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The Columbia University Libraries reserve the right to refuse to accept a copying order if, In its judgement, fulfillment of the order would involve violation of the copyright law. Author: Buxton, Sydney Title: Mr. Gladstone as chan cellor of the exchequer Place: London Date: 1901 ^5"' S^ V.fi- fZ- MASTER NEGATIVE » COLUMBIA UNIVERSITY LIBRARIES PRESERVATION DIVISION BIBLIOGRAPHIC MICROFORM TARGET ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD suswrs? D694.2 B986 Buxton, Sydney Charles Buxton, 1st early 1853-1934. Mr. Gladstone as chancellor of the exchequer; a study, by Sydney Buxton, m. p. London, J. Murray, 1901. vlii, 197. i2j p. 21'-. 1. Gladstone. William Ewart. 1809-1898. J^Flnance-Gt. Brit. 1—25199 Library of Congress (^) DA563.5.B9 - - ia42r28glj RESTRICTIONS ON USE: FILM SIZE: . 3>^ \Y\r>r\ DATE FILMED TRACKING # : TECHNICAL MICROFORM DATA REDUCTION RATIO: . /2x IMAGE PLACEMENT: lA /llA ) IB IIB ■ 5/^/?^ INITIALS: _C. MSif OC3t89 FILMED BY PRESERVATION RESOURCES. BETHLEHEM, PA. > 'V? CJl 3 3 Q) CT O > ^m N (/) N)(— ^-< oorsi CJl 3 > CD 0,0 o m CD O OQ en J ^ < N X M --v^' A:, O O 3 3 > 4^ in O 3 3 o o 3 3 .^^ r# V ^ & ^o ^* fp ¥o> O r^isEEEEi; IS IS m i bo o 00 o ro Cn .^ 1.0 mm 1.5 mm 2.0 mm ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdelghijklmtxjpqrstuvwxyzl 234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyzl234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 2.5 mm ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 ^o C^ r^ fc> ip fp i:^ m O O ■0 2 "o > C CO X TJ ^ m »! 3D O m /**. '/^r^ V >.^^ .1 ^o <' .« ■^ -^p 0* O > <5.o Is i = ^i >< ao rx CO •——I *•< • • t » t « • • • • • t • « , • • » < > 4 JOHN MUIOli^Vi-: AJJBEMJ^^^ STREET 1901 * t INTRODUCTION » * • • k 'J « • « • # • 'T^HE following pages are offered, with all deference, as a contribution towards the study of Mr. Gladstone. They deal with one aspect only of his career and character, and do not, I need hardly say, attempt in any degree to anticipate Mr. Mor- ley's Biography of the great Statesman. But Mr. Gladstone's work at the Exchequer can be considered somewhat apart from his career as a whole. It was, moreover, the least dis- puted portion of his life's work, and is far enough removed from present-day controver- sies to enable an estimation to be made with- out prejudice or partiality. I am much indebted to friends for advice and assistance, and I desire especially to thank Mr. Bernard Mallet and Mr. George Barnes for the valuable help they have rendered me. VI INTRODUCTION The substance of this little Book was con- tained in two Articles that appeared in the Fortnightly Review for April and May of this year. The Articles have been considerably enlarged, and to a certain extent re-written ; and Tables, which may be found useful, have been added. S. B. 7, Grosvenor Crescent July, 1901 CONTENTS CHAPTER I. Early Years . PACE I CHAPTER II. 1853, AND After CHAPTER III. The Budget of 1860 . A Great Budget The Sixties . Later Years . CHAPTER IV. CHAPTER V. CHAPTER VI. 23 . 37 47 . 66 Fiscal Reforms CHAPTER VII. . 80 CHAPTER VIII. PURGING THE TARIFF . CHAPTER IX. The Paper Duty 91 107 VUl The Income Tax CONTENTS CHAPTER X. CHAPTER XI. The Income Tax {continued) CHAPTER XII. Indirect Taxation CHAPTER XIII. The National Debt . CHAPTER XIV. Surplus: Economy FAGS . 112 . 126 . 139 . 147 . 156 . 162 CHAPTER XV. Achievements and Failures . APPENDICES 177 Appendix A . • • • ' ,' The Income Tax : I. Schedules ; II. Rates in the Pound ; III Amount of Income Assessed, and Produce per Penny ; IV. Graduation ; V. Mr. Gladstone on Exemptions and Abatements. ■o ... 186 Appendix B . The National Debt. ^ ... 187 Appendix C . • • • I The Public Accounts; II. Budget Tables, 1853, 1860, and 1866; III. Gross Revenue and Expenditure of certain Years. Appendix D . Dates of Btidgets. Index 192 193 MR. GLADSTONE AS CHANCELLOR OF THE EXCHEQUER CHAPTER I. EARLY YEARS TT is, as yet, premature to predict the ^ position that Mr. Gladstone will finally hold among English statesmen, or to estimate the mark that he will have left on the history of his Country. But it is legitimate to believe that Time, which will bury in oblivion much that may now be thought of importance, will, in so doing, bring more prominently into relief the great work that he accomplished in Finance. Indeed, it is not unlikely that on this his chief reputation as a constructive Statesman will ultimately rest. It is natural enough that Mr. Gladstone's fame as a Finance Minister should have been, B I M 2 EARLY YEARS for the present, somewhat blurred and effaced by his later political career. His two great Budgets were those of 1853 and of i860, the one fifty, the other forty years ago— and much has happened since then. Born in 1809, elected in 1832, the first half of his political, and especially of his ministerial life, first at the Board of Trade and then at the Exchequer, was largely, almost exclusively, devoted to questions of commerce and of finance. So that when, in 1865, on the death of Lord Palmerston, he became, at the age of fifty-seven, and with thirty-three years of Parliamentary life behind him, Leader of the House of Commons and prospective Premier, he was indeed recognised as a master of finance ; but, for the rest, he was somewhat of an unknown quantity. If, in 1865, he had ceased to be, history would have classed him as a great Chancellor of the Exchequer, and as nothing more. But his quadruple Premiership, his twenty-eight years' Leadership (with intervals) of the Liberal party, his Foreign policy, his Home policy, his Irish policy, his successes and his failures, brought fame, notoriety, and antagonism, INTRODUCTION TO OFFICE 3 which overshadowed the more durable work of his earlier years. There have been, since the Revolution, four great Finance Ministers — Walpole, Pitt, Peel, and Gladstone. Others there have been who have done signal service to the Country at the Exchequer, but none who approach within measurable distance of these four. Walpole was Prime Minister and Chancellor of the Exchequer for twenty consecutive years. Pitt was Prime Minister and Chancellor of the Exchequer for seventeen consecutive years, and for nearly two years besides. Peel was Prime Minister, all told, for five years, and was only a short four months, in 1834, at the Exchequer at all— a remarkable fact. Mr. Gladstone was Chancellor of the Exchequer for ten years. Prime Minister and Chancellor of the Exchequer for another three, and Prime Minister without being Chancellor of the Ex- chequer for yet another eleven years. He exercised, therefore, a longer period of control, direct or indirect, over the finances of the Nation than any other British Statesman. Mr. Gladstone s official introduction to ques- tions financial was due to Peel s discernment. \ 4 EARLY YEARS When the Tory Government was formed in 1 84 1, he was made, though against his will,^ Vice-President of the Board of Trade, and a Privy Councillor. In 1843 he succeeded to the Presidency of the Board with a seat in the Cabinet. Thus he was, as he subse- quently expressed it, **at the very kernel of the most interesting operations in progress year by year, with continually waxing courage towards the emancipation of industry"; and he was enabled to assist his Chief and his Master, both by support in Council and actively in the House, in initiating and carrying through the far-reaching fiscal reforms of the period. But in January of 1845 came the somewhat Quixotic resignation of office over the May- nooth Grant ; and, in the December following, when his appointment as Colonial Secretary in the reconstructed and freshly converted Cabinet 1 He wrote to Peel a lengthy letter (Sept., 1841), which is rendered interesting and curious by after-events. In it he reiterated his ignorance and his unfitness for the post offered him, and added : " I feel that all my habits of thought and action have been so far cast in a different mould, and have attained such a degree of fixedness, that I should find it hardly practic- able to give myself to questions of trade and of finance in a manner and degree befitting the expectation that they are here- after permanently to form my staple occupation."— Z//^ o/Peel ii. 513. A PEELITE 5 necessitated the vacation of his seat, he did not seek re-election, as Newark was under the control of a protectionist patron. Thus, during the most critical and enthralling stages of the Free Trade controversy, Peel was deprived of his help, and the House of Commons of his services. Returning to the House, at the general election of 1847, ^.s member for Ox- ford, he formed one of the small band of Peelites, who, after their leader's death in 1850, unattached, capricious, unreliable, but brilliant and distinguished, were for a time (as Mr. Gladstone himself has described them) somewhat of a public nuisance. The Russell Ministry — a Whig family party — had succeeded Peel in 1846, and scrambled along as best they could until 1852, when Palmerston turned them out. Thereupon Lord Derby formed the "Who Who" Government, with Disraeli as Chancellor of the Exchequer and Leader of the House. In December the whilom Protectionist Ministry produced their Budget. The policy of "unrestricted com- petition" was accepted and adopted, but the financial policy of the country "was to be assimilated to our new commercial system." 6 EARLY YEARS Shipowners, Sugar planters, the Landed in- terest, were to be "compensated" for the storm and stress entailed upon them by the abolition of Protection. The General Con- sumer was to have his tea "cheapened" by halving the duty. The Income Tax payer was to have his burden lightened by re- adjustment, and by an attempted discrimination between permanent and precarious incomes. The House Duty alone was to be increased. But the Country wanted something more. They required, as Mr. Gladstone said, "a full, final, and solemn settlement of the question of free trade"; and they did not care to leave this settlement in the hands of the High Priests of Protection, even though these were now con- tent to bow the knee to Baal. The amazing Budget, which was to "relieve everybody at nobody's expense," was severely attacked. On the final night, at a late hour and at great length, the Chancellor of the Exchequer answered his critics with jeers, flouts, and gibes. This was more than Peelite blood could stand ; and, unexpectedly and unprepared, Mr. Gladstone rushed into the breach, and, in a single speech, decided the issue, destroyed the Budget and the renegade Government, and placed himself THE COALITION GOVERNMENT 7 in the first rank as a debater and as a master of finance. This was, moreover, the first encounter between the two men — wide as the poles asunder in character and disposition — who, in after-years, became rival leaders and life-long antagonists. The Coalition Government of Lord Aberdeen followed. In it the Peelites (Aberdeen himself was a Peelite) were temporarily absorbed, and Mr. Gladstone — though not without strong protests from some quarters — became Chan- cellor of the Exchequer. The outlook was favourable. Aberdeen was a Peace Minister ; Clarendon at the Foreign Office was a safe man ; the fire-eater, Palmerston, was marooned in the Home Office. The Great Exhibition had seemingly ushered in an era of peace and goodwill. The Ministry were strong in personnel and Parliamentary position. Consols were at par, the rate of interest was unprece- dentedly low, trade and commerce were healthy and expanding. All the omens were favour- able, and the new Chancellor of the Exchequer was not the man to neglect the opportunity. If viewed with trepidation by some of his colleagues, he could count on the support and [ 8 EARLY YEARS approbation of his fellow- Peelites, and on the easy-going sympathy of his Chief.* He pro- duced a Budget which marks an epoch in fiscal and financial reform, and which ranks with Peel's famous efforts of 1842 and 1845, and with his own Budget of i860. * "Graham seemed in excellent spirits about their political state and prospects, all owing to Gladstone and the complete success of his Budget. The long and numerous Cabinets, which were attributed by the Times to disunion, were occupied in minute consideration of the Budget, which was there fully discussed, and Gladstone spoke in the Cabinet one day for three hours, rehearsing his speech in the House of Commons, though not quite at such length."— CPr^v///^, vol. vii. p. 63. CHAPTER II. 1853, AND AFTER npHE Budget of 1853 was introduced on -*■ April 1 8th in a five hours* speech. The Financial Statement showed all the grasp of principle, the mastery of detail, the lucidity and skill in presenting arguments and figures, that had been so conspicuous in the early forties in the exposition and defence of the fiscal measures of those years. But it was more than this. It astounded, delighted, and fascinated the House by its wealth of eloquence, by its persuasive reasoning, by its unhesitating courage, and by the living interest which it breathed into the dry bones of taxation and tariffs. The Country, it was evident, not only possessed a great Chancellor of the Exchequer, but a great and eloquent exponent of Finance.^ * "People often misunderstood Lord John Russell, and it was hinted, in 1853, that he was jealous of Mr. Gladstone's success. Here is his true opinion written to Lady John : * Gladstone's speech was magnificent. ... It rejoices me to be a party to a large plan, and to do with a man who seeks 9 10 1853, AND AFTER The estimated gross revenue for the coming year was put at / 57, 100,000, the expenditure at ;^56, 300,000, giving a surplus of ;^8oo,ooo. But the smallness of the available surplus did not deter the Chancellor of the Exchequer from dealing with the financial position in a broad and comprehensive spirit. The basis of the Budget scheme was two- fold. First, to provide, by a comprehensive arrangement of the national finances extending over seven years, for the gradual reduction and the ultimate extinction of the Income Tax; and, meanwhile, further to utilise it as a means whereby financial reforms and re- missions of taxation could be accomplished. Secondly, again to overhaul the whole com- plicated system of Import duties — prohibitive, protective, differential — and to carry consider- ably further the policy of fiscal reform, making for that simplicity of taxation and freedom from restraint, which, initiated by Huskisson and Robinson, and tinkered at by Althorp, had been manfully adopted by Peel. A few words will suffice here on these two points ; for, in subsequent chapters, Mr. Glad- to benefit the Country, rather than to carry a majority by concessions to fear.' "— Zi/'^f of Lord], Russell^ vol. ii. p. 170. REFORM OF THE TARIFF II stone's action in reference to Customs and Excise reforms,^ his policy in regard to the Income Tax,^ and his dealings with other branches of finance, will be more fully dis- cussed. In 1853 a great stride was taken in the direction of complete fiscal freedom of trade, though it was not until 1 860 that the principle, in its entirety, was fully and finally adopted. But some hundred and forty minute, unproduc- tive, harassing, and vexatious import duties were now abolished ; while nearly twice that number were reduced, with a view to their subsequent extinction. Generally, it may be said that the duties on articles of commerce, of clothing, of comfort, and of food were repealed or reduced. But the reform of the Tariff" was but a part of the financial operations of this year. The Excise duty on Soap was abolished at a loss of a million of revenue. The Soap duty was one of those pernicious Excise duties which were freely imposed about the beginning of the eighteenth century.'' An Excise duty * Seep. 80. 2 See p. 112. ' The Soap duty in 1853 was at the rate of \\d. a pound on "hard," \d. on "soft" soap, plus the S per cent. Baring levy of 1840. Althorp, in 1833, had reduced the duty from yi, and li^. respectively. .*/.- 12 1853, AND AFTER which, as Mr. Gladstone said, ** entailed an immense loss by fraud, which was most in- jurious to the comfort and to the health of the people, and which seriously crippled the pro- ductive power" of the trade. A glance at a hoarding, or at the walls of any wayside station, shows that the enterprise of the soap manufacturers has, since its repeal, fully re- covered from the crippling effect of the duty. Then the Tea duty of 2^. 2 Jaf. a pound was at once reduced to is. lorf. ; and was subse- quently to fall to i^. 6d in 1854, to i^. ^d, in 1855, and to a shilling in 1856, at which rate it was to remain until i860. Further, under an arrangement of 1848, a gradual fall was taking place in the duty on Foreign Sugar, which by 1854 would be equalised to the charges on Colonial Sugar. This fall was to continue. The Life Insurance duty was reduced from 2S. 6cl, to 6cl, per cent. The stamp duty on Advertisements in newspapers disappeared.^ The taxes on hackney carriages and on post- ^ The duty was at the rate of is. 6d, (reduced in 1833 from 3J. 6d.) for each advertisement, without regard to its length, and was producing ;£i8i,ooo a year. The Newspaper Tax, at the rate of a penny a sheet (reduced from 4^. in 1836), was repealed in 1855 at a cost of ;f 488,000. SIMPLIFICATION OF TAXATION 13 horses were simplified and reduced. The duty on dogs was reduced to 12^. and made uniform. The " Assessed Taxes " on armorial bearings, servants, carriages, horses, etc. — complicated, confusing, and much evaded, and levied under no less than seventy-two Acts of Parliament — were simplified, and placed on a rational and intelligible basis. This reform was carried to completion by Mr. Lowe in 1869, when he changed the Assessed taxes into Licence duties, and much improved the levy. The Stamp duties levied on business documents and transactions were simplified, improved, and extended. A system of penny receipt stamps in lieu of some of the complicated and progressive stamp duties was introduced — a profitable plan, which has since been widely extended.^ The total remissions under these various heads would, when in full operation, involve a gross loss of revenue of five and a half millions, the whole of which it was, however, hoped and believed would be ultimately re- couped to the Exchequer from the sensible stimulus given to trade and consumption. Against these remissions, a Succession duty * See p. 43. I i 14 1853, AND AFTER INCOME TAX RE-IMPOSED IS was imposed — realty was to contribute its quota to the Death Duties.^ The Scotch and Irish Spirit duties were raised, though not quite to the level of the English duty.' The limit of exemption on the Income Tax was lowered from ;^i50 to ;^ioo, but on incomes between ;^ioo and ;^i50 the tax would be at the rate of fivepence only. The Income Tax was also, for the first time, extended to Ireland. When re-imposing the Income Tax in 1842, Peel stated that, in the then "state of society " in Ireland, and with no arrangement, such as existed in Great Britain, for the collec- tion of the tax, its levy would be attended with great difficulty. These difficulties had now dis- appeared, and there seemed no good reason for continuing to exempt Irish incomes from direct taxation. Besides all this, by a separate measure, the interest on a portion of the National Debt was to be reduced by means of a complicated, and, as it turned out, an unsuccessful oper- ation. The Customs Law was simplified, con- ^ See p. 137. 2 The Scotch Spirit duties were equalised to the English duties in 1855, the Irish in 1858, and in i860 the duty on foreign spirits was reduced to an equivalent rate. solidated, and codified — a, great administrative reform.