoted indicates that it really is rather a matter of practicability, but the hon. Baronet wanted to know about the £5,000, and that seems to be the figure considered by the Committee and the figure which they evidently thought, if there was going to be a Super-tax, ought to be the dividing line. I am not going to dwell on what the hon. Member said about Cabinet Ministers, as I do not think he really meant it. I would not have referred to it if it had not been said outside, but I can tell him there is no Cabinet Minister who will not come within the Super-tax, and with that I will say nothing more about it. The hon. Baronet went on to say that he had an alternative. The hon. Member who moved the Amendment simply raved at large upon it. He did not suggest where we would find the money. The hon. Baronet did so. He is a practical man, and he knows you have to get it out of the taxes somewhere, if not from a Super-tax. He very courageously—because, after all, it concerns a good many of his constitutents—said that the way to do it was to raise a penny all round on the Income Tax. I agree that that is a practical alternative, and I do not mean to say that it is not one of the alternatives we had to consider, and on the whole I agree it is simple, much simpler, and that the setting up of the machinery for this Super-tax is a difficult matter, at any rate, in the beginning. At the same tame, I do not thank it is a method which will commend itself to the ordinary business man. I do not think on the whole that if you put it to half a dozen average business men, even if they were subjected to the Super-tax, that they would regard it as as much of an evil that you should charge a higher rate on the people who are earning £5,000 as that you should add a penny on people who are earning £900 or a £1,000 per year. After all, our Income Tax principles are based on the recognition of the fact that 1199 there is such a thing as a taxable surplus. It is our opinion that there is a certain proportion of a man's income which he must necessarily devote to the maintenance of himself and his family. You go a little higher in the scale, and there is a certain sum which he must spend in certain walks of life on what is called the preservation of gentility. There is, at any rate, a recognition that below a certain limit a man is not in a position to pay Income Tax at all. When he is a little above that limit, he is only in a position to pay on the surplus over and above that amount. The same thing applies when you run up beyond £3,000, £4,000, or £5,000. Men in that position are infinitely better able to pay a heavy Income Tax than men who are enjoying £900 or £1,000 a year. The Mover of the Amendment says that very often people in that position find it very difficult to maintain their position and to keep up what they regard as an absolutely necessary appearance. There I agree with him; but I have no sympathy with the man who is earning £5,000 who cannot spare 2d. or 3d. in the £ for the necessities of the State. For that reason I do not think I should be justified in detaining the House any longer in replying to this Amendment.
§ Mr. A. J. BALFOURThe ingenious parody which the Chancellor of the Exchequer gave of the speech of my hon. Friend who moved the Amendment (Sir H. Craik) would hardly carry conviction to those who heard both the speech of my hon. Friend and the answer of the right hon. Gentleman. Everybody must agree that there are more difficulties and dangers attaching to this tax than the Chancellor of the Exchequer is willing to admit. He has quoted the financial history of this country in respect of Income Tax, and he claims with a certain amount of justice that graduation has not been absent from the Income Tax. On the other hand, I think he must in justice admit that neither Sir Robert Peel nor any of Sir Robert Peel's great successors would have contemplated with equanimity the Super-tax which the Government now propose, or would have thought that that Super-tax could have been imposed without the State running some of those dangers to which my hon. Friend has clearly called attention. I think the tax is capable of abuse to a much greater extent than the Income Tax as established by Sir Robert Peel and his successors. It is a serious 1200 thing deliberately to say that out of a population of 42,000,000 or 43,000,000 you are going to put a not negligible part of your revenue upon a minority of 10,000. It lends itself very easily to excess. I also think that if you take the increased Death Duties and the Super-tax together, you do run some danger of interfering with the accumulations of useful capital in this country. I hope the House will understand that I am not using these arguments at all from the point of view of the payers of the tax. I use them from the point of view of the general public, from the point of view of the country, which, if it is not a great commercial and manufacturing country, is nothing. If you take this tax in combination with the Death Duties, are you not beginning, I will not say a raid, because in connection with this tax I have nothing against the morality of the Government, as I have in regard to some others of their proposals—in regard to the Licence Duties, for instance, which bear on a special section of the community, and some others which are taxes on individuals arbitrarily chosen irrespective of their means. This is not a tax on people irrespective of their means. It is not open to that charge. The question to my mind is not whether the people are willing and able to pay, because I think they are. It is not, to my mind, whether they are arbitrarily chosen, because I think they are not. I am not discussing the people near the line; I am dealing with the broader question. The theory of the tax, at any rate, is that the people are chosen in proportion to their means, and I do not call that an arbitrary distinction. It is quite different from the selection of a man who happens to hold a licence, or to manufacture beer, or to get money out of minerals. That seems to me to be arbitrary. I do not think this is arbitrary. Here you say that So-and-so is well able to afford to pay more than other men without undergoing any hardship. Although the tax may be inexpedient, and in many respects I think it is, I do not think it is arbitrary in the same sense that some other portions of this Budget to which I take objection are. But I am afraid that if you take this tax in connection with the Death Duties, it is a tax which every Chancellor of the Exchequer must deeply regret to have to impose. He must regret it, rot so much from the point of view of the individuals who have to pay it as from the point of view of the community whose resources are to some extent dependent 1201 upon, and whose employment is sustained by, the savings and the capital of the men upon whom you are putting this augmented taxation. My own inclinations are really more in favour of the Super-tax than of the increased Death Duties. I am speaking for myself, though possibly without sufficiently weighing the two alternatives, both of which I dislike. But, as I say, personally my own inclinations are more in favour of the Super-tax than of the increased Death Duties, because I think the Super-tax will be paid out of income, but I am quite confident that we have now reached a point in regard to the Death Duties which makes it absolutely impossible in many cases that they should be paid otherwise than out of capital. That, I think, is very regrettable. The danger in regard to the Super-tax is perhaps more that you will drive capital out of the country, and induce those who have capital to invest it under circumstances in which they will not come within the grasp of the Exchequer. You will increase very seriously the motive for avoidance, and I think avoidance is almost certain to ensue. That has two great disadvantages. In the first place, it diminishes the yield of the tax, and, in the second place, it puts people, otherwise exactly equally situated, but one of whom can and the other cannot avoid the tax, in quite different positions in regard to the Exchequer. I think that is a misfortune, and it is one which is almost certain to occur.
I may add this fur their criticism. The Income Tax is a very disagreeable tax to pay, because a man knows that he is paying it. It is far more disagreeable than indirect taxes. There are many people who object to indirect taxes, because they think it ought to be very disagreeable to pay them, and that it is only by making them disagreeable that you get people to take a proper interest in the finance of the country. I do not think I admit that principle even in regard to the great mass of the population, and when you are dealing with only 10,000 persons that argument falls entirely to the ground. This tax, in the nature of the case, must be a disagreeable one, and if people think that it is a tax in excess of what they ought to be paying, that it is not a contribution which can be fairly demanded of them by the State, they will not break the law, but they will ask how, legally and properly, the law can be avoided.
