HC Deb 16 June 1921 vol 143 cc715-39

(1) Income Tax for the year 1921–22 shall be charged at the rate of six shillings, and the rates of Super-tax for that year shall, for the purposes of Section four of the Income Tax Act, 1918, as amended by the Finance Act, 1920, be the same as those for the year 1920–21.

(2) All such enactments relating to Income Tax and Super-tax respectively as were in force with respect to the duties of Income Tax and Super-tax granted for the year 1920–21, shall have full force and effect with respect to the duties of Income Tax and Super-tax respectively granted by this Act.

(3) The annual value of any property which has been adopted for the purpose either of Income Tax under Schedules A and B, or of Inhabited House Duty, for the year 1920–21, shall be taken as the annual value of that property for the same purpose for the year 1921–22:

Provided that this Sub-section—

  1. (a) so far as respects the duty on inhabited houses in Scotland, shall be construed as referring to a year of assessment ending on the twenty-fourth day of May instead of to a year of assessment ending on the fifth day of April; and
  2. (b) shall not apply to lands, tenements, and hereditaments in the Administrative County of London with respect to which the valuation list under the Valuation (Metropolis) Act, 1869, is, by that Act, made conclusive for the purposes of Income Tax and Inhabited House Duty.


I beg to move, in Sub-section (1), to leave out the word "six" and to insert instead thereof the word "five."

I do not suppose that the most sanguine Member of this House expects this Amendment to be carried, though, if it could be carried, perhaps it would do more than any other to encourage the restarting of trade and industry in this country. I have put it on the Paper in order to get an opportunity of raising a discussion on a point of view especially concerned with the Income Tax which has not been discussed up to the present. So far as the Debate has gone, it has been on the old lines, which were quite proper and important under previous conditions, as to whether somebody was paying too much or too little as between direct and indirect taxation, and as between different classes of taxpayers, and the atmosphere is that there is a certain burden of taxation which the nation as a. whole can bear, and the principal duty of this House is to try to distribute it fairly. That has been the position for so many years before the War that it is very difficult to get out of that attitude. I suggest that we are now in a condition which raises a much more vital issue, the issue as to how the nation as a whole is going to bear the burden of these taxes that are placed upon it. It is not a question so much of who is to pay what, as of how is this burden of Income Tax to be borne at all.

I raised this question in a preliminary way in some remarks which were made in the course of the Budget Debate on the Financial Resolutions upon which the Finance Bill is founded. I then quoted figures which I thought made a strong case to show that at the present rate of Income Tax it is a general complaint that those who have to pay a large portion of the Income Tax have to pay it out of capital and cannot pay it out of income. If that process continues there is no question that the hardship to individuals would be endangering the most vital sources of income on which our national revenue is based. The Secretary to the Treasury answered the point which I then made. I may quote to the Committee what I said, and what was the answer. I said: It is very unfair that the House should be led to suppose that the £413,000,000 which has to be levied out of Income Tax in this coming year can really be paid out of income. That certainly leads to grave misunderstanding. The country believes that we can afford these sums when we really cannot afford them, and they are actually being paid out of capital."—[OFFICIAL REPORT, 26th April, 1921; col. 221, Vol. 141.] My hon. Friend in reply to that said: There was an observation made by the right hon. Member for Chelmsford which ought not to go without immediate challenge and reply. Dwelling, and rightly dwelling, upon the dangers of running taxation down to the narrow point at which it becomes taxation upon capital, thereby devouring the essential margin of safety, and so on, he said in a speech which moved the House that the burden of Income Tax of £410,000,000 this year is so great that it cannot be paid out of income and must be paid out of capital. It must not be allowed to go without immediate contradiction that this country is unable to pay an Income Tax of £410,000,000 in the year without drawing on its capital. The actual amount of income under assessment in the year in question is £2,350,000,000. The machinery of no tax is perfect. The machinery of income is not perfect, but it is not so grossly imperfect as to exaggerate the assessable income of this country from £410,000,000 to £2,350,000,000." —[OFFICIAL "REPORT, 26th April, 1921; cols. 264–5, Vol. 141.] It is important to follow that issue up a little further, because it is of great importance to the country from the financial point of view. I admit there is a superficial difference between the proposition which I made and the answer of the Secretary to the Treasury. I pointed out that, in a very large proportion of the area over which Income Tax is paid, it cannot be paid out of income. The answer given me is a slightly different proposition, namely, that the total amount of Income Tax can easily be met out of the total amount of income of the country. I suggest that there is a point at which those two propositions meet and cover exactly the same ground. As to this I will give a quotation from Adam Smith's "Wealth of Nations." I suppose that it is rather out of date now, and that a quotation from Karl Marx would be more up to date.


Hear, hear!


Perhaps that accounts somewhat for the present financial condition. A great many of the people responsible for a good deal of what is going on in the country to-day have forsaken the principles enunciated by Smith and taken up those of Marx


Quote Marx on taxation.


