HC Deb 16 June 1915 vol 72 cc717-46

(1) Income Tax for the year beginning on the sixth day of April, nineteen hunderd and fifteen, shall be charged at the rate of two shillings and sixpence, and Super-tax shall be charged, levied, and paid for that year at double the rates mentioned in Section three of the Finance Act, 1914.

(2) All such enactments relating to Income Tax, including Super-tax, as were in force with respect to the duties of Income Tax granted for the year beginning on the sixth day of April, nineteen hundred and fourteen, shall have full force and effect with respect of any duties of Income Tax hereby granted:

Provided that—

  1. (a) Sections four and six of the Finance Act, 1914, which confer relief with respect to earned income and small incomes respectively, shall have effect as though the rates mentioned in those Sections were doubled; and
  2. (b) Sub-section (1) of Section twelve of the Finance Act, 1914 (Session 2), shall not have effect with respect to any duties of Income Tax hereby granted.

(3) The annual value of any property which has been adopted for the purpose either of Income Tax under Schedules A and B in the Income Tax Act, 1853, or of Inhabited House Duty, for the year ending on the fifth day of April, nineteen hundred and fifteen, shall be taken as the annual value of such property for the same purpose for the next subsequent year; provided that this Sub-section—

  1. (a) so far as respects the duty on inhabited houses in Scotland, shall be construed with the substitution of the twenty-fourth day of May for the fifth day of April; and
  2. (b) shall not apply to the Metropolis as defined by the Valuation (Metropolis) Act, 1869.


The Amendment standing in the name of the hon. Member (Mr. D. Mason) and the hon. Member (Mr. Snowden) is out of order, because it increases the charge, and that cannot be done without a proper Resolution in Ways and Means.


I was rather dubious when I put the Amendment on the Paper that it might not come within your ruling. Should I be in order in discussing the question of the sufficiency of the revenue derived from Income Tax and Super-tax when the whole Clause is put?


I do not quite gather what the width of the hon. Member's proposed speech may be. It will be in order, on the Question that the Clause stand part of the Bill, to discuss whether the Income Tax contained in the Clause is sufficient or not.


I beg to move, in Subsection (3) after the word "respects" ["(a) so far as respects the duty"], to insert "(1) Income Tax under Schedules A and B in the Income Tax Act, 1853, in Scotland shall be construed with the substitution of the fifteenth day of May for the fifth day of April, and (2)."

6.0 P.M.

This proviso as it at present stands provides that in Scotland Inhabited House Duty shall be reckoned from the 24th May to 24th May, instead of 5th April to 5th April. The object of that provision is to make the levy of Inhabited House Duty correspond with the usual removal terms in Scotland. The intention of the words which I propose to insert is to extend the same principle to Income Tax levied under Schedules A and B, under which Income Tax is payable on profits arising from land. This Amendment is really the property of my right hon. Friend (Mr. Scott Dickson). Under the present circumstances, which the House well apprehends, he does not desire to move it, but I think I may, on behalf of the Committee, congratulate my right hon. Friend on his prospective appointment, which we all regard as the only universally popular thing that the Coalition has done. The Amendment has been suggested by the law agents of Scotland. A memorial in its support was sent to the late Chancellor of the Exchequer by the Society of Writers to His Majesty's Signet, the Society of Solicitors to the Supreme Courts of Scotland, the Faculty of Procurators in Glasgow, and the Institute of Accountants and Actuaries in Scotland. In the memorial it was pointed out that as a matter of practice the law agents and accountants in Scotland had agreed with the Inland Revenue authority to reckon Income Tax upon this basis. It has been found practically convenient to do so, and all that the Amendment proposes is to make statutory what has been the practice in the past. It is held that if this concession is made it will be found a matter of great practical convenience alike to the authorities and to all those who are interested in the finance of land in Scotland. I understand that some negotiations have already taken place between my right hon. Friend and the Treasury in this matter, although no final decision has been arrived at, and I take this first opportunity of bringing the matter to the attention of the new Chancellor of the Exchequer in the hope that, bringing his fresh mind to bear upon it, he will grant the concession which is asked for in the course of his term of office.


As my hon. Friend knows, the Amendment which he has moved is not exactly new. The only new point of the whole proceedings is that I am new to my office. I hope, therefore, that he will allow me a little time to consider the full scope of his Amendment and to make inquiry as to what the exact purpose may be. I would like to be quite sure that there is nothing more in the words he uses than upon the face of them they appear to bear. I understand that the Amendment is that for the purpose of valuation only the Income Tax year shall reckon from the 15th May to the 15th May, but that, so far as the liability to pay taxes is concerned, the liability will be from the 5th April to the 5th April. I would like to inquire further into the matter, and I hope my hon. Friend will be content to accept an assurance of good will on my part, and that with that assurance he will not press the Amendment.


It is difficult to follow the mutter because it is so intricate. Am I correct in thinking that the hon. Member, in proposing this Amendment, is trying to get over the difficulty which has arisen in Scotland in regard to the allowance for the Income Tax on interest due on 15th May, payable on bonds, and which has never been allowed by the faculty in Glasgow, or, so far as I know, by the solicitors in Edinburgh?


If he means that, he means something much more than I understood him to mean. That shows the necessity of my inquiring further as to the precise meaning of the Amendment before I can consider it. I must apologise for having brought the Bill on so hurriedly, but my hon. Friend will understand the circumstances. Not having had notice of the Amendment, and not knowing its full purport, it is difficult to accept it.


I hope we may have this matter settled. I do not think it is legal for these people to act as they do. Take this year. From whatever date in April the 2s. 6d. tax came into force, that was not calculated at all in the payment of interest on mortgages due on 15th of May. The 1s. 8d. rate was taken, and no allowance was made for the fact that a certain number of days were under the 2s. 6d. rate, I do not know why that is done. It must be a practice which is convenient enough when the rate is down, but very inconvenient when the Income Tax goes up. I am glad my hon. Friend has brought the matter up, and I hope the right hon. Gentleman will go into the matter and see what can be done.


I think the circumstances are as stated by the hon. Baronet. The practice has been in existence, and it has given rise to some difficulty, and it will be of great advantage if the matter is cleared up. However, the assurance given by the Chancellor of the Exchequer has satisfied me, and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That the Clause stand part of the Bill."