Human nature being what it is, that is almost certain. In these circumstances I think the amount of the tax is what really 1202 matters. But there is another argument in connection with the amount of the tax which directly springs from the argument of my hon. Friend (Sir H. Craik). He pointed out, what it undeniable, that the amount of taxable income is not an accurate measure of the burden of taxation. He also pointed out what everybody knows, that a man may have a large nominal income but very little to spare; while another man may have a small nominal income and a great deal to spare. That is an inequality which I do not think can possibly be avoided by any system of taxation. The Chancellor of the Exchequer cannot look into each man's circumstances and say "I quite recognise that you have to do this and that with your money. You do not spend it on yourself; you spend it on your children, or on matters which do not minister to your own individual enjoyment, and I make an allowance to you on that account." You cannot deal with all these matters. The Commissioners of Inland Revenue, omniscient as they are assumed to be in the rest of the Budget, certainly do not possess, and nobody will assume that they can ever possess, the degree of insight into the burdens of taxation that any attempt to adjust the Income Tax precisely to the position of affairs of the payer of the tax would require. That is quite impossible. But do notice that all these inequalities and injustices, which are inevitable in any Income Tax, become greatly augmented and aggravated with every augmentation and aggravation of the tax. An inequality or anomaly which is negligible when the tax is small assumes oppressive proportions when the tax is greatly increased. That is another reason why I personally deplore the weight of taxation which the Chancellor of the Exchequer has found it necessary to impose upon income and property. Therefore, while so far I entirely agree with my hon. Friend, and differ from the Chancellor of the Exchequer, there is this point to be kept in view. The money must be found. I suppose if there was a great war to-morrow, straining the resources of the country to the utmost, nobody could object to an increase of the Income Tax. We should deplore it, but we should admit that it had to be paid. If the Government come forward with a Budget in which some attempt is made to deal with the financial necessities of the country, I do not feel disposed at this late stage of our proceedings, when we have really to consider the proposals more or less as a whole, to raise my voice against 1203 a part of that Budget unless the Government are themselves prepared to propose an alternative. Their Land Taxes do not require an alternative. They bring in no money at all. The Licence Duties, I suppose, might be dropped without destroying the Budget. But if the Government are absolutely resolved, as they are, not to raise the money by taxing imports—I believe that is the way you ought to extend your basis of taxation——
Mr. BALFOURThis tax is going to bring in half a million this year, and two and a-half millions in three years time. I take it that the most sceptical critic of Fiscal Reform will not deny the possibility of finding by means of Import Duties £500,000 a year, or if need be £2,500,000. But I do not wish to deal with that. I have explained why I do think, if the Government absolutely refuse to extend the basis of taxation, that this tax is not open to the kind of objection which I feel towards their other taxes, that is, that they are inflicted arbitrarily upon the particular classes of the community, quite irrespective of their means, their wealth, or their power to pay. If the Government come forward with a tax which is not open to that objection, be it a good tax or a bad tax—and I do not think it is good; be it a safe or dangerous tax—and I think it dangerous; it is at all events levied on some broad principle directed towards the capacity of the subject to pay. If that is the defence, and the only defence of this tax, I think it is inadequate. I dislike the whole scheme of taxation of which it is part. But we have the misfortune to have a Government in office who have cut themselves off from the many other sources of taxation. When they bring forward this particular form of taxation which I do not find open to the particular criticism which I have done my best to level against other portions of the Budget, then I say, at all events, so far as this Budget is concerned, that this tax, whatever its defects and dangers, really shines out as a model of justice and equity as compared with some of the proposals which have emanated from right hon. Gentlemen opposite.
§ Mr. ARTHUR LYNCHI do not propose to detain the House long, but I wish to touch upon one or two arguments which have been put forward by the Proposer of this Amendment. He said that if this principle were introduced there would be 1204 the danger, and that it might be continued so far as to produce all evils. He seemed to allow his imagination to conjure up something which would never be ascribed to the most revolutionary Member in this quarter of the House. A French economist, I believe it was Yves Guyot, said on one occasion that he could not understand the objection which people had to paying taxes, as from his point of view it ought to be regarded as a privilege, and almost a pleasure. That is not generally the way in which paying taxes is regarded. But I should be inclined to think that if there was one circumstance which would turn paying taxes from being something irksome to a privilege and pleasure it would be that the taxpayer had been liberally endowed with £5,000 a year. The Chancellor of the Exchequer is in this situation: he must find the money. No taxation is pleasant to the taxpayer, but the Chancellor must so adjust the burden so as to find his money from those who are most competent to pay, and whose duty it should be to pay. We on this side of the House have criticised the Finance Bill from various points of view. There are certain instances perhaps in which I believe it will act in a way unfairly in regard to Ireland. But, leaving aside that particular matter as to whether or not it weighs unfairly in regard to Ireland, I venture to say that I have never had the opportunity of reading any Finance Bill which has been better based than the present, and which would have had the approbation of the great Liberal thinkers of the past: of Adam Smith and of John Stuart Mill. The hon. Gentleman who proposed the Amendment said that too much had been heard of John Stuart Mill in this Debate. I think there has never been an occasion when the Chancellor of the Exchequer reed have been afraid of meeting any kind of quotation in connection with the Finance Bill from John Stuart Mill. The hon. Gentleman who seconded the Amendment brought forward a number of objections in which he seemed to imagine that the imposition of these taxes would lead to unheard-of injustice, and even, he suggested, to the overthrow of the country. He enunciated a doctrine which is absolutely at variance with Adam Smith, that the wealth of the country should be measured by its capital. Adam Smith said that the wealth of the country should be measured by its labour. As an alternative to this tax the hon. Gentleman suggested that an additional penny should 1205 be levied on taxation as it now stands. That is to say, in place of making the rich pay he would put additional taxation upon the poor. He has come down here to bring tears to our eyes for the woes of the poor millionaires, but he has no commiseration for those who are already struggling against terrible odds even to pay the taxation which is already levied upon them. He reminds me of the old Scriptural picture of Dives and Lazarus. That may have come to his mind, but whenever that illustration has been cited before it has never been to wring out our commiseration for Dives. The hon. Gentleman would not inflict any additional taxation upon Dives or take away any part of his luxuries. The right hon. Gentleman the Leader of the Opposition spoke with his usual acumen, and it was rather interesting to follow the in-genius arguments which he evolved to buttress a bad position. But I hardly gathered whether he was against this tax or in favour of it. He seemed to me to come to curse and remain to bless. I dare say, from the general trend of his arguments, that if he were in a similar position to the Chancellor of the Exchequer he would have little compunction in claiming similar taxation. Money must be got in some way, and if you look upon the two pictures, one of the rich man, such as we know in London—whose most extravagant luxuries cost more than the absolute subsistence of the poor toiling man—and you look on the other picture of the poor working populace, which has to face a life of incessant toil with no better prospect at the end than the workhouse; or if you think of the poor miserable tenant farmer in Ireland struggling all his days to find the merest subsistence for himself and for his family—I say that when the Chancellor of the Exchequer has to face the alternative as to which of these shall be made to pay, I think, of course, that he has chosen the right course. If there is any criticism on this Clause to be urged, it is that the Chancellor's touch, as usual, has been light rather than otherwise.
§ 5.0 P.M.
§ Mr. SUMMERBELLThe hon. Baronet above the Gangway, in his usual goodhumored way, made some reference to nay colleagues, and chided them for their absence. He next prophesied what we would do when we came into power with regard to this particular tax. I desire to say to the hon. Baronet that he should not be so ready to make humorous remarks about the absence of Members from these 1206 benches, for one need not go very far back in the history of this Parliament to call to mind empty benches above the Gangway. Those who are absent from these benches are absent simply because it is not our interest to come to this House in order to plead the cause of the poor unfortunate individual who gets £5,000 a year. We are in entire accord with the Chancellor of the Exchequer in the tax which he is now proposing; therefore, our absence can be attributed to the fact, and the fact alone, that we are going to support this particular tax. Those who sit on these benches think that of all the taxes in this Budget this one is the most fair and just. We are against all indirect taxation, and would raise all the necessary revenue on the basis of the Income Tax, and the Income Tax alone. We say that to levy indirect taxes, as we do at present, is most unjust and unfair to the poor people of this country, and that the only fair method is to raise money by an Income Tax, and make each individual pay according to his ability to pay. Especially so when we take into consideration this very important fact: That it is estimated—or was estimated, at all events, a few years ago—that something like £63,500,000 was raised upon taxes upon food alone, this working out per family of five to something like £7 10s. per year, or £1 10s. per head. When you take also into account that in this country, too, there are something like eight millions of workers who receive a weekly wage of £1, we are, I think, right in saying in regard to indirect taxation that, so far as the poor are concerned, it is time that such taxation ceased. The right hon. Gentleman the Leader of the Opposition, in closing his remarks, said that he would rather raise the necessary revenue by a tax on imports. I know perfectly well that now is not the time to discuss a matter of that particular kind. All I would like to ask the right hon. Gentleman and his colleagues is: Are they aware of the important fact that in Germany to-day there is £25,000,000 deficit, and, of that, £20,000,000 has been directly placed upon the shoulders of the working classes? And will he just take into consideration the decision of the people in Germany in regard to the taxation that is being levied there at the present time?
§ Mr. BALFOURThe hon. Gentleman knows I did not mean to substitute Import Duty for Income Tax.
§ Mr. SUMMERBELLI am very glad to have that correction, and I readily accept it. I was going to say that certain elections in Germany indicate what the people, there think, so far as that question is concerned. We will support, whenever possible, the Income Tax, and we will support that tax being made higher and higher on the larger incomes. We hold that the time is not far distant when all taxes upon the food of the people should, and will, be abolished.