I prefer Adam Smith; my hon. Friend can answer with Karl Marx, who is his prophet. Adam Smith says: As the capital of an individual can be increased only by what he saves from his annual revenue or gain, so the capital of a society, which is the same as that of the individuals who compose it, can be increased only in the same manner. As to the point of view chosen by my hon. Friend in reference to the whole basis of revenue raised from Income Tax, I will quote the figures for 1918–19, which are the last available. The only difference between those and the figures for the last completed year are in amount, and to a certain extent in proportion, but they would rather strengthen my case. The total income assessed for Income Tax in 1918–19 was £1,970,000,000. Of that £1,745,000,000 was the income of persons or individuals and £225,000,000 was the undistributed profits of societies and companies. In examining the question as to how far the £410,000,000 can be met out of the £2,350,000,000, exactly the same question has to be examined as in the case of the year 1918–19 when we are considering how the Income Tax which was about £338,000,000, if I remember aright, is to be distributed over the income of that year, which was not £2,300,000, but £1,970,000,000. The problem is exactly the same, though the figures are slightly different. It is important to see how much of that income of £1,970,000,000 is really available for taxation.

I have taken a figure on which every hon. Member can form his own opinion as to whether it is the sort of figure which he would have taken himself in studying it from the same point of view, and I have roughly assumed, where incomes are under £1,000 in present circumstances, and with the present cost of living, that there is very little available to bear heavy taxation, and, therefore, the part of the income of £1,970,000,000, which is the income of people whose income is below £1,000, is not susceptible of any heavy drain for the purpose of Income Tax taxation. I start, I think, with general agreement on that. Therefore it is interesting to note, if that point is agreed, that out of the £1,970,000,000 of income for the year 1918–19, the total tax raised upon incomes of less than £1,000 was £51,000,000, or slightly less than 1s. in the £. The total amount of incomes belonging to people who have over £1,000 a year was £668,000,000, and they paid in direct taxation £222,000,000, or an average on all incomes of above £1,000 a year of 6s. 8d. in the £, as compared with an average of Is. in the £ paid by people with incomes below £1,000. Therefore I do not think I shall be taking an unfair point if I reply to my hon. Friend the Secretary to the Treasury that it is only upon the £668,000,000 that this question which he discusses arises.

Mr. A. LAW

Is the right hon. Gentleman taking Super-tax into consideration?


Yes, Income Tax, including Super-tax. That is part of the reason. Those who have incomes below £1,000 pay no Super-tax. A great many of those above £1,000 do pay Super-tax. The Income Tax and Super-tax together give the figure I have stated of 6s. 8d. in the pound, out of £668,000,000. Let us consider the £225,000,000, which is the undistributed profits of investments. It is fair to assume that a very considerable proportion of that is the property of, and is invested by, those who have incomes within £1,000 a year. The tax on that is £65,000,000. But that £65,000,000 has not gone into the pockets of those who own the shares—all that has gone into their pockets is the £668,000,000—although the burden of this tax falls upon that, because it reduces the earning powers of the companies in which the earnings are placed. Therefore you add a considerable proportion of the £668,000,000 to the £225,000,000 already paid. That would bring the tax to 8s. 8d. in the pound on the average, and if you call it 8s., you would not be very far wrong. But since then there has been a still further change in the graduation of the tax. Super-tax has been increased, in many cases by Is., and the graduation has been steepened. Therefore that figure of 8s. is an understatement of the present position. Probably the figure of 9s. would not be very far out, as the present average burden on the incomes of everybody who has over £1,000 a year.

What is that 8s. in the pound levied upon? It is levied upon statutory income. It is rather interesting to note what is the claim by the Inland Revenue as to the basis on which Income Tax is levied. I had the honour of serving on the Royal Commission on Income Tax. I remember the evidence given on behalf of the Board of Inland Revenue. Mr. Hopkins, who represented the Board, said: Income Tax applies to all annual income or profit. Broadly speaking, it may be said that by profits are meant net profits, the surplus of income remaining after deducting ail necessary expenses of making it; but this statement is subject to certain qualifications, as will appear hereafter. I think it must be subject to very considerable qualifications. That definition ought to be borne in mind. Income Tax is levied upon net income, that is, on whatever income is left after deduction of all expenses necessary to earning it. What is statutory income? Is it the same as real income? It is nothing of the kind. Take one rather important item. A large item in the assessment of incomes is housing. Several millions are assessed upon houses in which people live. Every hon. Member will know that his house, whether large or small, is not a source of income to him, but a source of expense. He is, however, assessed for it and he has to pay tax upon it. When you come to what he really has to pay the tax out of, you have to add to the burden on that money the tax which is payable on his house, and that money has also to pay its own tax. Take a garden. I do not know whether hon. Members realise how their gardens are taxed. Whereas a house pays a tax only once, a man's garden is taxed twice. He has to pay Income Tax, and if he is a Super-tax payer he pays Super-tax, to the full amount under Schedule A; and he pays a second time under Schedule B. His garden is a source of expense, and not of income.

