§ Order of the Day for the Second Reading road.
§ THE LORD CHANCELLOR (LORD FINLAY)
My Lords, I rise to ask your Lordships to accord a Second Reading to this Bill. The object of the Bill is to give effect, to what I think is the very general feeling that the tune has come when the law relating to Income Tax ought to be put upon a more intelligible footing than that on which it at present stands.
The Income Tax is a great weapon for war as well as for peace. It won the Napoleonic War for us, and it will win the still greater struggle in which we are now engaged; and I think that all of us must recognise that, whatever aspirations have been entertained in the past with regard to the Income Tax being only of a temporary nature, it must now be regarded as a permanent part of our fiscal system. The tax was introduced as a war tax in 1799 by 178 Mr. Pitt; and, at 2s. in the £, it yielded from 1799 to 1802 between £5,000,000 and £6,000, a year. It was repealed after the Treaty of Amiens in 1802; but when the war broke out again in the next year the Income Tax was revived, and continued in force until the year 1816. From 1806 to 1816 it stood at 2s. in the £; and in 1816, when it was repealed, it was yielding about £14,000,000 a year. When peace was made the tax came to an end in deference to the public demand for its abolition; and from 1816 to 1842 it was apparently dead
In 1842 it was revived by Sir Robert Peel, not as a war tax but as a means of putting our fiscal system on what was considered a sounder basis than that on which it had stood. In 1853 Mr. Gladstone, for the first time, extended the tax to Ireland, but he did this while announcing that the scheme was that the tax should fall in amount during the seven years ending 1860, and that, at the end of the seven years, it was contemplated that the Income Tax should cease altogether. So it might have ceased had it not been for one of those things which sometimes interfere with financial plans—I mean the Crimean War; and instead of the Income Tax going down until it should cease in 1860, it went up to 1s. 4d. in the £ instead of the 7d. in the £ which had been fixed by Mr. Gladstone for the earlier years. The year 1860 thus passed leaving the Income Tax still in existence.
In 1874 a General Election took place, and it was announced as part of the programme on which Mr. Gladstone went to the country that there should he a complete abolition of the Income Tax. Unfortunately that was not carried out because the Conservatives were returned to power; and Sir Stafford Northcote kept up the Income Tax, but at the very low figure of 2d. in the £. That was, I think, the lowest figure at which the tax has ever stood; and at that figure it yielded, for the years at which it stood at that amount, just under £4,000,000. Since the year 1874 no statesman, I think, has proposed its abolition. The Income Tax has flourished. It has reached figures that were never dreamt of by those who first introduced it, and it has begotten the Super-Tax. The Income Tax remained from 1874 until 1900 at under 1s. in the £. In the year 1900, at 1s. in the £, it yielded close upon £30,000,000. From 1900 to 1914 it yielded, at amounts varying from 1s. to 1s. 2d. in 179 the £, £35,000,000 to £43,000,000 a year. Then came the war, and in the fiscal year of 1916–17 the amount yielded by the Income Tax was £186,,538,000; and, besides that, there was the Super-Tax which yielded a good deal more than £20,000,000.
We must in these circumstances regard the Income Tax as a permanent portion of our financial system; and I think that nobody can have any hope that the youngest member of the House of Lords will see its end. That being so, it becomes imperative to consider whether the form in which the Acts have been cast imposing this tax cannot be improved. There is a general agreement that these Acts are framed in a manner which rather adds to the feeling of hardship felt by those who have to pay the tax. The Statutes are drawn up in a way so confused that they are really not to be understanded of the taxpayer; and the first step to getting a reform of Income Tax Acts which may be contemplated at no very distant date is to get the law as it now exists into an intelligible shape so as to provide for alterations in the Income Tax law. The object of this Bill is simply to make the existing law intelligible.
I will quote only one thing that has been said from the Bench on this subject. It has often been a topic of remark in judgments in Income Tax cases. But there is one utterance by Lord Cozens-Hardy, sitting as Master of the Rolls, in the year 1914, which will dispense me, I think, from troubling your Lordships with more quotations. The Master of the Rolls said this—I venture to think the time has come when all the Income Tax Acts ought to be consolidated, so that it may be reasonably possible for the subject to ascertain the nature and extent of his liability.I think all will agree that this is a very humble ambition that the law with regard to the Tax should be in such a shape that it may be reasonably possible for the taxpayer to understand what he has to pay.