§ Mr. F. MADDISONI listened with a good deal of interest to the speech of the right hon. Gentleman, the Leader of the Opposition, and I confess I do not quite understand his intervention just now. He said he was not proposing to abolish the Income Tax. No, but as I understood him he would find the substitute in Import Duties for the Super-tax, which is the one thing we are immediately discussing, and therefore I think the point of my hon. Friend's argument holds good. In the course of this Debate—and it was emphasised by the right hon. Gentleman, the Leader of the Opposition—I have come to the conclusion how much easier it would be for a Finance Minister to tax the poor rather than the rich. It would have been a much easier method if the Chancellor of the Exchequer, instead of having to meet these great interests which he has had to face in these Debates, and which are dealt with in the present Clause, had substituted for them a large number of small taxes which, I believe, is the ideal of the right hon. Gentleman the Leader of the Opposition—taxes that, according to him, would hardly be felt; that is to say, there are a great many people who could be taxed easily because they hardly know that they are paying the taxes, while the rich man who is taxed knows he is paying the tax, and feels it. I, for one, do not wish to tax the rich because they are rich; but I say if these great burdens are to be borne the sort of people who come within this Clause ought to be very willing, considering all that is done for them in the country, to bear their fair share. I want property to be secured. I appreciate the value and the use of property and the responsibility of property; and I do not want to destroy what the right hon. Gentleman has always called the National capital. I would like to remind the right hon. Gentleman that I do think there is a great deal of confusion as to this waste of national capital. It is all very well to point to the millionaire or to the man who has £5,000 a year, and to 1208 say he will suffer and he will not be able to pay. But all that applies equally to the man whose food you tax. Take a man with a pound a week. You take from him 1s. in the way of food taxation for import duties. That 1s. is taken away in the form of necessaries which he is bound to have. I could wear my coat twice as long as it would look decent, but I cannot do without food. I must have food, and the labourer with his pound a week must have food to keep him in existence. And if he pays his 1s. on food taxes he is deprived of that shilling's worth of food or coal or other home comforts. There are 10,000 people who may have to pay this Super-tax, but there are 10 million people who would have to pay the food tax, and national capital is wasted quite as much in connection with the 10 million people who are poor as with the 10,000 who are rich.
The next thing that struck me is, how much more difficult it is for a poor man to escape the taxation which the Parliament of this country imposes upon him than it is for the rich man. The right hon. Gentleman said that these people will take every legitimate means of evading these duties, and he felt quite sure it was already being done. That does not express a great deal of patriotism, by the way. You cannot have "Dreadnoughts" without paying for them. I quite agree, and I think it is one of the right hon. Gentleman's most fatal errors, that the small tax which he would impose upon a large number of people will not be felt in the same way. It is true a man who would pay a Super-tax would be able to evade the law much more easily than a man who pays a small tax. The man who is subject to a small tax pays—I do not know whether his patriotism is better or not than that of the rich man, but necessity makes him virtuous. But the right hon. Gentleman said that this tax shone out in all its brilliancy compared with the other taxes in the Budget. I am really surprised that this Amendment should have been moved, and I would just like to say one word in connection with it to hon. Members opposite. There is a great amount of misery in this country; there are a great many men struggling with adversity all over the country. In face of that misery do hon. Members opposite really think it enables some of us, not of their opinion, who are resisting, as we believe, the disastrous assumption of communism and State Socialism, that it will strengthen our hands for hon. Members opposite to get up in their places and 1209 endeavour to enable the rich man to get out of burdens which are as light as air when compared with those of the poor
§ Mr. BALFOURAs a matter of personal explanation, may I be allowed to say I did not express one word of sympathy for the people who are taxed by this Super-tax? And I do not feel any such sympathy. I neither expressed it nor do I feel at, and the whole lines of my speech were quite different.
§ Mr. MADDISONThe right hon. Gentleman is a great master of tactics, and therefore I separated him from his more foolish following in this respect.
§ Sir HENRY CRAIKI expressly guarded myself from having any sympathy with the millionaires or people affected by this tax.
§ Amendment negatived.
§ Mr. WALTER GUINNESSI beg to move, in Sub-section (2), to leave out the word "previous" ["from all sources for the previous year "].
As the Clause stands it is proposed that the Super-tax assessment should be taken upon the income for the previous completed year. My Amendment would provide that the Super-tax should apply not to last year's income, but should start with the present year of charge. In many cases it will happen that a smaller income will be enjoyed this year than last year, and I think it is very hard to make the tax retrospective by levying it upon an income received, not this year, but received and probably spent last year. If the Government would accept this Amendment the Exchequer would not, in the aggregate, lose, because although they would get less from people whose incomes are falling, they would probably make it up from those incomes which are rising. A great many people, if assessed on last year's income, would pay less, perhaps would not pay at all, whereas if assessed on this year's income, they would come within the purview of the tax. I think the great objection to the proposal of the Government is that it is so severe on those who are in receipt of a falling income, and it puts a heavier burden upon those who, in any case, will have to aggregate their expenditure and who are in the least favourable position for bearing increased taxation. It is far better to put your taxes upon a man whose income is rising. Of course, if this Amendment is accepted, a consequential Amendment will be necessary to provide for Super-tax payers making an assessment 1210 during the current year of their total incomes, and it will also be necessary to provide where that estimate is too large, to enable the Inland Revenue authorities to repay the amount which has been wrongly claimed. Of course, this proposal would in no way affect those who are charged under Schedule D. They would still continue to pay Income Tax, and they would pay a Super-tax also on the three years' average. And therefore my Amendment would only apply to those whose incomes are derived from investments and those sources which are not liable to the average of the three years. In this Budget there are many cases of taxes being levied not upon what people receive, but upon imaginary valuation. But even in the Finance Bill I do not think there is any precedent for charging a tax upon money which has already been spent, and spent at a time when the owner could not possibly have expected that this increased burden would have been laid upon him. The acceptance of this Amendment would remove a very real and a very serious grievance.
§ Mr. EVELYN CECILI desire to second the Amendment, which seems to me to be an obviously fair one. It applies, no doubt, to a few cases which would otherwise be very unfairly treated, more particularly professional men both in legal and medical, and possibly to men in the engineering profession and others. These men have no doubt calculated this year what is the sum coming in, and in cases of that kind it is a matter of common knowledge that the income is extremely variable. One year barristers may have enormous numbers of briefs; the next year the balance may be entirely upset. I think it is only right in these circumstances that a tax of this description should be charged upon the year where the heavy income comes in, and if you want to be scrupulously fair, as I imagine every Legislature does, you ought to adopt this Amendment and not put upon this particular class of people a tax in a different year from that in which the income is drawn.
§ The FINANCIAL SECRETARY to the TREASURY (Mr. Hobhouse)Both the hon. Members who moved and seconded the Amendment used the same arguments. It is this. That if you proceed upon an income which is not the income of the year, but the income practically of the past year, plus the three previous years upon which the average is taken, you may cause hardship to persons whose income is smaller than the average works out at.
§ Mr. WALTER GUINNESSI did not argue the case of the average at all. It would not affect the average.
§ Mr. HOBHOUSENo, but that was the pith of the argument. I know the hon. Member did not mention it, but it was suggested——
§ Mr. WALTER GUINNESSNo, no.
§ Mr. HOBHOUSEAnd that a person would be called upon to pay upon a falling income What is he called upon to do at the present time? He is called upon to pay on his average income of three yeans. In the first place, there is an administrative difficulty. Suppose the income were to be arrived at in the way suggested by the hon. Member. The Special Commissioners who have to arrive at the amount would not have for their guidance the decision of the District Commissioners. I think, taking the average upon the three years, you get a fair assessment to the taxpayer, and you also get a fair payment. I agree that there is the fourth year to be considered. In the case of the Super-tax, the income for the current year cannot be arrived at because it will not be complete until 31st December or 31st March, therefore you cannot take the income for the current year. I think I have shown that there is no real hardship when you take the average.
