IHB i I i l KyjfU DOE I 1 ' • ■ THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES \ / TWENTY YEARS OF FINANCIAL POLICY. r TWENTY YEARS OF FINANCIAL POLICY. A SUMMARY OF THE CHIEF FINANCIAL MEASURES PASSED BETWEEN I 842 AND I 86 1, WITH A TABLE OF BUDGETS. BY SIR STAFFORD H. NORTHCOTE, BART. M. P. FOR STAMFORD. LONDON: SAUNDERS, OTLEY, AND CO. BROOK STREET, HANOVER SQUARE. 1862. The right of translation is reserved. TO THE REVEREND EDWARD COLERIDGE, FELLOW OF ETON COLLEGE, >• « THIS VOLUME IS INSCRIBED BY HIS AFFECTIONATE FRIEND AND PUPIL, STAFFORD H. NORTHCOTE. July, 1862. c.9 3 4626 W^WMJgg jgjjftj fir" l^ L y*GS%4 (Mm^W %& mmM ^ JgA iwT» W%8&<. illl PREFACE. HE germ of this volume will be found in the Table of Budgets contained in the Appendix. I have myself often felt the want of a convenient summary of the financial mea- sures of recent years, and I hope that what I have here drawn up for my own use may also be found useful by others. The explanatory notes which I had intended to add to the Table have grown into a volume ; and the Table, which should have been the text, has shrunk into an Appendix. It was my wish to add a chapter upon the system of Public Accounts, and another upon the viii Preface, financial progress of some other countries be- sides our own during the period of which I have here treated ; but I have not yet found time to write them ; though I do not abandon the idea, as I think a short popular account of our Finan- cial System would be useful to many persons who have not the opportunity of studying it in detail ; and I am sure that a comparative account of the progress of other countries would throw much light upon that which we have made ourselves. I have to thank my friend Mr. Anderson, of the Treasury, for his kindness in revising the Table of Budgets, and several other portions of the work. Stafford H. Northcote. July, 1862. SUMMARY OF CONTENTS. CHAPTER I. (1842 — 1844). NTRODUCTORY Remarks Budget of 1842-3 . Financial Position of the country Prevalence of distress Position of the Ministry .... The Penny Postage ..... Why the Whigs were the Free Traders Sir R. Peel's Budget Speech, March n, 1842 Review of Fiscal Policy since 18 16 Principles of Sir R. Peel's Financial Policy Views of the Conservatives in 1842 . Opposition of the Liberals to the Income Tax Arguments of Sir R. Peel and his colleagues Disappointment of Sir R. Peel's calculations Soundness of his general policy . Budget of 1843-4, May 8, 1843 Budget of 1844-5 ..... Conversion of the Three-and-a-half per cents Term of Income Tax expires Pages 1—5 5 5-7 7 7-9 9 10 — 12 12 — 21 21 — 26 26 — 32 32 33—37 37-4i 41—47 47 48—50 50-53 53-5B 58 Summary of Contents. Chapter II. (1845-1847). Budget of 1845-6 Renewal of Income Tax proposed . The Surplus and its application Comparison of the Budgets of 1842 and 1845 Lord J. Russell's criticism Mr. Roebuck and Mr. C. Buller on the Income Tax ... ... Success of the Budget of 1845 Repeal of the Corn-laws Free Trade Measures of 1846 Budget of 1846-7, May 29, 1846 . Sir R. Peel quits office .... Sugar duty Bill . . ■ . Financial prosperity coincident with national distress in 1846 .... Causes of the condition of the country Budget of 1847-8, Feb. 22, 1847 • Loan of 8,000,000/. .... Dissolution of Parliament Pages 59 61 — 64 64—67 67 — 72 72-75 76 77 79 79-80 81 82 82 83—86 86-93 93 94 97 Chapter III. (1847-1852). Meeting of New Parliament . 98 Relaxation of Bank Charter Act 98 Fear of Invasion ..... 99 West Indian Committee 100 Budget of 1848-9, Feb. 18, 1848 . ioo — 105 Unpopularity of the Budget . 105 Summary of Contents. Proposed increase of Income Tax abandoned Controversies respecting the Income Tax Debates on the Sugar duties, and Financial Statements of June 30 and Aug. 25 Other questions discussed in this Session Financial Reform movement . Mr. Cobden's Motion for reduction of Expen diture ..... Budget of 1849-50, June 22, 1849 . Budget of 1850-1, March 15, 1850 Repayment of advances .... Opposition to the proposed Stamp duties Defeats of the Government on financial ques- tions ...... Question of the renewal of the Income Tax 1851 Budget of 1851-2, Feb. 17, 1851 . Resignation and recall of the Ministry Financial circumstances of the crisis Different views respecting the Income Tax Position of the Conservatives Budget again brought forward, April 4 . Alteration in the House Tax Other changes in the Budget . Mr. Hemes' Motion for reducing the Income Tax ...... Mr. Disraeli's Motion — Claims of Agriculturists Mr. Gladstone criticises the Budget Mr. Hume's Amendment, limiting duration of Income Tax to one year Select Committee on the Income Tax Other defeats of the Government 107 — XI aget 06 09 109 — "5 [16 116— 118 118 121 — 123 [24 127 — 130 130— 133 134- 137- 143 149- 33 37 42 43 49 5i 5i 52 53 55 56 58 60 61 63 65 xii Summary of Contents. Mr. Disraeli and Mr. Gladstone criticise the financial arrangements Change of Government Budget of 1852-3, April 30 Dissolution of Parliament Budget of December, 1852 Budget rejected. Resignation of Lord Derby's Government . Page* l66 I7O I70 171 — 173 173 174 l80 l80 Chapter IV. (i853)- Financial importance of the year 1853 Budget of 1853-4, April 18, 1853 . Mr. Gladstone's arguments respecting the In come Tax ..... His Plan for its gradual extinction . Succession duty and other taxes Remissions of taxation .... General character of the Budget Sir E. B. Lytton's amendment on the Income Tax .... Mr. Palmer's Amendment The Succession duty Mr. Pitt's Plan of Legacy and Succession duties The increase of the Irish Spirit duties Failure of Plan for revising trade licences Repeal of Advertisement duty . Abolition of minor Customs' duties Soap duty repealed . Revision of Assessed Taxes Conversion of 3 per cent. Stocks 182 i83 185 — 192 193 194—195 197 199 201 202 203—210 210 212 — 214 215 217 217 218 218 220—226 Summary of Contents. xiii Expectation of a Fall in the rate of interest Reduction of interest on Exchequer-bills . Remarks on these operations . Pages 226 231 2 33 Chapter V. (1854-1856). Introduction of system of paying gross revenue into the Exchequer Financial character of 1854 The Budget of 1854-5 Mr. Gladstone's View as to Loans in time of war Second Budget, May 8 . Issue of Exchequer-bonds Controversy respecting Mr. Gladstone's finan cial arrangements . The question between Loans and Taxes Change of Government Budget of 1855-6 .... Loan of 16,000,000/. Opposition to the proposed Sinking-fund Further issue of Exchequer-bills Sardinian and Turkish Loans . Further Supplementary Estimates and a fresh Loan of 5,000,000/. Budget of 1856-7 .... Sir G. Lewis' Remarks on the War Observations on the effect produced by the war on the National Expenditure Third Loan, 5,000,000/. . Sir G. Lewis' Remarks upon the State of the Debt, and on the Pressure of Taxation in this and other countries 2 37 239 2 43 246 250 251 255—257 258—264 264 265 265 274 275 276 278 279 281 283 288 289 — 290 xiv Summary of Contents, Mr. Disraeli's and Mr. Gladstone's Remarks upon the Necessity of Economy . Prorogation of Parliament .... Pages 291 — 292 293 Chapter VI. (1857— 1861). Financial character of 1857 Cost of the war ..... State of trade ...... Moral effect of the war .... Agitation against the " war ninepence " . State of Foreign Affairs .... Opening of the Session. Debate on the Address Budget of 1857-8, Feb. 13, 1857 Sir G. Lewis' Views as to the Remission of Taxes His Proposal for the coming year Income Tax reduced to jd. Tea and Sugar duties fixed for three years Mr. Disraeli's Resolution Sir G. Lewis' Answer .... Mr. Gladstone's Speech .... Remarks on the Budget of 1857 Expense of Persian and Chinese wars Speeches of Lord J. Russell, Mr. Cardwell, and Mr. Milner Gibson Resolution defeated ..... Defeat of the Government on Mr. Cobden' Motion respecting China Financial Measures in anticipation of a Dis solution ..... Estimates brought forward in New Parliament 294 295 296 297 298 299 300 306 308 310 3" 3 11 3*3 316 3i8 3i8 321 321—323 323 324 324 326 Summary of Contents. Supplementary Estimates, July 17 . Tea and Sugar duties fixed for three years, Aug. 12 . . . Circumstances of the Autumn of 1857 Commercial Pressure .... Bank Restriction Act suspended Meeting of Parliament ; Committee on the Bank Acts Defeat of the Government on the Conspiracy Bill, Feb. 19, 1858 Change of Government .... Estimates for 1858-9 brought forward Budget, April 19 .... Budget of 1858-9 Repeal of War Sinking-fund . Postponement of Exchequer-bonds . Equalisation of Spirit duties Discussion on the Budget, and on the Ex chequer-bonds' Bill Financial Results of 1858-9 Necessity for increased Estimates in 1859 Budget of 1859-60 Budget of 1 860- 1 Mr. Ducane's Resolution Opposition to the Repeal of the Paper duty Supplementary Estimates and second Financial Statement ..... Financial Results of 1 860-1 Budget of 1 86 1 -2 Mr. Horsfall's Amendment on the Tea duty Review of Financial Policy from 1842-1861 XV Paget 327 328 3 2 9 3 2 9 33i 333 333 334 334 335 337 340 340 340 342—343 347 349 350 35i 355 355 356 357 358 360 361 xvi Summary of Contents. Appendix A. Table of Budgets from 1842 — 1861 Appendix B. I. General Taxation not falling directly on Property ...... II. General Taxation falling directly on Pro- perty ....... III. Local Taxation ..... Paget 375 39° 397 398 TWENTY YEARS OF FINANCIAL POLICY, 1842— 1861. Chapter I. HE last twenty years have witnessed Chap. I. a great change in the financial introductory system of England ; and concur- remarks. rently with that change we have seen a marked development of the wealth and prosperity of the country. It is as yet too early to pronounce an historical judgment upon these events ; for we cannot entirely divest ourselves of the feelings of actors, or of interested spec- tators ; nor indeed can we yet look upon them as matters belonging to the past, since the change alluded to is still in progress, and it may be some time before we can regard it as complete. The very circumstances, however, which pre- vent the writing of a regular history ol this B Chap. I. Introductory remark?. 2 Twenty Tears of financial revolution, appear to render a short and informal account of it desirable. A new gene- ration of public men, and of men who, though not engaged in political life, are interested in the study of public affairs, are growing up, and find themselves in the midst of a work of which it is difficult to understand the nature without studying it from the beginning. But nothing is more troublesome than the study of a history which has not been written. It is very much easier to read up the reigns of the Stuarts, or of the Roman Emperors, than that of Queen Victoria ; and, though a writer, who attempts to deal with the events of his own time, is sure to commit a great many faults, it is not unreason- able on his part to hope that, in condensing and bringing together information, which is scattered over a large number of blue books, and a great many volumes of Hansard, he is rendering a service to some of his contemporaries, if only by inducing them to go over the same ground in order to correct his blunders. The period reviewed is that commencing with Sir Robert Peel's imposition of the Income Tax in 1842, and extending to the Repeal of the Paper Duties in 1861. The fortunes of the Income Tax, its origin, the change which has Financial Policy, 3 taken place in its character, and the work which Chap. I. has been done by its aid, give a kind of dramatic introductory unity to this period, which would alone be suf- remar s ' ficient to make the study of it interesting ; but, in addition to this, we have in the course of these twenty years seen our financial system exhibited in all its bearings ; and examples have been given of almost every kind of financial problem. We have seen how large surplusses have been applied, and how large deficits have been met ; we have had peace taxation and war taxation ; loans of various kinds, contracted upon different principles ; successful and un- successful operations upon the interest of the debt ; we have repealed an enormous mass of taxation with one hand, and have laid on a still larger amount with the other ; we have revised our Commercial Policy, and to some extent our Monetary Policy also. These proceedings ren- der the history of the time worthy of the atten- tive examination of us all ; and an indication of its main outlines, such as is here attempted, can hardly fail to render that examination less la- borious and more compendious. If individual opinions are too freely expressed in any part of the book, I beg pardon both of those whom they may displease and of the general remarks. 4 Twenty Yews of Chap. I. reader. It has not been my intention to enter Introductory mto controversy ; but there is something so re- pulsive to human nature in the simple repro- duction of defunct budgets, that I could not have got through my task without stepping a little aside, from time to time, to touch upon ques- tions of principle, or even of party, arising out of the narrative. There is one more observation of a general character which I must make at the outset. I have attempted in the following pages to ex- amine an important period of our history from a very limited point of view. I have treated of the policy of the last twenty years under its financial aspect alone. This would be a serious error in a work which laid claim to the title of a history. Perhaps it may be thought a mistake even in so much more confined a treatise as the present. Financial policy can never be regarded as entirely distinct from commercial and social policy; and if this be true as a general proposition, it is peculiarly true when applied to the case be- fore us. The financial measures of 1 842, 1 845, 1853, i860, and indeed of the whole period under review, were largely influenced, and some- times governed, by considerations of commercial policy ; and even these were, to a great extent, Financial Policy. 5 subordinate to others of a still higher character. Chap. i. Mr. Gladstone, in his budget-speech of 1861, introductory pointed out in eloquent language that the policy remars of the last twenty years should be judged by its political, social, and moral, as well as by its economical, results. I fully subscribe to this doctrine ; but I have not attempted so high a flight of criticism as would enable me to take a comprehensive view of the whole of this great field of inquiry. I am content to act the part of the critic upon Garrick's acting, and to look only at the financial stop-watch ; but in doing so I think it well to guard against misconstruc- tion, by saying, once for all, that I am quite aware how inadequate a test the stop-watch alone would be of the merits of the great per- formance to which I propose to apply it. I will now begin at once with the account of Budget of Sir Robert Peel's financial statement of March ' 42 " 3 * 1 1, 1842. Probably no budget was ever awaited with Financial po- . , sition of the more interest, anxiety, or curiosity, than that country, of 1842. Serious financial difficulties had been accumulating for several years. Five times in succession the revenue had fallen short of the expenditure by amounts averaging about a million and a-half per annum. In 1837-8 the 6 Twenty Tears of Chap. I. deficiency had been 1,428,000/.; in 1838-911 ,842. had been 430,000/.; in 1839-40, 1,457,000/.; in 1840-1, 1,851,000/.; and for 1841-2, the year just drawing to a close, it had been esti- mated at 2,421,000/. In each of the four years, 1 837-1 840, the estimates of the Chancellor of the Exchequer had been falsified by the result, to an amount in the whole of no less than 3,569,000/. ; and in three out of the four the failure had been due to a deficiency in the anti- cipated income, rather than to the occurrence of any unexpected expenditure. In the year 1 840- 1 , the estimateof income had been 48,59 1 ,000/., and the amount realized had been only 47,433,000/. ; showing an error of more than a million ster- ling in the estimate, and indicating a state of things which might well be thought alarming ; since the failure had occurred in that portion of our revenue upon which we mainly depended, and which then constituted about four-fifths of the whole, namely, the revenue from the cus- toms and the excise ; it followed upon a well- meant and, in its way, a bold attempt to obtain a balance of income and expenditure by an ad- dition to taxation ; and it appeared to imply an exhaustion of the resources of the people, more serious than any deficit in the Exchequer, and Financial Policy. y which was unhappily but too much in accord- Chap. I. ance with other disheartening and distressing ^^z. signs of the times. There was at this period a great deal of suf- Prevalence of c . 1-1 i i -ii distress. iering among the lower orders, and especially among those engaged in manufactures ; there was a scarcity of employment, and provisions were at a high price. As a consequence, there was much political discontent. Chartism was exciting serious uneasiness ; the new Poor Law, against which the Chartist movement was mainly directed, was pressing hardly upon the people ; who had not yet become fully accustomed to it ; and who were suffering from it all the more severely on account of the badness of the recent harvests, the slackness of employment, and the growth of the population, which had not yet learnt to relieve itself by emigration. To these causes of uneasiness were added Position of others connected with the position of the great political parties in the State. The Whigs had held office, with a short interruption, for ten years ; they had gradually lost the popularity which they had enjoyed at the beginning of their administration ; and had for some time been maintaining themselves with difficulty, in an equally divided House of Commons, by the sup- 8 Twenty Tears of Chap. I. port of the extreme Liberals, and of the Irish 1842. P ar tyj then led by Mr. O'Connell. They were popularly accused of sacrificing both their own convictions and the interests of the State to the necessity of conciliating these important allies ; and the measures which they brought forward were on this account regarded with suspicion and dislike, and were sure of being severely cri- ticised. This was especially the case with re- gard to their financial projects ; financially they were in bad odour with almost everybody. Since the accession of Lord Melbourne to power, in 1835, tne y na d found it necessary to increase our naval and military expenditure by several mil- lions sterling ; we had been brought to the brink of a war with France ; to an actual war with China ; to a serious and, as it proved, a disastrous struggle in India ; besides having to deal with an insurrection in Canada, and a Chartist rising at home. All this had told upon the estimates ; and we had paid 1 5,536,000/. for army, navy, and ordnance in 1841, instead of 1 1,730,000/., the amount in 1835. This increase of expenditure was unpopular among the extreme Liberals ; but they had been to some extent conciliated by the unwillingness which the Government had shown to add proportionately to the taxation ; age measure. Financial Policy, g and especially by the concession made in 1839 Chap. I. of the Penny Postage, — a measure of undoubted 1842. social and general advantage, but extremely in- convenient in a financial sense ; and the adoption of which, at that particular time, was thought to be due to the political necessities rather than to the convictions of the Ministry. This surrender of an important branch of our Penny Post- revenue had been opposed by Sir Robert Peel and the Conservatives generally ; and they re- garded it both as financially wrong, and as an indication of a want of moral firmness on the part of the Government. Hopes had been held out by the advocates of the measure, that the rapid increase which would take place in the correspondence, and the economy which might be effected in the management of the Post Office under the new scheme, would soon replace the revenue which was to be given up ; but a very short experience of the working of the system proved that this recovery of the revenue, though it might ultimately be realized, could not take place for many years. The lessons drawn from this experiment, therefore, were, — First, that the Government could not be trusted to resist a popular demand for a remission of taxation ; and, secondly, that the sanguine promises of the io Twenty Years of Chap. I. advocates of remission, to the effect that the 18+2. revenue they proposed to sacrifice would be speedily made up, were not to be relied on. These considerations had a powerful bearing upon the much greater struggle of which the year 1841 witnessed the commencement, and of which we feel the consequences to the present day. why the Judging from the antecedents of the two Whigs were T .1 1.1 Free Traders parties, 1 see no particular reason why the rather than Whies should have been the Free-traders, and the Lonierv- ° atives. the Conservatives the Protectionists, of 1841. If the questions raised had been simple questions of political economy, it is probable that the doctrines of Pitt and of Huskisson would from the first have found their supporters among the poli- tical descendants of those statesmen. But the discussion was complicated by the fact that the Anti-Cornlaw Leaguers belonged to the Radical party ; and that their language and proceedings alarmed the Conservatives \ while the Whigs were supposed to be naturally anxious to con- ciliate so important a section of their political supporters, and were suspected of having political ends in view when they gave their assent to economical reforms. No doubt the partial adop- tion of a Free-trade policy by Lord Melbourne's Cabinet, in 1841, was in a great measure due to Financial Policy. 1 1 the progress of conviction, to the arguments Chap. i. which such men as Mr. Poulett Thomson, Mr. 1842. Deacon Hume, and others, had for some years been addressing to the Ministry, and to the re- markable evidence collected by the Import Duties Committee of 1840. But however ge- nuine their convictions may have been, they did not get much credit for sincerity. It was thought that they took up Free-trade as a last and des- perate card, and played it for the sake of strength- ening their alliance with the Radicals, and of getting up a cry in the country, which might be of service to them at a general election. The fact that the budget of 1841 was so greatly at variance with the principle of the budget of 1 840, added much to the grounds for suspecting that the Government were either swayed by some unavowed considerations, or else were in a difficulty as to their course, and were flounder- ing in hopes of finding firm ground, without well knowing in which direction to look for it. In 1840 Mr. Baring had attempted to restore an equilibrium in the finances by a general increase of duties. In 1841 the same Chancellor of the Exchequer proposed to effect the same object by the directly opposite course of reducing cer- tain duties, with a view to obtain a greater reve- 12 Twenty Years of Chap. i. nue from them. In doing so he was, in truth, 1 8+2 . only acting upon a financial principle already well known, and generally, though not universally, acknowledged to be sound ; but the apparent inconsistency in his conduct gave an air of un- certainty to his proceedings ; and the recollection of the results of the Postage Reform, coupled with the general suspicion attaching to all policy likely to conciliate Radical support to the Minis- try, deprived his measure of any fair chance of success. Accordingly, the budget of 1841 had proved the occasion for the ejection of the Mel- bourne Ministry from office ; and the reins of power had been transferred to Sir Robert Peel and a Conservative Cabinet, commanding a ma- jority of more than ninety in the New Parlia- ment. Sir R. Peel's Sir Robert Peel had spent the autumn and speech" winter in maturing his plan of finance, and on March 11. the nth of March, 1842, he laid it before the House of Commons in a speech of very great ability. After stating his grounds for thinking that the deficiency for the year then expiring would be about 2,350,000/., he proceeded to lay down his estimate of Income and Expenditure for the year 1842-3, as follows: — Financial Policy. 1 3 Income. £ Customs 22,500,000 Excise 13,450,000 Stamps 7,100,000 Taxes 4,400,000 Post Office 500,000 Crown Lands 150,000 Miscellaneous 250,000 Total Income ^48,350,000 Expenditure. £ Debt (funded and unfunded) . . . 29,427,000 Charges on Consolidated Fund . . 2,368,000 Army 6,617,000 Navy 6,739,000 Ordnance 2,084,000 Miscellaneous 2,800,000 Canada, Clothing of Volunteers . . 108,000 Expedition to China 675,000 Total Expenditure .£50,819,000 The net result of this estimate was, of course, an anticipated deficiency of 2,469,000/. This, however, did not, in Sir Robert Peel's opinion, represent the full extent of the liabilities of the country. He pointed out that, although he had reason to think that the sum of 500,000/., which he had taken in the military estimates on account of the hostilities in China, would probably be suf- Chap. I. 14 Twenty Tears of Chap. i. ficient provision to make within the year, yet a 1842. further expenditure of 700,000/. or 800,000/. would in all likelihood be ultimately incurred, and must be met at some future time. He glanced at the possible demands from Australia and other of our colonies, and at the serious cost which the recent events in Affghanistan were likely to entail upon us. Finally, for the purpose of bringing before the House a full and complete view of the financial position of the country, he referred to the growing deficit in the finances of India. " I am quite aware," he said, " that there may appear to be no direct and immediate connection between the finances of India and those of this country ; but that would be a su- perficial view of our relations with India, which should omit the consideration of this subject. Depend upon it, if the credit of India should become disordered, if some great exertion should become necessary, then the credit of England must be brought forward to its support, and the collateral and indirect effect of disorders in Indian finances would be felt extensively in this country." Having thus shown both the actual deficiency to be met, and the circumstances under which it was to be met, and having pointed out that, Fi?iancial Policy. 1 5 unless an exertion were now made, the aggre- Chap. I. gate deficiency of the six years, 1 837-1 843, l8 2 would amount to 10,072,000/., Sir Robert Peel proceeded to state his views as to the various modes in which the necessary amount of revenue might be provided. His statement is a good instance of that exhaustive form of argument in which he excelled, and which he sometimes pushed so far as to provoke a smile. On the present occasion he used it like a master. First, he swept away all idea of meeting the difficulty with financial nostrums, disguised loans, application of savings' banks' monies, issue of exchequer bills, or any other expedient for easing off the crisis. Then, having expressed his conviction that matters could not be brought round by a reduction of expenditure, and having thus arrived at the conclusion that there must be an addition to our taxation, he opened the question, what the nature of that addition should be. Not increased charges on articles of con- sumption, he said ; for, besides that he felt great reluctance to add to the burdens of the labouring classes, he was convinced, by the re- sults of Mr. Baring's experiment, that we had " arrived at the limits of taxation on articles of consumption." Mr. Baring had expected, by 1 6 Twenty Yeai's of Chap. I. adding 5 per cent, to the customs and excise 1842. duties, to gain 1,895,000/. and he had only gained 206,000/. To repeat Mr. Baring's at- tempt, therefore, would be to repeat Mr. Baring's failure. But if this could not be recommended, what then ? Should he revive some of the abandoned taxes ? Should he increase the rate of postage ? No ; he was unwilling to disturb the working of an experiment fraught with so many advan- tages to the labouring classes. Nor would he re-impose the duties on salt, on leather, or on beer ; nor lay taxes on railways or on gas. To all such modes of raising the revenue he objected, partly on the ground of unwillingness to inter- fere with the comforts of the labourer, partly on that of respect for the interests of manufac- turing industry. One more method remained to be examined, before he came to his own conclusion. Should he follow the example of his immediate pre- decessors, and attempt to increase revenue by diminishing taxation ? Upon this question he argued at some length, expressing his concur- rence in the opinion, that reductions of duty on articles of consumption have a tendency to re- place the revenue surrendered in order to make 1842. Financial Policy. 1 7 them, and that increased revenue may ultimately Chap. I. be realized from diminished taxation ; but adding, that a long period must elapse before that end could be attained, and that a plan for reducing taxation with a view to ultimate improvement would not provide the means of meeting the existing deficiency. This view he confirmed and illustrated by referring to the reductions which had been made in the duties on wine, tobacco, cofTee, hemp, rum, and sugar ; in only two of which cases, (those of cofTee and rum), had the revenue recovered to the extent of the reduction of duty; and even in the case of coffee, which was by far the most favourable, it had taken three years to do so. If, therefore, we were to have recourse to the reduction of taxation as the only means of supplying the deficiency, it would be necessary to resort for a time at least to the objectionable system of loans and other devices, to which he for one could not consent to be a party. Having thus exhausted all other alternatives, Sir Robert Peel addressed " an earnest appeal to the possessors of property, for the purpose of re- pairing this mighty evil." He said, " I propose, for a time at least — (and I never had occasion to make a proposition with a more thorough con- c 1 8 Twenty Tears of Chap. I. viction of its being one which the public in- 1842, terest of the country required) — I propose that, for a time to be limited, the income of this country should be called on to contribute a certain sum for the purpose of remedying this mighty and growing evil. I propose that the income of this country should bear a charge not exceeding yd. in the pound, which will not amount to 3/. per cent., but, speaking accurately, 2/. 1 $s. /\.d. per cent., for the purpose of not only supplying the deficiency in the revenue, but of enabling me with confidence and satisfaction to propose great commercial reforms, which will afford a hope of reviving commerce, and such an improvement in the manufacturing interests as will react on every other interest in the country ; and, by diminishing the prices of the articles of consumption, and the cost of living, will, in a pecuniary point of view, compensate you for your present sacrifices ; whilst you will be at the same time relieved from the contemplation of a great public evil." This tax, he proceeded to explain, was not to extend to Ireland. Persons having incomes not exceeding 1 50/. a-year were to be exempt from it. Tenant-farmers, and occupiers of land, were to be assessed upon one-half of the rental. The Financial Policy. 1 9 produce of the tax might, he thought, be taken Chap. I. at 3,771,000/. The period for which he hoped ,g 42# that Parliament would, if necessary, sanction its duration was five years ; but, in order to afford an earlier opportunity for reconsidering the sub- ject, he proposed to lay it on in the first instance for three years only. In order that Ireland, which was not to contri- bute to the Income Tax, might nevertheless bear her share in the additional burdens thus thrown upon Great Britain, Sir Robert Peel proposed to raise the duty on Irish spirits from 2s. $d. per gallon to 3-r. 8^/., the amount charged on Scotch spirits;* and to equalise most of the stamp du- ties of England and Ireland, by raising those affecting property in the latter country to the English level. By the former of these opera- tions he expected to gain 250,000/., and by the latter 160,000/., so that Ireland would contri- bute in the whole 410,000/. additional revenue. One more new duty he had to propose ; namely, the extension of the export duty of 4.S. per ton on coals carried in foreign ships, to coals carried in British ships. From this source he calculated on obtaining 200,000/., making the * The duty on English spirits was js. lod. 20 Twenty Years of Chap. i. whole amount of revenue to be derived from ,8 +2 . additional taxation 4,380,000/.* Deducting from this sum the estimated deficiency on actual votes, 2,570,000/., he arrived at a probable sur- plus revenue of 1,800,000/., subject, of course, to some possible diminution on account of fur- ther claims connected with the Chinese war, and the hostilities in AfFghanistan. That sur- plus he proposed to apply to a great reform and reduction of the commercial tariff of the country. It is not proposed to enter here into a dis- cussion of Sir Robert Peel's commercial re- forms. It may be sufficient to say that he pro- posed to expend about 1,200,000/. of his surplus upon the reduction of the duties on foreign and colonial timber, on coffee, and upon about 750 various articles in the tariff, repealing at the same time the export duties on British manu- factures, and reducing the duty on stage coaches. He reserved a balance of 520,000/. for the pur- £ * Income Tax 3,770,000 Irish Spirit Duties 250,000 Irish Stamp Duties 160,000 Export Duty on Coals 200,000 £4,380,000 Financial Policy. 2 1 pose of meeting either any additional charges Chap. i. arising out of the Chinese or the Indian war, or l8 any additional reductions of duty, which we might be called upon to make in the event of the conclusion of any of the commercial treaties then in course of negotiation. Sir Robert Peel concluded this great speech by an appeal to his hearers to follow the example set by their fathers, who, in the hour of their greatest distress, " with a mutiny at the Nore, a rebellion in Ireland, and disaster abroad, yet submitted with buoyant vigour and universal applause (with the funds as low as 52) to a property tax of 10 per cent." Speaking after twenty-five years of peace, at a time of increasing prosperity, wealth, and comfort among the upper classes, but of increasing financial embarrassment in the country, he expressed his confidence, that the appeal he had made would be successful, and that the representatives of the people would not " throw away the means of maintaining the public credit by reducing in the most legitimate manner the burden of the public debt." The great fiscal engine thus brought into Fiscal Policy play by Sir Robert Peel had been laid aside, but not forgotten, since the conclusion of the war ; having been rejected by the House of Commons, 22 Twenty Tears of Chap. I. in March, 1 8 1 6, by a majority (against ministers) 1842. of thirty-seven. Since that time considerable alterations, chiefly in the direction of remission, had been made in our system of taxation. Duties to the estimated amount of about 27,000,000/. had been taken off, and duties to the estimated amount of between 7,000,000/. and 8,000,000/. had been laid on. Much had been done, espe- cially by Mr. Huskisson, to relieve trade and industry ; and, while taxation had been lightened, the revenue from the customs and excise had not diminished to any considerable extent. Mr. Labouchere was able to point out in 1840* that, while customs' and excise duties to the amount of 5,982,000/. had been taken off since 1830, the revenue from those two sources had only diminished by 1,091,000/. The various remissions which had been made, however, had been made as it were piecemeal ; though there had not been wanting financiers and statesmen, who had, at different times since the conclusion of the war, urged the importance of a general revision of the whole system of taxation upon a settled plan, with a view to the relief of industry, and to a more judicious ad- * May 15. Financial Policy. 23 justment of the burdens of the people. Such a Chap. I. revision was particularly demanded about the l842 . year 1830, towards the close of the series of Tory Administrations which was finally cut off by the accession of Lord Grey to power, and by the passing of the Reform Act. Sir Henry Parnell, Mr. Poulett Thomson, and Mr. Hus- kisson, were among the leading advocates of Financial Reform. Sir Henry Parnell had hoped to bring the whole question of the incidence of taxation before the celebrated Finance Com- mittee, appointed at his instance in 1828; but the labours of that committee were cut short, and Sir H. Parnell was obliged to content him- self with publishing his views in his elaborate and useful tract upon the subject. Mr. Poulett Thomson brought the question of taxation be- fore the House of Commons, and moved for a Committee upon it, on the 25th of March, 1830. The Committee was not granted, but the debate, especially the mover's speech, is interesting and instructive. Mr. Huskisson, who supported Mr. P. Thomson on this occasion, had a few days before (on the 1 8th March) explained his own views in a speech upon the state of the nation. All these three gentlemen, though differing upon certain points, agreed in recommending large 24 Twenty Years of Chap. I. remissions of taxation upon various raw mate- 1842. r i a l s °f industry and articles of consumption ; and all agreed also in expressing themselves as favourable to the imposition of a Property or Income Tax. There is, however, a difference between the tone in which Sir H. Parnell and Mr. Thomson respectively speak of the propriety of imposing such a tax. Mr. P. Thomson, while proposing large and important remissions of taxation, and dealing with a revenue of some 16,000,000/., is cautious and even timid in suggesting the idea of a Property Tax ; and, though avowing his own disposition to adopt it, takes care to disclaim it as an essential part of his plan ; he even goes so far as to recommend recourse to a loan to cover the bold experiments upon the revenue, which he hopes will lead to its ultimate recovery and improvement. But Sir Henry Parnell, in a more statesmanlike spirit, lays down as essential the doctrine, that a financier ought not to run risks. Accordingly, although he expresses his conviction that the reduction of duties on many articles, which he names, will lead to little or no ultimate loss of revenue, and although he embo- dies in his plan some proposals for considerable reductions in the public expenditure, he states Financial Policy. 25 that, in his opinion, it would not be right to de- Chap. i. pend on these reductions alone for the means of 1842. making good the revenue. " The proper prin- ciple," he says, "on which the proposed reduction of taxation and expenditure should be conducted, is, that the securing of a sufficiency of revenue should never be a matter of doubt ; and there- fore it is particularly desirable that, when a measure is taken for reducing taxes, there should at the same time not only be some measure to produce a reduction of expense, but also a new tax, which shall be of such a nature as to make quite certain of receiving from it full as much revenue as will be wanting for all the public services. In selecting a new tax," he adds, " there seems to be but one opinion with respect to what tax that ought to be. Persons who hold the most opposite doctrines on the subject of our financial, commercial, and agricultural difficulties, in suggesting remedies, have made an Income Tax a part of them."* It may be observed, by the way, that, although the last-quoted paragraph is literally accurate, inasmuch as there were many persons of very different sentiments on other points who con- * Parnell's Financial Reform, p. 252. 26 Twenty Years of Chap. I. curred in recommending an Income Tax, it is 1842. not to be inferred from this that all the financial reformers of the day were prepared for such a measure. The extreme timidity of Mr. P. Thomson's reference to it in the speech already mentioned, and the distinct protest entered against it by Lord Palmerston, on the same occasion, though his Lordship supported Mr. Thomson's motion, sufficiently indicate the re- ception which a proposal to revive that tax would probably have met with. It is still more signifi- cant that Lord Althorp, though personally in favour of an Income Tax, did not venture to propose it while he himself was Chancellor of the Exchequer. Sir R. Peel's The policy insisted on by Sir Henry Parnell, tical with Sir in 1830, was the policy actually adopted by Sir Robert Peel in 1842, which contrasts with that contemplated by his immediate predecessors in this, among other respects, that he covered his operations upon the tariff" by a new tax which ensured his receiving a full amount of revenue, whether the remodelling of the tariff" proved financially successful or not, while the Whig budget of 1 841 rested entirely on the merits of its scheme of readjustment and remission of duties, and must, if that readjustment had failed to in- H. Parnell's. Financial Policy. 27 crease the revenue of customs, have led to an aug- Chap. I. mentation of debt. It can hardly be doubted l8+2 that Sir Robert Peel's was the sounder and safer principle. At the same time it is not to be for- gotten that, in calling in the aid of the Income Tax for a temporary object, the nation exposed itself to the fate of the horse in the fable, which gained its victory indeed over the stag, but at the expense of permanent subjection to its rider : — " Non equitem dorso, frenum non depulit ore." It would be a curious, and not an unprofitable, Sir R. Peel's subject of speculation, whether the Tariff Re- was to restore forms of 1842, or anything approaching them, could have been successfully carried through without the aid of the Income Tax ; but it must be obvious to every reader of Sir Robert Peel's great budget-speech that these Reforms were but an object of secondary importance in his estimation, compared with the maintenance of the public credit, and the restoration of a surplus revenue. Any one who refers to the language used by Sir Robert Peel, not only upon that occasion, but for several years before, will see that the maintenance of a proper equilibrium in our finances was the object uppermost in his the finances. 28 Twenty Years of Chap. I. mind, and that it was one which he kept steadily 1842. m vi ew ; while he gave but a cold and negative approval to the projects of those who desired to effect, what they thought, great improvements in the whole system of our taxation. His opinions upon commercial finance had indeed been gradually maturing for a considerable time, and frequent foreshadowings of particular changes adopted in 1842 and 1845 are to ^ e found scattered in his speeches between 1830 and 1840 ; but his general views on the subject of great financial changes are pretty nearly as he stated them in 1833. " He thought the noble lord (Lord Althorp) had acted wisely in main- taining the system of taxation as it stood at pre- sent. All attempts to effect an extensive com- mutation of taxes causing, as it necessarily must in the present artificial state of society, the un- settlement of capital, must be productive of great injury. Another system of taxation might be proved by reason a priori to be better than the present ; but the present being established, and the habits and occupations of the people having accommodated themselves to it, it might, though abstractedly less perfect, be on the whole prefer- able to any substitute." It may be worth remark that Sir Robert Peel had always looked coldly Financial Policy. 29 on an Income or Property Tax as a substitute Chap. i. for other taxation. In 1830, referring to Mr. l8 Huskisson's great speech on the distress of the country, he said, — " His right honourable friend seemed to recommend a more extensive com- mutation [of taxes] than had yet been thought of, and the levy of taxes, too, on something else, in lieu of what for the relief of industry might be repealed. The House could not fail to ob- serve that his right honourable friend most skilfully avoided the enunciation of what that something else was to be ; but his drift was not to be concealed. The House might naturally suppose that amongst the various subjects con- nected with the finances of the country, which had occupied the attention of Government, the question of a Property Tax had not escaped them ; it was one of those which they had most seriously mooted. * * * They had most attentively considered the bearing of such a tax as affecting the commercial, the professional, and the landed incomes of the country ; and also the question, if such a tax were resolved upon, of confining it to landed incomes, and excluding the other two classes. After those mature de- liberations, then, the conclusion at which they arrived was, that they should best discharge the 30 Twenty Tears of Chap. I. duty they owed to the country by repealing this 1842. year 3,400,000/. of taxes. * * * The course which they had adopted pretty plainly proved that they had not resolved upon submitting to Parliament any proposition for a Property Tax." So again, when in opposition in 1833, he commended Lord Althorp for not proposing an Income Tax with a view to the reduction of other taxation ; and declared that in his opinion nothing but a case of extreme necessity could justify Parliament in imposing an Income Tax in time of peace. In 1835, when in office, he opposed the motion of Lord Chandos for a re- peal of the Malt-tax, and warned the agricul- turists to beware how they exchanged " the light pressure of a malt duty for the scourge of a Property Tax." In 1839, when opposing the proposal of the Government to reduce the postage duty, and to pledge the House to make up any consequent deficiency in the revenue, he ex- pressed his conviction that by such a pledge the House would virtually commit itself to a Pro- perty Tax ; and he added that possibly such a tax might be the one to which in such a case it would be the wisest to resort. " But would the House do so," he said, " merely to raise one or two millions of money?" In 1839 his mind Financial Policy. 3 1 was clearly not made up in favour of a Property Chap. I. Tax. Nor was it so in 1 840, when he approved l8 Mr. Baring's attempt to meet the deficiency by an addition to our indirect taxation rather than by a direct impost. But while he felt so little inclined to try ex- periments upon our fiscal system, and entertained so little love for an Income Tax, his convictions as to the necessity of maintaining our revenue and supporting public credit were decided and strong. Nothing can be warmer than his de- nunciations, in 1832, of the principle of re- ducing taxation for the relief of the people without regard to the obligations, for the fulfil- ment of which the taxes were a security. u The strongest apprehension that he had entertained from the infusion of democratic power into the House of Commons by the measure of reform was, that the House would hereafter find it very difficult to resist proposals for immediate relief at the expense of good faith and of the true perma- nent interests of the country." It was on this occasion that he denounced, with all the force of his eloquence, the doctrine propounded by Mr. Poulett Thomson, that the deficiency in the re- venue was to be regarded not as money lost, but as money left to fructify in the pockets of the 32 Twenty Years of Chap. I. people ; and he expressed his own conviction l8 that it was essentially necessary that a surplus revenue to a certain amount should be main- tained for the support of the public credit. In entire conformity with this language is that which he used in 1839, upon the question of the reduction of the duties of postage; in 1840, upon Sir John Yarde Buller's motion against the Melbourne Ministry; and in 1841, in the debate on the budget, and again in support of his own vote of want of confidence in the Ad- ministration. A review of these and other speeches seems clearly to establish that Sir Robert Peel, in proposing the revival of the Income Tax, was actuated much more by his desire to restore public credit and the balance between Revenue and Expenditure, than by a deliberate intention of altering the incidence of taxation. Views of the However this may have been as regards his generally. own secret motives, there can be no doubt that it was upon the financial ground that the great bulk of his followers gave their support to his proposals. Many of them had little faith in the elasticity of a reduced tariff ; very many disliked the reduction in the tariff exceedingly, and were so far from seeing in it a compensation for the Financial Policy. 23 burden of the Income Tax, that they looked upon Chap. I. it as an aggravation of the evil. But all felt that ,g +2# the financial position of the country was a serious one ; all believed that their leader was the only man to grapple with its difficulties ; and they set aside for a time their feelings of dissatisfaction and alarm at some parts of his policy, in order that they might carry him triumphantly through the opposition, with which the adherents of the late Ministry assailed his plan. For the proposed Income Tax received no Opposition to quarter from the Liberal party in either House T ^ x "^^h of Parliament. It is true that on the night of J^°y. ses of ° t Parliament. the Financial Statement itself there was little appearance of opposition ; but within three days afterwards Lord Brougham laid upon the table of the House of Lords a series of resolutions condemning some of the leading provisions of the tax, and declaring the importance of making every effort to provide for its early ces- sation ; and when, on the day after the dis- cussion in the House of Lords Sir Robert Peel moved in the House of Commons the resolution in favour of the Income Tax, a debate was be- gun, which continued for eight nights ; and the resolution was not adopted until the 1 3th of April. Nor did the opposition stop there. Lord 34 Twenty Tears of Chap. i. John Russell had declared his intention of op- 1842. posing "the resolutions, and the report of the resolutions, and the first reading, the second reading, and the third reading of the bill ;" and he kept his word. Every stage of the bill was keenly contested, the members of the previous cabinet taking the lead against it ; there were as many as sixteen divisions taken upon it in the House of Commons, without reckoning those upon mere questions of adjournment, or those connected with the reception of petitions against it. At length the third reading of the bill was carried, on the 3 1 ft of May, by a majority of 1 06 ; and the bill was sent up to the House of Lords, where it was warmly debated, and where several protests were entered against it after it had passed. Arguments The arguments of the Opposition were di- of the Oppo- ii-i r i sition. rected partly against the structure or the tax, and partly against the whole financial scheme of the Government. Mr. Baring, in particular, as ex-Chancellor of the Exchequer, defended the proposals of the late Cabinet, and impugned some of the reasoning on which Sir Robert Peel's proposals were founded. Sir Robert Peel had argued that the results of the budget of 1 840 had shown, that increased revenue was not to be ob- tained by increasing indirect taxation ; and that Financial Policy. 35 the proposals of 1 841, for meeting the deficiency Chap. I. by a diminution of taxation, were too uncertain jg 42 . to be relied on ; whence he drew the conclusion that, since the deficiency could not be met either by increasing or by diminishing the general taxation, recourse must be had to a new impost. Mr. Baring, in reply, observed — First, that the experiment of 1840 had by no means turned out so badly as Sir Robert Peel represented ; and secondly, that his description of the pro- posals of 1 841 was an unfair and incorrect one. Sir Robert Peel had stated that the addition of five per cent, to the customs' and excise duties had produced an increase of only one-half per cent, in the customs' and excise revenue ; but Mr. Baring showed that, in making this cal- culation, Sir Robert Peel had included the duty received from corn, which had not been altered, and upon which a very great amount of the loss had accrued ; and he argued that, if the amount of revenue derived from corn were excluded from the accounts of both the years (1838-9 and 1 840-1) between which Sir Robert Peel had drawn a comparison, the increase of the revenue from the other customs' and excise duties would be found to be, — not 206,000/., as Sir Robert Peel had stated it, but — 1,007,000/. He con- 36 Twenty Tears of Chap. i. tended, therefore, that the resources of indirect 1842. taxation were not exhausted, as it was said they were ; and that there was no real necessity for " a recurrence to that odious impost," the In- come Tax. With regard to the proposals of 1 841, he considered it unfair to represent them as an attempt to increase revenue by simply diminishing the rates of certain duties ; the mode in which they were intended to increase the re- venue was, by reducing the amount of protection afforded to the home and colonial producers, and by introducing into the market a quantity of foreign produce at a rate of duty, which would be more productive to the Exchequer than the duty on the colonial article, while the consumer would gain by the reduction in price. Thus, in the case of sugar, he had expected to gain 700,000/. by reducing the duty on foreign sugar from by. to 36^. per cwt., not so much because he hoped that the reduction would stimulate consumption sufficiently to produce this increase of revenue, as because he calculated that a quantity of foreign sugar, which was excluded by the high duty of 63J., would come in at 36^., and would displace a corresponding quantity of colonial sugar, which only paid z\s. The same would have been the case had the Financial Policy. 37 timber duties been altered from 55s. a load on Chap. i. foreign, and 10s. on colonial, to 501. on foreign, l8+2> and 30J - . on colonial timber. It was, therefore, not fair in Sir Robert Peel to argue against the plan of 1 841 from the experience of the reduc- tions on wine, tobacco, and other articles, as he had done ; and Mr. Baring maintained that, both as regarded the experiment of increasing indirect taxation in 1840, and the proposals for altering its incidence and for diminishing pro- tection in 1 841, the foundation of alleged ne- cessity for the Income Tax would prove to be an unsound one, and that the tax was really not required to maintain the revenue. Mr. Baring further argued, and in this he was supported by many of his party, that Sir Robert Peel's whole scheme of commercial reform was objectionable, as being founded on the doctrines of Protection. The details also of the Income Tax were much objected to ; and most of the arguments which have since been urged against its inequalities and its alleged unfairness were brought forward in the course of the protracted debates to which its imposition gave rise. Sir Robert Peel, however, adhered to his as- Arguments of sertions that the result of the increase of indirect ^ his col _ taxation in 1 840 showed that such taxation had lea S ucs > 384626 burn, 38 "Twenty Tears of Chap. i. almost reached its limits ; and that the budget of 1842. 1841, besides being open to other objections, would not have produced a revenue sufficient to meet the expenditure ; and it was on this ground mainly that his party appear to have supported the proposed Income Tax. The fol- Mr. Goul- lowing extract from the speech of Mr. Goul- burn, the Chancellor of the Exchequer, shows the view taken of the matter by one of his prin- cipal colleagues : — u He (Mr. Goulburn) and his colleagues had laboured most anxiously to avoid having recourse to the measure now proposed by Her Majesty's Government, knowing the opinion which would be entertained against it by some portions of the people, and the burdens which it must throw upon many ; but he did most sincerely believe that under the present circumstances of the country, encumbered with a debt that must be discharged, bound to maintain a receipt equal to the expenditure, equal to the preservation of our empire abroad, and our character through- out the world, it was only by the imposition of a tax affecting the property of the country, that it was possible successfully to cope with difficul- ties so gigantic."* * Debate of March 18, 1842. and Lord Ripon. Financial Policy. 39 The language of another leading Minister, Chap. i. Lord Ripon, is equally remarkable. Lord l8+2 . Brougham had proposed a string of resolutions in the House of Lords, to the adoption of which Lord Ripon objected as unnecessary and incon- venient. Speaking of one of these, he said, — " Entirely concurring, as he did, in the noble and learned lord's declaration that the proposed tax was a resource to which Parliament ought not to have recourse except under the pressure of dire necessity, still, unless the noble and learned lord thought he had reason to believe * * * that there existed a design on the part of the Government to entrap Parliament into the passing of this Act on the plea of absolute necessity, and for a limited period only, * * * unless the noble and learned lord thought them mean and shabby enough so to trick Parliament in order to get the measure passed, and then afterwards to continue it as a permanent tax, * * * he did not see why, as a preliminary step, their Lordships should be called upon to declare by resolution their opposition to it."* Such, then, were the arguments by which Sir Robert Peel and his colleagues supported * Debate H. L., March 17, 1842. 4o 'Twenty Years of Chap. I. their financial policy. Their first object was, to lg put a stop to the series of deficits by a bold mea- sure of direct taxation ; their second was, to re- adjust the system of indirect taxation, so as to relieve the springs of industry from the undue pressure which was weighing upon them, pre- serving at the same time the principles of pro- tection to native and to colonial industry, upon which they had taken office. They rejected the principles upon which their predecessors had proposed to deal with the great articles of corn and sugar, on the ground that the British corn- grower was entitled to a better kind, and larger amount, of protection than a fixed duty of 8s. a quarter on wheat would afford, and that the colonial sugar-planter ought not to be exposed to competition with the slaveholders of Cuba and Brazil. They rejected the principle on which it had been proposed to alter the timber duties, because, although Mr. Baring's plan would have produced a larger revenue from that source than their own, it would have imposed an additional burden upon the industry of this country by raising the price of a most important raw material. Finally, they rejected the whole principle of the budget of 1 841 , because it failed to secure the revenue against the possibility of a Financial Policy. 