When you get into the region of the larger taxpayers—I am not putting it as a case of hardship, but solely in regard to revenue—suppose a man has a park attached to the home farm and he uses it for the grazing of stock. First of all it has to pay Income Tax under Schedule A and Super-tax on the whole value of the park; then Income Tax and Super-tax under Schedule B on the whole value, plus the value of the tithe upon it, on which the owner is taxed; and, in addition to that, if he uses the park as part of the home farm, he might be taxed a third time under Schedule D, because part of the profit of the farm will be made by the use of the park. All these cumulative taxes, levied twice over upon the same unit of taxation, have to be found out of the residue of real money out of which the real tax has to be paid. Instances can be multiplied, and it is clear that statutory income and real income are very different things. This £338,000,000 in 1918–19, or the £410,000,000 in 1920, has not to be compared with the whole taxable revenue of the country of £1,970,000,000, or £2,300,000,000, but to be compared with the much less sum on which the tax really presses, because the people with under £1,000 a year income are taxed an average of only one shilling in the pound, and are not being ground down. It is the other people on whom you have to "come and go." Therefore, when you compare this £410,000,000, it is not an absurdity to say it cannot be paid out of income, for instead of a lump sum of £1,900,000,000 it is £668,000,000 or £700,000,000, and that £700,000,000 is not real income which has to bear the taxes, but the figure is £338,000,000, and that is statutory income, and the real income is something very much less. So that you are getting very near a point when you are absorbing the whole of the available income of the country. That is the general case. I will deal now with individual cases.

These individual cases are not put forward as cases of hardship, but as having reference to the question of how the nation is going to get revenue in the future. I do not attach any special value to individual cases unless they are representative of the whole, but it is legitimate to give these cases, not as being specially hard, but as those which have come to my hand, and which indicate the general position. I gave one case which, I think, made some impression upon a few hon. Members present at the former Debate. It is the case of a £4 labourer's cottage in my own district. The figures in connection with it are available for the Chancellor if he wishes for them. I may mention that £4 a year is the normal rent for one of these cottages in the east of England. Out of the £4 paid by the agricultural labourer for the cottage, £l 14s. 2d. is paid in rates by the owner on an assessment of £4 5s. The real nominal rate is £2 8s. 9d., but 30 per cent. is allowed to the owner under the compounding system. He cannot deduct that rate from his Income Tax, and therefore to the £1 14s. 2d. in rates must be added 18s. of Income Tax, representing 6s. in the £ on an Income Tax assess- ment of £3. If there is Super-tax to pay on a considerable agricultural estate—and it is on the larger estates most of these houses are—we must add 13s. 6d. Super-tax, and there is also 7s. 6d. insurance, so that, without allowing anything for repairs or for Death Duties, the owner is left just 6s. 10d. out of £4. As I have pointed out, one of the consequences of this is that nobody will build houses now, and the State in order to get £3 13s. 2d. out of the pocket of the agricultural landowner has to build houses itself at a cost of £1,000 each, and impose a rent of £20 a year on the agricultural labourer instead of £4. Is that to be regarded as satisfactory finance? The owner gets practically a minus quantity, yet Somerset House declares that Income Tax is only levied on the net sum available after paying the expenses of earning the income or profit.

I will give another case. This is the case of a large property in Scotland. I have the full permission of the owner to quote it and I am prepared to hand these figures to the Chancellor of the Exchequer. The rental of this property is between £42,000 and £43,000 a year. Hon. Members may say that a man who has that income should be subject to any sort of tax. I do not know whether they will wish to go further than they have gone already, when they hear the details. Again I refer to the definition of Somerset House that necessary expenses must be deducted before you arrive at the net income upon which tax is to be levied. In 1920 the actual income of this property was £42,490. Management and maintenance, not including anything for amenities, for gardens, or anything personal to the owner, but merely business maintenance, management and repairs, amounted to £19,223, leaving a net income, which according to Somerset House is taxable, of £23,267. The Secretary of the Treasury says that such an income is so large that the tax has not to be paid out of capital. I have different opinions. On that £23,267 of net income there are rates, taxes and statutory burdens, including Ministers' stipends—which in Scotland correspond to tithes in this country—Income Tax and Super-tax, and the sum of all these burdens is £22,800, leaving to the owner £467. There are figures which any hon. Member can see. Is it possible to pay that out of income? It cannot be paid out of income. The owner of this estate himself says that he has bean living upon sales for the last year or two. He has not large capital available to pay out of, and he has to sell land and use the money he receives to pay these taxes, the total amount of which comes to about 19s. 7d. in the £ on the taxable income. Is that enough for the hon. Members opposite?

There is yet another case which was quoted in another place not very long ago. This is the case of a mineral property, which hon. Members opposite consider should be nationalised. This is a lead mine in Lancashire, and the royalty paid to the owner is £2,718 a year. That may make hon. Members' mouths water, but that sum is obviously liable to taxation. There are no expenses chargeable against a royalty. It is not like the case of agricultural land, where there are very heavy charges for maintenance, repairs and management; it is a payment all of which nominally goes into the owners' pocket, but out of that particular sum the Income Tax and Super-tax payable was £1,400, the rates paid were £650, the Mineral Eights Duty £102, and the Excess Profits Mineral Eights Duty was £570. If you add these together you will find that in the end the owner is minus £4. He receives £2,718 in royalty, and he payed out £2,722. Can that be paid out of income?