Perhaps, after what happened on Monday last in regard to the Second Reading, I may be permitted to congratulate the Chancellor of the Exchequer on the unique distinction of having had the Second Reading of a most important Finance Bill carried in this House without a word either of praise or of criticism being uttered in regard to it. I rise, not because I have the slightest objection, under present circumstances, to pay 2s. 6d. in the £ Income Tax and double rates in Super-tax; indeed, if I must confess what has been brought home to my mind by what has been disclosed to us in the enormous national expenditure that we are now incurring, I am tolerably certain that no great length of time will elapse before a substantial increase will take place, both in the rate of Income Tax and Super-tax. That being so, it makes it all the more important that the House should be assured that the method of assessment adopted, especially in regard to these new special war taxes, shall be one that will secure something approaching equality of sacrifice. There is no question that in normal times the method of making the assessment for Income Tax in manufacturing concerns on the three years' average, and in the case of coal mines on the five years' average over a period of years, worked out not too unfairly. But we are not in normal times. We are in absolutely abnormal times, and therefore in order to secure something like equal incidence of taxation, I think I shall be able to show the Committee that the old method of making assessment ought to be changed, and that the assessment, especially for these new war taxes already levied, and those which I am certain will be levied in the near future, should be made on the capital income of the year, and not on the average of a number of years. Under that plan of making assessments, those who are reaping huge profits out of the War will pay on their largely increased profits, and those, on the other hand, who are not so fortunately placed and who are hit badly by the War, will have an equitable reduction in the financial demands which are made upon them.

After the blunder of Monday last I have taken some trouble to acquaint the Chancellor of the Exchequer—I regret to say he is not here at this moment—to a certain extent with the arguments to be advanced in favour of my idea, that the Income Tax and the Super-tax should be levied on the actual income of the year. The imposition of this enormous increase in taxation could not be foreseen, and therefore business concerns which, in the ordinary way when well managed, make provision in their accounts for the Income Tax that will become payable, cannot possibly have been expected to make provision beforehand for this doubling of Income Tax. Therefore, it comes altogether under a different category. To impose these new war taxes on an average of years, whether three years or five years, will cause a most unequal burden to fall upon people in different trades in different localities. We know that the effect of the War on the same trade in different districts—


Is the hon. Member in order in delivering on the Motion, that the Clause stand part of the Bill, an oration which he ought to have delivered on the Second Beading? Would it not be more convenient if he reserved it to the Third Reading, and allowed us to get to business?


May I explain that I am not making a speech, and that I have modified my speech somewhat on the same lines that the hon. Member would have done if he had been placed in a like situation?


Certainly it is not in order in Committee at any stage to deliver Second Reading speeches. The Question is whether the Clause fixing the Income Tax for the current year should stand part of the Bill. Therefore, so far as Income Tax alone is concerned, it is legitimate to review the circumstances of the taxes for this year.


Not only does this Clause state the amount of the taxes that are to be levied, but it also states the method by which the assessment will be made in each individual case. I submit, therefore, that I am well within order when I seek to show what an enormous difference arises in the same trade in different districts and also in different trades in other districts. Take the case of Northumberland. Since the War broke out the collieries of Northumberland have been worked up to date at an actual loss, I believe, in every case. On the other hand, collieries in other parts, especially the steam coal collieries in South Wales, have been reaping a rich harvest. On the one hand you have the woollen trade of Yorkshire working practically night and day and earning very large profits. On the other hand, you have the cotton trade of Lancashire very seriously affected. I may say that I am speaking to-day on behalf of large and important commercial interests in many parts of the Kingdom, and at the request of manufacturers and colliery owners and others who are vitally affected by the method of assessment provided for in this Clause. In the cotton trade many concerns have been very hardly hit by the War. It is perfectly true that in one department—the tent canvas department—they have been extremely busy and doing well; but in other departments of the cotton trade they have suffered very considerable fosses. Then, on the other hand, you have the armament works, you have the shipbuilding concerns, and you have the ship-owning concerns, all earning large profits, and largely increased profits, in consequence of the War. On the other hand, you have the pig-iron trade of the North-East Coast of England losing money, because they have been seriously affected in those trade matters upon which they are so enormously dependent for their success.

What I submit to the Committee is this: that, in view of this enormous variation in the effect of the War upon different trades and industries, the only fair and equitable way to arrive at assessment is to make them pay on the actual results of the working of the year. I believe that in that view I have the support of the great majority of the business men in the country. It is perfectly true that some who are earning huge profits out of the War take the other view. But justice to those who have been suddenly and hardly hit by the War demands that those who are making huge profits shall pay upon those largely increased profits. Not only do I desire that they should pay 2s. 6d. in the £ upon those largely increased profits, but we all expect and understand that the Chancellor of the Exchequer is going to levy under a graduated scale a still further charge in the shape of Income Tax in the £ on war profits. I think that that is a perfectly just arrangement and embodies the principle of equality of sacrifice on account of the War. Take especially the coal trade. Whereas the coal owners of South Wales could easily pay the 2s. 6d. in the £ Income Tax out of their greatly increased profits, on the other hand the coal owners of Northumberland will have to pay an increased charge out of capital.

It is a misnomer in the case of works, manufactures, or collieries which are being worked at a loss, to call this Income Tax at all. Income Tax is something levied on income, and when it has to be paid out of capital it is a misnomer to call it Income Tax, because you are taxing the capital. I do not object to a tax on capital if it is levied all round, but to have some people taxed on capital and others only charged an average amount on largely enhanced profits involves a departure from the only sound principle of taxation, namely, that every man shall be taxed according to his ability to pay, which this Committee ought not to sanction. In conclusion, I would like to explain that the only provision for making any abatement is that if the profit of the year under consideration is less than the profit of that year and the four preceding years or the two preceding years, then the persons assessed can claim on the difference, but that does not meet the case of all. I would not press this point so strongly to-day were it not that I am convinced that in the near future the demands upon the taxpayers, both as regards Income Tax and Super-tax, will be largely increased, and therefore it becomes urgently necessary that we should fix it and levy it on an equitable basis.