§ Mr. AUSTEN CHAMBERLAINI have some difficulty in following the answer which the right hon. Gentleman has given. I think he has somewhat confused the matter by introducing the question of averages, which is neither here nor there for the purposes of this Amendment. It is, of course, true that for the purposes of Schedule B an average of three years is taken. That may or may not be the right thing. I think it is right in regard to the normal income. It does not, however, by any means follow that because it is right normally that it is the right thing for the Super-tax, which is assessed in a different way and collected in a different manner. Take a man who draws a portion of his revenue from investments of different kinds. Under the ordinary Income Tax his income is assessed at the source, and the Income Tax is paid out of the profits by the company deducting from the dividends or paying the dividend free of Income Tax. The company takes its three years' average and pays the tax, and the individual has nothing to do with it. But in the case of a Super-tax the company will have nothing to do with it, because the individual has 1212 to make the return, and it is the individual and not the company who will be assessed. Therefore, the question whether there shall be a Super-tax at all, and what the amount is to be, has no reference whatever to the profits made by the company as a whole, but merely refers to the income of the individual, whether derived from that company or from any other source. The two things stand wholly apart, and I should have thought it would have been better not to have introduced the three years' average into the Super-tax at all. I do not know what the right hon. Gentleman means by taking the fourth year.
§ Mr. HOBHOUSEThere is no actual assessment in the fourth year. It ranges back to a period of four years previous, but it covers the period of four years.
§ Mr. AUSTEN CHAMBERLAINThe right hon. Gentleman has apparently forgotten the change in the law relating to averages made by the Prime Minister when he was Chancellor of the Exchequer, because he altered the law in the case of a falling income. If the three years' average proves to be higher than the income of the actual year in which the tax was assessed it would bring that fourth year in to correct the average. That met rather a hard case, but it met it with this disadvantage that, taken over the country as a whole, it acted unfairly to the revenue, because a bad year often appeared four times in the case of a fluctuating business, and a bad year appeared more often than a good year, and oftener than it ought to have appeared. That satisfied the revenue side of the case, but it left an injustice when there is a fall in revenue more acute than before, and that is the reason for now introducing the average for the purposes of this new Super-tax, which is an additional tax upon the top of a normal income. The Government had much better have left the average out altogether, and they only complicate this Clause and introduce an additional hardship by bringing in the average.
There was another form of valuation upon which the right hon. Gentleman mainly relied for the Government proposal. He said, "It is true some men will pay too much, but it is equally true that other men will pay too little, but on the whole justice will be done, and by striking an average you get a very fair proposal." You cannot impose taxation in that way. Taxation is fair or unfair as it affects individual taxpayers in their particular circumstances, and the right hon. Gentleman 1213 gives away his case when he admits that the only answer he can give is that those who are paying more than they ought to do are perhaps paying the Super-tax when on the average income of the year they would not be liable to Super-tax in that year. He tells those people that although they are suffering, at any rate there are some other people better off who are obtaining an advantage. That does not seem to me to be a satisfactory defence of this proposal. I submit that the suggestion of my hon. Friend is a reasonable one, because you are putting on a new tax of this kind for the first time at a high figure, and you should adjust it to the circumstances of the taxpayer at the time, so that he can adjust himself to the tax. Instead of doing that, you work back for years over incomes that may have been spent, and it does seem to me that you are introducing an unnecessary element of hardship and difficulty in this tax. Then there is the administrative difficulty, to which the Financial Secretary appeared to attach the least importance.
§ Mr. J. BERTRAMThe refusal of the Government to assent to any modification of this Clause which would enable the Commissioners to deal with hard cases appears to be due to their belief that all the people who will have to pay the Super-tax are earners of those incomes. I do not know what is the proportion of people who earn incomes above £5,000 a year to those who, having those incomes, do nothing to earn them. My own belief is that the vast majority of cases where the Super-tax attaches are not cases of earned incomes but of settled incomes where the person derives that income from stocks and shares, in which case the tax is deducted at the source. I remember, when this matter was in Committee, reference was made to a case of exceptional hardship with which I happened to be personally concerned as trustee, and I will very shortly state that case to the right hon. Gentleman, because these concrete cases enable one to judge the effect of the Government proposals. In this case the tenant for life will be assessed for Super-tax on the income of the year 1907–8. In that year the income of the person I allude to was £24,000. The sum of £8,000 had to be paid in interest on a loan. For the purposes of the Income Tax it made no difference what the tax was, because the person who received that £8,000 and paid it away was entitled to a receipt in full. Before paying, he deducted the tax 1214 from the £8,000. He received it less the tax, and paid it less the tax. Since that income of £24,000 was received, the trustees of the settlement have satisfied the capital obligation. They have sold stock which yielded £8,000 a year, and in the current year the income of that tenant for life will not be £24,000 a year but only £16,000. That is a case where, it seems to me, that the Commissioners ought to have power to charge the Super-tax upon the income of the current year, which, in this particular case, is £8,000, and will for ever remain £8,000 less than the income of 1907–8.
§ Mr. JAMES MASONI think the case we have just heard from the hon. Gentleman is almost unanswerable. He mentioned that the greater number of Super-tax payers would be the receivers of unearned income. That, of course, will probably be the case, and in the case of incomes derived from stocks and securities the variation will not, in the majority of instances, be very large, but there are a great many cases, especially of earned incomes, where the variation will be very large indeed. Take the case of people whose salaries are £5,000 a year and upwards and who lose them. The right hon. Gentlemen opposite may by the receipt of their salaries alone be liable to Super-tax, whereas on a future occasion they may no longer be in receipt of those salaries, and for that reason not be liable to any Super-tax at all. It would be fairer and better to calculate the tax on the actual receipts of the year, and not on the actual receipts of the previous year. I take it the defence for the proposal of the Bill is that you have already the results of the previous year, whereas you have not the results of the present year. I think that difficulty could probably be overcome. You propose to apply the Super-tax to the previous year when no Super-tax was in force, and you say that works out fairly in the end, because, basing the tax each year upon the previous year's income, makes no difference to the payer of the tax; but, as a matter of fact, it makes a very great deal of difference unless in the last year of his life you levy no Super-tax at all, and you are going to do so. I take it, if a man dies, Super-tax will be paid at the end of the year, just as much as if he were alive. This is, therefore, a retrospective proposal which I do not think is justified. I agree that in the actual working of the machinery in the collection of the tax you must use the previous year to a certain extent as 1215 the basis of your estimate. You would have to get an estimate from the payers of the Super-tax, and in most cases they would base their estimate on their previous year's income, making certain deductions which they knew or believed it would be necessary to make; but even if the basis of the calculation is the previous year's income, you ought in the end to rectify the calculation, and by repayment or further assessment finally make the actual money charged dependent upon the actual income of the year and not of the year before.
§ Mr. HOBHOUSEPerhaps, by the leave of the House, I may answer the case put
§ by my hon. Friend (Mr. Bertram). The case he has put as a very hard case is, in fact, no hard case at all. Interest payable upon mortgage can by the existing exemptions, and will, under the Finance Bill, be deducted for the purpose of the Super-tax.
§ Mr. BERTRAMWill the right hon. Gentleman quote; I have never been able to get it.
§ Mr. HOBHOUSEYes. Section 109, Rule 18, of the Act of 1842.
§ Question put, "That the word 'previous' stand part of the Bill."
§ The House divided: Ayes, 202; Noes, 66.