These are concrete cases, and they are not exceptional at all. The particular estate in Scotland, to which I have referred, is most admirably managed. The owner is a man of high business qualities, who has some of the best agents and employés that can be found. His estate is not heavily charged, and it is in a specially favourable position, whereas on a large majority of estates there are charges and mortgages, and they are in a bad position. One of the principal auctioneers of the country said the other day that if anyone wanted a big country house he might have his choice of 500. This auctioneer had 300 on his own books, and could get 200 off the books of others. I do not think anybody in this House will consider that it is good for the country that all this property should lie idle, paying taxes and being of no service to the community apart from that. This can be further reinforced by anybody who moves amongst those who are in business or who are owning landed properties. They all say the same thing, namely, "We cannot pay our taxes out of income. We either have to borrow the money from the bank, or we have to pay it out of capital, or we have to tell the taxing authorities that we cannot pay it at all." That is the position at this moment, and it is a most dangerous position from the national point of view. When we get figures up to that point, I suggest to hon. Members opposite that instead of the comparatively minor issue of whether we are paying a little too much for our tea in one direction or too much direct taxation in another, we want all to take counsel together as to how the nation is going to bear this burden at all.

We had an instance on a small scale in two Clauses which we have just passed sub silentio, and it is a warning. Why did the Chancellor of the Exchequer reduce the tax on cigars and champagne? His predecessor put the tax on in the hope of getting more revenue, and he has taken it off because he found the burden was such that it actually brought in less revenue. That is what is going to happen in the far more vital and important region of the Income Tax, once you get it up to a point where it cannot be paid over this higher area. The discouragement of this position is one of its most fatal features. People say, "It is useless. Every penny with which we would manage and develop our estates or our businesses is taken away from us, and it is useless to try to increase our income, because the only effect of doing so is to increase the burden of taxation, so that we get nothing out of it." The expression used to me by the owner of this property who sent me these figures was, "It is heartbreaking." From the point of view of hon. Gentlemen opposite and of labour generally, can there be anything more vital to them than that taxation upon industry should not be so heavy as to deprive their constituents of employment? Surely it would be better for them that the working classes, instead of having their wages reduced, should pay part of this tax themselves, so that they might realise what it is. My hon. Friend opposite the Member for Central Edinburgh (Mr. W. Graham), who studies these questions closely, suggested that it would be preferable if every person in this country paid something directly towards the taxation, but can he persuade them to do it?


They are doing it now.


Not directly, and that is the point. Of course, everybody pays something towards taxation who consumes any taxable article, but the hon. Member for Central Edinburgh suggested that it would be preferable if everybody paid something directly. When that was only carried down to wage-earners who were earning very large sums indeed, and they were asked to pay a tax, I think my hon. Friend will admit that the difficulty in collecting that tax has not been an encouragement to the Chancellor of the Exchequer to try and extend it any further down. Therefore, that method does not appear to be very hopeful.

The evil of this taxation goes even further than that. I think I have made my point that this tax is being paid out of capital, but there is another effect of this heavy taxation, and that is that there is a temptation to be spending capital upon amenity and personal objects rather than upon investing it in industry. If you invest it in industry and obtain an income from it, an enormous and a wholly impossible proportion of that income, or so-called income, is taken from you in taxes, but if you invest it in a picture or jewellery, you get the whole of the pleasure, and the Chancellor of the Exchequer may be said to contribute something like half of it, because he loses half his revenue on the investment which you have sold out. What is the position in regard to housing? At the present time, when a small house is to be let, a very large premium is paid as a rule, and the reason is that a man who pays £1,000 in a premium only pays income tax on the rent of the house, and he pays the £1,000 premium which he previously had in an investment. If that investment brought him in 6 per cent., and he was a Super-tax payer, half the loss of income would fall on the State and only half on himself; if he was not a Super-tax payer and was only paying 6s. in the £ Income Tax, then 3s. in every 10s. would fall on the State, and the other 7s. would fall upon him. He does not mind, if he is a man of a certain age, taking that £1,000 out of an investment and paying it as a premium on a house with a 10 or 20 years' lease, because he doubts whether he will live any longer than that, and therefore this taxation directly tends to waste and extravagance. After all, people who spend capital in that way upon house hiring do not have to go very far for an example. They have an example in the Government's own housing scheme.

I hope the Chancellor of the Exchequer will understand that I am throwing no stones at him. I think he has succeeded to a position of the most extraordinary difficulty. Everybody in the House wishes him well and will do his utmost to support him in any effort he may make, and I merely put this to him, not to find fault with him or to suggest that he or his predecessors are responsible, but I suggest that the situation is now so wholly different from what it was before that it has got to be faced in a wholly different spirit and from a wholly different point of view. It is somewhat similar to the position in the War. What was the reason why the War dragged out so long? It was because the Allies had no plan. The only man who had a plan was Marshal Foch, and when he was given his opportunity and carried out his thought-out plan the War was very soon won. What we are doing now is to drift on with the old ideas and the old talk. I notice that this Debate on the Budget has followed almost the same lines, almost word for word, arguing about Free Trade and Tariff Reform and all the old questions, exactly as we used to debate them when we had plenty of money and plenty of time. We have now something much more serious to discuss, and that is, how the country is going to pay its way. It is a vital matter, and I suggest to the right hon. Gentleman that, just as we went perilously near losing the War because we had no plan, and won it when we had a plan, so we cannot go on drifting in this way without a plan, and it is his business and that of his advisers, between now and next Session, to think out a plan, just as Marshal Foch thought out his plan. Let him think out a plan over the whole area, by which the nation may pay its way, and there may be some hope of not drifting on with an endless vista of Income Tax, which amounts in many cases to 20s. in the pound—a hopeless position, in which there will be no effort, no revival of industry—a plan under which both the financial authorities and the nation can look ahead with some hope, and can feel that, though the burden is heavy, we have a plan for reducing it, if we put our shoulders to the wheel, and are prepared even to sacrifice capital. I would not complain of that this year or next year if I saw daylight at the end, and we won through. But he must show us a plan. He must show the country hope. Unless he can do that, the situation will go from bad to worse, and I tremble to think what the financial and the industrial and social consequences to this country may be.