I am very glad to welcome the hon. Baronet who has just sat down, as a valuable supporter of a proposal which I urged a few weeks ago in the Debate on the introduction of the Budget. Indeed Socialist proposals and demands are being made so universally in this House to-day that I am beginning to feel something of a very moderate and old-fashioned individual. I do not forget that the proposal for the exceptional taxation of war profits, which, even Tory newspapers are now agitating with a great deal of enthusiasm, was first proposed from these Benches in the early days of the War. I rise merely for the purpose of seeing if it is possible to draw from the Treasury Bench something more than the formal statement that the question of war profits is receiving the consideration of the Government. That has been done now for many months past. The late Chancellor of the Exchequer made before this House a few weeks ago a Budget statement which was most remarkable in this respect: that he made no proposal at all for meeting the heavy deficit in the national revenue. How long are we going to wait before we get a proposal of this kind? This delay, I am quite sure, is having a very serious effect.

I do not know whether the newspapers are being prompted by the Treasury or not, but there is something of a Press campaign going on in favour of national economy and domestic economy. I listened with a great deal of interest to the speeches made in the early part of this afternoon on this question of national economy and individual wealth, and with the exception of the hon. and learned Member for Leamington (Mr. Pollock) all the speakers seemed to confine their appeals to the wage-earning classes. I am reminded by the remarks which were made of an incident which came under my observation a good many years ago. A very wealthy philanthropic lady was in the habit of giving lessons to working people on domestic economy, and upon one occasion she had been addressing an audience of working men and women and pointing out how very nourishing soup could be made by boiling bones. When question time came a man rose and said that lip had been very much interested in what the bountiful lady had said, but when she was speaking about the nourishing soup that could be made from bones it occurred to him to ask what had become of the meat that belonged to the bones. That occurred to me this afternoon when I was listening to these appeals to the working people to practice greater thrift and economy. I deplore as much as any man can deplore wasteful expenditure on the part of working people. I deplore it all the more of course if, when every penny of the working people is spent to the very best possible advantage, that income is not sufficient to provide enough of the necessaries of life and the decencies and comforts of life. I want economy of that sort. In regard to thrift I would like to have heard—




I am very sorry if I have wandered from the subject, but this is simply leading up to the point that this, delay on the part of the Treasury on the question as to what they are going to do in regard to meeting the national deficit is having a very bad effect, because people do not know whether they ought to be saving or not in anticipation of the Government making a call on their savings. However, I will leave that point. The-main point dealt with by my horn. Friend, who has just sat down was in regard to the three years' average of the Income Tax. The Income Tax law is full of anomalies and injustices. Now, we may tolerate these when the Income Tax rate is low, but they become an intolerable burden when the Income Tax rate is very high. Therefore I think that we must face this question. One of the gravest of injustices in the present system of levying the Income Tax, as bearing upon particular classes of the community, is this system of the three years' average and the five, years' average. I see no way of getting at what all of us appear to be anxious to reach, namely, the exceptional taxation of war profits, except by the abolition of this three years' average. I do not believe that it would be a practical question—it would be impossible—to deal with the special taxation of war profits by trying to find them out and putting special taxation upon them. Some general principle will have to be laid down, and the first step to that will be the abolition of the three years' average and the assessments of the profits upon the actual income of the year.

This, I think, is specially necessary in the case of farmers' profits. My hon. Friend referred to the profits of armament manufacturers and certain branches of the coal trade. He made no reference to the enormous profits which are being made by-some farmers to-day, profits which in percentages are much higher than the profits of armament manufacturers and, I believe, even of the khaki cloth manufacturers. Under our present system no farmer pays a penny Income Tax if his rent be less than £480 a year. That is nothing short of a scandal. The landlord is supposed by the law to gain three times as much for permitting the farmer to use and work the land as the remuneration of the fanner himself. We all know that a farmer who pays a rent of £480 a year is making an income of more than £160 a year. The price of wheat has increased considerably. The prices of oats and barley have also increased. Indeed, I believe that owing to the larger output of oats the farmers are deriving a great deal more through the increased price of oats than through the increased price of wheat. Unless this system is changed in two respects—in the first place, by the abolition of the system of assessment of farmers' income under Schedule B and placing them under Schedule D, and, in the second place, in assessing the farmers' income upon the profits which they have actually made—the farmers are going to pocket money to which they have no moral right and which has been made out of the necessities of this great national crisis. I especially commend these considerations to the Chancellor of the Exchequer, and I do hope that when the proposals for raising this additional revenue are put before the House we shall find that the long consideration of this matter by the Government has not been in vain and that practical proposals will be submitted to the House.


The actual proposal before the Committee is to leave out the Section of the Bill which reimposes the Income Tax. I do not suppose that that proposal on its merits is worth a moment's discussion, because everybody is well aware of the fact that we cannot do without the Income Tax for this year.


It is to be brought back with the system of assessment altered.


I agree; but that is not the actual proposal made. What the hon. Baronet really wants to do, instead of abolishing the Income Tax, is to charge it on this current year. I would suggest that, so far as this year is concerned at any rate, his proposals are almost hopeless, for we should lose on this year in Income Tax under Schedule D, Super-tax, and the other Schedules something like £100,000,000 sterling, to be got back at some future date when we should know what the income of the current year was, and I am very much afraid that we should never catch up with these tremendous arrears.


Perhaps my tight hon. Friend will allow me to explain that my intention was that the income of the year ending the 6th of April last should be taken as the amount on which the Income Tax for the year ending the 6th April, 1916, should be charged.


I took down the words which he used. He said "the current year." Therefore, to get rid of the three years' average and to charge on the current year, is admittedly a thing which it is impossible to ask the Government to undertake. I come to the question of the three years' average, and I would suggest first of all, that it will be admitted in all quarters of the House that this is not the time to explore radically the Income Tax Acts. One sentiment which I have heard in the House, and which receive a good deal of assent, and in which I agree with the hon. Member for Blackburn, is that the Income Tax Acts are full of anomalies. They work unequally; they work unfairly, and they require revision in almost every one of their provisions; and, before the outbreak of the War, it was the intention of the Government to appoint a Commission the object of which was to do this work which is so urgently required, and as to the necessity of which we have fresh evidence every day. But you cannot explore the Income Tax Acts in the middle of this War. Men's minds are set upon other things. Men, having the knowledge, have not the leisure to give to this exploration, and, if there is to be a millennium, I think it must be deferred until we have settled with the Germans. Therefore, I think we must be content with stop-gap and make-shift expedients in regard to the Income Tax and Super-tax. Expedients were explained to the House by my right hon. Friend the Home Secretary, expedients which I need not explain again now, beyond merely saying that we intend to ask the House to renew those expedients for the present financial year.