The truth is that grumbling as to the confusion and incoherence of Income Tax legislation has become chronic, with occasional paroxysms. In these circumstances this Bill has been drawn, with very great, care, for the purpose of putting into coherent and intelligible shape the law as it at present exists, which is the first step 180 towards any further reform. It is absolutely necessary, in order to enable people to see what the law is, that it should be arranged into one coherent enactment, instead of being scattered about, as it is at present, over all enormous number of volumes of the Statute law. In performing this task, the very language of the Statutes which are consolidated has been, as far as possible, preserved. Where the Statute has received judicial interpretation it is undesirable to alter the language, because it might be supposed that you intended to convey some meaning other than that attributed by the Judges to the language of the Act as it stood before. The result of what has been done by the labours of Mr. Bertram Cox and other officials at Somerset House has been to bring together the disjecta membra which at present constitute the body of the Income Tax law, and to gather into one chapter the law on a particular head which at present has to he hunted for in a vast variety of Statutes.
I will take only one instance, which will serve for twenty. Suppose a man wants to ascertain, what is of very great interest to many people now, the amount of deduction from his taxable income which he is entitled to in respect of the amount of insurance premiums, and the cases in which deduction on that account is admissible. He now has to turn up some dozen of volumes of Statutes. I will merely mention, to convey an idea of the state of the law, what they are. To begin with, there is Section 54 of the Income Tax Act of 1853, which defines the amount of deduction as being not to exceed one-sixth of the income. He goes on to the first section of the Income Tax (Insurance) Act of 1853; to the first section of the Income Tax Insurance Act of 1855, which relates to insurances with registered societies; and to Section 6 of the Income Tax Act of 1859. After that the Legislature seems to have taken a rest on the subject of deduction for life insurance premiums. It rested for some forty years, but the Legislation broke out again in 1903. The taxpayer inquiring into the subject will have to refer to Section 10 of the Revenue Act of 1903, Section 9 of the Finance Act of 1904, Section 11 of the Revenue Act of 1906, and Section 19 of the Finance Act of 1907. There was again an intermission of eight years, without further legislation on this point, but in 1915 the Legislature again took up its parable, and made provisions, which will have to be considered, by Section 17 of the 181 Finance Act of 1915, Section 26 of the Finance Act (No. 2) of 1915, Sections 36 and 37 of the Finance Art of 1916, and Section 11 of the Finance Act of 1917. I should think, my Lords, that any taxpayer who proposed to inform himself on this subject would be in some danger in the course of his inquiries of running the risk of forfeiting his insurances by suicide. In this Bill, the whole of this subject—I take it merely as a specimen will be found collected in one clause, namely Clause 49 of the Bill, with the exception of some provisions of a purely temporary nature relating to the war.
This measure is not at all an ambitious one. It is a useful thing to have the law made intelligible as to what a man has to pay, and that is all that is aimed at in this measure. But it is not only useful in itself for the taxpayer; it is, as I have said, an almost indispensable step before the subject of an alteration in the law can be properly considered. If your Lordships see fit to give this measure a Second Reaching, I should propose in due and proper time to send it to the Joint Committee of both Houses by whom such matters are considered, and under whose auspices a great deal of most excellent and admirable work has been done. I beg to move that the Bill be now read a second time.
§ Moved, That the Bill be now read 2a. (The Lord Chancellor.)
My Lords, I have consulted some experts as to the intelligibility which the noble and learned Lord claims for the language now used in this Consolidated Bill, and they quite confirm what he says, and are extremely pleased to find that the language is English and not of the archaic character of the language which is to be found in the old Acts. There is some chance now of the layman being able to understand what are the impositions put upon him. I wish to take this opportunity, however, of expressing the hope that now that the Government have taken up the consolidation of the Income Tax Acts, they will follow it by taking the opportunity of remedying what is one of the most serious grievances under those Acts, and that relates to the taxation of that class of property which is very frequently described as a "wasting asset." The most notorious cases of that are mines. The present position is that, the Depart- 182 ment hold that it is legitimate to tax a declared profit, although part of it is unquestionably a return of capital; and the auditors having declared a profit, and holding that the profit is a true profit, the Courts have supported the Department when the point has been fought. It is unquestionable that at the present moment it is impossible to avoid paying the tax, although part of it is on return of capital; and the suggestion which I have seen made that the difficulty might be got over by treating part of the profit as a return of capital is really so difficult that companies are unwilling to make the effort. It is a process of law which is very laborious; it is difficult of explanation, and it unquestionably requires the calling in of experts, such as surveyors and valuers, and in fact it is absolutely necessary to prove to the Court that the property is wasted by the extraction of the mineral, whatever it be. The consequence is that no company attempts to save itself by that process, and it goes on paying what it regards as a most unfair tax because its property is wasting every year and the profit on which it is paying Income. Tax is not a, trite profit. I hope the noble Lord, if he has the chance, will take the opportunity of urging the Government also to take up this question as well as the consolidation of the law.