I greatly regret that there have not been more Members present to hear the very powerful speech which has been made by my right hon. Friend. I venture to say that the disclosures which he has made to-day have revealed, even to those of us who are intimately acquainted with the difficulties under which the taxpayers of this country are labouring at the present time, the burden of taxation as being almost too heavy to bear, and I entirely agree with my right hon. Friend that it is necessary to find some method by which we can make the incidence of taxation, and the burdens which the taxpayers have to bear, lighter in the not remote future. The case of the landed property owners which he has presented is, I am sure, an eye-opener to very many Members of this Committee. Most people are rather apt to regard the heritable proprietors of this country as the particularly fortunate people of our time, who live more or less in a style of luxury which is not the fortunate experience of the other classes. I am sure that what the right hon. Gentleman has said is sufficient to convince all of us that whatever may have been the position of these particular people in the past, it is certainly not the situation in which they find themselves to-day.

One of the illustrations which the right hon. Gentleman gave was not unknown to me. With those figures I am perfectly well acquainted, and I know that there is no exaggeration in the statement which he has made to the Committee. Out of an apparently large rent roll this landed proprietor, who is regarded as the child of smiling fortune, receives £465 in the year. I hope that what has been said about these matters will really bring home to all of us that there are privations not merely amongst those who have been referred to as the bottom dog. Hardship is being suffered amongst every class of our people to-day—upper, middle and lower classes—and all you can say about it is that we are bearing the results of a great War, which, if we had lost, would have brought even more suffering upon us than we are enduring to-day. The hope is that we shall at least stand together, endure our difficulties together, confront them with courage and find a way through. Having said so much, I am loath to say anything in criticism of the very powerful speech to which we have listened. One illustration, however, which the right hon. Gentleman gave, I do not entirely understand. He talked of the results of the ownership of a cottage yielding a rental of £4 a year. I think he suggested that the landowner might pay in rates for such a cottage a sum of £l 14s. 2d., which he was not entitled to deduct from the rent before he was assessed for Income Tax. That is a proposition I do not understand.


It is so.


According to my belief, he would be entitled to deduct the amount he pays in rates before the sum is arrived at on which he is assessed.


Who pays it?


If the landowner pays the rates for the tenant, he is entitled to make that reduction before the sum assessed for Income Tax is arrived at.


Perhaps I may explain. I took this matter up very carefully, and the law is that the gross assessment for rating, and Income Tax is the rent free of usual tenant's rates, taxes, and tithe, that is, assuming the tenant pays. In this case, in arriving at the gross assessment of £4 5s. for the cottage, the assumption is that that amount would be payable to the landlord, and that the tenant would pay the rates. Therefore, if you deducted the £1 14s. 2d., which is the actual sum paid now, you would have to add it at the top, on the assumption that the tenant would pay it, and then arrive at it in this way. The cottage is let at £4 to the agricultural labourer. That is the normal rent all over the East of England, so far as I know, that is, from 1s. 6d. to 2s. a week. The cottage would be snapped up, no doubt, by other people at a higher rent, and the assessment authorities say, "You are only receiving £4 rent for this cottage, but we assess the cottage at £4 5s., on the assumption that that is the gross rent which would be paid by a tenant who would himself pay the rates."


Now I can see the right hon. Gentleman's point. But let me assume that the proper rent for the cottage is £4, which represents the proper value—


Then the tenant pays the rates.


And that the rates are paid by the landlord. Then the view which I have given, I think, is correct, that he would be entitled to deduct the rates he pays before arriving at the sum at which he was assessed for Income Tax. The actual assessment for Income Tax would be something like £1 18s. 2d., after making allowances for repairs and the payment of rates and insurance. But, of course, if the cottage is really worth more than £4 in the way of rental, and would bring more in the market, then, perfectly properly, it must be assessed at more, because the landlord, in letting his labourer have the cottage at £4, is really giving him something in respect of wages.


Is it not a fact that the cottages to which reference has been made are now let at 3s. per week under the Agriculture Act?