After all, the three years' average has worked very well for many generations. If you did without it you would find great difficulty in estimating what your revenue was going to be from year to year. It would work at one moment very unfairly to the taxpayer, and at another moment very unfairly to the Revenue. After all, the taxpayer gets the advantage of a bad year which comes in the three years' I average just as the Revenue gets the advantage of a good year when in comes within the three years. But the real underlying motives of the hon. Members who have spoken in support of this Amendment is to urge upon the Government the necessity of doing something to tax War profits. I do not believe that the expedient of doing away with the three years' average and starting a new arrangement would be a good one. I do most heartily agree with those hon. Members who have spoken in this Debate that it is necessary and that it is just that we should find, and find soon, a means of taxing profits made during the War. War is a time of great national disturbance and emergency, and when everybody is being asked to do something to help us to carry it on in the way of personal or financial sacrifice, there is something repugnant in the idea that there should be individuals and firms who are making more than they made last year, and who are not subject to special and substantial taxation. Therefore, for the reasons I have given, I cannot assent, and I hope the House will not assent, to the Amendment to leave out Clause 4. I hope that at some very early date we shall be in a position to give Parliament a watertight proposal for getting at the extra income made during the War and for taxing it substantially.

I would suggest to the hon. Member for Blackburn that it is desirable that the country should know that it is our intention to do that; but they cannot escape for a month or two, and we may have to wait for a month or two. It is not such an easy matter as it appears on paper. It is difficult to distinguish profits made actually in the War; it is difficult to distinguish between profits made with increased capital liabilities and actual net profits; and, above all, it is difficult to distinguish between profits which are due to expanding yield of capital recently invested and profits due to the exceptional necessities of the War. Our delay is simply caused by our desire to make a scheme which shall be watertight, and in the course of the next few weeks I hope the hon. Member for Blackburn will give us the benefit of his assistance and advice in doing our best to frame a scheme to meet the objects he has in view. With regard to the farmers, I believe the first thing a Committee of Inquiry would turn their attention to would be the peculiar position of the farmer. A rough and ready mode of calculating a farming business is to divide the profits into three parts—one representing rent, another labour, and another profits. I suggest that the trouble in assessing farmers under Schedule D is caused by the extreme difficulty many farmers feel in keeping accurate accounts. As a representative of an exclusively agricultural district I suggest that it is by no means certain that farmers, taken as a whole, have been making large profits out of the War. Many farmers have been losers, and many of the profits that have been made have gone into other hands, and not into the pockets of the farmer. I do not think it is necessary for me to appeal to the House to pass Clause 4, and we ought not to get rid of the three years' average, and, as the hon. Member for Blackburn will be glad to know, we shall speedily find some means to tax increased profits made during the War.


I am sure that the Committee will generally agree with the right hon. Gentleman when he says that any revision of the Income Tax Act at a time like this is entirely out of the question, and we have, in my humble judgemnt, no alternative whatever but to accept it as-it stands, and to accept it with all the burdens that it imposes at the present time, although some particular incomes over £8,000 a year are subject to an Income Tax of no less than 5s. 2d. in the £. This is an enormous burden, no matter upon whom it falls, and it is especially a burden on the owners of great estates, of which infinitely less goes into their own pockets, and whose real income is infinitely smaller than that on which they are compelled to pay—smaller to a degree,, of which many hon. Gentlemen on that side of the House, I am perfectly certain, have no idea. Notwithstanding that, I say we are bound to accept it, even although the charge upon those to whom I have been referring is now in many cases 5s. 2d. in the £. Why is that? It is because the Income Tax during the last few years has been put to purposes against which this House and Parliament has been warned over and over again in days gone by by the greatest financiers this country ever knew. I remember that only last year I had occasion to make a few remarks in reply to the proposals of the then Chancellor of the Exchequer, who is now the Minister of Munitions for War. I took the opportunity—it was in May or June last—of reminding him of passage after passage from the speeches of Mr. Gladstone himself, in which he called upon the House, in days gone by, to remember what the Income Tax has done for us in great emergencies, and what, if you dealt with it as you ought to do, in reserving it for the case of war, it would do again in the future. I remember pointing out how the Income Tax was being piled up higher and higher, day by day, for purposes for which, in the wisdom of Parliament, it was never intended in former days.

Who knows in this disturbed condition of the world that we may not be confronted with a great war again? Practically within four months of my making that statement to the late Chancellor of the Exchequer from this box we were landed into the immense struggle in which we are engaged to-day.

I had hoped that it would not be necessary for me to intervene in this Debate at all, but when I came into the House, after a short absence, the hon. Member for Blackburn was making his speech. If I have misunderstood him he will forgive me, but as far as I could gather—I did not bear very distinctly—the hon. Member was making proposals to the House for further and definite taxation upon farmers at the present time. I am quite sure of this, that I should wrong the farmers if I said that they were not prepared to pay, like anybody else in this country, a fair proportion on the profits they were making. But I must repeat what I pointed out here the other night, and of which many hon. Gentlemen seem to be in perfect ignorance of the fact, that although it is perfectly true that the prices of corn of all kinds have been abnormally high and that not long ago wheat was making 67s. a quarter, and barley and oats have made high prices in the same way as well, they forget, or they do not know, that a great many farmers as a rule are extremely short of money. The hon. Member who has made his proposals to-night apparently has entirely forgotten the period of enormous depression which ruined half the farmers of this country, and from which the other half have never really recovered their old position.