^ The Income Tax, which had been re-imposed eleven years before as a temporary tax and for specific purposes, was, for the fifth time, legally expiring. It required no little courage to propose the re-imposition, for a further prolonged period, of a tax so much discredited and disliked ; and argumentative skill of no mean order to persuade the House and the Country, against their will, to re-endow the Chancellor of the Exchequer with such an unwelcome impost. The scheme for the ultimate extinction of the Income Tax in seven years was this. On the one hand, the ordinary expenditure was not expected to increase. At the same time, the Debt charge would diminish to the extent of three and a half millions, due to the second reduction in interest on the ** Goulburn stock " converted in 1844, to further savings of interest through annual redemption from sur- pluses, and to the extinction, in i860, of cer- tain Annuities, which would result in a saving of over two millions a year. On the other side of the account, there would be an increase * See p. 154 and p. 105 respectively. y i6 1853, AND AFTER CRIMEAN WAR 17 \ I in the revenue of two and a half millions, to be derived from the Spirit duties, the Stamp duties, and the Succession duty. The remissions, amounting to five and a half millions, given on Tea, on Sugar, and else- where, and in connection with the fiscal reforms, were to recoup themselves. It was confidently anticipated, therefore, that, by 1 860, there would be an available surplus of six millions of revenue over expenditure. By that date the Income Tax itself would have fallen to fivepence ; and a sum of six millions would be amply sufficient to admit of its repeal. Such were the proposals made by Mr. Glad- stone in his first year as Chancellor of the Exchequer. And it is almost certain that, had peace and prosperity prevailed, and had he remained at the Exchequer, the whole of the financial scheme, immediate and ultimate (exclusive of the Succession duty, which failed to produce more than one-third of the ex- pected revenue), would have been successfully accomplished. But— and this is a just criticism Mr. Gladstone was characteristically over- sanguine in expecting that the unexpected would not happen, and in attempting to carry out an extended scheme of finance, which only a period of continuous peace, prosperity, and economy could justify. Finance depends largely on expenditure ; and " Expenditure depends on Policy " — or the want of it. Even while the Budget proposals were being laid before the country, diplomacy was at work. The sky rapidly became overcast, a dark cloud came up from the East, which soon burst into a storm, culminating in the Crimean War. A war fought for no in- telligible purpose, and leading to no decisive or lasting results ; a war, moreover, which involved the country in heavy cost, and which left the expenditure on a permanently higher level. The conversion scheme was wrecked, fresh debt was incurred, the debt charge was increased ; taxation had to be im- posed, not remitted ; the progressive reductions in the Tea and Sugar duties were frustrated ; the repeal of the Income Tax was prevented. So it came about that, in 1854, instead of being able to continue the policy of 1853, and to propose further fiscal reforms and remissions of taxation, a strenuous effort had to be made to meet the now inevitable war expenditure. Mr. Gladstone's reputation had suffered damage ** I 1!^. 'Jl I i8 1853, AND AFTER from the partial failure of his plans, and espe- cially from the embarrassing failure of the debt conversion operations; but the courage with which he met recurring liabilites, and the elo- quence and skill which he showed in defending and explaining his past and present proposals, speedily re-established his position. The first Budget of 1854 was introduced in March; the Ultimatum to Russia had been despatched a week before; an expedition of 25,000 men was to be sent to the Crimea. It was too early as yet to make more than the most provisional estimate. The gross expendi- ture^ was put at ;^6o,650,ooo, the revenue at /57,8io,ooo> a deficiency of ;^2,840,ooo. The Income Tax, now again utilised as a war tax, was provisionally increased from 7^. to lod, to yield ;^3, 300,000, giving a surplus of half a million. The second and more matured Budget was introduced in May. The additional sum now required for war purposes was put at ;^6, 8 70,000. The Government thought— as Governments will— that the enemy would be brought to her knees within a month or two, 1 See Appendix C. WAR TAXATION 19 and for an expenditure of ten millions. To their cost, the Nation discovered — as they have lately again discovered — that it takes years instead of months, and scores of millions, to complete the task that they were led to believe would be so easy of accomplishment. The whole of this additional war expenditure was likewise to be raised by taxation. The Income Tax was increased by a further four- pence, from lod, to i^. 2d. ; Spirits, Malt, and Sugar were all additionally taxed. Tea alone was to receive exceptional treatment ; the fall of duty from is. lod. to i^. 6d.y arranged the previous year, was not to be arrested. Thus the whole of the war demand in the year of over ten millions, representing, on the then ordinary expenditure of the country of 56 to 57 millions, an addition of no less than twenty per cent., was met by increased tax- ation. When he had been in a position to reform and remit, Mr. Gladstone had shown courage and resource ; he showed the same qualities in adversity. The happy function of the Chan- cellor of the Exchequer in distributing his bounty is, he said, ** woefully changed when there is a period of war." The time had come. I A ft\ 20 1853, AND AFTER he added, to show of what mettle the country was made. " The expenses of a war," he declared, in defend- ing his proposals, " are the moral check which it has pleased the Almighty to impose upon the ambition and the lust of conquest, that are inherent in so many nations. There is pomp and circumstance, there is glory and excitement about war, which, notwithstand- ing the miseries it entails, invests it with charms in the eyes of the Community, and tends to blind men to those evils, to a fearful and dangerous degree. The necessity of meeting from year to year the ex- penditure which it entails is a salutary and wholesome check, making them feel what they are about, and making them measure the cost of the benefit upon which they may calculate." " The system of raising funds," he went on to say, " necessary for wars, by loan, practises wholesale, systematic, and continual deception upon the people. The people do not really know what they are doing. The consequences are adjourned into a far future." He desired, what Mr. Morley has well called, ** instructive not vindictive taxation," not to punish, but to bring home the results of war. The worst of it is that such a policy requires courage — and this is not always forthcoming. In this case, however, it was conspicuous. In 1855 Sir George Lewis raised the Income Tax to i6cl.y increased the duty on Coffee, COST OF CRIMEAN WAR 21 raised the Tea duty to i^. gcl.y and imposed further taxation on Sugar and on Spirits. The total direct cost of the war was about seventy millions, of which thirty-eight millions were met from additional taxation, and only thirty -two millions were added to the debt ; a very credit- able performance.* It is interesting to note that, while the existing duties on various branches of indirect taxation — Tea, Sugar, Coffee, Malt, and Spirits — were considerably raised during the Crimean War, no indirect tax, previously abandoned, was re-imposed. With the exception of the duty on Spirits, which was intended to be permanent, the last of these war duties dis- appeared in 1864, with the reduction of the duty on Sugar. In 1867 the Debt, through redemption, again stood at the figure it had touched before 1854. Thus were obliterated the last direct marks of the Crimean War. Unlike the Napoleonic War, and unlike, we may fear, the Transvaal War, the war with Russia left no lasting effects on the National finances. ^ The total cost of the Crimean War has been estimated in several different ways, and I have preferred, as most correct, that of Mr. Chisholm, as detailed in the invaluable Pud/ic Income and Expenditure Report of i86g. H 22 1853, AND AFTER 1/ The war, and the consequent disturbance to trade, severely tested the efficacy of the fiscal and financial reforms of 1853. But they fully responded to the expectations of their author, and the revenue showed striking buoyancy and recuperation. The Customs and Excise, in spite, or in consequence, of remissions to an amount of ;^ 1,700,000, re- covered not only the whole of this loss, but ;f 700,000 to boot; and the year 1853 ended with a realised surplus of three and a half millions, a sum only once before exceeded. **We should take a narrow view," says Sir S. Northcote, "of the whole policy of the year, if we failed to recognise the immense strength which it imparted to the country, and which enabled us to grapple successfully with the difficulties of the following period . . . The war, as we acknowledge, revealed to us many imperfections in our military system, but the strain on our finances brought to light nothing but their soundness and their vigour. » 1 1 Twenty Years of Financial Policy^ p. 234. CHAPTER III. BUDGET OF 1860 TN January of 1855 the Crimean War ^ muddle overthrew Lord Aberdeen, who, with universal acclaim, was succeeded by Lord Palmerston as Premier. The latter took over the rest of the Coalition ; but within a fortnight the inconstant Peelites — Gladstone, Graham, Sidney Herbert, and Cardwell — re- signed. Sir George Cornewall Lewis, though "strongly disinclined" for the task, went to the Exchequer. Then came for Mr. Gladstone a period of restlessness and indecision : now leaning to one side, now to another; rumour pointed at one moment to a coalition with the Whigs, at another to the occupation of the seat next Disraeli's. His chief Parlia- mentary interest was to criticise the Budget, and Sir Cornewall Lewis, who, personally and financially, was antipathetic to him. For the rest he played again the part, as a few years before, of a political Sir Galahad, succouring 23 24 BUDGET OF 1860 ■) I 1 the distressed stranger and freeing fettered peoples. Between 1846 and 1859 there were six changes of Ministry, and in 1859 was formed the first stable Government since the resigna- tion of Peel. The two rival Whig chiefs buried the hatchet. Lord Palmerston became Prime Minister, Lord John soon after sinking into Earl Russell. Whigs, Peelites, Leaguers, and Radicals coalesced into a Party and a Government ; Cobden alone declining to take office, on the ground that he could not serve under the man whose foreign policy he had always systematically opposed.^ Mr. * Mr. Cobden was offered the Presidency of the Board of Trade. If he had accepted this Office he would have been in somewhat the same position to Mr. Gladstone as the latter was to Peel in 1842 and 1845, and he would, unquestionably, have greatly assisted and stimulated the work of fiscal reform. On the other hand, the French Commercial Treaty — a great lever for these fiscal reforms — would almost certainly not have been negotiated at this time ; the fact that Cobden was a private individual enabling him to initiate and to carry through the negotiations. It is not likely, however, that Cobden would have long remained a member of the Palmerston Government. " I should be certain to run away," he told Palmerston, " if you were to do anything very contrary to my strong convictions " ; and on the Fortification Scheme, or on something else, resigna- tion would have speedily ensued. OFFICE UNDER PALMERSTON 25 Gladstone went again to the Exchequer, and there he remained for seven years and pro- duced eight consecutive Budgets : among the most striking series of financial operations in English history. These eight years mark a great epoch in finance, in which the coping- stone was set to the edifice of fiscal reform, and the whole financial system was placed on a simpler and sounder basis. Mr. Gladstone's position as Chancellor of the Exchequer under Lord Palmerston was in every way different from that which he had enjoyed under Lord Aberdeen. There was a striking incompatibility of temper between the jaunty septua-octogenarian, im- mersed in foreign affairs, suspicious of foreign intrigue, and prone to see lions in the path against which costly protection was essential, and the eager, sanguine, serious statesman, whose passion was finance and whose dream was economy. The two men distrusted one another, and the elder, at least, was by no means always loyal to his colleague. But, in one respect, the Chancellor of the Exchequer was fortunate. If the Whig Premier was antagonistic to Retrenchment, he disliked Reform still more. Activity abroad was sufifi- i 'I i 26 BUDGET OF 1860 INACTION 1853-59 27 I cient excuse for inactivity at home. Lord John having been allowed to ease his mind by an abortive Reform Bill, the question was placed on the shelf Party conflict languished ; no one desired to displace Lord Palmerston. Thus, though his chief could not give him his sym- pathy, he could give him Parliamentary time ; and Mr. Gladstone was fortunate in having at his disposal that essential adjunct to the success of elaborate Budgets — ample elbow room. So, apart from foreign affairs. Finance held un- disputed sway in the early Sixties. The Financial Statement was the event, and the Budget proposals the chief occupation, of the session ; and, the wand being in the hands of a magician, public interest and popular imagina- tion were excited by them in a way that has perhaps never been equalled before or since. Between the year 1853, when Mr. Gladstone first went to the Exchequer, and 1859, when he returned there, nothing was attempted, nothing done in fiscal or financial reform.^ The * Two import duties only were repealed between 1853 and i860, namely, the import duty on window and shade Glass (the Excise duty had been repealed in 1834) and that on Liquorice root ; the two duties together involving a loss of revenue of ;^2,I98. necessity, first of imposing, and then of re- mitting special war taxation, the heavy ex- penditure and the hesitating revenue, were sufficient excuse for inaction. The war taxa- tion imposed had taken the form of simple additions to existing taxation ; the remission which followed was merely the removal of a portion of these burdens. Moreover, the phantom hope of even yet extinguishing the Income Tax in i860, still held possession of the public mind, and greatly limited the power and the scope of the Chancellor of the Ex- chequer for the time being in regard to re- mission of taxation. And, even if the oppor- tunity had occurred, Sir George Lewis was not the Minister to turn it to account. He belonged to the expiring school who favoured the financial ideas of Arthur Young, rather than those of Peel and of Cobden, and who persisted in thinking and arguing that sim- plicity in taxation was an evil to be avoided. It was reserved for Mr. Gladstone himself, therefore, to take up his task almost at the point at which he had left it seven years before, and to follow up his great Budget of 1853 by an even greater effort in i860. The first Budget of the new Chancellor of 28 BUDGET OF 1860 BUDGET 1859 29 i\ the Exchequer, that of July, 1859, was pro- fessedly a provisional one. The way was deliberately left clear for a matured examina- tion and comprehensive review of the whole financial position in the following year. The revenue was put at ;^64,340,cx)0, while the expenditure had risen to ;^69, 200,000, giv- ing an estimated deficit of no less than ;^4, 860,000. The increased expenditure was due to the war services — the game of beggar - my - neighbour between France and England was beginning. " In time of peace," said Mr. Gladstone, "nothing but dire neces- sity should induce us to borrow," and so the deficit was filled by shortening the **malt credits," ^ and by a temporary increase of the Income Tax, from $cl. to gel. With the chimerical idea of carrying out the proposals * The Maltsters were allowed about six months' credit in which to pay the duty, equivalent to a loan to them by the State of two millions and a half. In this year (1859) the " credits " were shortened by six weeks, and a sum of ;^7 80,000 called in. The following year (i860) the credits were further shortened by another six weeks, and a further ;^ 1,100,000 called in. As regards the " Hop credits," the crop was picked in August and sold in October ; yet the first moiety of the duty was not due till May, and the second moiety not till November. In i860 the system was altered, and the duty made payable in January. of 1853, Disraeli had, the previous year, re- duced the Income Tax from yd. to 5^., instead of redeeming the three and a half millions of Crimean War debt falling on that year. The ninepence, to which the tax was now raised, was the highest figure it had yet reached in time of peace. In order to obtain the whole of the addi- tional revenue in the current year, the additional 4 t I. 50 THE SIXTIES applauding crowds. The Continent was un- easy, the Emperor of the French was dressing for the part of Napoleon, Europe was becoming an armed camp ; an expenditure of emulation seemed essential for our safety. It was, more- over, a transition period in armaments. The Navy had to be transformed and rebuilt, the ironclad replaced the wooden walls ; the Army had to be rearmed and reorganised, the Volunteers enrolled, the fortifications of the Dockyards and Arsenals to be begun.* But, by 1862, public opinion had veered round, the feeling of alarm had subsided. A Motion, declaring that the National expenditure could and should be reduced, was introduced in June ; and Lord Palmerston, for fear lest worse things should befall, himself moved a dexterous amendment, which pledged the Government to Economy — with Security. Persistent pressure within the Cabinet, public preaching outside, had resulted in a signal triumph of the Chan- 1 On May 24th, i860. Lord Palmerston, writing to the Queen, said he hoped to overcome Mr. Gladstone's objections to the proposed loan for fortification, " but if it should prove impos- sible, however great the loss to the Government by the retire- ment of Mr. Gladstone, it would be better to lose Mr. Gladstone than to run the risk of losing Portsmouth or Plymouth."— Z(/Jf of Prince Consort^ v. 99. I t i, ' !■:: ECONOMY 51 I cellor of the Exchequer over the Prime Minister : and Lord Palmerston's desk ceased to be littered with Mr. Gladstone s letters of resignation. The ordinary expenditure, apart from the war expenditure, of the year 1858, was ;f 64,000,000 ; that of 1859 was ^68,700,000; that of i860, with over two millions less of debt charge, was ^69,850,000; that of 1862 was ;f 69, 300,000. During this period, more- over, some eight millions had been spent in war or warlike expeditions— in China, New Zealand, and Canada— and some two millions and a quarter on fortifications. In 1863 the expenditure had been reduced to ^66,500,000; and by 1865 it had fallen to ^65,100,000.' The revenue receipts of the year i860 were most unsatisfactory, and were deficient to the extent of two millions, and the year ended in a deficit of two and a half millions ; followed, in 1861, by another deficit, of one and a half millions. But, in 1862, there was a realised surplus of ^1,300,000; and, in 1863, for the first time, the Chancellor of the Exchequer was able to estimate for a bond fide surplus, and for a surplus of no less than ;^3,740,ooo— an un- precedented sum. This surplus went in re- f (. I, 52 THE SIXTIES mission of taxation ; and in each of the three remaining years of this epoch there was a considerable estimated surplus available for further reduction of taxation. Economy had made remission possible ; remission led to ex- pansion of trade and increased consumption, and increased consumption brought elasticity of revenue — a healthy circle. To return to the summary of these years. The original estimate of expenditure for i860 had included ;^i, 650,000 on account of the Chinese War. But, by July, a further sum of ;^3, 350,000 was required for the same purpose. The action of the House of Lords had saved a million on the Paper duty ; and, now, an increase of the Spirit duties, from 8s. to 10^. a gallon, provided another ;fi, 400,000. Thus, out of a total of five millions of war expenditure falling on i860, all but a million was met from taxation. The year 1861 opened with a nominal sur- plus of two millions. This included, however, the Paper duty and the extra penny of Income Tax, imposed the previous year; and was just sufficient to admit of the repeal of the one and the remission of the other. Thus, fortunately I u AN EQUILIBRIUM 53 for its success, the final repeal of the Paper duty could be associated with the disappear- ance of the extra penny of Income Tax. In 1862, with the estimated revenue at ;^7o, 190,000 and the expenditure at ;!f 70,040,000, there was an equilibrium. Such a narrow surplus might, according to Mr. Gladstone, under other circumstances, have involved some taxation in order to place the finance of the year in a safer position. But the outlook was fairly favourable, the past two years had been peculiar and exceptional, and he was therefore content, for this time only, to rest satisfied with a very close balance between revenue and expenditure. On the other hand it was obvious that, with no surplus, there could be no remissions. " The only security for a Chancellor of the Ex- chequer," he said, "lies in his utter destitution. If he does not possess a surplus you cannot take it from him; or, according to an old proverb current in the northern portion of this kingdom, which I will translate for fear of offending Scottish ears by a defective accent, * It is difficult to deprive a Highlander of that particular garment which he does not wear.' " The opportunity was, however, taken to deal i' 54 THE SIXTIES with some of the minor questions which were consequent on the active financial legislation of the past two years — the swell after the storm. The duty on dice, producing but ;^30 a year, was repealed ; to prevent evasion, the shilling duty on playing cards was reduced to 3^., and levied by means of a stamp on the wrapper instead of on the ace of spades. The hawkers' licence duty was reduced ; ^ some small stamp duties were imposed. The Wine duties were rearranged and simplified. The duty on Hops was removed from the raw material, hops, and placed on the manufactured article. Beer — " that incom- parable and most wholesome article which we term bitter beer."