§ To meet the huge expenditure I have already referred to, we have raised in taxation during the past financial year, with the general and willing assent of our people, but not without many sacrifices and hardships, the unprecedented figure of £2,483,000,000. The amount of Income Tax collected in the year has for the first time in history exceeded £1,000,000,000. Of all our expenditure since the war began, whether at home or abroad, no less than 44 per cent. in the 945 aggregate has been met by current domestic revenue. The percentage has risen year by year from 36 per cent. in 1940 to 46 per cent. in 1942. That record compares, for instance, with the 29 per cent. covered by revenue in the 12 months ended 31st October, 1918, and, indeed, on any criterion or comparison, is a magnificent achievement by all sections of British taxpayers. They have readily accepted our double object in imposing such high taxation: first, the reduction of the large additional volume of purchasing power created by our war expenditure, and, secondly, the need to pay as we go for as much of the war as we can in order that the demands on the taxpayer for the service of the Debt after the war may be kept as low as possible and thus, among other things, greatly help then our plans for reconstruction and advancement.
§ On a famous occasion Mr. Gladstone, when Chancellor of the Exchequer, likened direct and indirect taxation to two fair sisters of equal charms, and if I understood him rightly, he thought it was proper to woo them both simultaneously and with equal ardour. Whatever may be thought of the ethics of such procedure in private life, the financial consequences are bound to have attractions for the Chancellor of the Exchequer. In the increase of our war taxation I have at any rate endeavoured, as the Committee are aware, to hold the balance between the two, that is, between the taxation which falls inescapably on incomes and estates and the taxation of which a considerable part is the result of optional expenditure. That balance has been substantially achieved. Direct taxation has, in fact, been called upon to bear a rather higher additional burden than indirect taxation. The additional yield over 1938–39 of all taxation in 1942–43, excluding Excess Profits Tax and National Defence Contribution, was £1,231,000,000, of which direct taxation produced £687,000,000 and indirect taxation £544,000,000. Of the increased war-time yield of indirect taxation, the increase from liquor, tobacco and entertainments, which may be regarded as essentially optional forms of expenditure, accounted for no less than £452,000,000, or 83 per cent.
§ Here I must say a few words about the operation of the deduction of Income Tax from wages. There are now some 7,000,000 wage-earners, who pay about 946 £200,000,000 of Income Tax for the year. To-day nearly every family in the country contains at least one Income Tax payer. Income Tax is, therefore, a matter of concern in millions of homes which had previously been subjected only to indirect taxation. Apart from those considerable national implications, the machinery and methods of collection are of much importance to the taxpayers concerned. Following our discussions last year, a number of modifications have been made, and I am glad to say they have proved to be successful and have largely contributed to a smooth working of the tax. Special efforts have been made to simplify tax forms and to give further facilities for learning about methods of assessment. Arrangements have, for instance, been extensively made for tax officials to attend periodically at factories in order that employees who desire it may receive expert advice in connection with all tax matters.
§ I have not overlooked the suggestions that have been made to levy the tax on the basis of current earnings. I described the difficulties last year, and explained how, after receiving the advice of the Trades Union Congress and the British Employers' Confederation, we had all agreed that no scheme had so far been produced which would be equitable and practicable. I said I would at any time be prepared to consider any new proposal which would meet the case, but no acceptable plan has as yet been forthcoming. There is, however, to be considered in connection with this whole matter the different situation that may arise on the return to peace-time conditions, when a considerable change-over in employment may be expected to take place. My advisers are now engaged in a close examination of this aspect of the matter and the consideration of a current earnings basis for the deduction of tax will not be ruled out of their deliberations. I shall, of course, continue to keep in close touch with the British Employers' Confederation and the Trades Union Congress on the whole subject of the operation of the tax.