4 1 further heavy deficit, and a further addition to chap. I. the public debt. This was the position which ~^~ z Sir Robert Peel took up, and which he eloquently and successfully defended throughout the session. It is not a little curious, after studying the 1843. debates of 1842, to turn to those of 1843, and menTofSir to inquire into the immediate results of the R - P f elscal - 1 dilations ; great measures we have been describing. They were somewhat startling. Sir Robert Peel had reckoned on a surplus of 520,000/. ; but, al- though the Income Tax had proved more pro- ductive than he had anticipated, instead of real- izing a surplus, he had to announce a deficiency of 2,200,000/. The first and most obvious cause of this dis- causes of it. appointment was an oversight with regard to the time of collecting the Income Tax. Sir Robert Peel had taken credit for a whole year's tax ; but, as the collection was arranged to take place half-yearly, the time for calling up the second half did not arrive till the financial year had expired ; so that one-half only, and not, as had been expected, the whole, of the tax became available for the service of the year. Against this, however, had to be set the fact that the tax had proved a much more productive one than had been foreseen ; and that, instead of 42 Twenty Tears of Chap. I. 3,770,000/., it was worth about 5,100,000/. per !8 43- annum. Of this amount 2,500,000 had been realized within the year ; so that the difference between the estimate and the result, as regarded this tax, was only 1,270,000/. against the latter. But Sir Robert Peel's hopes had been seri- ously disappointed as regarded other branches of the revenue. The Customs had fallen short of his estimate by 750,000/. ; the Excise by 1,200,000/. ; the Stamps by 200,000/. ; and the Taxes by 135,000/. In short, the income of the year, leaving out the produce of the Income Tax, had been estimated at 47,640,000/., and had reached only 45,600,000/. To the loss of 2,000,000/. thus sustained must be added the loss by miscalculation on the Income Tax, 1,270,000/., making the total deficiency of in- come realized, as compared with income antici- pated, 3,270,000/. But, on the other hand, a sum of 725,000/. had been received for the ransom of Canton, which had not been included in the preceding year's estimate ; and the expen- diture of the country had been also reduced by 222,000/. below what it had been taken at ; and, by deducting these sums from the deficiency of 3,270,000/., Mr. Goulburn reduced it to a deficiency of 2,422,000/., from which again he Financial Policy. 43 took off 202,000/., as the amount of loss by Chap. I. forged Exchequer-bills, which he said ought not l8+3 . to be reckoned as part of the year's expenditure, and arrived at a net balance of 2,200,000/., as representing what he considered to be the real deficit.* Few budgets have presented so remarkable a Remarks on r • i -\ - 1 1 this miscalcu- picture or miscalculation as was here shown ; i ation and it is no slight evidence of the confidence which Sir Robert Peel had inspired, that his reputation as a financier did not suffer from the exhibition of his mistake. The peculiarity of the case lay, not so much in the amount of the discrepancy between the estimate and the result, as in the details of that discrepancy. With re- gard to the produce of the Income Tax, for instance, it is curious that Sir Robert Peel should not have foreseen that a moiety of it could not be collected within the financial year. That he should have been unable to form a correct esti- mate of the produce of the tax was not sur- prising ; and he had himself pointed out the * These figures are taken from Mr. Goulburn's budget- speech, May 8, 1843; tne y ^° not exa ctly agree with the figures given in the table of Budgets (Appendix A), which are taken from the Quarterly Balance Sheets presented to Parliament. 44 Twenty Years of Chap. I. difficulty of doing so ; but that he should not l8+3> have perceived what the effect of his own ar- rangements for its collection would be, is cer- tainly startling. As regarded the deficiency in the other branches of the revenue, although the same remarks do not altogether apply, there were circumstances which could not fail to ex- cite unfavourable criticisms on the sagacity of the minister. The Customs' revenue had fallen short of his expectations by 750,000/. ; and this, notwithstanding a very large amount of revenue (1,378,000/.) received from corn, a source of income upon which it was generally thought imprudent for a minister to rely, on account of the great uncertainty attending it. Upon this it was obvious for Mr. Baring to re- tort upon Sir Robert Peel the argument which the latter had used in the preceding year against Mr. Baring's own budget of 1 840. Mr. Baring's addition of 5 per cent, to the Customs'and Ex- cise duties had been pronounced a failure, be- cause in the result it had produced an increase of only 206,000/., instead of 1,895,000/. to the re- venue. By parity of reasoning, Sir Robert Peel's reform of the Tariff might be termed a financial failure, because in the result it had produced a loss of nearly 2,000,000/., instead of 1,000,000/. as Financial Policy. 45 had been anticipated. The argument, as Mr. Chap. I. Baring said, was not a very strong one, but it ,g 43 . was as good in the one case as in the other ; and Sir Robert Peel had certainly made a good deal of it the year before. The truth seems to be, that a single year's experience does not afford sufficient ground for such sweeping arguments. But there were other points calling for notice. Amongst the articles upon which the greatest amount of loss had been sustained, wine stood the first. The deficiency in the wine duties reached the sum of 500,000/. Yet there had been no alteration in the rate of duty, nor did there appear to be any tendency to a diminution in the consumption of wine in the country. The loss was wholly attributable to the uncer- tainty into which the wine trade had been thrown by the long protracted and at length fruitless negotiations for a Commercial Treaty with Portugal ; or, in other words, to the adoption by the Government of a line of policy with regard to Reciprocity Treaties, which had been the subject of very serious criticism in the preceding session. The loss on the timber duties, again, had exceeded the expected amount, being 676,000/., instead of, as had been ex- pected, 600,000/. ; and this, too, appeared to 46 Twenty Years of Chap. i. have been partly due to the paralysis of trade ,8 43 . caused by the suspended alteration in the duty, — another instance, as might be said, of a failure on the part of the Minister to foresee the conse- quences of his own measures. Then the great deficiency in the Excise was in part attributed by Mr. Goulburn to the falling off in the malt duty for 1842-3, on account of the badness of the harvest of 1841 ; but, while it was perfectly true that, according to the system of malt credit then in force, the malt revenue for one year depended mainly upon the harvest of the year be- fore, it was also to be remembered that this very circumstance naturally gave a Minister, when framing his estimates, the advantage of knowing pretty accurately what the former harvest had been ; and that in point of fact Sir Robert Peel had taken the badness of the harvest of 1841 into account, and had made, as he said, a very moderate estimate of the malt revenue on that ground. Moderate as it was, however, it ex- ceeded the actual result by no less than 880,000/. Moreover, of the three measures which Sir Robert Peel had adopted for increasing the revenue, two had proved failures. The ex- port duty on coal, from which he had expected to receive 140,000/. additional duty, had pro- Financial Policy. 4-7 duced not quite 80,000/. within the year,* and Chap. i. of this it was said that some 9000/. was the pro- 1843. duce of the old duty, and not of his addition to it. His other and more signal failure was in the results of the addition to the Irish spirit duties, from which he had reckoned on getting 250,000/., but got only 56,000/. ; and this at the cost of a fearful addition to illicit distillation in Ireland. Such were the failures of the budget of 1 842 ; Soundness of r 1 r -i • i* his general yet, in spite or those failures, its policy was upon po y° cy% the whole beginning to be recognized as sound ; and discerning eyes could see that as a whole it was likely to prove not a failure but a success. The very disappointments, which had been ex- perienced in the financial results of the increase of some, and the reduction of many duties, brought more clearly into sight the value of the Income Tax as a financial engine. A stronger conviction than ever began to be entertained, that no shifting or readjusting of our indirect taxation would have brought us through our difficulties ; and the bold effort which the Go- * It had only been in operation for three-fourths of the year, but Sir Robert Peel had framed his calculations on an expectation of receiving 140,000/. or rather 200,000/. within the year. 48 Twenty Years of Chap. i. vernment were making to maintain the public , 8 credit, and to meet the public exigencies, by recourse to even an unpopular tax rather than to loans or similar expedients, afforded ground for confidence in the soundness of our position. Symptoms of reviving trade, and of the approach- ing termination of that long period of manufac- turing distress, which had told so seriously upon the revenue, as well as upon the other interests of the country, and to which the great decrease in the Excise in the past year was mainly at- tributable, were now becoming general ; the returns of every department of the revenue for the last quarter of the financial year had been far more satisfactory than those for the first three quarters ; the tone of the trade circulars was encouraging ; the prices of provisions were low ; the mills of Yorkshire and Lancashire were working full time again ; and, what was perhaps the most cheering consideration of all, though the Ministry could take no credit for it to themselves, the prospects of the harvest were, for the first time in several years, extremely good. Budget of These, and similar considerations, enabled May ' %. Mr. Goulburn to take a firm and cheerful tone in introducing the budget of 1843-4. After Financial Policy. 49 explaining the manner in which the deficiency Chap. I. had arisen, he invited the House of Commons ,3,, to allow the Government to meet it out of the revenue of the coming year, rather than by any special provision in the way of loan or of fresh taxation.* He proposed, however, to take a Vote of Credit for 2,000,000/., to be repaid hereafter out of the Chinese indemnity, in order to enable him to meet two charges which would come in course of payment in the ensuing year, viz. — ■ 1,250,000/. compensation to the holders of opium destroyed by the Chinese, and 800,000/. due to the Indian Government for expenses incurred during the China war. At the same time he reckoned on receiving andcarrying to the revenue of the year a sum of about 870,000/. from the Chinese indemnity. This arrangement exposed him to some criticism. It was said in effect that, instead of raising 800,000/. by a Vote of Credit, to pay what was due to the East India Company, * The course pursued was, to take a credit on the Conso- lidated Fund for more than it could produce, and to meet the demand at the end of each successive quarter by a large issue of Deficiency-bills ; and to such an extent was this done, that on the 5th of January, 1843, the Deficiency-bills amounted to 8,567,729/. ; and in the course of the ensuing April the amount borrowed was 7,549,440/. — (Sir C. Wood's Speech* Auguft 25, 1848.) E 50 Twenty Years of Chap. I. he ought to have paid it out of the 870,000/. he 1843. was about to receive from China; and that the Vote of Credit was, under the circumstances, only a roundabout way of borrowing a sum of money to make up a surplus for the year. The mode in which the Chinese indemnity was employed upon this occasion will come under consideration when I come to treat of Votes of Credit, and of War receipts and expenditure, of which, un- fortunately, more than one instance occurs in the period now under review. Confining myself for the present to the working of the new scheme of taxation, and to the result of Sir Robert Peel's effort to restore the balance between revenue and expenditure, I have now to pass on to the budget of 1844, when the experiment had had a fair time for trial, and when its real results had begun to show themselves pretty clearly. Budget of In 1843, Mr. Goulburn had formed an esti- mate showing a probable surplus of 763,000/. He had taken the revenue at 50,150,000/. and the expenditure at 49,387,645/. But when, on the 29th of April, 1844, he came to state the actual results of the year, it appeared that the revenue had reached 52,835,125/., the expen- diture had only been 48,669,000/., and the sur- 1844.- Financial Policy. 5 1 plus therefore was no less than 4,165,000/. Chap. I. Setting aside 2,749,000/. to pay off the deficit ,8 4+# of the preceding year, he still found himself in possession of a surplus of 1,400,000/. ; that is to say, the financial plan of 1 842 had in the first two years of its operation placed that amount of surplus in the hands of the Government, and had thus enabled the Chancellor of the Exchequer to strengthen the balances in the Exchequer, and had relieved him of the necessity, under which his predecessors had lain, of relying for support upon the coffers of the Bank of England. This was a satisfactory state of things ; and as the greatly improved condition of trade was leading to an increased revenue, while the conversion of the 3^ per Cents into 3J Stock* was leading to a diminished expenditure, the prospects of 1 844-5 were naturally bright. Mr.Goulburn esti- mated the income for that year at 51,790,000/., and the expenditure at 48,643,170/., showing an apparent surplus of 3,146,130/.; but, inas- much as a part of this arose from an alteration in the time of paying the dividends on the Three-and-a-half per Cents in consequence of the conversion, he reckoned the real surplus at no more than 2,376,930/. * See infra, p. 53. 52 Twenty Years of Chap. i. The effect of changing the time of paying 1844. the interest of the debt was, to throw over one quarter's payment into the next year. This was a real gain to the year 1844-5, not leading to any corresponding loss in the following year, though in the following year the gain, of course, could not be repeated. It was analogous to the case of an anticipation of revenue by the short- ening of a credit. The difference which it made to 1844-5 was i>40o>ooo/. But Mr. Goulburn would not consent to reckon this windfall as part of his surplus ; and took credit only for the permanent gain of 313,000/., ob- tained, not by the change in the time of paying the interest, but by the change in the rate of interest itself. At the same time he treated as expenditure for the year the sum paid to the dissentients who had claimed to be paid off on the reduction. Out of the surplus thus estimated, Mr. Goul- burn proposed to apply about 400,000/. only to the remission of taxation, — selecting for that purpose the duties on certain kinds of glass, on vinegar, on marine insurances, on currants, on foreign coffee, and on wool ; some of which he abandoned altogether, while others he reduced in a greater or less degree. It was at this time Financial Policy. 5 3 also that he announced the intention of the Chap. i. Government to make an alteration in the sugar l8+ , duties, with a view to admit foreign sugar, the produce of free labour, at a moderate rate, while slave-labour sugar should continue to be excluded by duties virtually prohibitory. This alteration was made in the course of the session, and the distinction between free and slave labour was maintained in our Statute-book for a short time ; but it was abandoned by the successors of Sir Robert Peel, immediately upon their coming into office. The importance of the year 1844 in a finan- cial sense is derived, not from these alterations of duty, but, in the first place, from the proof afforded by the large surplus revenue that the experiment of 1 842 had succeeded ; in the se- cond place, from the conversion of the Three-and- a-half per Cents ; and in the third place, from the measure for the regulation of the currency known as the Bank Charter Act. The conversion of the Three-and-a-half per Conversi n /-> • mi 1 ii-i of the Threc- CentS into Three-and-a-quarter, and ultimately a nd-a-halt" into Three per cent., Stock, was a measure of P crC ems. very great consequence. The reduction was effected upon a sum of nearly 250,000,000/., an amount much larger than had ever been simi- 54 Twenty Years of Chap. I. larly operated on before ; it produced an imme- J844. diate saving of 625,000/. a-year, and an ulti- mate saving of 1,250,000/. a-year; it involved no addition whatever to the capital of the debt ; and it was carried into effect not only without a dissentient voice in Parliament, but with an exceedingly small number of dissentients among the stockholders whose interests were affected by it ; the total amount required to meet their claims being but 250,000/., a sum which it was found perfectly convenient to take for the pur- pose out of the surplus revenue of the year. Mr. Goulburn brought forward his plan for this conversion on the 8th of March, 1844. It was not the first occasion upon which he had had to perform such a task ; for it had fallen to his lot, in 1830, to propose and carry a reduc- tion of interest upon a large part of the very stock with which he was now again to deal ; and it was natural that he should feel gratification at being a second time able to propose so material a relief to the country. He was able, too, to claim for the Government of which he was a member a considerable share of credit for the policy which had contributed to bring about the satisfactory state of the money-market which rendered his operation possible. How far the Financial Policy. 55 revival of trade and of the industry of the Chap. I. country was to be attributed to their measures ,g 44 .. was, of course, a matter open to question ; but it was evident that their firm determination to avoid a recurrence to any system of loans for the purpose of meeting the deficiencies of the revenue, and to supply those deficiencies by fresh taxation, and their success in strengthening the balances in the Exchequer, and dispensing with the necessity of leaning on the Bank for support, had directly tended to raise the price of the funds. At the accession of the Government to power Consols had stood at 89 ; they now stood at 99. The balances in the Exchequer, which at the commencement of the year had been as low as 1,400,000/., had risen to 4,700,000/. There were no Deficiency-bills unpaid, nor had it been necessary to have recourse to the Bank for advances in anticipation of supplies during the whole year. The amount of Exchequer- bills in circulation was between 1 8,000,000/. and 19,000,000/. only, an amount then considered low in comparison with previous years ; the in- terest upon them was but 2/. 4^. per cent., and they commanded a premium of 3/. 1 31. per cent, in the market. There could be no doubt that the firmness of the Government and of Parlia- 56 Twenty Years of Chap. i. ment in submitting to the Income Tax, rather 1844. than stave off the evil of a growing defi- ciency by resorting to a loan, had contributed materially to this satisfactory state of things ; and the country was now to reap the just re- ward of its exertions for the maintenance of the public credit, in the reduction of the rate of in- terest to the public creditor. Various plans, said Mr. Goulburn, had at different times been adopted for the reduction of the interest on portions of our debt. Some- times an addition had been made to the nominal capital of the debt, in order to induce the cre- ditor to accept a reduced amount of annuity ; sometimes the interest had been augmented for a limited period, in order that it might be re- duced afterwards. In the present instance it was possible to reduce the 3^ per Cents either to a 3 per cent, or to a 2 per cent. Stock, by adding a sufficient amount to the nominal capi- tal of the debt. By the former operation a gain of between 800,000/. and 900,000/. a-year might immediately be obtained to the taxpayer at the expense of an addition of 10,000,000/. or 1 2,000,000/. to the capital of the debt. By the latter the gain would be 1,200,000/. a-year, but the addition to the capital of the debt would be Financial Policy. 57 no less than 50,000,000/. Mr. Goulburn re- Chap. I. jected both these plans ; and, preferring the ulti- ^8^. mate to the immediate gain, proposed a reduc- tion of the interest on this portion of the debt to 3! per cent, for ten years, and to 3 per cent, for at least twenty years more ; adding nothing to the capital of the debt, and securing a saving of 625,000/. a-year till 1854, and of 1,250,000/. a- year afterwards until 1874, when the debt will be convertible or redeemable at the option of Parliament should circumstances permit. It may be as well to mention, in connection with this subject, that Mr. Goulburn took ad- vantage of the flourishing state of the revenue, not only to pay off all the dissentients to this arrangement, thereby reducing the principal of the debt by 250,000/., but also to extinguish an annuity payable to the South Sea Company out of the revenue of Customs under an arrange- ment made in 1815. The uses, therefore, to which he put the large surplus of revenue in 1843-4 were, for the most part, of a kindred nature. With the exception of the small amount of 400,000/. applied to the remission of taxation, the whole was spent in improving the credit and diminishing the permanent burdens of the country, by strengthening the balances in the 58 Twenty Years of Chap. I. Exchequer, and by redeeming or reducing the 1844. interest of the debt. Bank charter The other great measure of 1844, the Bank Charter Act, demands separate consideration. Term of" in- We now come to the year 1845, wnen tne come Tax r r . T . , . expires. nrst term 01 the Income Tax expired. This may, however, be considered a tit place to close the present chapter, which has been devoted to showing what were the circumstances under which that tax was originally imposed ; what were the disappointments which its framers at first met with ; and what the success with which they were ultimately rewarded. We have now to inquire into the effect which this great suc- cess had upon their subsequent policy. Financial Policy. 59 Chapter II. HEN Parliament met in the begin- Chap. II. ning of 1845, k was announced in ,g 45> the Speech from the Throne that a „. . , r Financial renewal of the Income Tax was in statement for contemplation ; and within ten days after the opening of the session, Sir Robert Peel rose to explain the policy of the Government. He said that the hopes expressed by Mr. Goulburn the year before had been more than fulfilled ; and that, as far as it was then possible to judge, the surplus of revenue for the year ending on the 5th of April, 1845, wou ld not De l ess than 5,000,000/. About 500,000/. of this surplus would be due to casual receipts, such as the Chinese indemnity, which could not be reckoned on as permanent items of revenue ; and the amount of the Income Tax (5,190,000/.) was by itself more than the whole amount of the 60 Twenty Years of Chap. ii. surplus. Looking forward, however, to another 18+5. year, and estimating the ordinary revenue for 1845-6, according to the data afforded by the experience of the year past, Sir Robert Peel was of opinion that it would amount, without the Income Tax, to 47,900,000/., to which would have to be added 2,600,000/. on account of the proportion of Income Tax remaining uncol- lected from the previous year, and 600,000/. on account of the expected receipts from China. The revenue for 1845-6, therefore, even sup- posing the Income Tax not to be renewed, would amount to 51,100,000/., or considerably more than was necessary for the expenditure. The expenditure of the year in which he was speaking had amounted, or was likely to amount, to 48,243,000/. ; but he pointed out reasons for proposing an increase of this sum in the following year, and especially for adding 1,000,000/. to our Navy Estimates for the purpose of increasing our fleet, which would bring the expenditure up to 49,690,000/. in the whole. This would still be considerably within the estimated revenue of 51,100,000/. for that single year ; but it was not to be forgotten that, if the Income Tax were not renewed, the receipt of 2,600,000/. would Financial Policy. 6 1 not recur ; and the question therefore arose, — Chap. ir. " Will you run the risk of entailing a deficiency |g in future years by making no provision for the time to come; and, seeing that in 1846 the Revenue will be sufficient to meet increased ex- penditure, will you postpone the consideration of what will be fitting to do until that year shall have expired ?" To this question the reply of the Government was, that such a course would not be a prudent one ; and that, looking for- Government ward to the future necessities of the public ser- Eew^o* Iia- vice, they felt it their duty to propose a renewal come Tax - of the Income Tax for a further term of three years. Had Sir Robert Peel closed his statement at this point he would simply have been seeing in 1845 what he foresaw in 1842. When in 1842 he laid on the Income Tax, and reduced the Tariff, he expressed a hope that the ordinary revenue of the country, apart from the Income Tax, would right itself in five years ; and though he laid on the Income Tax for three years only, five years was the term which he thought a fair one for his experiment. The three years had expired ; and the ordinary revenue had nearly, though not quite, reached the amount at which he had estimated it in 1842 before making his 62 Twenty Years of Chap. II. tariff reductions. In 1842 he had estimated it 1845. at 48,350,000/. ; in 1 845 he was able to estimate it at 47,900,000/., notwithstanding the impor- tant remissions of duties which he had made. The experiment had succeeded so far ; but, as the revenue had originally been too small to cover the expenditure, it was necessary that it should do something more than right itself, and that it should rise to a higher point than that at which it had stood in 1 842. That it was still rising, and would rise further, was evident. In 1 842-3 the ordinary sources of revenue, ex- cluding the Income Tax and the China pay- ments, had produced 45,770,000/.; in 1843-4 they had produced 46,670,000/.; in 1844-5 they had produced 48,500,000/. ; and it was estimated that in 1845-6 they would produce 47,900,000/. It was reasonably to be expected that in two or three years more they would pro- duce 50,000,000/., a sum sufficient to cover the whole expenditure of the country at the rate then contemplated. But while it would have been imprudent to have parted with the Income Tax until this level had been attained, it was evident that to keep the Income Tax at its existing rate for two or three years longer would have brought into the Financial Policy. 63 Exchequer so large an amount of surplus re- Chap. II. venue, that an irresistible pressure would have \%\$. been brought to bear upon the Government for a remission of taxation. It is true that 6,000,000/. or 8,000,000/. of such surplus would not have been much more than enough to counterbalance the deficits of former years, and that such an amount might very fairly have been applied to the reduction of the debt ; or, if this were not thought possible, an arrangement might have been made for the gradual extinction of the Income Tax by the reduction of its rate, as was afterwards proposed by Mr. Gladstone in 1853. In short, if Sir Robert Peel's own views had not undergone a change or a development since 1 842, a plan might easily have been devised for giving complete effect to his original proposal, and dispensing altogether with the Income Tax at the end of five years from its imposition. The experience, however, of the last three Objects of years had led both the nation and the Ministry to look with a different eye upon our system of indirect taxation. The seeming paradox, that a larger revenue might be obtained from smaller duties, had turned out to be the simple expression of an economical law, which appeared capable of more extensive application than it had yet 64 Twenty Yea?~s of Chap, ir. received. Duties had been largely reduced and 1845. even in some cases repealed; yet the revenue was as large as before, and was evidently grow- ing. Perhaps this fact did not conclusively prove that the increase of revenue was caused by the remission of the duties ; but it undoubtedly af- forded a fair presumption that there was some connection between them. At all events, Sir Robert Peel, the shrewdest modern observer of passing events and of the temper of the times, thought the occasion one for a repetition on a larger scale of the experiment of 1842; and, frankly acknowledging that there was no abso- lute financial necessity for his course, and that the supplies of the year might have been pro- vided without resorting to additional taxation, announced his proposal of continuing the In- come Tax for a further period of three years, — " not for the purpose of providing the supplies for the year, but distinctly for the purpose of enabling us to make this great experiment of reducing other taxes." The surplus The surplus which the renewal of the Income ration" aPPl ' Tax was to P lace at the dis P osal °f tne Minister would be, for the year 1 845-6, 3,409,000/. Of this sum he proposed to surrender no less than 3,338,000/. in remissions and reductions of taxa- Financial Policy. 65 tion. In thus stating the available surplus, how- Chap. II. ever, Sir Robert Peel excluded from his estimate ,§4.5. of income 600,000/. which was to be received from China, looking upon it as a merely tempo- rary addition to our revenue. If this sum were taken into the account, his plan would leave a surplus, after all reductions, of 672,000/. Having thus a sum of more than three mil- lions to deal with, it became, as he said, a mat- ter of importance for him to consider well the mode in which it should be applied. We were, in the first place, to consider the claims that might be urged in favour of a reduction of heavy taxes on articles of general consumption. We were also bound to consider what taxes pressed most on the raw materials of manufac- ture ; what taxes were disproportionately ex- pensive to collect ; and what taxes there were, the removal of which would give more scope to commercial enterprise, and occasion an increased demand for labour. The changes which he proposed were framed with a view to all these objects. In the first place, 1,300,000/. was to be given up by an important reduction in the sugar duties, which were brought down from 25/. 3d. to \\s. per cwt. in the case of colonial musco- vado sugar, and from 35^. gd. to 23^. 4^/. in the F 66 Twenty Years of Chap. II. case of foreign free-labour sugar. Various other ,845. rates were imposed upon sugar of other qualities. Slave-grown sugar was still excluded by a pro- hibitory duty. All remaining export duties were removed, including that on coal, which had been the occasion of much controversy for the last two or three years. The loss on these was taken at 118,000/. About 430 articles, pro- ducing small amounts of revenue, were swept altogether from the tariff ; many of these were articles used in manufactures, such as silk, hemp, flax, and furniture woods. The loss on the whole of these articles was about 320,000/. A more important sacrifice of revenue was made by the removal of the duty on cotton-wool, amounting to 680,000/. Under the head of Excise, Sir Robert Peel abolished the auction duty, and the duty on glass. The former in- volved a sacrifice of 250,000/., and the latter of 640,000/. In stating the grounds for the abo- lition of the auction duty, against which, he ad- mitted, no complaint had been raised, Sir Robert Peel observed that it was a duty which pressed upon the transfer of property in one particular mode, while all other modes of transfer were altogether free from duty ; that it had been found necessary to pass no less than thirty-two Financial Policy. 6y different Acts in order to exempt particular Chap - Ir - classes of property from its operation; and 1845. that it was so extensively evaded, that, out of 45,000,000/. worth of property exposed for sale by auction in the year 1840, no more than 8,000,000/. paid the duty. His argument for the repeal of the duty on glass turned chiefly on the great amount of the tax in proportion to the price of the article ; the impediments offered by excise restrictions to the extension of a manufac- ture, for carrying on which we had many natural advantages ; and the importance of the uses to which glass might be applied, if those restrictions and the heavy tax of 200 or 300 per cent, on the value of the article were removed. The esti- mated loss in the first year from all these reduc- tions together was, as has been said, 3,338,000/. Such was the second great operation of Sir Budgets of „ , „ . r 1842 and Robert reel upon our system or taxation — an ,8 45 C om- operation, in one sense, nVuch more extensive p than that of 1 842, since the amount of remission was nearly three times as great, and the prin- ciple of absolutely repealing instead of merely reducing duties was now introduced ; but when it is remembered that the budget of 1842 was brought forward at a time of national distress, with a deficit of 2,500,000/. to be met, and an 68 Twenty Years of Chap II. absolute uncertainty whether the Income Tax 1845. would be accepted by the country, what would be its produce if accepted, and what effect its imposition would have upon the other branches of our revenue ; while the situation of the country in 1 844 was in every one of these re- spects exactly the opposite of what it had been in 1842; we cannot hesitate to give the palm to the earlier and bolder measure. In proposing his second scheme, Sir Robert Peel held nearly the same language with regard to the duration of the Income Tax as in pro- posing his first. He did, indeed, express an opinion that the taxes which he intended to re- duce pressed more heavily upon the community than did the Income Tax ; and he invited the House of Commons to retain the Income Tax in order to enable him to get rid of those more onerous burdens ; but he did not recommend it as a permanent substitute for them ; he asked for it only as a temporary resource, to be used while the ordinary revenue was recovering itself. He thought, as in 1842, that the experiment would probably require five years for a full trial ; but, as in 1842, he proposed to give it only three years, and hoped that that period might prove sufficient. " I have been asked," he said, a few Financial Policy. 69 days after the introduction of the budget, " what Chap. II. assurance I could give that this tax should expire 1845. at the end of three years? * * * I feel bound to say that for so extensive an experiment three years is rather a short period. * * * If I could have been perfectly sure of success, I would have proposed it for five years ; at the same time I do think there are good grounds for hoping that at the end of three years we may be at liberty to discontinue it. I see the popula- tion of the country increasing ; the capital of the country rapidly accumulating ; and I think, if we facilitate the application of that capital to new branches of industry and manufactures, that the effect will be greatly to increase the demand for labour ; and, with the demand for labour, to increase the consumption of articles subject to taxation. * * * I see many causes com- bining to increase the prosperity of the country. The establishment of railways, rendering travel- ling more easy, and traffic less expensive, a sur- plus capital, instead of seeking for investments on foreign security, and an increasing popula- tion, are circumstances calculated, I think, to justify the hope, that at the end of no very re- mote period there will be an increase in the consumption of articles subject to duty, and 70 Twenty Tears of Chap. ii. with it an increase* of production. * 1845. I cannot so far foresee events and occurrences as to be able to guarantee that this tax may not be necessary at the end of that period. Nay, at the expiration of the present time the House may be of opinion, although no Government may ask them for renewal, that there ought to be a continuance of the tax, * * * but I have every reason to think that there will be a fair opportunity for the House to consider, at the end of that period, whether this tax ought to cease. "-j- In comparing the language of Sir Robert Peel on this point in 1 845 with that which he and his colleagues had used in 1 842, it is impos- sible not to feel that there is a difference of tone, indicating a perhaps unconscious change of sen- timent. Not that in 1845, an Y more tnan m 1842, Sir Robert Peel intended to impose the Income Tax as a permanent tax, or contem- plated its becoming such in time of peace ; but he had become a little blinder to its faults, a little kinder to its merits, and, above all, a little * There is some flaw in the report here ; Sir Robert means that the increased consumption of duty-paying articles would lead to an increase in the revenue. t Sir Robert Peel's Speech, Feb. 17, 1845. Financial Policy. 71 more alive to the magnitude of the work that Chap. II, might be done by its aid. He was becoming conscious that the principles he had laid down would carry him still further in the work of commercial reform ; and he probably foresaw, what, whether he foresaw it or not, was, as we can now see, very certain, that more reductions and remissions of duty would have to be made before his work was complete ; and that to render these possible, further recourse must be had to the Income Tax. In comparing the financial policy of 1845 with that of 1842, we may, as has already been said, give the palm for boldness of conception, so far as the Minister was concerned, to the measures of the earlier year ; but if we are to look to the comparative importance of the mea- sures adopted, and to the indications they afford of the temper and views of Parliament, we must acknowledge that the step taken in 1845 was far in advance of that which preceded it. In 1 842 the House of Commons, under pressure of a great financial difficulty, adopted the Income Tax as the only means of saving the national credit. In 1845 that difficulty was at an end; the equilibrium had been restored between re- venue and expenditure ; a surplus was secure i»45- 7 '2 Twenty Years of Chap. II. for the coming year ; and, as Sir Robert Peel !8 +5 . himself pointed out,* an increase of a penny in the postage of letters, or an addition of a small percentage to our import duties, would have been amply sufficient to meet the probable wants of future years. Moreover, in 1842 the Income Tax was untried, and the exact measure of its burden was unknown ; but in 1 845 every one knew precisely what that burden was, and what was the price they were paying for commercial reforms when they agreed to purchase them with a three years' Income Tax. It was there- fore a deliberate and a voluntary step which Parliament took, when, on the invitation of the Minister, it decided to renew the Income Tax, and to renew it without alteration, in order to diminish and to readjust the burden of other taxation. Lord John The step was not taken in the dark. On the tkism of the first day of the discussion \ which followed the u get# opening of the budget, Lord John Russell, as leader of the Opposition, delivered an elaborate speech upon the whole ministerial plan. He stated his conviction that the Income Tax, im- posed under such circumstances, and accom- * Sir Robert Peel's Speech, March 10, 1845. t Feb. 17, 1845. Financial Policy. 73 panied by such extensive reductions in our other Chap. II. taxation, must be looked on as virtually perma- ,845. nent. For his own part, he said that he re- garded it as a tax which, though it might be necessary in times of great emergency, was sub- ject to some of the greatest objections which could be urged against any tax. He described it as a tax in which " inequality, vexation, and fraud were inherent." After dwelling at some length on these defects, he observed that Sir Robert Peel did not deny their existence, but ar- gued that they were inseparable from the nature of an Income Tax ; and, though not himself prepared to endorse that argument, he admitted that Sir Robert Peel's authority on such a point was of great weight. He concluded, therefore, that such a tax ought not to be imposed in time of peace under circumstances that would pro- bably render its further continuance a matter of necessity, " without a declaration on the part of the Government that such is the intention ; and without answering this question : — Whether they consider the Income Tax to be one of the best sources of permanent revenue? If they are of that opinion," added his lordship, " let the House fairly deliberate upon that point ; and let it ascertain, likewise, either through the 74 Twenty Years of Chap. II. intervention of a Select Committee, or by means 1845. °f a Committee of the whole House, whether some of the great injustice and inequality of the tax may not be diminished." Lord John Russell criticised with some severity the commercial policy of the Government. Admitting that many of Sir Robert Peel's proposals were good, while he thought others doubtful, he urged that their adoption would not restore the revenue which the repeal of duties was about to destroy, and that there was but one true road to financial prosperity, — the abandonment of protective du- ties, more especially upon the great articles of sugar, timber, and (apparently he meant to add) corn, and the consequent extension of our foreign trade, stimulating the demand for our labour, and augmenting the consumption of those arti- cles which we restricted by our system of" ima- ginary favour and protection." " Then indeed," he said, " you might look forward, at the end of three or five years, to the abolition of your Income and Property Tax ; but if the question be between a perpetual Income Tax and the continuance of monopoly and restriction, I de- clare for the Income Tax and a diminution and final abolition of all monopoly. Entertain- ing these opinions, I certainly cannot give any Financial Policy, 75 hearty assent to the proposition in the hands of Chap - u - the chairman. At the same time I see that it 1845. is impossible for me to refuse my assent to the renewal of the Income Tax for three years ; but I give it, not from the wish of making the tax permanent. I regret that the right honourable gentleman has taken a course which may make it necessary to continue this burden from time to time ; but my hope is that the pressure of this inquisitorial impost will at length open the eyes of the people to the disadvantages they suffer as consumers from existing restrictions and monopolies, and induce them to seek to set trade free, not only in order to procure greater benefits and enjoyments, but to put an end to a tax which I think in time of peace ought not to be imposed." Whatever may be thought of the logic of these arguments, the conclusion at which Lord John Russell arrived at least showed that he had advanced considerably from the position he had taken up in 1 842, when he pledged himself to oppose the resolutions and the report of the resolutions, and the first reading, the second reading, and the third reading of the bill. Some years later, when himself holding office, he jus- tified both his opposition to the Income Tax in j 6 Twenty Tears of Chap. ii. the earlier year, and his assent to it in the later ; 1845. and there is no doubt that the authors of the budget of 1 841 might with perfect consistency have objected to the impost as, in their view, unnecessary in the year 1842, when the most urgent business was to supply a deficiency, which they thought could be supplied, without any new tax at all, by the simple relaxation of some part of our protective system ; and yet might have approved of it in 1845, when it was re- imposed for the purpose, not of stopping a defi- ciency, but of forwarding a work of reform in the whole system of our taxation upon princi- ples more or less in harmony with those which they had themselves professed. At all events their support was given ; and, notwithstanding the expressions used by the leader of the Oppo- sition respecting the unfairness and inequality of the tax, it was given to the tax as it stood ; although several independent members, such as Mr. Roebuck and Mr. Charles Buller, endea- voured to get alterations made in its structure. The arguments which had been put forward in 1842, with regard to the alleged unfairness of taxing all incomes alike, were urged again, and with somewhat more earnestness ; but Sir Robert Peel and Mr. Goulburn met them by saying, Financial Policy. yy first, that the attempt to draw distinctions be- Chap. II. tween different classes of incomes could only l8 , end in inextricable confusion ; and, secondly, that, inasmuch as the tax was proposed with the view of relieving the public from other taxes, and as that relief would be experienced by the owners of temporary incomes to at least as great an extent as by the owners of permanent in- comes, it was but fair that those who had their full share of the benefit should bear their share of the burden. It is not immaterial to notice this circumstance ; because it has an important bearing on some of the subsequent controversies, which arose with regard to the assessment of the Income Tax. Whatever the abstract merits or demerits of that assessment may be, it is at least certain that the Parliament of 1 845 deliberately adopted it ; and that at a time when the tax was not proposed as a measure of urgency, as in 1798, or even in 1842 ; but when it was calmly weighed in the balance against cheap sugar, cheap glass, cheap cotton, and the rest, and found to be a price worth paying for these countervailing benefits. The financial result of the budget of 1845 Financial was extremely satisfactory. Instead of 672,000/., [^ t ° ot t ' the surplus amounted to 2,380,600/. Sir l8 45- 78 Twenty Years of Chap. ii. Robert Peel had remitted Customs' and Excise ,8 45 . duties to the amount of 3,300,000/., but the revenue from those two sources only fell off by 2,436,000/., so that he obtained from them nearly 900,000/. more than he had anticipated ; while the revenue from Stamp duties and from the Post Office exceeded his estimate by 650,000/. ; an increase " indicating perhaps more than any other the great extent of commercial transactions in the course of the year, and the multiplication of all those dealings throughout the country which are the great contributors " to those branches of the revenue. The produce of the Excise was undoubtedly the most striking feature of the year. The reductions effected in that branch of taxation had been absolute remissions of duty ; — 640,000/. had been given up on glass, and about 300,000/. on auctions ; so that nearly a million of revenue had been absolutely aban- doned ; yet the Excise produced only 200,000/. less than it had produced in the previous year ; and this will be considered the more worthy of remark, when we bear in mind that the year in which this happened was the year of the great potato blight, which destroyed an important portion of the people's food, not only in this country but in great part of Europe, and which Financial Policy. 79 produced so sensible an effect upon our condition Chap. II. and prospects as to lead, first, to the breaking up l84 6. of Sir Robert Peel's powerful Government ; and then, on its reconstruction, to the repeal of the Corn-laws, and the consequent disruption of the Conservative party. It is not necessary to enter here upon a dis- Repeal of the cussion of the great events which have just been orn " aw referred to. The repeal of the Corn-laws was not proposed on financial grounds ; and though the political importance of the measure was immense, its direct financial importance was not very great. It may therefore be sufficient to re- mark that the Government, having come to the decision to strike this blow at the protective sys- tem, appear to have thought it desirable to carry the application of the principle of Free-trade fur- ther than they had contemplated in 1845 ; and that accordingly, at the opening of the session of 1 846, Sir Robert Peel proposed, not only a great alteration and ultimate extinction of the duties on Other mea- corn, but likewise some further material altera- sureso l8+ '' tions in the rest of our customs' tariff; and duties, to the amount of more than 1,000,000/., were again remitted in the course of this year. The principal changes made were as follow. — The duties on tallow and on timber were re- 8o Twenty Years of Chap. II. duced, in order to enable the manufacturer to 1846. obtain these important raw materials on better terms. The protective duties on the coarser kinds of cotton, woollen, and linen manufactures were abandoned, and those on the finer kinds reduced from 20 to 10 per cent. ; on silk goods the protection was fixed at 1 5 per cent. ; on most other manufactured articles the rate was fixed as nearly as possible at 1 o per cent. Con- siderable reductions were made in the duties on soap, candles, boots and shoes, and foreign spirits ; and a further reduction upon free-labour sugar was announced ; but, in consequence of the change of Government in the course of the session, this was not carried into effect. The duties on seeds were greatly reduced ; so also were those on butter, cheese, and hops ; the duties on all kinds of meats were repealed ; and so were those on live animals. Finally, the duties on corn were reduced to a low sliding- scale, which was to continue in operation for three years, and to be followed on the 1st of February, 1849, by a nominal duty of one shil- ling a quarter upon grain of all kinds. These various measures having been adopted by the House of Commons, and the Corn-bill having passed a second reading in the House of Financial Policy. 8 1 Lords, Mr. Goulburn, on the 29th of May, Chap. II. brought forward the budget. The necessity for lS ±6. so doing was little more than formal ; as the The budget. finance of the year had been practically settled by the progress already made. Mr. Goulburn's speech, however, possesses great interest ; as it contains a clear and able summary of the results which, in the judgment of the Ministry, had been produced by their financial policy since their taking office nearly five years before. Such a statement, made within a few weeks of their approaching fall, cannot but be read with interest and attention. He called upon the House to observe that between January 1 842 and January 1846 the balances in the Exchequer had been increased by 5,000,000/., the capital of the debt reduced by 7,000,000/., the average amount of Deficiency-bills by 4,000,000/. , the annual charge for the debt by 1,500,000/., with the prospect of a further reduction of 600,000/. in a few years' time ; and that this result had been brought about, not only without adding to the burdens of the people, but concurrently with a great diminution of them ; for that, while new taxes to the amount of 5,624,000/. a-year had been imposed, taxes to the amount of 8,206,000/. had been remitted. He argued that this satisfactory G 82 Twenty Tears of Chap. II. state of things could not be attributed simply to , 8 6 the good harvests with which the country had for some years been blessed, because there had been equally abundant periods between 1820 and 1823, an d again between 1833 and 1836, and yet the financial results in those years had not been comparable to those of the years 1 842- 1 846. The conclusion, he thought, was obvious ; the prosperity was in a large measure owing to the system of commercial and financial policy which had been adopted, and which had aided instead of counteracting the effects of the bless- ings of Providence. Sir R. Peel This was Mr. Goulburn's last budget-speech. The Government, of which he was a member, was defeated within a month afterwards on the Irish Life Protection Bill, and quitted office thereupon. The financial measures of the year were complete, except the annual Sugar Duties' Bill, which had still to be passed, and which it fell to the lot of Lord John Russell's adminis- Sugar-duty tration to settle. The distinction between slave-grown and free-grown foreign sugar was abandoned ; and all foreign sugar admitted at the same rates of duty. The result of this measure was, to add about 300,000/. to the revenue of the year. Mr. Goulburn had estimated for a dent with na- tional distress. Financial Policy. 83 revenue of 51,650,000/. The addition thus Chap. II. derived from foreign sugar would have made l8 6< up that amount to nearly 52,000,000/. The actual produce was no less than 54,473,000/., and this in a year of the greatest distress which this country had for a long time experienced, for it was the year which witnessed the begin- ning of the Irish famine. A more remarkable result can hardly be imagined. It is difficult to understand how, in a system Financial ... ~ . . . prosperity of like our own, great financial prosperity can co- \ s ^ co ; nci . exist with national distress ; and it may safely be affirmed that such a conjunction for any length of time is impossible. Yet the speech of Sir Charles Wood, in opening the budget of 1847-8,* presents a contrast of this description, which it is well worth the while of every states- man to examine. On the one hand, we find him stating that a calamity of the heaviest nature had fallen upon the country, and especially upon its weakest member ; that thousands of persons in Ireland were actually famishing, and were only to be kept alive by large grants from the Government ; that even in England the prices of provisions in consequence of the deficient har- * Feb. 22, 1847. 84 Twenty Years of Chap. II. vest were extremely high ; that the scarcity was 1847. not confined to the United Kingdom, but ex- tended to several neighbouring nations, thus at once depriving us of several sources of supply, and raising up competitors for the food of more distant markets ; and finally, that, concurrently with the high price of provisions, we had to contend against an unusually high price of cotton, the great staple of our industry, in con- sequence of which the demand for labour was slackening in the manufacturing districts, many mills were wholly or partially stopped, and many workmen thrown out of employment. On the other hand, he informs the House that the condition of the revenue was never more satisfactory ; that the estimates of his prede- cessor had fallen far short of the result ; that, for the first time within the memory of any finan- cier in the House, it had been found unneces- sary to have recourse to Deficiency-bills, the quarterly balance in the Exchequer having been sufficient to defray the payment of the divi- dends ; that the increase in the revenue had taken place more or less in every one of its branches, but more particularly in the Excise ; and that even in Ireland the produce of the Excise had increased, and not to an inconsi- Financial Policy. 85 derable amount, in the course of the past year. Chap. II. Sir Charles Wood, therefore, thought himself ,g 47# justified in estimating the Income for the coming year at more than 1,000,000/. above the estimate which Mr. Goulburn had made the year be- fore ; * and this estimate, it may be observed in passing, fell very little short of the truth. Before attempting to explain this apparently inconsistent state of things, it may be well to look on a little and see what was the end. Sir Charles Wood was speaking in February. In April there was a commercial panic, and many failures took place. In October and November there was another panic and more failures : within a few months no less than 220 mercantile houses of the higher class fell, — besides many of inferior importance, — the liabilities of 85 out of these 220 firms are estimated to have amounted to 12,000,000/., and the total loss occasioned by the whole of the failures is said to have been 30,000,000/.;! the bullion in the Bank sank * Mr. Goulburn's estimate for 1846-7 was 51,650,000/., from which must be deducted 700,000/. for Chinese pay- ments, leaving an estimate of ordinary revenue 50,950,000/. Sir Charles Wood's estimate for 1847-8, was 52,515,000/., of which 450,000/. was to come from China, leaving the ordinary revenue 52,065,000/. t Mr. Herries' Speech in House of Commons, Feb. 1 7, 1848. 86 'Twenty Years of Chap. II. to less than 8,000,000/., or about one-half the 1847. amount at which it had stood in the previous year ; the rate of discount rose to a nominal 8 per cent., but in reality discount was not to be obtained by any but a few fortunate indivi- duals ; meetings were held all over the country to consider what could be done ; Government was appealed to ; the Bank act was suspended ; and when the new Parliament met, in the month of December, it was expected that it would be called on to grant an indemnity for this neces- sary stretch of the prerogative. Causes of the Probably there were more causes than one the country. f° r tn ^ s course of events ; but it can hardly be doubted that one of those causes was simply this : the nation had been spending its capital, and the process had produced the same effects as it usually does — temporary prosperity and sub- sequent difficulty and depression. Its working is very ably and clearly pointed out in a series of articles by the late Mr. Wilson, first pub- lished in the "Economist of the day, and after- wards collected and reprinted, with the title " Capital, Currency, and Banking." According to Mr. Wilson's view, much both of the real and of the apparent prosperity of the years 1 842-7, and a great part of the calamities of the Financial Policy. 87 last of them, were due to the same cause — the Chap. II. sudden and rapid developement of the railway ,847. system, and the large expenditure upon railways. It appears that, between the commencement of the century and the close of the year 1843, tne number of railways constructed was 148 ; and the amount which the Railway Companies were empowered to raise, as capital or by way of loan, was 80,309,417/. Of this amount about 60,000,000/., or at the rate of 5,000,000/. per annum, had been raised in the last twelve years of the period ; but in the year 1 844 schemes involving an expenditure of nearly 15,000,000/. received the sanction of Parliament. In 1845 a further expenditure of nearly 60,000,000/., and in 1846 a still further expenditure of 1 10,000,000/., was authorized ; making in three years an expenditure of 185,000,000/., to be met by a country, which had previously been spending only 5,000,000/. a-year on these un- dertakings. Now, although the circumstances of the Money-market ultimately rendered the execution of some of the proposed schemes im- possible — at least within the time originally contemplated — still the mere commencement of so large an outlay upon new works, requiring a great number of labourers to execute them, had 88 Twenty Tears of Chap. II. of necessity a considerable effect upon the de- X 8 47 . mand for the necessaries of life, and upon the consumption of taxable articles. A large body of " navvies" was at once created, who were well paid, worked hard, and fed highly. Hence there was a great consumption of corn, meat, beer, spirits, tobacco, coffee, tea, sugar, and other articles, all of which paid duty and con- tributed to keep up the revenue. The revenue from stamps, also, was much increased by the number of transactions to which the specu- lative tendencies of the day gave rise. Similar effects always follow from any large expendi- ture involving the employment of much addi- tional labour. Even the unproductive expendi- ture of a war has a tendency to produce them ; as is shown by the experience of our own great war, and as may now be observed in the case of the civil war in America. But the prosperity occasioned by the construction of our railways differed widely from the apparent and temporary prosperity which often accompanies a war. They were works calculated, not only to set a large amount of money in circulation, but to produce an ample profit upon the outlay which they involved, and enormously to increase the national wealth by liberating a great quantity Financial Policy. 