However that may be, in point of fact, if the labourer is getting his cottage at less than the real rental value, then obviously he is probably taking less wages in consequence, and accordingly the assessment authorities do perfectly rightly in putting the cottage at the proper value. There is one other question that I venture to mention in relation to this matter, and it is this: In calculating what is left over for the landlord after he has paid everything, rates probably form a very serious consideration. Everyone knows that the heritable property of this country bears a very large burden in the shape of rates, probably at the present time a very undue burden. I do not express any opinion upon that, though the question has been considered sufficiently serious for inquiries to be made, and at the present time there are inquiries going on both in England and Scotland in regard to rates on land One other factor enters into this consideration. In the past it has always been held that the holding of landed property in this country is something for which a man pays more than would be paid for any ordinary investment. In that respect the capital locked up in the land has never had its proper return, for the reason, possibly, that a man will sacrifice something for what is called the pride of ownership. This must be taken into consideration before we arrive at a settlement. Obviously, from what the right hon. Gentleman has said, and what I myself have indicated, the problem is one of very great dimensions, and I hope the Committee will forgive me for not entering into any elaborate reply to the speech the right hon. Gentleman has made, because it deserves more thought than I have been able to give to it by merely listening to his speech. I, however, do assure the right hon. Gentleman and the Committee that the whole problem, as presented this afternoon, is one that needs the utmost consideration which I can give to it before the period comes for a new Budget.

9.0 P.M.


I should like to say a few words, not necessarily in support of the Amendment, but in support of the right hon. Gentleman the Member for Chelmsford (Mr. Pretyman), the fair way in which he has put the matter, and the way in which high taxation is affecting agricultural land. I am sure we were all very much pleased at the very sympathetic reply of the Chancellor of the Exchequer, and with the hope that he expressed that he will try to find some scheme whereby the present burdens might be made lighter. While every industry is groaning under the present rate of taxation, I do feel that the position of agricultural land and the position of the agricultural landowner is even a worse one than that of any industry in the whole country. There are two reasons for this. The owner of agricultural land is not only saddled with enormously high taxes, taxes which go into the Treasury, but he is also saddled with enormously increased rates. There is no doubt about it, the rates fall far more severely on the agricultural landowner than the owner of any other industry in the country.

Certainly that is the case in Scotland, where the owners of land pay such a large proportion. I think I would be right in saying that they pay fully more than half the total sum raised in rates. The owners in Scotland have also been saddled with very large additional burdens in the form of stipends which have increased enormously since the beginning of the War. The whole thing is that the present burdens on agricultural land are so great that when they have all been paid, Income Tax paid, rates paid, stipends paid, there is very little money left for the general buildings and equipment of the farms on the various estates, and they cannot be kept up in a proper state of repair. We have got to look at this question not only from the point of view of the owner and to try and do justice to the owner, but from the national point of view. Unless more money can be left with which to keep up the buildings and fences they are bound gradually to fall into a bad state of repair, and the result will be that the productivity of the soil will be impaired.

The Committee I think, cannot have realised, until the speech of the right lion. Gentleman, what are the enormous burdens at the present time falling upon land. I have been given a few figures from a friend of mine who has a small estate in Scotland. I am at liberty to give these to the House. I know very well how much the House detests figures, but I would just ask permission to give these few which, I think, illustrate very clearly what the present position means This small estate in Scotland has a rental of £2,350. Last year the repairs and upkeep came to £956. This gross rental of £2,350 does not include any assessable rental on the mansion house, or garden, or stables, nor does the £956 for repairs include any money spent on what might be called amenities. It does not include any money spent on the owner's garden or stable, or any luxury of that sort. The rental is entirely the rental of the farm, and the money spent on repairs is entirely money spent on keeping up the farm buildings and fences. Insurance comes to £39, making a total of £995. If you deduct that from £2,350, it leaves you with £1,355, which is the net income of the estate. The burdens on that £1,355 last year were as follows: There was, first of all, stipend, £244; owner's rates, £501; Income Tax and Property Tax together came to £411; thus rates, taxes, and stipend together accounted for £1,155 out of the net income of £1,355. There thus went into the owner's pockets £200. That does not take into account money which has to be spent in Super-tax, nor does it take into account provision for indebtedness. There is no money left in that estate to keep the buildings in that really efficient state of repair, which they ought to be kept in if the maximum is to be got out of the soil. I can give two other small sets of figures from another estate, which may be regarded as typical farms, and one shows a credit balance and the other a debit balance on last year's account. The figures are practically in the same proportion as those which I have just given. In the case of the first farm the rent is £300. The repairs last year were £72, the management, insurance, and small sundry payments amounted to another £13. The outgoings were £85 on that farm rented at £300, leaving a net income of £215 to the owner, and out of that he paid £63 in Income or Property Tax and another £60 in rates, leaving him with a balance of £92, exclusive, of Super-tax.

In the second case the rent was £110. It is a farm which I know very well myself, and it was not in a bad state of repair. Last year I think a granary had to be restored, and there were some small joinery repairs, but at the present cost of repairs you can do very little without running up a very big bill. The repairs came to £125 and the insurance and management expenses came to £5, and therefore the total repairs and insurance and management Game to £130 on a farm at a rental of £110, leaving a debit balance of £20. The owner had not only this debit on account of repairs but he had to pay £23 in Income Tax and £22 in rates. If you add that to the debit which I have already stated, you get a total debit of £65 on that farm exclusive of Super-tax. I hope these figures will convince the Chancellor of the Exchequer that the present position is unsound and cannot continue for many years. Unless some relief can be given to agricultural land it must inevitably follow that through lack of money, and for no other reason, the buildings and the fences and the general equipment of the farms of the country cannot be retained in that high state of efficiency, which is necessary if you are going to have the maximum production out of the soil.