1217| Division No. 860.] | AYES. | [5.35 p.m. |
| Abraham, W. (Cork, N. E.) | Everett, R. Lacey | Lynch, H. B. |
| Abraham, William (Rhondda) | Falconer, J. | Macdonald, J. M. (Falkirk Burghs) |
| Acland, Francis Dyke | Ferens, T. R. | Maclean, Donald |
| Ainsworth, John Stirling | Fiennes, Hon. Eustace | Macnamara, Dr. Thomas J. |
| Alden, Percy | Findlay, Alexander | M'Callum, John M. |
| Allen, A. Acland (Christchurch) | Foster, Rt. Hon. Sir Walter | McKenna, Rt. Hon. Reginald |
| Allen, Charles P. (Stroud) | Fuller, John Michael F. | M'Laren, H. D. (Stafford, W.) |
| Balfour, Robert (Lanark) | Fullerton, Hugh | M'Micking, Major G. |
| Baring, Godfrey (Isle of Wight) | Ginnell, L. | Maddison, Frederick |
| Barker, Sir John | Gladstone, Rt. Hon. Herbert John | Mallet, Charles E. |
| Barnard, E. B. | Glendinning, R. G. | Marks, G. Croydon (Launceston) |
| Barnes, G. N. | Glover, Thomas | Marnham, F. J. |
| Barran, Rowland Hirst | Goddard, Sir Daniel Ford | Micklem, Nathaniel |
| Beauchamp, E. | Greenwood, G. (Peterborough) | Middlebrook, William |
| Beck, A. Cecil | Griffith, Ellis J. | Molteno, Percy Alport |
| Bell, Richard | Gwynn, Stephen Lucius | Mond, A. |
| Benn, Sir J. Williams (Devonport) | Haldane, Rt. Hon. Richard B. | Mooney, J. J. |
| Benn, W. (Tower Hamlets, St. Geo.) | Harcourt, Rt. Hon. L. (Rosendale) | Morgan, G. Hay (Cornwall) |
| Bennett, E. N. | Harcourt, Robert V. (Montrose) | Morgan, J. Llovd (Carmarthen) |
| Bethell, Sir J. H. (Essex, Romford) | Hardie, J. Keir (Merthyr Tydvil) | Morrell, Philip |
| Bethell, T. R. (Essex, Maldon) | Hardy, George A. (Suffolk) | Morton, Alpheus Cleophas |
| Birrell, Rt. Hon. Augustine | Harmsworth, Cecil B. (Worcester) | Murray, Capt. Hon. A. C. (Kincard.) |
| Black, Arthur W. | Hart-Davies, T. | Myer, Horatio |
| Brace, William | Haslam, Lewis (Monmouth) | Napier, T. B |
| Brigg, John | Haworth, Arthur A. | Nolan, Joseph |
| Brooke, Stopford | Hazleton, Richard | Nuttall, Harry |
| Brunner, J. F. L. (Lancs., Leigh) | Hedges, A. Paget | O'Brien, Patrick (Kilkenny) |
| Brunner, Rt. Hon. Sir J. T. (Cheshire) | Helme, Norval Watson | O'Connor, John (Kildare, N.) |
| Bryce, J. Annan | Henderson, J. McD. (Aberdeen, W.) | O'Donnell, C. J. (Walworth) |
| Burns, Rt. Hon. John | Henry, Charles S. | Parker, James (Halifax) |
| Buxton, Rt. Hon. Sydney Charles | Herbert, T. Arnold (Wycombe) | Pearce, William (Limehouse) |
| Byles, William Pollard | Higham, John Sharp | Philipps, Owen C. (Pembroke) |
| Carr-Gomm, H. W. | Hobart, Sir Robert | Price, C. E. (Edinburgh, Central) |
| Channing, Sir Francis Allston | Hobhouse, Rt. Hon. Charles E. H. | Raphael, Herbert H. |
| Cheetham, John Frederick | Hodge, John | Rea, Rt. Hon. Russell (Gloucester) |
| Churchill, Rt. Hon. Winston S. | Hooper, A. G. | Rendall, Athelstan |
| Clough, William | Horniman, Emslie John | Richards, Thomas (W. Monmouth) |
| Cobbold, Felix Thornley | Howard, Hon. Geoffrey | Richardson, A. |
| Collins, Stephen (Lambeth) | Hudson, Walter | Ridsdale, E. A |
| Compton-Rickett, Sir J. | Hutton, Alfred Eddison | Roberts, Charles H. (Lincoln) |
| Corbett, A. Cameron (Glasgow) | Idris, T. H. W. | Robertson, Sir G Scott (Bradford) |
| Corbett, C. H. (Sussex, E. Grinstead) | Illingworth, Percy H. | Robinson, S. |
| Cornwall, Sir Edwin A. | Jackson, R. S. | Roe, Sir Thomas |
| Cotton, Sir H. J. S. | Jardine, Sir J. | Rogers, F. E. Newman |
| Cox, Harold | Johnson, John (Gateshead) | Rose, Sir Charles Day |
| Cross, Alexander | Jones, Sir D. Brynmor (Swansea) | Runciman, Rt. Hon. Walter |
| Crossley, William J. | Jones, William (Carnarvonshire) | Rutherford, V. H. (Brentford) |
| Davies, David (Montgomery Co.) | King. Alfred John (Knutsford) | Samuel, Rt. Hon. H. L. (Cleveland) |
| Davies, Ellis William (Eifion) | Laidlaw, Robert | Schwann, Sir C. E. (Manchester) |
| Dunne, Major E. Martin (Walsall) | Lambert, George | Scott, A. H. (Ashton-under-Lyne) |
| Edwards, Sir Francis (Radnor) | Lament, Norman | Sears, J. E. |
| Elibank, Master of | Layland-Barratt, Sir Francis | Shipman, Dr. John G. |
| Ellis, Rt. Hon. John Edward | Lehmann, R. C. | Silcock, Thomas Ball |
| Erskine, David C. | Levy, Sir Maurice | Snowden, P. |
| Essex, R. W. | Lewis, John Herbert | Soames, Arthur Wellesley |
| Esslemont, George Birnie | Lloyd-George, Rt. Hon. David | Stanger, H. Y. |
| Evans, Sir S. T. | Lynch, A. (Clare, W.) | Stanley, Hon. A. Lyulph (Cheshire) |
| Steadman, W. C. | Walsh, Stephen | Williamson, Sir A. |
| Strachey, Sir Edward | Wardle, George J. | Wills, Arthur Walters |
| Summerbell, T. | Waring, Walter | Wilson, Hon. G. G. (Hull, W.) |
| Sutherland, J. E. | Wason, John Cathcart (Orkney) | Wilson, Henry J. (York, W. R.) |
| Thomas, Abel (Carmarthen, E.) | Waterlow, D. S. | Wilson, J. W. (Worcestershire, N.) |
| Thomas, Sir A. (Glamorgan, E.) | Weir, James (Galloway) | Wilson, W. T. (Westhoughton) |
| Toulmin, George | White, Sir Luke (York, E. R.) | Wood, T. M'Kinnon |
| Ure, Rt. Hon. Alexander | Whitehead, Rowland | Yoxall, Sir James Henry |
| Verney, F. W. | Whitley, John Henry (Halifax) | |
| Villiers, Ernest Amherst | Wiles, Thomas | TELLERS FOR THE AYES.—Mr. Joseph Pease and Captain Norton. |
| Vivian, Henry | Wilkie, Alexander | |
| Walker, H. de R. (Leicester) | ||
| NOES. | ||
| Balcarres, Lord | Goulding, Edward Alfred | Powell, Sir Francis Sharp |
| Balfour, Rt. Hon. A. J. (City, Lond.) | Guinness, Hon. R. (Haggerston) | Remnant, James Farquharson |
| Banbury, Sir Frederick George | Hamilton, Marquess of | Renwick, George |
| Barrie, H. T. (Londonderry, N.) | Hay, Hon. Claude George | Roberts, S. (Sheffield, Ecclesall) |
| Beckett, Hon. Gervase | Heaton, John Henniker | Rutherford, John (Lancashire) |
| Bertram, Julius | Hill, Sir Clement | Sassoon, Sir Edward Albert |
| Bignold, Sir Arthur | Hills, J. W. | Stanier, Beville |
| Bowles, G. Stewart | Hope, James Fitzalan (Sheffield) | Stanley, Hon. Arthur (Ormskirk) |
| Bull, Sir William James | Hunt, Rowland | Starkey, John R. |
| Butcher, Samuel Henry | Kennaway, Rt. Hon. Sir John H. | Stone, Sir Benjamin |
| Carlile, E. Hildred | Kimber, Sir Henry | Talbot, Lord E. (Chichester) |
| Cave, George | King, Sir Henry Seymour (Hull) | Thornton, Percy M. |
| Cecil, Lord R. (Marylebone, E.) | Lambton, Hon. Frederick William | Tuke, Sir John Batty |
| Chamberlain, Rt. Hon. J. A. (Worc'r.) | Lowe, Sir Francis William | Valentia, Viscount |
| Chaplin, Rt. Hon. Henry | MacCaw, William J. MacGeagh | Walrond, Hon. Lionel |
| Coates, Major E. F. (Lewisham) | M'Arthur, Charles | Warde, Col. C. E. (Kent, Mid) |
| Courthope, G. Loyd | Magnus, Sir Philip | Willoughby de Eresby, Lord |
| Craik, Sir Henry | Mason, James F. (Windsor) | Winterton, Earl |
| Doughty, Sir George | Morpeth, Viscount | Wortley, Rt. Hon. C. B. Stuart- |
| Faber, George Denison (York) | Nicholson, Wm. G. (Petersfield) | |
| Fell, Arthur | Pease, Herbert Pike (Darlington) | TELLERS FOR THE NOES.—Mr. Walter Guinness and Mr. Evelyn |
| Fletcher, J. S. | Peel, Hon. W. R. W. | |
| Forster, Henry William | Percy, Earl | |
| Gibbs, G. A. (Bristol, West) |
§ Drafting Amendments made.