^ The Hop duty was, like all duties on the raw material, unequal, vexa- tious, and fluctuating; while hops, *'the darling child of Protection and Monopoly," had been, * The licence duty for Hawkers (1861), "if on foot," was £1. If, as the Act said, he " shall travel on one Beast of Burden only, that is to say, an Ass or a Mule, or a Horse not exceeding in height Thirteen Hands of Four Inches to each Hand," the licence duty was £2. 2 On another occasion Mr. Gladstone spoke with enthusiasm of the " Burton Brewers, to whom we are all indebted for pro- viding us with one of the best drinks which has ever been produced since nectar went out of fashion." — Budget Speech, 1881. THE HOP DUTY 55 u since i860, subject to the competition of foreign hops — and felt it severely. But ** the forcible and noiseless eloquence of the figures sub- mitted to the Committee," made it clear that the revenue derived from the Hop duty could not be relinquished. "Aut Caesar aut nihil," ^ said Mr. Gladstone ; " it is a case of commuta- tion or nothing.*' Anticipating his action in 1880, in regard to the Malt tax, he availed himself of a moment when the repeal was out of question to commute the tax and to keep the money. The commutation took the form of an addition to the Brewers' licence, equivalent to a duty of threepence a barrel of beer, or practically a shilling a quarter on all malt and sugar brewed. At the same time, the existing scale of Brewers' licences was revised, and the amount paid for the licence made to vary more strictly in accordance with the number of barrels of beer brewed. A period of great prosperity was now to begin. The year 1862 ended with a realised * So in the revised collected edition of the Budget Speeches of this period. The correct quotation is, of course, " Aut Caesar aut nuUus." 't\ 56 THE SIXTIES REDUCTION OF TEA DUTY 57 f surplus of ;^ 1, 300,000. The year 1863 opened with an estimated surplus of nearly four millions. For the first time, since 1845, ^^ absolute and substantial surplus was available, that could be freely handled unfettered and un- forestalled. Fiscal reforms — as tending to encourage trade and commerce, and to increase output, turnover, profits, and employment — had taken precedence of simple remissions of taxation on articles of general consumption. But these reforms were now practically completed, and the time had come to review the burdens on, and to give direct relief to the consumer. It was obviously preferable, from the point of view of trade, of consumption, and of revenue recuperation, that the whole remission should be given on one article and not frittered away between two or more. The only question for discussion, therefore, was whether Tea or Sugar should be given precedence in relief Tea and Sugar had often before been colleagues in relief, or companions in misfortune ; but now, *' for the first time in the history of legislation or of mankind, these two articles have been placed in hostile competition with one another." On the balance of argument. Tea was the victor, and Sugar had to wait for relief until the following year. Tea received further relief in 1865, but Sugar then drew ahead. In 1870, and again in 1873, the sugar duty was halved ; and, in 1874, the remaining duty of 35. a cwt. was repealed. And now, after twenty-seven years of freedom, sugar is again subjected to taxation. The tea duty was therefore reduced from i^. $d to the shilling a pound to which, under the arrangement of 1853, and again under the Act of 1857, it was to have fallen in i860. Mr. Gladstone held the view that reduc- tions in direct taxation should go hand in hand with reductions of indirect taxation on articles of general consumption;^ so the Income Tax was reduced from ninepence to the old familiar sevenpence. At the same time, the distinction between the rate charged on incomes between ;^ioo and ;^i50 and on those over ;^i50, was abolished ; and, instead, an abatement of ;^6o was given on all incomes between ;^ioo and ;^200 — the ** sore place " in the working of the tax. The Tobacco duty was slightly altered, and a few minor changes in taxation were carried through. An attempt was also made to bring ^ See p. 142. I 1/ 58 THE SIXTIES Corporate bodies and Charities under some form of direct taxation. The outcry and opposition were, however, so vehement and severe that the proposal had to be withdrawn — one of Mr. Gladstone s few failures in the field of finance. The flourishing state of the revenue, and the note of economy continuing, resulted in a realised surplus of ^3, 150,000 on 1863 — a surplus only three times before equalled or exceeded, namely, in 1844, 1850, and 1853. The estimated surplus for 1864 was put at ^"2, 600,000. A few minor concessions were given. The Fire Insurance duty was reduced to IS, 6d per cent. ; the Hawker's Licence was again lightened ; a few small Stamp duties were improved or imposed; the Corn registration duty was altered from measure to weight, from a shilling a quarter to threepence a hundred- weight. " Having now got," as Mr. Gladstone said on one occasion, "the pickaxe into the respectable fabric of the surplus, and dislodged from it one or two bricks, we shall find it very easy to complete the bulk of the operation, and to bring the whole, or neariy the whole of the fabric to the ground." The Income Tax was reduced by a further penny to 6d. ; the Sugar duties were lowered from 18^. 40^. to 12^. 10^. REDUCTION OF SUGAR DUTY 59 a cwt. on refined sugar ; and were thus reduced to a point slightly below that at which they had stood before the war duties were imposed. The Budget was a corollary of that of the year before. In 1865, favourable winds still prevailing, the estimated surplus was put at four millions — another record; the previous year, in spite of the great remission of taxation, having closed with a surplus of over three and three-quarter millions.^ Again the financial scheme for the year was fairly obvious. The Tea duty was further reduced by one half, from a shilling to sixpence a pound. The Income Tax was reduced from sixpence to fourpence, the lowest point it had yet touched; a reduction which, Mr. Gladstone declared, made the retention of the tax easy, or its extinction practicable. The reduction of the Tea duty two years before had been ^ A realised surplus only once before exceeded, in 1844, when it amounted to ;^6,34o,ooo. The realised surplus in 1853 was ;^3,524,ooo. It must be remembered that, up to 1874, no allowance was, as a rule, made in the Estimates for elasticity of revenue. The estimated revenue was based on the actual receipts of the pre- vious year, taking into account any changes made in taxation. Thus any elasticity of revenue went to create, or to swell the realised surplus. 6o THE SIXTIES declared by the Chancellor of the Exchequer to be " as far as we may look forward into the future, a final measure.'* But cash and economy forced his hand ; and, as later in 1870, in regard to the Sugar duty, surpluses compelled remission, in spite of rash declara- tions of finality. In 1866 Mr. Gladstone, now also Leader of the House, presented the last Budget of this remarkable series. The estimated surplus, *!^ 1*350,000, was less than that of the previous years. The question of the reduction of the Debt, too long neglected, was now to receive some attention, and half a million a year was to be devoted to its redemption by means of an elaborate system of Terminable Annuities.^ These proposals were dropped after the change of Government ; but were revived and carried through by Mr. Disraeli in a simplified form in 1868. Some ;^300,ooo was devoted to the final repeal of the import duty on Timber, the last relic of the formerly abounding duties on raw materials. ** The Timber duty," said Mr. Gladstone, "is as bad a duty as it can be. It is a protective duty on a raw material of which the country stands in great want ; which is of * See p. 151. REPEAL OF TIMBER DUTY 61 great bulk, and thus, in any case, made costly by carriage. The imposition of the duty, which has the effect of greatly increasing the cost, and which also, as far as it goes, has a protective character, is the very essence and quintessence of political folly." There were separate duties for hewn, sawn, or split woods, while furniture or hard woods were enumerated under twenty-five heads. The duty had at one time been as high as 65^. a load on foreign timber, and had always been greatly differential in favour of the Colonies. Gradually, by suc- cessive stages, it had been simplified, reduced, and equalised ; and, in i860, the duty on foreign unsawn wood had been reduced from 75. 6^. a load to the colonial rate of a shilling. The repeal relieved the tariff of thirty-six items of charge, including the charge of a shilling a ton on ships "if built of wood." The duty on Pepper— "a condiment common to all classes of the community " — was repealed, tardily following the other duties on spices. The mileage duty on stage coaches was re- duced ; as was also the licence duty on letting horses for hire; cheap locomotion was the order of the day. In connection with the Commercial Treaty negotiated with Austria, ;! . 1 62 THE SIXTIES ^ the duty on wine in bottles was reduced to that on wine in the wood. Into these seven years, from 1859 to 1866, were crowded a larger number and a greater variety of financial changes and reforms than during any like number of years of any former or subsequent period. Apart from immense change involved in the complete purging of the Customs list, the Income Tax was reduced from lorf. to 4^. ; the Tea duty from is. 5^. to 6d. a pound ; the Sugar duties by 45. to 5s, a cwt. ; the Paper duty was repealed, the Hop duty was commuted. A vast number of other taxes were dealt with. The Fire Insurance duty, a tax on prudence, and sundry taxes on Locomotion were lightened and reduced ; the Stamp duties and Licences were thoroughly reformed and simplified, some were repealed, some reduced, others imposed; many minor duties and taxes were altered or imposed. These remissions, alterations, and reforms, small as well as great, involved endless trouble and labour, careful study, and accurate know- ledge of technicalities, and minutiae. But all this was a labour of love to Mr. Gladstone, who had a tender passion for detail and an FINANCIAL STATEMENTS 63 affectionate appreciation of statistics, and who never spared himself in mastering to the full any and every financial question that arose. ^ Remarkable results in the way of recu- peration of revenue followed ; attributable chiefly to the fact, so argued the Chancellor of the Exchequer, "that the particular taxes which have been selected for abolition or re- duction were taxes peculiarly injurious and obstructive " ; and that this policy has been combined with the essential corollary, "the cautious, judicious, gradual, but yet resolute application to all the Departments, of the principles of a true and strict economy." The annual Financial Statements of 1861 to 1866 were all long, elaborate, eloquent, and interesting. The proposals contained in these later Budgets were simpler, and of more assured acceptance than those of 1853 and of > " He (Mr. Gladstone) is interested in everything he has to do with, and often interested too much. He proposes to put a stamp on contract notes with an eager earnestness, as if the destiny of Europe, here and hereafter, depended upon its enactment. He cannot let anything alone. ' Sir,' said an old distributor of stamps in Westmoreland, ' my head, sir, is worn out. I must resign. The Chancellor, sir, is imposing of things I can't undQrstSLiid.' "— Ba£^ehoi B/og. Studies^ i860. ft ! n 64 THE SIXTIES I I i860; each particular speech was therefore less in the nature of an argumentative appeal and more in the nature of an exposition. But, though Mr. Gladstone had to deal on occasion with ** matters extremely dry and technical," or with subjects, such as the complicated sugar duties, which were " inconceivably dull ; and abounding in every element of repulsiveness," he was never, for one single minute, dry or dull. While it was often necessary to take his hearers through a wilderness of figures, he varies the way by excursions into greener paths and more attractive scenes. Now, with a light touch, now with an impassioned period, now again with solid argument, he discusses the great question of the Income Tax, or dis- courses on the rivalry between Direct and Indirect taxation ; balances the arguments be- tween Tea and Sugar ; elucidates the position of the Malt tax or the Paper duty ; dwells on the growing taste for lighter Wines ; alarms by an anticipated exhaustion of the Coal supply ; mourns over the blighted hopes of Pepper; or rejoices over the happy health of the foreign Rag trade. Then, taking a com- prehensive view of the position of the Country, he dilates on her progress and prosperity ; or ELOQUENCE 65 earnestly appeals for economy, again economy, always economy. Anon, he enters at large into a fervent and inspiring digression on the improved condition of the labouring classes, largely due — no vain boast — to the stimulus given to industry, and to the cheapening in articles of consumption, which had followed the policy of fiscal freedom. If, he said, " the extraordinary and intoxicating growth" of wealth were confined to those in easy circumstances, then, indeed, he would look upon the prosperity of the Country with some degree of pain rather than with pleasure. But it was not so. He derived "profound and inestimable consolation from the reflection that, while the rich have been growing richer, the poor have become less poor." W ».■ MR. LOWE 67 CHAPTER VI. LATER YEARS PARLIAMENT was dissolved in the sum- ^ mer of 1865 — a. Parliament which had enjoyed the distinction of having discussed seven Budgets. In the autumn Lord Palmer- ston died ; and Lord Russell succeeded as Premier, with Mr. Gladstone as Leader of the House of Commons, though still at the Exchequer. An era of internal repose was to be followed by a period of volcanic activity. In 1866 the Russell Ministry resigned — de- feated on Reform — and were followed by a Conservative Government on sufferance; and a far-reaching Reform Bill was carried through the House of Commons by the House of Commons. The work done, the feeble Ministry was cast aside; and the first "Liberal" Govern- ment was formed, with Mr. Gladstone as Prime Minister and as the trusted Leader of a great Party. Mr. Lowe — singular choice — was Chancellor 66 ' of the Exchequer. The British public loves to dub a prominent man by a name or a deed — whether opprobrious or otherwise is much a matter of luck — and the whole of his career is to ninety-nine out of a hundred summed up in the epithet. Fate is thus often unkind. To the man in the street, Sir James Graham — a very able administrator, and Peel's most trusted and consulted colleague — is only known as the Home Secretary who opened other people's letters. To the same intelligent individual, Mr. Lowe is known merely as the man who wanted to tax matches — and who aggravated his offence by a classical pun. " * Ex luce lucellum ' we all of us know ; But if Lucy won't sell 'em, what then, Mr. Lowe ?" The Match tax was doubtless a foolish pro- posal, savouring of the ideas of our ancestors ; and one wonders how Mr. Gladstone can have allowed it to pass his scrutiny. But it was an incident merely in an otherwise fairly sound and successful period at the Exchequer, during which the financial policy of 1860-6 was sub- stantially supplemented; and in which, for the last time, economy, not to say drastic economy, prevailed. Taxation to an amount of 68 LATER YEARS twelve and half millions was remitted. Direct and indirect taxation were mutually relieved. The Sugar duty was reduced by two-thirds; the Coffee duty by one-half; the Income Tax was reduced to 3^., the lowest figure it had yet reached. The taxes on Locomotion were greatly lightened. The collection of the dif- ferent branches of direct taxation was placed on a sounder and more sensible basis. Instead of three collections in the year, with arrears, amounting to a quarter of the whole, standing over, the whole of the Income Tax was col- lected at one time, and the whole of it within the year in which it was imposed. The Assessed taxes, simplified by Mr. Gladstone in 1853, were changed into Licence duties, and made payable in advance. The Stamp duties were reformed and consolidated, two simple and intelligible Acts of Parliament taking the place of one hundred and six statutes. On the other hand, nothing was specially done for the more speedy reduction of the National Debt, It may perhaps fairly be urged that re- missions of taxation were carried too far ; and that it was a mistake to have relinquished the shilling registration duty on Corn, and to have reduced the Sugar duty to a point at which I SUGAR AND CORN DUTIES 69 its extinction became economically inevitable — for it is one thing to repeal, quite another to re-impose. But on strict free trade principles the Corn duty was indefensible; it was the only remaining import duty on an article also produced at home, on which no Excise duty was levied ; and its imposition involved the irritat- ing and harassing levy of duty on no less than some forty other articles of food, into the com- position of which corn or flour entered. Then, as regards the Sugar duty, if, thanks to the all-absorbing expenditure of the age, the basis of taxation has now again to be enlarged, at least the consumer and the trade have enjoyed the advantage of the remission for over a quarter of a century. Those were the days, it must be remembered, of moderate expendi- ture, and of ** leaps and bounds" in trade, commerce, and revenue — ^halcyon days, with little thought of the storm and stress of the morrow. Surplus followed surplus. The money in a most embarrassing way persisted in pouring in ; and yet, in spite of an almost reckless relinquishment of revenue, the period ended with a surplus of unprecedented magni- tude. By 1873, though with a splendid record I 70 LATER YEARS I behind them, the Government, exhausted by their own activity, beset by harassed interests, suffering from personal and political un- popularity, had become so weakened as to necessitate a reshuffling of the cards. Mr. Gladstone, himself, again became Chancellor of the Exchequer. Thus, like Walpole, like Pitt, like Peel in his first short Ministry, Mr. Gladstone combined the treble duties of Prime Minister, Leader of the House of Commons, and Chancellor of the Exchequer.^ The Ministerial changes took place in July. In the following January Parliament was sud- denly dissolved, and an Electioneering Budget was presented to the electors. So flourishing was the state of the National finances, that Mr. Gladstone thought he saw his way to accomplish one of his favourite financial desires —the repeal of the Income Tax. Instead, however, of waiting for a few weeks more, * From the days of Stanhope, in 1717, who for a time com- bined the Offices of First Lord of the Treasury and Chancellor of the Exchequer, up to the time of Peel in 1834, the two Offices were always held together when the Prime Minister was in the Lower House. They were so held by Walpole in 1721, by Pelham in 1744, by Grenville in 1763, by North in 1770, by Pitt in 1783, by Addington in 1801, by Pitt again in 1804, by Perceval in 1809, by Canning in 1827, by Peel in 1834. But between 1834 and 1873 the two Offices of First Lord and Chancellor of the Exchequer were kept distinct. ELECTION BUDGET OF 1874 71 and producing his scheme, fully matured and presented from his place in the House of Commons, he must needs, on the plea of the necessity of obtaining a fresh "access of strength" to the Government, impetuously and imperfectly summarise his proposals in the form of an Election Address, and go to the Country upon them. The proceeding is one difficult to justify — and it was not justified by success.