89 of fixed capital, and by making the returns of Chap. II. trading profits more rapid than before. The ,g +7 . time requisite for sending goods from one part of the country to another was so greatly short- ened, that in many cases that could be done in a day which it had hitherto taken a week to do. In such cases the quantities of goods which must necessarily be always upon the road be- tween the two places, in order to keep up a regular supply, were at once diminished to one- seventh of the previous amount. This was tanta- mount to a real addition to the stock of goods in the country ; and the merchant was a gainer to the full extent of the profit which he had previ- ously lost upon six-sevenths of his goods in tran- situ. Again, very large savings were effected by the reduction of the cost of transport. One instance is referred to of an inland city, where the cost of coal was reduced ten shillings a ton by the opening of a railway — a benefit which is said to have been equivalent to a gift of the whole house-rent of the city to the inhabitants. Many other advantages from the opening of railways might easily be pointed out ; but it is unnecessary to take up time in proving what every one will admit. There can be no doubt that the large outlay upon these works in the years 1 845 and 90 Twenty Tears of Chap. ii. 1 846 — or, indeed, it may be said in the years 184.7. from 1840 to 1846 — had both directly and in- directly a very important effect upon the condi- tion of the country. The effect was partly im- mediate and partly postponed. In so far as it was immediate, that is to say, as regarded the great demand for labour and consequently for ar- ticles of consumption, and as regarded the disen- gaging a quantity of capital by diminishing the quantities of goods in transitu, it was temporary and has passed away ; but the postponed effects, the quickening and cheapening of communi- cation, and the consequent stimulus to trade, were permanent, and we feel them now, and shall always feel them. Still, great as these benefits have been, the fact remains, that in the years 1845 and 1846 the country undertook to spend upon the con- struction of railways a larger amount of capital than it could conveniently spare. Too much was undertaken at once, and the consequence was the crash of 1847. Various circumstances combined to increase the difficulties under which we laboured in that year. The harvest of 1846 had failed, and the harvest of 1847 a ^ so failed. The great distress in Ireland, consequent upon the destruction of the potato crop, caused a heavy Financial Policy. 91 demand to be made upon the national Ex- Chap. II. chequer, as well as upon private charity. At ,g 47< the same time the manufacturers were suffering under a serious failure in the supply of cotton, the price of which had risen nearly 50 per cent. ; and, while extensive purchases of food, and a heavy outlay on cotton, were thus rendered ne- cessary, the industry of the people was largely directed to making railways instead of to the production of exportable commodities, so that a drain of gold naturally began. The effect which the outlay on railways pro- duced upon the stock of gold in the country appears to have been as follows. In the first place, the demand for capital to construct them led to the calling in of money advanced upon foreign loans, much of which was paid into the banks in the shape of railway deposits, and con- tributed to swell the reserve in the Bank of England. Then again, the opening of some of the earliest and most important lines, those be- tween London and the chief manufacturing towns, disengaged considerable quantities of goods in transitu, and thus enabled the country to go on for a time with smaller imports than would otherwise have been necessary. At the same time, the cost of production being cheap- 92 Twenty Years of Chap. ii. ened by the new facilities thus given to our pro- l8 ducers, we were enabled to manufacture cheaply, and to export largely ; and, the excellent harvests of 1843 and 1844 having rendered any very great importation of corn unnecessary, more bullion came into the country to pay for our manufactures than left it to purchase our sup- plies. The bullion in the bank, therefore, which had fallen as low as 2,500,000/. in 1839, and did not exceed 4,500,000/. at the close of 1841, rose to no less than 16,000,000/. in 1844, an ^ maintained the same high level for two or three years. Of course this large amount of money enabled the bank to discount bills freely, and to sustain the activity of our trade. By degrees, however, the railway deposits began to be drawn out in order to pay the labourers ; the labourers expended their wages upon commodities brought from abroad ; and the failure of the harvefts of 1846 and 1847 rendered it necessary that these commodities should be largely paid for in gold. The deposits withdrawn from the bank did not come back to it, but went out of the country to pay for corn, and other articles of consumption. Meanwhile the railway shareholders were bound to pay up fresh calls ; but their means of doing so were no longer what they had been. The Financial Policy. 93 money out on foreign loans had to a great ex- Chap. II. tent been called in. Credit was no longer as jg 47 . easy as before, for the means of the bank were reduced. It was necessary to starve the other business of the country in order to find the capital required for these new undertakings ; and so, one cause acting and reacting upon another, came pressure, and panic, and heavy loss. The extent of the mischief was not foreseen Budget of at the time of the opening of the budget of pebfzz. 1847-8. Parliament had, however, been called together at an unusually early period (January 19th), in order to take prompt measures for the relief of Ireland. The Corn-laws and Naviga- tion-laws had been suspended. Lord John Russell had given an account of theoutlay already made by the Government, in pursuance of the authority given by the Acts of the last session relating to Ireland ; and had explained, and made some progress towards carrying, other measures which would entail upon the country a still larger expense. Sir Charles Wood, therefore, had, in bringing forward his budget, to make provi- sion for this expenditure. He stated the amount already spent at about 2,000,000/. ; and he estimated that 8,000,000/. more would be ex- 94 Twenty Tears of Chap. II. pended before the conclusion of the next harvest. ,8 +7 The 2,000,000/. had been provided out of the balances in the Exchequer. The 8,000,000/. he proposed to borrow. He remarked that in doing so he did not add that whole sum to the amount of the permanent debt, because one- half of the advances for public works was re- payable in ten years by the Irish landlords. The interest on the loan would, he expected, be about 280,000/., as he calculated on borrowing at or under 3^ per cent. He found himself, too, under the necessity of raising the interest on Exchequer- bills from 1 \d. to 2d. per day, and thus making a further addition of 142,000/. to the amount of interest payable by the Treasury. The net result of his calculations was a revenue of 52,5 1 5,000/. (including a payment of 450,000/. from China), an expenditure of 52,183,000/. (including a vote of 185,000/. for the excess on the Navy estimates of the year before), and a surplus of 332,000/. Loan of The loan of 8,000,000/. was shortly after- wards obtained at the rate of 3/. js. 6d. per cent. It was negotiated in Consols at the price of 89/. ioj". for every 100/. stock. The stipulations made were, that 1 2 per cent, should be paid up at once, and the remainder spread over seven 8,000,000/. Financial Policy, 95 months, the last payment (16 per cent.) to be Chap. II. made in October. No discount was allowed for l8+7 . prompt payment, as the Government did not require the whole sum at once ; but subscribers were allowed to pay their instalments in advance, and to receive stock for them immediately ; and all persons paying their instalments before the 10th of July were to be entitled to the half- yearly dividend in October. Mr. Hume and Mr. Williams objected to this mode of borrow- ing, because more was added to the capital of the debt than was raised for the public service ; but Sir Charles Wood replied that the course taken was the same as that which had usually been followed, and that it appeared to the Go- vernment to be the most advantageous they could adopt. This addition of 8,000,000/. to our national debt in a single year, and that, too, a year of profound peace, and (but for a single calamity) of general prosperity, is a striking illustration of the immense importance of a good harvest. Only nine months had elapsed since Mr. Goul- burn had made his last budget-speech, had re- viewed the situation of the country in the terms which have been already alluded to, and had pointed with satisfaction to the diminution of 9 6 Twenty Years of Chap. fl. 7,ooo,ooo/. which had been effected in the 1847. capital of the debt in the course of four years ; and now in a single year the work of those four years was undone. In that speech Mr. Goul- burn had referred to the succession of good har- vests with which the country had been blessed, and to the influence of which many persons, as he said, seemed disposed to attribute the prosperous condition of our trade and our finances ; and he had argued thatthe prosperity of 1 846 was greater than could be accounted for in such a manner. Yet now, though the system of commercial and financial policy, to which he believed our situa- tion to be chiefly due, was in full operation, the beneficial results of that policy were at once outweighed by the mysterious dispensation of Providence, and the failure of a single crop. Such a lesson at such a time was well calculated to humble us, by showing us how entirely the weal and woe of the country are in the hands of a Higher Power than our own ; and that, as the " race is not always to the swift, nor the battle to the strong," so neither does success always attend the counsels of the wise. It is but fair towards Mr. Goulburn to add that he only claimed for his policy the merit of having " aided instead of counteracting the blessings of Provi- Financial Policy. gj dence ;" and that it cannot be doubted that the Chap. II. effects of that policy did to some extent mitigate, ,8 47 . though they were powerless to avert, the ca- lamities of 1847-8. The Parliament of 1841 was now coming to Dissolution its end. Elected to maintain the system of ment commercial restrictions for the protection of native and colonial industry, it had in six years almost destroyed it. It had overthrown the Ministry which it had in the first instance brought into power, and had replaced that which it had begun by setting aside. It had called forth the Income Tax to accomplish a particular task, and, having thus displayed the power of this mighty fiscal engine, it was about to bequeath to its successor the fruits of its experience and the benefit of its example. It had, as it were, passed direct and indirect taxation through a crucible, had tested their merits, their capabilities, and their weaknesses. It was dissolved in the autumn of 1857. The Income Tax, renewed for three years in 1845, was l e g a % to expire in April 1848, and the new Parliament would therefore be technically at liberty to renew it or not as it should think fit. Its freedom of choice, how- ever, as will presently be seen, was far more nominal than real. H »« Twenty Tears of Chapter III. Chap. III. 1847. Meeting of new Parlia- ment. Relaxa Bank Charter Act. HE new Parliament was called together in the autumn of 1847. It was, as has already been said, a time of great commercial pressure and panic. So severe had been the strain upon the Money-market that the Government had taken upon themselves the responsibility of authorizing the Governor and Deputy-Governor of the Bank to transgress the limits laid down of by the Bank Charter Act of 1844, and to issue notes in excess of the stock of bullion and the 14,000,000/. of securities which that Act admits as the basis of the paper currency. The au- thority had not been acted on ; the knowledge that money might thus be obtained having proved sufficient to allay the panic. The distress had, however, been very great ; and one of the first acts of the new House of Commons was Financial Policy. 99 to appoint a Select Committee to inquire into its Chap. III. nature and causes. ,8 47 . Another kind of uneasiness had, at the same time, taken hold of the public mind. There was a great dread of a French invasion ; and much Fear of inva- alarm was expressed at the state of our coast defences. It is unnecessary to touch on the causes of this fear, to which allusion has only been made on account of its effect upon the estimates. It is sufficient to observe that the Government themselves appear either to have shared in the alarm, or, at all events, to have thought that it was desirable to take advantage of it in order to carry farther the measures, which their predecessors had begun to take, for strength- ening our naval and military position. Nor was this alarm the only cause for an increase in our military expenditure ; for we were unfortunately engaged in a Kafir war, which had broken out at the Cape in the course of the year 1845, and had continued throughout 1846 and 1847. The accounts of the expenditure connected with this war had but recently been received ; but a considerable vote to meet them was now be- coming necessary. Another topic of interest connected with the West Indian finance of the year was the distressed condition i«, i: ioo Twe?ity Years of Chap. hi. of the sugar and coffee planters in our colonies. ,848. Lord George Bentinck, impressed with the belief Lord G. t h at the distress was, to a great extent, caused Bentinck's ' f Committee, or aggravated by recent legislation, applied for, and at the beginning of 1848 obtained, a Select Committee, upon the conduct of which he be- stowed immense labour, and is thought to have thereby shortened his life. Budget, Feb. These various subjects having been introduced to the notice of the House at its meeting in December, 1847, or on * ts reassembling after the Christmas recess, and great anxiety prevail- ing with regard to the financial condition of the country and the plans of the Government, Lord John Russell, as First Lord of the Treasury, himself brought forward the budget on the 1 8th of February. Premising that the period of the last eighteen months had been one of al- most unparalleled vicissitudes ; that, in twelve months, the price of wheat had gone from 49^. up to io2j-., and down again to 49^. 6*/.,' the rate of discount from 3 per cent, up to 8 per cent., and down again to 4 per cent., and the stock of bullion from 15,000,000/. down to 7,800,000/., and up again to 13,800,000/., he pointed out that such changes, and the commercial and manufac- turing embarrassment and stagnation, of which Financial Policy. i o i they were at once the cause and the consequence, Chap. III. could not have failed to produce a serious effect l8 8 upon the revenue. He then proceeded to com- ment upon the balance-sheet of Income and Ex- penditure for the year ending the 5th of January, 1848, and to state his expectations as to the probable result of the complete financial year ending April 5th. The ordinary income would, he thought, fall short of the amount at which it had been estimated the year before by about 700,000/. Besides this, the sum of 450,000/., which was due from China, and had been reckoned on last year, had been stopped at the Cape and paid into the commissariat chest there, in order to meet the expenses of the war in that colony. The whole revenue, therefore, would fall short of the estimate by 1 , 1 50,000/. The ex- penditure, too, would exceed by about 132,000/. the amount calculated upon when the budget of 1 847 was introduced ; so that, instead of there being, as was anticipated, a surplus of 332,000/., there would be a deficiency of about 950,000/. on the 5th of April. So much for the finance of 1847-8, of which, however, the actual re- sults were not quite so bad as Lord John Russell at this time anticipated ; the ordinary revenue having fallen only 438,000/. below the estimate. 102 Twenty Years of Chap. hi. The loss was mainly upon the Excise ; under 1 848. which head no less a diminution than 1 ,400,000/. took place in the receipts from malt and spirits alone ; though the improvement in other branches of the Excise revenue was sufficient to bring up the whole produce to within 425,000/. of the estimate. As regarded the prospects of 1848-9, the case was still worse. Lord John Russell could only reckon on a revenue, exclusive of Income Tax, to the amount of 46,050,000/. ; and, supposing that tax to be renewed at the existing rate of yd. in the pound, it would only raise the total income to 51,250,000/. But the expenditure upon the scale of 1847-8 would amount to 52,315,000/. ; and there was required, in addition, a vote of 245,500/., to defray the Navy Excess for 1 846-7, and a vote of credit of 1,100,000/. on account of the Kafir War. Nor was this all ; for the Government thought it right, looking to the state of our defences, and to the naval expendi- ture of other countries, to make some consider- able additions to our estimates, the effect of which would be to render necessary an expen- diture in the whole of 54,596,541/., leaving a deficit of 3,346,541/. to be in some way pro- vided for. Financial Policy, 103 It is impossible not to pause here and look Chap. III. back. Six years had passed since Sir Robert Peel 1848. had been reckoning on an income (without In- Re f° s pect. come Tax) of 48,350,000/., an expenditure of 50,819,000/., and a deficit of 2,469,000/. It was to meet this deficit, and at the same time to develope the resources of the country, that he had then imposed the Income Tax for the limited period of three years. At the end of that period he had been again able to reckon on an income (without Income Tax) of 48,500,000/., and upon an expenditure of 49,690,000/. The ordinary income would thus have fallen short of the expenditure, in 1845, by 1,200,000/., in- stead of by 2,469,000/., as in 1842. He had then renewed the Income Tax for another three years, and now, in 1848, the income (without that tax) could only be taken at 46,050,000/., while the expenditure had reached the amount of 54,596,000/., showing a deficiency in the ordinary income, as compared with the expendi- ture, of more than 8,500,000/. Our ordinary revenue had been reduced since 1842 by up- wards of 2,000,000/. ; our expenditure had been increased by upwards of 3,750,000/., and a de- ficiency of 2,500,000/. had been converted into one of 8,500,000/. The Income Tax, therefore, 104 Twenty Years of 1848. Chap. III. instead of being a temporary staff, which might be thrown aside when it had served its turn, had become a permanent and necessary support, upon which it was evident that we should have still to lean, and to lean more strongly than ever. Whether the consciousness that such a support was available had tended to encourage our financiers to indulge in a more extensive abandonment of other sources of taxation, and a greater liberality of expenditure, than was upon the whole desirable, is a question which every one must consider and answer for himself, and which lies at the root of most of the finan- cial questions of the present day. To return to Lord John Russell's statement. Having to provide for a deficiency of 3,346,000/., and being reluctant to disturb the trade of the country by the uncertain experiment of an ad- dition to indirect taxation, especially for the pur- pose of meeting difficulties of a temporary cha- racter, he proposed, as the best mode of raising the necessary amount of revenue, a renewal of the Income Tax for five years, and an increase of its rate for the first two of them from yd. to is. in the pound. By this step he expected to raise 3,500,000/. more in the coming year, of which he proposed to give up 40,000/. by Arrange- ments for 1848-9. Increase of Income Tax Financial Policy. 105 the abandonment of the duty on copper ore, Chap. III. and to leave a surplus on the year of 1 13,000/. l8+ s. This scheme was received by the House of Unpopularity Commons and by the public with great dis- approbation. The renewal and increase of the Income Tax, for the purpose (partly) of adding to the expenditure for military and naval purposes, was peculiarly disagreeable to Mr. Hume and his friends ; and, in the week following the opening of the budget, that gentleman, not satisfied with the announcement that the Go- vernment proposed to submit the whole of our expenditure to the scrutiny of two Select Com- mittees, moved a resolution to the following effect :* — " That it is expedient that the ex- penditure of the country should be reduced, not only to render the increase of taxation in this session unnecessary, but that the expenditure should be further reduced, as speedily as possible, to admit of a reduction of the present large amount of taxation." This resolution was lost by a majority of 98 ; but, though the House of Commons and the country appeared generally willing to support the Government in strength- ening the national defences, the feeling against * Feb. 25, 1848. 106 'Twenty Years of Chap. III. the proposed increase of the Income Tax was 1848. t0 ° strong to be disregarded ; and on the 28th of Increase of February the Chancellor of the Exchequer (Sir Income Tax J . abandoned. C. Wood), after elaborately re-stating, and in some particulars correcting, the budget brought forward by Lord J. Russell on the 1 8th, an- nounced that the Government, in deference to the feelings of the House and the country, would not press those resolutions which implied an addition to the Income Tax, but would simply ask for its renewal at the old rate for a period of three years. He proposed no substi- tute for the source of revenue which he thus abandoned ; but stated that the balances in the Exchequer would be sufficient to meet the charge for the Kafir War and the Navy Ex- cess of the preceding year, amounting together to 1,345,000/. ; and that, after placing these items to the account of 1 847-8, there would be a deficiency for 1848-9 of from 1,500,000/. to 2,000,000/. This deficiency, too, he hoped to meet out of the Exchequer balance, observing that one of the advantages of maintaining high balances in ordinary times was, that " by this means we might be enabled to bridge over a time of temporary pressure." He avowed his regret at finding himself forced to take this Financial Policy. 1 07 course, as he thought that, " under the present Chap. III. circumstances of the country, there was great l8 . 8 _ safety in a full Exchequer," and he was very sorry at the thought of having to fall back upon those balances which on a former occasion proved so useful, as the means of affording immediate relief to Ireland. " Still," he added, " I do not think it would be wise to attempt to force upon an unwilling House an addition to an unpopular tax." The attempt to raise the rate of the Income Controversies Tax having thus failed, two other questions the P income respecting the impost remained. The first was, Tax * whether it should be renewed for a term of years ; the second, whether it should be renewed in its existing shape. Upon the first point the opposition was led by Mr. Hume, who desired to limit the duration of the tax to one year ; upon the second by Mr. Horsman, who desired to introduce a distinction between incomes arising from professional and precarious sources and those derived from realized property. Mr. Horsman was defeated on the 3rd of March by a majority of 175;* and Mr. Hume on the 13th by a majority of 225 ;-j- and the proposal * 316 to 140. + 363 to 138. io8 Twenty Years of Chap. hi. of the Government was eventually adopted. A 1848. somewhat smaller majority was recorded against Sir B. Hall on the 17th of the same month, when he proposed to extend the tax to Ireland. The last mentioned proposal was resisted by the Government on the ground of the distressed condition of that country, and was negatived by a majority of 80.* These results are not a little remarkable. That the popular feeling against the Income Tax was very strong, both in the House of Commons and out of it, is shown by the con- cession which the Government were forced, against their own judgment, to make in respect of the proposed addition to its rate. They were defeated upon this point, just in the same manner as Lord Palmerston's Government were after- wards defeated upon the question of the " War Ninepence"in 1857, by something like general consent. Yet, at the same time, the House by overwhelming majorities declined to attempt to alter the character of the tax, either by intro- ducing distinctions between different kinds of income, or by converting it into an annual in- stead of a periodical impost. A triennial Income * 318 to 238. Financial Policy. 109 Tax of yd. in the pound, upon every kind of Chap. in. income alike, seemed to have taken its place l84 g among the recognized institutions of the country, and to be equally impregnable by ministers and by amateurs. The voice of the new Parliament had confirmed in the most decided manner the financial policy of its predecessor, and had not only renewed the most important of its measures, but had renewed it in precisely the form in which it had at first been adopted. The debates on the Income Tax were sue- Debates on ceeded by debates upon the Sugar Duties, and Dutie u s gar upon the measures to be taken for the relief of West Indian distress. The proposals of the Government included a guaranteed loan of 500,000/. for the promotion of immigration, and a prolongation of the term of protection to colonial sugar. In the course of the discussion of these proposals the Chancellor of the Ex- chequer took occasion (on the 30th of June) to Financial make a fresh financial statement, showing what Statement, June 30. reductions had been effected in the estimates, and what addition might be expected to the amount of revenue on which he had calculated in February. He explained also his intention to apply what are called the " appropriations in aid," — that is to say, the sums arising from the 1 1 o Twenty Tears of Chap. ill. sale of old stores and other transactions, — to the l8 8 service of the year instead of holding them over till the next year. He expressed a hope, that the deficiency, instead of reaching 2,000,000/., as he had at one time thought it might, would not exceed 500,000/. ; but he promised a fuller statement before the close of the session. This promise he redeemed on the 25th of August, when he reviewed at length the finance of the year, and produced what was called his fourth budget. There have certainly been few years in which so many statements of the kind have been made by a Chancellor of the Exchequer ; but it is to be remembered that Sir Charles Wood's position was a peculiar one. The House and the country had rejected his proposal for equalizing the revenue and the expenditure by an addition to the Income Tax, and had thus virtually struck or? 3,500,000/. from the revenue he was about to provide for the service of the year. At the same time there appeared to be no disposition to make good the loss by recourse to other taxation ; and the idea of reducing the expenditure of the country by so large an amount at so short a notice, was, of course, en- tirely vain. The Minister, therefore, had no- thing open to him but to shift as well as he Financial Policy. 1 1 1 could through the session, deferring his final Chap. III. arrangements till the latest moment ; and, being g g naturally subject to curious inquiries from time to time as to the prospects of the revenue, he could hardly avoid the necessity of making statements varying somewhat from one another according to the variation of circumstances from time to time throughout the year. Had the first proposals of the Government been adopted, he need have said nothing more about his budget until the next session, when he would probably have had to announce a surplus on the year approaching 2,000,000/., after defraying the charge of the Kafir War and of the Naval Excess. It was the action of Parliament and of the country which drove him to a different course, and due allowance should be made for this fact in any criticisms which we may be disposed to make upon the undeniable incon- venience of his repeated financial statements. The last of these statements was made, as has Sir C. Wood's been said, on the 25th of August. Taking for ^uguTtTc his basis Lord John Russell's estimate of expen- diture, amounting to 54,596,452/., the Chan- cellor of the Exchequer proceeded to show what reductions had been effected in this esti- mate in consequence of the reports of the two 1 1 2 Twenty Years of Chap. ill. Select Committees which had been appointed in j 8 8> the beginning of the year. The Navy estimates had, he said, been reduced by 208,000/. ; the Army estimates by 150,200/.; the Ordnance estimates by 123,000/.; and the Miscellaneous estimates by 235,500/. The plan of embodying the militia having been abandoned, a reduction of 1 50,000/. was also made under that head ; and the whole of the reductions together amounted to the sum of 866,700/. But some additions had been necessary, and these had reduced the amount of the actual saving to 828,700/. On the other hand, the income was likely to be higher than had been expected by Lord John Russell : the arrangements for paying the " ap- propriations in aid" at once into the Exchequer would add 500,000/. to the year's revenue ; an unusual amount of malting had been carried on, and the Excise revenue was a considerable gainer in consequence, so much so that, not- withstanding a decrease in the receipts from stamps, a sum of 340,000/. beyond the estimate of February might now be expected ; and lastly, a sum of 8o,ooo/., the last instalment of the Chinese indemnity, had been received in the course of the year. The income, therefore, which had been estimated at 51,210,000/. might Financial Policy, 1 1 3 now be taken at 52,130,000/., and would fall Chap. III. short of the ordinary expenditure by only 1848. 292,335/. To this moderate deficiency, however, was to be added the amount of the extraordinary expenditure, consisting of the vote for the Kafir War, (1,1 00,000/.), the Naval Excess, 245,41 1/., a sum of 262,545/. for Irish distress, and 130,965/. for the destitute emigrants to Canada, making 1,738,921/. in all, and raising the defi- ciency for the year to 2,031,256/. This state- ment shows a very great improvement in the position of the country within six months, and to some extent justifies the reluctance of the House of Commons to submit to an increase of taxation. In February, after the abandonment of the additional Income Tax, Sir C. Wood esti- mated the deficiency upon the ordinary expen- diture at from 1,500,000/. to 2,000,000/. ; in August he estimated it at only 292,000/. The main causes of this difference were, first, the re- ductions made in the estimates in consequence of the labours of the two Select Committees ; and, secondly, the application of the " appropria- tions in aid" to the service of the year. The first of these was a real saving ; the second was a mere change in the system of accounts, acci- dentally beneficial to the finance of the year in 1 1 1 4 Twenty Tears of Chap. III. which the change was made, exactly as the an- 1848. ticipation of an excise credit is beneficial to a single year, or as the alteration in the time of paying the interest on the new 3 per cent, stock was beneficial to the finance of 1844-5. Had Sir. C. Wood been able to take the tone of Mr. Goulburn, he would hardly have reckoned this half million as a part of the revenue of the year ; but his was a case of necessity, in which the strict financial law could not well be held to apply. In one important respect we find him, in August, taking a more prudent course than he had been disposed to pursue in February. In February he had intended to make good the expense of the Kafir War, the Naval excess, and the large anticipated deficiency of two millions, out of the balances in the Exchequer. In August, however, he informed the House that, looking to the amount of the advances from the Exchequer for drainage and other purposes which had been sanctioned by Parliament, he thought such a reduction in the balances could not safely be made ; and, rejecting Mr. Goulburn's expedient of 1843, of meeting the demands of the public service by a liberal issue of Deficiency Bills, as too dangerous in the existing circumstances of the country, he proposed, as the best course open Financial Policy. 1 1 5 to him, to take power to raise the necessary Chap. IIL amount by the issue of Exchequer Bills or the l8+8> sale of Stock. This proposal was, after some discussion, agreed to. Mr. Hume objected to a loan in time of peace, and upon no peculiar emergency ; and contended that the deficiency ought to have been met by a reduction of ex- penditure ; but admitted very frankly that all his motions in that sense had been rejected by large majorities. Besides the divisions upon the general resolutions already mentioned, there had been majorities against several of his proposals on particular points ; for instance, a majority of 347 to 38 against reducing the number of men to be voted for the navy, 293 to 39 againsta similar pro- posal with respect to the army, and 216 to 80 against withdrawing the expensive blockading squadron from the West Coast of Africa. Lord John Russell justified the policy of the Govern- ment, observing that the practice of taking advan- tage of every surplus in the revenue to reduce taxation exposed the country to the risk of occa- sional deficiencies wheneveracheck to the national prosperity occurred ; and that, if the House of Commons would not consent to supply such defi- ciencies by temporary taxation, the Government had no alternative but to resort to a loan. u6 Twenty Tears of Chap. III. 1849. Currency question. Window-tax. Exchequer receipts. Colonial question. Financial Reform movement. Among the other subjects of interest connected with finance, which came under discussion this year, may be mentioned the state of the Cur- rency-laws, which Mr. Herries brought forward on the 17th of February and on the 22nd of August ; Lord Duncan's unsuccessful attempt to carry a motion condemning the Window-tax, (Feb. 24 ;) Dr. Bowring's resolution in favour of paying the whole of the gross revenue into the Exchequer, carried by a majority of one against the Government, (May 30 ;) and Sir William Molesworth's elaborate examination of our colonial system, which, though going far beyond questions of a merely economical character, included a full discussion of those questions ; and which, considering how greatly finance depends upon policy, may fairly be called a financial speech. The year 1849 was, in some sense, a year of great expectations. The duties on corn, which Sir Robert Peel had imposed at a moderate rate for three years from the period of his great measure, expired, or, to speak more correctly, were reduced to an almost nominal amount, on the 1 st of February. The most important of the protective duties upon our tariff had now been swept away or prospectively condemned. The Financial Policy. 117 old Navigation-laws were evidently inconsistent Chap. hi. with the spirit of our legislation, and, though lg there had not been time to pass the bill for their repeal, which had been introduced in 1848, the debates and divisions which had taken place upon the ministerial proposals showed plainly that Par- liament had made up its mind to the step. The great battle of Free Trade, in short, had been well- nigh fought out ; and it was becoming a question what should be the next movements of the lea- ders who had won it. It seemed as though the organization which had repealed the Corn-laws were capable of doing a great deal more ; and it was hardly visionary to expect that those who had given the impulse which had carried the great commercial measures of the last seven years against such powerful opposition, might successfully take in hand a reform of our finan- cial and of our administrative system. It ap- peared, too, that there was some cause for their bestirring themselves in this direction. What- ever else Free Trade had done, it had not led to a diminution of the national expenditure. Our wealth, indeed, was increasing ; but our burdens were beginning to increase with equal or even greater rapidity ; and, what was peculiarly trying to the feelings of those who had seen in univer- 1 1 8 Twenty Tears of Chap. III. sal Free Trade only another name for universal 1849. peace, the increase was observable not only in our civil expenditure, but still more strikingly in our military and naval armaments. The Army, Navy, and Ordnance estimates had reached, in 1848, the sum of 17,645,000/.,* while in 1842 they had only amounted to 1 5, 440, 000/., "j" and in 1835, to no more than 1 1,657,000/. It could not be denied that this advance was deserving of attention ; and, con- sidering how much might have been done if the burden of taxation could have been lightened, and commercial and other reforms thereby ren- dered easier, it must be admitted that the ques- tion, whether our expenditure was not pitched upon too high a scale, was well worthy the study of those who had taken so large a share in in- fluencing our recent legislation. Mr. Cobden's Accordingly, between the sessions of 1848 reduction of an d 1 849, some of the leaders of the Anti-Corn- exp mre. law League undertook to act in concert for the purpose of obtaining a great reduction of ex- penditure ; and, on the reassembling of Parlia- ment, Mr. Cobden gave notice of a motion, * Or, including the charge for the Kafir War, 18,745,000/. f Or, including the charge for the Chinese Expedition, 16,115,000/. Financial Policy. 1 1 9 which he brought forward on the 26th of Feb- Chap. III. ruary, for pledging the House of Commons to l84g . undertake a reduction of the expenditure of the country by about 10,000,000/., and to bring it down to the standard of 1 835. This motion was rejected by a majority of 1 97 ; * nor can it be sup- posed that even its mover expected any other fate for so extremely rough and ready a proposal ; but it gave him and his friends an opportunity of drawing attention, in a forcible manner, to the growth of the estimates ; and it called forth from the Government an explanation of the steps they had already taken in the direction of eco- nomy in consequence of the recommendations of the Select Committees which had sat in the preceding session. The estimates of 1848 had, in the course of the last session, been reduced by 828,000/. below the amount at which they had stood when first introduced; and in 1849 a further reduction of 1,447,000/. had been made ; so that in the two years the proposed outlay on the Army, Navy, and Ordnance had been cut down by no less than 2,275,000/. With such demands upon the part of such in- fluential politicians, and with such promises, or '* 275 to 78. 120 Twenty Tears of Chap. ill. indeed performances, on the part of the Govern- 1849. ment, it was not unreasonable to think that a tide of retrenchment was setting in, and to foretell that a few years would witness great progress in the direction in which matters appeared now to be tending. Certainly it could not then have been anticipated that in another twelve years the Military and Naval estimates would have in- creased from 17,645,000/. to 27,285,000/.,* and the Civil expenditure j- from 6,533,000/. to 9,660,000/. The addition to our expenditure between 1835 anc * 1 848 had no doubt been very considerable, but it has been entirely eclipsed by that which has been made between 1849 an ^ 1 86 1 ; and should the same rate of advance be maintained for another period of equal duration, * This comparison between the estimates of 1848 and those of 1861 is favourable to the latter, because the charge for the Packet Service was included in the Navy estimates for 1848, while it is excluded from those of 186 1. It is to be observed, on the other hand, that in 1848 a vote was only taken for the anticipated net expenditure on the services, allowance being made for a set-off in respect of the proceeds of the sale of old stores, and other " appropriations in aid,'' whereas the votes are now taken for the gross expenditure, and the " appropriations in aid " are carried to the account of revenue. + Including the charges on the Consolidated Fund. Financial Policy, 1 2 1 the budget of 1873 will be a budget of very Chap. III. respectable dimensions. ,g 4g> In his speech upon Mr. Cobden's motion, Sir Charles Wood held out very cheerful expec- tations with regard to the financial results of the still current year. As these expectations, however, were to some extent disappointed, it will be better to turn at once to the budget itself, which was not brought forward until the 22nd of June. Referring first to the balance of income and Budget of expenditure for 1848-9, Sir C. Wood stated that j une 22/ in framing his estimates in the last session he had excluded from his calculation the duties to be received upon corn ; and that, exclusively of these, he had calculated on a revenue of 52,130,000/., and had realized one of 52,067,000/., or about 62,000/. less than he had anticipated. The chief falling off was under the head of Stamps, which had produced only 6,565,000/. against 7,319,000/. in the previous year, and 7,369,000/. in the year before that, — a decline marking the collapse of the fictitious prosperity which had inflated the revenue of 1846 and 1847. The duties on corn, how- ever, had produced 950,000/., making the total revenue 53,017,732/. On the other hand, 122 Twenty Tears of Chap. III. the expenditure, which had been estimated at 1849. 52,422,335/. had reached 53,287,1 10/., showing an excess over income of 269,378/. This in- crease in the expenditure above the amount of the estimate was due in part to an unexpected charge of nearly 390,000/. for the relief of Irish distress, and in part to the excess of Naval ex- penditure for 1 847-8, amounting to 323,787/., — a Naval excess being about this time a chronic malady, to which all budgets appear to have been subject. For the coming year, 1849-50, Sir Charles reckoned on an income of 52,262,000/., and on an expenditure properly belonging to the service of the year of 51,515,000/., to which, however, it was necessary to add no less a sum than 642,632/. to defray the excess of expenditure upon Army, Navy, and Ordnance votes in pre- vious years. This addition would bring the ex- penditure up to 52,157,696/., and would leave a surplus revenue of but 104,304/. The amount would, of course, have been much more con- siderable had it not been for the excesses which have been mentioned, and with respect to a por- tion of which Sir Charles offered the following explanation. They were, he said, in some measure caused by the reductions in our Navy. Fi?tancial Policy. 123 The great payments of seamen's wages take place Chap. in. when ships are paid off; and although, when the lS force of seamen is kept up to a certain standard, the average sums voted for pay will usually cover the expense, yet, if in any year a considerable re- duction of numbers takes place, a larger num- ber of men than usual have to be paid off, and an excess of expenditure is occasioned without any fault on the part of the Admiralty. Not- withstanding the smallness of the surplus on which he was thus able to calculate in the cur- rent year, Sir Charles felt confident that the revenue was in a highly satisfactory condition, and that, notwithstanding the fall which was taking place in the duties both on corn and sugar, it would in two years be largely in excess of the current expenditure. This statement on the part of the Chancellor of the Exchequer, in 1 849, seems to afford afresh justification to the House of Commons and the country for having refused, in 1848, to submit to an increase in the Income Tax. Had the ix. tax been voted, the esti- mated surplus for 1849-50 would have been 3,600,000/. The existence of so large a surplus would have given rise to a cry for the remission of taxation ; and it is not improbable that such remission might have been made in a form and 124 Twenty Tears of Chap. III. to an extent which would have fastened the is. 1850. Income Tax upon the country for several years to come. Budget of The budget of 1850 was brought forward at March 15. a much earlier period in the session than that of 1849. It was opened on the 15th of March. The financial year not having quite expired, Sir Charles Wood was not in a condition to give the precise figures with regard to it ; but he was able to tell the House that the revenue had considerably exceeded, and the expenditure had considerably fallen short of, his estimates for the preceding year, and that the surplus of income over expenditure, instead of being 104,000/. would be about 1,895,000/.* For the year 1 8 50- 1 he reckoned on an income of 52,285,000/. and an expenditure of about 50,785,000/., leaving a surplus of 1,500,000/. at * This sum is arrived at by excluding from the calculation the sum put to the account of the " Excesses" of previous years paid in 1848-9. The income actually received in 1849-50 exceeded the estimate by 654,919/. The expendi- ture fell short of the estimate by 1,779,279/. These two sums make 2,434,198/. ; to which must be added the amount of anticipated surplus, 104,000/. , making the surplus about 2,538,198/.; but the " Excesses" amounted to 642,632/., and thefe ought fairly to be deducted from the surplus, as they were paid out of the revenue of the preceding year. Sir C. Wood anticipated a surplus of" two millions and a quarter." Financial Policy, 1 25 his disposal. The knowledge that there would Chap. III. be a surplus had, he said, brought forward a ,g.. 0< number of advocates for the remission, reduction, or readjustment of taxation. After recapitu- lating the chief proposals which had been made, Sir Charles proceeded to remark upon the ad- ditions which had been made to the National Debt within the last twenty years, and to show that, after deducting the money applied to its redemption out of the surplus, the net increase in the capital of the debt had not been less than 27,000,000/. This fact alone seemed to con- stitute a reason for applying a portion of any sur- plus which might at any time be realized to the reduction of debt ; but there was a special reason for taking that course on the present occasion. In 1 848 it had become necessary to raise a larger amount of revenue than the ordinary sources of taxation would supply ; the Government had proposed to meet this necessity by a temporary increase of direct taxation ; but their proposal had been rejected, and they had been compelled to meet the demands of the year by a loan. A surplus was now available, and Sir Charles Wood most reasonably expressed a hope that the House would not insist that the whole of that surplus should be at once applied to the reduction of 126 Twenty Tears of Chap. in. taxation without regard to the operations of the 1850. year 1 848. " What," he said, " should we think of the conduct of a private man, who, whenever he found his income fall short of his expenditure, borrowed, but who never thought of paying off his debt when by some fortunate turn of affairs his income happened to exceed his expenditure ? I must say that, if we hope to maintain the cha- racter, as a nation, which we consider indispens- able to an individual, we ought, at least in a time of profound peace, to keep down our debt, and not go on, year after year, expending our sur- plus." While laying down this principle, however, Sir Charles said that he did not consider himself precluded from applying a portion of the present surplus to the remission of taxation ; and, there- fore, although he could not attempt to deal with such large amounts as were involved in the proposals to reduce the Tea-duties, or to abolish the Window-tax, he proposed to give up about 300,000/. upon Stamps, and about 455,000/. by the abolition of the Excise on bricks. These remissions would leave him with a surplus of about 750,000/., of which he stated that he proposed to devote 250,000/. to redeeming a charge of 10,600/. a-year, known by the name Financial Policy. 1 27 of the " Equivalent Fund," which had been Chap. ill. imposed upon the revenues of this country at ,g,. 0t the time of the Union with Scotland. The remaining 500,000/. he proposed to retain in the Exchequer. He further proposed to employ a portion of the balances in the Exchequer by advancing 3,000,000/. out of them for the drainage and other improvements of landed estates in England, Scotland, and Ireland. Al- though this course might prevent the immediate application of the surplus revenue to a reduction of debt, yet it was to be looked upon only as a postponement of that operation ; — " for," said he, " we are preparing the means which may enable some future Chancellor of the Exchequer to make considerable reductions. I hold that the making of these advances by the public is not a system which ought to be permanently continued ; and I think that we should put an end to it as soon as possible, and consequently the repayments may soon permanently, and year by year, exceed the advances. I trust, there- fore, that whoever succeeds me as Chancellor of the Exchequer will be able to apply considerable sums from these repayments to the extinguish- ment of debt." These last remarks of Sir Charles Wood are not 128 Twe7ity Tears of Chap. III. unimportant at the present time. His anticipa- 1850. tions, that in due course the repayments would considerably exceed the advances, are now being verified ; and should the excesses be steadily ap- plied, as he thought they would be, to the reduc- tion of the debt, a saving of some consequence might be effected. Between 1841 and 1857 the excess of advances over repayments was 1 1,951,565/. ; between 1857 and 1861 theexcess of repayments was 2,273,079/. This amount has been received into the Exchequer ; but, instead of being applied to the redemption of debt, it has been used to meet excesses of expenditure. It is curious enough to observe that the amount by which the expenditure of the year 1 860-1 ex- ceeded the income was as nearly as possible the exact amount* of the excesses of repayments in the four preceding years; that excess was defrayed partly out of the balances in the Exchequer, and partly by the interception of the repayments on their way to the Exchequer. Circumstances may * Mr. Gladstone stated the amount of deficiency properly belonging to the year 1 860-1 at 2,271,000/. The total amount of deficiency which had to be provided for was 2,558,000/., of which 1,450,000/. was taken from the balances in the Exchequer, and 627,000/. was supplied by the interception of repayments. Financial Policy. 129 render such a course justifiable ; but it ought not Chap. III. to be forgotten that when we apply an excess of ,g- . repayments to the service of the year in which it occurs, we are not dealing with the income of the year, and perhaps not with income at all. Ad- vances have in some cases been made out of money borrowed by the State for the purpose of making them ; and if, when those advances come to be repaid, the amount is applied to the expenditure of the year, the effect is precisely the same as if the State had raised it by a direct loan. Nor can we distinguish in principle between such cases as these and that of 1 850, when Sir Charles Wood, having a considerable sum in hand, which he intended ultimately to apply to the redemption of debt, lent it out meanwhile for important national objects, with a distinct prospect of its being applied at last in the way which he re- commended as the most consistent with a due re- gard for the national credit. Nothing could have been further from his intention, when he urged the House of Commons, in 1850, to deny itself the gratification of repealing taxes, in order that it might devote a portion of the year's income to the reduction of debt, than to provide some future House of Commons with the means of appropriating that portion to the remission of K 130 Twenty Years of Chap. in. taxes, say in 1870. It is however clear that, ,8-0. whatever were his intentions, the course he took was one which exposes his successors to this temptation ; and it is therefore im- portant that the point should not be lost sight of. Opposition to The abolition of the Excise-duty on bricks Stamp-duties. was carr i ea< without difficulty ; but the proposals of the Chancellor of the Exchequer with regard to the Stamp-duties led to much discussion, and to a defeat of the Ministry upon an important point. The class of duties with which he an- nounced his intention of dealing was that affec- ting transactions connected with landed property. The agriculturists were at this time suffering great distress ; the prices of corn, meat, and other articles of food were very low ; and the pressure actually caused by this circumstance was considerably enhanced by the general feeling of alarm with which both landlords and tenants regarded the prospects of British agriculture under the system of Free Trade. The suffering was so serious as to have called for remark in the Queen's speech at the opening of the session ; and, although the Government remained firm in their adherence to the principles of Commercial Policy which had recently been adopted, and re- Financial Policy. 1 3 1 solutely set their faces against the idea of any Chap. III. return to the system of Protective duties, they 1850. acknowledged the importance of taking any steps which could reasonably be expected to give re- lief and encouragement to the owners and occu- piers of land. Mr. Disraeli had proposed, early in the session, to give this relief by transferring some of the local burdens to the Consolidated Fund ; but this proposal had been resisted by the Government, and negatived by a majority of 2 1 . * Sir Charles Wood in bringing forward his budget announced that the remissions of taxation which he had to propose had been selected with a view to the interests of the agriculturists. Besides ad- vancing them 3,000,000/. for drainage and other improvements, he remitted the duty on bricks, thereby reducing the cost of cottages and farm- buildings ; and he gave up a certain amount of revenue from the Stamp-duties on the convey- ance and transfer of land, and on bonds and mortgages, so as to facilitate the sale of land, and the process of borrowing upon landed secu- rity. He also reduced the Stamp-duty on leases. The principle, however, upon which he pro- ceeded was not that of simply reducing the ex- * 273 to 252. 1 32 Twenty Tears of Chap. hi. isting rates of duty, but that of revising and re- 1850. casting them altogether. He found the duties upon small transactions disproportionately heavy when compared with those on larger ones ; and he proposed to replace them by a new scale, in which the duties should bear a fixed ratio to the sums on which they were levied. The duty on mortgages or bonds for amounts under 50/. had been 1/., or two per cent, ad valorem ; he proposed to reduce this to 5^., or one-half per cent. ; and, making this his starting-point, to ad- here to the same percentage throughout the scale. But though one-half per cent, was much below the old rate of Stamp-duty on small transactions, it was much above that on large ones ; and the landowners and other mortgagers soon perceived that, though the new scheme would undoubtedly benefit small proprietors, it would, with equal certainty, increase the burdens of the large ones ; and that the boon to the former would be given not solely at the expense of the Trea- sury, but at that of mortgagers or borrowers of sums above a certain amount. Many complaints were made by Railway and other companies, in consequence of the prejudicial effect which this increase of the Stamp-duty would have upon their debentures ; and Sir Charles Wood ulti- Financial Policy. 1 3 3 mately agreed to reduce his percentage rate to Chap. hi. one-fourth instead of one-half, and to begin with TT~ a stamp of 2s. 6d. upon sums under 50/. as a starting-point. But this concession did not satisfy his opponents; and an amendment, moved by Sir Henry Willoughby, to make the starting- point is. instead of 2s. 6d. was carried in the Committee on the Bill by a majority of 29.* After this defeat the Government appear to have hesitated for some time ; but, after about a month's delay, Sir Charles Wood stated that they were prepared to proceed with the bill, substi- tuting is. 3575 Add Local Tolls, Dues, and Fees .... 3,300,000 Total - £45^53^75 Land-tax, Window-tax, Probate, Legacy, and Insurance-duties, &c, and Schedules A and C of Income Tax 12,451,776 Local Rates 13,000,000 Total .£25,451,776 The total amount of taxation imposed upon property, therefore, was about twenty-five and a-half millions, and the amount of other taxation about forty-five and a-half millions.* Some exceptions might perhaps be taken to the prin- ciple of this division, and particularly to the mode in which the Schedules of the Income * The revenue from the Post Office is excluded from this calculation ; the gross revenue being considered as payment for work done, and the net revenue of 830,000/. being nearly absorbed by the charge for the Packet Service. Financial Policy. 141 Tax are apportioned, as though a great part of Chap. ill. the produce of Schedule D were not, in fact, ,g 5I . the produce of a tax on property invested in trade. If, however, we accept the division as a basis of comparison, it may not be uninteresting to compare, as nearly as possible, the incidence of taxation in 1840 and i860 with the calcula- tions of Sir C. Wood in 1850. The comparison is made in a note,* in order that the account of the budget of 1851 may not be interrupted. The Chancellor of the Exchequer having drawn from this analysis the conclusion that relief from taxation ought to be given rather to consumers than to the owners of property, and having stated the intention of the Government to propose a renewal of the Income Tax, pro- ceeded to explain his views as to the application of the surplus of 1,892,000/., which would thus be placed at his disposal. He proposed to abolish the Window-duties, producing 1,856,000/. ; but to substitute for them a House-tax, calcu- lated to produce 1,155,000/., making the loss to the revenue on this head 701,000/. The Coffee-duties he proposed to reduce from 6d. per lb. on foreign, and \d. on colonial, to 3^/. * See Appendix B. 142 Twenty Years of Chap. hi. per lb. on all coffee ; thus relieving the con- 185 1. sumer to the extent of 176,000/. The duties on foreign timber he would reduce by one-half, and the duties on agricultural seeds in a much larger proportion. Adding to these reductions the fall which was to take place this year in the amount of the Sugar-duties, he showed a relief to the tax-payer of 1,522,000/. ; but, al- lowing for an increase of consumption, he thought the loss to the revenue would only be 1,130,000/. On the other hand, he proposed to relieve local rate-payers, by taking upon the Consolidated Fund a portion of the charge for pauper lunatics, thereby adding 150,000/. to the expenditure ; and, deducting these two sums of 1,130,000/. and 150,000/. from the antici- pated surplus of 1,892,000/., he found himself with a margin of 6 1 2,000/. ; or rather, for the present year, of 962,000/., because there were arrears of Window-duty to be collected, which would amount to 350,000/. This surplus he hoped to be allowed to retain, with a view to operate upon the National Debt. He concluded by asking for a renewal of the Income Tax for a further term of three years. The budget, as has been said, was brought forward on the 17th of February. The dis- Financial Policy. 