Something has been said about rents and the division of profits which arise from the land between the tenants who occupy the farm and the labourers who till the land. Everybody who knows anything about farming knows that far and away the largest amount of money is spent on labour, and that that is the great outgoing of all others on the farm. It is only after that is done that the profits, whatever they may be, between landlord and tenant come into being at all. The farmers, and those men especially who suffered so heavily in the past, when the harvest is over always had, or the great majority of them, to thresh their corn and put a portion of it, and perhaps a very large portion of it, on the market as soon as ever they could. When they were pursuing that ordinary practice this year the prices were nothing remarkable at all. Wheat was then making between 26s. and 27s., and 32s. and 33s. per quarter. Some districts were making rather more, and some were making rather less. Not only was that the case, but there was not a good yield, and their produce depends perhaps more on the yield sometimes than on the actual price So it would be an entire mistake to say that up to the present time the farmers, taking them aw a whole, as a class, have made any enormous profis at all. Some of them, perhaps, who have been well-to-do, and who were able to wait when they saw wheat rising, and were able to keep it, may have made profits, and very considerable profits too. But whatever their profits may or may not be, I venture once more to repeat that as far as the farmers are concerned, if they have made exceptional profits they will be perfectly willing to bear a fair share of the burden in common with all other classes of the community. Having heard those statements I felt bound to rise and show that there is another side to the question than that which the hon. Member for Blackburn presented, and I am deeply grateful to the Committee for permitting me to state it.


I am sure we have all listened with great interest and pleasure to the speech of the right hon. Gentleman the Member for Wimbledon (Mr. Chaplin). There is one particular passage in that speech with which I should like to say I agree, and that was what he said with reference to the high rate of Income Tax at the time when we started this War. I fought on many occasions for economy, for the very reason which the right hon. Gentleman mentioned, namely, that in the event of a great war we would be placed at a very great disadvantage in having such high expenditure as that in which we were then indulging. If I remember aright, the Income Tax at the time of the Crimean War was 7d., and it was doubled, making it 1s. 2d. We started with an Income Tax of 1s. 3d., and the position is much more difficult when we have to ask for an in crease from 2s. 6d. The Financial Secretary to the Treasury made a very able and clever speech, but I think he must recognise the rather peculiar difficulty of the position in which we are placed at present. When I placed this Amendment on the Paper I was rather dubious about it being in order. The right hon. Gentleman well knows that the hon. Member for Blackburn (Mr. Snowden) and myself were prevented from proposing any new taxes, because to do so would be grossly out of order. Therefore we were handicapped in initiating a discussion since we could not propose anything that might entail an increased charge. I think the right hon. Gentleman might have given us credit for the belief, and might have grasped the fact that, if there was likely to be less income from our proposal, we would have remedied that by increasing the particular Income Tax and Super-tax which we proposed should be eventually passed. What we are anxious for, and I am sure the desire is shared by the right hon. Gentleman, is to obtain an increased revenue from the Super-tax or the Income Tax, and particularly to obtain it from those who are able to supply it. The present Finance Bill which includes this Clause is, as I think the Chancellor of the Exchequer himself said, quite inadequate for the particular financial position in which we are at present placed. What is that position, and what is the proportion between our expenditure and the yield of taxation? The late Chancellor of the Exchequer estimated that if the War continued for a year the expenditure would amount to £1,136,000,000. He estimated as against that that we would have derivable from taxation—


That is going far in the direction of a Second Reading speech. The hon. Member should confine himself to details.


We have derivable from taxation £267,000,000, of which this Income Tax and Super-tax forms a part. Therefore I submit that we must feel that this Clause which we are now asked to pass is entirely inadequate, and that the proportion of taxation which we are going to obtain from Income Tax and Super-tax in comparison with our expenditure is entirely inadequate. The proportion of £267,000,000 as against over £1,000,000,000 of expenditure is far less than what was formerly the case. The Crimean War cost over £70,000,000, and £38,000,000 was derived from loans, and £41,000,000 from taxes. Therefore the amount we are now deriving from taxation is not anything like sufficient for the purpose which we have in view. I should like to read a brief quotation with reference to this very important matter of increasing our taxation from an illustrious predecessor of the present Chancellor of the Exchequer (Mr. Gladstone), if it is in order to do so.


The hon. Member must recollect that we are now in Committee going into details, and not into general matters.


I shall not then trouble the House now with the quotation, and I must defer it probably until the Third Reading. I should like to thank you, Sir, for the generous way in which you have treated my remarks. I did feel that this particular Clause was quite inadequate for the purpose for which it was intended. I was very glad to hear from the Financial Secretary to the Treasury that His Majesty's Government are really at present considering a No. 3 Finance Bill, and I think the Chancellor of the Exchequer himself also stated that we may expect in a very short period some fresh proposals. I think possibly this discussion may have served some useful purpose by emphasising the importance of new measures being brought in, and new proposals more in accordance with the proper proportion of taxation as against loans.


I desire to make a few observations with regard to what fell from the hon. Member for Blackburn (Mr. Snowden). With regard to the taxation of farmers, as the representative of an agricultural constituency, I entirely agree with the statement of my right hon. Friend (Mr. Chaplin) that, although undoubtedly agriculture at the present time would be in a position to pay more to the Treasury in Income Tax than has ever been the case, yet it is an entire fallacy to imagine that the farmers of this country have been making very large profits. The Financial Secretary to the Treasury observed in his speech just now that an objection to the method of taxation proposed by the hon. Member for Blackburn was that farmers had great difficulty in arriving at accurate accounts showing profits for the year, and he implied that the Treasury had not got the knowledge either. It is rather remarkable that the knowledge which farmers have not got themselves, and which the Treasury are unable to get, is in the possession of the hon. Member for Blackburn. There is only one further observation I should like to make on that subject, and it is this: I agree also with my right hon. Friend that there is no class in this country which is more ready than the farming class to pay their just and fair share of the taxation which is necessary to pay for the War. I am quite certain that is so. We have not only had this afternoon from the hon. Member for Blackburn, but on other occasions we have had in this House remarks which were, at all events, not complimentary to the farming class. We have been told, or it has been implied in tone in speeches that have been made, that they are a very rapacious class, and that in some very nefarious way they are making profits out of the necessities of the country. On that argument I have only this to say: For seventy years or more it has been preached to the people of this country that the highest duty of any person engaged in business was to sell in the dearest market. The farming class was the slowest class in this country to adopt that teaching, and it does seem a little hard, when perhaps at long last they have accepted that theory, that the moment the dearest market is such as to give them a little more profit than they have derived during long years of distress, that the very class of politician who has most strenuously taught them that doctrine should immediately turn upon them and say that their obedience to that teaching is a proof of their depravity.