* We may deplore it the more, inas- much as the defeat of the Government at the polls has for ever lost in oblivion the embryo Budget of 1874, with its repeal of the Income Tax, its *' marked relief in the class of articles of popular consumption," its "judicious adjust- ment of existing taxes." And so we are the poorer by a Speech and a Budget that would, in all probability, have rivalled the days of 1853 and i860. On the other hand, we keep the Income Tax — and that is a considerable consolation. The Election of 1874 resulted in a compact * See p. 129. It is but fair, however, to refer the reader to Mr. Gladstone's own defence of his action. This is contained in two articles, in the Nineteenth Century for June and August, 1887, called forth by a gratuitous attack upon him by Mr. Lecky in the sixth volume of his History of the Eighteenth Century. •• CHAPTER X. THE INCOME TAX TOURING the greater part of his career Mr. Gladstone was possessed by an almost passionate desire to repeal the Income Tax. "I think," he said in 1861, "it would be a most enviable lot of any Chancellor of the Exchequer — I certainly do not entertain any hope that it will be mine — but I think that some better Chancellor of the Exchequer, in some happier time, may achieve that great consummation ; and that some future Poet may be able to sing of him, as Mr. Tennyson has sung of Godiva, although I do not suppose the means employed will be the same; — ** * He took the tax away, And built himself an everlasting name.' " To us, who have grown accustomed to an Income Tax, and to a very high Income Tax, as an important, and indeed essential part of our National revenue, it may seem somewhat surprising that the great Master and exponent of Finance should have been so insistent on its 112 MR. GLADSTONE'S VIEW 113 abolition. But, if we remember the school in which Mr. Gladstone received his financial training, and if we recall the date at which he first took an active part in public affairs, we cease to be surprised. He had been Peel's Colleague when the Income Tax was re-created in 1842, professedly, and in good faith, as a provisional impost. He, like Peel, had believed it to be a powerful, but tem- porary, aid called in to meet a national emer- gency, and one that should be relinquished when the emergency had been met. He had seen it temporarily renewed in 1845, ^^^ again temporarily renewed in 1848, in 185 1, and in 1852. In his belief, therefore, as he said in 1853, it would not be right that the Nation should be "entrapped unawares into the per- petuation " of the tax ; and, indeed, he held that " the perfect good faith of Parliament in its mode of dealing with the Country" was involved in its early and final repeal. This feeling he held still more strongly after 1853, when, on his initiative, the renewal of the tax had been acquiesced in for another seven years on the faith of its ultimate extinction. He appreciated the unpopularity of the In- come Tax. He realised to the full its im- : i I h 114 THE INCOME TAX perfections (far greater in earlier days than now), Its inequalities, the injustice of its in- cidence, assessment, and collection. He believed that these evils were inherent; could not be removed, and could be but litde mitigated.^ He held still more strongly (and in this he was certainly right), that any attempt to introduce an ideal Income Tax, and to try to assess the individual income, instead of taxing income at its source, would be to destroy efficiency with- out removing inequalities. Expressing the general view held in 1853, he declared that : — " The Income Tax is an engine of gigantic power for great National purposes ; but, at the same time, there are circumstances attending its operation which make it difficult, perhaps impossible, at any rate in our opinion not desirable, to maintain it as a portion of the permanent and ordinary finance of the country. The public feeling of its inequality is a fact most important in itself The inquisition it entails is a most serious disadvantage. And the frauds to which it leads are an evil, such as is not possible to charac- terise in terms too strong." But, exclaimed he, the task of breaking up and reconstructing the Income Tax is beyond the powers of any man. " I will not * On the ground of the evils inherent to an Income Tax, he had suggested to Peel, in 1841, the revival in preference of the House l9X.—Life of Peel^ ii. 502. A FOE TO ECONOMY IIS call it a Herculean labour, because a Herculean labour means a labour that Hercules could accom- plish, and this I am persuaded he could not." Further, Mr. Gladstone had persistently in mind, especially in later years, the feeling and knowledge that the large revenue derived from the Income Tax, the facility of its levy, the ease with which it could be adapted to the requirements of the year, made it a formidable enemy to National Economy, by placing a temptation in the way, and by removing an obstacle from the path of expenditure and extravagance. " Another objection to the Income Tax,'* he de- clared in 1858, "is that so long as you consent, without a special purpose, to levy the Income Tax, as part of the ordinary and permanent revenue of the country, so long it will be vain to talk of economy and effective reduction of expenditure. It is a source so productive, an engine so convenient — it is so easy to lay on \d. or 2d, at a time ; that so long as you have the Income Tax a part of your ordinary revenue, you need not think of effective and exten- sive economy." " My growing belief is," he also affirmed, " that if it is the desire of the House to see re-established in public administration those prin- ciples of reasonable thrift — those principles of reason- able thrift which directed the government of this country from about the period of the Duke of \\. < ii6 THE INCOME TAX Wellington's Administration until the time of the Russian War — it is most questionable whether that object can be accomplished compatibly with the affirmation of the principle that the Income Tax is to be made a permanent portion of the fiscal system of the country, and to be employed, not for the particular exigencies of the moment, but for satisfy- ing the ordinary everyday expenses of the Nation." The most effective way, he argued in 1857, of en- forcing economy is to cut down income. "The question," he said in 1861, "is simply a question of expenditure." " If the country," he went on to say, " is content to be governed at a cost of between sixty and sixty-two millions, or even sixty- four millions a year, then there is no reason why it should not be governed without the Income Tax. If, on the other hand, it is the pleasure of the country to be governed at a cost of between seventy and seventy-five millions a year, it must in my judgment be so governed with the aid of a considerable Income Tax." His desire, therefore, sometimes sleeping but never dead, was to look upon the Income Tax as an emergency tax; to relinquish it as an ordinary part of the revenue of the country, and to keep it in reserve as a "ready and effective resource, to which you can look as an effectual resort in circumstances of difficulty and trouble." In order rightly to appreciate the view thus REPEAL IN 1816 117 held, it is necessary to recall shortly the history of the Income Tax ; which can be stated in a few words. Pitt, at the crisis of the Revolu- tionary War, having partly failed in his attempt to obtain, by means of the existing machinery — the so-called "Assessed Taxes'' — the neces- sary revenue from Property, imposed, in 1799, a " Property and Income Tax," at the rate of ten per cent, or two shillings in the pound. Repealed at the Peace of Amiens in 1802, the Tax was re-imposed the following year, and remained in force until 18 16. Then, despite the protests of the Government, it was forcibly swept away by the House of Commons amidst a scene of the wildest enthusiasm, and all the books and records relating to it were ordered to be destroyed. The great loss of revenue involved, for years crippled the Exchequer and delayed financial and fiscal reform; but, until Peel arose, no Minister had the courage to suggest the re-imposition of the obnoxious Tax. In 1842, however, the financial and economic position of the Country being well-nigh des- perate, Peel persuaded the House to allow him to re-impose the Income Tax as a temporary measure, for the double purpose of securing a r t • I if ^' ii8 THE INCOME TAX Surplus and of reforming the Tariff. Imposed for three years, it was, in 1845, renewed for another three years, in order to enable Peel to make a "bold experiment" and to carry con- siderably further those fiscal reforms which were already bearing substantial fruit. Thus, the Income Tax, originally, under stern neces- sity, called into existence as a weapon of war, was, under financial necessity, resorted to as an instrument of peace. The second period of three years expired in 1848 ; and Lord John Russell, with a deficit of over three millions, proposed the re-imposition of the Income Tax for five years, and at the rate of a shilling in the pound. But so strongly averse was public opinion, that the Govern- ment, not thinking it " wise to attempt to force upon an unwilling House an addition to an un- popular tax," agreed to renew it for three years only, at the old rate of sevenpence, leaving the deficit to look after itself. In 1 85 1, with a large estimated surplus, the Russell Government again proposed the renewal of the tax for another period of three years, and on the old sevenpenny basis. But the Nation was getting restive under these repeated re- newals of a burden which had only been ac- RENEWAL FOR ONE YEAR 119 quiesced in as a temporary impost. It was one thing to vote its re-imposition from time to time to meet emergencies or for specific purposes, and quite another to allow it to be indefinitely continued when pressure could no longer be pleaded. The fear on the part of many that the tax would glide imperceptibly into permanency ; the desire on the part of others, that Peel's rough-and-ready impost should be recon- structed ; the universal feeling that it was unjust as between permanent and precarious incomes, led to a coalition, which dictated the renewal of the Income Tax for one year only ; and forced upon the Government a Committee of inquiry into its incidence and mode of levy. This Committee rejected the schemes for reform placed before them, but came to no conclusion themselves. In 1852 the proposals for the readjustment of the tax made by Mr. Disraeli fell with the Budget,' and the Income Tax was again renewed for one year only, un- reformed, and at the old rate. This, then, was the position of the Income 1 Mr. Gladstone, in his article in the Nineteenth Century for June, 1887, says that Disraeli proposed to differentiate the Income Tax "without the knowledge of the Board of Inland Revenue " I I 1 (I I iT 120 THE INCOME TAX Tax in 1853, when Mr. Gladstone came to deal with the whole financial position in a broad and comprehensive spirit. For the fifth time, the Income Tax, now involv- ing some five and three-quarter millions of revenue, was expiring. The Country desired Its extinction, successive Ministers were pledged to its Repeal. It "was an impost," said Mr. Disraeli, "which no Minister could adjust, and no- People long endure." The Tax, it was universally agreed, was essentially unjust and unequal, and it was apparently incapable of radical reconstruction. It could not be re- formed, and it should not be permanent. Public opinion would, however, have been met by the utilisation of the surplus for the immediate reduction of the tax by a penny or so, and the temporary renewal of the remnant. But this was not Mr. Gladstone's way. He would not be content with "some paltry pro- posal to shirk the difficulty by simply re-enact- ing the tax for one year or for two, thereby prolonging the public uncertainty and dissatis- faction"; but he was determined to present "a real substantial plan, under which the Income Tax may, at a given period, if Parlia- ment still so thinks fit, be got rid of." The FIRST ATTEMPT AT REPEAL 121 Income Tax was therefore to be renewed, but not to be perpetuated. "The prevailing uncertainty respecting it" was to end; and, with this object in view, "effectual measures were to be taken to mark the tax as a tem- porary tax, and to lay the ground for placing Parliament in such a position that, at a given period, it may, if it still thought fit, part with the tax." Meanwhile, partly in order to defer to public sentiment, a sentiment not much shared by the Chancellor of the Exchequer himself, with respect to the inequality of the tax, namely that it "bears upon the whole too hard upon intelligence and skill, and not hard enough upon property as compared to intelli- gence and skill," an extension was to be made in the taxation of realised property by means of a Succession duty ; whilst savings in the form of Life Insurances were, up to a certain limit, to be exempted from the tax. Finally, the Income Tax itself, during its remaining years of existence, was to be again utilised in the field where its aid had already been so effective, and was again to be "associated with a great and beneficial remission of taxes." The scheme of combined utilisation and extinction was, as we have already shown, to fi t rrf 122 THE INCOME TAX cover a period of seven years ; and the Income Tax was to be definitely renewed for that period. For the first two years it was to be levied at the old sevenpenny rate, in 1855 it was to fall to sixpence, in 1855 to fivepence, and in 1 860 Parliament would be in a position to dispense with the tax. The requisite sur- plus was, as already explained, to be produced by, on the one hand, savings on the debt charge ; and, on the other, by recuperation of revenue and additions to taxation. ^ The part of the Budget Speech of 1853 in which the whole question of the Income Tax was discussed was a masterly performance. It was remarkable also; inasmuch as it was one of the very few instances on record in which a single speech effected a real conversion of the House of Commons and of Public Opinion on a question of first-rate importance. The Country was firmly convinced that the Income Tax was intolerably unjust as between realised and precarious incomes; and that, if the tax were to be renewed, it must be differ- entiated. The question was no new one; it had often been discussed before. Mr. Glad- stone dealt at great length with the point. He ^ See p. 15. 'i\ SPEECH ON INCOME TAX 123 examined the Income Tax in minute detail, schedule by schedule, to show that the in- equality was far less than was popularly sup- posed, and that the grievance was founded on no substantial basis. Turning to the suggested remedy, namely, that incomes should be taxed according to their stability, he proved the impossibility of trying to distinguish between individuals, or classes, or groups ; of defining what is an " industrious income, and what is a lazy income" ; and demon- strated the injustice of averaging incomes, or of attempting to tax one species of income more lightly or more heavily than another ; of saying, *' Here you shall be exempt, here you shall pay the exceptional tax." To discriminate between incomes according to their source or durability, would, he argued, be to break up the basis of the Income Tax ; would render the tax unfit for service on an emergency, and would throw the whole finance of the Empire into confusion. The real way to deal with the matter was, he urged, not to attempt the impossible, but to look to the general effect of the whole system of taxation, and to find the remedy elsewhere. The argument came as a revelation; and completely modified the public view of the ,1' ^li 11 124 THE INCOME TAX question — **a triumph of reason over convic- tion," as Lord Aberdeen said. Indeed, in regard to the renewal of the Income Tax itself, argument and eloquence prevailed over prejudice, and the Nation, which had earnestly- desired immediate reduction or abolition, un- grudgingly agreed to the lengthened continu- ance of the Tax on its old lines. But, alas! at the end of seven years, the long-suffering Nation found itself in possession, not of the much-desired Rachel, but of the ill-favoured Leah. In i860 there was a huge Deficit, instead of the anticipated and necessary Surplus. The Income Tax, as Mr. Disraeli said, *'is unfortunately still alive; nay, more, it is a child which has greatly grown." It was at ninepence, instead of at fivepence ; and all likelihood of its extinction had to be in- definitely postponed. The era of Peace had been followed by a period of War. The Crimean War, War Office muddling, the Mutiny, the Chinese War, European resdess- ness, had disorganised the Finances, added to the Debt, increased the Expenditure— and saved the Income Tax. The desire to extinguish the Income Tax, by carrying out the arrangement of 1853, had, LEAH NOT RACHEL 125 however, such a hold on the country, that in 1858 the payment of a special War Debt was postponed by Mr. Disraeli in order to enable him to reduce the Income Tax to fivepence, with the view to its possible extinction in i860. But, without avail ; expenditure had increased too rapidly, and too heavily to permit of the relinquishment of the Income Tax; and, in 1859, it had to be raised to ninepence. I f I CHAPTER XI. THE INCOME TAX {continued) TN i860, therefore, the Income Tax could ^ neither be repealed nor reduced ; and, sur- viving, it was again utilised for Fiscal reforms. It was raised to tenpence, the highest peace point it had yet reached ; and, for the moment, the idea of its early relinquishment was aban- doned ; though not the hope of, and the desire for, its ultimate repeal. "I should like very much," said Mr. Gladstone in 1861, "to be the man who could abolish the Income Tax. I do not abandon altogether the hope that the time may come. But I am not about to be too sanguine; for, I quote Sydney Smith, who, speaking of a very remote result, says he thinks we had better leave the care of this subject to those little legislators, who are now receiving a plum or a cake after dinner. I am afraid that some such amount of self-restraint 126 SECOND ATTEMPT AT REPEAL 127 may be necessary with regard to the Income Tax." Yet, though hope may be deferred, it springs eternal ; and Mr. Gladstone began at once to prepare the way for his remote successors. An association, however, of unlooked-for economy and unexpected elasticity of revenue, soon placed him in a position to deal, himself, effectually with the burden of the Income Tax ; and so to handle the finances that abolition was soon again brought within the range of practical politics. We have al- ready seen how the Income Tax was rapidly reduced from the tenpence of i860 to the fourpence of 1865. In 1863 it again fell to the time-honoured sevenpence. In 1864, Mr. Gladstone, in reducing it to sixpence, ex- pressed a hope that, in the following year, he would be in a position further to reduce it to fivepence, "its legal minimum." Parliament would be thus put in such a position, he said, **that it will have it in its power to consider deliberately, and on principle, what course it shall thereafter pursue, with a view either to the maintenance or the abolition of the Income Tax." " It is not desirable," he added, "that the Income Tax should creep unawares into per- % >,i 128 THE INCOME TAX I petuity ; that it should be continually dealt with simply by renewals from twelvemonths to twelvemonths, founded on, and perhaps sufficiently justified by, the exigencies of the moment, but having no reference to policy, and announcing to the country no clear, distinct, and decided views on the part of Parliament with respect to the proper mode of dealing with this great instrument of taxation." But so large was the estimated surplus in 1865, that it was found possible to take off, not only a penny, but twopence. A fourpenny Income Tax involved about five and a half millions of revenue ; and so the reduction to fourpence made **the retention of the tax easy if the country desired it to be retained, and its extinction practicable if the country wished it to be abolished." And if_one of those historical ** ifs," the contempla- tion of which is at once so fascinating and so futile — Palmerstonian stagnation and Glad- stonian finance had survived in combination a year or two longer, the opportunity would have occurred for the temporary extinction of the Income Tax. But, again, it was not to be. When, in 1868, Mr. Gladstone returned to Office, though not to the Exchequer, the V THIRD ATTEMPT AT REPEAL 129 Income Tax instead of being at ^cl. was at 6cl., and the national expenditure now far exceeded the limit at which, in his opinion, as expressed in 1864, the impost could be dis- pensed with. But, nevertheless, before long another attempt was made by the intrepid Chancellor of the Exchequer to take away the Tax, and there is no doubt, but that if he had not precipitated the affair and wrecked the scheme by a disastrous dissolution, he would have actually repealed the Income Tax in 1874. He would thus, as he said in 1853, have placed the weapon on the shelf from which it could be again taken down if un- happily necessity should arise. When, in 1869, he again succeeded to Office (though not to the Exchequer) he found the Income Tax at sixpence. By 1874 the way had been prepared for action : the tax had been reduced to threepence. At that figure its repeal would involve some five and a half millions of revenue ; against this there was an estimated surplus of over five millions. The desired moment had at length come, repeal was within his grasp ; his solemn duty, as he con- sidered it, could be fulfilled ; the debt of honour could be at last repaid. He definitely pro- 1' I u 111 -I •'I \fM f' 130 THE INCOME TAX posed, therefore, to the country the abolition of the Income Tax combined with other changes of taxation. But, though the offer was a tempting one, the unpopularity of the Government was too great, and the country rejected the proposal.