§ Mr. BERTRAM moved, in Sub-section (2) after the word "and" ["and also in the case of a person"] to insert the words "the amount of all premiums and other outgoings paid under any legal obligation."
§ The right hon. Gentleman has entirely satisfied me that the £8,000 to which I referred in the illustration I quoted could have been made a proper deduction for the purpose of the Income Tax assessment. It never was made a deduction, because, although the £8,000 was received less tax, it was paid less tax, and the question never arose. I have here, however, a case—it is the same case—with regard to annual premiums which, I submit, ought to be deducted from the beneficial income where they are paid under any legal covenant or contract enforceable against the owner of the income. In the case to which I have referred there was an income of £24,000 a year. Then some stocks and shares were sold, a mortgage was paid off, and the income was reduced to £16,000 a year, the figure at which it now stands. The owner will be entitled to deduct, for the purpose of arriving at the amount of assessable tax, certain covenanted allowances under the Income Tax Act of 1842— 1218 covenanted allowances to children under a marriage settlement. There is also payable by this tenant for life a sum of £8,000 per year for life insurance premiums, that having been the only way in which the original loan could be obtained. These premiums of £8,000 a year were, until the mortgage was repaid, paid by the tenant for life for 15 or 16 years, but last year, as a result of an arrangement between the parties, the trustees were, by Act of Parliament, authorised to take over the securities and pay off the mortgages. This was done by a private Act of Parliament. The tenant for life has to pay this £8,000 per year out of an assessable income, not of £16,000, but of £11,000. The beneficial income is £3,000. The words of the Clause, as the Government Bill stands, perpetuate well-known allowances in respect of abatements of Income Tax on premiums up to one-sixth of the total assessable income. In this case, if the assessable income is allowed to be regarded as £16,000, the tenant for life will be allowed an abatement of £2,333, in spite of the fact that the actual amount payable under compulsion, without any choice on the part of the tenant for life, is £8,000. I therefore, relying on the very definite pledge which the Chancellor of the Exchequer gave 1219 when he made his Budget statement, that in regard to the Super-tax every deduction on account of any legal liability should be made from the assessable income—relying on that pledge I beg the Government to accept the additional words, "the amount of all premiums and other outgoings paid under any legal obligation." I beg to move an Amendment accordingly.
§ Sir F. BANBURY seconded the Amendment.
§ Mr. HOBHOUSEIf I understand the purport of my hon. Friend's Amendment aright, he proposes to make, in respect of the Super-tax, a deduction which is not permitted to be enforceable for the purposes of rebate under ordinary Income Tax law.
§ Mr. BERTRAMWill the right hon. Gentleman permit me to point out that I did draw a distinction between the allowance made now of one-sixth where the insured deliberately insures his life without any obligation to do so, and the case where there is an obligation upon a man to pay premiums which he cannot avoid.
§ Mr. HOBHOUSEThat is so. My hon. Friend, however, proposes to permit, whether it be a legal obligation or not, a deduction for the purposes of the Super-tax which is not permitted to be made for the purposes of ordinary Income Tax. My hon. Friend has quoted a declaration by the Chancellor of the Exchequer in his Budget speech—a declaration which I am afraid I do not carry in my mind—to the effect that there should, in the case of Super-tax, be deducible anything which is deducible at the present time. At the present time this deduction would not be permissible for the purposes of abatement. It can be claimed in respect of Income Tax up to one-sixth of the income, but even in that case the abatement cannot be procured for the purpose of reducing the income to a point at which a lower rate of Income Tax would be payable. Take the case of a man with an income of £720 a year. He employs £50 of that for purposes of life insurance. He would not, under the Income Tax law as it stands, be able to claim a rebate in order to reduce his income below £700, so as to make it liable to a lower rate of Income Tax. My hon. Friend behind me wishes to apply that principle to the case of the Super-tax and to reduce the income for assessment purposes to the Super-tax by reason of such abatement to a point at 1220 which it will not be called upon to pay Super-tax. As I have said, that principle is not recognised in the Income Tax Acts-at the present moment, and the Government are not prepared to recognise it as regards the Super-tax.
§ Mr AUSTEN CHAMBERLAINI have not the Chancellor of the Exchequer's Budget speech before me, and I do not carry in my mind what he said. Therefore I do not propose to offer any opinion on the issue of fact which has arisen between the hon. Member for the Hitchin Division of Herts (Mr. Bertram) and the Government as to what exactly the Chancellor of the Exchequer said and what was the extent of the pledge the right hon. Gentleman gave. I rise rather for the purpose of drawing the attention of the Government once again on this Amendment to the hardship which they are committing by attempting to apply to the collection and assessment for Super-tax regulations which are applicable and the law which is applicable to the collection of ordinary Income Tax. I think it is common ground between both sides of the House, even as regards ordinary Income Tax law, that it contains anomalies and even injustices which nobody defends on their merits. In particular it counts as income, for the purposes of assessment to the tax, something which is not income available to be spent by the individual who is taxed. That is admitted in regard to the land. The Chancellor of the Exchequer raised great hope that he was going to remove the anomaly in the case of the land-owners, but he has not seen his way to do that, although so struck was he with the injustice of the existing law that he has taken some steps to relieve and lessen that injustice, and to make the income on which a man pays under Schedule A something more nearly approaching to the income he actually receives and pays into his own private banking account.
6.0 P.M.
This question applies not only to land, but also to businesses and incomes, the operation of which are in effect the replacement of capital which has been vested in wasting securities. A typical case, rather familiar to the House, is the case of a man who is working a mine. If he be a provident man he cannot afford to regard the revenue that he gets from the mine in a year as income. He must regard a considerable portion of it as replacement of capital which is wasting as he develops the mine and works it out. Another illustration of the same kind is, of course, afforded by investments in leasehold 1221 property. A man may be drawing from leaseholds £1,000 a year, but £200, £300, or even £500, may represent, not income which is available to be spent, but a sinking fund to replace the capital by the time the leasehold interest expires. I think it is admitted, and it is clear, even for the purposes of the ordinary Income Tax, that the Government should not treat the whole of that as income. If they were now imposing Income Tax for the first time, with these facts fairly before them, I do not believe any Minister or any Government would propose to establish ordinary Income Tax law as we see it to-day. The difficulty is that, having come to count on obtaining revenue from these sources, no Chancellor of the Exchequer sees his way to sacrifice revenue which he and his predecessors have been accustomed to receive in order to remedy this grievance. But that does not justify the right hon. Gentleman in extending the grievance, and extending it in a tenfold harsher form, as he will do, when he applies exactly the same rule to the assessment and collection of Super-tax as he applies to the ordinary Income Tax. See what happens. Take the case of a person who has an apparent income of just over £5,000. Of that £5,000 £2,000, we will say, represents a sinking fund which will do no more than replace a wasting security by the time that security has gone—whether it be a mining lease or a leasehold. The actual expendable income is £3,000, but you tax this person on £5,000. You take 5,000 shillings from him, whereas if the property had been meritoriously invested you would only have taxed him on £3,000. However, as it happens to be invested in this particular form, you tax him on £5,000, and, on the top of that, you exact another 2,000 shillings, or whatever the amount may be, for Super-tax, of which not a penny would be due if you took a true view of the position—a view which every company director would be bound to take in regard to the property of his company, and which he would be brought to book, and even punished, in a court of law for disregarding. I think that that goes much further than the proposal of the hon. Member for the Hitchin Division. He based his argument on a particular case, which seems to have been a peculiar one, and to have required a private Act of Parliament to settle it. I do not care to argue on the particular facts of that case. I think what is more worth the consideration of the House is the broader and general issue I 1222 have raised. My right hon. Friend earlier in the evening defined for himself and for his colleagues their attitude towards this tax. But surely if one is to adopt such an attitude towards this tax it is incumbent to see that the moment it is imposed it is imposed really in proportion to the amount of income and that it is not imposed on a nominal income, which is not received or spendable, or real income at all, for no other purpose than a purely arbitrary defence of the revenue. What I want to get at is not really the protection of the amount of premium or any outgoing paid under a legal obligation on such security. Of course, it is too late to try and introduce words for this purpose at this time. In my opinion, the Government ought to have done it on the Committee stage, or should have been prepared upon Report to introduce words which would have made it clear that a man should pay according to his means and that particular people should not be made to pay when their spendable income does not come up to the taxing limit merely because their investments were in one particular form of property rather than in another. That is the result, and you have now put aside all considerations for or against the tax. The form you have given to the tax is vicious, inasmuch as it is going to tax, under the description of incomes of £5,000 a year and over, a great number of people who have no such income.