I should like to associate myself with the right hon. Gentleman the Member for Chelmsford (Mr. Pretyman) on this subject, and I am very sorry for the Chancellor of the Exchequer when I consider the burden cast upon his shoulders, although I am certain he is desirous of doing the best he can. The right hon. Gentleman is in one of the most difficult positions that has arisen in the last hundred years, and it would require more than a superman, if such a person ever existed, to pull us out of the mire. I did not hear the whole of the speech of my right hon. Friend, but I heard the end of it and I am acquainted with the figures which, I understand, he gave to the House. I have also listened with great interest to the figures given by the hon. Member opposite (Major Steel). As a landlord myself, although I have not the actual figures, because I keep all the accounts myself and I have not time to take them out showing the details which the hon. Gentleman opposite and my right hon. Friend have given, yet I am perfectly certain if I were to do so what the result would be. I have not done so because I do not want to know what the result is, but I know it is not satisfactory.

I have in mind the example of a personal estate where the result is probably an exception and it is nearly as bad as the figures we have just listened to. My right hon. Friend said that Marshal Foch had a plan, and I have got a plan. I hope my plan is as good as that of Marshal Foch, which succeeded, and it was a better plan than that of General Trochu, which did not succeed. My plan is one that I have advocated often, and there is no other. Money does not descend like manna from Heaven, and you cannot dig it out of the ground. My plan is the only one which everybody has advocated from time immemorial, and it is: reduce your expenditure. That is the only way. I am quite serious. You must reduce your expenditure. There is no other way. If you have got an expenditure of £1,000 and an income of £800, and you cannot increase that income of £800, what you have to do if you want to keep out of bankruptcy and employ my hon. and learned Friend is, you must reduce your expenditure to £800, and if you have any difficulty in obtaining that £800, you should still further reduce your expenditure until it meets your income.

That is a very simple solution, and it does not require any great amount of brains, but it is the only solution which can remedy the state of affairs which has been alluded to. Expenditure has got to be reduced because it means that a certain number of people will have to forgo something they are having at the present moment, but we have all to suffer and we all must suffer. The classes to which my right hon. Friend and the hon Gentleman opposite alluded have suffered. They suffered during the War, and they continue to suffer after the War, and other classes who have had a good time cannot expect to go on in the same way they have gone on before. I earnestly trust my right hon. Friend the new Chancellor of the Exchequer will bear in mind that there is no heroic remedy for this state of things. Bills and Acts of Parliament will not touch this thing. There is only one way, and that is to face the situation and say that we must cut our coat according to our cloth.


I only wish to add my contribution to the speech of the right hon. Baronet the Member for the City (Sir F. Banbury), and to express my sympathy with him in his lamentation regarding the position of the poor rich. I am going to speak on behalf of the rich poor. I have heard in the statement made, in connection with the ownership of agricultural land, of the existence of a very serious condition of affairs amongst those people who are landowners only, and who depend for their incomes on what they get from the land, without having to work it. The land of Great Britain does not belong to people, however, who merely get revenues from the land. It has become the preserve of the retired mustard dealer and of the soap boiler, of people who have become rich by the exploitation of the workers in the towns, and who have now gone into the country, and become the new aristocracy much to the dislike of the old aristocracy. A gentleman who gets a title as the result of giving donations to institutions not altogether honourable eventually becomes a member of the aristocracy as we understand it. I am not an expert in figures. I only know figures in the streets, and consequently I cannot enter into competition in this Debate on national income and expenditure. There is however one thing I have noticed about the figures which have been presented, and that is when it comes to the final analysis, the only person who pays is the man who produces. The owner complains of over taxation. The labourer's cottage is rented at £4 a year, and we are told that only 6s. is left over for the poor landlord. But who has paid the £4? The landlord may be poor, but the labourer is poorer. I venture to suggest that the man who pays the rent is the man who really pays, and although the landlord may be poor because he gets no more than 6s. out of his bargain, the labourer is poorer because at the end of the year he has not 6s. left over to maintain his family.

Then we have figures presented to us on national income and Income Tax. I now happen to be an Income Tax payer for the first time in my life. I am not grumbling. Give me the income, and I will pay the tax. I always find that the people who grumble most about paying Income Tax are those who have most to play with, and when an hon. Gentleman opposite twitted us with objecting to the workers paying Income Tax, let me say at once we do not object to it. We are in favour of direct taxation, but what we do object to is the double-barrelled system of taxation, a system which enables you to tax our wages, and at the same time retain the system of indirect taxation. The things we use are taxed more in proportion than the things used by people in a better position than we are. The rich man, according to his income, is not taxed so highly as the poor man. Again, in the figures which have been presented to us to-day, we have had no real analysis of the variations in Income Tax. A landlord may pay £1,000 in Income Tax, but if you analyse the figures you will find that lower incomes are taxed proportionately higher.