§ VISCOUNT HALDANE
My Lords, I rise only for the purpose of joining with the noble Lord who has just sat down in congratulating the noble and learned Lord on the Woolsack upon having framed and introduced this Bill. Those of us whose duty it is to sit here from half-past ten until four o'clock hearing appeals know that the labour which we have to undergo in getting the various Statutes together, extracting their substance, and afterwards endeavouring to put them into an intelligent proposition in the judgment of this House, is very great indeed; and it must have involved a great deal of work to get this Bill into the shape it is.
It was truly said by the Lord Chancellor that this Bill, if it becomes an Act, will be a possession which will endure certainly through the lifetime of the youngest of us, and probably during the lifetime of several generations of your descendants, but I am not sure that this Bill will be found as clear as might appear. The subject is a very obscure one, and almost on every point—not merely in the case of insurance, which 183 is comparatively simple, but in other cases—the difficulty of interpreting legislation which has changed in its application since the days of Sir Robert Peel and since earlier days than that till now is not easy and cannot be made easy. But this Bill is the first step. Of course, it cannot deal with such questions as those to which the noble Lord referred. One might add other examples, but this is not the moment to refer to them, because this Bill is simply a specimen of a very useful undertaking which Parliament has entered into by common assent every now and then to take the Statutes relating to a single subject, and, without altering a word of their substance, to alter the form and put that into what is called a Consolidation Act, which at least has the advantage that it is comprised in one volume and you can find where to refer to the various pages.
I think this House and the other House are under a great debt of gratitude to the Consolidation Committee that is going to sit on this, as it has sat on many other Bills of the same sort. It simplifies the law and prepares, as the noble Lord opposite has said, an opportunity for dealing with problems which otherwise would be almost unintelligible, but it does no more than that, and we must understand that we are not in the least aiming at making the interpretation of the income Tax law any more easy. This Bill is simply the usual kind of Consolidation Bill, and a very valuable Bill of that kind. It carries us no further than to make the law easily got at, and, so far as mechanical adjuncts can make it, intelligible. We all owe gratitude to the noble and learned Lord and to the staff of experts by whom he was assisted in preparing the Bill, for giving us something which is at least a step towards making a Statute law of this kind more comprehensible than it is at the present time.
§ LORD FARRER
My Lords, I wish also to thank the Lord Chancellor and to rein force what previous speakers have said as to the comfort of having the consolidation of these Acts. I am hound to say that the Bill only reached us forty-eight hours ago, and there are, I think, 258 pages on what previous speakers have said to be one of the most complicated subjects in the world. I have only just been able to look through it.
184 Before the Second Reading is carried, I should like to make one or two remarks as to the curious position with regard to Income Tax in which a member of this House is placed by our recent legislative procedure. If there is one canon of the Constitution left to us it is that in any free country—and I believe this country is still the freest in the world—the basis of freedom is that taxation and representation must go together. I need not weary your Lordships with this truism, but wish to call the attention of the eminent lawyers who sit here to the following facts. The first canon of every economist of note, from Adam Smith downwards, is that taxation must fall on the person and cannot fall on things. The earliest Statutes printed in our admirable collection of Statute Law Revised—which I remember the late Lord Salisbury said was done for the benefit of the working man so that in his leisure hours he could read all the Statute Law of England in twelve volumes—was an attempt, I believe, to make clear the principles of our law, and the words in the recapitulation of Magna Charta on page 49 of the Statute (which I understand, as a layman, may still be pleaded in our Courts) are so remarkable as showing that human nature does not alter much in six hundred years that I should like to quote them. They state that—No freeman shall be taken or imprisioned, or be disseised of his freehold, or liberties, or free customs, or he outlawed, or exiled, or any otherwise destroyed; nor will we pass upon him nor condemn him but by lawful judgment of his peers, or by the law of the land. We will sell to no man, we will not deny or defer to any man either justice or right.You may ask what has all this constitutional lore to do with Income Tax. I think it has much to do with it. You have all through these six centuries no doubt altered the machinery, but I hope we have not altered the principle.