§ Mr. BALFOURMy right hon. Friend near me when he rose to speak had not the exact offer of the Chancellor of the Exchequer. It has now been brought to me. It will be found on page 508 of the OFFICIAL REPORT, Volume IV., on 29th April, in the Budget speech. What the Chancellor of the Exchequer then said was:—
Total income for the purposes of the tax will be ascertained in the manner prescribed by Statute for determining total income for the purposes of the present income tax exemptions and abatements, that is to say, deductions will be allowed for interest upon loans and mortgages and any other payments made under legal obligation.It does seem to me that those words are absolutely clear, unmistakeable, and specific in their meaning. If I understood the case put forward by the hon. Gentleman who moved the Amendment it was one of a particular individual who not only had to pay interest upon loans and mortgages, but had to pay them by Act of Parliament. He was therefore, so to speak, unmistakeably doubly qualified to fair treatment 1223 under this Income Tax, and I am utterly unable to see how that pledge is to be redeemed unless some consideration is given to the hon. Gentleman's Amendment. If I caught rightly the import of the speech of the Secretary to the Treasury, all he said was when you are making deductions for Income Tax you do not allow for this, or that, or the other. You do rot allow, for instance, these payments which my right hon. Friend has just shown to demonstration ought to be allowed for if you are going to make your tax an equitable one, but this pledge of the Chancellor of the Exchequer has not a loophole in it. At any rate, that loophole is not pointed out by the Secretary to the Treasury. I do not wish to press the matter too hard, but here the words are not stated as obiter dictum in the course of a Debate, but appear in the carefully prepared financial statement of the Chancellor of the Exchequer. I do not see that the words are open to any other construction than that put upon them by the Mover of the Amendment, and if I am right in my interpretation of these words, I think we do require from the Government a much more conclusive and elaborate defence of their refusal to listen to the hon. Member's proposal than the Secretary to the Treasury has given us.
§ Mr. HOBHOUSEIf I may claim the leave of the House to make a statement, I should like to say I had not, as the right hon. Gentleman who has just sat down had, my attention directed to the words of my right hon. Friend. Now that I have had my attention directed to them, I would lay stress upon certain words which the right hon. Gentleman, from his point of view, rather left out in the cold. What
§ are the exact words of my right hon. Friend?
§ Mr. BALFOURI read the whole passage.
§ Mr. HOBHOUSEYes; but it depends upon the stress laid upon particular words as to what interpretation is to be drawn from the whole passage:—
Total income for the purposes of the tax will be ascertained in the manner prescribed by Statute.We come to the question of what is prescribed by Statute; not what is going to be prescribed but what is prescribed at the time the right hon. Gentleman was speaking. The existing Income Tax Acts, as I pointed out in my remarks earlier in this Debate, allow for deductions up to one-sixth; they do not permit of an abatement. We apply the same principle, and that is carrying out the pledge that:—Total income for the purposes of the tax will be ascertained in the manner prescribed by Statute,and though it is quite true that my right hon. Friend goes on to saythat is to say deductions will be allowed for interest upon loans and mortgages,and so forth. The whole of the passage is, in my opinion at all events, governed by the wordsprescribed by Statute.If there had been any sort of feeling that a pledge had been given which had not been adhered to, I should be the first, on the part of my right hon. Friend, to accept an alteration, but looking at the actual words used, I do not think we can be said to have gone back from any pledge which was given at the time by the Chancellor of the Exchequer.
§ Question put, "That those words be there inserted in the Bill."
§ The House divided: Ayes, 71; Noes, 199.
1225| Division No. 861.] | AYES. | [6.10 p.m. |
| Balcarres, Lord | Doughty, Sir George | Lockwood, Rt. Hon. Lt.-Col. A. R. |
| Balfour, Rt. Hon. A. J. (City, Lond.) | Faber, George Denison (York) | Lowe, Sir Francis William |
| Barrie, H. T. (Londonderry, N.) | Fell, Arthur | MacCaw, Wm. J. MacGeagh |
| Beckett, Hon. Gervase | Fletcher, J. S. | M'Arthur, Charles |
| Bignold, Sir Arthur | Forster, Henry William | Magnus, Sir Philip |
| Bowles, G. Stewart | Gibbs, G. A. (Bristol, West) | Mason, James F. (Windsor) |
| Bryce, J. Annan | Goulding, Edward Alfred | Morpeth, Viscount |
| Bull, Sir William James | Guinness, Hon. R. (Haggerston) | Nicholson, Wm. G. (Petersfield) |
| Butcher, Samuel Henry | Guinness, Hon. W. E. (B'y St. Edm'ds.) | Parkes, Ebenezer |
| Carlile, E. Hildred | Hamilton, Marquess of | Pease, Herbert Pike (Darlington) |
| Cave, George | Hay, Hon. Claude George | Peel, Hon. W. R. W. |
| Cecil, Evelyn (Aston Manor) | Heaton, John Henniker | Percy, Earl |
| Cecil, Lord R. (Marylebone, E.) | Hill, Sir Clement | Powell, Sir Francis Sharp |
| Chamberlain, Rt. Hon. J. A. (Worc'r.) | Hills, J. W. | Remnant, James Farquharson |
| Channing, Sir Francis Allston | Hope, James Fitzalan (Sheffield) | Renwick, George |
| Chaplin, Rt. Hon. Henry | Hunt, Rowland | Ridsdale, E. A |
| Cheetham, John Frederick | Kennaway, Rt. Hon. Sir John H. | Roberts, S. (Sheffield, Ecclesall) |
| Coates, Major E. F. (Lewisham) | Kimber, Sir Henry | Rutherford, John (Lancashire) |
| Courthope, G. Loyd | King, Sir Henry Seymour (Hull) | Sassoon, Sir Edward Albert |
| Craik, Sir Henry | Lambton, Hon. Frederick William | Smith, F. E. (Liverpool, Walton) |
| Stanier, Beville | Tuke, Sir John Batty | Younger, George |
| Starkey, John R. | Valentia, Viscount | |
| Stone, Sir Benjamin | Walrond, Hon. Lionel | TELLERS FOR THE AYES.—Mr. Bertram and Sir F. Banbury. |
| Talbot, Lord E. (Chichester) | Wards, Col. C. E. (Kent, Mid) | |
| Thornton, Percy M. | Willoughby de Eresby, Lord | |
| NOES. | ||
| Abraham, W. (Cork, N. E.) | Greenwood, G. (Peterborough) | O'Donnell, C. J. (Walworth) |
| Abraham, William (Rhondda) | Gwynn, Stephen Lucius | O'Kelly, Conor (Mayo, N.) |
| Acland, Francis Dyke | Harcourt, Rt. Hon. L. (Rossendale) | Parker, James (Halifax) |
| Ainsworth, John Stirling | Harcourt, Robert V. (Montrose) | Pearce, William (Limehouse) |
| Alden, Percy | Hardie, J. Keir (Merthyr Tydvil) | Philipps, Owen C. (Pembroke) |
| Allen, A. Acland (Christchurch) | Hardy, George A. (Suffolk) | Pollard, Dr. G. H. |
| Allen, Charles P. (Stroud) | Harmsworth, Cecil B. (Worcester) | Price, C. E. (Edinburgh, Central) |