The special object which I had in rising in this Debate was to bring quite a different matter before the attention of the Chancellor of the Exchequer, and, in his absence, before the Financial Secretary. I put a question to the late Chancellor of the Exchequer a good many weeks ago as to whether the pensions payable to the widows of officers who fell in the War would be treated for Income Tax as earned income. The right hon. Gentleman will see the importance of the point. On the system by which the distinction has hitherto been drawn between earned and unearned income I imagine that the pension payable to the widow would be regarded as unearned income, but the late Chancellor of the Exchequer, in reply to my question, said that for this purpose the pension would be treated as earned income and given the advantage accordingly. I want to know whether as this Bill stands that pledge of the late Chancellor of the Exchequer will be carried out.



7.0 P.M.


The right hon. Gentleman gives his assent. But surely it is a question of interpretation, and I want to be quite certain that, when the authorities come to this Clause as it stands, that benefit will be given to the pensions of which I am speaking. If it is not quite certain that that interpretation will be given to the Clause, I would ask the right hon. Gentleman to insert a special provision on Report in order that that pledge may be carried out. I am certain the right hon. Gentleman will give the matter his consideration. As the Clause stands at present, as far as I am able to interpret it, it is very doubtful indeed whether, if the question were once raised, the benefit promised to that very deserving class—a class which in future will have the deepest sympathy of Members in all parts of the House—would be given. I submit that it ought to be given in exact terms and not left to be interpreted by the judicial authorities.


I wish to bring to the notice of the Treasury, now that we are levying the Income Tax for the year, the position of a class of the community who, I think, have been very hardly treated in the past, and to ask the Secretary to the Treasnry whether, in order to alter that treatment, it will be-necessary to put down an Amendment, or whether he can do it without an amendment of the law. I wish to refer to the question of savings of nurses. The Royal National Pension Fund for Nurses is an-institution the capital of which is composed almost entirely of savings of nurses. It may surprise the Committee to know that these poor women, in receipt of totally inadequate incomes, have in that fund £1,900,000. That fund has to pay Income Tax on all its investments. Therefore, the nurses indirectly pay it, and cannot in any way recover it, as they could if they were shareholders in a public company. The average annuity obtained by the nurses who put their savings into this society is £26—a totally inadequate sum to maintain them in their old age. It seems very hard that this class of the community, who are doing such noble work—a work which is brought to our attention just now more than usual—should be indirectly made to pay Income Tax upon their savings. I appeal to the Secretary to the Treasury—I am sure I have the sympathy of the whole Committee in this matter—to see whether, under the existing law, he cannot free this society, which invests the nurses' savings, from the payment of Income Tax upon those savings, and, if he cannot do it under the existing law, whether he will undertake to put down an Amendment to alter the law so that this fund shall be free from Income Tax.


It is very satisfactory to find that we have to-day a Financial Secretary to the Treasury who admits in broad terms that the Income Tax Act contains numberless anomalies which it is the duty of the Treasury at some time to put right. When some of us have attempted in past years to point out some of the anomalies of the Income Tax, whether in regard to wasting assets or on other points, we have usually been told that the loss to the revenue would be so much—it is nearly always £2,000,000—that it would be quite impossible and unfair to ask that the anomaly should be redressed. However, we have a new Financial Secretary who takes a different view and promises us that when it is possible a Commission on the Income Tax shall be set up and we shall be able to go into a number of matters to which we have called attention in the past. I thought the Financial Secretary's answer in regard to the three years' average system was hardly as good a defence as could be made. The complaint against the system is a very old one. It has been made from time to time over the period of fifty or sixty years during which the system has been in force. So recently as ten years ago a Committee of (Inquiry dealt with the matter very fully indeed. In the Report of the Committee on the Income Tax Members will find a number of paragraphs devoted to the question whether or not the system works well. They will also find that when the evidence of various traders was taken by that Committee the testimony in favour of the three years' average was far greater than the evidence against it. The system was given a new lease of life, and for my part I think it is a sound system.

May I remind those who dislike the system that, having paid their Income Tax for this year, if the War ends in the course of another year they may look forward to reaping the advantage as against the Treasury in the years which will follow. Those years will probably be years of depression, and, the Treasury having had its turn against the subject, the subject will once more have the advantage of getting its turn against the Treasury. I suggest that if those Members who have misgivings about the system look at the evidence given in 1905, they will probably find that there is a great deal more to be said for the present system than they suppose. [An HON. MEMBER: "In normal times?"] The Income Tax has passed through periods both normal and abnormal, and the three years' average system, which was originally established in 1842, has passed through periods of all sorts, times of peace as well as of war, and has stood the test over that series of years. The hon. Member for Blackburn (Mr. Snowden) has misgivings as to whether or not farmers pay an adequate sum towards the Income Tax. I think that he has been fully answered by previous speakers. No doubt misgivings arise from time to time, not as to whether we ourselves, or persons of whom we have intimate knowledge, pay enough, but usually as to whether a neighbour about whom we do not know much pays an adequate sum in Income Tax. So far as I know, the hon. Member for Blackburn is not in very close touch or association with farmers. He thinks that farmers do not pay enough, and he probably thinks that those with whom he is in close touch pay a more than adequate share. Some of us have misgivings as to whether or not certain classes or bodies pay enough to the Income Tax. An illustration of how hardly the law works in regard to the savings of poor persons was given by the last speaker (Sir A. Williamson). I am not quite sure that at the present time he could not secure redress for those on whose behalf he spoke by parity of reasoning with the case I am about to put before the Committee.