^ Fate was too strong even for Mr. Gladstone. Thrice did he make the attempt, thrice did he fail. First a war, then a change of Govern- ment, then the emphatic repudiation of the electorate, brought his scheme to naught. The Income Tax, in spite of him, has fortunately endured, and forms an essential part of the National revenue. And we may safely pro- phesy that no future Finance Minister will ever desire to rid himself of the Income Tax. The 1 See Mr. Gladstone's interesting defence of his action {^Nineteenth Century for June and August, 1887) to which refer- ence has already been made. He there states emphatically that the proposal made was, " according to my conviction, the pay- ment of a debt of honour, and the fulfilment of a solemn duty." In 1853 the renewal of the Income Tax for a fixed period had, he argued, only been obtained on the basis of gradual reduction and final extinction. Therefore he himself " was the person bound beyond all others to redeem (this debt of honour) when at length it could be redeemed." Not until 1874 had the actual opportunity occurred. But now "the way had been carefully prepared by the Ministry of 1868-74, through successive reductions of the Tax, from 8^. to 3^/." " We had the Income Tax," he adds, " lowered below any previous rate ; and before us there lay a solidly estimated surplus of six millions." PEEUS INCOME TAX 131 Tax cannot be spared, and no Chancellor of the Exchequer would spare it if he could. If, in 1853, it were "a colossal engine of finance" when it was producing but five millions and a half of revenue, how much more colossal is it now, when it can be made to produce five times as much. In Peels time each penny of Income Tax produced but some three-quarters of a million ; while now, in spite of the large abatements given, each penny produces a sum approaching two millions and a half. Continued existence tends to the adjustment of a burden. In its early days, when the Income Tax was looked upon as a temporary impost, its manifold evils were patent and palpable ; but the country, as time went on, became accustomed to its existence and inured to its use. Moreover, Peel's Income Tax. introduced in 1842 as a temporary measure, and founded on the old War Income Tax, itself a temporary measure,^ was a crude and abrupt sevenpence ^ The Income Tax Act of 1842 was (with certain alterations in regard to exemptions, etc.) practically a reprint of that of 1806. Pitt's original Income Tax of 1799 was assessed on the individual income^ and a return of vazom^ from all sources was required. The obligation of making a return of the whole income was very unpopular, and led to much evasion j and, in 1803, ii I I ' 'I ti .■,!„iilii^mia:jiiiiiiii:iiS!lli;;.ii, -,. J 132 THE INCOME TAX V on all incomes of ;^i50 and upwards, without exception, exemption, or abatement. Gradually the crooked paths were made straight, the rough places plain. Exemption, Abatement, and Graduation have relieved and eased the burden where it galled the most ; and the in- justice as between realised and precarious incomes has been largely tempered and remedied, if not removed, by the great ex- tension of the Death Duties.^ All taxes are bad and burdensome ; but the Income Tax, once irksome and detested, is, as now levied (in time of peace), perhaps the least bad, the least burdensome, and the least unpopular of all our great taxes. The idea that the Income Tax was a tem- porary tax, and Mr. Gladstone's idea that he could, and would some day or other repeal it, did much to delay its reform. Nevertheless, many of the improvements which have been Addington, in reviving the Income Tax after the rupture, sub- stituted particular returns of income from particular sources in lieu of a return of the whole individual income. This system still prevails. See Dowell's History of Taxation^ vol. ii. 1 In 1852 the Income Tax (at 7^.) produced a sum of ;£5,75o,ooo, and the Death Duties ;£2,5oo,ooo. In 1899 the Income Tax (at 8^.) produced ;£ 18,750,000, while the produce of the Death Duties was no less than ;£ 16,000,000. See Appendix A for particulars respecting the Income Tax. IMPROVEMENTS IN THE TAX 133 carried out are due initially to Mr. Gladstone himself. He introduced the system of Abate- ment,' he extended the Death Duties, he allowed a deduction for Life Insurance, he improved the system of Collection.^ Again, the Income Tax has been repeatedly used as an instrument for the repeal or re- mission of other taxation. "This," said Mr. Gladstone in 1880, in utilising it for the last time for a fiscal reform, "was the original purpose and distinction of the Income Tax. This is the great glory of the tax,— that it has been the means of enabling us thoroughly to reform our commercial system, thoroughly to relieve the industries of the country, and to bring back into the Treasury of the com- munity, ten pounds and twenty pounds, for every pound which has been levied in the form of Income Tax." But, nevertheless, this action has resulted in the relinquishment of 1 See Appendix A for Mr. Gladstone's views in reference to Exemptions and Abatements. ^ In 1863, "a change of great and beneficial importance" was made in the system of the collection of the Income Tax. Up till then, only half the tax due within the year was collected in the year ; now, three-quarters of it was to be so collected. In 1869, Mr. Lowe took a further step ; and so arranged that the whole of the Income Tax imposed in the year should be collected within the year. I-.; 134 THE INCOME TAX much Indirect Taxation, and has tended to make the Income Tax an ever more essential branch of the National finances. Indeed, there is some truth in Disraeli's re- mark in 1873, when the Sugar duty was being lowered to a vanishing point, ** that the Income Tax, instead of being an instrument for reform- ing our tariff, had commenced to be an instru- ment to destroy it, and that under the influence of the Income Tax, other sources of revenue were constantly disappearing." Or, put in another way, it may be said that its existence and use has tended to redress the inequality that formerly existed between direct and in- direct taxation ; and has made more equitable the burden of taxation as between the com- munity at large and the propertied classes.* * No precise distinction can be drawn between taxes which are indirect and taxes which are direct. But for purposes of comparison. Direct Taxation is usually held to include Income Tax, Death Duties, Stamps, Land Tax, House Duty, Licences, etc. ; while Indirect Taxation means taxes on con- sumable articles (Customs and Excise, exclusive of Licences, etc.). On this basis, the proportions per cent, between Direct and Indirect Taxation have altered as follows : — 1841 1851 1861 187Z t88g 1I9S 1901 Direct . 27 ... 33 ... 38 ... 39 ... 40 ... 44 ... 50 Indirect . 73 ... 67 ... 62 ... 61 ... 60 ... 56 ... 49 (See Parliamentary Paper 163 of 1896). \\ BECOMES PERMANENT I35 Further, the Income Tax, in its earlier years, was looked upon as a tax fixed at a certain definite rate, sevenpence, and producing a specific annual amount, and not as a tax, to be raised or lowered with the varying needs and circumstances of the year. When war came, in 1854, the Income Tax (the recognised War Tax) was naturally utilised, and raised to a high figure. But Mr. Gladstone was the first (apart from war) to resort, in 1859, to what he once called " the simple but very rude process " of adding or of taking off pence in the pound as poverty dictated or plethora allowed; a system which, carried much further by his successors, has also helped to perpetuate the tax by making it a ready resource on an emergency. In all these divers ways, then, while Mr. Gladstone's dream was to repeal the Income Tax, his fiscal reforms and his financial work have tended to make it permanent. Mr. Gladstone's desire to abolish the Income Tax was founded on no fundamental objection to the principle of such a tax, nor on any objec- tion to, or dislike of direct taxation in itself On the contrary, he declared on more than '1 m i 136 THE INCOME TAX one occasion, that property ought not to escape its fair contribution towards taxation, but he desired that it should be reached by a less vexatious method. The abolition of the In- come Tax ought, he said, to be accompanied or followed by direct taxation of Property through the extension of the Death Duties. In 1853, when providing for its ultimate extinction, he imposed the Succession duty. In 1874, when he was proposing the imme- diate repeal of the Income Tax, he in- tended, as we now know, among other changes, to substitute for it drastic Death Duties. They were to have been "recon- structed and enlarged; direct taxation of a kind most vexatious to trade and industry was to be removed ; direct taxation, the least of all unfavourable to trade and industry, and going as a direct tax should wherever possible go, straight to property, was to be imposed." The Succession duty — in other words, a Legacy duty on real property— imposed in 1853, was the first considerable new tax that had been created since the Great War. Pitt had desired, in 1796, to impose a similar duty, along with a Legacy duty, THE SUCCESSION DUTY 137 on Personal property. The latter measure was allowed to pass. But the second Bill was strenuously opposed by Fox and others, on the ground that it would immoderately increase the influence of the Crown, and enable the State to seize upon the whole property of the Nation. England, it was said, while the best country to live in, would now be the worst to die in! The Bill was ultimately passed by the casting vote of the Speaker, whereupon Pitt withdrew it. The imposition of the Succession duty of 1853 was based on two grounds. First, because it was not considered just that Real property (land and houses) should continue to escape its fair share of Imperial Taxation; the relief of one class of taxpayers involves additional burdens on others ; *' the exemption of one man," as Mr. Gladstone often argued, *' means the extra taxation of another." Secondly, in order, as we have seen, to do something towards making more equitable the burdens on '' property," as compared to "personal" incomes. The pro- posal was hotly opposed, especially by the House of Lords. "The Chancellor of the Exchequer, my lords," said one angry Peer, "will be like a vulture soaring over society, H\ ;> 138 THE INCOME TAX waiting for the rich harvest which death will pour into his treasury." The Bill, said another, *Ms one of the most obnoxious, detestable, and odious measures ever pro- posed." The Bill was, however, passed. The original estimate of the yield of the duty was put at two millions a year; but it never reached as much as half that sum. The failure was due to various causes, com- plicated and obscure, and, with the passing of the Estate Duty Act of 1894, but academic. This was one of the most serious financial mis- calculations made by Mr. Gladstone. On the other hand, the existence of the Succession duty made easier the complete and equitable reform of the Death Duties in 1894. CHAPTER Xn. INDIRECT TAXATION TO turn from the question of Direct to that of Indirect taxation. The objects Mr. Glad- stone had in view in reducing the burden of taxation on the great articles of general con- sumption—other than Intoxicants, which have always had a different measure meted out to them— were these. First, that the consumer should directly benefit by a reduction in the price of the article he consumed ; secondly, that the reduction should so stimulate trade and consumption as ultimately and rapidly to bring back into the Exchequer the bulk of the revenue in the first instance relinquished ; and, thirdly, that through reductions in these articles the burden of taxation on the poorer classes of the community should be relieved. Under the seven years' scheme of 1853, the reductions and abolition of vexatious and protective Customs duties were accompanied by a fall in the Sugar duties, and by an im- 139 f i I40 INDIRECT TAXATION mediate reduction in the heavy duty on Tea. In i860 a bolder line was taken, as we have seen, and the war duties on Tea and on Sugar were actually utilised for the purpose of Fiscal Reforms ; reforms which seemed to be of primary importance. But by 1863 the Customs reforms were practically completed, the Paper Duty had been repealed ; and, a large surplus being available, the time had obviously come to deal with the two great branches of indirect taxation derived from articles, not of luxury but of increasing necessity— Tea and Sugar. We have already seen how Tea first, then Sugar, and then again Tea, were substantially relieved of the burden of taxation. " The reduction of duties on articles of extensive popular consumption," he said in i860, "was not the first, but the last in order of the objects Sir R. Peel had in view ; and because he knew, because Parlia- ment that supported him knew, that in point of fact the true secret of improving the condition of the People was not the mere reduction of price in this or that article, but the liberation and extension of trade, and the increase in the demand for articles of consumption which necessarily resulted therefrom. . . . These principles were to diminish or abolish protection, to do away with prohibition, to prevent smuggling, to liberate trade from fiscal fetters, and I RESULTS OF REMISSION 141 1 maintain that the mere reduction in the price of articles of consumption, although a proper and bene- ficial object, is far behind in importance the objects Sir Robert Peel then had in view." " We propose absolute repeal," Peel had himself said, " expecting from the increased consumption on other articles an equivalent improvement in the revenue." "With regard to the remission of the indirect taxes, I hope," said Mr. Gladstone in 1861, "that the memorable history of the last twenty years will never be forgotten ; for I do not scruple to state, that if you look to its economical profits on the one hand, and then to its political, social, and moral fruits on the other, it is difficult to know to which to give the palm in point of magnitude. If we had not gained one single shilling by the remission of indirect taxation, it would have been worth having, for the sake of the manner in which it has knit together the interests and feelings of all classes of the community, from one end of the country to the other. If, on the other hand, it had had nothing to do with any question of moral and social results, still the merely economical effects, in promoting the material well-being of the people, have been so signal and extraordinary, that we may well rejoice to have lived in a period during which it has been our happy lot to take part in bringing about such changes." "There cannot," he said on one occasion, "be a grosser delusion than the supposition that the work of Parliament has been to destroy indirect taxation. 142 INDIRECT TAXATION The hand with which Parliament has wrought has been a pruning hand ; its thought, all along, has been not to destroy the tree, but to strengthen the stock ; the aim of the operation has been to augment both size and vigour ; and the consequence is that, at this moment when indirect taxation has been destroyed, as the fashionable phrase is, not once but four or five times over, indirect taxation is larger and more pro- ductive than at any former period of our history. Its condition recalls to the mind that tree of golden leaves which has been described by Virgil, from which his hero was ordered to pluck a branch, and on whose trunk, the moment one branch had been plucked, another took its place." In dealing with these taxes, he was insistent also that, where a change was made in the duty, it should be an effective change ; and that the whole remission should be concentrated on one article rather than diffused between two. Both in 1853, and again in the Sixties, Mr. Gladstones object was to associate in relief Direct and Indirect taxation. Discussing the question in his Budget speech of 1861, he indulged in one of his fanciful, but practical, flights of oratory. "To many people both direct and indirect taxa- tion, as is natural, appear sufficiently repulsive. As for myself I confess that, owing to the accident of THE TWO SISTERS 143 my official position rather than to any more profound cause of discrepancy, I entertain quite a different opinion. I never can think of direct or indirect taxation except as I should think of two attractive sisters who have been introduced into the gay world of London ; each with an ample fortune ; both having the same parentage (for the parents of both I believe to be Necessity and Invention), differing only as sisters may differ, as where one is of lighter and another of darker complexion, or where there is some agreeable variety of manner, the one being more free and open and the other somewhat more shy, retiring, and insinuating. I cannot conceive any reason why there should be unfriendly rivalry between the admirers of these two damsels ; and I frankly own, whether it be due to a lax sense of moral obligation or not, that as Chancellor of the Exchequer, if not as a member of this House, I have always thought it not only allowable, but even an act of duty, to pay my addresses to them both. I am, therefore, as between direct and indirect taxation, perfectly impartial." i« I! And this line of conduct, whether in cloud or in sunshine, he throughout maintained. The comprehensive scheme of 1853, which provided for the extinction of the Income Tax, was, as we have seen, accompanied by, and was depen- dent on, the reduction of the Tea and Sugar duties to a low figure.^ At the same time, the ^ See pp. 12 and 15. 