§ I need hardly assure the Committee that I have given anxious consideration as to how this additional taxation should be fairly imposed and how the burdens can best be borne. In July last I told the House how, for practical reasons, and apart from other considerations, it was impossible in war-time to set up machinery and obtain revenue from either a capital levy or a land valuation tax. There are, however, two proposals that have recently been canvassed on which I would like to make a few observations.
§ A suggestion which at first sight has many attractions is for a tax analogous to the Excess Profits Tax but applicable to increases in personal incomes. The proposals would involve the imposition of a percentage charge on all excesses of earned income amounting, say, to more than 20 per cent. over earnings assessed for a standard year with some minimum standard of, say, £150. In the first place, the tax would have to be confined to earned income as distinct from total income, because, owing to the tendency of investment income to decline during the war, the inclusion of such income would reduce the total yield of the tax. In the second place, it would be most difficult to find a fair and reasonable standard. I 1326 need only recall the trouble which we have had in this connection in regard to the Excess Profits Tax. No such general criteria as those used in Excess Profits Tax cases exist for fixing a fair standard in the field of employment or of professional earnings.
§ The capital of the worker is his skill and his energy, and this cannot be appraised in monetary terms. For very many reasons, of which unemployment is the most obvious, the income of any basic year may be a very unfair standard, and it does not appear practicable to find any alternative measures. The effect of such a tax might well be that in innumerable cases of two persons working or living side by side and enjoying identical incomes, one of them would pay a much greater sum in direct taxation than the other. The man liable to the heavier tax would be able to see no better justification for his burden than the fact that he happened to have been unfortunate enough, perhaps through unemployment or through belonging to a depressed industry, to have enjoyed his current income for a short time only instead of for a number of years. If the tax continued to be charged for the duration of a long war, this position would become more and more repugnant to the ordinary man's sense of justice. In many cases also the reward of the wage earner for increased work and special effort would largely be taken away from him. At the best there would have to be so many exemptions and exceptions that the yield of the tax would in fact be on a disappointing level. Finally, it can be said that such a tax would bring no assistance until 10,42–43 because a yield from such a tax could only flow into the Exchequer in the year after the year in which the tax was imposed. Excess earnings could only be computed after the close of that year.
§ The other proposal is for a tax on what are called services, and it has been suggested that it would not be a difficult task to raise an annual revenue of £150,000,000 from a stiff turnover tax on services expenditure. The word "service" rather connotes something which is accepted but which could possibly be forgone, or at any rate be subject to a special levy in war time; but a services tax includes taxes on essentials, such as rent and rates, railway, bus and tram fares, on the consumption of gas, elec- 1327 tricity, and water, on warmth and cooking, as well as on entertainments, hotels, restaurants, and the like. It seems clear that again you have here a tax in respect of which you must obviously make very many exemptions and the yield from which, even if it were desirable to impose it, would not be anything of the order that is necessary for our purposes to-day.