There are cases in which freedom from Income Tax is secured, perhaps not very wisely or very rightly. Industrial and Provident Societies are at present engaged in carrying out large contracts, some of them with the War Office, and they are undoubtedly making large profits. Many of the small traders in the country are inclined to believe that they compete at a disadvantage with these societies because the Industrial Societies do not pay Income Tax. How comes that? Under the Industrial and Provident Societies Act, 1893, it is provided that where a society by its rules is unlimited in the number of members and does not trade with any persons except its own members, it shall be immune from Income Tax, and it has been decided that that immunity arises where either of those conditions is fulfilled. The result is that all the Industrial and Provident Societies are able to take advantage of that immunity. They provide under their rules that the number of members shall be unlimited, and they are able to trade with all sorts of persons who are not members, and at the same time to secure total immunity from Income Tax. The retail traders find their competition very severe. If the position of farmers is to be looked into from any point of view, let me ask the hon. Member for Blackburn to look also into the question of the Industrial Co-operative Societies, who at the present time are undoubtedly making large profits from the contracts they have made with the War Office, which contracts they have, perhaps, obtained because, owing to this immunity from Income Tax, they have been able to tender on more advantageous terms than ordinary traders. That is one of the anomalies which certainly requires to be looked into.

On the question of War profits, everyone must agree that if you can determine what a war profit is you should tax it, and tax it heavily—I will not say remorselessly, but certainly heavily. But who is to say what a war profit is? What are you to debit to the period while the War is going on? How much of those other charges which are carried forward, or which are incurred for the purpose of reaping the so-called war profits, are you to debit against them? You open up a field in which hardly any auditor or accountant can assist you. You raise a number of questions which have remained unsolved during the period of recent finance, or during the time when we have come to look at finance in a much more orderly and businesslike manner. If it is possible for the Treasury to discover some real definition which would be satisfactory to the business world, I am sure that Members in all quarters of the House would be ready to assist them in securing that war profits should pay their adequate share to the Income Tax.

It is not denied that many anomalies exist, for the Income Tax system is one that dates from 1842, a time long before our present commercial system was in vogue, long before the Companies Act, long before the joint stock company system was in full swing, certainly long before any system of accountancy and audit was general, and long before the burden was placed upon directors of companies, and all others engaged in business, to render a true and adequate account, according to recent business methods, of those businesses in which they were engaged. No doubt there must be anomalies in this system, but it is a system which does work, and with a fair amount of success at the present time. I only trust that the right hon. Gentleman may remain to carry out, I will not say a pledge or a promise, but the hope that he has instilled in us all, that before very long opportunity will arise, and that he will give it fulfilment by removing some of these anomalies which he confesses do exist.


The scheme for the taxation of farmers suggested by the hon. Member for Blackburn, and that for the taxation for co-operative societies put forward by the hon. Gentleman the Member for Leamington, seem to me to stand very much on the same platform. They both pretend to be equitable propositions if they could be put into practicable form, but I believe they both would be very difficult to carry out. The objections to both of them are, I think, insuperable. The objections to the immediate alteration of the taxation of farmers seem to me to be enormously difficult. One point would be that in a farmer's account—when he keeps one!—the expenses of his own living, including a certain amount of luxuries, are inextricably mixed up with his general farming accounts. I put it on that simple and practical ground, and I do not at present see any hope of carrying out the suggestion of the hon. Member for Blackburn. The proposition of the hon. Member for Leamington as to the taxation of co-operative societies involves this enormous difficulty, that the members of these societies are almost all people of small incomes, and there would be an immense difficulty in the subject of claims for the return of Income Tax to be deducted. The only thing you could do would be to require an individual return. What the right hon. Gentleman has said is historically true, that there has been a sort of antagonism between Members on one side of the House and on the other on the subject of the agricultural community. I myself have never accused either landlords or farmers of anything but of being of a patient nature, except in a few cases where evidence of their taking advantage of their position was obviously clear. The right hon. Gentleman rather understated than overstated the immense heaviness on these of the Income Tax in the case of the land. He put it at 5s. 2d. in the £. I can show him accounts where the accounts look more like 7s. 2d., if the estate is kept in such a way as to allow of everything obliged to be spent in order to keep up the capital value of the estate.

It is true, as was stated by the right hon. Gentleman, that most people are very liable to misapprehend the rate at which farmers are making profits when we hear of prices going up and down. There was the case mentioned by the right hon. Gentleman where those concerned sell their produce at a given time of the year. There are curious and abnormal cases in regard to such crops as the potato crop. It is sold beforehand in expectation of a large crop. Then comes a bad season; it is diminished in value; the farmer has certainly made an abnormal profit and the middleman a loss. But the converse occurs exactly in the same way. The more one looks into the matter—and I speak from experience, and my experience is partly personal—the more one is convinced that the existing mode of taxation of the agricultural community cannot be altered without very much greater consideration than can be given to it at the present time. At all events, to come back to what is the real point of this Amendment, it would be absurd to refuse to pass the Section as it now stands, in the vague hope that something better may be foreshadowed in the way of Income Tax in the various ways suggested in the Debate.


I hope that the Government will select the Income Tax on the three years' average, instead of the actual income for a given year. We want the fat years to make up for the lean. It is much more helpful to a man in business that he should pay on an average for three years than on the year which happens to be pretty good, or on the year when he has made no money whatever. The Financial Secretary very ably pointed out that it is most important that every Government, in calculating their income, should have some firm basis to go upon. With reference to the taxation of farmers, I may say that I have been a farmer all my life, and know something about it. I agree in the main with what the right hon. Gentleman the Member for Wimbledon has said. While we all admit that the times for farmers have improved very much this year, it is a fact that last year crops were largely sold in the autumn, when prices were not by any means high. Seventy acres of wheat of myself and my partner were sold for £2 a quarter, and we were sufficiently patriotic to plant 150 acres of wheat for this year. But the present high prices do not affect many farmers at all. The same with reference to the feeding of cattle. Fat cattle sold at a low price last autumn. Now they sell at a high price. Still we must remember that farmers do buy feeding stuff at a very high price to make the cattle fat. Therefore the prices for the cattle are not so high as appears on the surface. We welcome, after a period of unexampled depression which farmers have gone through for twenty-five years, better times for agriculture; but speaking myself as a farmer we are prepared to pay our fair share towards the expenses of the upkeep of the country.