144 INDIRECT TAXATION increase in the Spirit duties was balanced by the imposition of the Succession duty. When war came, both direct and indirect taxation were called upon to take their share of the burden. In 1854, when the first Budget was introduced, it was still hoped (Aberdeen- like) that actual war might be avoided ; and the three millions required was provisionally raised from the Income Tax alone. Under the second Budget, of a few weeks later, the further sum of ;^6,87o,ooo was required, and of this, ;^3, 2 50,000 was to come from the Income Tax, and ;^3, 600,000 from Sugar, Malt, and Spirits. The following year, war continuing, another twopence was put on the Income Tax, raising it to i6d.y to produce two millions ; and further taxation was placed on Sugar, Spirits, and Coffee ; while the Tea duty (which had been allowed, the previous year, to fall to is, 6^., and which was to have further fallen to is, ^cl,) was raised to is. gd. ; a total of Indirect taxation of ;^3, 200,000. Of the total War taxation im- posed and received, some twenty-four millions was received from the Income Tax, and about thirteen and a half millions from Indirect taxation. INCOME TAX, TEA, AND SUGAR 145 During the next two or three years the Income Tax was first reduced to 7^., and then to 5^., and then again raised to 9^. ; while the Malt war duty was remitted, the Tea duty was reduced to is. s^f., and part of the war Sugar duty was taken off. In i860 the Income Tax, instead of expir- ing, was raised to 10^. ; while the remaining war duties on Tea and Sugar were coincidently re-imposed for special purposes. In 1 86 1, along with the repeal of the Paper duty, the extra penny on the Income Tax speci- ally imposed the previous year was remitted. In 1863 the Income Tax was reduced from gel, to yd., at a cost of ;^2, 350,000 of revenue ; while the Tea duty was reduced from i^. ^d. to i^. a pound, at a gross cost of ;^ 1,660,000 a year. In 1864 a further penny of the Income Tax was remitted, giving a relief of ;^ 1,2 30,000, and the Sugar duty was reduced by four to five shillings a cwt. — the duty on refined sugar falling from i8j. ^d. to 12s. lod. — at a gross cost of ;,fi, 720,000. In 1865 the Income Tax was reduced by a further twopence, bringing it down to ^d, involving a loss of revenue of ;^2,6oo,ooo; while the Tea duty was halved, bringing it down to 6^., at a loss L 146 INDIRECT TAXATION of ;f 2, 300,000. If we add these respective totals toeether, we find that the fortunes of the two Sisters were nearly equally affected. During the years 1867 and 1868 the Income Tax alone was utilised, to provide for the exigences of the year. But between 1869 and 1873 the policy of mutual reduction was continued. Indeed, such was the prosperity of the period, that the Income Tax was lowered from 6^. to 3^^., a point at which it would have been possible to relinquish it altogether ; while the Sugar duty was reduced to a point at which it became economically in- defensible, and so disappeared altogether in 1874. The Sugar duty was in those days a pure and simple revenue duty, and it was the first tax relinquished on the sole ground that it was no longer required as a branch of the national revenue. Between 1880 and 1882, Mr. Gladstone's last three years as Chancellor of the Exchequer, indirect taxation was neither remitted nor imposed; and the Income Tax was utilised as a make-weight according to the financial exigencies of each year.^ 1 See note, p. 134, for the alterations that have taken place in the proportions between direct and indirect taxation. CHAPTER XIII. THE NATIONAL DEBT "npHE reduction of the National Debt," declared Mr. Gladstone in 1881, "is a matter in which I have always felt a great degree of interest and a great desire to see carried through. I have never thought that our operations in this direction have been as large as they ought to have been." And, indeed, in his dealings with the National Debt Mr. Gladstone was neither steadfast, strong, nor fortunate. He never seemed sufficiently to appreciate the real importance of a steady and persistent reduction of National Liabilities ; while the two operations which he did under- take with this purpose — the Conversion of part of the Debt in 1853, ^^^ the creation of some Terminable Annuities in 1866 — were both un- successful. It is true that his determination (which contrasted favourably with that of his predecessors) to meet the year's expenditure, extraordinary as well as ordinary, within the 147 n 148 THE NATIONAL DEBT year, by increased taxation if necessary, helped materially to prevent, at least, additions to the debt. But, on the other hand, his action, on more than one occasion, had a very serious and adverse effect on the redemption of the debt. He was, perhaps, too much inclined to believe that, as he said in 1862, "we have sown our wild oats long ago," and that the debt would never be again appreciably increased. In 1857 he joined with Mr. Disraeli in attacking the special Sinking Fund, instituted by Sir George Lewis for the extinction of the Crimean War Debt ; and urged instead the reduction of special War Taxes. In 1858 he supported Mr. Disraeli (then Chancellor of the Exchequer) in his proposal to repeal the self- same Sinking Fund, and to postpone the payment of the War Exchequer Bonds ; with a view to apply the three and a half millions thus saved to the reduction of the Income Tax to fivepence — the fetish set up in 1853. These two occasions were, curiously enough, the only occasions on which Gladstone and Disraeli worked heartily together for the same object. And, indeed, their action, in 1857, gave rise to rumours of an impending coalition between the two Statesmen. DEBT REDUCTION NEGLECTED 149 In i860, and again in 1862, Mr. Gladstone himself also renewed, instead of meeting, a million of Crimean War debt, falling due in that year. In the former year also, as we have seen, he deliberately reduced by two millions the annual sum applicable to the re- payment of the Debt, by utilising the relief due to the falling in of the Terminable Annuities (the whole of which then represented capital redemption) for fiscal reforms and the remis- sion of taxation, instead of retaining the debt charge at its former level. It may, however, be fairly argued (a plea that cannot be urged in justification of the more flagrant predatory actions of others, in 1887 and in 1899) that, in i860, it was better for the Country, for Trade, and for the Tax- payer, even for Credit, to carry out Fiscal Reforms than to apply the money to the mere "purchase of Consols at 92." But this plea, though adequate for i860, and in accordance with the public view, can hardly be held to cover the inaction of the succeeding five years. Times were good. Surpluses were large. Fiscal Reforms were completed ; yet nothing was done again to place the Debt charge in a favourable position. No proportion at all was attempted ISO THE NATIONAL DEBT to be kept between remission of taxation and reduction of debt ; the whole of the surplus revenue was given away in simple remissions of taxation ; and, until 1866, not a sixpence extra was applied to the redemption of Debt. With the debt total more by some millions, and with the annual debt charge less by nearly two millions than before the Crimean War, the Chancellor of the Exchequer might well exclaim in 1865, " I am not able to boast that, as a legislative and deliberative Body, we have, as yet, risen to a sense of the full extent of our obligations with respect to the reduction of the public debt." In 1866, it is true, there being, apart from Timber, no special claimant on the Surplus, and the country being much impressed by the scare of the near exhaustion of our Coal supply,^ or of the Coal which could be cheaply won, Mr. Gladstone took advantage of the 1 Professor Jevons' calculation was, that if the consumption of coal was not checked, the annual consumption by 1871 would be 117 millions of tons ; by 1881, 166 millions ; by 1901, 331 millions ; by 1941, 1,310 millions of tons. The actual results up to date have been, total output, in 1871, 115 million tons ; in 1 88 1, 154 millions ; and, in 1900, 200 millions of tons. The prophesied geometrical rate of consumption has not been main- tained. — The Coal Question^ p. 240. COAL SCARE 151 opportunity. Coal, he argued, was " a special and peculiar element in connection with the greatness of England ; and, being a wasting asset, its diminution should be correspondingly met by a gradual reduction of the National liabilities." He proposed, therefore, to apply half a million a year, by means of Terminable Annuities, to the more rapid extinction of the National Debt, then amounting to ;^8oo,ooo,ooo. A pill to cure an earthquake ! Having himself assisted to destroy a Sinking Fund, he had no faith in the vitality of a fixed and obtrusive arrangement for the annual re- payment of specific debt ; but considered, like a later Chancellor of the Exchequer, that a Sinking Fund was " made to be robbed." But he desired to carry further the system of Terminable Annuities, which would work out their redemption in silence, hidden away from the public view. The extinction of the so- called "dead-weight annuity," dating from 1823, liberated a charge of ;^585.ooo a year, and this he proposed to utilise and to increase, in order to inaugurate a system of recurrent rolling annuities, which should be automatically self-replacing. The actual proposal, as we have seen, fell with the Government. i s 152 THE NATIONAL DEBT DEBT REDEMPTION 153 Again, during the prosperous period of 1869 to 1874, the question of the more rapid redemption of the Debt was similarly neglected; and it was not until 1875, when the "New Sinking Fund" was instituted by Sir Stafford Northcote, that anything was done to place the redemption of the debt on a more businesslike footing, or to attempt to bring the annual amount devoted to the debt up to the level of 1858, namely, twenty-eight and a half millions. This level was not actually attained until 1 880, or twenty years after the absorption of the Long Annui- ties. And not long after, first, in 1887, again in 1889, and again in 1899, the principle of the Sinking Fund was invaded, and the fixed debt charge was by three steps finally reduced to twenty-three millions. Apart from the amount specifically allotted in the Estimates to the purposes of the Debt, the national liabilities may be redeemed by the realisation of casual and unexpected sur- pluses, which, under the operation of the " Old Sinking Fund," are automatically applied to the reduction of debt. And, as regards the Terminable Annuities, while the annual sum applied to meet them may be the same, that part of it which represents repayment of capital varies according to the age of the annuities. But neither of these causes leading to re- duction of debt can be especially placed to the credit of the Chancellor of the Exchequer. The real test of the policy pursued by a Chancellor of the Exchequer, in regard to the debt, IS to be judged, therefore, not by the total amount of debt which may be actually redeemed during his term of office, but by the amount specifically applied by him, year by year, to the purposes of the debt. Judged by this test Mr. Gladstone fails. In 1858 the total amount voted for the debt charge was ;^ 2 8, 500,000. In i860 it was re- duced to ;^26, 200,000; and at that figure it remained for the next six years. In 1869 it was ;^26, 750,000; and at that figure it re- mained until 1875. Again, while between 1857 and 1859, in- clusive, debt had been annually redeemed to the extent of four to five millions a year, in the two years i860 and 1867, the debt was actually only reduced by ;^300,ooo. Then things improved, and each succeeding year showed some reduction. But, between i860 m ii 154 THE NATIONAL DEBT and 1866 inclusive, not more than twenty-one millions of debt in all was redeemed ; and of this, thirteen millions was due to casual and unexpected surpluses. In seven years, that is, provision for the redemption of but eight millions of debt was actually made in the Estimates. The scheme of 1853 fo^ the Conversion of five hundred millions of the National Debt was altogether abortive. The proposal was this. The holders of certain Three per Cent Stocks, amounting in all to ;^500,ooo,ooo, were given the option of Conversion into either Two and a half per Cent, or Three and a half per Cent. Stock, at the rate of ;^iio of the former, or ^^82 10^. of the latter, for every ;^ioo of old Stock. Further, the holders of some outstanding Three per Cent. "South Sea Stock," dating from 1720, and amounting to nine and a half millions, were given the option of accepting these terms, or of being paid off at par. The scheme was launched at a moment when the Three per Cents, were at par, when Treasury Bills were carrying but one and a half per cent, interest, when money CONVERSION SCHEME I5S was unprecedentedly cheap. But before the conversion could come into force, War was looming near, and securities had fallen heavily ; and, naturally, few holders of Consols cared to avail themselves of the option. In the result, only some three millions of old debt was converted into the new Stocks; and the Chancellor of the Exchequer had to find some eight millions in cash to pay off the holders of compulsorily redeemed " South Sea Stock." And thus, just at a moment when the Exchequer should have been at its strongest, to meet the liabilities of the War, the Balances had been depleted, and the Floating Debt increased. The attempted Conversion was not only a failure, but an embarrassing failure. '>4. CHAPTER XIV. SURPLUS: ECONOMY IV/r R. LOWE once defined a Chancellor of the Exchequer as an animal who ought to have a Surplus. "If," said he, "under extraordinary conditions, he has not a surplus, he fails to fulfil the very end and object of his being." And, of late years, it has become the unwritten law that, by some means or other, whether by increased taxation, or perhaps by plundering the Sinking Fund, the year shall, in peace time, begin with a substantial Surplus. Such an idea was by no means accepted in former days as a financial axiom ; and, that it is now firmly held is largely due to the preach- ing and practice of Mr. Gladstone. Pitt, in startling contrast to his predecessor, Lord North, had, while peace prevailed, held and acted up to this view. But, subsequently, cosdy war and impoverishing peace, the burden of harassing taxation and of improvident remis- sion, the fallaciousness of a borrowed Sinking 1 56 A SURPLUS AN ESSENTIAL i57 Fund, for many years disturbed the equilibrium between revenue and expenditure. In the early, the roseate days of the Whigs under Grey, surpluses prevailed ; but, in their later, their supine days, under Melbourne, no effort was made to meet successive and recurring deficits ; and the finances fell into a deplorable condition. Peel, for the first time since Pitt, recognised and acted up to the principle that the first and essential condition of good finance was a surplus. "The training I received from Sir Robert Peel," said Mr. Gladstone in 1880, "was that the right and sound principle was to estimate Expenditure liberally, to estimate Revenue care- fully, to make each year pay its own expenses, and to take care that your charge is not greater than your income." To the principle thus expressed Mr. Gladstone steadfastly adhered throughout his financial career; and to him, it was an unquestioned necessity that each year should, at whatever cost, begin with an estimated surplus of revenue over expenditure. Thus alone could public credit be maintained, debt be regularly reduced, taxation be re- formed. In the years 1854, '59, '60, '80, and '81, he did not hesitate, therefore, to impose 158 SURPLUS: ECONOMY taxation to fill the void ; and, where the financial proposals of the year created or enlarged the deficit, as in 1853, '60, and '80, taxation to an equivalent or greater amount was, as a matter of course, imposed. Further, when war, or the like, involved unanticipated expenditure during the year, as in 1854, *6o, and '82, increased taxation was at once in- variably imposed, sufficient, or very nearly sufficient, to meet it. Indeed, so scrupulous was Mr. Gladstone on the subject, that, though in 1862, as we have seen, he had a bare balance, and the circum- stances of the year were peculiar, he actually apologised for not imposing additional taxation in order to create *'a modest surplus of half a million." Again, in 1881, when the re- mission of a penny of Income Tax, imposed the previous year for the specific purpose of enabling the commutation of the Malt duty to be carried through, produced a slight deficiency of two or three hundred thousand pounds, additional taxation was raised to fill the void and to provide ''a reasonable surplus." And this, though provision had been made in the estimates for the extinction of three millions of special war legacies. MR. GLADSTONE AS ECONOMIST 159 Whatever he may be in practice, in theory no Chancellor of the Exchequer can fail to be an economist. And Mr. Gladstone was, both in theory and in fact, a stern economist. An economist, indeed, of the old school, to whom any expenditure was an evil, though sometimes a necessary evil, and who, apart from its object, indiscriminately condemned outlay as wasteful and pernicious. Mr. Gladstone began his career, too, when Economy was still within the range of practical politics ; and his speeches, his action, and his personal control over the expenditure, from i860 to 1866,^ and again from 1869 to 1874, did much to keep the ouday of the country at a moderate level. Since 1874, and especially since 1884, for reasons which are not germane to my subject, the whole National expenditure has risen, enormously and unremittently ; and is now altogether on a different plane. " There is no Country," said Mr. Disraeli in 1859, **that can go on raising seventy millions per annum with impunity — England cannot, and if England cannot, no other countries can.*'* A sentiment that seems to us now 1 See p. 48. 2 The actual expenditure of the Country in 1900-1 was jC200,000,000. i6o SURPLUS: ECONOMY INCREASE OF EXPENDITURE i6i almost on a par with the exclamation of Bolingbroke, who spoke of the Debt of his time — thirty millions — ^as a sum that would appear incredible to future generations. But Disraeli spoke forty years ago ; and if the Nation were, as Mr. Gladstone said was the case in 1857, "perfectly reckless with re- gard to expenditure," what is the present position ? Alas ! we are none of us Economists now ; and we are so deadened to sin, that we have long passed the stage at which, apart from war, an annual expenditure of a hundred millions gave us a sort of mild and pained surprise. And, without doubt, the abnormal growth, especially in the last few years, of the public expenditure, in every ^ branch, if not actually alarming, is at least grave, and calls for serious public attention and examination. The devouring spirit of expenditure is at present all- pervading ; it requires to be exorcised. In Mr. Gladstone's first year at the Ex- chequer he had to provide for a gross ordinary expenditure of ;^55, 700,000 ; in his last year at the Exchequer he had to provide for a sum of ;^85,300,ooo. In i860 the gross ordinary expenditure was ;^69,850,ooo ; in 1865 it was but ;^65, 100,000. In 1869 it was ;^67,500,ooo ; in 1874 it was ;^74,ooo,ooo ; in 1880 it had risen to ;^8 2,000,000 ; and in 1893, ^^^ '^.st year of office, it was ;^9i, 300,000. In 1853 the expenditure was normal, moderate, and stationary. Thirty years later it was enormous and rapidly increasing ; a matter of real grief to Mr. Gladstone. Indeed, it was something of an irony of fate, that it should have been under the Premiership of the Great Economist, that the first "hundred million budget," that of 1885, should have had to be presented. i' M *-< HIS GENIUS 163 CHAPTER XV. ACHIEVEMENTS AND FAILURES 'T^HE business of a Finance Minister is a "^ two-fold one. To know how to impose taxation when required, in the way least burdensome to the country as a whole, and to the individual taxpayer; and to know how to remit, when remission is possible, in a way that will give most impetus to trade, and most distinct relief to the taxpayer. Between the time of Pitt and that of Peel, between the time of Peel and that of Glad- stone, the finance was hand-to-mouth finance. There was, apparently, in the minds of the successive Chancellors of the Exchequer, no clear-cut system, no settled plan of operations. Peel and Gladstone were, perhaps, chiefly dis- tinguished in that they each had a definite object in view, and were intent on reaching their goal. Taxation in old days was, as we have seen, both imposed and remitted with but limited 162 appreciation of the true principles of finance. Peel may be said to have systematised both imposition and remission. His action was experimental, and had the merit of novelty. That of Mr. Gladstone was largely founded on experience ; and he himself, on more than one occasion, explicitly disclaimed originality in the matter. Where his genius chiefly came into play was in the choice of the order in which, and the method by which, remission and reform should be accomplished. He was fortunate in that, during nearly the whole of his financial career, he was in a position to remit taxation. He was fortunate enough also to be sufficiently long at the Exchequer, and with sufficiently assured fixity of tenure, to be able to lay down a plan of operations, and to work it out ; to be able to deal with one branch of the subject now, and to postpone another, with the confi- dent expectation that he would himself be able to return to it later. Then, in regard to the imposition of taxation, he did not hesitate to impose it whenever necessary; nor to resort to new forms of taxation to supplement the old. In many a speech Mr. Gladstone laid down the general views which he held in regard to t ^ i64 ACHIEVEMENTS AND FAILURES taxation ; and the broad lines on which his financial proposals were based. On occasion, no doubt he propounded a doctrine on too wide, or laid down a principle on too narrow a basis, giving rise to misunderstanding or embarrassment. But he cannot fairly be held responsible for all the waifs and strays of opinion that he may from time to time have harboured and voiced. His general views were broad, statesmanlike, and sound. From the very first he seems to have grasped the main ideas on which his financial work was subsequently based ; and though, no doubt, greater opportunities and varying circum- stances modified them in detail, his early speeches breathed the spirit by which his task was to the end inspired. How far did he succeed ? Where did he fail ? It was hardly to be expected that the author of so many, and such far-reaching Budgets, dealing with every imaginable financial topic, should not have made some mistakes, incurred some failures, met with some rebuffs. Walpole withdrew his enlightened Excise Bill before popular clamour ; Vansittart had to part with the Income Tax sorely against his will. THIRTEEN BUDGETS 165 Althorp, Baring, Russell, Wood, Lewis, and Lowe all suffered the humiliation of being obliged to withdraw, or profoundly to modify, a Budget. The Government of "all the Budgets " was Disraeli s apt description of the Russell Ministry that succeeded Peel, and who, in 1848, were three times forced to modify their Budget, and, again, twice in 1851. " The Budget was a great mistake, You call it quite correctly, But then admit, for candour's sake, We gave it up directly." 