143 cussion of its merits was fixed for the 21st ; but, Chap. irr. before the 21st arrived, the Government had l8s , been defeated upon Mr. Locke King's County Franchise Bill, and were considering whether they should not send in their resignations — a step Resignationof which they actually took in the course of the the Mmistr > r - following day. A ministerial crisis of some duration followed ; but at length, Lord Stanley* having found it impossible to form a Govern- ment strong enough to command a majority in the House of Commons, and an attempt to re- construct a Liberal Cabinet on a broader basis having also failed, Lord John Russell and his colleagues were requested by Her Majesty to Their return resume their offices ; and the business of the session proceeded. The crisis was ostensibly of a political rather Financial cir- than of a financial character ; but it is evident S^tST ° f that considerations of financial policy entered largely into it. Lord Stanley expressed his own conviction that the defeat of the Ministry upon Mr. Locke King's motion was not the sole ground of their resignation ; and that the un- favourable reception which the budget had met with at the hands of the public was, at least, one of * Now Earl of Derby. 144 'Twenty Years of Chap. III. the causes by which their retirement had been j 85 1. brought about. However this may have been, it is certain that it was chiefly owing to the difference of opinion upon financial policy be- tween himself and the friends of Sir Robert Peel that Lord Stanley failed to secure their co-opera- tion in forming a Conservative Administration ; and the explanation which he gave of his own opinions with respect to the principles which should regulate our dealings with the taxation of the country, is sufficiently interesting and important in its bearings upon our financial policy to demand reproduction here, even at Lord Stan- some length. He said, — " I begin by saying Feb S 2 P 8 eCh ' tnat financially I hold it to be an object not only of vital importance, but one to which the faith of successive Ministries has been pledged, that the Income Tax should not be permitted to degene- rate into a permanent tax. In 1 842 Sir Robert Peel introduced that tax. He introduced it for a limited period, with the express declaration that it was to enable him to deal with other portions of the financial system of the country in a mode which he hoped would conduce to the benefit of commerce generally, and would raise the revenue to an equality with the ex- penditure ; and he pledged himself that at the Financial Policy . 145 expiration of that period the Income Tax should Chap. in. cease. Without that pledge there is not a man l85I , living who believes that the House of Commons, in 1 842, would have consented to the imposition for an hour of a tax which has always been held to be the resource in time of war, which has always been deprecated in time of peace, and which, take it as you will, levy it as you please, must be full of anomalies and inconveni- ence, pressing variously upon different classes of the community with a complicated injustice that no modification can altogether remove. Sir Robert Peel anticipated, when he proposed the tax, that it would be continued for five years ; but, in the first instance, he asked Parliament to sanction it for three years, expressing his assur- ance that Parliament would not refuse to con- tinue it for the remainder of the time during which he believed it would be necessary, should circumstances prove that the system was work- ing well. The first renewal, therefore, in 1845 was only the fulfilment of the original scheme of Sir Robert Peel, and the extension of the remainder of the term which he had anticipated, and announced as in his opinion necessary, when he introduced the measure. The year 1848, when the renewal of the Income Tax was pro- L 146 Twenty Tears of Chap. III. posed, was a period of the deepest distress, fol- , 8 . , lowing immediately upon the disastrous year 1 847 ; and to maintain the credit of the country it was absolutely necessary to continue it. But we have now arrived at a very different state of things. We have, in the first instance, a surplus of 2,500,000/. to deal with ; we have, it is said, a state of general prosperity in the country. I do not wish to deny the existence of that pros- perity ; though I fear I see indications in some quarters that it is not as permanent, or as fully established, as some of your lordships may imagine. But, when the country is in a state of general prosperity, when we have a surplus revenue of 2,500,000/., and at the expiration of nine years from the time when the Income Tax was imposed, I hold that a further renewal of that tax, without any security taken either for its modification or abolition, would be virtually declaring that the Income Tax shall be saddled upon the country for ever. When I remember, too, that the Chancellor of the Exchequer de- clared in his budget that there were various other classes of the community as well entitled to relief as the class which paid the window- duties ; and that he stated that when he had disposed of the paper-duties, the tea-duties, and Financial Policy. 147 the tobacco-duties, and had equalized the system Chap. III. of taxation generally, he would be prepared to 1851. deal with the Income Tax ; I think it is not assuming too much to suppose that, if Parliament had again allowed the renewal of the Income Tax, without any steps being taken for its limi- tation, they would virtually have imposed that tax upon the country permanently." Referring then to a proposal which had been made to him to resist the renewal of the Income Tax at all, Lord Stanley said, — " I could not support a measure which would leave a deficiency of at least 2,500,000/. in the revenue. I was, however, of opinion that a course should be taken, declaratory of the determination of Parliament to deal with the Income Tax as rapidly as the state of the national finances would allow ; and that its re- duction should not be rendered a matter of im- possibility by frittering away every surplus as it arose. I believe that, without interfering with the credit of the country, dealing with the ex- isting surplus, without attempting to alter or reduce other taxes, in the course of this year a reduction of from one-third to one-half in the amount of the Income Tax might safely and beneficially be effected. I was desirous that Parliament should, by some resolution, pledge 148 Twenty Years of Chap. ill. itself to the gradual reduction of the Income 1851. Tax with a view to its final abolition ; and I should have been prepared, if the duty had de- volved upon me, to recommend to Parliament to grant only such a renewal of that tax as would reduce its amount by one-third or one-half; and I should have been prepared to pledge myself that any surplus revenue that might arise should in the first instance be applied towards the further reduction and final extinction of that tax."* In these remarks Lord Stanley clearly pointed out the character of the new phase upon which the Income Tax was about to enter. It may, perhaps, be thought that he insisted a little too strongly upon the argument that the pledges of former Ministers had made the extinction of that tax a matter affecting the good faith of Parliament. Many of those who supported its renewal in 1845, anc ^ st ^ more of those who did so in 1 848, looked upon it as something more than the merely temporary impost which it had appeared in 1 841 ; and in 1 848, at all events, the language of Sir Charles Wood was sufficiently * Lord Stanley's speech in the House of Lords, Feb. 28, 1851. Financial Policy. 149 frank to exonerate him from any imputation of Chap. IN. breach of faith in proposing a further continuance l8qI> of the tax in 1 85 1 . Still, there can be nc doubt that the budget of 1 8 5 1 -2, and the arguments by which that budget was supported, showed a greater disposition than any Chancellor of the Exchequer had yet manifested, to substitute direct taxes on property for a considerable portion of the indirect taxes on consumption. True, Sir Charles Wood did not exactly propose such a substitution ; he proposed only to retain the Income Tax while the process of revising indirect taxation was incomplete ; but it was plainly seen that this process, as he described it, was likely to be a very protracted one ; and there were never likely to be wanting pleas for further reforms, which would indefinitely prolong the existence of the instrument by the aid of which they were to be accomplished. Three main objections were urged against Sir Different Charles Wood's proposals. The Conservatives, specrine the as has been said, objected to the retention of an Income Tax. Income Tax for the purpose of further reducing indirect taxation ; Mr. Hume and his friends, on the contrary, highly approved of the principle of using an Income Tax for this purpose, but con- tended that the existing frame of the tax was 1 50 Twenty Tears of Chap. III. inequitable, and that it ought not to be renewed l85 , as it stood, but ought to be altered, so as to make it bear more heavily upon fixed incomes derived from realized property, and more lightly upon industrial and temporary incomes. Lastly, the same gentlemen objected to the Chancellor of the Exchequer's retaining so large a surplus ; and contended that the balance of revenue not required for expenditure would be much more profitably applied to the reduction of taxes press- ing upon the industry of the people than to the redemption of debt, or, as they expressed it, to the purchase of Consols at 96. It is possible that a skilful tactician might, under certain cir- cumstances, have so combined these objections as to have destroyed both the Budget and the Minis- try ; but it is evident, on close examination, that the objections themselves were so curiously com- plicated as to place the objectors pretty nearly in the situation of the embarrassed stabbing- party in the Critic. The Radicals [could not join the Conservatives in demanding the extinc- tion of the Income Tax ; for they did not want to see it extinguished, butextended. The Conser- vatives could not join the Radicals in demanding its amendment ; for to amend it implied a pur- pose of perpetuating it. But the Conservatives Fi?iancial Policy. 1 5 1 could point to the objections urged against the Chap. II r. framework of the tax as an argument against l8 .^ continuing to use it as a substitute for other imposts ; and the Radicals were embarrassed in pressing these objections by the fear of making out a case so strong as to destroy the tax alto- gether. Again, when the Radicals demanded that a larger proportion of the surplus should be given up to the remission of taxation, the Con- servatives could not fail to perceive that such a step would still further delay the attainment of that equilibrium in the finances which would render the repeal of the Income Tax possible ; and so, for one reason or another, when the Government found themselves pressed hard by one set of antagonists, it was not difficult for them to obtain assistance from the other set, and combined action against them was rendered im- possible. It is, however, probable that the Conservatives Position of 1 c \ t ^ e Conser- would have found themselves the masters or the vatives. situation, had not the financial question been complicated with the question of agricultural protection. The triumph of the Free-trade party was still recent ; and it was doubtful whether they were even yet secure against a re- verse. The sufferings of the agricultural popu- 152 Twenty Years of Chap. III. lation had been, and still were, severe ; and the 1 85 1. great party which had resisted the repeal of the Corn-laws were not prepared to admit that they had been mistaken, or to accept their defeat as final. The knowledge that a partial return to Pro- tection was likely to follow the accession of this party to power incited the Free-traders of all shades of political opinions to resist them ; and not only deterred the Radicals from attempts which they might otherwise have made to over- throw the Government, but alienated the friends of Sir Robert Peel from the great Conservative party at the critical moment when the reins of power were within Lord Stanley's grasp. They felt, as Sir James Graham expressed it, the ne- cessity of " closing their ranks" to resist an attempt at reaction against the commercial policy of the last nine years ; and in doing so they gave a decided and powerful impulse to a system of financial policy with respect to the prudence of which they might, perhaps, under other circumstances have seen reason to hesitate. Budget again The Ministerial crisis having passed over, and w^A f r. r " 4 . the Government of Lord John Russell having resumed office, Sir Charles Wood, on the 4th of April, again brought forward his budget, in nearly the same form as before. He made, tax. Financial Policy. 153 however, an alteration of some importance in Chap. III. the framework of his proposed House-tax. His ,g 5I original plan had heen to distinguish between Alteration in old and new houses ; or rather between houses r already built and already subject to the Window- tax, and houses to be built thereafter. Upon the former class he meant to charge a House- tax equal to two-thirds of the amount actually paid as Window-tax. Upon the latter class he proposed to charge is, in the pound upon the value of simple dwelling-houses, and yd. in the pound upon that of houses partly used as shops. The tax was only to apply to houses of the value of 20/. a-year and upwards. In his new plan he made no distinction between old and new houses ; but laid an uniform tax of gd. in the pound upon dwelling-houses, and of 6d. in the pound upon houses partly used as shops ; still limiting the tax to houses of the annual value of 20/. and up- wards. The first plan would have produced a re- venue of 1 , 1 55,000/., and have afforded a relief, as compared with the Window-tax, of 701,000/. ; the second plan would produce a revenue of 720,000/., and afford a relief of about 1,136,000/. By this plan, not only was a considerable amount of relief to be given in the whole, but that relief was especially to be given to the lower iSc i. 154 Twenty Tears of Chap. in. classes of the community. Out of about 500,000 houses charged with the Window-tax, 100,000 were to be altogether exempted from the new House-tax ; and, as the whole number of houses in the country was about 3,500,000, and only 400,000 of these were to be subject to taxation, Sir Charles Wood observed that it might be des- cribed as a property-tax upon houses of the class most able to bear taxation. In the course of his argument in support of it he quoted with appro- bation a sentence of Mr. John Stuart Mill's, to the following effect : — " A House-tax, if justly proportioned to the value of the house, is one of the fairest and most unobjectionable of all taxes. No part of a person's expenditure is a better criterion of his means ; or bears, on the whole, more nearly the same proportion to them. A House-tax is a nearer approach to a fair Income Tax than a direct assessment on income can easily be." It might, perhaps, have been inferred, as a logical consequence of this doctrine, that the Chancellor of the Exchequer, who was at the same moment imposing a House-tax and renew- ing a direct Income Tax, ought so to have arranged the incidence of the two imposts respec- tively as to obtain as much as possible from the Financial Policy. 155 fairer of the two, and to depend as little as Chap. III. might be upon that which is the less fair. An ^~ attempt to impose a House-tax, and especially a heavy House-tax, must always, as a matter of course, be hazardous for a finance minister ; but it is impossible not to see that at this particular conjuncture a bolder step might have been taken, and with a better prospect of success, than at almost any other time that can be pointed to ; for both the Window-tax and the Income Tax were extremely unpopular ; and a scheme of taxation, framed with a view to extinguish the former, and to reduce and ultimately to abolish the latter, would have met with a great amount of support ; even though the imposition of a larger House-tax than was actually proposed had been a necessary ingredient in it. This alteration in the form of the proposed Other House-tax was the most important change made b u X?T in the second edition of the budget. Sir Charles Wood adhered to his proposal for the reduction of the timber-duties, and of the coffee-duties. He withdrew, however, the proposal respecting the duties on agricultural seeds, and that respect- ing the transfer of the expense of the lunatic paupers from the County Rates to the Consoli- dated Fund. He now estimated the surplus for 156 < Twe?tty Years of Chap. III. the year at 924,000/., of which 568,000/. was l8 -i. to arise from the uncollected balance of the Window-duty. This surplus he thought it ne- cessary to retain, in order to meet contingencies ; a view in which, he said, he was fortified by the circumstance that, even since the first introduc- tion of the budget, the breaking out of a new Kafir war had been announced; thus illustrating the uncertainty under which a finance minister must always labour with reference to the ex- penditure of the year. He concluded by justify- ing the course he had taken with regard to the Income Tax ; and by urging the importance of renewing it, for the purpose of continuing the process of reducing and amending other taxation, which had now been carried on with so much advantage for nine years. Mr. Hemes' It was upon this last point that the first attack resolution for was mac [ e U p n the budget. Upon the report the reduction r or r of the Income of the resolution for the renewal of the Income Tax,* Mr. Herries proposed the following re- solution by way of amendment : — " That it is the opinion of this House that the respective duties in Great Britain on profits arising from property, professions, trades, and * April 7, 1851. Financial Policy. 157 offices, and the Stamp-duties in Ireland, granted Chap. III. by two Acts passed in the sixth year of Her ,g 5I< present Majesty, and which have been continued and amended by several subsequent Acts, were granted for limited periods and to meet tempo- rary exigencies. That it is highly expedient to adhere to the declared intentions of Parlia- ment when these duties were granted and con- tinued ; and, in order to secure their speediest practicable cessation, to limit the renewal of any portion of them to such an amount as may be sufficient in the existing state of the Public Revenue, to provide for the Expenditure sanc- tioned by Parliament, and for the due mainte- nance of the public credit." The meaning of this amendment of course was, that the surplus now at the command of the Chancellor of the Exchequer should be ap- plied rather to the reduction of the Income Tax, with a view to its ultimate and gradual abolition, than to the reduction of the Window-duty.* * The phrase " reduction of the Window-duty" is used instead of" remission of the Window-duty," because, although it was proposed to abolish that tax altogether, it was proposed partially to replace it by another tax of a cognate description. The new tax might, of course, have been so arranged as to produce the same amount of duty as the Window-tax. The loss sustained by the revenue, which rendered the renewal of 158 Twenty Years of Chap. III. The Income Tax was at that time producing !85 1. about 780,000/. of revenue for every penny ; and Mr. Herries was of opinion that the Chancellor of the Exchequer should have reduced it from yd. to $d., thereby giving up about 1,560,000/., or about 425,000/. more than the proposed reduction of the Window-tax ; and, at the same time, securing the ultimate abolition of the In- come Tax, of which he saw very little hope if the present policy of the Government were to be pursued. This amendment was lost by a majority of 48.* The Government had the support of the friends of Sir Robert Peel ; and the minority consisted almost exclusively of the Conservatives, though one or two Liberals voted with them. Mr. Disraeli's The propriety of continuing the Income Tax Claims of the having thus in general terms been affirmed, the Agricultural Government, deferring for the present the con- sideration of the term for which, or the form in which, the renewal should take place, pro- ceeded to introduce their measure for the aboli- tion of the Window-tax, and the substitution the Income Tax at its full amount necessary, must be measured by the difference between the produce of the Window-tax and the estimated produce of the House-tax. * 278 to 230. interest. Financial Policy. 159 of the House-tax ; and here they were met by Chap. HI. another amendment, proposed by Mr. Disraeli,* jg.,. to the effect that, in any relief to be granted by the remission or adjustment of taxation, due regard should be paid to the distressed condition of the owners and occupiers of land in the United Kingdom. In support of this amendment, Mr. Disraeli referred to the passage in the Royal Speech at the commencement of the session, in which Her Majesty had lamented the continuance of agri- cultural distress ; he pointed out that the Government had included in their first budget two proposals ; — that relating to pauper lunatics, and that for the remission of duty on seeds, calculated, in their opinion, to confer a benefit upon the agricultural classes ; — but that in their second budget they had entirely withdrawn them ; and, after dwelling upon the extent of the distress which unquestionably prevailed, he indicated certain measures for relieving the land from local burdens, which he thought well deserving the attention of the Government. This amendment also was lost, but by a smaller ma- jority than had been recorded against that of * April 11, 1851. 160 Twenty Tears of Chap. hi. Mr. Hemes.* In the course of the debate to which it gave rise, Mr. Gladstone, who had voted i«5 1 Mr. Glad- for a somewhat similar motion in 1850, but cisrToVthe w ^° now vote d against this amendment, ex- Budget, plained his views with regard to the whole scheme of finance proposed by the Government. He did not object, he said, to the renewal of the Income Tax for the purpose of effecting large reductions of taxes upon industry, such as had been made in 1 841 and 1 845 ; but he was much dissatisfied at a proposal to renew it for the purpose of making such small remissions as those proposed upon coffee and timber, amounting only to 400,000/. He thought the substitution of a House-tax for a Window-tax a very proper measure ; but he thought also that, looking to the uncertainty which must attend the perma- nence of the Income Tax, and the necessity which we might experience of relying upon a House-tax for a considerable portion of our revenue, the Chancellor of the Exchequer was committing a great error in now placing that tax upon so narrow a basis. He considered that should Parliament once sanction a tax confined to houses of 20/. value, from which those under # 263 to 250. Majority 13. Financial Policy. 1 6 1 20/. should be exempt, it was unlikely that that Chap. III. exemption would ever be revoked; and this ,g 5I circumstance would, he thought, render a future expansion of the tax a matter of the greatest difficulty. Upon this point Sir Charles Wood said in reply, that, even starting from houses of 20/. in value, he had brought under taxation some 25,000 or 30,000 houses which were exempt from the Window-duty ; and that, had he carried the tax as low as to 10/. houses, he must of course have brought in a much larger number, while the whole amount of revenue which he would have gained thereby would only have amounted to 40,000/. Hitherto the Government had been successful in carrying the chief measures in their bud- get ; but, when the Income Tax bill was in committee, Mr. Hume* moved and carried -j- Mr. Hume's an amendment to the effect that the duration of n^Iin^he' the tax should be fixed at one year, instead of Income Tax to one year. at three years ; alleging as his reason that he wished to institute an inquiry by a Select Com- mittee into the mode of assessing and collecting it, and into the possibility of removing or greatly * On the 2nd of May, 1851. t 244 to 230. Majority 14. M 1 62 Twenty Years of Chap. III. modifying the injustice of levying the same rate ,g„ of charge upon terminable as upon perpetual annuities, and upon fluctuating and varying in- comes from trades and professions as upon fixed incomes from real property. The debate upon this amendment was very animated, but was remarkable for a good deal of what is called cross- speaking ; Mr. Hume himself being a warm supporter of an Income Tax as compared with indirect taxation, and being desirous to amend the framework of the existing tax with a view to prolong it, and to use it as an instrument for further financial reforms ; while many who voted with him were anxious to put an end to the tax as speedily as possible, and had, not very long before, voted with Mr. Herries in that sense ; on the other hand, some of Mr. Hume's closest political friends, more particularly Mr. Cobden, while condemning the structure of the tax as strongly as he did himself, opposed his amendment, under the impression that to adopt it would be to play into the hands of their adver- saries and to bring about the destruction of the tax. Mr. Hume, a few days after his success in carrying this amendment, proceeded, in accor- dance with the intention he had announced, to mittee on the Income Tax Financial Policy. 1 6 3 move for the appointment of a Select Committee Chap. III. of inquiry ; and his motion was agreed to, l851 _ though not without a protest on the part of Mr. Select Com Gladstone, who strongly objected to the appoint ment of the Committee, and refused to serve appointed on it ; as did also the other leading friends of Sir Robert Peel. Mr. Hume experienced great difficulty in making up the Committee ; and the debate upon the names of those who were to compose it was twice adjourned. The Com- mittee was, at last, named on the 1 3th of June ; but, though it began to sit at once, it had not time to complete its inquiry before the close of the session, and was reappointed in the following year. The appointment of this Committee marks an important epoch in the history of the Income Tax. Looking at it in conjunction with the rejection of Mr. Hemes' motion for the applica- tion of the surplus to the reduction of that tax in preference to the remission of any other, we may consider it as an indication that the House of Commons was anxious to retain it if possible, but felt that in its present shape its pressure was very severe, and that, if it was to be retained, it must be put, as it were, into a crucible, its ore extracted, and its dross purged away. It 164 Twenty Tears of Chap. hi. would, perhaps, be going too far to say that ,8 5I> the Income Tax has ever been popular; but there have certainly been many persons who have looked with favour, and with something more than favour, not, indeed, upon the real concrete Income Tax embodied in the measures passed by Mr. Pitt and Sir Robert Peel, but upon a kind of abstract and ideal Income Tax, ex- isting nowhere but in their own minds, and who have thought it a simple and straightforward matter to substitute this excellent impost for the coarse and clumsy one which has usurped its name, and which has, as they consider, brought discredit upon the idol of their imaginations. The essentially practical spirit which generally ani- mates the House of Commons had hitherto led to the rejection, by large majorities, of all proposals for replacing the actual by the ideal Income Tax; but a Committee was now appointed ; its doors were opened to all the world ; and the actuaries, the political economists, and the other experts, who had long been declaiming against the igno- rance or the indolence of Sir Robert Peel and his successors, and professing their readiness to solve the problem which our statesmen had found too difficult, were now taken into council, and en- couraged to submit their plans for examination. Financial Policy. 165 This is not the place to analyse the proceedings Chap. III. of the Committee. A great deal of evidence l8 -, was taken, and some of the actuaries submitted an elaborate plan for ascertaining the capitalised value of incomes, and for levying the tax upon that, instead of upon the basis of the income it- self; but the proposal was generally felt to be im- practicable, and the Committee ultimately sepa- rated without making any recommendation at all ; more than one of its members proclaiming themselves converted from their belief that a re- adjustment of the tax was possible, and the diffi- culties attending such readjustment having un- doubtedly been exhibited in a very forcible light. The adverse vote upon this question of the Income Tax was not the only defeat sustained Other defeats by the Government upon financial matters in vernmen ^" the course of the session. Lord Robert Gros- venor again carried his motion for the repeal of the Attorneys' and Solicitors' duty ; and Lord Naas, by the aid of the Speaker's casting vote, again carried his resolution with respect to the mode of levying the duties on home-made spirits in bond ; but neither of these successes were followed up. Lord Robert Grosvenor's Bill never came to a second reading ; and that of Lord Naas was thrown out when it reached that 1 66 "Twenty Years of Chap. hi", stage. A resolution, moved by Lord Duncan, ig 5I> and carried by a majority of one,* calling upon the Government to subject the expenditure of the Office of Woods, Forests, and Works, to the control of Parliament, by paying the gross instead of the net revenue into the Exchequer, and voting the necessary expenses of the depart- ment in the estimates, belongs to a question (that of the management of Public Monies) which will be treated in a separate chapter. A review of the proceedings of the session of 1 85 1 would be incomplete without a notice of the discussion raised by Mr. Disraeli upon the occasion of the House going into Committee upon the Inhabited House-duty Bill on the 30th Mr. Disraeli f Tune. In this discussion Mr. Disraeli and Mr. Giadsronedis- Gladstone concurred in blaming Sir Charles financial mea- Wood for commuting so large and important a sures of the branch of our revenue as the Window-tax for a Session. House-tax upon a narrow and unsatisfactory basis, at a time when the Income Tax was on its trial, and when its renewal in the following year could not be reckoned on with anything Mr. Disraeli's jj^g certainty. Mr. Disraeli declined to enter argument. upon any general inquiry into the comparative * 120 to 1 19. Financial Policy. 1 67 merits of direct and indirect taxation, saying that CHAf5 - III. he felt persuaded that, in a country like England, 1851. the greater the number, and the more various the means of supply, the easier would be the task of raising a large amount of revenue ; and upholding, as " the golden rule of all Chancellors of the Exchequer," that they should " beware that no tax, whatever form it may take, whether that of a customs' duty, an excise duty, or a direct impost, should, in its nature, be excessive." But, he argued, the principle upon which all our taxation, as well direct as indirect, should rest is, that it should be general in its applica- tion ; for direct taxation, if accompanied by a system of large exemptions, limiting it practically to a single class, is nothing more or less than a forced contribution levied upon that class. The Income Tax, therefore, founded as it was upon a system of large exemptions, could not be re- garded as a fit element of the permanent taxa- tion of the country, however legitimate it might have been as a temporary impost designed to accomplish a temporary purpose. The Govern- ment, however, had now not only virtually adopted the principle of converting the Income Tax, with all its faults untouched, from a tem- porary into a permanent source of revenue ; 1 85 1. 1 68 Twenty Tears of Chap. ill. but had carried the same vicious principle, of placing a direct tax upon too narrow a basis, into their new plan for the House-tax. Objection- able as this course was in itself, it was rendered doubly so by the circumstances of the time. Mr. Disraeli referred to the appointment of Mr. Hume's Committee, to the general feeling of dissatisfaction at the construction of the Income Tax, and to the equally general consent of " every man of authority upon financial sub- jects," that the " odious features of the tax cannot by any means be removed or modified." The conclusion at which he arrived from these con- siderations was, that the financial scheme of the year involved the sacrifice of an amount of reve- nue which, under the circumstances, it was most imprudent to put in peril. Mr. Glad- Mr. Gladstone pursued a somewhat similar stone sargu- j- ne o ^ ar g Ument f| e complained that the House-tax was now to be reimposed " without the slightest qualification of those great anomalies in the imposition of the tax, which, he would venture to say, were the sole cause of its abolition in 1834 .... But even if he were to overlook this flaw, he could not commend the plan of a House-tax which exempted altogether from the operation of the tax something like six-sevenths Financial Policy. 169 of the House property of the country It Chap. hi. seemed to him the most obvious and unex- l85 , ceptionable of the permanent resources of the country ; and he, for one, could not prevail upon himself to give a vote which would greatly prejudice, under ordinary circumstances, the in- terest of the country with respect to an impost so important. But the position in which the House now stood with regard to the Income Tax seemed to him to add tenfold importance to the consideration." He then proceeded to argue, as Mr. Disraeli had done, that the renewal of the Income Tax at all had now become a matter of uncertainty ; and that, should it be abandoned, the greatest embarrassment would arise in the attempt to supply the deficiency of the revenue, from the unfortunate course now about to be taken with regard to the House-tax. Sir Charles Wood made very little answer to these arguments, except in the way of pointing out inconsistencies between some of Mr. Dis- raeli's votes on other occasions and the views at present expressed by him. The House, however, supported the Government upon a division ; and the order for going into Committee was carried by a majority of 113.* * 242 to 129. 170 Twenty Tears of Chap. II r. It is curious to remark the coincidence, upon 1851. this occasion, of the views of Mr. Disraeli and of Mr. Gladstone, destined as they were, within less than eighteen months, to bring forward, as successive Chancellors of the Exchequer, bud- gets of their own, in which they would have to meet the difficulties which they plainly saw must arise from the course of financial legislation of 1 85 1. We shall shortly see how the agita- tion against the Income Tax, and the frame- work of the House-tax, affected their respec- tive proposals ; and the difference between their methods of attempting to solve the em- barrassing problem presented to them both. 1852. A change of Government took place early in Change of the session of 1852; and Lord Stanley (now Earl of Derby) was called to the head of affairs ; Mr. Disraeli taking the office of Chancellor of the Exchequer. The new Ministers announced their intention of advising the Queen to dissolve Parliament after the necessary business of the session should have been completed ; and there was, in consequence, a general disposition to put off all measures which were not of a pressing character, and to be content, as regarded finance, with an arrangement that should suffice for the year. Financial Policy. 1 7 1 The Budget was brought forward on the 30th Chap - iil of April. Mr. Disraeli drew a very favourable 1852. picture of the condition of the revenue, and Budget, showed that the estimates of his predecessor pn 3 had been far more than realized. Sir Charles Wood had founded his calculations for 185 1-2 upon an estimate of revenue amounting to 52,140,000/., of which he had proposed to sa- crifice 968,000/. in remissions of duty on win- dows, coffee, and timber, leaving an anticipated surplus of 925,000/. ; but, in point of fact, the income, after all the remissions had been made, had reached 52,468,000/., or considerably more than Sir Charles had calculated it at before the remissions ; and the surplus, instead of being 925,000/., was 2,176,998/. With regard to the year 1852-3, Mr. Disraeli stated that he esti- mated the expenditure (including a sum of 660,000/. for the Kafir War, and a vote of 350,000/. for the newly-revived Militia force) at 51,163,979/. To meet this he was unable to reckon on an income of more than 49,038,000/., as the Income Tax, which had been voted for a single year, had now expired, and there was only a balance of 2,600,000/. due in respect of the last half-year's payments which had not yet been collected. 172 Twenty Tears of Chap. hi. ]y[ r Disraeli then proceeded to point out the 1852. difficulties attending each of the three great modes of taxation open to a Chancellor of the Exchequer, namely, the increase of Customs'- duties, of Excise-duties, and of direct taxation. He admitted with great frankness the benefits which the country had derived from the large remissions which had been made in the Customs' tariff, showed the improbability of the House of Common's reversing the policy which had led to the recent reductions in both Customs' and Excise duties, and went on to state, at some length, the difficulties attending the increase of direct taxation also ; but it is unnecessary to re- capitulate them here, as they were in the main those which he had pointed out in the debates upon the House-tax at the close of the preceding session. In conclusion, he expressed his con- viction that it was becoming necessary for the House to review the whole system of taxation, and to endeavour to form some clear and decided opinion on the principles upon which the public revenue should be raised. Pie looked, he said, with great apprehension to the opinions prevalent in the House, which seemed opposed to all the great sources of income in the country ; and he considered that nothing could be more in- Financial Policy. 173 jurious than rashly and rapidly to reduce the Chap. III. sources of indirect taxation without having come 1852. to some general conclusion as to the principles upon which direct taxation should be levied. But, considering the shortness of the time for which the new Government had held office, he found it quite impossible to attempt, on the present occasion, to deal with this large and difficult question ; and he, therefore, contented himself with proposing, by way of a provisional arrangement, that the Income Tax should be renewed for one year more, which would con- vert the anticipated deficiency of 2,125,000/. into a surplus of 462,000/. This proposal was adopted. No other important financial business was done during the remainder of the session. A dissolution of Parliament, and a general Dissolution of . 1 1 • 1 ji Parliament. election took place in the autumn, and the new Parliament met in the month of November, Meeting of a when Mr. Disraeli took the earliest opportunity* of stating that it was not the intention of the Government to propose any measures for the reversal of the recent Commercial Policy of the country. He said, however, that believing our financial system to require revision, in order to * In the Debate on the Address, Nov. II, 1852. 174 Twenty Tears of Chap. III. bring it more into harmony with our commercial 1852. system, it was their wish to bring forward their financial proposals as soon as possible. The ar- rangements necessary for the funeral of the Duke of Wellington stood in the way of pro- ceeding at once with any other business ; and after those had been completed, and the funeral had taken place, several days were spent in discussing the terms of a resolution, moved by Mr. Villiers, and intended to express the sense entertained by the House of the benefits derived from Free-trade;* so that it was not till the 3rd of December that the Budget was intro- duced. The Budget, In framing this Budget the Government of ec.3, 1 52. L orc j Derby were beset by difficulties of no ordi- Difficuhies of nary magnitude. In the first place, they had to the Govern- j 1 • 1 1 -t r • 1 ment# deal with a very large deficiency in the revenue. Mr. Disraeli had estimated the expenditure for 1852-3 at 51,163,000/. ; and there was no reason for supposing that it would be materially less in 1 853-4 and subsequent years. The revenue, * Mr. Villiers' motion was set aside by a majority of 80 (336 to 256), in favour of an amendment, to the same effect in substance but more general in its terms, which was moved by Lord Palmerston. The amended resolution was then adopted by 468 to 53. Financial Policy . 175 apart from the produce of the Income Tax, he Chap. III. had calculated at 46,438,000/., or 4,700,000/. l8 . 2 below the amount of the estimated expenditure. There would, of course, be a half-year's yield of the Income Tax to help the finance of 1853-4 ; but even this would leave a deficiency for that year of more than two millions ; and in suc- ceeding years that deficiency would amount, as we have seen, to more than four millions and a-half. Now Sir Robert Peel, in 1842, had dealt with a deficiency of two millions and a- half; but then Sir Robert Peel, in 1842, had been placed in more favourable circumstances than was Mr. Disraeli in 1852. Sir Robert Peel, in 1842, was at the head of a party com- manding a large majority in Parliament, and which placed implicit confidence in him ; whereas Mr. Disraeli, in 1852, was not sure of a majority upon any question, and, least of all, upon questions in any degree connected with commercial policy. Moreover, when Sir Ro- bert Peel undertook to re-establish a balance in the finances, he was able to lay his hand upon a tax amply sufficient for his purpose, which the country was willing to bear, as a strictly tem- porary burden, for the sake of attaining a great object. But it was scarcely possible for a 176 Twenty Years of Chap. in. Finance Minister, in 1852, to use the Income 1852. Tax again exactly as it had been used in 1842. The House of Commons, expressing in this respect a sentiment very general in the country, had, in the preceding year, distinctly refused to renew the tax in its existing shape, except as a provisional measure for a single year. Mr. Disraeli had no reason to suppose that the new House would consent to reverse the decision of its predecessor in this respect. But even if such a step on the part of Parliament were to be regarded as probable, the Minister himself had serious objections to the framework of the tax, considered as a permanent element of our system of taxation. Direct taxation founded on ex- tensive exemptions was, as he said, only another phrase for confiscation. This opinion he had very forcibly expressed in the year before his accession to office ; and it was a necessary consequence of it that, if he proposed a con- tinuance of the Income Tax, he ought to remove some of its objectionable features by extending the area of its incidence. But to prolong the existence and extend the operation of the tax, without paying any attention to the complaints of those who had been remonstrating against the inequality of its pressure upon different classes of Financial Policy. 1 77 incomes, was obviously a task of the highest Chap, ill difficulty, and one from which any Minister , 8 - 2 . might be pardoned from shrinking. It was a task which Mr. Gladstone, indeed, did in the following year attempt, and in which he suc- ceeded ; but Mr. Gladstone had then some advantages which Mr. Disraeli had not, and was free from the peculiar difficulties which beset the latter. The position of the Income Tax question was not the only embarrassing feature of the situation in which the Ministry found them- selves. They had long been pleading the cause of certain classes which had recently been, and perhaps still were, suffering from the effects of recent legislation ; for though that legislation had on the whole been productive of much general benefit, it had, at the same time, undoubtedly been accompanied with temporary inconve- nience to certain interests. The shipowners, the sugar-planters, and the farmers, had all been undergoing distress ; which they attributed, — and, in the opinion of Lord Derby's party, rightly attributed, — to the effects of the recent commercial policy. This circumstance seemed to render it incumbent upon the Government to propose some measures for the relief of these N 178 Twenty Years of Chap. ill. classes. But that relief could not be given in l8 the form of a return to protective duties ; for the country at large had pronounced itself adverse to such a step. It could only be given in the form of a remission of burdens ; and a remission of burdens implied a sacrifice of revenue, and, of course, an increased deficiency, which would have to be supplied by new taxation. It will be seen at once that the conditions of the pro- blem were exceedingly difficult. Main features As the Budget of December, 1852, was not °* e u " adopted by Parliament, it is unnecessary to exa- mine it with the same minuteness as ordinary budgets. It contained proposals for relieving the shipping interest from certain taxes from which they derived no benefit ; for giving the sugar-planters the advantages of refining in bond ; for remitting half the Malt-tax and half the Hop-duty ; and for reducing the duties on tea from 2s. 2d., by several successive stages, to the rate of is. per lb. The Income Tax Mr. Disraeli proposed to renew for three years, extending it to funded property and salaries in Ireland, to industrial incomes of above 100/. a-year, and to incomes arising from pro- perty of above 50/. a-year ; he further proposed to reduce the rate of taxation on Schedules B, Financial Policy. 179 D, and E from jd. to 5W. in the pound. He Chap. ill. estimated that these alterations would so far 1852. countervail one another as to leave the ultimate productiveness of the tax undisturbed. It being then necessary for him to find a source of revenue from which to supply the deficiency created by the reduction of the Malt, Hop, and Tea duties, he proposed to extend the House-tax to houses of 10/. annual value, and to increase its rate from gd. and 6d. to u. 6d. and is. in the pound. He was of opinion that this alteration, besides placing the House-tax on a sounder basis, would produce a revenue sufficient to make up for the contemplated remissions. An incidental pro- posal to put an end to the Public Works' Loan Fund, and to carry the repayments of the ad- vances made from that fund to the account of the revenue, was calculated to produce a surplus of about 400,000/. This proposal, which was afterwards very severely criticised, was undoubt- edly objectionable in principle ; as the monies constituting the fund had originally been bor- rowed, and their application to current revenue was tantamount to an addition to the National Debt. Had Mr. Disraeli's calculations, in- deed, been fully verified, there would have been no necessity for applying this surplus 1 8a Twenty Years of Chap. III. revenue to expenditure at all ; it would have 1852. gone into the Exchequer, and have been used, as other repayments of advances have since been, to strengthen the balances ; or it would have been applied in quarterly instalments to the re- demption of debt. But, in the event of any failure in his estimates, an addition to the debt might certainly have been occasioned by this arrangement, and no Chancellor of the Ex- chequer can be sure that his hopes will not be disappointed. Budget re- Apart, however, from this subordinate ques- sifrfadon^f" tion > lt is sufficiently evident that the Budget the Ministry, presented too many assailable points to have 1852. much chance of being adopted. Mr. Thomas Duncombe's attempt to dispose of it as a whole, on the question of the Speaker's leaving the chair, was indeed unsuccessful ; but as soon as the House had gone into Committee, and the first resolution, that relating to the House-tax, had been proposed, all the elements of objection were readily combined in opposition to it. Those who disliked the extension and the increase of the House-tax, those who disliked the extension of the Income Tax, those who were hostile to the principle of its proposed modification, those who looked with jealousy on the reduction 1852. Financial Policy. 1 8 1 of the Malt-tax, and, in short, all objectors of chap. III. all sorts found themselves able to join in de- feating the ministerial scheme as a whole, though differing among themselves as to the merits of its several parts. After a debate of four nights, in which most of the leading speakers in the House took part, the Government were defeated, on the 16th of December, by a majority of 19,* and the immediate result was their retirement from office, and the subsequent formation of Lord Aberdeen's Administration. * 305 to 286. l82 Twenty Tears of Chapter IV. Chap. IV. 1853- Financial im- portance of the year 1853. HE year 1853 is one of the most important, in a financial sense, of those which fall within the period I am considering. It marks, if not the final, at least the temporary close of the great controversy opened in 1 85 1 , and continued in the following year. We have seen how, in 1 85 1, Sir Charles Wood had proposed to deal with the finances in a manner which would have rendered necessary the retention of the Income Tax for an indefinite time, while he made no attempt to alter its framework, though an altera- tion was loudly called for by a large section of the people ; how the House of Commons had con- demned that proposal in the vote which affirmed Mr. Hume's amendment; how, in 1852, Mr. Disraeli had endeavoured to solve the difficulty by Financial Policy . 183 an amendment of the tax, in partial conformity Chap. IV. with the popular demand ; and now we have to ,g 53- see how, in 1853, Mr. Gladstone succeeded in stemming that demand, partly by showing the impossibility of satisfying it, and partly by holding out the hope of an eventual, though distant, termination of the whole tax. The financial statement was made on the 1 8th The Budget, of April. Mr. Gladstone began by stating that the results of the preceding year, 1852-3, had been far more favourable than Mr. Disraeli had anticipated ; that the revenue was greater by 1 ,464,000/., and the expenditure less by 3 80,000/., than had been estimated when the Budget of 1852 was introduced; and that the surplus on the year was no less than 2,460,000/. He then proceeded to show that the expenditure for the coming year, 1853-4, would be greater than that of 1852-3 by about 1,400,000/., in conse- quence chiefly of the large additions made to the Navy and Ordnance estimates, the Militia esti- mate, and the estimate for Education.* Upon £ * Addition to Navy estimate 617,000 „ Ordnance do 616,000 „ Militia do 180,000 „ Education do 100,000 184 Twenty Years of Chap. IV. the whole, he estimated the expenditure at 1853. 52,183,000/., from which sum he thought he might deduct 1 00,000/. on account of the gain he anticipated from the conversion of 3 per cent. Stock which he was then attempting to effect, and which will presently be described. This would reduce the probable expenditure to 52,083,000/. ; while the revenue, including the Income Tax, might be taken at 52,890,000/., so that there would be a surplus on the year of 800,000/. Of this surplus, however, 215,000/. arose from occasional payments, which could not be looked upon as ordinary revenue ; namely, 1 35,000/. from repayments made to the revenues of the Crown in consequence of a Metropolitan Improvement Act, and 80,000/. from the extinc- tion of the old Merchant Seamen's Fund, and the transfer of its capital to the Government. In this estimate Mr. Gladstone, as has been said, assumed the continuance of the Income Tax, but the Income Tax had now legally expired ; and the questions whether it should be renewed, and, if so, in what form it should be renewed, had to be answered before he could present his plan for the year. To these questions, then, he proceeded to address himself in a speech of unusual power, which not only obtained Financial Policy, 1 8 5 universal applause from his audience at the time, Chap. IV. but changed the convictions of a large part l8 - 3 . of the nation, and turned, at least for several years, a current of popular opinion which had seemed too powerful for any minister to resist. He began by asking the House to consider Mr. Glad- 11 • 1 1 1 rr stone's argu- whether or not it would make efforts to part ment w j t h with the Income Tax at once. " I do not say," r T e § ard t0 ,J he J Income 1 ax. he observed, " that such an alternative is im- possible. On the contrary, I believe that by the conjunction of three measures, one of which must be a tax upon land, houses, and other visible property, of perhaps 6d. in the pound ; another, a system of licences upon trade, made universal, and averaging something like 7/. ; and the third, a change in your system of legacy duties ; it would be possible for you at once to part with the Income Tax. But Her Majesty's Government do not recommend such a course. They believe, in the first place, that such a system would, upon the whole, be far more unequal, and cause greater dissatisfaction than the Income Tax ; they believe, likewise, that it would arrest other beneficial reforms of taxation ; and they believe that it would raise that difficult question, in regard to the taxation of the public funds of this country, in a form the most incon- 1 86 Twenty Years of Chap. iv. venient." Mr. Gladstone then set forth in 1853. glowing terms the services rendered to the country in time past, and again in recent days, by the Income Tax. He showed its value as a financial reserve in time of war, and as an in- strument of fiscal and commercial reforms in time of peace ; and he expressed his own opinion, and that of the Government, that the time was not yet come for laying it aside. At the same time he stated his individual belief that it was not a tax well adapted for a permanent portion of our ordinary financial system. This belief he held, independently of the question whether it were possible to remove its inequalities ; but he felt that all persons were agreed, that, if the tax were to be made permanent at all, it could only be so on condition of its being reconstructed with a view to their removal. He then pro- ceeded to inquire into the possibility of a satis- factory reconstruction. He showed, by a careful analysis of the schedules, and by an examination of the system of assessment, that the profits of trade were not, as was assumed, taxed at an equal rate with the profits derived from land and houses, but that where trade paid yd. in the pound, land paid gd. He exposed the unfairness of the proposal to tax classes upon the average Financial Policy. 1 87 value of their incomes, which had been suggested Chap. IV. as a mode of escaping from the extreme diffi- £853. culty of taxing individuals upon the exact value of each man's income. He touched upon the evils attending the system of self-assessment, and upon the frauds to which it gives rise ; he dwelt at great length upon the case of the fund- holders, and not only showed the injustice which would be done to the public creditor, and the con- sequent injury that would be inflicted upon the credit of the nation in the money-market of the world, by imposing a higher tax upon incomes derived from the public funds than upon in- comes from other kinds of property ; but also pointed out the absurd consequences which would follow from the step ; since an enormous proportion of the debt was in the hands of persons whom it would, for one cause or other, be necessary, after all, to exempt from paying the higher rate of tax. He admitted that the tax bore hardly upon the incomes of professional men, but he pointed out the difficulty of drawing a distinction between professional men and traders ; and, in like manner, he showed how a great number of other cases, which might be regarded as cases of hardship, shaded off by imperceptible tints into others which could 1 88 Twenty Years of Chap. IV. hardly be distinguished from them, until it was j 85 3. plain that no point could be found at which a stand could properly be made and a broad line of demarcation intelligibly drawn between in- comes that should be taxed lightly and incomes that should be taxed heavily. He summed up the case in these words : — " The general views of Her Majesty's Govern- ment, with respect to the Income Tax, are, that it is an engine of gigantic power for great national purposes ; but, at the same time, that there are circumstances attending its operation which make it difficult, perhaps impossible, at any rate, in our opinion, not desirable, to main- tain it as a portion of the permanent and ordi- nary finances 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 which it is not possible to characterize in terms too strong. " One thing I hope this House will never do ; and that is, nibble at this great public ques- tion. Don't let them adopt the plan of recon- structing the Income Tax to-day, and saying, — 'Ifthatdoesn'twork well, we'll try our hands at it again to-morrow.' That is not the way in which Financial Policy. 