Two points have been mentioned—one by the hon. Member for Blackburn, who had suddenly developed a desire that farmers should pay on Schedule D instead of Schedule B. It is rather curious that the proposal was not made in the days gone by, when statistics plainly showed that the average farmer was getting no income whatever. The hon. Member for Blackburn now, when the farmer is getting a little income, wants to change the system at once, and make him pay on the actual income received. I, for one, do not object to that; but I do say, if there is any rearrangement made in the system under which farmers pay Income Tax, the question of the rates paid by farmers ought to be dealt with at the same time. While I admit that the farmer gets off easy generally by paying Income Tax on one-third of his rent, in paying rates he is more heavily burdened by far than any other section of the community. As an Income Tax payer, he has to pay a rental of £480 a year to be charged on £160. On that rental he pays rates on £400. There are plenty of manufacturers sitting on the opposite side of the House who pay only on £400 a year rates, whose income would be twenty times more than that of the farmer. Therefore, the Committee, in fairness, if they want to rearrange the system of taking Income Tax from the farmer, should also rearrange the system under which he pays his rates. In fair play, both aspects of his contribution should be looked at, and I am certain that the alteration would be extremely beneficial to the agricultural classes. As for the present position of agriculture, we are delighted to see still better times, and we are patriotic enough, I think, to realise that there is a responsibility upon us to produce from all our land the utmost we possibly can produce in the interests of the people.

We have our difficulties. At the present time cowkeepers can hardly pay their way. It would be calamitous for them to have any increased burden put upon them, for if they give up their industry the public lose their milk supply. Other directions I must not follow, because, though the Chairman is very indulgent, it is extremely difficult for a practical man, not having learned oratory, but having learned farming, to tell an unvarnished tale to his colleagues in the House without coming up against a point of Order. Still I do say this: our industry is the greatest industry in the country, after all. There is no industry in which the people of this country depend so much as upon agriculture. We do not ask favours of the House of Commons—


I am sorry that the trend of the hon Member's observations are out of order. We are at present in Committee.


I was just going to say that if we pay too much Income Tax we shall not have so much money to grow food for the people. Therefore food will be dearer and the people will suffer, and the country will lose altogether.


I am afraid that shows definitely that the hon. Member's observations cannot be allowed.


The Debate to a large extent, to my mind, has been founded on what I feel to be a fallacy—that is to say, in the present year being taken as a basis of what taxes will yield rather than the three years' average. It is quite true that it is a great principle, or a good principle, under which businesses have paid which are now making big profits, but if you take the whole country it is clear they cannot be making so much on the average. We all know exports have fallen tremendously. The Stock Exchange has been shut for half its time. You have got any number of businesses throughout the country that cannot be yielding up to the average; therefore it would be folly to take this year as a guide and as a basis for assessment. Another point hinted at by several Members, and to which allusion was made by my right hon. Friend the Secretary to the Treasury, is what is called the taxation of war profits. Let me, a professional man, warn my hon. Friend that if he once goes into that question he will find himself in elaborate and most awful difficulties. What are war profits?

I know one company which started business about the time of the South African War. It made good profits in the South African War, but after that, and from that day till last year, it has never paid a dividend. Its 20s. shares have been reduced to 4s. Now it is making a little profit, but do not forget that for these very shells a special plant has been put down by many firms. What is the value of that plant after peace is made? Why, the country will be flooded with plant which is no good to anyone. Then how are you going to reckon how much is attributable to the hard work of the man himself and how much is to be put by for the bad years immediately after the War? We all know that after a war, perhaps for a few months, business is brisk, but it is the universal fact, as shown by experience, that for years after that there is great depression, and the depression will be found more particularly in these businesses. Further, it is quite clear to my mind that next year the Income Tax will be still heavier. I am afraid that it will be so; in fact, I see no escape from it. If so, then the average will help the Treasury, because all these people who make these big profits this last year would come into the average. It is better to get 3s. 6d. on £100,000 than 2s. 6d. But, on the question of taking special war profits, or profits made during the War, I warn the Treasury that if they are going to start on that they will start on a most difficult problem.


I sincerely hope the Treasury will not try to act upon the suggestion made by the hon. and learned Member for Warwick and Leamington (Mr. Pollock) by taxing profits of industrial and provident societies. For this reason: Every man who has an investment in an industrial and provident society does pay at the present time Income Tax on the dividend from that investment if his income is above the Income Tax limit. In the case of a limited liability company, the Income Tax is deducted by the company when paying the dividend. That is because in nineteen cases out of twenty the shareholder has an income above the Income Tax limit. In an industrial and provident society the man who has shares receives his dividend in full, but if his income is above the Income Tax limit, he has to pay the Income Tax himself. The reason for that is that, in nineteen cases out of twenty, the shareholder in an industrial and provident society has an income below the Income Tax limit and, therefore, if you were to deduct the Income Tax from the whole twenty shareholders the nineteen would come and demand their Income Tax back, or find it too much trouble, and a great injustice would be done to them. Hundreds of thousands—in fact, you might say millions—of people would come for their money back, for the numbers in the industrial and provident societies in this country now run up to nearly three millions, the vast majority of whom have incomes below the Income Tax limit. I know that those who have an income above that limit pay at the present time, because I happen to be one of them. I have a number of small investments in industrial and provident societies, and the revenue authorities make me pay on the dividends which I receive from them. If you got the money in the other way, you would get no more money unless you did it by inflicting a grave injustice on people who have not incomes above the Income Tax limit.


I want to reply to two questions. I think, as far as I understood the case my hon. Friend the Member for Elgin and Nairn (Sir A. Williamson) put to me, it can be dealt with administratively if the persons are not really liable to Income Tax. Perhaps he will be good enough to talk to me about the details of the case, and I will see before the Report stage if I am right. The hon. and learned Member for St. Augustine's (Mr. R. McNeill) is under the impression that officers' widows and officers themselves will not be allowed to treat their pensions as earned income. If he will look at the Finance Act, 1907, Clause 19, paragraph (a), he will see that it is distinctly stated therein that pensions should be regarded as earned income and taxed only as such. The words are earned by "the individual," or "husband or parent."

Question put, and agreed to.

CLAUSES 5 (Separate Assessment of Life Assurance Business), 6 (Provision as to Calculation of Loss where Company Carries on Life Assurance Business), AND 7 (Accountability of Company for Income Tax Deducted from Annuities) ordered to stand part of the Bill.