11 Mr. Gladstone himself presented thirteen Budgets, namely, those of 1853, '54, '59, *6o, '61, '62, '63, '64, '65, '66, '80, '81, and '82 ; as well as three Supplementary Budgets, in 1854, '60, and '82. But not once was he forced either to withdraw or substantially to modify his proposals as a whole. Indeed, with very few exceptions, all the proposals he made were carried through. The House of Lords, it is true, threw out his Paper Duty Abolition Bill in i860; but he had his tit-for-tat with them the following year. The Country rejected his Election Budget of 1874; and, in 1885, his Government were defeated in the House on 166 ACHIEVEMENTS AND FAILURES their proposals for increased taxation. But both the rebuff and the defeat— like the defeat of the Disraelian Budget of 1852 — were due more to political than to financial consider- ations. In three considerable matters only can he be said to have failed — ^all, curiously enough, in connection with the Budget of 1853. The scheme for the reduction of the Interest on the Debt was a costly and embarrassing failure ; the Succession duty lamentably failed to realise the financial expectations of its author; the seven years scheme for the extinction of the Income Tax came to naught. Among smaller questions, Mr. Gladstone was worsted, in 1863, over his proposal to tax Charities and Corporations ; and, in the same year, he had to drop his attempt to levy a Licence duty on " Clubs," and his proposal to simplify the Railway duty. In 1853 he was forced by the House to abolish, where he had, for the moment, only intended to reduce, the duty on Advertisements. In 1862, at "the cost of a pang to his self-love," he repealed two small Customs charges that he had im- posed in i860, but which had proved to be more vexatious and inconvenient than profit- k A NASMYTH HAMMER 167 1 able. "I, therefore," he said, ''with the greatest cheerfulness and good humour, offer up these children of mine on, the altar of the commerce of my country." One or two other very minor proposals were at various times made and dropped. But this was all. We may consider that his repeated attempts to rid the country of the Income Tax were unwise and improvident ; and that he should, when he had at his disposal substantial sur- pluses, have devoted more attention and money to the reduction of the National Debt. But these are matters of opinion, and do not affect the proposition that, in his actual proposals, he was extraordinarily successful. And what were his achievements? He covered the whole field ; nothing was too great, nothing too small for him. He was a financial Nasmyth Hammer, which, with equal facility and equal precision, could revolutionise a Tariff or modify the duty on Dice. His wonderful genius enabled him to make Finance popular ; to be understanded of the People. He taught the Country to appreciate its importance. His work was based on the solid rock of a sub- stantial annual Surplus, and on the less easily k i68 ACHIEVEMENTS AND FAILURES secured foundation of strict Economy. The Customs Tariff was completely and finally purged. The remaining duties on food were repealed. Commercial relations with other countries were extended. The last remaining Excise duties, other than those on Intoxicants, were abolished. The Hop duty and the Malt duty were transferred from the initial to the last stage of manufacture. Taxation was placed on a Revenue basis ; and was concen- trated on a few articles, consumed by all classes. In a word, by simplifying taxation and by narrowing its basis, its foundation was strengthened; it was lightened to the Con- sumer and made less of a burden on the Taxpayer; less restrictive to Trade and to Industry; cheaper and less vexatious of Collec- tion ; more recuperative, and more profitable to the Exchequer. Mr. Gladstone freely utilised the Income Tax for the purpose of reform and of remis- sion, and improved its incidence ; and yet he twice left the finances of the country in such a favourable position, that, had it been so de- sired, the tax might have been relinquished. He made large remissions of indirect taxa- tion, and greatly reduced the duties on Tea, on SUMMARY 169 Sugar, and on "Dried Fruits." Indeed, a distinct relation between Direct and Indirect taxation was inaugurated, which has been a sort of standard ever since. Then he ex- tended to Realty the principle of the Death Duties ; and did something to reform and to increase the Probate duties. He simplified, extended, and rendered far more profitable and less irksome, the divers Stamp duties on business transactions, introducing especially the system of penny taxation. Besides all this, he abolished, reduced, or reformed innumerable other minor Taxes and Licences. The prin- ciple of identical taxation throughout the United Kingdom was established. The Colonies were placed, fiscally, on the same footing as other Countries ; and the network of preferential and differential duties in which their commerce had become entangled was finally cut away. The Customs Laws were reformed and simplified. Mr. Gladstone also carried through two very important reforms which secured proper control over the public expenditure. In 1861 the Public Accounts Committee was created, which was appointed to examine, from year to year, the Audited Accounts of the public expendi- ture. And, in 1 866, with the material assistance I I 'I I 170 ACHIEVEMENTS AND FAILURES of Mr. Childers, was passed the Exchequer and Audit Act, which, for the first time, constituted a complete system of effective Audit over Departmental expenditure ; and secured that the money granted by the House of Commons for the Public Service, should be spent in the manner in which the House intended it should be applied. In the thirty years between 1852 and 1882, during which the finances of the Country were chiefly under the control of Mr. Gladstone, taxation to an amount of fifty-three millions was imposed, while taxation to an amount of seventy-two and a half millions was remitted ; a balance of remission of no less than twenty and a half millions. In 1852 the gross "tax revenue" (Customs, Excise, Stamps, Income Tax, Land tax and House duty) amounted to fifty-four millions; in 1881 it amounted to seventy-one and a half millions. Twenty millions had been remitted, yet the receipts were by seventeen millions greater than before ! A clear proof that, on the whole, the taxation relinquished had been of a burdensome charac- ter, and that the taxation imposed had been of a more sensible and satisfactory type. No COBDEN ON GLADSTONE 171 II doubt the increasing prosperity of the country enabled Mr. Gladstone to carry out his financial policy ; but his financial policy had unquestion- ably something to do with the increasing pros- perity of the country. The Chancellor of the Exchequer, said Mr. Cobden, in 1864, *'has been a master in the adjustment of the burdens of the country ; that is, he found the weight placed upon the animal in such a way as rendered it the most difficult to carry his burden. It was tied round his knees, it was fastened to his tail, it was hung over his eyes, it blinded him, and impeded him, and lamed him at every step. Now Mr. Gladstone took the burdens off these limbs and placed them most ingeniously over the softest possible pad upon the animal's shoulders. But the beast is carrying the burden still, and carrying a great deal more than it did before this beautiful process was commenced." The load no doubt is still immense ; but the shifting of the burden has greatly relieved the pressure, while the animal itself is better fed and stronger than of yore, so that the load is considerably less of a real burden on the beast than it was fifty years ago. V « ^ ' **-< i;2 ACHIEVEMENTS AND FAILURES Mr. Gladstone's work at the Exchequer has now been dealt with, both as a whole, and in detail. And, as a whole, it must be judged. "Looking at the proposals of a particular year," he said on one occasion, " they may, perhaps, be likened to the stone cast singly by the passing traveller on a heap. Each separate contribu- tion is small ; but the general result is that, in course of time, a pile rises which is found worthy to commemorate some renowned action, or some glorious death." We are not, of course, concerned here with Mr. Gladstone except in his capacity as a Finance Minister. In some ways, his special temperament exactly fitted him to deal, with success, in matters financial. On the other hand, it is possible that his lengthened period at the Treasury, and his absorption in the work of the Exchequer, and the fact that he practically held no other administrative Office,^ may somewhat have disabled him from taking the same broad view with regard to foreign 1 Mr. Gladstone, during his three and a half years at the Board of Trade, from 1 841-5, was practically assisting all the time in the work of the Exchequer. He was only Colonial Secretary for six months. AS FINANCE MINISTER 173 questions, and cognate affairs of State, which a different training might have engendered. But, as a Finance Minister, he was in his element. He had courage — sometimes to rashness. If doubting till convinced, once con- vinced, he would not look back, and was sanguine of success. He had a quick and wonderfully retentive memory. ^ He delighted 1 Lord Welby has kindly supplied me with the following : "When, in 1880, Mr. Gladstone was changing the Malt duty into a Beer duty, the problem was how to effect the change without loss of revenue. The Malt duty was a complicated one, and the law imposing it was full of technicality ; and the task of working out a simple Beer duty, which would exactly correspond in result with the complicated duty on Malt, was very congenial to Mr. Gladstone. He delighted in Adam Young, the thoroughly competent and able Secretary with whom he discussed the question. Adam Young, on one of these occasions, was describing the manner in which one duty, he thought, might be made a substitute for the other, and, in the course of an explanation, stated a certain figure— 4 per cent., I think, on the maltster's profits. Mr. Gladstone was listening attentively, and at one figure he suddenly stopped him. * Is that so?' said he ; ' I thought that figure was 3 per cent.' Young looked puzzled, and said, ' No ; the figure was 4 per cent.' * Go on,' said Mr. Gladstone. But after a minute or two he returned to the subject with a laugh. * I am very old, and memory has failed me ; but forty or fifty years ago I sat for Newark, which is a great barley-growing district, and I had to learn something of the malting trade in the borough, and I thought the figure I gave was that which I learned then.' Old Adam Young laughed in his turn, and said, *I can quite believe you are right, sir'; and he went on to explain that, in 1832, 3 per cent, would have been the figure, t t f I ■ '* K 174 ACHIEVEMENTS AND FAILURES in work; to him figures and details were fascinating. He would grudge no pains nor time until he had thoroughly mastered the subject in hand, grasped the position, and stored the material away, to be reproduced in debate, lucid and long, with few aids to memory. On great occasions, he would throw his whole soul into his subject; and, himself, feeling an absorbing interest in it, he would assume that his hearers felt likewise, and would compel their sympathy — one of the secrets of his power. There was great beauty of diction and felicity of expression in these discourses. The wonderful inflection and in- tonation of voice would safely and smoothly but that that figure would not apply now. To us who were present it was an interesting episode. The quick manner in which, in an instant, Mr. Gladstone challenged a certain technical figure given him in the course of an explanation where figures abounded; the fact, as it appeared after- wards, that he pulled this figure out of a comer of his memory, where it had been stored away some forty or fifty years before ; and the knowledge of his subject possessed by old Adam Young who took on the instant the meaning of the illustration from Newark, and knew what it meant, made it very pretty battle- dore and shuttlecock. It amused me all the more that Mr. Gladstone had, somewhere about that time, lamented to me the failure of his memory. One felt one wished one had * half his disease.' " AS A CHIEF I7S unravel immense lengths of parenthesis within parenthesis, with perfect lucidity and without strain to his hearers.^ As a chief, he was eminently loyal and generous to those who worked for him or under him. A strict and exacting taskmaster, and terrible if misled, it gave him real plea- sure to acknowledge and to recall the effi- cient help and co-operation he had received. He was ready, both publicly and privately, to give a large meed of praise and credit to those who had been engaged with him in his tasks. A noble quality in a public man, and one always repaid by devotion. It has been said of Mr. Gladstone that he only cared for two things : Finance and the Church of England. ** Taxation and Re- ligion," says Mr. Morley in his Oliver Crom- well^ "have ever been the two prime movers in human revolutions." We are not here concerned with Religion ; but, even in these prosaic and comfortable days, Taxation has 1 The peroration of the great Budget speech of 1853 consisted of 326 words, with no stop in it greater than a semicolon. The speech of 1863 contains two sentences, the one consisting of 114, and the other of 126 words. These are but specimens of his oratorical style. rl I' « 176 ACHIEVEMENTS AND FAILURES not entirely ceased to move poor Humanity. There are few things that more directly affect the well-being of the community than its Finances; and the Chancellor of the Ex- chequer who has lightened the burden or rendered it more easily borne, has deserved well of his Country. APPENDIX A THE INCOME TAX THE following are the Schedules under which the Income Tax is now charged : — INCOME TAX : Schedule (A) | Schedule (B) | Schedule (C) I Schedule (D) Schedule (E) | In respect of lands, tene- ments, &c. (Deductions allowed to extent of one- eighth on lands and one-sixth on houses. Vide Fi- nance Act, 1894.) In respect of the occupa- tion of lands, &c. In respect of annuities, dividends, &c. . In respect of professions, trades, employments, railways, mines, iron- works, &c. In respect of salaries, public offices, &c. Rate of Tax on Incomes exceeding £xto a Year, Year 1899-1900.I \m, in the £ 'Zd. }8^. jj }) }) »j Net Amount of Property and Income Assessed Year 1898-99. 170,276,982 6,159,269 39,409,184 351,132,745 43,839,490 610,820,000 * On one-third of the annual value of lands, etc. , and on the full value of nurseries and market gardens (Pari. Paper 284 of 1900). N 177 .f V f ■ 178 APPENDIX A II The following are the Rates in the Pound at which the Income Tax has stood since its original imposition in 1799; together with the changes that have taken place in the exemptions and abatements allowed : — Year. I 799- I 801 (average) 1802 1803 1804 1805 1806 1807-15 1816 1842-4 (average) 1845-7 (average) 1848-50 (average) 1851 1852 1853 Amount of Duty Assessed. 5,970,000 5,340,000 4,110,000 6,430,000 12,820,000 1 5,640,000 (in 1815) Net Produce. £. 5,300,000 5,550,000 5,500,000 5,590,000 5,670,000 6,890,000 Rates of Duty. 24^. on incomes of ;^200 and upwards. Reduced rates for incomes between ;^6o and ^200. Incomes under ;^6o exempt. Repealed. Re-imposed at \id. on incomes of £\^o and upwards. Reduced rates for in- comes between ;£6o and ;^i 50. Ditto. Raised to \^d. Raised to 24^. and levied on all incomes of;^5o and upwards, with abatement on certain incomes between ;£ 50 and;£i 50. Ditto. Repealed, Re-imposed for three years at ^d. on incomes oi £^\^o and upwards. Ditto. Ditto. Re-imposed iox one year at Td, on incomes of £ 1 50 and upwards. Ditto. Re-imposed for seven years at 7^. on in- comes of ;^ 1 50 and upwards ; ^d. on incomes of ;^ioo and under ;^i5o, and extended to Ireland. INCOME TAX 179 On incomes of ;£ioo and under ;£^i5o at Rate B; on incomes of ;^i5o and upwards at Rate A : — Year. Net Produce. Rates of Duty. £. A. Pence. B. Pence. 1854 1855 1856 13,680,000 15,720,000 16,040,000 14 16 16 J 1 until a year after \ ^ end of war. 1857 1858 1859 i860 7,170,000 5,460,000 9,910,000 1 1,060,000 7 5 9 10 5 k 7 1861 1862 10,450,000 10,720,000 9 9 6 6 On all incomes of ;£'ioo and upwards, with an abatement of ;;^6o on incomes under ;^2oo : — 1863 1864 1865 1866 1867 1868 1869 1870 1871 „ £ Pence 8,530,000 7 7,870,000 6 5,500,000 4 5,650,000 4 7,140,000 5 8,629,000 6 7,380,000 5 6,370,000 4 9,930,000 6 i8o APPENDIX A On all incomes of ;^ioo and upwards, with abatement of ;^8o on incomes under ;^3oo : — Year. Net Produce. Rates of Duty. £, Pence. 1872 6,960,000 4 1873 5,560,000 3 1874 3,890,000 2 1875 3,960,000 2 1876 5,710,000 3 1877 5,730,000 3 1878 9,390,000 5 1879 9,230,000 5 1880 11,200,000 6 1881 9,580,000 5 1882 12,760,000 6i 1883 10,080,000 5 1884 12,010,000 6 1885 15,840,000 8 1886 1 5,720,000 8 1887 13,950,000 7 1888 12,270,000 6 1889 12,850,000 6 1890 13,300,000 6 189I 13,430.000 6 1892 13,440,000 6 1893 15,337,000 7 On all incomes exceeding ;^i6o, with abatement of ;^i6o on incomes exceeding £\^o but not exceeding ;^4oo; ;;^ioo on incomes exceeding ;£4oo but not ex- ceeding £i^oo\ — ^ Pence. 1894 15,860,000 8 1895 16,270,000 8 1896 16,790,000 8 1897 17,500,000^ 8 Approximate amounts. INCOME TAX 181 On all incomes exceeding ;£i6o, with abatements of ;£i6o on incomes exceeding ;£i6o but not exceeding ;^4oo; ;^i5o on incomes exceeding £,^oo but not ex- ceeding ;^5oo; ;^i20 on incomes exceeding ;£5oo but not exceeding ;£6oo; £^0 on incomes exceeding ;£6oo but not exceeding ;£7oo : — Year. Net Produce. Rates of Duty. 1898 1899 1900 I90I 18,250,000 1 18,500,000^ 26,920,000 2 33,800,000' Pence. 8 8 12 14 Since 1857 the Income Tax has been an Annual Tax. ^ Approximate amounts. *'' Exchequer Receipts. * Budget estimate. l82 APPENDIX A III The total amount of income assessed for Income Tax and ^ikit produce per penny has been as follows : — Year. Gross Assessment.! Net Produce per Penny. 