189 the relations of classes, brought into the nicest Chap. IV. competition one with another, under a scheme of ,353, direct taxation, are to be treated. Depend upon it, when you come to close quarters with this subject, when you come to measure and test the respective relations of intelligence and labour and property, in all their myriad and complex forms, and when you come to represent those relations in arithmetical results, you are under- taking an operation of which, I should say, it was beyond the power of man to conduct it with satisfaction ; but, at any rate, it is an operation to which you ought not constantly to recur ; for if, as my noble friend [Lord John Russell] once said with universal applause, this country cannot bear a revolution once a year, I will venture to say that it cannot bear a reconstruction of the Income Tax once a year. " Whatever you do in regard to the Income Tax, you must be bold, you must be intelligible, you must be decisive. You must not palter with it. If you do, I have striven at least to point out, as well as my feeble powers will per- mit, the almost desecration, I would say, cer- tainly the gross breach of duty to your country, of which you will be guilty, in thus putting to hazard one of the most potent and effective 1 90 Twenty Years of Chap. IV. among all its material resources. I believe it l8 . to be of vital importance, whether you keep this tax, or whether you part with it, that you either should keep it or should leave it in a state in»> which it will be fit for service on an emergency ; and that it will be impossible to do if you break up the basis of your Income Tax." But if the tax could not be amended, was it then to be renewed and perpetuated without amendment ? To this question, Mr. Gladstone's answer in substance was, It shall be renewed, but it shall not be perpetuated. It shall be re- newed for what appear good and sufficient con- siderations ; it shall be renewed for the purpose of effecting desirable and important fiscal and com- mercial reforms; but it shall be renewed in a form which will show that it is not intended to be a permanent part of the financial system of the country ; and at the same time arrangements shall be made which will have the effect of placing it within the power of Parliament, at a certain definite period, to dispense with its aid. Skilful ar- It is almost impossible to condense this portion thi^sTech^ of Mr. Gladstone's speech; so consummate is the skill with which the topics are arranged and presented to his audience. Wholly apart from the merits of the scheme he proposes, the speech Financial Policy. 1 9 1 itself, and especially this part of it, will repay Chap. IV. the most careful study as a specimen of persuasive ,8 53 . reasoning. There is, first, the hint thrown out as to the possibility, if Parliament were so minded, of dispensing with the Income Tax altogether, — a hint sufficient to relieve his au- dience from any sense of inevitable and oppressive necessity, and to bring them into the frame of mind proper for men who are to brace them- selves to a great task, as freemen and not as bondslaves. Then, lest the hint should work too strongly upon the imagination, he hastens to disclaim for himself and his colleagues the slightest intention of acting upon it : — " Such is not the recommendation of Her Majesty's Government." Then comes, in some stirring sentences, a picture of the tax, as " constant study " had impressed it upon the speaker's own mind ; a glance at the greatness of Mr. Pitt's conception ; a bold attempt to show that, had that conception taken place somewhat earlier, the country might, at that moment, have been free from the whole burden of the National Debt ; and finally, a personification of the tax itself as a giant, who, after having shielded us in war, had been called forth from his repose to assist our industrious toils in peace. When a proper 192 Twenty Years of Chap. IV. sense has thus been created of the greatness of 1S53. the subject, by a sudden plunge he carries us into the midst of minute and careful calculations, and appears to test by his analysis every element of the tax. He points out the flaws in the reasoning of the advocates for its reconstruction ; exposes the injustice which would ensue from the attempt in some cases, and the embarrass- ments which it would cause in others ; and suc- ceeds, not only in clearly showing many of the difficulties which must attend the process, but, what for his immediate purpose is even more important, in raising a vague and indefinite sense of danger to be apprehended from the mere touching of the tax, danger such as that which attends any tampering with our very Constitution. Yet he does not withal deny the weight of the objections against the framework of the tax. Having in his own mind a plan for the ultimate extinction of the impost, he is not careful to conceal his sense of those objec- tions. He has now his audience with him, and he can afford to make large admissions ; to ac- cept, as a matter of feeling at least, the doctrine that " the Income Tax bears, upon the whole, too hard upon intelligence and skill, and not hard enough upon property, as compared with Lncome Financial Policy . 193 intelligence and skill;" and yet, making these Chap, iv admissions, he can venture to ask, not only for l8 a renewal of the tax for a term of seven years, but for permission to levy it upon incomes of as little as 100/. a-year, and to extend it to Ireland, a country which had not yet felt its pressure. Mr. Gladstone offered the House two induce- Plan for the ments to accept his plan. First, he proposed so Jjj?? 01 to adjust taxation as to render possible the ex- Tax - tinction of the tax in i860 ; secondly, he pro- posed to make with its aid some immediate and extensive remissions of indirect taxation. The details of the plan are as follow. The Income Tax in its existing shape, with some slight amendments, mentioned in the note below,* was to be renewed at yd. in the pound for two years ; the rate was then to be reduced to 6d. in the pound for two years more ; and then again to $d. in the pound for a final period of three years, ending on the 5th of April, i860, * Mr. Gladstone proposed to extend to professions the system of commutations hitherto confined to the case of trades. He proposed also to allow persons insuring their lives, or purchasing deferred annuities, to deduct the premiums paid by them from their income before ascertaining the amount to be charged with the tax, provided the amount did not exceed one-seventh of the whole income. 194 'Twenty Years of Chap. IV. when the tax would altogether cease, unless the 1853. Parliament of i860 should see fit to renew it. Incomes of between 100/. and 150/. a-year were for the first time to be taxed, but only at the lower rate of §d. in the pound ; they were to continue to be charged at this rate throughout the seven years. The tax was to be extended to Ireland for the same term, and under the same conditions, as those assigned to it in Eng- land and Scotland. The estimated result of these changes was an increase of revenue in the year 1853-4 to the amount of about 295,000/.* making the total produce of the tax 5,845,000/. Having thus dealt with the Income Tax, Mr. Succession- Gladstone next proposed to extend the Legacy- aty ' duty ; and to make it apply to real as well as to personal property, and to successions under settlement, as well as to bequests by will. The immediate effects of this change upon the revenue for the year would be an addition of * Tax as existing, estimated at . Deduct for Life Insurances (half year) Add, extension below 150/. (half year) Extension to Ireland (halfyear) £ :ar) . 5,550,000 60,000 5,490,000 :ar) . 125,000 • 230,000 5,845,000 Fina?icial Policy* 195 500,000/. : it would ultimately, he said, realize Chap. IV. as much as 2,000,000/. He raised also the l8 duty upon Scotch and Irish spirits, bringing the Scotch and former up from 3/. Sd. to 4.S. Sd., and the latter duties?^ from 2s. Sd. to 3^. \d. per gallon ; * at the same time he conceded the principle for which Lord Naas had, in former years, contended, and upon which he had several times obtained majorities against the Government, that allowance should be made to the distiller for the waste of spirits in bond. The net gain from this change would be 436,000/. Finally, he announced a proposal for the revision of certain licences, involving an Revision of , r 7 t-i 1 trade licences. increase in the revenue or 1 1 3,000/. By these several additions he reckoned on obtaining an increase in the revenue amounting to 1 ,344,000/., which, added to the surplus of 807,000/. already estimated, gave a fund of 2,151,000/. available Surplus avail- r^i •• r • tt 1 • f 1 a °le f° r tn e tor the remission of taxation. Upon this fund remission of he proposed to draw by remissions, which should not take full effect at once, but which would amount in the current year to 1,656,000/., leaving 1853-4 with a surplus of 493,000/. In the following year, the revenue would sustain, in consequence of the remissions, a further loss taxes. The duty on English spirits was Js. \od. per gallon. 196 Twenty Yea?~s of Chap. iv. of i ,087,000/. ; but the new Succession-duty l8 would produce about 700,000/. more than in 1853-4; the Income Tax extensions, about 295,000/. more ; and there would be a gain upon the reduction of the interest upon the three-and-a-quarter per cent. Stocks* amounting to 3 1 2,000/. Thus there would be an increasing revenue more than sufficient to meet the pro- spective reductions ; and, in like manner, when the rate of the Income Tax should begin to de- cline, the loss which that decline would occasion would be supplied by the increasing produce of the Succession-duty, the gradual revival of the Customs' and Excise revenue under the influence of diminished duties, and the diminution in the interest of the debt ; until at length, in i860, the Income Tax would legally expire at the same time with the falling in of the Long An- nuities, amounting to 2,146,000/. ; and, reckon- ing increased revenue from other sources, and diminishedchargefor the debt, on the one side, to amount to 5,959,000/., while the loss of the In- come Tax, on the other side, would be 6, 1 40,000/. Mr. Gladstone showed that the balance on the whole transaction would be a loss to the * Arising from Mr. Goulburn's arrangements in 1844. Financial Policy. 1 97 Exchequer of only 200,000/. Thus, should his Chap. jv. calculations be verified, the Parliament of i860 ^53. would be in a position to dispense with the Income Tax altogether, if it should choose to do so. The remissions proposed were of a very ex- tensive character. First came a boon to Ireland, Remission of - . , • • r 1 1 1 sum due from no less an one than the remission or the whole i re iand. debt of 4,500,000/. due from Ireland to Eng- land for the advances made in the time of the Irish famine. This measure, which involved a sacrifice of revenue amounting to 245,000/. a- year, was to be regarded as a set-off against the extension of the Income Tax, and the increase of the Irish spirit duties. Then came the repeal Soap duty re- of the soap duty ; the reduction of the tax on pea c life assurances from is. 6d. to 6d. per 100/. ; the substitution of an uniform penny stamp on Variousstamp receipts for the old system of graduated stamps ; d JJ" e " H a reduction in the amount of the attorneys' and solicitors' certificate duty ; a reduction of the advertisement duty, and of the newspaper stamp duties ; a reduction of the hackney carriage duty ; Hackney a reform in the whole system of the Assessed ^"^essed taxes, including the abolition of progressive du- taxe3 reduced. ties, of compositions, and, as far as might be, of exemptions ; an amendment of the post-horse Chap. IV. 1853- Tea duties, and other Cus- toms' duties reduced. 198 'Twenty Years of duty ; and an extension of the facilities given for the redemption of the Land-tax. Under the im- portant head of the Customs' revenue, the first great reduction was to be upon the tea duties, — (for upon wine Mr. Gladstone said he could not see his way to a change), — and here he proposed to follow the plan of Mr. Disraeli, and to bring the duty down from 2s. z\d. to is. per lb. by successive stages of descent, the last to be reached in April, 1856. A large number of other du- ties of Customs were also to be dealt with : on 123 articles they were to be entirely remitted, on 1 33 they were to be reduced ; protective and discriminating duties were to be abandoned to a great extent ; and rated duties were, as far as possible, to be substituted for duties ad valorem. The account of the remissions in 1853-4 would then stand thus • — Gross loss or relief to the tax-payer. Net loss allowing for recovery in consumption. £. £. Excise 786,000 . 771,000 Stamps Post-horses . Customs . 417,000 . 27,000 . • i>33 8 > 000 • 200,000 27,000 658,000 Total .£2, 568,000 £1,656,000 Financial Policy. 1 99 Chap. IV. n the next year would come £. Further loss on Tea duties 510,000 >» Soap duties . 340,000 >> Post-horses . 27,000 >» Assessed taxes . 170,000 >> Colonial postage* . Total . . 40,000 £1 ,087,000 1853. Such are the outlines of the great Budget of General cha- ry , , 1 i_i • »-rt_ racter of the 1853 — a budget remarkable in many ways. 1 he Budget> contrast which it presents to its most distin- guished predecessors, the budgets of 1842 and 1 845, can hardly fail to strike the most superfi- cial observer. We miss in it the caution, which is perhaps the most striking feature of the finan- cial plans of Sir Robert Peel ; while in its place we meet with a boldness of conception, a love of effect, and a power of producing it, such as we do not find even in the remarkable budget of 1842. Yet it would be unjust to Mr. Glad- stone to find fault with him on this account. When we look at the circumstances of the case, we cannot but feel that it was of the utmost importance to the financial prosperity of the country that a stand should be made against * The proposed reduction in the rate of Colonial postage was independent of the budget, but involved the probability ot a loss of revenue. 200 Twenty Tears of Chap. IV. that of which Mr. Disraeli had so justly com- l8 . plained — the tendency of the leaders of public opinion to decry and render impossible every mode of raising the necessary revenue ; and, looking to the failure of Mr. Disraeli's own plans, and to the remarkable complications arising out of the state of parties, and out of the doctrines to which most of their chiefs had com- mitted themselves, we may well believe that nothing less than a striking scheme like that which Mr. Gladstone brought forward would at that time have sufficed to save the finances from the most serious confusion. Nor should it be forgotten that the scheme, though bold, was founded upon experience ; and that Mr. Gladstone could point to the results of the past ten years in justification of many of the assump- tions on which it rested. In point of fact, had not events occurred which led to a large increase of our expenditure before the arrival of i860, his calculations would have been nearly or quite verified ; that is, provided the House had ab- stained for the whole seven years from demand- ing any new remissions of taxation. His great error consisted in not making a sufficient allow- ance for the uncertainty of all human affairs ; and perhaps in a want of sagacity to discern the signs Financial Policy . 201 of the times It is proverbially much easier to see Chap. IV. these signs after the events which they forebode l8 have happened than before ; still Mr. Gladstone ought, perhaps, to have remembered that within two years two millions had been added to the estimates ; and to have foreseen that further ad- ditions were likely to be demanded, which would materially disturb his prospective arrangements. This he might have reckoned on, without re- ference to the question of the coming war with Russia, in which he probably did not yet be- lieve, though he must have begun to feel some uneasiness on the subject. The renewal and extension of the Income Tax was, as Mr. Gladstone expressed it, the keystone of his budget ; and it was upon this point that the first discussion was taken. On sir E. B. his proposing the resolutions bearing upon it,* amendment Sir E. Bulwer Lytton moved the following respecting the , . r 1 I ncome Tax. amendment: — "That the continuance of the Income Tax for seven years, and its extension to parties heretofore exempt from its operation, without any mitigation of the inequalities of its assessment, are alike unjust and impolitic." The debate upon this amendment was carried * On the 25th of April, 1853. 202 Twenty Years of Chap. IV. on for four nights, and it was ultimately rejected ~~^7 on the 2nd of May by a majority of 71.* The discussion took rather a wide range, and the whole scheme of the budget was subjected to criticism. Many of the speeches delivered are well worthy of perusal, particularly those of Sir E. B. Lytton, Mr. Cobden, Mr. Henley, and Mr. Disraeli. This question having been thus disposed of, the Income Tax resolutions were proceeded with. Some of the Irish members opposed the extension of the tax to Ireland, and very warm language was used upon this point ; but the proposal of the Government was carried by a Mr. Palmer's large majority. Another amendment, which led to a division, was moved by Mr. Palmer, the member for Berkshire, who proposed that allowance should be made under Schedule A for the cost of repairs, and that the tax should be levied upon net instead of gross income. This amendment was lost by a majority of 7 5.-J- A good many amendments of smaller importance were moved in the course of the progress of the bill, but they were for the most part defeated, and the bill passed its third reading without ma- terial alteration. * By 323 to 252. f By 276 to 201. amendment. Financial Policy. 203 As soon as the Income Tax resolutions had Chap. IV. been adopted, those relating to the new Succes- 1853. sion-duty were brought forward. On the 12th Succession- of May Mr. Gladstone explained the principles Gladstone's of his measure. He stated that his object was to ex P ] anation. provide that a tax should be laid upon all suc- cessions to property taking place in consequence of death. Hitherto the Legacy-duty had been ap- plicable only to personal property descending either by bequest or inheritance. Personal pro- perty passing under the trusts of a settlement, and real property, whether passing by settlement, inheritance, or devise, had been exempt from duty. This state of things, said Mr. Gladstone, was too anomalous to be permanent. There might be reasons for exempting real pro- perty from taxes imposed upon other kinds of property ; for it was admitted, or at all events it was argued, that real property bore an un- due proportion of local taxation, and was more heavily rated to the Income Tax than personalty, besides having to pay much more in the form of stamp duties on the occasion of its transfer ; but there could be no such reason for exempting personal property passing under settle- ment from a charge to which the like property passing in another manner was subject ; and, 204 Twenty Tears of Chap. IV. even as regarded real property, he pointed out 1853. that the reason assigned for the exemption was wider than the exemption itself; and that, if it were on account of its peculiar burdens that freehold property was to be allowed to escape, leasehold and copyhold property would have an equal claim to indulgence, which however they did not enjoy. He proposed, therefore, to abolish the existing distinctions, and to charge the Succession-duty upon successions of all kinds. But, recognizing the claim of certain kinds of property to consideration, on account of the peculiar burdens borne by them, he proposed to establish a new distinction between what he called rateable and non-rateable property ; and to charge the former less heavily than the latter. This, however, he said he would do, not by making a difference in the rate of the duty, but by charging it upon a different principle. In the case of successions to non-rateable or invi- sible property, the successor would have to pay according to the interest he took. If he suc- ceeded to an absolute interest, he would pay the per-centage upon the whole property ; if to a smaller interest, he would pay upon the value of that smaller interest only ; but a successor to rateable property should never be charged with Financial Policy. 205 the duty upon any higher interest than a life in- Chap. IV. terest. Even though he should succeed to the 1853. absolute ownership of an estate, he should be charged only upon an amount ascertained by computing the annual value of the estate, and his own expectation of life. It may be collected from Mr. Gladstone's Principles of speech that, in making this proposal, he was ac- sicm-diTtv 3 " tuated, not only by a desire to relieve rateable property from some part of the pressure of the Succession-duty, but also by a desire to avoid bringing about a mischievous interference with the laws of entail and settlement. It was obvi- ously impossible to tax the succession to a life interest upon the value of the perpetuity. Per- sons succeeding to life interests under entails and settlements, therefore, could only be taxed upon those interests. They would thus have been more lightly taxed than persons taking similar property by descent or by wills unencumbered with trusts. Hence, on the one hand, there would have been an inducement to the owners of estates to entail them, when they would not otherwise have done so ; and, on the other hand, as the distinction would have told greatly in fa- vour of the large proprietors, amongst whom the practice of entailing property generally prevails, 206 Twenty Years of Chap. IV. and against the small proprietors, with whom it i8 53 . is less common, it might have led to a contest between classes, and to a movement against the law of settlement. It was obviously desirable to avoid in a simply financial arrangement any step which would either give a new inducement to persons to entail, or a new argument to the opponents of entails. A similar desire to abstain, as far as possible, from interference with social arrangements ap- pears to have dictated the mode in which suc- cessors to encumbered estates were dealt with. The amount of income which the possessor of a heavily-mortgaged estate has to pay away in the form of interest, usually bears a much larger proportion to the whole amount of in- come arising from the estate, than the prin- cipal of his debts bears to the capital value of the property ; because the interest he pays is fixed at a higher rate than the rate of profit de- rived from land. His margin of income, after paying the encumbrancer his interest, is conse- quently much smaller in proportion than would be his margin of capital if he sold his estate and paid off the encumbrance altogether. To lay the tax on the margin of capital, therefore, would in many cases be, to force the proprietor Financial Policy. 207 to sell his property ; but, however advantageous Chap. IV. it might perhaps be that he should do so, Mr. l8 Gladstone thought it would be wrong to make a financial arrangement the means of forcing him to take the step ; and he accordingly de- cided to lay the tax in such cases upon the mar- gin of income only ; but with the proviso that, if the successor should at any time afterwards sell the estate, he should make up the difference to the Government.* This proviso, however, was afterwards abandoned. A scale of duties was to be so arranged as Financial re- 1 1 1 >i • suits of the to press much less heavily upon successions in Succession the direct line than upon successions of remote dut y- kinsmen or of strangers. The tax upon the di- rect succession of a child to a parent was to be 1 per cent., and that upon the succession of an entire stranger in blood 10 per cent. Interme- diate rates were fixed for successions within cer- tain degrees of consanguinity. It would seem that Mr. Gladstone did not at the time fully * Thus, if an estate worth 500,000/., with a net rental of 14,000/., were charged with debts to the amount of 300,000/., and with interest thereupon of 12,000/., the tax would be le- vied, not on the 200,000/. margin of capital, but on the capi- talized value of the 2,000/. margin of income. But should the estate afterwards be sold, the difference would have to be paid. 208 Twenty Tears of Chap. IV. appreciate the financial operation of this pro- l8 ., vision. He then expected that his new duty- would, in course of time, add 2,000,000/. to the revenue. This expectation has been entirely disappointed. In the year 1852 the Legacy- duty produced 1,380,000/.; in the year 1860- 61 the Legacy and Succession duties together produced 2,169,000/. The increase, instead of being 2,000,000/., is only 711,000/.; and of this only 605,000/. is due to the Succession-duty, for the old Legacy-duty produced, in i860, 1,562,000/.* Mr. Gladstone, in his budget- speech of i860, attributed this disappointment mainly to the fact that " by the usual course of succession real property goes in the direct line in a much greater number of cases than personal property, so that if 100,000,000/. a-year in real and settled property came under the Succession- duty, that amount would not yield the same average of duty as if it had been personal pro- perty." It should be observed, however, that this explanation by no means meets the case. It is true that of the whole amount received for Legacy-duty in 1860-61, nearly 33 per cent, was derived from legacies to strangers, paying * See 5th Report of the Commissioners of Inland Revenue. Financial Policy. 209 10 per cent, duty, and only 22 per cent, from Chap. IV. legacies to children, paying 1 per cent, duty ; lg while of the whole amount received for succes- sion duty 31 per cent, was derived from the successions of children, and only 28 per cent, from the successions of strangers : hut even had these proportions been reversed, the amount of the succession duty would have fallen far below Mr. Gladstone's estimate. That estimate as- sumed that the new duty on successions would be far more productive than the old duty on legacies. The old duty was producing about 1,400,000/. : the new duty was to produce about 2,000,000/. As the rates of duty were nearly the same in both cases, this result could only be expected on the supposition that the property which would become liable to succes- sion duty would be more valuable than the pro- perty liable to legacy duty. Now, if all the property that paid legacy duty in i860, and all that paid succession duty, had alike passed directly from father to son, and had paid the same rate of duty, viz., 1 per cent, the legacy duty would have amounted to 613,000/., while the succession duty would only have amounted to 279,000/. In other words, the value of property subject to legacy duty in i860 was p 210 Twenty Years of Chap. IV. about 6 1 ,000,000/., while the value of property 1853. subject to succession duty was only 28,000,000/., or considerably less than half the value of the property subject to legacy duty ; and it is in this fact, rather than in the small difference between the proportions in which they res- pectively pass to direct descendants, that we find the real explanation of the disappointment of Mr. Gladstone's calculations. Mr. Pitt's In the debates to which the proposed succes- andsucceSion 5l0n duty gave rise, frequent reference was made duties. to trie pj ans f M r . Pitt in the year 1796. In that year, it will be seen on reference to Parlia- mentary history, Mr. Pitt proposed two mea- sures, or one measure in two bills. The first was a legacy duty on personal property, the se- cond a duty on successions to landed estates. The duty was not to apply to direct descents, but was to vary from 2 to 6 per cent, upon legacies or devises to collateral relations and strangers in blood. The bill imposing the duty on personalty was passed by a considerable ma- jority. The other bill also passed through its earlier stages by large majorities ; but, when it came to a third reading, Mr. Francis denounced it in the strongest language as a measure " im- moderately increasing the influence of the Financial Policy. 21 I Crown, and full of danger in its obvious conse- Chap. I v. quences to the constitution and freedom of the l8 country ! " His reasons for this view were, that, as the tax would not affect present possessors, members of Parliament would be reckless as to the amount of burdens they might be asked to lay upon posterity, and that all check upon ex- travagance would be removed. Whether this was the argument by which the members of the Opposition were influenced does not appear ; but the motion that the bill be " now " read a third time was lost by a majority of two. Mr. Pitt then proposed that it be read a third time " to-morrow," for which Mr. Sheridan desired to substitute the words " this day three months." Mr. Pitt on this occasion succeeded by a majo- rity of one, and the word " to-morrow" was made part of the question ; but, when the question itself came to be put, there was an equal divi- sion, and the Speaker gave his vote against pro- ceeding to the third reading ; upon which Mr. Pitt withdrew the bill.* More fortunate than Mr. Pitt, Mr. Gladstone Success of succeeded in carrying his measure through all ston ' c its stages. The discussion to which it was sub- * May. 12, 1796. . 212 Twenty Years of Chap. IV. jected in Committee was very full, and a large 1853. number of amendments were moved ; but none were carried which materially affected the prin- ciple of the bill. In the course of the debates Mr. Gladstone intimated his intention of pro- posing, as a complement to the duty on indivi- dual successions, a duty on corporate property ; but no measure with this object was introduced, nor has the case of corporate property ever been dealt with in this respect. Increase of Amongst the other important features in the the Irish spirit DU dV e t:, we must not omit to notice the addition duties. ° made to the Irish spirit duties. This was an- other point upon which it was Mr. Gladstone's good fortune to succeed, where some of his most eminent predecessors had failed. Twice before, in 1830 and in 1842, had attempts been made to raise these duties, and twice those attempts had failed. Lord Wallace's Revenue Commis- sion in 1822, Sir Henry Parnell's Excise Com- mission in 1833, Lord Althorp in 1834, and Mr. Goulburn in 1843, nac ^ a ^ Dorne testimony to the fact, that advances of duty were uniformly followed by extension of illicit distillation, by loss of revenue, and by increase of crime. The addition of 6d. per gallon made in 1830, there- fore, had been followed by a reduction of is. Financial Policy. 2 1 3 per gallon in 1835; and the additional is. per Chap, iv gallon imposed in 1842 had been taken off in l8 .- 1843. Mr. Gladstone, however, not discou- raged by these failures, made one more attempt in 1853; and, as the result has shown, he achieved entire success. The point at which he was aiming was, the ultimate equalisation of the spirit duties in all parts of the United Kingdom. " It is very doubtful," he said, "whether [equali- sation] will ever be entirely attained ; but such an approximation to it as would stop smuggling might perhaps at some time be reached. It is quite plain that such an equalisation cannot be attained without some reduction of the spirit duties in England. We must lower the Eng- lish duties at a fitting time to some point up to which the others may be raised."* His antici- pations, as will be seen from the foregoing ex- tract, were far from sanguine ; but in the follow- ing year he was so much encouraged by the re- sults of his experiment that he proposed a further advance of duty ; and again, in 1855, Sir George Lewis proposed a third ; at which time, instead of lowering the duty on English spirits, he raised it to Ss. a gallon, and succeeded in equalising * April 18, 1853. 214 Twenty Years of Chap. IV. the English and Scotch duties at this high rate. ,"^ At length, in 1858, Mr. Disraeli put the finish- ing touch to the work, by raising the duty on Irish spirits likewise to the common level of 8s. ; and since that time Mr. Gladstone has further raised the duty in the whole of the three king- doms to the rate of ioj-. per gallon, or very nearly four times the duty paid on Irish spirits before 1853. The subjoined note shows the successive steps by which the present rate of duty has been reached, beginning with the year 1825, when (as the Board of Inland Revenue tell us in their Fifth Report) the existing system of levying the duty may be said to have com- menced.* The extension of the Income Tax to Ireland, Year. England. Scotland. Ireland. S. d. S. d. s. d. 1825 7 2 10 2 10 1830 7 6 3 4 3 4 1835 ... 2 4 184O 7 10 3 8 | 2 8 1842 3 8 1843 2 8 1853 4 8 3 4 1854 6 4 1855 8 8 6 2 1858 8 8 8 i860 10 10 10 Financial Policy. 2 1 5 and the commencement of the equalisation of Chap. IV. the spirit duties, are two remarkable features ,8 53 . in the finance of the year 1853. The last of Mr. Gladstone's proposals for in- Failure of the , • r 1 p' an f° r tne creasing the revenue was not quite so successful revision of as the first two. This was the proposal relating tradeucenccs » to a revision of licences upon certain trades, from which he had expected to gain 113,000/. The House never came to a vote upon this sub- ject ; but the representations made to Mr. Glad- stone by persons affected by the plan were so strong, and he found it necessary to make so many deductions from the scale he had drawn up, that he was brought ultimately to the con- clusion that he had better abandon the scheme altogether.* Another point upon which he was compelled and for the . , « . . readjustment to give way related to the advertisement duty, oftheadver- Before the introduction of the budget, two mo- uscmentduc . v - tions on matters of taxation had been carried against the Government. The first was Lord Robert Grosvenor's motion for leave to bring in a bill for the repeal of the attorneys' certificate duty, which was carried on the 10th of March by a majority of 52.-)- The second was Mr. * See his statements, June 20 and July 20, 1853. t By 219 to 167. 2i 6 Twenty Years of Chap. IV. Milner Gibson's resolution affirming that the x s 53 . advertisement duty ought to be repealed, which was carried, on the 15th of April, by a majo- rity of 31.* Both these questions had been dealt with in the budget. Mr. Gladstone had proposed to lower both classes of duty, but not to take off either of them altogether. This proposal did not satisfy their respective advo- cates ; and when the Stamp duties' bill, dealing with these and other matters, had made some progress, it was found necessary to divide it into two, in order to facilitate the passing of the un- opposed portion, leaving the two knotty points referred to for separate discussion. The dis- puted bill was brought forward in Committee on the 1 st of July, and Mr. M. Gibson moved an amendment upon it. The Government pro- posed to reduce the advertisement duty from ij-. 6d. to (yd. ; Mr. M. Gibson moved to repeal it altogether. He was defeated by a majority of 1 o . • j • A fresh debate ensued; and, when the main proposal was put to the vote, Mr. Crau- * By 200 to 169. At the same time two other resolu- tions relating to the newspaper stamp duty and the excise duty on paper, were defeated by majorities of 182 and 199 respectively. t By 109 to 99. Financial Policy. 217 furd moved to substitute the cipher o for the Chap. IV. figure 6, which motion he carried by a majority 1853. of 9.* So that the House, having first rejected a proposal that the advertisement duty should Advertise- be abolished, afterwards decided that it should be pea ied. fixed at zero. This was, of course, a reversal of the former vote ; but the Speaker, on being appealed to, decided that there was nothing in- formal in the proceeding ; and the result was, that the Government abandoned the advertise- ment duty altogether. They were more suc- cessful in resisting Lord Robert Grosvenor's at- tempt to proceed with his measure for the repeal Repeal of of the attorneys' and solicitors' duty, which they certificate defeated on the 20th July by a majority of 84^ duty defeated. The other measures of remission contained in the budget were passed without much diffi- culty. A large number of Customs' duties were Abolition of swept away, in accordance with a principle to min ° r cus ~ r J ' r r toms duties. which Mr. Gladstone said he attached much importance, namely, that of levying our reve- nue upon the fewest possible number of articles. Sir Robert Peel had already acted upon this principle to some extent in 1845; an ^ Mr. Gladstone himself has since carried it to a great * By 70 to 61. f By 186 to 102. 1853. 2 1 8 Twenty Years of Chap. IV. length in his arrangements for i860. It may be as well to mention here that a doubt was thrown upon its soundness by Sir G. Cornewall Lewis in 1857. Some remarks of Lord John Man- ners', on the difference of saving in the cost of collection produced by the repeal of customs' duties and the repeal of excise duties respec- tively, are also worthy of attention.* The re- Soap duty, peal of the excise duty on soap was an impor- tant boon to the lower classes, but involved no new or remarkable principle. The alteration Assessed m the assessed taxes, however, demands a few taxes. words of comment. The mode in which these taxes had previously been assessed was by im- posing heavy progressive duties upon articles, of which more than one was kept by the same person. Thus, if a man kept one four-wheeled two-horse carriage he was taxed 6/. ; if he kept two such carriages he was taxed 6/. \os. upon each ; if three, 7/. upon each, and so on until the tax rose to a maximum of 9/. is. 6d. upon each carriage ; the same was also the case with other articles. This is a mode of taxation which Mr. J. S. Mill,-)- upon abstract grounds, selects * May 30, 1853. t Principles of Political Economy, b. v. chap. vi. sec. 3. Financial Policy. 219 for particular commendation, because the tax is Chap. IV. thus made to fall chiefly upon luxuries. One l8 -., carriage may be, and often is, a necessary of life to persons in certain positions ; two or more carriages can only be regarded as luxuries. But however sound this argument may be in the abstract, it was found that the practical effect of the system of progressive duties was, to cause much inconvenience to trade, as well as many complications and even frauds arising out of the compositions and exemptions with which it was accompanied. Before the in- troduction of the budget, Sir De Lacy Evans had brought the subject under consideration, and had introduced a bill* in the interest of the carriage-builders, for simplifying the system and for substituting three uniform rates of duty upon three classes of carriages for the twenty- six different rates, ranging from 1/. §s. to 9/. is. 6d., to which they were previously sub- ject. He pointed out very clearly the loss caused to the coachbuilders by the decline which had taken place in the number of carriages built within the last ten or twelve years ; but he withdrew his bill on the promise of Mr. Glad- * April 12, 1853. 220 Twenty Years of Chap. IV. stone to give the subject his favourable con- 1853* sideration. It now only remains to notice an important Conversion of financial operation, not directly connected with Btocks. tne budget, which Mr. Gladstone attempted in the session of 1853. This was the projected re- duction of interest upon a portion of the 3/. per cent. Consols, and the creation of a 2/. ioj-. per cent. Stock. Consols at this time were quoted at par, or even somewhat higher.* There was no longer any stock in existence bearing a higher rate of interest than 3/. per cent., except the New 3J per cent. Stock, which would in the course of another year be reduced to 3 per cent. ; and this last could not again be meddled with till 1874. If therefore anything important was to be done in the way of reducing the interest of the national debt, it could only be done by an operation upon Consols. -f- But this great fund resembled a strong and unassailable fortress, compared with which all smaller stocks, which * In December, 1852, Consols had stood at 10 1[. In January, 1853, they had fallen to 99^. In March, when Mr. Gladstone's proposal was made, they were at 100J-. f There were in truth two distinct stocks, Consols and the Reduced three per cents, which could thus be operated upon ; but for the sake of brevity they are here spoken of as Consols, that being the principal stock. Financial Policy. 221 had in former times been dealt with, were but Chap. IV. unimportant outworks. Its magnitude alone l8 ., was enormous. Lord Bexley had operated on a capital of 152,000,000/. in 1822; Lord Ripon upon a capital of 77,000,000/. in 1824; Mr. Goulburn upon a capital of 153,000,000/. in 1830, and again upon a capital of 248,000,000/. in 1 844 ; but the 3/. per cent. Consols amounted to 500,000,000/., or more than double the largest stock that had yet been touched. This, how- ever, was only one feature of the case. What was more important to consider was, that while it was a comparatively simple and easy matter to propose to the holders of a 5/. per cent., or of a 4/. per cent, stock, that they should submit to a reduction in a rate of interest considerably above that at which it was in the power of the Government to borrow, it was quite another thing to make the same proposal to the holders of a 3/. per cent, stock; for, "as far as the history of the world has yet gone," said Mr. Gladstone, we have never known a much lower rate than this prevail. Another and a still greater difficulty arose from the fact that the State is not free to deal with Consols as it is with other stocks. If the pre- vailing rate of interest were but 2 per cent., or if the Government could at this moment lay its 222 Twenty Tears of Chap. IV. hands upon 500,000,000/., it would still not be 1853. at liberty to pay off the holders of Consols; be- cause the bargain with them is, that they shall receive a whole year's notice beforehand ; and no Government could venture on the bold step of giving such a notice, and taking the con- sequences which might ensue from a change of circumstances in the interval. These great ad- vantages thus possessed by Consols had in former times assisted the Government in effecting the conversion of other stocks. Consols always bore ahigher relative value than other and higher- priced stocks, on account of the magnitude of the stock, and its greater security from conver- sion. The value of a stock depends upon its being readily marketable ; and a large stock, of which there is always an abundant supply, and which is invested by any circumstances with a character of permanence, must necessarily be more marketable than a small one, which may come to be held by a few persons, or than a high-priced one, of which the interest may some day be reduced. The existence of such a stock necessarily gives an advantage to a Government dealing with the holders of a higher priced, but proportionately less valuable, stock. At worst, it has always the resource of borrowing in the Financial Policy. 223 lower-priced, in order to pay off the higher- Chap - iv - priced. This advantage was of course lost when 1853. the question became that of dealing with Con- sols itself. What had been a source of strength now became an embarrassment. There was no fulcrum for the lever, by which the great ope- ration was to be wrought. Nevertheless, Mr. Gladstone's courage did Terms of- r »i 1 • tt 1 - m -t r f ere d by Mr. not rail him. He saw the impossibility 01 Gladstone. storming the fortress, but he thought he might induce it to capitulate. The terms he offered were as follow : — The holders of Three per cent. Stock (whether Consols or Reduced) were to be entitled to exchange it either for a New 3! per cent. Stock, guaranteed against redemp- tion for forty years, at the rate of 82/. ioj\ of the new for every 1 00/. of the old stock ; or, for a New 2I per cent. Stock, also guaranteed against redemption for forty years, at the rate of 1 10/. of the new for every 100/. of the old ; or for Exchequer bonds at par. These Exchequer bonds were in the first instance to bear interest at 2/. 1 $s. per cent, for not more than ten years, and then at 2/. 10s. per cent, for the residue of forty years from their first issue, and were finally to be redeemable at par ; but whether at the option of the holders or at the option of the 224 Twenty Tears of Chap. iv. Government, was left to be determined there- ,853. after, in order that Mr. Gladstone might be able to ascertain by actual experiment on what terms the holders of 3 per cent. Stock would accept them. Those who accepted the first of these alterna- tives — the conversion of their 3 per cent. Stock into 3 1 per cent. — would receive in respect of every 100/. stock an annuity of 2/. lys. gd. t guaranteed against reduction or redemption for forty years, instead of an annuity of 3/. as at present. At the end of the term of the guaran- tee the 3I per cent. Stock so created would be redeemable by Parliament, while the capital of this portion of the debt would be reduced in consequence of the operation by 17J per cent. Those who accepted the second alternative would receive in respect of every 100/. stock an annuity of 2/. 1 5J"., instead of an annuity of 3/. ; but the capital of this portion of the debt would be in- creased by 10 per cent. ; and, though this por- tion also would at the expiration of forty years be redeemable by Parliament, yet, being only a 2f per cent. Stock, it was not likely to be re- deemed, as a 3J per cent. Stock probably might be. It being thought probable that a great de- mand might arise for this 2§ per cent. Stock, Financial Policy. 225 and that a considerable augmentation might Chap. IV. thus be occasioned in the capital of the debt, ' x %-->. Mr. Gladstone thought it prudent to limit the amount to be created ; and it was provided that not more than 30,000,000/. of the new stock should be issued. In these two alternatives Mr. Gladstone only proposed terms similar to those which had been offered by his predecessors on former occasions ; but the third alternative was of a more novel kind. He proposed to create a new security in the form of Exchequer-bonds, which were to be as easily transferable as Ex- chequer-bills, while they would 'have the ad- vantage of bearing a rate of interest somewhat above that at which Exchequer-bills were usually issued,* and of having that rate secured for a long period. These bonds were to be issued to the extent of 30,000,000/. in exchange either for Exchequer-bills, or for 3 per cent. Stock. Mr. Gladstone, anticipating an objection which might be made to the exchange of Exchequer- bills, bearing interest at the rate of \\ per cent., for Exchequer-bonds at 2! per cent., * Exchequer-bills at this time bore interest at the rate of id. per diem, or i/. 10s. $d. per annum, but this was un- usually low. 226 Twenty Tears of Chap. IV. showed that the state of the Exchequer-bill 8 market was always extremely variable, " like a summer sky," and that when occasions had arisen which rendered necessary the funding of these securities, it had been effected at rates never below 3/. 6s. per cent., and sometimes as high as 4/. 6s. 8d. per cent. The minor Such were the main points in this scheme. stocks. A subordinate portion of it, which in the result, however, proved the most important portion, related to the liquidation of some small but time-honoured stocks, the debt to the South Sea Company, the old and new South Sea annuities, and the Bank annuities of 1720, amounting in the whole to about 9,500,000/. To the holders of these were offered the same alternatives as to the holders of Consols and of 3 per cents. Reduced, but with the difference that notice was given them, that in default of their accepting the terms, they should be paid off in money in January 1854. Prevalent It would seem, from the tone of the news- opinion as to 1 . . . - « . .. approaching P a p er money-market articles, and of other mdi- faUin the rate C ators of public opinion, that the plan of the of interest. ■ r r Chancellor of the Exchequer was very favour- ably received. The idea which appears to have prevailed, both within and without the walls of Financial Policy. 227 the House of Commons, was, that the terms Chap. IV. were, if anything, too liberal ; and that the 2 \ l8 per cent. Stock, in particular, would be greedily taken up. For some reason or other, there was a strong impression afloat that the time was at hand when a great and permanent reduction was to take place in the rate of interest. The stock of bullion in the Bank of England was undoubtedly very high, and the rate of dis- count unusually low. France was reducing her 5 per cent, rentes to \~ per cent., and the East India Company was effecting a similar con- version of a portion of its debt. But the public were excited to a belief that much greater changes than these were about to happen. It was thought that the discoveries of gold in California and Aus- tralia would produce a revolution in the rate of interest ; though why they should do so is a question more easily asked than answered. The rate of interest depends ultimately upon the proportion between the supply of capital and the demand for it. An influx of gold bul- lion may for the moment produce a great effect on the money-market ; but gold, like corn or cotton, must be paid for ; and the production of commodities to pay for it will create a de- mand for capital, which will probably be fully 228 Twenty Tears of Chap. IV. proportioned to the increased supply. There 1853. were indeed those who thought that the large discoveries of gold would reduce its value as a medium for the purchase of commodities. It is certainly possible that they may have this effect. Perhaps they have already to some ex- tent produced it. But there seems no reason for concluding that an alteration in the relative value of gold and of other commodities would lead to a reduction in the rate of interest or to a rise of the funds. Indeed there were some who maintained, with a good deal of plausi- bility, that it would operate in precisely the op- posite direction ; for, said they, if the value of gold falls, the value of stock (which represents a right to receive a certain quantity of gold) will also fall ; fewer people will buy stock ; the funds will fall, and the rate of interest will rise. Few seemed to perceive that all this discussion as to the relative value of money and commodi- ties had little or nothing to do with the ques- tion of the rate of interest. If, in a certain state of the market, 100/. will command 3/. a- year interest, there is no reason why those pro- portions should be altered, even though gold should become only half as valuable in relation to commodities as before ; for the same circum- Financial Policy, 229 stances which would reduce the purchasing value Chap. IV. of the 100/. capital would reduce the purchas- l853 . ing value of the 3/. interest in exactly the same degree. The expectations of a great reduction in the rate of interest, founded on the disco- veries of gold, therefore, seem to have been rather unreasonable. Other persons argued that the result in question was to be expected, because the value of money had for many years been progressively diminishing. But Mr. Gladstone himself pointed out the fallacy of this idea, showing that there had been a time (1739)* when the rate of interest was lower than in 1853; and that the 3 per cent, stocks had then stood at the high price of 107 ; that from that point they had gradually fallen to about 50,^ and then had again risen till they now stood at par. There was, however, in this fall and subsequent rise no certain indication of the pro- bability of a further rise. The rate of interest had been raised by an extraordinary demand for capital in connection with our long and ex- pensive wars. That demand and its effects had now to a great extent passed away, and the rate * June, 1737 (?). t In June 1797, they fell to 47 \. This was at the time of the mutiny at the Nore. 230 Twenty Tears of Chap. IV. of interest had returned to something like its jg 53 original level. It did not follow that it would fall much below it. The national capital, in- deed, was rapidly accumulating ; but the de- mand upon it, arising out of the development of the national industry, was advancing with at least equal rapidity. More capital was seeking investment ; but more investments were con- tending for capital. The public funds had to sustain the competition of railway debentures, joint-stock companies' shares, and a hundred other absorbents of capital ; and this competi- tion of course tended to keep up the rate of in- terest. The prevalent idea, in short, seems to have been somewhat of a prevalent delusion. There was, however, this feature to distin- guish it from other delusions, — nobody appeared disposed to act upon it. A small quantity of the 2i per cent, stock (3,007,672/.) was taken ; and so was a trifling amount of 3 V per cent, stock (240,746/.), and a very few bonds (418,300/.) ; but these last were chiefly in exchange, not for Consols, but for Exchequer-bills,* on which the Chancellor of the Exchequer was then reducing the interest. The South Sea Company dissented * The amount taken in exchange for Exchequer-bills was 408,900/. Financial Policy. 2 3 1 as a body from the terms proposed in respect of Chap. IV. its stock and annuities, and demanded payment 1853. in cash to the extent of about 8,000,000/. It afterwards became a question whether the failure of the scheme did not result from the untoward events of the year, from the complication of affairs in the East, and the deficiency in the harvest ; but it is to be borne in mind that this decision of the South Sea Company to dissent from the proposed terms was taken, as regards one portion of the annuities, as early as in May, at a time when there was no particular anxiety as to the state of foreign affairs, and when Con- sols still stood at ioof. It is necessary here to say a few words on Reduction of another matter closely connected with the fore- on e ]?",!£" going. When Lord Aberdeen's Government q uer - bills - came into office, they found about 17,750,000/, of Exchequer-bills afloat, of which those dated in March bore an interest of lid. a-day, and those dated in June an interest of i^d. a-day. The premium on the March bills was very high ; it had reached at one time from 70/. to 8ar. per cent. When these bills came to ma- turity, Mr. Gladstone, who had large balances in the Exchequer to support him in case of need, reduced the interest to id. a-day, or 1/. \os. \d. 232 Twenty Tears of Chap. IV. per cent, per annum. This step he took in the 1853. face of an advance of the Bank rate of discount. It succeeded, however, and the whole amount of the March bills (about 8,500,000/.) were ex- changed at the reduced rate. When the June bills came to maturity, a similar attempt was made, but not with the same result. Of the 9,250,000/. Exchequer-bills falling due in June only 5,890,000/. were exchanged at the reduced rate of interest ; 408,900/. were exchanged for the new Exchequer-bonds; and about 3,000,000/. had to be paid out of the Exchequer balances. The effect of this was to reduce the amount of the unfunded debt, and to save the country a certain sum in interest, at the cost only of re- ducing the national balances, which were lying idle, and which were, as Mr. Gladstone thought, unnecessarily large. It would have been a better bargain for the country under other circum- stances ; but the necessity which speedily fol- lowed of again raising the rate of interest on the Exchequer-bills, and of issuing more of them in order to meet the claims of the dissentient South Sea fundholders, materially diminished the saving to the public ; and, at the end of the financial year, the amount of Exchequer-bills was once more as large as at its commencement, Financial Policy, 233 and the interest upon them was id. instead of id. Chap. IV. per day, while the balances in the Exchequer lg5 , had been seriously drawn upon, and Deficiency- bills had been issued to a greater extent than had for some time been the case. What made this the more unfortunate of course was, that the country was then upon the verge of a serious war ; and, although Mr. Gladstone maintained* that there was no inconvenience in raising 2,000,000/. or 3,000,000/. by Deficiency-bills, it will hardly be thought to be very desirable that a Chancellor of the Exchequer should be driven to this step just before the outbreak of war, and with a floating debt of more than 1 7,000,000/. -j- Operations of the kind which have just been Remarks on described must, after all, be judged by their re- t i ns.° per suit. There were many circumstances to be pleaded in mitigation of Mr. Gladstone's failure ; and, if the harvest of 1853 had been good, and the dispute between Russia and Turkey had not occurred, and no other unforeseen event had disturbed the money-market, he might have succeeded in producing a sensible impression * March 6, 1854. t The amount of the Exchequer-bills was 16,437,000/. and there were Ways and Means bills unredeemed to the amount of 790,000/. 234 Twenty Tears of Chap. IV. upon a great mass of the public debt. Had he i853- done so, he would have deserved, and would have obtained, great credit for the accuracy of his judgment and the happy selection of his op- portunity. As matters turned out, we have only to regret, as he himself afterwards regretted, that he attempted what proved to be above his power to accomplish. The slight saving which he actually effected by the transaction was not worth the cost at which it was purchased. General But wnatever mav De thought of this portion merits of the f the finance of 1853, and however inoppor- 1853. tune may have been the steps which have been described, when a war was on the eve of break- ing out, we should take a narrow view of the whole policy of the year if we failed to recog- nize the immense strength which it imparted to the country, and which enabled us to grapple successfully with the difficulties of the following period. The Government of Lord Aberdeen have sometimes been accused of incompetency, or of culpable negligence, for having brought forward such a budget as that of 1853 on tne eve of a war which they ought to have fore- seen. Whether they ought to have foreseen it or not, is a question not to be discussed here. Whether, if they had distinctly foreseen it, they Financial Policy. 235 would have brought forward exactly the budget Chap. IV. they did, may be doubted; but the great fea- lb ., tures of that budget — the settlement of the In- come Tax question, and, in a lesser but still in an important degree, the revision of our indi- rect taxation — mark it as a budget eminently calculated to strengthen the position of a country which was about to embark in a serious and ex- pensive struggle. The declining condition of the revenue, which Sir Robert Peel arrested with a strong hand when he imposed the In- come Tax and revised the Tariff in 1842, was not more perilous than was the state of things with which Mr. Gladstone had to deal in 1853. The discredit which had been thrown upon the Income Tax in 1851, and the reappearance in the policy of Lord J. Russell's Government of those symptoms of financial weakness which had characterized the Administration of Lord Mel- bourne, were indications of a growing evil, which, had it not been stayed, might have wrought fatal effects when the nation came to bear the burden of the Crimean war. That war, as we now acknowledge, revealed to us many imperfections in our military system ; but the strain on our finances brought to light no- thing but their soundness and their vigour. 236 Twenty 7"ears of 1853. Chap. IV. Could we have borne that strain as we did, if it had not been for the life which Sir Robert Peel first infused, and which Mr. Gladstone after- wards renewed, in our fiscal system, and but for which 1854 might have found us struggling with an overwhelming deficiency, or inex- tricably entangled in the toils which must at- tend a reconstruction of the Income Tax ? It was well for England that, in this respect at least, we had set our house in order before the day of trial came upon us. Financial Policy. 2 37 Chapter V. EFORE proceeding to the consi- Chap. v. deration of the general finance of l8 . 