| Balfour, Robert (Lanark) | Haslam, Lewis (Monmouth) | Priestley, Sir W. E. B. (Bradford, E.) |
| Baring, Godfrey (Isle of Wight) | Haworth, Arthur A. | Raphael, Herbert H. |
| Barker, Sir John | Hedges, A. Paget | Rea, Rt. Hon. Russell (Gloucester) |
| Barnard, E. B. | Helme, Norval Watson | Rendall, Athelstan |
| Barnes, G. N. | Henderson, J. McD. (Aberdeen, W.) | Richards, Thomas (W. Monmouth) |
| Barran, Rowland Hirst | Henry, Charles S. | Richardson, A. |
| Beauchamp, E. | Herbert, T. Arnold (Wycombe) | Roberts, Charles H. (Lincoln) |
| Beck, A. Cecil | Higham, John Sharp | Robertson, Sir G. Scott (Bradford) |
| Bell, Richard | Hobart, Sir Robert | Robinson, S. |
| Benn, Sir J. Williams (Devonport) | Hobhouse, Rt. Hon. Charles E. H. | Robson, Sir William Snowdon |
| Benn, W. (Tower Hamlets, St. Geo.) | Hodge, John | Roe, Sir Thomas |
| Bennett, E. N. | Hooper, A. G. | Rogers, F. E. Newman |
| Berridge, T. H. D. | Horniman, Emslie John | Pose, Sir Charles Day |
| Bethell, Sir J. H. (Essex, Romford) | Howard, Hon. Geoffrey | Runciman, Rt. Hon. Walter |
| Bethell, T. R. (Essex, Maldon) | Hudson, Walter | Rutherford, V. H. (Brentford) |
| Birrell, Rt. Hon. Augustine | Hutton, Alfred Eddison | Samuel, Rt. Hon. H. L. (Cleveland) |
| Black, Arthur W. | Illingworth, Percy H. | Schwann, Sir C. E. (Manchester) |
| Boland, John | Jackson, R. S. | Scott, A. H. (Ashton-under-Lyne) |
| Bowerman, C. W. | Jardine, Sir J. | Sears, J. E. |
| Brace, William | Johnson, John (Gateshead) | Sherwell, Arthur James |
| Brigg, John | Jones, Sir D. Brynmor (Swansea) | Shipman, Dr. John G. |
| Brooke, Stopford | Jones, William (Carnarvonshire) | Silcock, Thomas Ball |
| Brunner, J. F. L. (Lancs., Leigh) | Keating, M. | Snowden, P. |
| Brunner, Rt. Hon. Sir J. T. (Cheshire) | King, Alfred John (Knutsford) | Soames, Arthur Wellesley |
| Burns, Rt. Hon. John | Laidlaw, Robert | Stanger, H. Y. |
| Buxton, Rt. Hon. Sydney Charles | Lambert, George | Stanley, Hon. A. Lyulph (Cheshire) |
| Byles, William Pollard | Lamont, Norman | Steadman, W. C. |
| Carr-Gomm, H. W. | Layland-Barratt, Sir Francis | Strachey, Sir Edward |
| Clough, William | Lehmann, R. C. | Summerbell, T. |
| Cobbold, Felix Thornley | Levy, Sir Maurice | Sutherland, J. E. |
| Collins, Stephen (Lambeth) | Lewis, John Herbert | Thomas, Abel (Carmarthen, E.) |
| Compton-Rickett, Sir J. | Lloyd-George, Rt. Hon. David | Thomas, Sir A. (Glamorgan, E.) |
| Corbett, A. Cameron (Glasgow) | Lynch, A. (Clare, W.) | Toulmin, George |
| Corbett, C. H. (Sussex, E. Grinstead) | Macdonald, J. M. (Falkirk Burghs) | Ure, Rt. Hon. Alexander |
| Cornwall, Sir Edwin A. | Maclean, Donald | Verney, F. W. |
| Cotton, Sir H. J. S. | Macnamara, Dr. Thomas J. | Villiers, Ernest Amherst |
| Crosfield, A. H. | M'Callum, John M. | Vivian, Henry |
| Cross, Alexander | M'Laren, H. D. (Stafford, W.) | Walker, H. de R. (Leicester) |
| Davies, David (Montgomery Co.) | M'Micking, Major G. | Walsh, Stephen |
| Davies, Ellis William (Eifion) | Maddison, Frederick | Wardle, George J. |
| Dunne, Major E. Martin (Walsall) | Mallet, Charles E. | Waring, Walter |
| Edwards, Sir Francis (Radnor) | Marks, G. Croydon (Launceston) | Wason, John Cathcart (Orkney) |
| Elibank, Master of | Marnham, F. J. | Waterlow, D. S. |
| Ellis, Rt. Hon. John Edward | Massie, J. | White, Sir Luke (York, E. R.) |
| Erskine, David C. | Micklem, Nathaniel | Whitehead, Rowland |
| Essex, R. W. | Middlebrook, William | Whitley, John Henry (Halifax) |
| Esslemont, George Birnie | Molteno, Percy Alport | Wiles, Thomas |
| Evans, Sir S. T. | Mond, A. | Wilkie, Alexander |
| Everett, R. Lacey | Montgomery, H. G. | Williamson, Sir A. |
| Falconer, J. | Morgan, G. Hay (Cornwall) | Wilson, Hon. G. G. (Hull, W.) |
| Ferens, T. R. | Morgan, J. Lloyd (Carmarthen) | Wilson, Henry J. (York, W. R.) |
| Fiennes, Hon. Eustace | Morrell, Philip | Wilson, J. W. (Worcestershire, N.) |
| Findlay, Alexander | Morton, Alpheus Cleophas | Wilson, P. W. (St. Pancras, S.) |
| Foster, Rt. Hon. Sir Walter | Murray, Capt. Hon. A. C. (Kincard.) | Wilson, W. T. (Westhoughton) |
| Fuller, John Michael F. | Myer, Horatio | Wood, T. M'Kinnon |
| Fullerton, Hugh | Napier, T. B. | Yoxall, Sir James Henry |
| Ginnell, L. | Nolan, Joseph | |
| Gladstone, Rt. Hon. Herbert John | Norman, Sir Henry | |
| Glendinning, R. G. | Nussey, Sir Willans | TELLERS FOR THE NOES.—Mr. Joseph Pease and Captain Norton. |
| Glover, Thomas | Nuttall, Harry | |
| Goddard, Sir Daniel Ford | O'Brien, Patrick (Kilkenny) |
Question, "That the word 'any' be there inserted in the Bill," put, and agreed to.
§ Amendments made: To leave out the word "also" ["and also in the case of a person"], and to insert instead thereof the words "(c) There shall be deducted."
1226§ At the end of the Clause to add: "(d) Any income which is chargeable with Income Tax by way of deduction shall be deemed to be income of the year in which it is 1227 receivable, and any deductions allowable on account of any annual sums paid out of the property or profits of the individual shall be allowed as deductions in respect of the year in which they are payable, notwithstanding that the income or the annual sums, as the case may be, accrued in whole or in part before that year."—[Mr. Lloyd-George.]
§ Mr. A. A. HAWORTH had given notice of an Amendment, after the words last inserted, to add the words "and in the case of the income of any individual arising from the profits of any business (not carried on by a joint stock company) only the amount withdrawn shall be taken into account provided that one-half at least of the total profits shall be taxable."
§ When I moved an Amendment similar to this in the Committee stage it did not occur to me that it might be necessary to say anything of a personal character, but owing to the politeness of a Unionist candidate in my own neighbourhood imputing personal motives to me, I wish to say that the acceptance or refusal of this Amendment does not make a penny-piece difference to me personally. At that time the Amendment was only in manuscript, and owing to an unfortunate misunderstanding the report of the deputation at Somerset House had not been given to the Chancellor of the Exchequer, and he was unable to consider the Amendment at that time. I am glad to say now that he has been good enough to admit that the point is a perfectly valid one, and that there is a discrimination in the assessment of Super-tax as between private firms and limited companies, but unfortunately the only way in which he could see his way to redress that discrepancy would not be admissible on the Report stage. I am glad to spy that in addition to the validity of the point he has given me a pledge that he will make a note of it at the Treasury, and should he be there another year he will undertake to remove the discrepancy, if possible. Therefore I do not move.