But in quite recent years you have done two things. First, the Parliament Act is the law of the land. The Peers cannot alter taxation; that is imposed by the House of Commons. The first section of the Parliament Act of 1911 is perfectly clear on this point as regards this House, and I will not weary the House by reminding you of its terms, except to point out that Money Bills are thereby clearly differ- 185 entiated from other Bills, and cannot be rejected by this House or even amended by an individual member of it. Therefore I, as a Peer, am to be taxed without any representation at all as regards Money Bills, which is my reason for taking this opportunity of raising the point. Secondly, you decided the other day to reject my Amendment that a Peer should have the right to vote for a member of the House of Commons.
It appears to me, therefore, logically that the result of these two Acts taken together is the highly joyful but totally unexpected one that no Peer need pay the King's taxes until the constitutional question is settled. I admit that rates are on a different footing, unless you are prepared to give up the idea that taxation and representation must go together, and in fact are willing to return to the High Tory policy of the Stuart régime. Considering that last year, as far as I can make out, the rates, taxes, and pensions in my case came to something like 13s. in every 20s. of income, it will at any rate he worth while trying a ease to see whether Magna Charta can still be pleaded in the Courts. This may be very agreeable for lawyers, and it would certainly offer a fine innings arguing another Ship Money case, but it is slightly humiliating for the politicians who ought to settle the question of this House, and I hope I may receive further assurances from my noble friend Lord Bryce, whom I do not see present., that his Committee do intend to bring up their Report and not force us to claim our constitutional rights by means of the Law Courts. In such a case I presume that, under our Standing Order, no legal member of this House could sit or vote because he is in receipt of money from the public purse. There are only two courses possible, either to force your money out of your pocket by presenting a pistol at you—it is a case of your money or your life—or amicably settling the matter. But that the matter must be settled is certain—"You take my life when you do take the means by which I live."
§ LORD WRENBURY
My Lords, it is a matter of profound satisfaction to myself that the noble and learned Lord on the Woolsack should have brought in this Bill. It has been my duty to take part in judicial decisions on the Income Tax Acts, and I confess that the puzzled frame of mind which the Lord Chancellor has 186 depicted is not confined to the taxpayer. I defy anybody reading the Income Tax Acts, involved, complicated, and numerous as they are, to rise from his studies with anything but a headache. The Acts are full of long and complicated sentences, frequent repetitions and cross references, which leave you in a state of profound I bewilderment. I have felt it my duty, judicially, to express my opinion as to the enormous difficulties which exist in construing these Acts. In a recent case in your Lordships' House I made some observations on the subject which I hope were not too strong. The noble and learned Lord on the Woolsack has depicted the case of a taxpayer who wants to ascertain a particular thing. In the first place he has to trace half-a-dozen or a dozen different sections. He reads them, and, as he reads them, he becomes more involved and more and more puzzled. Probably he gives it up in despair. A Judge is not able to do that. He is hound to say that the Legislature meant something, and however impossible it may be to say what the Legislature meant, he is bound to say what it does mean. In these Acts of Parliament you will find the same word used in two totally different senses. You find the word "charge" used now to mean one thing, and now to mean another. You have to give it a meaning, somehow or other. The result of this Bill, I hope, will be to reduce this chaos to something like order and sense. It is an enormous task. The subject is a large one, the Bill is a heavy one. I hope the labours of the Consolidation Committee may result in reducing this ill-digested mass of unintelligible legislation into a form in which the skilled person can say what it means. Whether it will ever come into a form in which an unskilled person can say what it means I do not venture to say.
§ THE LORD CHANCELLOR
My Lords, I only wish to say one word on a matter which I have already indicated in moving the Second Reading of the Bill. It is that any credit for the preparation of this Bill is due to Mr. Bertram Cox and his coadjutors at Somerset House. The Bill will run the gauntlet of the Joint Consolidation Committee, and I trust that it will come back in a shape which will effect a substantial improvement in the law.
§ On Question, Bill read 2a.