1854, we should take notice of introduction an important change which was °J. the . s y stem 10 or paying the made, at the beginning of the session, in the g ross revenue . into the Ex- mode of keeping the public accounts. This chequer. was a matter which had attracted the attention of Lord Derby's Government in 1852, and with which they had expressed their intention of dealing if they had remained in office. Mr. Williams had brought forward a motion on the subject in 1853, anc ^ Mr. Gladstone had pro- mised to attend to it. In fulfilment of this en- gagement he introduced, on the 2nd of Feb- ruary, 1854, a measure intended to facilitate the proposed change. As I hope to be able to devote a chapter to the subject of the Public Accounts, I shall con- 238 Twenty Tears of Chap. V. tent myself here with saying that the object of l85+ the change was, to bring the whole of the gross revenue of the country* into the Exchequer, and to provide for the expense of its collection by taking votes in supply on account of the revenue departments. Hitherto the practice had been, to pay all the expenses of collection out of the gross revenue, and to bring the net reve- nue or balance only into the Exchequer. More- over, the growing revenue was charged, not only with the expenses of its collection, but with certain pensions and other payments wholly unconnected with it, which had from time to time been authorized by acts of parliament. Some of these pensions and payments Mr. Gladstone now proposed to buy up and extinguish ; others he proposed to transfer to the Consolidated Fund : and others, again, were to be brought into the es- timates, and voted like the rest of our expenditure. At the same time he proposed to bring upon the estimates some of the charges hitherto borne by the Consolidated Fund. The effect of these alterations will be seen in the comparison of the * By this phrase the revenue from the Customs, Excise, and other taxes is intended. The revenue derived from the Crown lands stands on a different footing. Financial Policy . 239 budgets of the years preceding and the years Chap - v - succeeding them. Since 1855 the revenue has 1854. appeared to be greater by about 4,000,000/. than it would have been if the accounts had been kept on the old system ; but this apparent addition to the income of the country has been balanced by a corresponding addition to the ex- penditure, in the form of estimates voted for the collection of the revenue, and for the other charges to which I have already referred. The propor- tions of the Consolidated Fund charges and of the Miscellaneous estimates have also been altered. The interest which attaches to the finance Financial of the year 1854 is twofold. It was the test- JheyeaT' year of the measures of 1853 ; and it was the l8 5+- first year of the Russian war. As regards the first point it appeared that, so far as the com- mercial policy of 1 853 was in question, Mr. Glad- stone's measures had been eminently successful. The customs, which in the year 1 852-3 had pro- duced 20,396,000/., produced 20,703,000/. in the year 1853-4, notwithstanding a remission of taxation in this branch amounting to 1,483,000/. The excise, again, which in the year 1852-3 had produced 14,890,000/., produced 15,263,000/. in the year 1853, notwithstanding an excess of taxes remitted over taxes imposed, which had 154- 240 Twenty Tears of Chap. V. been estimated at 222,000/. The reduction of the Stamp-duties on receipts, too, had proved highly successful ; and, instead of producing a loss to the revenue, had brought it up to an in- creased amount. The addition to the Irish spirit duty had not led, as it was feared it would, to smuggling or illicit distillation ; and the ad- dition to the revenue in consequence of that step had been somewhat greater than had been anticipated. On the other hand, a rather smaller increase than had been expected had been real- ized in Scotland ; but this appeared to be more owing to moral than to fiscal causes. The ex- tension of the Income Tax to Ireland, and to incomes of 100/., had produced somewhat more than had been reckoned on. The Succession-duty had produced considerably less ; but this was the only point upon which Mr. Gladstone's estimate of revenue had been materially disappointed. Apart, then, from the questions connected with the management of the unfunded debt, and the conversion of the South Sea Stocks, the finance of 1853 had proved successful. With regard to these there was a great deal of con- troversy, the details of which are more than sufficiently intricate. The case of the Exche- quer-bills was in substance simple enough. Mr. Financial Policy. 241 Gladstone had reduced the rate of interest when Chap. v. the state of the money-market enabled him to x %-^ % do so. That he did not reduce it too far in March 1853, would appear from the fact that the lower rate was accepted by all the holders of bills. In June the circumstances of the money- market were less favourable ; and a certain number of bill-holders would not submit to the reduction of interest, and preferred to present their bills for payment ; but this alone would have caused no loss to the Exchequer, as it only involved the application of some 3,000,000/., which were lying idle at the Bank, to the reduction of the floating debt. If reducing the balances weakens the Exchequer, reducing the floating debt strengthens it ; and the one op- eration is a set-off against the other. In point of fact, Mr. Gladstone argued * that, even as things turned out, the country gained about 60,000/. by the transaction ; that is to say, that the charge for interest on the Exchequer-bills of 1853 was less by 60,000/. than it would have been if the rate had been maintained at \\d. a-day through- out the year, and if no bills had been presented in June. But the conversion of the South Sea * May 8, 1854. R 242 Twenty Teai's of Chap. V. Stock, or rather the redemption of 8,000,000/. l8 - +> of debt at par, was an unfortunate step, both in its effect upon the Exchequer-bill transactions, and in its general bearing upon the balances. A portion of this 8,ooo r ooo/. was undoubtedly taken out of balances which were lying idle ; but a portion also was taken out of accruing sur- plus revenue, which would otherwise have been applied to the redemption of debt, not at par but at 90 or 91. Indeed, the fortunate dissentients, who received their money in full on the 5th of January, were able to reinvest it on the follow- ing day at a profit of nearly 10 per cent. But without entering into these details, we can see at once that for a government to employ such a sum of money as this in the purchase of 3 per cent. Stock at par, and then, within a few months or a year, to be obliged to borrow a much larger sum by the issue of Exchequer-bonds at 3/. \os. per cent., and by loan in 3 per cent. Stock at 87 or 88, is a losing bargain. It is the weakest point in the finance of 1853.* * It is curious to observe the relative values of the funded and unfunded securities in 1853 an d ^54- ^ n tnc beginning of 1853, Consols were at par, yielding an interest of 3/. per cent. Exchequer-bills were at i\d. per cent, a-day, or il. jSs. per annum, and these were at a premium. In Sep- Financial Policy. 243 The budget for 1854-5 has now to be consi- Chap. V. dered. It was brought forward, in the first in- ,8 54 . stance, on the 6th of March ; but the growing demands of the war rendered it necessary for Mr. Gladstone to introduce a second scheme on the 8th of May. The two plans will be de- scribed in their order. On the 6th of March Mr. Gladstone esti- Budget of mated the revenue for 1854-5 at 53,349,000/. March 6. The charge for the debt he took at 27,546,000/. ; the remaining expenditure, leaving out of con- sideration the extraordinary demands arising out of the war, would be 27,393,000/. To this he proposed to add a sum of 1,250,000/. as a special grant on account of the extraordinary expense of the expedition to the East. We were send- ing out a force of 25,000 men ; it was, he said, uncertain what demands the war might occa- sion ; and, as Parliament would be sitting for several months, there would be abundant time to ask for further grants if they should become tember 1854, Consols were at 94, yielding an interest of 3/. 3*. 10^/. per cent. : but Exchequer-bills were at i\d. per cent, a-day, or 3/. 8s. 6d. per annum, and they were at par or at a discount. We see here one of the effects of the steps which alarmed the holders of Exchequer-bills, and which de- feated the plan of reducing the amount of these securities. i8 5 4- 244 Twenty Years of Chap. V. necessary ; all therefore which the Government now asked for was, a vote of 50/. per man, which was the smallest sum that would be re- quired for sending the troops out and bringing them home again. This addition to the esti- mates brought them up to a total of 56, 1 89,000/., or to 2,840,000/. above the estimated income of the year. It became, then, the question how this deficiency should be made up. Mr. Glad- stone hoped it would not be by retracing the steps taken in 1853, by restoring the soap duty, or arresting the fall of the tea duty. About a million, he said, might be added to the revenue in this way ; but it would be at the cost of a se- rious disturbance of trade and of great discom- fort to a multitude of persons. Nor was he prepared to propose any present addition to our other indirect taxation ; although he could not promise that, in the event of the war continuing, indirect taxation should not be increased. Nei- ther would he ask the House to sanction a loan ; such a step at that moment was neither required by the necessities, nor worthy of the character, of the country ; but he would not confine him- self to the present moment ; he took the oppor- tunity thus early, and, as it were, on the thresh- old of the war, to urge upon the House the Financial Policy. 245 importance of resolving that, so far as might be Chap - v - possible, they would meet the expenses of that 1854. war out of taxation, and not by the creation of debt. Having thus explained his objections to every other course that could be suggested for meeting the deficiency, he turned naturally to the Income Tax as the only remaining resource at his disposal, and proposed that it should be increased by one half, but that the whole amount of the addition should be levied in respect of the first moiety of the year ; — in other words, that the Income Tax should be doubled for half a year. This would add 3,307,000/. to the revenue of the year, and would convert the de- ficit of 2,840,000/. into a surplus of 467,000/. This form of addition he proposed, in preference to altering the rate of the tax for the whole year, on account of the uncertainty then attend- ing the probable course of events and the de- mands to be expected in connection with the war. If he had only added 50 per cent, to the amount of the tax for the whole year, it might afterwards have become necessary for him to come and make another demand for 50 per cent, more, in a form which would have involved a second alteration, and that, perhaps, a retrospective alte- ration, in the amount of the tax for the first 246 Twenty Years of Chap. V. half-year. If, on the other hand, he had at 1854. stone s view as to loans in time of war once asked for a double Income Tax for the whole year, he would have been asking for that which might, after all, not be required. He was indeed making a budget rather for a half year than a whole year, and this addition to the first moiety of the Income Tax was in the nature of a provisional arrangement. Mr. Glad- All Mr. Gladstone's budget speeches, (by stone's view as . . to loans in which expression I wish to draw attention to the speeches rather than to the budgets they in- troduce,) are eminently characteristic. What makes them peculiarly interesting is, not so much the beauty of the language in which they are couched, as the breadth of the sentiments they express, and the comprehensiveness of the prin- ciples they set forth. The audience feel that the facts and the arguments laid before them are the outpourings of a well-stored and thoughtful mind, — not merely a stock of matter gathered together for the nonce. " Suave est de magno tollere acervo." But that which thus gives these speeches an interest for the hearers is often pro- ductive of inconvenience, either at the moment or long afterwards, to the speaker. Mr. Glad- stone seems to forget the wise man's caution, — " Let nothing be in excess." He is not satisfied 1854- Financial Policy. 247 with saying enough for his immediate purpose ; Chap. V. he goes beyond it, and lays down broad prin- ciples, and commits himself to general doctrines, which he afterwards finds it would have been more prudent to have avoided touching upon. Mr. Sheridan once found fault with a budget speech of Mr. Pitt's, because the minister had, as he said, laid down his pencil and slate, and assumed the truncheon. There may be occa- sions upon which this is necessary. The budget of 1853 was perhaps a case in point. When a great object is to be accomplished a great effort must be made. But great efforts should not be made when they are not required. In March, 1854, Mr. Gladstone had a simple task to per- form ; and his reasons for resorting to the In- come Tax rather than to a loan might have been very briefly stated. Instead of so stating them, however, he took occasion to enter into the general question of the mode in which war expenditure should be met ; to impress upon the House the importance of raising in each year the supplies necessary for the year by taxa- tion rather than by loan ; and to support his ar- gument by a reference not only to economical, but to moral considerations. " The expenses of a war are the moral check which it has pleased 248 Twenty Years of Chap. V. the Almighty to impose upon the ambition and ,s 5+ . the lust of conquest that are inherent in so many nations. There is pomp and circumstance, there is glory and excitement about war, which, not- withstanding 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 expenditure which it en- tails is a salutary and a wholesome check, making them feel what they are about, and making them measure the cost of the benefit upon which they may calculate. It is by these means that they may be led and brought to address themselves to a war policy as rational and intelligent beings, and may be induced to keep their eye well fixed both upon the necessity of the war into which they are about to enter, and their determination of availing themselves of the first and earliest prospects of concluding an honourable peace." In making this appeal, Mr. Gladstone cannot be said to have been guilty of the precise fault with which Mr. Pitt was charged ; for, when he laid aside his pencil and slate, it was certainly not a truncheon which he took up in their place. But however sound and just his argument may be in itself, and however weighty it would be 1854- Financial Policy. 249 in the mouth of an independent member resist- Chap. V. ing a proposal on the part of the Government to carry on a questionable war by the aid of loans, it was singularly unfortunate in that of a Minis- ter who, with his colleagues, was at that very moment calling upon the nation to engage in a struggle, which was certainly not prompted by "ambition," or "the lust of conquest," and the speedy close of which was to be hoped for, rather from a display of energetic determination to spend and be spent in the cause, than from a deliberate and public adoption of the policy of so adjusting its burdens as to impose a "moral check " upon the ardour of the people. Mr. Gladstone's language upon this occasion was very liable to misconstruction ; and it was in fact misconstrued, much to the detriment of his own influence, when at a later period he advocated the cause of peace. At the same time it did little to promote the particular object he had in view ; for there was at that time a general agreement that recourse ought not then to be had to a loan ; and when, a few weeks later, affairs became more serious, Mr. Gladstone him- self was compelled to have recourse to the issue of Exchequer-bonds, that is to say, to loans in anticipation of taxes; and in the following year 250 Twenty Tears of Chap. V. his successor, Sir George Lewis, was reduced to l8 the necessity of raising a large sum by a regular old-fashioned loan, and Mr. Gladstone could say nothing but that he approved the step. Second bud- The second financial statement was made on get, May 8. thg g th of May> g y that dme k had been found necessary to frame new estimates, and to ask Parliament for a sum of 6,850,000/.* more than had been contemplated on the 6th of March. To meet this demand Mr. Gladstone proposed, in the first place, to double the Income Tax for the second half of the year, thus making its total produce 12,832,000/. ; and not only to double it for the nonce, but to provide for the continuance of the tax at the double rate, or 14^/. in the pound, till the close of the war. He proposed also to raise the duties on Scotch and Irish spirits, the former by is., the latter by %d. a gallon. From this addition he expected to gain 450,000/. He further proposed a fresh plan for * This amount was made up as follows : £. Supplementary Navy Estimates . . . 4,550,000 >» Army ditto . 300,000 >> Ordnance ditto . 640,000 >> Militia ditto . . . 500,000 >» Vote of Credit . . 850,000 Financial Policy. 251 the classification of sugars, and a new scale of du- Chap. V. ties, intended at once to remove the injustice of 7%$L taxing low qualities and higher qualities at the same rate, and to bring an amount of 700,000/. into the Exchequer. Lastly, he proposed to raise the malt duty from 2s. 8jd. to 4^. per bushel, by which step he expected to gain an additional revenue of 2,450,000/. These several sums would just make up the amount required to meet the addition of 6,850,000/. to the estimates, and would leave undisturbed the surplus already cal- culated on. But although the sums thus to be provided Issue of Ex- would, when received, meet the expenditure to bonds" be incurred, it was to be borne in mind that a considerable proportion of them would not be received until after the close of the financial year, in consequence of the length of credit allowed to the payers of Income Tax and of the malt duty, while the expenditure would have to be pro- vided for by immediate payments. To meet the demands of the year, therefore, Mr. Gladstone asked, and ultimately obtained, leave to issue Exchequer-bonds to the amount of 6,000,000/. in three series of 2,000,000/. each, payable re- spectively in 1858, 1859, and i860. Mr. Glad- stone had already, some days before making 252 Twenty Years of Chap. v. this statement, viz. on the 21st of April, issued g a notice calling for tenders for an advance upon securities of this description;* and the appear- ance of this notice had been the occasion of many remarks. On the 6th of March Mr. Gladstone had taken authority to issue Exche- quer-bills to the amount of 1,750,000/. in an- ticipation of the first half of the doubled Income Tax. On the 1 ith of April, the day before the House rose for the Easter recess, he had stated that the Treasury had not yet issued nearly the whole of that amount, and that the amount issued fell short of the amount authorized by 1,174,000/. To this statement he had added that he had no present reason to expect that he * The notice contemplated an exchange of Exchequer- bills for Exchequer-bonds as well as a direct advance of mo- ney. As, however, the Exchequer-bills so exchanged might have been re-issued, the transaction would have been in the nature of an advance of money. The arrangement has some resemblance to that effected by Mr. Vansittart in 1814 > when the holders of Exchequer-bills, which it was proposed to fund, were invited to contribute a further sum in money, and to receive in return debentures exchangeable for money or stock on the 5th of April 18 15, or on the 5th of April in any subsequent year, on three months' notice being given. Perhaps, however, this plan more nearly resembles the amended Exchequer-bill system introduced in 1861. i»5+- Financial Policy. 253 should have to make any further demand for Chap. V. Exchequer-bills in the course of the session, nor even that he should have to issue the whole amount already authorized. Yet, on the 21st of April, before the conclusion of the recess, an advertisement calling for tenders for an advance upon Exchequer-bonds had appeared in the Gazette. This step was in accordance with precedent ; but it was one certainly calculated to surprise the House of Commons, especially when considered in connection with Mr. Glad- stone's recent strong language with regard to loans. When challenged with his apparent in- consistency in this respect, Mr. Gladstone justi- fied himself by saying that an advance of money upon Exchequer-bonds redeemable in a few years' time was a different thing from a loan contracted in perpetual annuities, especially if the sum thus raised were only in anticipation of the produce of taxes already imposed. The dis- tinction, though somewhat subtile, is in truth an important one ; but it was obvious from the first that these Exchequer-bonds might very pos- sibly not be redeemed when they came to matu- rity, but might be treated like Exchequer-bills, and renewed from time to time for an indefi- nite period. The result proves the correctness iS 5 4. 254 Twenty Years of Chap. V. of these anticipations. They were therefore an addition, not indeed to the funded, but to the unfunded debt. Together with the 1,750,000/. of Exchequer-bills already sanctioned, they con- stituted an addition to the unfunded debt amount- ing to 7,750,000/., or rather to 7,125,000/., as a portion of the Exchequer-bills were exchanged for bonds. In some respects the new bonds were a more, and in others a less, convenient form of security than Exchequer-bills. The rate of interest upon them was fixed for the whole term they had to run ; it was therefore necessary to make it higher than the rate at which Exchequer-bills could have been issued. On the other hand the Treasury was secure for a considerable time from the danger of having a large amount of securities presented for payment at a moment when the claim could not easily be met. The subject, however, is one which I need not pursue.* * The public seem to have viewed them with little favour. Very few tenders were made in the first instance ; the Trea- sury then published the reserved price for their issue, which was 98/. 1 5*., with interest payable upon the whole bond from the date of issue, giving an advantage equivalent to a bonus of 1 51. per cent. The bonds bore interest at 3/. iar. per cent., and the investment at the reserved price was equal to nearly 3/. us. bd. per cent. Exchequer-bills were at this time pay- ing 3/. 8s. bd.> and Consols 3/. js. bd. per cent. Financial Policy. 255 The running fight, which was kept up through- Chap. v. out the session of 1 854, respecting the merits and x g 54> the demerits of Mr. Gladstone's financial arrange- „ Controversy ments, is partly entertaining and partly perplex- respecting Mr T . T , , ..... Gladstone's ing. 1 remember a Londoner s advising his financial friend from the country to take his stand one arran § ements - thick November day in a certain part of the Park, where he could have "a good view of the fog." Any uninitiated person who might have a fancy for a good view of the intricacies of the English mode of keeping the public accounts would do well to plunge into the discussions of 1854, and try to comprehend them by the light of unassisted common sense. The proposition of Mr. Canning, that you may prove any- thing by figures, was never more completely illustrated than by the confusion of the argu- ments drawn from the Finance Accounts, and other authentic documents of the year, not by mere private members, but by Chancellors and ex-Chancellors of the Exchequer, Governors of the Bank of England, and men of business intimately connected with the transactions of the money-market. I do not attempt to conduct the reader into this maze of controversy. I could not hope to render it intelligible, or to do jus- tice to the arguments on either side, without be- 256 Twenty Years of Chap. v. ing intolerably tedious. The chief accusations 1S54. against Mr. Gladstone were, that he had mis- managed the Exchequer-bill market in 1853; that he had emptied the Treasury by his injudi- cious attempt at converting the South Sea and other stocks ; that he had made an improper use of the Savings' banks' monies to sustain his ope- rations ; that he had crippled the Bank of Eng- land, and through it the trade and commerce of the country, by drawing largely upon it for aid in the shape of Deficiency-bills ; and that by the general tenor of his measures he had disquieted and weakened the money-market at a time when it was most important that it should be strong. Some of these charges were unfounded, and some exaggerated ; but there was, no doubt, much truth in others. The cardinal error appears to have lain in the attempt to convert the South Sea and minor stocks in the then state of the money-market, whilst another great operation (that upon the Exchequer-bills) was actually in progress, and while the political horizon was not absolutely unclouded. By trying to do too much at once, Mr. Gladstone brought upon himself the necessity of emptying the Exchequer, of pressing hard upon the resources of the Bank, and of disturbing the money-market just before Financial Policy . 257 the outbreak of a war. The use made of the Chap. V. Savings' banks' monies was both legal and in ac- lS - 4 . cordance with precedent; but, though capable of a complete justification, it is a step which al- ways provokes criticism, and it was unfortunate that Mr. Gladstone should have been compelled to have recourse to it in support of an operation of his own, which, as we have seen, was of doubtful advantage. As regards the Deficiency- bills, while it is quite true that Mr. Gladstone did not in reality overdraw the public account to the extent which his opponents represented, and that he generally had an Exchequer balance at the Bank much larger than the amount taken •out by Deficiency-bills, the net result was cer- tainly the withdrawal from the Bank of a very large sum of money which his predecessors had kept there, and the consequent diminution of the fund available for the discounting of com- mercial bills. In short, turn it how we may, it is impossible to spend one's balance and to keep it ; and the balance, or the greater part of it, had been spent in paying off the dissentient fund- holders, greatly to their advantage, and, upon the whole, to the State's disadvantage. This appears to be the upshot of the case. By far the most important of the questions s 258 Twenty Tears of Ch\p. v. raised by the discussions of 1854, however, was ,s 54 that relating to the mode in which the demands of a war should be met ; that is to say, whether The question they should be met by taxes or by loans. Mr. and loans^ S Gladstone, as has been said, warmly advocated the former principle. He had, even in 1853, reproduced in his budget speech the argument of Sir H. Parnell,* that, had Mr. Pitt had re- course to the Income Tax at the commence- ment of the Revolutionary war, that war might have been carried on without any addition being made to the national debt ; and in several of his speeches in 1854 he had strongly censured the financial policy pursued by Mr. Pitt in the earlier years of the war, contrasting it unfa- vourably with his later and nobler efforts to raise the supplies by the aid of the Income Tax. This censure had the effect of calling forth in 1855 a most interesting and valuable pamphlet by Mr. Newmarch,-f- containing an examination of Mr. Pitt's loans, and a spirited defence of his financial policy, as being that which the cir- cumstances of the country forced upon him. His comparison of the effects of loans contracted * See Sir H. Parnell's "Financial Reform," p. 272. f " The Loans raised by Mr. Pitt during the first French War, 1 793-1 801, with some statements in defence of the methods of funding employed." London, 1855. Financial Policy, 259 in high-priced and low-priced stocks respectively Chap. V. is peculiarly instructive. The statements and ,g 54 . arguments of Mr. Newmarch seem to have had great weight with Sir George Lewis, and to have influenced the course taken by that Minister in his financial arrangements for 1855. The question at issue between the advocates of loans and the advocates of taxes ought to be considered from two distinct points of view ; that is to say, it should be considered as an ab- stract and as a practical question. If we regard it as an abstract question of political economy, it is by no means so clear as Mr. Gladstone seems to have thought it. Of course it is true that it would be a very good thing for the country at the present moment if we were not burdened with the 600,000,000/. of debt contracted by Mr. Pitt and his successors ; that is to say, it would be a good thing provided we could be re- lieved of the charge without any other alteration in the circumstances of the nation. It is also evident that if our ancestors had raised the whole of the supplies necessary for carrying on the great war by taxation from year to year, we should at this moment be free from the debt to which reference has been made. But it does not necessarily follow that we should in that case be better off than we are ; for we must pause to 260 Twe?ity Tears of Chap. v. inquire whether excessive taxation fifty or sixty 1854. years ago might not have more seriously crippled our national resources at the present time than even the contraction of our enormous debt has done. If it be invariably more profitable to meet extraordinary expenditure by imposing taxes than by contracting debt, it would seem to follow that it must also be more profitable to apply a surplus revenue, when we have it, to the redemption of debt than to the remission of taxation. But this is a doctrine which modern statesmen have generally repudiated, or upon which, at all events, they have not acted. Mr. Gladstone's own practice in this respect has not always been in accordance with the doctrines he proclaimed in 1854. In that year he professed a desire to provide for the service of the war by taxation, and by taxation alone. He accordingly laid on taxes of an amount sufficient to raise a revenue adequate to the anticipated expenditure ; but, inasmuch as their produce could not be realized immediately, he drew bills against them in the form of Exchequer-bonds payable at four, five, and six years' date. When the shorter- dated of these bonds came to maturity he was not in office, and cannot be held responsible for the manner in which they were dealt with; but Financial Policy. 261 he was the Chancellor of the Exchequer in Chap. V. i860, when the longest of them were presented l8 - 4 for payment ; and, instead of meeting them out of the income at his disposal, he preferred to apply that income to the reduction of the Wine duties and of the Paper duties. It may very possibly have been for the interest of the com- munity to be relieved of taxes pressing upon commerce and industry rather than of a certain amount of debt ; but if this was so in the days of Mr. Gladstone, it is at least equally probable that in the days of Mr. Pitt it was more for the interest of the country to incur a certain amount of debt than to overload and break down the springs of industry and commerce by an inordi- nate weight of taxation. The truth appears to be, that there are certain conditions of national existence, under which it is less injurious to part with capital than with earnings. When the capital of a country is accumulating with great rapidity, a certain part of it is annually lost in unwise speculations ; and this part, at all events, may be safely drawn upon for Government loans. Undoubtedly the withdrawal of capital must always affect the interests of the labouring classes, because capital forms the fund which supports labour. But, unless we had a perfect 262 Twenty Tears of Chap. V. system of taxation, pressing exactly as it should jg., do upon every individual, it is probable that many of the labouring classes would suffer more from very heavy taxes, than from the withdrawal of a certain amount of capital from the market, since the pressure of taxation is unequal, while the pressure occasioned by the withdrawal of capital, being adjusted by a self-acting law, is comparatively speaking equal. Moreover, it must be remembered that a war absorbs not only capital but labour also, a circumstance which tends very much to mitigate the sufferings oc- casioned to the labouring classes by the diminu- tion of the labour fund ; and the contraction of trade, which is one of the consequences of war, must also have the effect of setting free a certain amount of capital, which may with advantage, or at least without disadvantage, be employed in the public service. Viewed as a practical question, the proposition of Mr. Gladstone is even more doubtful. No war has ever in recent times been conducted without recourse to loans ; and the attempts which have been made to maintain taxes in time of peace for the discharge of the debts contracted in time of war, have usually failed. In this respect Mr. Pitt and his contemporaries Financial Policy . 263 deserve honourable mention ; for, though they Chap. V. were acting under a mistaken impression in l8 . +i trusting to a sinking fund supported by loans for the redemption of the debt, they had at all events a firm faith in its efficacy for the purpose, and they adhered to it, under the pressure of their greatest difficulties, with a tenacity which ought to be remembered in their favour when we reproach them with the immense load of debt which they have bequeathed to us. But, with this exception, the experience of many years shows that war taxation will not be borne a day longer than is absolutely necessary. Be- tween 1798 and 1800 a sum of 56,445,000/. was borrowed, which was specially charged upon the Income Tax ; and it was arranged that the tax should be retained after the termination of the war for a period long enough to extinguish this debt. Yet the first act of the Addington Ministry, upon the conclusion of the Peace of Amiens, was to take off the Income Tax and to leave the debt of 56,000,000/. to be dis- charged, like the rest of the national obliga- tions, by the sinking fund. The rejection of the Income Tax in 18 16, the agitation against the "War ninepence " in 1857, the renewal of the Exchequer-bonds of 1 854, in 1858 and 1 860, 264 Twenty Years of Chap. v. are all symptoms of the national unwillingness i8 5+ to bear war taxation when spread over several years. But a nation, which will not bear such taxation in a diffused form, is still less likely to bear it in a concentrated form at a moment of severe national pressure. Much will be borne at such times, but not all. The instinct of the people teaches them that a war, if justifiable at all, is justifiable on account of its being waged for objects common to more generations than one ; and that, although the main brunt of it ought to be borne at once, some aid at all events may not unreasonably be expected from succeed- Change of . J J f Government, ing ages, or at the least from succeeding years. Had"it fallen to Mr. Gladstone's lot to intro- duce the budget of 1855, and to propose a loan, as he must have done, to meet a part of the ex- penditure of the year, he would probably have entered upon a discussion of this question, which could not have failed to be very interesting ; but a change in the Administration, resulting from the appointment of the Sebastopol Committee, led to his retirement from office, and Sir George Cornewall Lewis succeeded him as Chancellor of the Exchequer. Sir George Lewis brought forward his budget on the 20th of April, 1855. On the pre- ceding Friday, (the 13th,) a notice from the Financial Policy, 265 Chancellor of the Exchequer to the Governor Chap. v. and Deputy Governor of the Bank of England ,g 55 . had been communicated to the members of the Budget of Stock Exchange, stating that the Government April 20. intended to contract a loan for the service of the year, and that contractors were invited to attend at the Treasury on Monday the 20th. At this Loan of , r 1 1 , i6,oco,ooo/. meeting the terms or the loan were announced. They were as follow : — The sum required was 16,000,000/. ; for every 100/. subscribed in mo- ney the contractors were to receive 100/. in Consols, and a terminable annuity for thirty years, ending on the 5th of April, 1885. The biddings were to be made in the terminable an- nuity. The payments were required to be made in nine instalments ; the first on the 24th of April, the last on the 1 8th of December. This loan was taken by Messrs. Rothschild at the price of 14/. 6d. terminable annuity for every 1 00/. stock ; that is to say, at the rate of 3/. 1 41. 6d. per cent, for thirty years, to be reduced to 3/. per cent, at their expiration. This was reckoned equivalent to a loan in Consols at 87J, which is the same thing as saying that the loan was con- tracted at 3/. Ss. 6d. per cent. The price of Consols had touched 92 on the day of the an- nouncement of the intention to contract a loan ; they had been but slightly affected by that an- 266 Twenty Tears of Chap. v. nouncement, but on the amount of the loan be- j"Z7 ing made known, they fell to 90, and afterwards to a fraction lower. The scrip of the new loan was brought out at a premium of if. The bargain was generally considered a fair one.* The Budget. I n bringing forward his budget Sir George Lewis stated that the income of the past year had exactly realized Mr. Gladstone's anticipa- tions, but that the cost of conducting the war had been so large, that the expenditure had ex- ceeded the estimates by 2,653,000/. Mr. Glad- stone had calculated that the expenditure would exceed the produce of taxation within the year by 3,543,000/. It had actually exceeded it by 6,196,000/. As, however, Mr. Gladstone had issued Exchequer-bills to the amount of 1,750,000/. and Exchequer-bonds to the amount of 5,375,000/., the receipts of the Exchequer had amounted in the whole to 66,621,667/.,^ or 928,705/. more than the expenditure. * Such at least was the common opinion at the time. The mode in which the Loan was raised has, however, since been seriously criticised by Mr. Hubbard. See his Speech in the House of Commons, Aug. 13, i860. £ t Produce of taxes 59,496,154 Exchequer-bills 1,750,000 Exchequer-bonds 5?375?5 I 3 £66,621,007 Financial Policy. 267 For the coming year Sir G. C. Lewis esti- Chap. V. mated the expenditure at 80,899,561/. ; besides l gj 5 . which he had to provide 1,000,000/. to pay off Ways and Means bills, issued in the year pre- ceding ; and he added that he thought it pru- dent to take a vote of credit of 4,440,000/. for the service of the war. Adding these sums to- gether, he found himself obliged to reckon the expenditure at 86,339,000/. To meet this he could only reckon on a revenue of 63,339,000/., and he had therefore to meet a deficit of 23,000,000/. ; which he proposed to do partly by the loan of 1 6,000,000/. already contracted for, partly by additions to taxation, amounting to 4,000,000/. receivable within the year,* and partly by the issue of 3,000,000/. of Exchequer- bills. The additions to taxation were to be as fol- low. The sugar duties were to be raised by 3^. per cwt.,j- which would add 1,200,000/. to the revenue : the duty on coffee was to be raised by id. per lb., J which would produce 150,000/. : the duty on tea was to be raised by 3^/. per lb.§ * The new taxes were estimated to produce 5,300,000/. in the whole, but only 4,000,000/. would be received in the first year. t /• e. from lis. to 155. per cwt. J 1. e. from ^d. to \d. per lb. § i. e. from is. bd. to is. gd. per lb. The duty on tea 263 Twenty Tears of Chap. v. which would produce 750,000/. An addition 18-5. of 200,000/. was to be made to the revenue from stamps by an alteration of the law relating to bankers' cheques.* The duties on Scotch and Irish spirits were to be increased, and were expected to produce a further addition of 1,000,000/. These several indirect taxes, there- fore, would produce 3,300,000/. An addition of 2d. in the pound to the Income Tax would make up a further sum of 2,000,000/. ; and the whole amount of the new taxes, when they should have come into full operation, would be 5,300,000/. Adding this sum to the amount of the revenue already estimated, we shall find that the taxation of the country was thus raised to 68,639,000/.-)- per annum, a sum largely in ex- cess of any that had ever before been so levied ; for, although the nominal revenue from taxa- tion in 181 5 was 72,000,000/., a deduction of nearly 13! per cent, must be made from that amount on account of the depreciation of the paper currency in which it was paid. The fol- would by law have fallen to is. yl. in the financial year 1855-6, but this fall had been arrested by an act passed early in the session. • This proposal was afterwards abandoned, May 11. f This sum represents the net revenue, and does not in- clude the cost of collection. Financial Policy. 269 lowing remarks of Sir George Lewis upon the Chap. v. ability of the country to bear this great strain ,855. are worthy of notice, and may suggest some im- portant considerations : — " To enable the country to bear the increased charge, the items of which I have now submitted to the Committee, all that is necessary is, that its resources should remain unimpaired, and that the vast creation of wealth which has been go- ing on without interruption for some years past should not suffer any diminution in consequence of the vicissitudes of the war. Now, Sir, there is one cause of favourable anticipation to which I think hardly sufficient attention has been paid in this House, and to which, as it seems to me ; scarcely sufficient credit has been given to the Government which preceded that of my noble friend near me, — I mean the measures they adopted with respect to trade with neutral na- tions. It is well known that during the late war a large portion of the disturbance of trade and interruption to manufactures was owing to the unwise retaliatory measures adopted by this country against the Berlin and Milan decrees. The orders in council then issued led to a great disturbance of the trade with neutral nations, and created an amount of loss and disturbance 270 Twenty Years of Chap. V. of commerce and industry, which it would per- ,855. haps be no exaggeration to say was equal to the entire detriment and suffering created by the increased taxes. From that cause of national loss the country has been fortunately saved by the wise measures which the late Government have adopted. In consequence of the measures adopted in former years by the legislature, as well as of the measures taken for the protection of our commerce since the war, hitherto with success, a sound state of commerce has been pre- served, and it appears that a vast increase has taken place in the amount of our foreign trade. As a proof of the present power of the country to bear increased taxation, I will beg to draw the attention of the Committee to a comparison of our imports and exports in the year in which the French war broke out, in the year when peace was concluded, and in the present year. In 1793 the imports into the United Kingdom were valued at 17,850,000/. ; in 18 15 they were valued at 32,987,000/. ; in 1853 they had risen to 123,099,000/. Our exports in 1793 were 18,486,000/. ; in 1 81 5 they were 58,629,000/., and in 1853 they were 242,072,000/.*. These * The figures here given show the official values of the imports and exports, which are founded on a wholly fictitious Financial Policy . 271 figures, Sir, present incontestable proofs of the Chap. V. enormous increase of the trade of this country l8 .- since the beginning of the French war, and since the last peace ; and they prove that an enormous mass of wealth exists in the country, from which an additional amount of taxation can be raised to defray the extraordinary expen- diture of the country." The additional taxes imposed in this bud- Different . . ,. . , j'j 1 1 views respect- get occasioned less discussion than aid the loan. i ngt h e ioan. It was said by some that the Government should have contracted it in terminable annuities, rather than in a perpetual stock like Consols ; by others, that they should have created a high-priced stock, which might afterwards be converted into a low-priced one, as had been done upon former occasions ; and by others again, that they ought to have opened a subscription loan, like that which had recently been raised in France, in- stead of negotiating it through the agency of contractors. Much difference of opinion also basis of calculation. The declared or real value of the exports of British and Irish produce in 1853, ' or instance, was only 98,933,000/. But as we cannot get the real value of our im- ports for the earlier years here compared with 1853, the offi- cial value is the only standard of comparison which can beset up ; and it is a fair one, as showing the comparative quantities of goods. 272 Twenty Years of Chap. v. prevailed with regard to a proposal made by ,$,-. Sir George Lewis, to introduce into the act sanc- tioning the loan a clause" providing for the gra- dual extinction of the debt by means of a sink- ing fund. On the first of these points the an- swer of the Government was, that, while bor- rowing on terminable annuities is very conve- nient to the State, lending upon them is very inconvenient to capitalists, and that it would have been impossible to raise so large a sum as 16,000,000/. in that form unless at an enormous sacrifice. As to borrowing in a high-priced stock, the obvious answer was, that lenders would calculate the probabilities of a future re- duction in the rate of interest as well as bor- rowers, and would take care to advance their money on such terms only as would secure them against any risk of loss. The arguments in favour of an open loan w r ere specious rather than sound ; and the case of France was not at all analogous to that of England in this respect. Mr. Baring* pointed out that in France there was in the aggregate a considerable amount of money in the hands of the small peasant pro- prietors, which, from feelings of distrust, they Speech of Mr. T. Baring, April 23, 1855. Financial Policy. 273 either hoarded or employed at a very low rate Chap. v. of interest; and that the Government had ^55. been able to call out a good deal of this money by the offer of good security and upwards of 4! per cent, interest ;* whereas in England the holders of small sums generally invested them at a fair rate of interest, and were not likely to be tempted by an offer of 35 or 3! per cent, for their money. Sir George Lewis also remarked \ that to open a subscription-loan would create a demand upon the Savings' banks, and that the sale of Savings' banks' stock would bring down the price of the funds at the very moment when the loan was being contracted, and when it was therefore desirable that they should be kept up."}; He further reminded the House that, if the * The French loan was contracted in 3 per cent, rentes, at 65.25, or about 4/. lis. per cent., but the discount allowed was such as to raise the interest very considerably above this rate. As moreover the ruling price of the funds was a good deal higher than 65, the investment was a tempting one. f On the same day, April 23. X The Government were at this very time censured for having had recourse to the sale of Savings' banks' stock in order to meet the demands of the war towards the close of the last financial year, and for having thus reduced the price of the funds just before contracting a loan. See upon this point the observations of Mr. Laing, and the answer of Mr. Gladstone, April 20, 1855. T 274 Twenty Tears of Chap. V. Government had taken the course proposed, j^77 they must have fixed the price at which they would receive subscriptions, and must have kept the subscriptions open for a considerable time, so that they would have lost the advantage re- sulting from the competition of capitalists. Opposition to Upon these points of objection the Govern- sinkFngfond. ment appear to have satisfied the House of Commons ; but the clause relating to the pro- posed sinking fund was not carried without se- rious opposition. Mr. Disraeli, Mr. Gladstone, Mr. Cardwell, Mr. Labouchere, Mr. Henley, Mr. Ricardo, and other gentlemen of various shades of political opinion, resisted the proposal on the ground that it was inconvenient and embarrassing to attempt to bind a future Parlia- ment to a particular course in such a matter. Mr. Glyn, Mr. T. Baring, and other gentlemen of authority upon commercial questions, sup- ported the Government, and the clause was car- ried on a division by a majority of 99.* It was generally admitted that the clause could not be held so binding on a future Parliament as to preclude its repeal if it should be found desir- able to repeal it ; but a great number of votes * By 210 to 11 1. Financial Policy. 275 were recorded in its favour with a view to " as- Chap. V. sert a principle ; " the principle being, that the l8 country should exert itself in time of peace to pay off debts contracted in time of war. Mr. Gladstone, however, expressed his fear that many of those who intended to give their votes on this ground " would be disposed to flinch from the maintenance of that principle, when they felt a strong pressure from without for the reduction of the hop, malt, insurance, or paper duties." Although by the arrangements which have Sir G. Lewis now been related, Sir George Lewis had made Swwtoissae provision for raisin? more than 86,000,000/., ™ ore Ex ~ , r O chequer-bills. and had anticipated that this amount would leave a surplus of more than 4,000,000/. above the estimated expenditure of the year, he found, as the session wore on, that still heavier demands had to be met, that " war did not consume according to rule and measure," and that his surplus of 4,000,000/. would be in- sufficient to meet the charges which would pro- bably fall upon it. Accordingly on the 2nd of August he applied for power to issue, not 3,000,000/. but 7,000,000/. of Exchequer bills or bonds for the service of the year. On that occasion he stated that 6,135,444/. had been 276 Twenty Tears of Chap. v. voted, as supplemental estimates, since the intro- ,855. duction of the budget in April. The effect of these additional votes was to raise the estimated expenditure of the year to 87,034,000/. The amount of revenue which he expected to receive from taxation within the year was, as has been said, 67,139,000/., and there was therefore a de- ficit of 19,895,000/., of which 16,000,000/. would becovered by the loan. Of the7, 000,000/. of Exchequer-bills, 1,000,000/. would be ab- sorbed by the redemption of the Ways and Means bills created in 1854-5, and an unappro- priated margin of 2, 1 05,000/. would remain to meet contingent demands. This proposal con- cluded the financial arrangements of the year. Sardinian and Notice ought here to be taken of two arrange- ioans' S ments concluded in the course of this session with our allies, the Sardinians and the Turks respectively. On the 23rd of March Lord Pal- merston moved a resolution, in pursuance of a convention with the King of Sardinia, by which the British Government had under- taken to advance one million immediately, and another million at the end of a twelvemonth, if the war should last so long, by way of loan to the Sardinian Government ; the King of Sardinia on his side stipulating to keep on Financial Policy. 277 foot an army of 1 5,000 men for the service Chap. V. of the war. The loan was to bear interest at 3 1855. per cent., and to be repaid by instalments of 1 per cent, per annum. This resolution was agreed to after a short debate without a division. The Government, however, had much more difficulty in obtaining the consent of the House to a convention, by which they undertook, con- jointly with the Government of France, to gua- rantee a loan of 5,000,000/., which the Turkish Government were about to raise at 4 per cent. The resolution adopting this arrangement was brought forward on the 20th of July, and after an animated debate was carried by a majo- rity of only 3,* Mr. Gladstone, Mr. Disraeli, Mr. Ricardo, and Mr. Laing, taking the lead in opposing it. The objections taken to the guarantee were partly of a financial and partly of a political character. A good deal of warmth was displayed both in debate and out of doors, and on both sides of the question. The friends of the Government represented the opposition to the loan as an attempt of the Peace party to throw difficulties in the way of prosecuting the war. On the other hand, those who objected * By 135 to 132. 278 Twenty Tears of Chap. v. to the measure described it as a first step towards l85 - the system of subsidies, which had proved so costly in the great wars with France ; they con- sidered that it would tend to destroy the inde- pendence of Turkey, and to weaken the spirit of self-reliance, which it was so desirable to confirm in her. They thought a direct subsidy would have been better, or at all events not worse, than this guarantee, which was in their view a subsidy in disguise ; and they found fault with some of the arrangements connected with the loan, espe- cially with that by which France and England were made jointly and severally responsible for the whole amount, instead of each being made separately responsible for one half of it. Supplemen- Ample as the provision made for the service TaL"^" °f * 855-6 must nave appeared at the time it was sented. made, the result showed that the war was even more costly than had been expected. Early in the following session supplementary estimates amounting to upwards of a million and a-half were presented. At the same time the Chan- cellor of the Exchequer perceived that the reve- nue which he had calculated on receiving would not be realized. Accordingly, in the month of Fresh loan of February, tenders for a new loan of 5,000,000/. were called for. The loan was again negotiated Financial Policy . 279 in 3 per cent. Consols. Baron Rothschild, the Chap. V. only person who tendered, made an offer of ,g 5 6 1 00/. for 1 1 2/. $s. stock ; but this offer having been rejected, he accepted the Government minimum of 1 1 1/. 2s. 2d., which was equivalent to an issue of Consols at 90. On the 22nd of February Sir George Lewis applied to the House for a confirmation of this provisional agreement. He showed that the Customs' and Excise reve- nue was likely to fall much below the amount at which he had estimated it ; partly on account of the diminished consumption of sugar, partly on account of the falling off in that of spirits. By the combined effect of the excess in the ex- penditure, and the deficiency in the revenue, the surplus of 4,000,000/., on which he had calcu- lated in the preceding year, had disappeared ; and he applied for authority to raise the loan of 5,000,000/., in order to replace the finances in the condition in which he had proposed that they should stand ; at the same time he took power to fund 3,000,000/. of Exchequer-bills. This statement was, however, of a merely Budget of provisional character. The budget itself was not M * "** introduced until the 19th of May, before which time the war had come to an end, and a defini- tive treaty of peace had been signed at Paris. 280 'Twenty Tears of Chap. v. In this statement Sir George Lewis reviewed l8 -6 # the financial circumstances of the complete year 1855-6, showing that the ordinary expenditure had amounted to 88,428,345/., and that, includ- ing the advance of 1,000,000/. to Sardinia, and the sum of 2 1 3,000/. applied to the redemp- tion of hereditary pensions, it had reached 89,641,345/.; that the revenue from taxation had been 65,704,491/. ; and that the deficiency of 23,936,854/. had been supplied by loans to the amount of 26,478,750/.,* the excess of which above the amount required to meet the expenditure had gone to strengthen the balances in the Exchequer. He then attempted to esti- mate the total cost of the war. He stated that the expenditure of the two years, 1854-5 and 1855-6, had in the whole amounted to 155,121,307/. ; the expenditure of the two pre- ceding years, 1852-3 and 1853-4, had been 102,032,596/. The difference, 53,088,711/., was, he thought, the measure of the cost of the £ * By Loan of April, 1855 .... 16,000,000 By Loan of Feb. 1856, part received 3,501,000 By Exchequer-bonds 977575° By Exchequer-bills 6,000,000 £26,478,750 Financial Policy . 281 war up to that time ; a further sum of 24, 500,000/. Chap. V. must however be added on account of the in- l8 -6. creased charge to be thrown on the estimates of 1856-7. This addition would make the whole cost of the war 77,588,71 1/. As far as that cost had yet been defrayed, the mode of meeting it had been as follows : — Additional taxation had produced 17,182,522/.; there had been added to the funded and unfunded debt 33,604,263/. ; and there had been applied to the service of the war the surplus income above the expenditure during the last two years of peace,* being 5,985,427/. ; " thus making the total sum ap- plicable to war expenditure, over and above the sums applied to peace expenditure, 56,772,3 1 2/." Upon these results Sir George Lewis made the following observations : — " Before I proceed with a detailed statement SirG. Lewis's of the estimated expenditure of the year, I would t h e war. beg leave to call the attention of the Committee * Sir G. Lewis does not mean by this that the surplus revenue of those two years had been kept in the Exchequer, and applied to the service of the two following years, but that the taxes of the two years of peace, though lower by 17,000,000/. than the taxes in the two years of war, had been more than sufficient to meet the expenditure, and had left a surplus of nearly 6,000,000/., while the war taxes, though 17,000,000/. higher, had left no surplus. 282 Twenty Years of chap. v. to the peculiar character of the contest in which 1856. we have been engaged. By the modern inven- tions of machinery, by that acceleration of the means of locomotion which modern science and skill have devised, we have been able to crowd into a small space of time operations which in former years might have spread over a period of far longer duration. The American war lasted six years, and added 124,000,000/. to the na- tional debt. The actual hostilities of the late war have lasted two years, and will add about 42,000,000/. to the national debt, funded and unfunded. We have, Sir, by the measures which have been adopted during the war, avoided those drains upon the industry and trade of the country, which have been so severely felt under the policy pursued by belligerents in pre- vious wars. We have avoided incidental dis- putes arising from the exercise of the obnoxious right of searching neutral ships. We prudently waived our extreme rights as a belligerent power in maritime warfare at the commencement of the contest ; and I trust that the convention lately concluded at Paris will set the seal to that concession, which was so wisely made, and which has been attended with most wholesome results during the late hostilities. . . . There is another Financial Policy . 