We have a right to say, on behalf of the man who works, that any relief should go to those who earn what income they receive. There is no unearned increment so far as the worker is concerned. Consequently, the taxation in his case is not merely a matter of paying his own taxation, but, owing to the unfortunate situation in which he is, he helps to pay other people's taxes as well. It is not the producer who grumbles at having to pay the taxation. I wish he would grumble more. So far as we are concerned, we want to see the abolition of indirect taxation. We want everyone to pay direct taxation according to his income, and if there is to be any differentiation at all, preference should be given to those who work for what they get, and not to those who merely take from other people and grumble at having to pay on what they receive. Something has been said about Karl Marx. I wish those who talk so much about him would try to understand his writings. We only mention him on these Benches in order to refute statements made on the other side. But what did he demonstrate in the matter of taxation? That indirect taxation was a handicap upon production, and that real taxation could only be based on the capacity of the taxpayer to pay.

When you begin to talk of the taxpayer you immediately discover there is an evil in the method of taxing. The landlord objects that he is too heavily taxed. So does the City man—a lawyer, a solicitor, or even a bookmaker who may have an office in the City, and may make thousands a year while employing practically no labour. So, too, does a person with a big industrial establishment employing a large amount of labour. They are all taxed on a similar basis. But how does anybody know what some of these gentlemen earn? How are you going to find out? If I occupied a factory in the East End of London, everyone would know at what the property was assessed, and what amount of business I did. But in regard to these other people, you may have an estimate of their profits, but they make out the Income Tax returns, and it is like saying, "You do the fighting, and I will do the accounting." We on these benches sympathise with hon. Gentlemen opposite in the heavy penalties they have to bear on account of the ownership of land. If they are dissatisfied, however, let them hand it over to the nation. If the land is such a terrible burden to the people who now have it, we are willing to relieve them of the responsibility as soon as we can get rid of them. If they cannot work the land, let the nation own it for the benefit of the people. We want the nation to become an organiser of national industry on behalf of the people, and those people who now grumble will cease to do so, because they will have nothing to pay.


I should like to withdraw the Amendment, and to thank my right hon. Friend for his very sympathetic reply, which was all that I expected from him. We are all of opinion that for him to think about this problem, which is a very serious one, will be far preferable to his getting up and making a hasty speech. I am quite satisfied with the reply he has given, and I beg leave to withdraw.

Amendment, by leave, withdrawn.

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


This Debate has turned very largely on the wider question of the Income Tax, but also on the slightly narrower question about the way it affects land apart from personal property. I am not going into that, but I should like to call the attention of the Chancellor of the Exchequer to one or two minor ways in which land is affected. I refer more particularly to the case of land held by charities and other public bodies of that kind. I am not going to labour the point now, because I shall have a new Clause which will come up later on. At the present time great injustice is done to charities of various kinds which occupy land. If they let the land they are free from Income Tax. If they occupy it they are liable for Income Tax. The Income Tax Commissioners have already reported on this, and have advised that they should be exempted from taxation. In paragraph 308 of their Report they recommend that, after a certain time has passed by, "premises owned and occupied by a charitable body should be exempt from Income Tax under Schedule A." This is an injustice which has existed for a long time. The Chancellor of the Exchequer has had difficulty in dealing with it, and I venture to press it on his consideration between now and the time when the new Clauses come up, next Monday. There are other minor ways in which land is adversely affected by the Income Tax. I would draw the right hon. Gentleman's attention to the very urgent case of charitable land of the type in which I am particularly interested, such as the London playing fields and similar objects. The National Lifeboat Institution and other bodies are very severely hit by the large taxation which falls on the land which they occupy simply for the purposes of charity. I would ask the right hon. Gentleman, to give his close consideration to this matter.


I hope I may be allowed to reinforce what the hon. and learned Gentleman has said. With reference to one institution he has mentioned, the Committee will appreciate the really extravagant nature of the anomaly which requires the National Lifeboat Institution, for instance, to pay Income Tax on the whole of its buildings in which its apparatus, including the lifeboats, is housed. It has also to pay Income Tax on the premises it occupies in Charing Cross Road, whereas it would not be liable to Income Tax on any of these buildings if it rented them from third parties. That is an anomaly which the Committee will appreciate, and which ought not to be allowed to continue. The Royal Commission has directed attention to it, and has made a recommendation. The case of some charities may be said to be different from that I have mentioned, but what I want my right hon. Friend to do is not to allow the necessity of raising revenue, and the large question of charitable institutions, to prevent him from dealing with the position of such institutions—I suppose there will be only one or two—as the National Lifeboat Institution. If these institutions come to an end, then by Act of Parliament, by the Merchant Shipping Act of 1894, the whole of the cost of maintaining the lifeboats in this country would fall on the Exchequer. At present the lifeboat service is maintained by the charitable contributions of the public, at a cost which is extremely economical and is much lower than the cost of maintaining the same service, for instance, in the United States.

I am sure the right hon. Gentleman regards the work of this institution with sympathy, as we all do, and if he will be good enough to deal with its position and with that of one or two similar bodies I am certain no one in this Committee will think he is taking anything but a right course. It is a perfect anomaly that if this institution lets its building to a third party and went into another building it would be free from Income Tax, whereas because it owns and occupies its own building it has to pay the tax, while all the time it is doing work for the National Exchequer. I shall be exceedingly dis- appointed if, before another year, the right hon. Gentleman's advisers have not enabled him to take this anomaly from the Statute Book.