1799 1842 1853 i860 1870 1880 1890 1899 251,000,000^ 308,300,000 335,700,000 465,500,000 585,200,000 698,400,000 820,000,000* 250,000* 772,166 1,004,468 1,122,258 1,587,596 1,851,077 2,216,000 2,312,000^ * The figures in this column represent the assessable income before allowance of statutory abatements, etc. There is therefore no re- lationship between them and the net produce per penny, which latter is the net yield of the tax per penny for each year after all allowances have been made, whether by reduction of the assessment or by way of repayment. (See column four of Part I. of this Appendix for net assessment.) * No figures extant. * Does not include Ireland. The tax was not extended to Ireland until 1853. * Since 1896 the gross assessment under Schedule B is only taken as one-third of the annual value of the land occupied. In 1899 this represented a reduction of ;^34,ooo,ooo in the gross assessment ; but for purposes of accurate comparison the ;^34, 000,000 is included above. ' Approximate. INCOME TAX IV 183 GRADUATION OF THE INCOME TAX Table showing the virtual rates of Income Tax chargeable on incomes ranging between ;£i6o and ;£7oo when the tax is at %d, in the £, u. in the £, and \s. 2d, in the £ respectively. Income (before Abatement). 160 180 200 220 260 300 340 360 400 460 500 560 600 660 700 Income (after Abatement). £. 20 40 60 100 140 180 200 240 310 350 440 480 590 630 Virtual Rate of Taxation. When the Tax is at Zd. in the £,. Pence in the {,. 0.88 I -60 2-l8 3-07 373 4-23 4.44 4«8o 5-39 5-60 6-28 6*40 7.15 7.20 When the Tax is When the Tax is at xs. in the £,. at xs. zd. in the £. Pence in the C- 1-33 2-40 3-27 4-6i 5-60 6-35 6-66 7-20 8-o8 8-40 9.42 9-60 1072 lO'So Pence in the £. 1-55 2- 80 3.81 5-38 6-53 7.41 7-77 8-40 9-43 9-80 IIOO II-20 1251 I2-6o 1 84 APPENDIX A V. MR. GLADSTONE'S VIEWS ON THE EXEMPTIONS AND ABATEMENTS OF THE INCOME TAX The Income Tax in 1853, as Mr. Gladstone found it, was the full sevenpence in the pound, on all incomes above £iSO. In that year he lowered the limit of exemption to ;f 100, just above where it " would trench on the territory of labour." This he did on the ground that the class of persons with incomes between ;£"ioo and ;fi5o had benefited more than any other class by the fiscal reforms and trade revival and expansion resulting from the imposition of the Income Tax. But on incomes between ;£'ioo and ;^i5o a fivepenny Income Tax only was to be charged ; a proportion that was pre- served when the tax had to be largely increased for war and other purposes. In 1863 he changed the system. The limit of exemption was left at ;tioo; the distinction between incomes of ;£"ioo and £iso was abolished; and a deduction of £60^ before charging the tax, was allowed on all incomes between ;£"ioo and ;6'2CX). In 1872 the abatement was increased to ;£"8o, and allowed on all incomes up to ;£"3oo. In 1877 the exemption was raised to £iso, and abatement given up to ;f4CX). Mr. Gladstone entirely disapproved of this policy of freeing from the Income Tax incomes between ;fioo and ;£'i50. GLADSTONE ON EXEMPTIONS 185 "Reflection confirmed him," he said in 1882, "in the belief that the reduction in 1853 of the limit of exemption (from ;fi5o to ;£"ioo) was a wise proposal ; and he had to confess, with some regret, that during the existence of a Government, for which he was responsible, retrogression was made from the position which to his mind was distinctly a step in the wrong direction. But a still wider measure — not a step, but a stride — was adopted by the late Parliament (1874-80) when, to his great astonishment, and in spite of the best protest he could make, it immensely restricted the number of persons liable for the tax. He regarded it as extremely doubtful whether the time would come when this would be retrieved, but he hoped it might come." (July 31st, 1882.) Since then (wisely, as some of us may think, as regards abatement, though hardly as regards ex- emption) a further step has been taken ; and, in 1890, the exemption was extended to all incomes below £160, and the abatement carried up, by graduated steps, to incomes of ;^7CX). The Income Tax, it is generally admitted, must be collected at its source, and not assessed on the individual income. It cannot therefore be a graduated tax in the ordinary sense of the word, but might well be graduated, by abatements, further than it has yet been. APPENDIX B THE NATIONAL DEBT THE following table gives, at certain dates, the amount of the total gross, and net Debt and Liabilities of the Country as now computed (see National Debt Return, Ch. 350, 1900) :— At March 31st. 1815 1842 (January) 1853 (January) 1861 1867 1870 1874 1880 1886 1892 1895 1899 1901 1902 (estimated) Gross. Net.1 9oo,ooo,oc» 847,500,000 815,700,000 828,000,000 807,400,000 799,600,000 778,200,000 776,500,000 745,000,000 680,500,000 660,200,000 635,000,000 705,700,000 768,700,000 838,800,000 799,000,000 813,900,000 791,900,000 783,800,000 761,100,000 739,500,000 713,500,000 675,300,000 635,000,000 598,000,000 679,200,000 742,000,000 1 i.e. after deducting estimated assets, including the value of the Suez Canal shares. 186 APPENDIX C PUBLIC ACCOUNTS IT is almost impossible accurately to compare the Revenue and Expenditure of one year with that of another over any long period of time, inasmuch as the mode and form in which the National Accounts are kept has been frequently and bewilderingly al- tered. Up to 1856 the net revenue and expenditure of the country only was shown in the published ac- counts. In that year a change was made. Practically the whole of the gross revenue of the country was then, for the first time, paid into the Exchequer, and the expense of its collection was met by taking Votes in Supply on account of the Revenue Department. Up till that time the expenses of collection had been paid out of the gross revenue, the net revenue, or balance, only being paid into the Exchequer. The result of this change was to add an amount of (at the time) between four and five millions to each side of the account. The usually accepted basis of comparison has now again become the net revenue, inasmuch as it shows more accurately the actual burden of taxation and the real expenditure of the country. 187 w 1 88 APPENDIX C In 1893, for the first time, the Civil Departments were required to surrender the unexpended balances of the sum voted. Various other changes have been made from time to time in the system of accounts and deductions. The figures given in the text of this Book may, I think, be relied upon as substantially accurate for the purposes of comparison ; that is to say, they have been compiled on a standard basis. The figures given in this Appendix are taken from the various Statistical Abstracts. The Financial Year now runs from April ist to March 31st of each year. Up to January, 1854, it was reckoned from December 31st to January ist following. Up to the year 1874, the Budget Estimate of Revenue was ordinarily based on the actual receipts of the previous year. In 1874 Mr. Gladstone, in proposing the abolition of the Income Tax, took into account (quite legitimately), in making his cal- culation, the likelihood of increased receipts in the year from existing taxation. Since then it has be- come the rule, in framing the Budget Estimate, to take into account the full normal growth of revenue expected to accrue in the year, and to base the esti- mate on the amount of revenue that, taking every- thing into consideration, it is thought would be actually received. BUDGET TABLES 11 BUDGET TABLES REVENUE 189 Customs . Excise Stamps Taxes Income Tax 1853. Total Tax Revenue Post Office Crown Lands (Miscell- aneous) . Total non-Tax Revenue Total Gross Revenue Total Net Revenue £ 22,506,000 16,303,000 7,149,000 3,340,000 5,732,000 64,929,000 2,523,000 1,544,000 4,067,000 59,096,000 54,900,000 X860-1. £ 23,305,000 i9.435»ooo 8,349,000 3,127,000 10,924,000 1866-7. £ 22,303,000 20,670,000 9,420,000 3,468,000 5,700,000 65,140,000 3,400,000 1,848,000 5,248,000 70,388,000 65,900,000 61,561,000 4,470,000 3,403,000 7,873,000 69,434,000 61,960,000 Stamps include Death Duties. Taxes include Land Tax, House Duty, etc. EXPENDITURE xQss* Debt Army Navy Civil List and Civil Charges . Collection of Revenue . Total Gross Expenditure Total Net Expenditure . War Expenditure . » Kafl&r War. £ 28,055,000 9,425,000 6,640,000 7,226,000 4,192,000 1860-1. 55,538,000 51,600,000 260,000^ 26,335,000 14,970,000 13,332,000 10,727,000 4,488,000 Z866-7. 69,852,000 65,365,000 3,044,0002 Chinese War, £ 26,082,000 14,675,000 10,676,000 10,523,000 4,824,000 66,780,000 61,956,000 I 190 APPENDIX C Collection of Revenue includes Customs, Inland Revenue, and Post Office. Navy includes Packet Service for 1853 and i860, a charge subsequently included under Civil charges and now included in Collection of Revenue. Ill GROSS REVENUE Year. Tax Revenue.l Other Receipts.2 Total. Net Revenue. 1853 1 860-1 1866-7 1869-70 1873-4 1 880-1 1892-3 1899-00 £ 54,929,000 65,140,000 61,561,000 66,471,000 65,355,000 68,952,000 74,800,000 99,630,000* £ 2,067,000 5,248,000 7,873,000 7,927,000 11,002,000 14,113,000 15,595,000 20,210,000 £ 59,096,000 70,388,000 69,434,000 74,398,000 76,357,000 83,065,000 90,395,0003 119,840,000^ £ 54,900,000 65,900,000 61,960,000 68,243,000 68,746,000 74,843,000 77,950,000 104,200,000 1 i.e. Customs, Excise, Stamps Assessed Taxation, Land Tax, and House Duty. 2 i.e. Business receipts. Post Office, Telegraph, Crown Lands, and Miscellaneous. , r^ *• 3 Exclusive of a sum of ;^7, 180,000 paid over to Local Taxation Account. , . . ^ 1 * Some ;^3,ooo,ooo of this was probably due to anticipatory clear- ings in view of increased taxation. » Exclusive of a sum of ;^9,900,ooo paid over to Local Taxation Account. The accounts of 1869 and subsequent years are calcu- lated in the Statistical Abstract on a somewhat different basis from those of preceding years. Since 1888 the Local Taxation Account has again com- plicated the National Accounts, inasmuch as Imperial Revenue (to an amount now of about ;£io,ooo,ooo a year) is intercepted and paid over to Local Taxation Account. H t— I Q w tn O Pi o REVENUE: EXPENDITURE 191 B V a X •>* ca o H c o OTJO {J 3^ O U c V uu in u CO Q !3 s? 8 _"»^ »* w^ w^ »% 00000 1^00 >0 "^ ro -^ t^ M O CO "^ •* Wn m^ 0^ ^tt ^s O CO •-" m ^ vn CO N 00 hH vO O \0 w^vO fO O^vO O O Tj-vO LTi t>> f>. w rn li^ CO fo o^ fnoo ■-< 000 #^ »« «^ ^^ 91, tr* 0\ ^s, ii-»vO vO vO >0 tN. t>. 0^ M « ^, I 00000 «^ «N ^« rt »k vO "-• w^ Lr» ii-» On "'t r^ 00 f J O 00 COLTVOO C< _ ir^OO^ t^ "^ Tf ■'^ i/^ OsvQ vO ►-• cT o^ cT ix\nO vO vO txOO On '-' 8 a a 3 3 o o u u u u << a a o o -.-• -l-t c3 oi c3 c<] o o »\ ^ #K «s On O "^ O rOvO O t^ N r< r^ Tf u-» i-i OnOO M ii-> 1-1 ^ »* tfs »* #■, , v« «s cs ••. «^ "^ W» o o c a o o s? LOVO ■* N NO O NO VOOO 00 N CO «^ *>' «\ #\ as *^ N Lo Lo to lovo nOOO cocOi-'vOOO O CS C^ N coco>oOvo N tN.ioO t>.cocor> tx00i-s N LO TfvO CO t>« NH HH !-< nO N "-^ NO "^ NO O "^00 rj-oo O tn CO N — ^ ^.^ ^ ^ »-. v-a »^ -^ NO 00 to N rj- 10 COnO »-«C«P> o o ^"^ rfr lO M Tj- >x 10 10 cooo "^ o r^ _ O CO O O t^ »J^ N 00 NO NO IxnO On 10 CO W N "^nO »-• 1^ On NH i-i M ^ rf I I I I I 1 i-i M rj- 10 O NO On O '-' M ■^ •^ t^OO 00 00 00 00 •-< coo^ > (A > »^M •H tv O Th NO NO t^ txOO On Zi coQnO OncoO M on ir\vO vO NO t^oo On On OOOOOOOOOOOOOOOO APPENDIX D THE following are the dates of Mr. Gladstone's various Budget Speeches. The Financial State- ment of 1853 and those of 1860-5 inclusive, were republished (revised from Hansard) in a separate volume (John Murray): — 1853, April i8thj 1854, March 6th and May 8th 1859, July i8th; i860, February loth and July i6th 1861, April 15th; 1862, April 3rd; 1863, April i6th 1864, April 7th; 1865, April 27th; 1866, May 3rd 1880, June loth; 1881, April 4th; 1882, April 24th and July 24th. 192 INDEX ABERDEEN A Aberdeen^ Lord, 7, 23, 124 Advertisement Duty ^ 12 Assessed taxes reform^ 13, 68 6 Beer: Hop Duty commuted, 54; Malt Duty commuted, 74 Budgets: 1853, 9; 1854, 18; 1859, 28; i860, 29, 37; 1861, 52; 1862, 53; 1863, 56; 1864, 58; 1865, 59; 1866, 60; 1880, 74; 1881,77; 1882,78. See Appendix D Budget Tables. 6"^^ Appendix C C Charities, taxation of, 58 Chicory y 44 Coal: export duty on, 88 ; coal scare, 150; reimposition of duty, 100 Colonial system, 83, 96, 169 Cobden, Richard: refuses office under Palmerston, 24 ; ne- gotiates commercial treaty, 30; on Gladstone, 171 Commercial treaty withFrance, 29,41 O DERBY Corn: registration duty, 40, 58, 68; abolition, 69 Crimean War, 17; effects of, 17; war budget, 18; further war taxation, 19 ; cost of, 21 ; effects obliterated, 21 Customs Duties. See Tariff and Fiscal Reforms. Customs Laws, reformed, 14, 105 Customs Revenue, as reformed, 40, 98, 168. See Tariff D Death Duties: dealings with, 78; desires imposition of, 78, 168; redresses inequality Income Tax, 132 «.; Pro- bate Duty, 78, 169. See Succession Duty Debt, National, see chapter xiii. : Mr. Gladstone's action, 147, 1 52; prejudices question, 148, 149; test of policy, 152; results of action, 153; con- version scheme, 14, 1 54. See Appendix B Derby ^ Lord, Premier 1852, 5 193 194 INDEX DIRECT TAXATION Direct Taxation, 134 »•, 136. 5^^chapterxii.,DeathDuties, Income Tax Disraeli: Chancellor of the Exchequer, 5; his budget, 6; defeated on it, 7; on debt, 60, 125; on Gladstone, 49; reduces Income Tax, 125; junction with Gladstone, 148; on expenditure, 1 59 Economy: Gladstone an eco- nomist, 48, 1 59 Excise Duties, 11, 82, 85, 100, loi, 168 Expenditure: Period of ex- penditure, 47, 160; Glad- stone on, 48; Palmerston on, 49; Disraeli on, 49? 1 59 ; change in opinion, 50 ; reduction, 51 *' Fancy goods^ 94 Financial statements. See Budgets Fire Insurance Duty, 58 Fiscal reforms: results, 63, 83; old system of taxation, 81 ; early reforms, 84. See Tariff, chapters vii. and viii. Food taxation, 88, 90, 94. See Com Laws Free Trade, 91. See Tariff, Taxation GLADSTONE Gladstone, Mr. : eariy years, i ; introduction to office, 3 ; President Board of Trade, 4 ; presumed unfitness for post, 4 n. ; resignation, 4 ; a Peelite, 5; defeats Pro- tectionist Budget, 6 ; Chan- cellor of the Exchequer under Aberdeen, 7 ; budget of 1853, 9 ; scheme of bud- get, 10; partial failure of, 16, 35 ; imposes war taxa- tion, 18 ; on cost of war, 20 ; leaves Palmerston, 23 ; again Chancellor of the Exchequer under Palmerston, 25 ; his position as Chancellor of the Exchequer, 25; budget of 1859, 28 ; budget of i860, 29, 36 ; an important year, 32 ; Leader of the House, 60; Prime Minister, 67; again Chancellor of the Ex- chequer, 71 ; election bud- get 1874, 70 ; result of elec- tion, 74; again Prime Minister and Chancellor of the Exchequer,7 3 ; commutes Malt Duty, 755 final budgets, 77, 78 ; resigns the Ex- chequer, 79. Fiscal policy, loi, and chapters vii. and viii.; Paper Duties, 109. Dealings with Income Tax, see chapter x. ; dislike of tax, 113 ; objections to tax, 115 ; INDEX 195 GLADSTONE desires extinction, 116; ar- ranges for extinction, 121 ; argues against differentia- tion, 122 ; effect of speech, 1 23 ; tax survives, 1 24 ; second attempt at repeal, 127 ; third attempt at repeal, 129; defence ofaction, 130 «.; reforms the tax, 132. As an economist, 48, 1 59. Views on necessity of surplus, 157. Financial policy, 163. Failures, 1 65. Achievements, 167. As Finance Minister, 172. As chief, 175. Summary, 167. Budget speeches, 7, 26, 34, 45, 63. See Budgets, Tariff, Debt, Succession Duty, Sinking Fund. H Hop Duty: 41; commuted, 54 House of Lords and Paper Duty, chapter ix. I Income Tax: history of, 117; reimposed, 117; unpopular, 119; Gladstone's views in regard to it, 112; scheme for extinction 1853, 15, 122; failure of, 16, 17, 124; ex- tended to Ireland, 14; in- creased for Crimean War, 19, 20; increased 1859, 28; reimposed 1 860, 37, 42 ; raised to 10^., 44; again utilised MALT DUTY for reform, 45 ; reduced in 1 861, 52; further reductions, 58; second attempt at repeal, 15, 127; third attempt, 129; Peel's Income Tax, 131 ; reform of tax, 132; differ- entiation, 122; limit of ex- emption lowered, 14, 184; system of abatement intro- duced, 57; produce of tax, 131; instrument of financial reform, 117, 133; dealings with, in connection with in- direct taxation, 144, 145 ; Gladstone's dealings with, 168; graduation of, 183. See chapters x. and xi., and Appendix A, Direct and Indirect Taxation, Death Duties Indirect Taxation, 134. See chapter xii Lewis, Sir George Comewall: succeeds Gladstone, 23 ; attacked by Gladstone, 23; raises war taxation, 20 ; Sinking Fund, 148 Life Insurance Duty^ 12 Lowe^ Mr., 67, 156 M Malt credits, 28, 44 Malt Duty: raised for Crimean War, 19; commuted into Beer Tax, 75 196 INDEX MANUFACTURED GOODS Manufactured goods y 85, 90, 93 Match Tax^ 67 N Northcotey Sir Stafford: on reforms of 1853, 22 ; on Bud- get i860, 22 P aimers ton^ Lord: in Home Office, 7; first premiership, 23; Peelites leave him, 23; second premiership, 24; on expenditure, 49 ; disputes with Gladstone, 49; Paper Duties, 109; Death Duties, 68 Paper Duty y 41, and chapter ix. Peely Sir Robert, 3; reforms Tariff, 87; Com Laws, 89; reimposes Income Tax, 117; on surplus, 157 Penny Taxation^ 13, 43 Pepper y 61 Pitty 3 ; I ncome Tax, 1 1 7, 1 3 1 «. ; Succession Duty, 137 Protection^ 5, 39 Raw materials y 85, 90, 92 Russet ly Lord John: on Glad- stone, 9 «.; ministry, 5, 118; takes office under Palmer- ston, 24; Prime Minister, 66; and Income Tax, 118 TAXATION Sinking Fund: Lewis's, 148 ; Gladstone and, 15, 148; "New Sinking Fund," 152; "Old Sinking Fund," 152 Soap Duty J 1 1 Spirit Duties, 14, 19, 52. Stamp Duties: reformed, 13 ; reform of in i860, 43 Succession Duty : imposed, 14, 35, 136 ; Pitt's Succession Duty, 137 ; failure of, 138 Sugar Duty: in 1853, 12; in- creased for Crimean War, 19, 20 ; dealing with in i860, 42, 45 ; duty reduced, 57, 58; abolition, 69; as affecting tariff, 99 ; reimposition, 100. See chapter xii. Surplus. See chapter xiv. Tariff: complexity of, 97 ; Hus- kisson's reforms, 84 ; Peel's reforms, 88 ; reforms of 1853, II ; position in 1853, 90, 91 ; reforms of i860, 39; details of reforms, chapter viii. ; final revisions, 98 ; duty re- duced, 66. See Taxation, Fiscal Reform, Gladstone Taxation: principles of, 102, 167 ; remissions on articles of general consumption, 56 ; impositions and remissions, INDEX 197 TEA DUTY 170. See Direct and In- direct Taxation Tea Duty: scheme for reduc- tion 1853, 12; increased for Crimean War, 19, 20; deal- ings with in i860, 42, 45; reduced, 56; further reduced, 59. See chapter xii. Terminable annuities , 60, 151; "long annuities," 32; "dead- weight annuity," 151; pro- posals 1866, 60, 151 YOUNG Timber Duty, 40, 41, 60 ; abolition of, 60 W Walpole, 3, 164 Whig Government, 51, 85 Wine Duty, 41, 54, 62 Woollen Trade, 93, 95 Young, Arthur, 81 BY THE SAME AUTHOR. FINANCE AND POLITICS: AN HISTORICAL STUDY, 178S-1885. Two Volumes. Svo. 26s. " A couple of extremely interesting and readable volumes." — Spectator. "The value of these two volumes lies in their lucid exposition of the development of the true principles of taxation ; but their interest not a little depends on their style, which is throughout vigorous and terse." — Daily Telegraph. "The Author . . . makes a sort of half-apology for the length to which his work has run out. He may, however, be certain that in the opinion of his readers no such excuse is needed. A title in which the word ' finance ' occurs, is, of course, a danger-signal for many people, showing them what to avoid by reason of its want of interest. In Mr. Buxton's case the warning would be false. He is always interesting." — Scotsman. "A well-digested history of the government of England during the last hundred years . . . though the book must have been terribly hard to write, it is pleasantly easy to read. Mr. Buxton has the great gift of lucid statement ; indispensable in dealing with those complicated questions of policy which have a special attraction for him." — Liverpool Post. A HANDBOOK TO POLITICAL QUESTIONS, WITH THE ARGUMENT ON EITHER SIDE. Ninth Edition. Svo. With Supplement^ 12s. 6d, "In times when almost every adult is a politician, such a publication as this Handbook ought to receive a widespread and hearty welcome. . . . The Handbook will be of service not only to general readers who have no time to follow every long debate in Parliament, but will also be appreciated by members of debating societies who wish to post themselves up in the leadbg points for and against modern proposals for reform in home policy." Leeds Mercury. " It would be difficult to classify the arguments better, or to put them in a simpler form. We wish every success to this valuable and thoughtful volume. ' '—Spectator. JOHN MURRAY, ALBEMARLE STREET, W. PLYMOUTH WILLIAM BRENDON AND SON PRINTERS iil COLUMBIA UNIVERSITY LIBRARIES This book is due on the date indicated below, or at the expiration of a definite period after the date of borrowing, as provided by the library rules or by special arrangement with the Librarian in charge. OATS BOiniOWCO DATS OUS OATS •ORKOWCO DATS DUS i C28(3-S2)IOOM / D694,2 B986 ■"--■'^■""™"^ '"■■■'-iT'iiiriit'™**'-''''Tiiii5iirT[ D694.2 Buxton B986 Jir. Gladstone as chancellor of the exchequer. jr)SH uzei i-ttt^o 1^9^ 0041426363 30^953 END OF TITLE