283 point also, which ought not to be left out of Chap. V. consideration with respect to the great expendi- 1856. ture for military and naval purposes during the late war. At the beginning of the war we found ourselves to a certain extent unprepared for the contest. During the last two years we have de- voted large sums to extending and improving our naval and military establishments. Our military arsenals are now much fuller, our stores are greater, our guns more perfect, our troops armed with much more efficient weapons than was the case at the commencement of the war. Our navy is likewise more numerous, better appointed, and more efficient for all the purposes of war ; and although the objects of a bellige- rent power are not those which we now seek, it is to be remembered that we are in possession of a much greater amount of articles for naval and military purposes than we had at the com- mencement of the war. It must not, therefore, be supposed that all our expenditure has merely been for the accomplishment of temporary pur- poses, for a considerable portion of it remains in r ,, Observations a permanent torm. on the effect Perhaps I may be forgiven for remarking that by fhcwar the last sentence of the foregoing extract has on the fo & National been verified by subsequent events in a sense Expenditure. 284 Twenty Years of Chap. v. which was probably not present to the mind of l8 -6 the speaker. He meant, it may be presumed, to say that England would to some extent be the richer for the outlay she had made, for that the results of a portion of that outlay would remain with her as a permanent possession. But though this is undoubtedly true, it is equally true that Sir George Lewis's words have been fulfilled in another, which is perhaps their literal, meaning. The expenditure upon naval and military ser- vices, which we learnt to make in the Russian war, has never since been unlearnt ; and we may say with perfect accuracy that " a conside- rable portion of it still remains in a permanent form." This is not the place to discuss the ge- neral merits of that war ; nor shall I attempt to inquire whether it was worth what it cost, either to mankind at large, or to England in particu- lar. But there can be no doubt that among the results which have followed it have been these two ; first, that it has stirred up in Europe a spirit of restlessness which has made all nations feel it doubly incumbent upon them to look to their means of defence ; secondly, and as a con- sequence of the first result, it has set all the world to seek for the means of improving the instruments of attack and defence, and to add Financial Policy. 285 enormously and without stint or measure to the Chap. v. most unprofitable and the most unsatisfactory of ,3-5. all possible forms of expenditure. Nor is the mischief one for which it is easy, or perhaps even possible, to suggest a remedy. While the war- like preparations of other countries appear to threaten the safety of England, it is the first duty of English statesmen to take care that her preparations for defence are upon a corresponding scale ; and yet, when England arms, other nations may justifiably hold the same language on their part, and thus warlike movements on the one side can hardly fail to beget warlike movements on the other. The mode of solving the difficulty must be left to the consideration of statesmen. The financier is deeply interested in its solution ; but it is a task which lies be- yond his province ; and it would seem to be his duty frankly to acknowledge the difficulty in which it places him, and to endeavour to accom- modate his financial measures to the circum- stances which he cannot control, rather than fritter away his time, and perhaps endanger the resources of the country, by looking back with regret to the halcyon days of undisturbed peace and peaceful estimates, or forward to a time when those happy visions of the past may realize 286 Twenty Years of Chap. V. themselves again. If Sir George Lewis was right l8 -6 in saying that modern inventions shorten and so diminish the cost of wars, it is also true that they spread the cost of war over times of peace to a much greater extent than was formerly the case ; and this, as it appears to me, is the main lesson we have now to learn from the period of financial history with which I am about to deal. The Budget I proceed with the account of the budget. Sir George Lewis stated that, in consequence of the conclusion of peace, the original estimates for the military services of the year had been re- duced from 54,874,000/. to 37,315,000/. ; that he proposed, as a measure of precaution, to take a vote of credit for 2,000,000/. to cover any un- foreseen expenses that might have to be met in winding up the transactions arising out of the war ; and that the Government considered it right to make provision for advancing a second sum of 1,000,000/. to the King of Sardinia in order to give effect to the spirit of the con- vention of 1855; although, according to the literal construction of the instrument, the ad- vance could not have been demanded, because peace had been made five or six days before the expiration of a twelvemonth from the date of paying the first instalment of the loan. The Financial Policy. 287 expenditure for the year would therefore amount Chap. V. to 77,525,000/., or, including the cost of col- ^5 lecting the revenue, which was now for the first time brought to charge in the estimates, to 82,113,000/. To meet this expenditure the Chancellor of the Exchequer could reckon upon a gross revenue of 71,740,000/. The Income Tax would, he said, by law remain at the rate of is. dfd. in the pound for the coming year, and for the year following ; the additional duties on tea, coffee, sugar, and molasses, would con- tinue for the coming year only ; and the addi- tional duty on malt would cease on the 5th of July in the year then current.* There was thus a difference of 10,373,000/. between the esti- mated revenue and the estimated expenditure, against which, however, was to be set the sum of 1,500,000/. received within the current year * The additional Income Tax was to continue " during the present war, and until the 6th day of April, which shall first happen after the expiration of one year from the ratifica- tion of a definitive treaty of peace." The war duties on tea, sugar, &c. were to continue until the 6th of April next after the ratification of a treaty of peace : and the war-duty on malt until the 6th of July next after such a ratification. The treaty of peace having been ratified on the 27th of April, 1856, the war rate of Income Tax would therefore expire April 5, 1858, the war tea duty, April 5, 1857, and the war malt duty, July 5, 1856. 5,ooo,ooo/. 288 Twenty Years of Chap. v. from the loan of 5,000,000/. contracted in Feb- ,8q6. ruary. The deficiency was thereby reduced to 8,873,000/., of which the Chancellor of the Ex- chequer proposed to supply 5,000,000/. by a fur- Loan of ther loan, and the remainder, if it should be neces- sary, by the issue of Exchequer bonds or bills. It was, however, as he observed, possible that the 2,000,000/. which he proposed to take as a vote of credit might not be required. The loan of 5,000,000/. had that morning been taken on very favourable terms by Baron Rothschild. The price tendered by the contractor had been 108/. Consols for 100/. in money ; but this offer had been rejected as being above the reserved price fixed by the Government, namely 107/. I Of. yd., and Baron Rothschild had thereupon amended his offer, and agreed to the terms of the Chancellor of the Exchequer. This was equivalent to a loan contracted in Consols at 93, being 3 per cent, higher than the terms on which the previous loan in the month of Feb- ruary had been negotiated ; and about 37 per cent, higher than those of the last loan at the close of the war in 181 5. It was no slight proof of the extent of the resources of the coun- try that applications amounting to 40,000,000/. had been forwarded to Baron Rothschild by Financial Policy, 289 persons desirous of obtaining a share in the loan Chap. V. before the terms of the bargain had been settled, l8 . 6> and that deposits to the extent of 4,000,000/., in Bank of England notes or in gold, had been re- mitted to him, and were in his hands when he attended at the Treasury to negotiate on the subject. Sir George Lewis took the opportunity of this Sir G. Lewis' statement to lay before the House of Commons Estate of °" some particulars respecting the state of the the debt » National debt at the close of the French war, and at the time at which he was speaking. The nominal capital of the funded and unfunded debt in January, 18 16, had been 860,251,647/.; in January, 1856, it was 793,392,799/., show- ing a reduction of 66,858,848/. The annual charge for the debt in January, 1816, had been 32,784,168/.; in January, 1856, it was 2 8, 2 6 9, 5 37/., showing a reduction of 4,514,631/. per annum. In these statements, however, the additional debt contracted in 1856 is not in- cluded. Sir George Lewis also reviewed the and on the « .. . r . . . . pressure of general condition of our taxation, arriving at the taxation, conclusion that " the great obstacle to the im- provement of our system of taxation is owing, not to any want of care on the part of Parliament, nor to any want of frequent revisions and sug- u tries. 290 Twenty Years of Chap. V. gestions elaborately carried out by successive 1856. governments, but to the necessity under which we are unfortunately placed of raising a large revenue to meet the expenditure of the coun- in this and try." He went on to argue that the rate of our other coun- ... • , . expenditure in proportion to our population was not excessive when compared with that of other countries, if the charge we bear on account of the debt were set aside. The whole public ex- penditure of the country in the year 1853 had amounted to 1/. 19^. 6d. per head of the popu- lation. In France the amount in the same year had been 1/. izs. id. per head; but the charge for the debt in France was much less than the charge for the debt in England ; and if this charge were deducted in both cases, the rate of taxation in England would prove to be I9J-. 10 d. per head, while in France it was 1/. 2 s - ^d. In Prussia, however, the whole ex- penditure amounted only to 19/. 3^. per head, or, excluding the charge for the debt, to lys. 3^/. Comparisons like these, however, require very careful examination before they can be admitted. I hope to be able to touch upon this question in a chapter which I propose to devote to the consideration of the financial policy of foreign countries in the period of which I am treating. Financial Policy . 291 What is more material to notice at the present Chap. v. moment is the effect which the war had pro- ,8 56. duced upon our own taxation. The sum of 1/. 19J. 6d. per head, being the amount of our whole expenditure in 1853, had risen in 1855 to 3/. $s. per head ; while, excluding the charge for the debt, the sum of igs. lod. per head in 1853 had risen to a sum of 2/. $s. \d. per head in 1855; that is to say, we had much more than doubled that portion of our expenditure which is required for the regular service of the country, without reference to the portion required for the discharge of the interest of the debt. It may be interesting to add that in the year 186 1-2 the total amount of our expenditure, including the charge for the debt, was 2/. zs. Sd. per head ; and that the amount expended for current ser- vices, excluding the charge for the debt, was 1/. us. yd. per head.* In the course of the discussion which followed Mr. Disraeli's the introduction of the budget, Mr. Disraeli Gladstone's took occasion to impress upon the Government * Population, 29,049,540. £ Charge for Debt 26,142,606 Other Expenditure .... 45,943,879 Gross Expenditure . . . £72,086,485 292 Twenty Years of Chap. V. the importance of giving their best attention to ,8p6. measures of" wise, but at the same time rigid, remarks upon economy." He said, " I am convinced that that the necessity - ....... ~ . for economy. 1S the only spirit in which we can confirm the principles of finance upon which our system is now generally established, and that will en- able us to prepare those resources for the future which, whenever an emergency arises, will en- able us to show the same power we have recently displayed." He pointed out the mistake of supposing that the mischances and disappoint- ments, which had marked the commencement of the late war, would be prevented on a future occasion by the maintenance during peace of an army much larger than the needs of the country required ; and that the only result which we should reap from the support of unduly large military establishments in time of peace would probably be, that we should enter upon another struggle without those resources which, having been accumulated by the wise economy of former years, had enabled the country to pass through its recent difficulties with comparative ease, and the Chancellor of the Exchequer to present at the close of the war so satisfactory a report on its financial position. Mr. Gladstone, rising a little later in the evening, expressed his entire Financial Policy. 293 concurrence with Mr. Disraeli in this respect ; Chap. v. and then, referring to some observations which ,g 5 6. had been made with regard to remissions of taxation, went on to urge upon the Chancel- lor of the Exchequer the duty of holding very firm and decided language to prevent such in- cursions upon the funds at his command. " I trust," he said, " that whatever may be our dif- ferences of opinion, we shall not set the pesti- lent example of abolishing taxes and meeting the expenditure of the country with borrowed money." Mr. Gladstone expressed his regret that the Government had not done more than they had in the way of reducing the estimates, and his wish that the House had shown a greater disposition to press for a further reduction ; and concluded by repeating his hope that the Govern- ment would firmly maintain the revenue until it should be in a position to propose those remaining reforms, which, he said, " I quite agree are yet to be accomplished in our system of taxation." No other debate of general interest took place Prorogation , r . , r 1 ofParliament. upon the financial arrangements or the year. The proposals of the Chancellor of the Exche- quer were adopted ; the revised estimates were accepted and passed ; and the Parliament was prorogued on the 29th of July. 294 Twenty Years of Chapter VI. HERE is not, in the whole period which I have undertaken to re- view, a more interesting time than the opening of the year 1857. The Treaty of Paris had put an end to the war with Russia in the spring of 1856; and the year following the ratifications of that treaty had been, in common parlance, a year of peace ; but, financially speaking, it had been just as much a year of war expenditure as either of the years before it. It is at the close, there- fore, and not at the commencement, of 1856, that we must consider the war to have ter- minated, and that we must put to ourselves the question, — Stands England where she did before the struggle ? As regards the material resources of the war. Financial Policy. 295 country, it needs but a hasty glance to see that, Chap. VI. while serious drafts had been made upon them, l8 - 7 they had in no degree been impaired by the contest in which we had been engaged. The Cost of the whole cost of the war was estimated* to have amounted to 76,398,000/. To meet this charge, about 40,362,000/. had been raised by addi- tional taxation, and 41,041,000/. had been added to the debt. Thus about 5,000,000/. more had been raised than had been expended, and the balances in the Exchequer were the stronger by that amount. The net addition to our debt, after making allowance for the improvement in the balances and for the repayments due to us from Sardinia, was 32,361, 078/. -j- Our trade * By Sir G. C. Lewis, February 13th, 1857. The prin- ciple upon which his calculation was founded was that of comparing the expenditure of the three years 1854-1857 with that of the preceding three years, 1851-1854. But the cost of the war, if calculated on that principle, is still going on, for every subsequent year of peace since 1856-7 shows a much larger amount of expenditure than the years 1851-1854, which Sir G. C. Lewis took as his standard, t Russian war loans, Funded debt : — £ First loan . . . 16,000,000 Second ,, ... 5,000,000 Third „ ... 5,000,000 Carried Forward £26,000,000 296 Twenty Years of Chap. VI. and manufactures, again, were in a condition of 1857. great prosperity. The value of our exports, which in 1853 had reached the very large sum Stateoftrade. of 98,933,000/., had fallen in 1855 by little more than 3,000,000/., and had risen again in 1856 to no less than 115,890,000/., a sum much larger than any recorded in any previous year. The largest increase had taken place in the exportation of those articles which form the staple of our manufactures, namely, textile and metallic fabrics. The quantity of raw cotton imported and retained for consump- tion had also largely increased. In 1853 the quantity was 746,709,000^5.; in 1855 it was 767,406,000 lbs. ; and in 1856 it was 877,814,000 lbs. The returns relating to the £ Brought Forward 26,000,000 Exchequer bonds 7,000,000 Exchequer bills issued 5,041,000 Ditto, funded 3,000,000 £41,041,000 Increase in Exchequer balances between March 31, 1854, and March 31, 1857 • • • • 6,679,922 ^34>3 6 W 8 Repayable by Sardinian Government in forty years 2,000,000 Net addition to Debt .{.'32,361,078 Financial Policy. 297 amount of shipping employed in our trade Chap. VI. were equally satisfactory. In short, while 1857. Russia had been exhausted, and even France had felt herself seriously weakened, by the drain of the war, England had but just begun to put forth her strength, and was evidently in a position which would have enabled her, had it been necessary, to carry on the contest for a considerably greater length of time without distress. But while the war had thus passed over with- Moral effect 1 • • • • 1 of the war. out making any serious impression upon the material resources of the country, the moral effect which it had produced had been enor- mous. It had awakened that combative spirit which lies deep in the English character, and which is something distinct from the love of glory or the thirst for conquest which we notice in other warlike nations. It had rudely dis- pelled the dream of perpetual peace and unin- terrupted tranquillity in which the nation had for some time been lapped. It had exposed the defects which our military system had by long disuse contracted, and it had not lasted for a sufficient time to enable us to show how much we had done towards supplying those defects, and making our army what it ought to 298 Twenty Years of Chap. VI. be ; so that we left off with an uneasy and dis- ,857. satisfied feeling with respect to the state of our military power. It had compelled us, too, to spend our money freely, and almost recklessly, and had thus begotten in us a habit and even a taste for expenditure, such as it is much easier to acquire than to get rid of. The ease with which we had borne our burdens had, 01 course, greatly contributed to encourage this tendency to expense, and to make men listen impatiently to the cautious warnings of the economist. Yet, with all this, there was in the public mind a strong and very general desire, I should rather say a firm determination, to get rid of the burden of the war taxes. As Mr. Gladstone very happily said,* the country, while perfectly reckless with regard to expenditure, was jealous with respect to taxation. The addition which had been made to the Income Tax for the purpose of the war was the chief subject of Agitation attack. Associations were formed, and meet- aeainst the , , , . , r * , . . ,, war nine- in g s held, to get rid or the " war ninepence, pence. which it was feared the Government would attempt to retain for another year. The excite- ment upon this point was all the greater, be- * February 3, 1857. Financial Policy. 299 cause, according to the literal construction of Chap. VI. the law, the additional impost had still to be ,g- 7 . borne for another year ; and the dislike to the tax itself was enhanced by the dislike which an Englishman always feels towards what he calls sharp practice. Had the ratifications of the treaty of peace been exchanged on the day on which the treaty itself was signed (March 30), or even within five days afterwards, the tax would have expired on the 5th of April, 1857; but as the ratifications were not exchanged until the 27th of April, 1856, the duration of the Income Tax at the increased rate would by law extend to the 5th of April, 1858. This was a grievance which men were deter- mined not to bear, and a formidable agitation against it was set on foot in the course of the recess. But the recess was remarkable for other rea- State of fb- sons. Not only had there been cause to appre- rei§n affalrs ' hend that the new-made peace with Russia would be broken, upon a question of boundary, before it had well had time to consolidate itself; but troubles had sprung up in other quarters of the globe. There was a misunder- standing between Prussia and Switzerland, which caused some uneasiness ; England and 300 Twenty Tears of Chap. VI. France had broken off diplomatic relations with j8 57 . the King of the Two Sicilies, thus taking the first step in the direction of that moral inter- vention in the affairs of Italy, for which the foundation had been laid in the protocols of the Treaty of Paris, and which was destined in due time to bring about the Italian war of 1859; complications had arisen between this country and the United States in respect of the affairs of Central America ; and in the East we had engaged in two new wars, a war with Persia, and a war in China. It was as though a self-sown crop of disturbances were growing up, after the great harvest of the Russian war had been gathered in. Opening of Under these circumstances, the debates upon the Session. ^ address in answer to the Queen's Speech, Debate on the . _ _ Address. at the opening of the Session or 1057, espe- cially that in the House of Commons, were peculiarly interesting. The occasion of the Address is one which is frequently taken for raising a discussion upon questions of foreign policy ; but it is seldom that so much of the financial element enters into those discussions as they this year contained. Even in the House of Lords, Lord Derby offered some serious observations upon the question of the i8 5 7- Financial Policy. 301 Income Tax ; while in the House of Com- Chap. VI. mons, Mr. Disraeli, Mr. Gladstone, and Lord John Russell, (who was not at this time a mem- ber of the Government), dwelt at considerable length upon the financial aspect of affairs, and upon the prospects of a reduction of war expenditure and of war taxation. Mr. Disraeli referred to the settlement which had been arrived at in 1853 with respect to the Income Tax, and expressed his alarm at the reopening of all those exciting topics of controversy which had then, he hoped, been settled for ever. He stated his intention of moving resolutions against the continuance of war taxes in time of peace, and in favour of adhering to the spirit of the arrangement of 1853, for the ultimate extinc- tion of the Income Tax. " I cannot but be- lieve," he said, " that if these Resolutions are carried, we shall witness some beneficial changes in the financial system of this country. I think we shall give a great impetus to salutary economy, and shall in a most significant man- ner express our opinion that it is not advisable that England should become what is called * a great military nation.'" Mr. Gladstone agreed with Mr. Disraeli in thinking the state of things as regarded the Income Tax unsatisfac- 302 'Twenty Years of Chap. vi. tory, adding, " as long as you have an Income ,85-. Tax you will never entirely get rid of that dis- cussion, [of the question between temporary and permanent incomes,] and this conviction, and the political dangers of this tax, led me to the conclusion that the Income Tax is an ad- mirable instrument for national purposes upon a great and adequate emergency, but that it is a dangerous instrument to retain in the time of peace. But," said Mr. Gladstone, " that which really governs the whole question of the Income Tax and of our other taxation, is the question of the amount of the expenditure which is to be maintained. This House cannot efficiently discharge its duties by looking only at taxation. I feel it my bounden duty first to lay hold of the proposed expenditure, and it is my conviction that, if it be the opinion of the Government that it is necessary to maintain a military establishment upon a scale at all ap- proaching to that which I have named, we must grapple with the Estimates, not by nib- bling at them here and there, but by a general motion, taking the sense of the House upon the expediency of saddling the country with such a charge." Lord John Russell, speaking later in the debate, and after Lord Palmerston Financial Policy. 303 and Sir George Lewis, urged the Government Chap. VI. to anticipate the proposed motions of Mr. l8 - 7# Disraeli and Mr. Gladstone by bringing the state of the finances before the House at a very- early period of the session. Referring to the question of our military establishments, he said, " Perhaps, if I might venture to recall old times, and refer to what he (Lord Palmerston) said the first time I made a motion in this House, which was in 18 16, when I asked the Ministry to withdraw the Estimates, and pro- pose reduced ones ; and my noble friend, then Secretary at War, stated the grounds why con- siderate Estimates were necessary ; I might observe that the reasons he then gave were not very dissimilar from those which he offered to-night, and I have no doubt were perfectly well grounded. All I should wish to preveiu, as far my vote lies, would be the adoption of any new system with regard to our Naval and Military estimates. We have been accustomed, (and very great ministers, — ministers who knew what the country re- quired, — have sanctioned the practice), to keep up low establishments in time of peace ; and though there has been always a complaint in the first year of war, that we have been very 304 Twenty Years of Chap. vi. unprepared, and have not made sufficient pro- l8 -- vision for a period of war, somehow or other, after a time, we have generally found our- selves strong enough to meet our enemy with the establishment we possessed. Moreover, though the complaint I refer to has been made very recently, arising out of the events of the late war, I do not think that our ex- perience during the last thirty years is at all adverse to the plan pursued. We have seen in France, — I believe almost ever since the acces- sion of Charles X, and certainly since the acces- sion of Louis Philippe, — that that country has been maintaining an immense army, and a con- siderable navy, and every year increasing its debt, We, on the other hand, have been keeping up establishments, thought by some persons too great, but which were, in fact, not very considerable ; we have thus been enabled to secure a surplus revenue, to reduce taxes, and abolish customs' duties which pressed upon the energies and checked the industry of the people ; we have enabled our population to grow rich ; and we have seen in the last war what that wealth was able to effect ; for when our enemy was exhausted, and our ally was so far weakened in its finances, that its war spirit Financial Policy. 305 flagged, the Government of this country found Chap. vi. that, owing to our wealth, we had more than ,857. sufficient to pay for the large expenditure of the war; and the spirit of our people, if terms of peace had not been accepted, was such that for five, six, or ten years longer, if necessary, we might have made the exertions necessary for war. Now these are the things which produce good terminations of wars, and not large and expensive establishments, with generals and admirals growing so old that they are unfit for their duties when war comes. It is by mode- rate establishments, by rendering such establish- ments good and efficient, by attending to every- thing which cannot be easily originated or replaced, — it is by such a system, and by rely- ing on the greatness of the country, and on the spirit of our people, that you will be most for- midable in war, and not by any new-fangled system of increased Estimates during a time of peace." Such were, at this juncture, the opinions of the three most eminent among the independent members of the House of Commons, of three statesmen usually differing very widely one from another upon most questions of policy, yet concurring upon this occasion as to the im- x 306 Twenty Years of Chap. VI. portance of reducing our large military esti- ,857. mates, and of returning as rapidly as possible to the level of an ordinary peace establishment. But the task upon which they thus urged the Government to enter was like the task of the husbandman, who, having dug a hole in a stiff soil, tries afterwards to replace the earth he has taken out in the pit from which it came. " In sua posse negabit Ire loca, et scrobibus superabit terra repletis." Budget of The Budget was brought forward on the 1 8 "7-8 F c b. 1 3/1857. J 3 tn of February, 1857, and Sir George Lewis stated the estimated expenditure for the year at 63,224,000/., independently of the amount which would be required for the repayment of debt. There were Exchequer-bonds for 2,000,000/. to be paid off, and 250,000/. to be provided as a sinking fund on the last loan of 5,000,000/. These sums, added to the esti- mates already mentioned, would bring the expenditure up to 65,474,000/. The total amount of the Army and Navy Estimates* was * Including the Militia, the Packet Service, and the Coast Guard. This last service (amounting to 486,000/.) ought to be excluded from the comparison, as it was now for the first time brought upon the Navy estimates, having previously been defrayed out of the Customs' revenue. Financial Policy. 307 20,699,000/., being about 17,000,000/. below Chap. VI. the reduced estimates of the preceding year, l8 - 7 . but about 3,400,000/. above those of 1853. Sir George Lewis offered some explanation as to the causes of this increase, as well as of the in- crease which had taken place in the miscella- neous estimates also. Before proceeding to the question of the taxation for the year, he added some particulars respecting the engagements into which Parliament had entered for the repayment of the debt contracted during the war. There were 7,000,000/. of Exchequer- bonds to be redeemed by 2,000,000/. a-year ; the last 1,000,000/. would fall due in i860. There was 250,000/. to be paid by way of sinking fund in 1857, and afterwards there was 1,500,000/. a-year to be paid, till the debt contracted during the war should be discharged. Moreover, there was a considerable addition to the interest of the debt, arising from the recent additions to the principal, which it was neces- sary to take into account. The finance of the coming years, therefore, would be affected by the following additions, — 1857. Capital debt to be redeemed .... 2,250,000 Increased annual charge 1,421,000 Total 1*3,671,000 308 Twenty Years of Chap. VI. £ 1858. Capital debt to be redeemed .... 3,500,000 5^* Increased annual charge 1,324,000 Total £4,824,000 1859. Capital debt to be redeemed .... 3,500,000 Increased annual charge 1,207,000 Total £4,707,000 i860. Capital debt to be redeemed .... 2,500,000 Increased annual charge 1,108,000 Total £3,608,000 These additions to the expenditure, said Sir G. Lewis, must necessarily be held to have disturbed the basis of the settlement of 1853, and to have left Parliament free to deal with the Income Tax as might appear best. Sir G. Lewis' Approaching now the question of the taxa- views as to. ri . n« s>, t • r the remission tion for the coming year, Sir G. Lewis hrst disposed of the appeals which had been made to him on the subject of the Paper duties, the Wine duties, and the duty on Fire Insurance. Of the claims made in respect of the first he thought lightly ; the Wine duties, he said, must be reserved for a more favourable mo- ment ; and as regarded the Insurance duties he came to the conclusion, — founded upon Mr. Coode's excellent and elaborate report upon the subject, — that there was no ground whatever for Financial Policy, 309 acceding to the propositions which had been Chap. vi. made for their reduction. There is no quality ,g 57> for which Sir George Lewis is more remark- able than for a quiet courage, which emboldens him to give utterance from time to time, and sometimes without any apparent necessity for his doing so, to propositions of the most alarm- ingly unpopular nature. On the present occa- sion, besides going a little out of his way to apologise for the Paper duty, and to eulogise the Insurance duty, he proceeded to run a tilt against the doctrine of simplification which had for so many years been admitted to a place of honour in the fiscal creed of the country. In support of his view, he quoted the following passage from Mr. Arthur Young : — " The mere circumstance of taxes being very numerous, in order to raise a given sum, is a considerable step towards equality in the bur- den falling on the people : if I was to define a good system of taxation, it should be that of bearing lightly on an infinite number of points, heavily on none. In other words, that sim- plicity in taxation is the greatest additional weight that can be given to taxes, and ought in every country to be most sedulously avoided." "That opinion," said Sir George Lewis, "though ^IO Twenty Tears of Chap. VI. contrary to much that we hear at the present ,857. day, seems to me to he full of wisdom, and to be a most useful practical guide in the arrange- ment of a system of taxation." This digression, which had really but little to do with the main action of the budget, brought down upon the Chancellor of the Ex- chequer a vigorous denunciation from Mr. Gladstone, and a gentler rebuke even from Lord John Russell. Mr. Gladstone treated the Chancellor of the Exchequer's language as a total condemnation of the principles by which Parliament had been guided during the last fifteen years ; and Lord John Russell, while arguing that it was impossible that Sir G. Lewis could have intended to abandon those prin- ciples, mentioned this as a portion of his speech which he " should have been quite willing to have spared." His proposal To return, however, to the budget. Sir G. for the com- T . , 1 1 • 1 • ing year. Lewis, having stated that it was his intention in dealing with the taxation of the current year to confine himself to those taxes which were imposed during the war, proceeded to say there was no reason for reducing the Spirit duties, and that the additional duty on Malt had already expired. The Income Tax he Financial Policy. 3 1 1 proposed at once to reduce to the rate of yd. Chap. VI. in the pound ; but to fix it at that rate for the ^57. remainder of the term during which it had to Income Tax run, that is say, until i860. As regarded the duties on tea and sugar, he proposed to fix them at rates somewhat higher than those at which by law they ought now to have stood, but somewhat lower than those at which they had been temporarily maintained during the war. According to the arrangement of 1853, modified by the arrangements made during the war, the duty on tea ought to have fallen in April, 1857, to is. 3^/. per lb., and in the fol- lowing year to is. per lb. It had been main- tained for the last two years at is. gd. per lb. Sir G. C. Lewis now proposed to fix it at is. yd. Teaand sugar for the year 1857-8, at is. $d. for 1858-9, at ^tLcT is. ^d. for 1859-60, and at is. per lb. from >' cars - i860 forwards. The case of the Sugar duties, and the mode proposed for dealing with them, was substantially the same as the case of the duty on tea. These arrangements would, he said, produce in the coming year a revenue of 66,365,000/., and would leave a surplus of 891,000/. above the expenditure, including in the expenditure the sum required for the dis- charge of debt. 312 Twe?ity Years of Chap. VI. " If the Committee," he continued, " should ,s 57# adopt the plan which I have proposed, I believe that sufficient revenue will be provided to meet the liabilities of the Exchequer for the pay- ment of the Bonds due in the three years com- mencing from the ist of April, for the extinc- tion of the war sinking fund, and also for the payment of the increased interest on the debt ; leaving some margin for any slight increase in the Army, Navy, or Civil Service Estimates. If the liabilities created by the 40,000,000/. of debt contracted during the war should be dis- charged according to the plan which has been laid dow r n by Parliament, and according to that which I am now proposing for the next three years, and if further accruing liabilities should be met by a corresponding provision, I calcu- late that the entire debt created by the war will have been extinguished by the year 1877. More than half of the extraordinary expendi- ture of the war was defrayed from taxation, the remaining half by loans ; and this portion, as I have just said, if the arrangement I propose is adopted, will be extinguished in about twenty years. It seems to me that such a state of things affords a favourable retrospect of the arrangements made during this war. It shows Financial Policy, 313 the greater providence of the present genera- Chap. VI. tion ; and if our ancestors had treated us as ,g 57t well as we are, I hope, about to treat pos- terity, we should not, at the present time, be loaded with the burden of a debt of 800,000,000/." The Budget, as has been said, was brought Mr. Disraeli's forward on the 13th of February. On the following Monday, the 16th, Mr. Disraeli took occasion to give notice of his intention to move a resolution in the following terms : — " That in the opinion of this House it would be expedient, before sanctioning the financial arrangements for the ensuing year, to adjust the estimated income and expenditure in the manner which shall appear best calculated to secure the country against the risk of a defi- ciency in the years 1858-9 and 1859-60, and to provide for such a balance of revenue and charge respectively in the year i860, as may place it in the power of Parliament at that period, without embarrassment to the finances, altogether to remit the Income Tax." Immediately after this notice had been given, Sir George Lewis stated, by way of comment upon it, that in his opinion there was no risk of a deficiency in the two years which 3 1 4 c T ! we?ity Years of Chap. VI. were to come ; for that he estimated the revenue ,8 5 - of 1858-9, after paying off the redeemable debt for the year, at 58,800,000/., and that of 1859-60 at very nearly the same sum, while the gross expenditure of the year 1853-4, the year immediately preceding the war, had been only 55,840,000/. ; so that there would proba- bly be a surplus of about 3,000,000/. to meet the increased expenditure of the years 1858 and 1859. Mr. Disraeli brought forward his resolution on the 20th of February, on the question that the Speaker do leave the chair that the House may go into a Committee of Ways and Means. The line of argument which he adopted was substantially this : — If the expendi- ture of the two years 1858 and 1859 is to be upon the scale of that announced for 1857, there will, upon the proposed plan of finance, be a large deficiency at the end of the first, and a still larger one at the end of the second of those years, and the removal of the Income Tax in i860 will be absolutely impossible; if, on the other hand, the expenditure of those two years is to be reduced to the scale of 1853, then there is no reason why the reductions which are anticipated in 1858 and 1859 should 1857- Financial Policy. 3 1 5 not at once be made in 1857, and in that case Chap. VI. there will be no reason why the Income Tax and the Tea duty should be kept at the war rates. In the Budget speech of the 13th, Sir G. Lewis had appeared to treat the expendi- ture of 1857 as being susceptible of little, if any, reduction in future years ; while in the few words he had spoken on the 1 6th, he had appeared to hold up the expenditure of 1853 as the model for the time to come. As there was a difference of nearly seven and a-half mil- lions between the two standards, it was cer- tainly not unimportant to know which was likely to be the nearest to the truth ; and Mr. Disraeli seems to have thought that by aiming a decisive blow at the war taxation he would put the matter to the touch, and force the Go- vernment to follow the more economical of the two courses before them. He referred to the success which had attended the protests against the Income Tax in 18 16 and 1848, and urged the House to take the same course as had on those occasions led to a reduction of expendi- ture. If, said he in conclusion, the Govern- ment " will really adopt the policy which on Monday appeared to be in the ascendant, and take the Estimates of 1853 in the manner then 3 1 6 c Twe?tty Years of Chap. VI. set forth, I, for one, have no wish to embarrass 1857. them I should not care even for the first year, — though I think increased taxation is unnecessary, — perhaps even for a further period, to meet as regards the Income Tax the views of the Government. If we saw that in i860 we were to get rid of the Income Tax, — if we saw that there was to be no permanent increase of the duties on tea, — I would be dis- posed to make some sacrifice to meet the con- venience of Government. But if the policy of the Government is this, — that, though we may make sacrifices by this increase of direct and indirect taxation, we are only in the end to be landed in a deficit, then, I think, the House of Commons cannot too speedily and decidedly in- terfere to prevent a result so calamitous. In the belief that, if the House will sanction this resolution we shall be able altogether to avoid new taxation by wise and well-considered re- ductions, I now place it in your hands, and commend it to the impartial but earnest consi- deration of the House of Commons." Sir G. Lewis' Sir George Lewis, in opposing this resolution, argued that it was impossible to foretell the expenditure of the two coming years, and that it was especially difficult to say how far reduc- ansvver. Fina?icial Policy. 3 1 7 ions of the Military and Naval Estimates Chap. VI. might be carried, as the Estimates for 1857 ,8- 7< had not yet been discussed. It was, of course, obvious that their discussion would throw considerable light upon the question, how much of the increased charge for the Army and Navy was permanent, and how much of it arose out of the transactions connected with the close of the war. Sir G. Lewis expressed his belief that a considerable reduc- tion might be made in coming years ; at the same time he showed that we could not expect to go back to the standard of 1853, especially in respect of the Civil Service Estimates. He disputed the correctness of Mr. Disraeli's esti- mate of the revenue of 1858 and 1859, and, referring to the great difference between the expenditure now under consideration, and that which prevailed in the years before the war, he argued that there was no reason to think that that of coming years might not be brought within the revenue, especially as he considered that it would be perfectly legitimate to defer the operation of the Sinking Fund of 1,500,000/. until the Exchequer-bonds should have been redeemed. The main ground, however, upon which he took his stand was, that he had made 3 1 8 Twenty Years of Chap. VI. ample provision for the supplies of the coming ,857. year, which was all that he was bound to do; and that as regarded future years, he was not increasing, but mitigating and lessening the dif- ficulties attending the ultimate removal of the Income Tax and of the other war duties, by providing a considerable revenue, and discharg- ing a portion of the encumbrances of the country. Mr. Glad- Mr. Gladstone followed the Chancellor of the Exchequer in an eloquent and highly im- passioned speech. His criticism, however, left the main argument between Mr. Disraeli and Remarks on Sir G. Lewis nearly untouched. The real l857 . e point at issue was this : shall taxation be refused in order to compel the Government to reduce expenditure, or shall it be kept up in order to enable the Government to meet expenditure ? It may be observed, by anticipation, that the solution actually arrived at was the very worst that was possible ; the expenditure was not reduced, and the taxation was not maintained. The country compromised the matter by recon- ciling itself to the abandonment of the attempt to reduce the debt. Looking back upon the budget of 1857, with the advantage of know- ing how matters which were then in doubt Financial Policy. 3 1 9 have since been cleared up, we cannot fail to Chap. VI. see that when once it was shown, as it very jg 57> soon was, that the House was not prepared to make an earnest effort to reduce expenditure, it would have been prudent to have adopted the plan of Sir George Lewis ; to have resolved on maintaining our revenue so as to keep up a good surplus, which might have been applied to the payment of debt ; and to have determined to postpone further remissions of our ordinary taxation, until after the war taxes should have been got rid of, and the scheme of 1853 should have been carried into effect. Of course, if Mr. Disraeli and Mr. Gladstone had been strong enough to compel the Government at once to cut down the expenditure, so as to bring it nearly to the standard of 1853, they would have done good service ; and taxation might, in that case, have been safely and mate- rially reduced. The misfortune was, that they were not strong enough to do this ; and it is to be regretted that, having failed in the main ob- ject which they had in view, they did not ac- cept the plan which Sir George Lewis was pro- posing in contemplation of the continued main- tenance of high estimates. Some remarks of Mr. T. Baring's upon this point are worthy i8 5 7. 320 Twenty Tears of Chap. VI. of notice. Speaking on the 6th of March, and referring to the rejection of Mr. Disraeli's resolution of the 20th of February, he described it as being in point of fact a resolution " to refer the original proposition for expenditure back to the Government, from a belief that it was only by such a course we could hope to enforce the acceptance of our own views. I confess I thought that reduction was not only desirable but necessary, and I gave my vote for it. The appeal was made to the House, and the House decided that the Estimates should not be sent back for reconsideration by the Government. ... If that appeal had not been rejected, I believe that these estimates would have been much reduced without the country risking the loss of Her Majesty's Minis- ters. For my part, seeing the temper of the present House, I fear very much that there will be no great reduction in the Estimates ; and that being the case, I am of opinion that it would be the very worst species of economy to run the risk of a deficiency in our revenue." Among the observations to which Sir George Lewis had laid himself open, there was one which Mr. Gladstone did not fail to urge, and to urge with great force. We were at Financial Policy. 3 2 1 that time engaged in two wars, one in Persia, Chap. VI. the other in China. The budget for 1857-8 l857 . contained no provision for meeting the expense Expense of ri A C L 7 1_ J P erS ' an a °d of either of them. A sum or 200,000/. had Chinese wars been taken to defray the charge of the former up to the end of the financial year 1856-7, but nothing was proposed to be taken for the year 1857-8. There was, of course, much uncer- tainty as to what would ultimately be required to meet the demands occasioned by these opera- tions ; and the uncertainty was fully sufficient to justify the Chancellor of the Exchequer in declining to estimate the expenditure of future years ; but it would have been better if, under those circumstances, he had abstained from hinting at a reduction to something like the standard of 1853, a standard which he must have felt it would be impossible to return to, or even to approach, without a complete change in the line of policy with regard to expendi- ture to which the Government of which he was a member had committed itself. The debate on Mr. Disraeli's resolution was Speeches of adjourned till the 23rd of February, on which se ^ r evening a very excellent speech was made by Lord John Russell, justifying, to a considerable extent, the proposals of Sir George Lewis, but Y 322 Twenty Years of Chap. VI. adopting the substance of Mr. Disraeli's charge ; , 8 - 7 namely, that, according to the scale of the ex- penditure proposed for 1857, there must be a considerable deficiency in 1858, and that, if it were possible to avert that deficiency by a great reduction in 1858, that reduction ought to be commenced in 1857. He referred to the case of the Estimates of his own Government in 1848, which he had been obliged, in conse- quence of the general feeling of the House, to abandon, although they were less by five mil- lions than the Estimates now under considera- tion ; and, comparing the circumstances of 1848 with those of 1857, he said he could not help thinking that some reductions might be made in the latter. He thought, however, that the House ought to go at once into Committee of Supply and to consider the Estimates most care- fully and vigilantly ; and he was, therefore, not willing to vote for Mr. Disraeli's resolution. Mr. Cardwell took up somewhat the same line of argument. There was, undoubtedly, an ap- pearance of logic in the conclusion which both he and Lord John Russell drew from the pre- misses which they laid down ; and, if it were really possible for the House of Commons to cut down the estimates of a government by of Mr. Card well, Financial Policy. 323 discussions upon each separate vote in Com- Chap. VI. mittee of Supply, it would certainly be a very l8 - 7# sensible and constitutional course to take. But Mr. Milner Gibson suggested what appears the and of Mr. true answer to this theory. " No doubt," he son said, " the honourable member for Lambeth (Mr. Williams) would be gratified by finding among his small minorities the names of the noble lord and the right honourable member for Portsmouth (Sir F. Baring), and perhaps with great exertions he might succeed in re- ducing the salary of a chaplain in the Bahamas, or in knocking off the odd shilling upon some other particular vote. But if the House was in earnest, if it wanted to obtain a practical result, it must take its stand at once. During his ex- perience in Parliament he had never known a successful effort to bring about a reduction of expenditure in any other way than by leaving to the Government the responsibility of pro- posing the reductions, by informing them ge- nerally that the scale of expenditure and taxation which they proposed did not meet the approval of Parliament." The resolution of Mr. Disraeli was ultimately Resolution lost by a majority of 80.* This decision in * By 286 to 206. Chap. VI. 1857. Defeat of the Government on Mr. Cob- den's motion respecting China. Financial measures in anticipation of a dissolu- 324 Twenty Years of favour of the Government was, in effect, con- clusive as to the policy of the House of Com- mons ; and it may be presumed that, but for the political crisis which shortly afterwards oc- curred, the Budget would have been accepted without any important amendment. But on the 3rd of March the Government were de- feated upon Mr. Cobden's motion, condemning their proceedings with regard to the dispute in China ; and, in consequence of that defeat, they resolved upon winding up the business of the session and dissolving Parliament as speedily as possible. Under these circumstances, it was obviously proper for them to abstain from call- ing upon a Parliament, in the last weeks of its existence, to legislate for the finance of three years to come ; and Lord Palmerston accord- ingly, on the 5th of March, announced that they would ask for the regulation of taxation for one year only, while with regard to the Estimates they would take votes on account sufficient to carry on the public service till the new Parliament should be in a condition to provide for it. On the following day (March 6th) the Go- vernment proposed to go into Committee of Ways and Means. Mr. Disraeli and Mr. Glad- Financial Policy. 325 stone had both given notice of amendments Chap. VI. which they intended to move upon parts of the l857 Government scheme. Mr. Gladstone proposed to move for the reduction of the Tea and Sugar duties ; Mr. Disraeli, for the reduction of the Income Tax to the rate of $d. in the pound. The latter began by appealing to the Govern- ment not to proceed with their financial mea- sures, but to leave them over till the new Par- liament should meet ; but Sir George Lewis pointed out that in that case the Income Tax would continue to be levied at the war rate of \dd. in the pound, that being the amount di- rected by the law as it stood. The House, therefore, went into committee ; and, the reso- lution with regard to the Tea duties having been proposed first, Mr. Gladstone moved that the rate be is. 3d. instead of is. $d. per lb. This amendment was lost, after a warm dis- cussion, by a majority of 62.* Mr. Gladstone said that, after that decision, he would not press his amendments with regard to the Sugar duties, but would allow them to be negatived without a division. The Income Tax bill was brought forward at the next sitting of the House, and * By 187 to 125. 326 Twenty Years of 1857. Chap. vi. Mr. Disraeli then stated that, in consequence of the evidently growing demands of the China war, he should not propose the reduction of which he had given notice. Votes on account were afterwards taken in Committee of Supply with very little discussion ; but upon the report of the Committee being brought up,* Mr. Gladstone moved an amendment to the effect that a further revision and reduction of ex- penditure was necessary. He reviewed the growth of the estimates, both Military and Civil, in an interesting speech, but did not press his amendment to a division. Parliament was dissolved on the 21st of March. It will not be necessary to give any lengthened account of the discussions connected with finance which took place in the first session of the new Parliament. The Estimates for the year were voted, after full and interesting statements on the part of the Ministers charged with the duty of introducing them. Sir Charles Wood brought forward the Navy Estimates on the 1 8th of May ; Lord Palmerston himself brought forward the Army Estimates on the 25th ; and Mr. Wilson brought forward the Miscellaneous Civil Esti- Estimates brought for- ward in new Parliament. * March 10. Fina?2cial Policy. 327 mates on the 1 2th of June, on which occasion he Chap. VI. took the unusual course of making a general lSs? statement with respect to them, similar to those made by the Ministers introducing the Military estimates. These three speeches may be looked upon as furnishing a point of departure from which to calculate the progress we are making in our expenditure. It may be worth mention- ing, as a matter of curiosity, that among the reasons given for our increasing our outlay upon dock accommodation, was the arrival of the new American frigate the Merrimac — the vessel which has since given us the opportunity of testing the value of iron-cased ships, and which on this occasion gave us a lesson of another kind, being found to be so much larger than any of our own frigates, that there was scarcely a dock in the country which could have received her. On the 17th of July Sir George Lewis brought Supplemen- r ■> 1 1 r tary estimates, forward two supplementary estimates, the one tor j u i y , 7# 500,000/. on account of the Persian war, the other for 400,000/. on account of the war in China. An additional vote for 100,000/. was at the same time taken for the navy. This was occasioned by the necessity which had arisen lor sending a squadron to the Indian seas in 328 Twenty Years of Chap. vi. consequence of the breaking out of the mutiny. l857# Sir George Lewis then proceeded to give infor- mation respecting the condition of the Ex- chequer. He said that the year 1856-7 had closed much more favourably than he had an- ticipated when he made his budget speech in February, and that the result of that year had been better by 1,860,000/. than had then been reckoned on. The receipts from Customs' duties in the current year had been about half- a-million more than had been expected, and so had the Excise revenue from malt. There had thus been a gain of 2,860,000/. to the Exchequer ; against which, however, were to be set the charge for the redemption of the Sound dues, the supplementary estimates for the Persian and Chinese wars, and the dowry of the Princess Royal, which together amounted to 2,210,000/. He considered, therefore, that the finances were in a satisfactory position. Tea and sugar The last financial measure of the session was forthreeyears, tne rev i ya l on tne J 2th of August of Sir G. Aug. 12. Lewis's original proposal to fix the rates of duty on tea and sugar for a period of three years. This proposal he made for the convenience of merchants, in order to obviate the uncertainty which would otherwise have attended their Financial Policy. 329 transactions in these articles. The measure was Chap. VI. adopted without opposition, Mr. Gladstone re- ,g 57 , marking that the adoption of the estimates of the Government, and the approval that had been given to their foreign policy, had entirely altered the circumstances under which he had acted in the early part of the year when he resisted the budget. Sir George Lewis took this opportunity of stating that there would be no occasion for the Imperial Government to offer any present assist- ance of a financial kind to the East India Company. The mutiny was then at its height ; and the difficulties of the Company were of course very great; but they were not of a financial character. This was the last financial business transacted Circum- stsncfs of the this session. Parliament was prorogued on the autumn of 28th of August. The autumn which ensued l857 * was a very gloomy one. The Indian mutiny continued to excite the gravest alarm, though by degrees the ultimate result became more and more certain. Combined, however, with this cause of uneasiness, was another of a scarcely less serious character. Failures of an unprece- Commercial dented amount were taking place in the United States, and Europe was suffering in consequence. Some of the most eminent commercial houses 330 Twenty Years of Chap. VI. in this country were involved in the ruin of l8 „„ their American correspondents. A drain of gold set in, for money was needed as much in France and Germany as in England and America. The necessity of sending large sums of silver to the East, to meet the demands occasioned by the mutiny and by the Persian and Chinese wars, added to the mischief. The Bank raised its rate of discount in six weeks from 6 to 10 per cent. ; but even so it was unable to maintain its reserve. By the i ith of November the stock of coin and bullion had fallen to 7,675,000/., and the reserve of notes to 957,710/.; these being points considerably below the lowest which had been reached in the great panic of 1847, when the stock of coin and bullion had fallen to 8,760,000/., and the reserve of notes to 1,547,000/. The demands to which the Bank was liable, moreover, were greater than in the earlier year ; the amount of the private de- posits being 12,935,000/., while in 1847, it had been only 8,580,000/. On the other hand, the amount of accommodation it had given to the public was far greater, the bills under discount and other private securities being 26,115,000/., while in 1847 tnev na d on ty amounted to 19,467,000/. The severity of the Financial Policy. 331 distress and the greatness of the alarm may be Chap. VI. measured by the estimated amounts of the l8 -_ failures which took place. The liabilities of five banks which stopped during the panic, were stated at 24,000,000/. ; and those of about forty- five private firms were stated at 14,000,000/. The amounts given were, no doubt, exag- gerated ; but they were those which were gene- rally believed in, and which affected the public mind.* Under these circumstances, the Government Bank Restric- , . 111 1 ilon Act sus- took the same step as had been taken ten years pen ded. before. They recommended the Bank direc- tors to take upon themselves the responsibility of issuing notes upon securities beyond the limit prescribed by the Bank Charter Act ; and they undertook to call Parliament together, and propose a bill of indemnity for this breach of the law. In the letter conveying this recom- mendation, the Treasury expressed their opinion that, in order to prevent the temporary relaxa- tion of the law being extended beyond the actual necessities of the occasion, the Bank terms of discount ought not to be reduced below the rate at which they then stood, namely, 10 per cent. * Ann. Register, vol. xci\. 332 Twenty Years of Chap. VI. This letter had considerable effect in calming j8 57 . the mind of the public; but it did not, as had been the case in 1 847, at once put an end to the crisis. The demands for assistance continued to increase, and the bullion to decrease ; for, though the high rate of discount had stopped the foreign drain of gold, the commercial failures in this country had only j ust begun, and the stoppage of two banks in Scotland, and the alarm in Ire- land, had rendered it necessary to send a large quantity of specie to those parts of the king- dom. The Bank had to avail themselves of the authority given by the Treasury letter to the amount of 2,000,000/., and they increased their advances to the public until the 21st of November, when the amount of the " other securities," under which terms are included the discounts and advances to the public as distin- guished from those made to the Government, was upwards of 31,000,000/. The stock of coin and bullion had at that time fallen to about 6,500,000/., and the reserve of notes was 1,148,000/. This was the turning-point of the pressure, and a gradual recovery then took place. By Christmas, the stock of bullion and the amount of the bank-note issues once more bore to one another the proportion prescribed Financial Policy, 333 by the Bank Charter Act ; the rate of discount Chap. VI. was reduced, and by degrees matters returned ,857. to a satisfactory condition. In the meantime, Parliament had been called Meeting of together on the 3rd of December ; and the In- commiuee'on demnitybill was passed ; and a Select Committee theBankActs. was appointed to inquire into the operation of the Bank Acts. This last step was opposed by Mr. Disraeli, who maintained that Parliament was already in possession of all the information necessary to enable it to come to a conclusion upon the merits and defects of the law, and that it would be more proper to legislate, if any change were intended, than to spend more time in inquiry. The appointment of the Com- mittee was, however, decided upon by a ma- jority of 178.* No other business of a financial character Defeat of the was transacted before the House rose for the on °th™c e n_ Christmas recess. On its reassembling- in s P lrac y Bill, Feb.19,1858. February the public attention was engaged by the bill relating to conspiracies, which had been introduced in consequence of the recent attempt on the life of the Emperor of the French. The defeat which the Government By 295 to 117. 334 Twenty Tears of Chap. vi. sustained upon the 19th of February, upon Mr. 1858. Milner Gibson's amendment to the second read- Change of ing of that bill, led to their resignation, and to ovemmen . ^ c formation of Lord Derby's second adminis- tration, in which Mr. Disraeli again took the office of Chancellor of the Exchequer. Estimates for The Estimates for the service of the year brought for- * 858-59 nac ^ already been framed when the ward. new Government came into office ; and, as it was the 12th of March when the House met again after the re-election of the ministers, it was necessary to proceed at once with some votes in Supply. Votes on account were, therefore, taken for the Army and Navy Ser- vices on the 1 2th, and for the Revenue depart- ments on the 1 5th of March ; and the Govern- ment at once proceeded to make a careful review of the estimates which their predeces- sors had prepared, in order that they might introduce the budget without unnecessary delay. On the 1 2th of April, Sir John Pakington stated the alterations which he had made in the estimates for the Navy, and which involved reductions to the amount of about 300,000/. It was found that the Army estimates could not be reduced. The Civil Service estimates were still undergoing examination, when Mr. Disraeli Financial Policy. 335 on the 19th of April brought forward his Chap. VI. budget. 1858. Circumstances had undergone a great change Budget, since the introduction of the budget of the pn lg ' preceding year. It had then seemed possible to reduce the military establishments of the country to the level at which they ought to stand in time of peace ; and, although there was some difference of opinion as to the extent to which the reduction could be carried, and the rapidity with which it could be made, there was probably an unanimous expectation that the estimates would be gradually lowered, and that the reductions of 1857 would be carried further in 1858. Two disturbing causes, how- ever, had defeated this expectation. The China war, though disapproved by the majority of the House of Commons, had been sanctioned by the voice of the country, and had assumed larger dimensions than the Government which under- took it had been willing to foresee. The for- midable mutiny which had broken out in India had also led to a considerable addition to our expenditure ; for, though the first charge in- curred in suppressing it had fallen upon the Indian, and not upon the English Treasury, yet it had rendered necessary an increase in our 336 Twe?2ty Tears of Chap. VI. home force to supply the demands upon it occa- ,8 5 8 # sioned by the large reinforcements sent to the East ; and we had been compelled to maintain a larger naval force in the Indian seas, and to supply a greater amount of transport for troops, than we should otherwise have done. The consequence was that the Army and Navy esti- mates for 1858-59, instead of falling below those presented in 1857-8, exceeded them by more than a million.* But while the hopes that had been entertained of a material reduc- tion of expenditure had thus been disappointed, the ability of the country to bear heavy taxa- tion had, at the same time, been considerably diminished by the commercial crisis and the calamitous failures of the past autumn ; nor was it possible to say whether we had yet seen the last of the consequences of these misfortunes, or to predict what effect the disturbances in India might have upon the prosperity of Eng- land. A wonderful recovery had, indeed, taken * This refers to the estimates as originally presented, but it was found necessary to vote large supplementary estimates for 1857-8, so that in reality the amount of supplies voted for 1858-9, was somewhat less than the amount voted for 1857-8. The whole amount voted for Army and Navy Services for 1857-8 was 22,749,208/.; the whole amount voted for 1858-9 was 22,297,253/. Financial Policy. 337 place since the commencement of 1858; the Chap. vi. revenue, which had seriously fallen off before l8 - 8 . the close of December, had increased with great rapidity in the quarter ending the 31st of March, and had actually exceeded Sir George Lewis's estimate by a million and a-half ; con- fidence had revived ; money had become abun- dant ; and the rate of interest had fallen to a very low point. But the time was, neverthe- less, one in which it was obviously of the high- est importance to press as lightly as possible upon the resources of the country. These considerations ought to be borne in Budget of mind when we come to examine the budget of the year. Mr. Disraeli began by estimating the expenditure for the ordinary services of 1858-9 at 63,610,000/. To this, he said, must be added the sums of 1,500,000/. for the war sinking fund, and 2,000,000/. for the redemption of Ex- chequer-bonds. The whole amount to be provided by the Treasury would therefore be 67,1 10,000/. To meet this charge he reckoned on a revenue of 63,120,000/. This estimate was made on the assumption that the Income Tax should be allowed to fall to 5^/. in the pound, as it was provided by the Act of 1853 that it should do, and on the assumption that z 338 Twenty Tears of Chap. VI. the revenue from the Customs and Excise, the ,8-8. Stamp duties and the Post Office, would be con- siderably larger than in the past year. It may be observed in passing that, although Mr. Dis- raeli's estimates were much cavilled at, and were regarded as excessively sanguine, they were fully justified by the result; he reckoned upon re- ceiving from the four sources of income which have just been mentioned 53,050,000/. ; he actually received from them 53,225,712/. From this statement it of course follows that the deficiency for which Mr. Disraeli had to provide amounted to 3,990,000/. Of this 3,500,000/. was occasioned by the obligation to redeem debt. The question then arose, shall taxation be increased, or shall war taxation be kept up in time of peace, in order to redeem debt contracted in time of war? It is difficult to see how debts contracted in time of war can ever be paid off in time of peace without keeping up what may be called war taxation. All tax- ation beyond what is required for the regular service of the year, that is to say all taxation applied to the redemption of a debt, or even to the discharge of the interest of a debt, contracted for the purposes of bygone wars, may in a cer- tain and very definite sense be called war tax- Financial Policy. 339 ation. It cannot, therefore, be laid down as a Chap. VI. general rule that war taxation ought not to be l8 - 8 kept up in time of peace for the purpose of redeeming debt. But there were circumstances peculiar to 1858 which undoubtedly involved the question in some difficulty. It was dis- putable whether the year could, strictly speaking, be called a year of peace, for war was going on in China and in India. The phrase which has lately become popular had not then been in- vented, but we should probably now describe it as an " exceptional" year. Then the amount of debt to be redeemed was too large to be redeemed all at once in any but an exceedingly flourishing year, which this was not. Again, and this perhaps was the most important con- sideration of all, it was not merely a question whether a certain amount of taxation should be levied, but whether a certain tax, which the public wished to put an end to, should be continued or not. It was the critical moment for deciding whether the scheme of 1853 should or should not be carried into effect. The choice lay between the extinction of the debt, and the extinction of the Income Tax. Whether the Government acted rightly or not in deciding upon the latter alternative, there can be no doubt Chap. VI. 1858. Repeal of War Sinking- fund Act. Postpone- ment of Ex- chequer- bonds. Equalisation of the Spirit duties. 340 Twenty Years of that their decision met with very general ac- quiescence both in and out of Parliament. In- deed, as they did not command a parliamentary majority, they were not in a position to carry any measures which did not command such acquiescence. The nerves of the country were not sufficiently braced for the greater effort, which perhaps under other circumstances it ought to have made. Abandoning, then, the attempt to pay off any portion of the three millions and a-half of debt, Mr. Disraeli proposed to repeal the Act relating to the war Sinking-fund, and to re-borrow the amount of the Exchequer-bonds. By this means he reduced the deficit to somewhat less than half-a-million, for which he provided by raising the duty on Irish spirits to the level of the English and Scotch spirit duties, thus putting the finishing hand to the great work of equal- isation, upon which so many Chancellors of the Exchequer had, for so many years, and with such unequal success, been engaged. " At this moment," said Mr. Disraeli, " the only diffe- rential duty that remains between Ireland and Great Britain is the differential duty on spirits. I am sure my Irish friends, who are always demanding justice for Ireland, and who define Financial Policy. 341 that justice to consist in an identity of institu- Chap. VI. tions, of rights, and of duties, cannot on reflec- ,858. tion consider the position in which they are placed by this differential duty on spirits with any other but feelings of indignant humiliation. I remember once, when I was at Bristol, a ship came in from Ireland, and to my great surprise I saw it boarded instantly by custom-house offi- cers, and the crew treated just the same as a parcel of foreigners. All this was to see if there were any Irish spirits in the hold, which, if they had come in undetected, would have paid a duty of 6j\ id. instead of $s. Was that a position for high-spirited Irishmen to be placed in ? How much better will it be for the Irish to have the command of the English market, and not only of the English but of the British mar- ket ; how much better for them to enter into active competition with English and with Scotch spirits, and instead of confining themselves to the supply of a mere provincial demand, to be entitled to pour in their admirable products, — which I am told the French now prefer even to their own brandy ; how much better for them to pour their spirits into this country, and through this country into the continent, and thus give a great stimulus to trade." 342 Twenty Tears of Chap. VI. The equalisation of the Spirit duties was ex- 1858. pected to equalise the revenue with the expen- diture. In order to get a surplus, Mr. Disraeli proposed to lay a penny stamp on bankers' cheques, — a measure by which he hoped to gain a revenue of 300,000/. This proposal com- pleted the arrangements for the year. Discussion of In the discussion which followed the intro- duction of the budget, a very general approval of its principal features was expressed by nearly all the prominent members of the House. Mr. Cardwell was almost the only person who ob- jected to the arrangement for deferring the pay- ment of the Exchequer-bonds. He asked how, if they could not be paid in the current year, when six millions were to be received from the Income Tax, it would be possible to pay them off in 1862 or 1863, when the Income Tax would have ceased ; and he intimated that, in his opinion, they should have been paid off be- fore the Income Tax was reduced. " He was very glad that he could generally concur in the proposals of the right honourable gentleman ; but if he thought that his views would have any influence in the matter, he should have re- commended the bolder course of taking the ad- ditional 2d. upon the Income Tax for one year, Financial Policy. 343 which would have furnished 2,000,000/. for the Chap. VI. liquidation of the Exchequer-bonds." Sir Francis g . g Baring, on the other hand, while admitting that Mr. Cardwell was " financially right," thought the course proposed by the Chancellor of the Exchequer preferable, as tending to keep faith with the nation in the matter of the final ex- tinction of the Income Tax. This appeared to be, upon the whole, the general opinion. A more serious debate, however, upon the Debate on the principles of the budget was raised on the 3rd bonds' Bill, of May, when the Exchequer-bonds' bill came May I3 ' on for a second reading. Sir George Lewis availed himself of that opportunity, in the first place, to justify his own financial policy, — which he thought had been misrepresented, — and in the next place to criticise the plans of Mr. Disraeli. He objected particularly to the renewal of the Exchequer-bonds, and to the abandonment of all attempts to reduce the debt. Referring to Mr. Disraeli's argument that we were bound to make an effort to part with the Income Tax in 1 860, he asked whether prospective engagements for the remission of taxation were to be held sacred while prospective engagements for the payment of debt were to be held worthless. He offered some observations in defence of the In- 344 Twenty Tears of Chap. vi. come Tax, which he thought had been too l8 . 8 much abused, and declined to be held bound to remit it at any particular time. In conclusion, he spoke strongly upon the necessity of regulat- ing our taxation by the amount of our expen- diture, and pointed out the numerous forms in which increased expenditure was now pressed upon the Government. He admitted that it was, with rare exceptions, an expenditure of a just and useful nature that was called for ; and that it was occasioned by the vast number of plans for public improvement, and for putting things into as perfect a state as possible ; but it was not the less an expenditure which rendered the remission of taxation impossible, and made it extremely dangerous for the House to fetter itself with rash obligations. Mr. Gladstone replied to Sir George Lewis, and disputed some of his calculations. He de- fended the course taken by the Chancellor of the Exchequer in renewing the Exchequer- bonds, and said that Sir G. Lewis himself was responsible for their not being paid off as they ought to have been out of the last instalment of the war Income Tax. He denied that any one had asserted that there was a positive engagement that the Income Tax should cease in i860 ; but Financial Policy. 345 he protested against the view which Sir G. Lewis Chap. VI. appeared to take, that it was a tax which was a lg 8 convenient part of the ordinary financial system of the country. Hitherto it had been asked for in order that great ends of policy might be ob- tained by its temporary employment. If a transition was now to be made from that system, and the tax was to be made permanent, that transition ought not to be made in the dark. " No doubt," said Mr. Gladstone, " the Income Tax has a great many recommendations as part of the permanent revenue of the country, but there are also great objections against it. One is a moral objection ; for I believe it does more than any other tax to demoralise and corrupt the people Another objection 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 pro- ductive, an engine so convenient, — it is so easy to lay on id. or 2d. at a time ; it is so easy to come down to the House like my right honour- able friend (Sir G. Lewis) and show that the difference between 2/. is. Sd. and 2/. 18/. \d. is, after all, so very contemptible a sum that we 346 Twenty Years of Chap. VI. need make no difficulty about paying it, — that, 1858. so l° n S as y ou nave tne Income Tax a part of your ordinary revenue, you need not think of effective and extensive economy." The discussion was continued by Mr. Card- well, Mr. T. Baring, Mr. Bright, Mr. Disraeli, Mr. Wilson, and other members. Mr. Baring spoke with great force on the advantage of making some regular provision for the payment of debt, and lamented the abandonment of the Sinking-fund. Mr. Bright attacked the expen- diture of the country, and the mode in which, as he said, the rich were for shifting the burden of taxation from themselves to the poor. Mr. Disraeli agreed with Mr. Bright in deploring the great expenditure upon armaments, but pro- tested against his doctrine that we were throwing an undue proportion of taxation upon the poor. Upon the main question raised by Sir George Lewis he observed, that nobody now maintained that it would be possible to keep up the Sinking- fund ; but he admitted that he had felt the great- est regret when he found himself compelled to defer the payment of the Exchequer-bonds. That was, however, a purely financial arrange- ment, while " the engagement with respect to the Income Tax was not merely based upon Financial Policy, 347 financial considerations, but also upon several Chap. VI. other considerations, and those of high policy." l8 . 8 It would have been a great convenience to the Government of 1858, if Sir George Lewis's original budget of 1857 had been adopted, and the Income Tax retained at yd. in the pound for three years. There would then have been no collision between financial maxims and those more general considerations of policy which were allowed, and perhaps unavoidably allowed, to overrule them in the year 1858. The financial results of the year 1858-9 were Financial re- so satisfactory that there is little doubt that, if l858 . 9 . no fresh occasion for expenditure had arisen in the following year, the hopes of Mr. Disraeli would have been realized, and that the $d. In- come Tax would have been sufficient, without any additional taxation, for the service of 1859- 60. The surplus upon the year was 813,000/. ; and the balances in the Exchequer were suffi- ciently strong on the 31st of March, 1859, to enable Mr. Disraeli to pay off the 2,000,000/. of bonds that fell due in the month of May, without calling on Parliament for any assistance. The income of the year had reached nearly 65,500,000/. A portion of this was due to the balance of the yd. Income Tax remaining over 348 Twenty Tears of Chap. vi. from the previous year ; but even after deducting ,858. this, Mr. Gladstone, in bringing forward the budget for 1859-60, in the month of July, esti- mated the ordinary revenue for the coming year at 64,340,000/. ; and it actually amounted to 65,969,000/.* The expenditure of 1858-9 was 64,664,000/. ; and of this 782,000/. was due to the Chinese and Russian wars. The proper expenditure of the year therefore was somewhat below 63,000,000/. If this rate of expenditure could have been maintained in 1859-60 there would have been a surplus of three millions at the close of that year. The falling in of the Long Annuities would have brought the expen- diture of the following year down by more than two millions, and taxation to the amount of five millions might therefore have been remitted. This would not quite have sufficed to take off the Income Tax, which was then producing 5,600,000/. ; but the difference would have been so small that an effort would probably have been * Mr. Gladstone estimated the income at 64,340,000/. His additions amounted to the estimated sum of 5,220,000/., making 69,460,000/. in all. But the actual produce was 71,089,000/. or 1,629,000/. more than the estimate. The revenue, therefore, without any addition would probably have been 65,969,000/. ;timates in Financial Policy. 349 made to pare down the expenditure so as to Chap. VI. render the operation possible. At the same ,g 59 time an addition, such as has since been made, to the Spirit duties, a curtailment of the malt credit, and the general elasticity which would have been imparted to the revenue by the re- mission of the Income Tax, would have enabled the Chancellor of the Exchequer to take off, either at once, or by two instalments, the war duties upon tea and sugar. These hopes, however, were rudely dispelled Necessity for by the necessity which arose in the year 1859 Estii for adding enormously to the naval and military l8 $9- estimates. The disturbed state of Europe, and the great naval preparations of France, were the causes of this addition. In 1858 the estimates for the army and navy, including the packet service, had been taken at 21,610,000/.; in 1859 they were taken at 26,082,000/. showing an increase of no less than 4,472,000/. There was at the same time an increase of about 600,000/. in the miscellaneous estimates ; and when, after the change of Government, Mr. Gladstone brought forward the budget in the month of July, he had to inform the Committee of Ways and Means that there was an estimated deficiency of 4,867,000/. to be provided for. 350 Twenty Tears of Chap. VI. The measures by which Mr. Gladstone pro- ~ posed to supply this deficiency were two. In Budget of the first place he proposed to shorten by six weeks the credit of eighteen weeks previously by law allowed to maltsters ; and thus to bring into the Exchequer, before the close of the financial year, a sum of about 780,000/., which would otherwise not have been payable until after the 1st of April, i860. Secondly, he pro- posed to add 4 ceived from Spain in repayment of an old debt to this country. A like amount had already been received in the preceding year. It should also be noticed that he renewed the 1,000,000/. of Exchequer-bonds falling due in May, i860. Amongst the articles which were entirely set free from Customs' duties by this budget the most important were, silk manufactures, gloves, artificial flowers, watches, and all other manu- factured articles upon which any duties were still in force ; also butter, cheese, tallow, oranges, eggs, nuts, and a number of articles of food. In fact, Mr. Gladstone stated that whereas, in 1842, the number of articles subject to duty had been 1052, which had been subsequently increased by Sir Robert Peel's first reform of the tariff to 1 163, and had afterwards been brought down by several stages to 419, that number would now be reduced to no more than 48, of which 1 5 only would be contributors of any import- ance to the revenue. These fifteen are as fol- low : — spirits, sugar, tea, tobacco, wine, coffee, corn, currants, timber, chicory, figs, hops, pepper, raisins, and rice. The chief reductions of duties, besides the total remissions, were in the cases of wine, brandy, timber, currants, and dried fruits. Financial Policy. 355 The budget was met on the 21st of February Chap. VI by a resolution proposed by Mr. Ducane, and l8 6 . couched in the following terms : — " That this Mr. Ducane's TT ... r . ,. resolution, House, recognizing the necessity or providing ^eo. 21 for the increased expenditure of the coming financial year, is of opinion, that it is not expe- dient to add to the existing deficiency by diminishing the ordinary revenue, and is not prepared to disappoint the just expectations of the country by reimposing the Income Tax at an unnecessarily high rate." This resolution, rejected Feb. after a debate of three nights, was rejected on 24 ' the 24th of February, by a majority of 116.* The main principles upon which the budget was founded having thus been affirmed, the only point of detail upon which any serious resistance was afterwards offered, was the ques- tion of the repeal of the Paper duty. When Opposition to the Paper duty repeal bill came on for a second the Paper reading (March 12), Sir William Miles moved uty ' the following amendment : — " That as it ap- pears the repeal of the duty on paper will necessitate the addition of id. in the pound to the Property and Income Tax, it is the opinion of this House that such repeal is, under such * 339 t0 22 3- 356 Twenty Years of Chap. VI. circumstances, at the present moment inexpe- jg6o. dient." The second reading was, however, car- ried by a majority of 53.* The bill was again opposed at the third reading, on the 8th of May, and was then carried by the diminished majority of 9.-f* It was ultimately thrown out in the House of Lords, on the 21st of May, by a majority of 8 9. J Suppiemen- On the 1 6th of July, Mr. Gladstone found tary Esti- . mates, and se- it necessary to propose a large addition to the Sute^ntf 31 Vote of Credit which he had announced would July 16. De required for the war in China. The sum originally named was 500,000/. ; the sum finally asked was 3,800,000/. ; of which, however, 450,000/. was for the purpose of closing an old account with the East India Company, arising out of the first Chinese war. At the same time, Mr. Gladstone explained some other changes that had been made in the financial position of the country since the first introduction of the budget. An error of more than 200,000/. had been discovered in the esti- mate for the collection of the revenue. Seve- ral of the minor charges upon trade had been * 245 to I92. t 219 to 210. % 193 to 104. Financial Policy. 357 abandoned or modified, and about 180,000/. of Chap. VI. anticipated revenue had thus been lost. On l8 6 . the other hand, about 900,000/. had been saved by the rejection of the bill for the repeal of the Paper duty. The result of these various opera- tions was, that a sum of 2,336,000/. remained to be provided. In order partly to meet this deficiency, Mr. Gladstone proposed to raise the Spirit duties to ioj\ per gallon, a measure by which he reckoned on obtaining 1,050,000/. within the current financial year, leaving a defi- ciency of 1,286,000/. to be paid out of the balances in the Exchequer. This was the posi- tion in which the financial arrangements were left at the close of the Session of i860 ; for the money raised in terminable annuities for the purpose of defraying the expense of the fortifi- cations which were commenced this year did not form part of the regular supplies, and was excluded from all Mr. Gladstone's calcula- tions. The actual result of the year 1 860-1 was Financial re- even more unfavourable than Mr. Gladstone ,860-1. had anticipated. The income, mainly through the failure of the Excise revenue, fell short of the estimate by upwards of two millions ; and, though the expenditure also fell short of the 2$8 c Twe77ty Years of Chap. VI. amount at which it had been taken, the defi- 1860. ciency, instead of being 1,286,000/., proved to be 2,558,385/. Of this, as Mr. Gladstone ex- plained,* a sum of 288,000/. properly belonged to the finance of 1859-60, having been paid as drawback upon the stocks of wine in the hands of the merchants at the time of the reduction of the duties. If, however, this deduction from the deficit is to be allowed, we must, on the other hand, add about an equal amount for the excess of naval and military expenditure above the sums included in Mr. Gladstone's statement, as the exact expenditure had not then been ascertained, and the charge for the excess had afterwards to be made good. The real deficiency, therefore, on the year 1 860-1, was, as nearly as possible, 2,550,000/. Budget of The budget for the following year (1861-2), April 15. was brought forward on the 15th of April. Mr. Gladstone then estimated the expenditure at 69,900,000/., or at nearly three millions below that of the preceding year, the difference arising from the termination of the Chinese war ; and the revenue, (including 750,000/. of anticipated receipts from China), at 71,503,000/., suppos- * April 15, 1861. Financial Policy. 359 ing the Income Tax to be renewed at \od. in Chap. VI. the pound, and the Tea and Sugar duties also l86l> to be renewed at the same rates at which they had stood since the war. This would have given a surplus of 1,900,000/., and Mr. Glad- stone thought this would enable him to reduce the Income Tax to gd. in the pound, and to take off the Paper duty. The produce of a penny in the pound of Income Tax is about 1,100,000/. a-year, and the produce of the Paper duty was about 1,300,000/. The full amount of the proposed reductions, therefore, was equal to about 2,400,000/. per annum. But this amount would not all fall upon the current year; one quarter of the lod. Income Tax had still to be collected, which would reduce this item of loss to 850,000/. ; and the repeal of the Paper duty was put off till the 1st of October, so that Mr. Gladstone estimated that upon this head the first loss would not exceed 665,000/. He reckoned, therefore, on a surplus of 388,000/. in the year 186 1-2, and on such a reduction of expenditure and such elasticity of resources in 1862-3 as wou ld enable that year to bear the further loss which would be thrown upon it by the final cessation of the Paper duty. Considerable doubts were expressed by mem- 360 Twenty Years of Chap. VI. bers of the Opposition, whether the expected 1861. payment of 750,000/. would be received from Financial re- China. The result justified those doubts; the suits of . I • 1 1860-1. amount actually received, after making the necessary payments to the merchants who had claims on the indemnity, was only 266,000/. The repeal of the Paper duty also caused a greater loss to the revenue of the year than had been anticipated by Mr. Gladstone ; and, instead of costing only 665,000/., cost be- tween 900,000/. and one million. The whole amount of revenue received was 69,674,479/.* or 588,000/. below the anticipated amount. The expenditure, swelled by the preparations required by the aspect of American affairs, reached 71,1 16,000/., or 1,340,000/. more than had been reckoned upon. The deficiency on the year was 1,442,000/., without counting the sum of 970,000/. applied to the erection of fortifications within the year, which was raised by loan. Mr.Horsfaii's The only important division taken upon the on the Tea budget of i 86 1, was that on the 2nd of May, duty rejected, w hen Mr. Horsfall opposed the re-imposition of the Tea duty at is. 5/ per lb. and moved that it should be reduced to one shilling. Had this motion been carried, the repeal of the I 842 tO I ! Financial Policy. 361 Paper duty must have been abandoned ; but Chap. vr. Mr. Horsfall was defeated by a majority of 18.* 1861. It is natural, at the close of such an inquiry Review of the Financial Po- as that which 1 have now completed, to turn ] 1C y from back and ask • — What has been the general re- sult, in a financial sense, of the whole policy which I have been reviewing ; does the country stand better or stand worse in 1 862 than in 1 842 ; how do its accounts appear when we come to make them up ? In endeavouring to contribute some sugges- tions towards an answer to this question, I must guard myself by once more referring to the nar- row point of view from which I am about to look at it. The great fiscal and commercial measures of the last twenty years have wrought a wonderful change in the circumstances of the country. A complete revolution has taken place in many parts of our moral, social, and political system, which may be directly traced, either wholly or in great part, to the effects of those measures. Our material wealth, too, has enor- mously increased ; our trade has developed ; and our manufactures have been carried to great perfection. There have been seasons of tem- * 299 to 281. 362 Twenty Years of Chap. vi. porary, local, and partial suffering, and the i86k changes which have proved beneficial to the public have sometimes pressed hardly upon par- ticular interests ; but, upon the whole, it can hardly be questioned that the condition of every portion of the community has been greatly im- proved by the new policy. But these are matters of which I have not undertaken to treat, and I therefore leave them on one side while I look at the mere financial question which I have already put. I am by no means sure that the answer to this question is as clear as many persons are inclined to think it. Of course, in a general way, it may be said that a country whose wealth has increased is better able to bear heavy financial burdens than it was before such increase. England, therefore, being richer in 1862 than she was in 1842, is, in a cer- tain sense, better able to bear such burdens now than she was then. But it must not be forgotten, in the first place, that she is not only able to bear increased taxation, but is actually called upon to bear it. If her wealth has increased, so has her ex- penditure ; and that, too, in a pretty equal degree. Mr. Gladstone, in his budget speech of i860, pointed out that between 1842 and 1859 the wealth of thecountry had increased about 28| per Financial Policy. 363 cent, and the expenditure in the same time about Chap. VI. 27 per cent. Now this is a serious considera- I g6i. tion ; and it is made the more serious when we remember that Mr. Gladstone at the same time showed that the increase in the expenditure had been advancing at a greatly accelerated rate of speed in the last six years of the term of which he was speaking, and that the portion of the public expenditure which is, so to speak, optional and subject to the control of the public, had in those six years risen by no less than 58 per cent. Nothing can be more natural than that a nation should, like an individual, increase its expenditure as its wealth increases ; but it is to be borne in mind that while nothing is easier or pleasanter than to expand one's outlay upon the necessaries and conveniences of life, nothing is more painful or more difficult than to contract it ; and that, should our prosperity encounter any check, the habit of large expenditure which we have al- lowed to gain upon us may prove a very incon- venient one. But, it will be said, the increase of our ex- penditure has been occasioned by causes entirely independent of the fiscal policy of recent years ; that policy has not caused the expenditure, it has only given us the means of meeting it. I 364 Twenty Years of Chap. vi. am not sure that either branch of this assertion j 86 1. can be admitted — at all events, not without some qualification. Our fiscal policy has, perhaps, not directly caused us to spend more, but it has certainly encouraged us to do so. Many causes have been at work to lead to increased expen- diture ; and so have many causes been at work to lead to increased prosperity ; we assign to the fiscal and commercial policy of late years a very large share of credit for the prosperity, perhaps we do not sufficiently recognize its influence on the expenditure. The long peace, the progress of science, and its application to all the arts of life, the development of the railway system, the improvements in agriculture and manufactures, the discoveries of gold, the impulse given to colonisation, are the causes which have most manifestly led to our prosperity. Their effect has undoubtedly been much enhanced by the removal of restrictions which would otherwise have retarded the march of improvement ; and the improvement may therefore, in a sense, be said to be due to that removal. But somewhat similar reasoning is applicable to the case of our expenditure. If we had not had so ready an engine as the Income Tax at our hand, we should have found it impossible to do all that we have Financial Policy. 365 done in the way of spending. We could not Chap. VI. have met the demands that have been made 1861. upon us for the education of our people, for the improvement of our judicial system, for the comfort or even the efficiency of our army and navy, and for hundreds of other objects of more or less importance, if our fiscal system had con- tinued as inelastic as it appeared to be in 1840. When, in order to meet any additional expendi- ture, it was necessary to impose a new tax, the power of increasing our expenditure was greatly restricted. Now that additional expenditure can be met by the simple expedient of slightly add- ing to the rate of an existing tax, that restriction is nearly done away ; and as the removal of the restrictions on commerce has promoted com- merce, so the removal of the restrictions on ex- penditure has promoted expenditure. But to what extent is it true that our present system of finance has increased our means of meeting expenditure ? We now experience about the same amount of difficulty in meeting an expenditure of 70,000,000/. as twenty years ago we found in meeting an expenditure of 55,000,000/.* Apparently, then, we can sup- * This sum is arrived at by adding the cost of the collec- 366 Twenty Tears of Chap. VI. port an expenditure greater by fifteen millions ,86! than we formerly could. This is a matter which requires a little illustration. In 1 842 Sir Robert Peel, before making any change in our system at all, estimated the income for the year at 48,350,000/.,* the expenditure at 50,819,000/., and the deficiency at 2,469,000/. These figures show, or at least enable us to form an approxi- mate idea of, the relation of our ordinary income to our expenditure before the Income Tax was imposed. In the year 1853, after Sir Robert Peel's reforms had borne their fruit, and when Mr. Gladstone's measures were in the first year of their trial, the ordinary income, that is to say, the income without the produce of the IncomeTax,was48,657,ooo/.,-f- the expenditure was 51,250,000/., and the amount by which the latter exceeded the former was 2,593,000/. The close correspondence between these figures and those of Sir Robert Peel's estimate is very curious. But in the year 1861 the net ordinary tion of the revenue to the other expenditure, so as to make a fair comparison. * The average income of the three years, 1839, 1840, and 1841, had been 48,343,000/. f The average income of the three years 1850, 1851, and 1852, without the Income Tax, had been 47,496,000/. Financial Policy. 367 income was about 55,300,000/.,* the expendi- Chap. VI. ture was 67,387,ooo/.,-j" and the amount by l8 6, e which the ordinary income fell short of the expenditure was about 12,000,000/. While therefore we have increased our expenditure by about sixteen millions a-year,:[. we have brought up the productiveness of our ordinary sources of revenue by no more than about seven millions. § When we say we support expenditure better than we did, we should bear in mind that we do so by making more use of the Income Tax. Now the Income Tax is generally regarded as the financial reserve of the country, which should be kept available for emergencies. What we are doing, therefore, is drawing on our reserve ; and it is a grave question whether this is to be considered a proof of financial strength. It seems to me that a broad distinction must be drawn between the policy pursued from 1 842 up to the time of the Russian war, and that * This sum is arrived at by deducting from 59,309,000/., which is the gross amount of the ordinary income, the sum of 4,000,000/., which I suppose to be about the cost of the collection of the ordinary revenue. t Including the outlay on fortifications, but excluding the cost of collecting the revenue. % i.e. from 50,819,000/. to 67,387,000/. § i.e. from 48,350,000/. to 55,300,000/. 368 Twenty Years of C hap. vi. which has been pursued since. The principles 1S61. which appear to have guided Sir Robert Peel and Mr. Goulburn in their financial arrange- ments were, — first, the maintenance of a surplus of revenue over expenditure, with a view to keep up the credit of the country and to operate upon the National Debt ; secondly, the repeal or re- duction of taxes upon a settled plan, adopted with a view, so far as its financial aspect is con- cerned, to render the ordinary sources of reve- nue more productive by relieving trade and industry from unwise restrictions, and by im- proving the general condition of the taxpayer ; and thirdly, the use of the Income Tax at a fixed rate, and for definite periods, with a view to enable them to give effect to their plans for remission of taxation without endangering the maintenance of an adequate surplus of revenue. The result of a steady adherence to these prin- ciples was, that in the five years of Sir Robert Peel's administration the unredeemed capital of the National Debt was reduced by 9,232,000/., and the annual charge by 1,436,777/. ; and though taxes to a very large amount were re- mitted, their productiveness was in no degree impaired ; for, whereas the ordinary revenue had amounted before 1842 to 48,343,000/., it Financial Policy. 369 amounted in 1846 to 48,341,538/. without in- Chap. VI. eluding the produce of the Income Tax or the 1861. receipts from China. The aggregate amount of the surplus of income over expenditure in those five years was 1 1,161,879/. In the next seven years, 1 847-1 854, the principles of Sir Robert Peel were more or less exactly followed. An addition was unavoidably made to the debt in consequence of the Irish famine ; but not- withstanding this addition the amount of the unredeemed capital was, in the course of the seven years, further reduced by 13,855,000/., and the amount of the annual charge by 320,000/. ; so that the total reduction in the capital of the debt between 1842 and 1854 was 23,000,000/., and the reduction in the annual charge 1,750,000/. The accumulated surplus of the whole period was 19,535*988/., or, deducting the loan raised at the time of the Irish famine, 11,535,988/. The ordinary re- venue without the Income Tax stood in 1853-4 a trifle higher than in 1842, and the rate of ex- penditure also was substantially the same in the two years. The cost of the Supply services had been increased by about the same amount as that by which the charge for the debt had been dimi- nished. Symptoms of a disposition to depart B B 37° Twenty Years of Chap. vi. from Sir Robert Peel's policy with regard to 1861. the Income Tax, however, had been shown in the years 1848 and 1851, and Parliament had begun to look upon it as a tax which might be used as a permanent source of revenue, might be renewed annually, and might be varied in its rate. Feeling, however, that it could not well be used in this manner without some alteration in its framework, the House of Commons had begun to review it with the purpose of meeting the demands of those who were calling for its reform. If that reform could have been made upon principles satisfactory to the majority, the Income Tax would have become the make- weight of our financial system, and would pro- bably have been freely used to effect remissions of taxation on the one hand and additions to expenditure on the other. This was what we appeared to be coming to, when Mr. Gladstone carried the great measures of 1853, and restored for the time the policy of Sir Robert Peel. Seeing the danger of attempting either to re- model or to perpetuate the Income Tax, he made a bold, but by no means a too bold, effort to stamp the impost with the character of a temporary and provisional source of revenue, designed, as Sir Robert Peel had designed it, to Financial Policy. 371 carry the finances through the period of an Chap - vi - experiment. 1861. The Russian war, in its direct and still more in its indirect consequences, put an end to the policy of 1853. It was that war which, as I have already observed, not only rendered large expenditure necessary, but infected the whole nation, and not this nation only but all Europe also, with ideas of extravagance. The impor- tance of maintaining an annual surplus of in- come over expenditure, and of making some provision for the reduction of our debt, has been lost sight of. Some persons have been for reducing taxes, others for increasing ex- penditure, without any apparent respect to the consequent effect upon our balance-sheet, or upon the amount of our unredeemed debt. It would be unfair to reproach any particular minister or any particular party for this line of conduct. All have been more or less re- sponsible, and each may retort upon the other the arguments which any one may use. This, however, is perfectly clear, — that if we are to put an end to this state of things we must leave off wrangling as to who is most to blame, and must apply ourselves in earnest to find a remedy. Public spirit must take precedence of party spirit ; 37 2 Financial Policy. Chap. VI. and a general view of the policy most conducive 1 86 1. to tne interests of England must not be eclipsed by our attachment to particular theories and particular measures. It is with a sincere con- viction that the financial condition of the country is such as to render it our duty to lay aside all private and personal prejudices, and to cooperate heartily in setting right that which is amiss, that I close this chapter. APPENDICES cO»flj APPENDIX A. Table of Budgets. HE following Table is made out by taking the estimates of revenue and expenditure from the Budget Speeches of each year, and the results from the Finance Accounts, which do not however show the actual expenditure on each head of service, but only the Exchequer issues on account of it up to the close of the year. The column headed " Basis of Estimate" shows the amount anticipated by the Chancellor of the Exchequer before making any alteration in taxation. When this column is left blank it is because no alteration was made in that year. 37 6 Budget of 1842-3. (March 11, 1842.) REVENUE. Head of Revenue. I Basis of Estimate. Estimate. Result. Remarks. Customs Excise .... Stamps .... Taxes .... Post Office . . . Crown Lands . Miscellaneous . Income Tax China Payment £ 22,500,000 13,450,000 7,100,000 4,400,000 500,000 1 50,000 250,000 £ 21,560,000 13,700,000 7,190,000 4,400,000 500,000 1 50,000 250,000 3,700,000 £ 20,754,185 12,500,627 6,977.358 4,265.537 610,000 1 17,500 55 2 >559 2,456,287 511,407 Income Tax imposed at id. in the pound. Export duty laid on Coals. Spirit duties and Stamp duties in Ireland in- creased. Expected gain 4,300,000/. Customs' duties to the estimated extent of 1,200,000/. remitted. Total . . . 48,350,000 51,450,000 48,745,460 2,421,776 Surplus Deficiency 2,469,000 631,000 EXPENDITURE. Head of Service. Debt Cons. Fund Charges Army .... Navy .... Ordnance Miscellaneous . Canada, Clothing of ) Volunteers . . S Chinese Expedition Unclaimed Dividends Total . . . Estimate. Result. £ £ 29,427,000 29,434,891 2,368,000 2,408,377 6,617,000 6,308,602 6.739.000 6,680,163 2.084.0001 1,893,425 2,800,000 3,182.432 108,000 150,062 675,000 1,079,487 29,796 50,819,000 51,167,236 Remarks. Budget of 1843-4. (May 8, 1843.) \77 REVENUE. Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. £ £ £ Customs. . . . 19,000,000 21,426,632 No alteration of taxation Excise .... 13,000,000 12,962,011 this year. Stamps .... Taxes .... Post Office . . . 7,000,000 7,011,937 4,200,000 4,192,473 600,00©! 628,000 Crown Lands . Miscellaneous . China Money . Income Tax . . 1 i ■ ■ • 1 130,000, 147,500 250,000 305,881 870,000 803,802 5,100,000 5,356,888 Total . . . 1 50,150,000 52,835,125 Surplus Deficiency 762,355 2,095,428 EXPENDITURE. Head of Service. Estimate. Result. Remarks. Debt Cons. Fund Charges Army .... Navy .... Ordnance . Miscellaneous . . ) Insurrect. in Canada S Opium Compensa- ~\ tion&Dcbt to E.I. 1 Co. for China war J £ 29,178,734 2,357,000 6,619,788 6,382,990 1,849,142 3,000,000 £ 29,132,784 2,352,264 6,118,656 6,286,056 1,941,926 (2,812,294 1 25,300 2,070,416 The money applied to the payment of the opium compensation, and the settle ment of the debt to the East India Com- pany had not been estimated for. Ex- cluding this item, the expenditure was about 700,000/. below the amount of the estimate. But the great apparent reduction in the Army expenditure arose partly from certain repayments having been made by the East India Company, and partly from the reduction of the ba- lances which it had been necessary to keep in the Commissariat chests abroad Total . . . 49,387,645 50,739,697 during the China war. 378 Budget of 1 844-5 (April 29, 184.4.) REVENUE. Heador'Revenue. Basis of Estimate. Estimate. Result. Remarks. Customs . Excise Scamps . Assessed Taxes Income Tax Post Office . Crown Lands Miscellaneous £ 21,500,000 13,000,000 7,000,000 4,200,000 c, 1 00,000 600,000 130,000 250,000 £ 21,260,000 12,950,000 6,900,000 4,200,000 5,100,000 600,000 130,000 250,000 £ 22,312,365 13,431,883 7,267,342 4,217,749 5,104,448 699,000 125,000 482,755 777»o73 Reductions made on EXCISE. £ Flint Glass .... 35,000 CUSTOMS. Currants .... 90,000 STAMPS. Marine Insurances . 100,000 China Payment About . . ,£"400,000 Total . . 51,790,000 51,390,000 54,417,615 Surplus . Deficiency 3,146,830 2,746,830 6,342,436 EXPENDITURE. Head of Service. Estimate. Result. Remarks. Cons. Fund Charges Dissentient fundhldrs. South Sea Company Army .... Navy .... Ordnance . . Miscellaneous . Opium Compensation E. I. Company for ) China war . . ) £ 27,697,000 2,400,000 250,000 2 39,000 6,616,868 6,250,128 1,840,064 3,000,000 400,000 £ 27,672,918 U 7 37>945 6",4 I 5-394 6,218,219 «,973>5 11 3,026,266 30,926 Charge for the debt apparently re- duced by 1,435,000/. on account of the alteration of the time of paying di- vidends. Real reduction only 3 1 3,000/. for one half-year. Consolidated Fund charges include 104,275/. for dissentient landholders, and 222,21 1/. tor South Sea Company. This sum was not required within the year. Total . . . 48,643,17048,075,179 Budget of 1845-6, 379 (Feb. 14, 1845.) REVENUE. Basis of Head of Revenue. Estimate . Estimate. Result. Remarks. Customs . Excise Stamps . Assessed Taxes Post Office . Crown Lands Income Tax Miscellaneous £ 22,000,000 13,500,000 7,100,000 4,200,000 700,000 150,000 2,600,000 250,000 600,000 £ 19,582,000 12,580,000 7,100,000 4,200,000 700,000 150,000 5,200,000 250,000 600,000 £ 19,768,393 13,296,620 7,660,340 4,224,039 791,000 130,000 5,084,741 3°3.333 750,859 52,009,324 Income Tax renewed at jd. in the pound. Reduction of Sugar £ duties .... 1,300,000 Repeal of Export du- ties 118,000 Repeal and remission of 430 duties . . 320,000 Repeal of duty on Cot- ton Wool . . . 680,000 China Payment Total Customs £2, 41 8,000 Total . . 51,100,000 50,362,00c Repeal of Auction Do. of Glass duty 640,000 Total Excise . . .£890,000 Total . . £3,308,000 Surplus Deficiency 1,410,000 672,000 2,380,600 EXPENDITURE. Head of Service. Estimate.* Result. Remarks. Debt Cons. Fund Charges Army .... Navy .... Ordnance . Miscellaneous . Unclaimed Dividends £ 28,395,000 2,400,000 6,678,000 6.936,000 2,142,000 3,200,000 £ 28,213,523 2,394,138 6,715,409 6.968,917 2,236,507 2,871,673 228,557 About 1,000,000/. added to the Navy Estimates, in order to enable us to create a respectable Steam Navy, and to main- tain ten sail of the line. * These figures are Sir R Feel's; but the detail does not bear out the total. Total . . . 49,690,000 49,628,724 3 8o Budget of i 846-7, (May 29, 1846.) REVENUE. Basis of Head of Reven ue * Estimate. Estimate. Result. Remarks. £ £ £ Customs. 19,768,000 19,500,000 21,086,265 Customs' Duties to the Excise . Stamps . . 13,400,000 7,450,000 I 3.95 8 '39 I 7,638,765 amount of 1,041,000/. were remitted ths year. Taxes 4,230,000 4^57^59 Income Tax . 5,100,000 5,464,580 Post Office . . ... 850,000 856,000 Crown Lands . 120,000 1 12,000 Miscellaneous > ... 300,000 432,957 China Payment • 700,000 667,644 Total . • 51,650,000 777,000 54473.762 Surplus * « • • 2,765,191 Deficiency . ... ... EXPENDITURE. Head of Service. Debt Cons. Fund Charges Army .... Navy .... Ordnance . Miscellaneous . . Total . . . Estimate. £ 28,100,000 2,550,000 6,697,000 Result. £ 28,055,202 2,807,043 6,534,699 7,521,000 7,708,293 2,543,000 2,645,646 3,435,000 3.957,687 50,873,00051,708,571 Remarks. Including 550,000/. on account of Irish distress. Budget of 1847-8, (Feb. 22, 184.7.) REVENUE. 38l Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. £ £ £ Customs Excise Stamps . Taxes Income Tax Post Office . 20,000,000 13,700,000 7,500,000 4,270,000 5,300,000 845,000 19,940,296 13,276,879 7.3 19.053 4.347»57« 5.459.3 68 932,000 The falling-off Malt and Spirits year was no less 1,400,000/., yet whole revenue was 432,000/. below th timate. on this than the only e es- Crown Lands 120,000 61,000 Miscellaneous ... 330,000 291,569 China Payment 450,000 455,021 Total . . . 52,515,000 52,082,757 Surplus Deficiency 332,000 3,092,285 EXPENDITURE. Head of Service. Estimate. Result. Remarks. £ £ Debt Addl. Int. on Ex. BUls 28,04.5,000 142,000 [.28,427,232 Interest on Loan . 280,000 J Cons. Fund Charges Army .... Navy .... Navy Excess (1 845-6 ) Ordnance . 2,700,000 6,840,074 7,561,876 185,000 2,679,127 2,724,971 7.357.689 j- 8,157,287 2,726,698 Miscellaneous . Unclaimed Dividend;- 3,750,000 3> 6 H>329 9'. 8 35 Total . . . 52,183,077 Irish Distress . 975,000 Kaffir War . . . ... 1,100,000 52,183,077 55,175,042 3 32 Budget of i 84.8-9 (Feb. 18, and Aug. 25, 1848.) REVENUE. Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. £ £ £ Customs Excise .... 19,750,000 13,000,000 19,710,000 1-20,540, 000 J 21,170,860 13,932,277 6,565,365 Duty on Copper ore taken off, 41,000/. Stamps .... 7,200,000 Increase of Income Fax to one shilling Taxes .... 4,340,000 4,340,000 4,318,903 in the pound pro- Income Tax 5,200,000 5,200,000 5.3i7» 2 45 posed, but abandoned. Post Office . . . Crown Lands . 900,000 60,000 900,000 60,000 812,000 100,000 Loan ot 2,000,000/. in Exchequer Bills au- thorised. Miscellaneous . 300,000 300,000 2^52,040 China Money . 80,000 84,284 Appropriations in aid ... 500,000 484,758 Total . . . 51,250,000 52,130,000 53.oi7.733 Addit. Income Tax 3,500,000 ... Surplus . 1 13,000 • • • Deficiency . ... 2,031,256 269,378 EXPENDITURE. Head of Service. Estimate. Result. Remarks. Debt .... Cons. Fund Charges Army .... Navy .... Naval Excess, 1846-7 Ordnance . Miscellaneous . Pensioners . Kafir War . . . Irish Distress . Emigrants to Canada Total . . . £ 28,530,600 2,750,000 7.° I2 .795 7,518,610 245,411 2,801,760 3.783.57° 25,000 1,100,000 262,545 130,965 54,161,256 £ 28,489,860 2,811,557 6,743. 6 34 j.7,962,397 3,001,128 3,888,615 389,920 53,287,111 In consequence of the Reports of the Committees which sat upon the Military, Naval, and upon the Miscel- laneous Estimates, the estimates origi- nally framed, and which amounted to 21,970,000/. for those heads of Ex- penditure were reduced to 21,141,735/. as shown in the table. Sir C. Wood took the expenditure for the Kafir War into the account for this year, but as it was paid out of the balances in the Exchequer before the termination of the financial year 1847-8, it belongs properly to that year, and is there entered. Budget of 1 849-50. 383 (J jne 22, 1849.) REVENUE. Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. £ £ £ Customs Excise .... Stamps .... Taxes .... Income Tax . Post Office . . . ... 20,450,000 13,710,000 6,750,000 4,300,000 5,275,000 800,000 20,442,759 14,043,064 6,843,546 4,332,980 5,466,249 823,000 Crown Lands . ... 180,000 160,000 Miscellaneous . ... 222,000 267,023 Old Stores . . . Surplus Fees . 485,000 90,000 437.453 100,845 Total . . . 52,262,000 52,916,919 Surplus . Deficiency- ... 104,304 2,538,502 EXPENDITURE. Head of Service. Debt .... Cons. Fund Charges Army .... Navy .... Ordnance . Miscellaneous . Rcpaym.ofan Escheat Excess Navy, 1847-8 ,, Ordnance, 1846 „ Army, 1847-8 ,, Ordnance ,, ,, Commiss 1 . ,, Total . . . Estimate. 28,243,527 2,831,556 6,787,083 7,021,724 2,654,270 3.9 2 4.73' 52,173 323>787 97,984 119.95° 35.386 65.525 Result. £■ 28,194,507 2,740,761 6,490,475 6,711,724 2,485,387 3.755.563 Remarks. 52,157,69650,378,417 In these estimates the gross amount of the sums required for the Army, Navy, and Ordnance is voted for the first time ; appropriations in aid being carried to the account of revenue. The vote for the Navy includes the cost of the Packet Service (748,296/.) and that of the Arctic Expedition (12,688/.) These Excesses are included in the payments made for Army, Navy, and Ordnance. 3^4 Budget of 1 8 5 o- 1 . (March 15, 1850.) REVENUE. Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. Customs Excise . Stamps . Taxes Income Tax . £ 20,000,000 14,045,000 6,860,000 4,320,000 5,410,000 820,000 160,000 260,000 410,000 £ 20,000,000 13,590,000 6,560,000 4,320,000 5,410,000 820,000 160,000 260,000 410,000 £ 20,572,324 H>453>795 6,567,858 4>35°>73i 5>4°3.379 861,000 160,000 268,387 419,580 £ Alteration of "1 O. TA .• > 100,000 Mamp Duties J J ' Abolition of "| Excise on > 455,000 Bricks . J Post Office . Crown Lands . Miscellaneous . Old Stores . . Total reductions 755,000 Total . . 52,285,000 51,530,000 53»°57»°53 Surplus . Deficiency 1,521,418 766,418 3 5 i74'73i EXPENDITURE. Head of Service. Estimate. Result. Remarks. £ £ Debt .... 28,10^,000 28,090,91 1 The sum of 248,550/. paid out of Cons. Fund Charges Army .... Navy .... 2,620,000 6,629,347 6,613,659 2,588,643 6,571,883 6,401,076 the Consolidated Fund in discharge of the debt to the Equivalent Company, is not included in this account. Ordnance . 2.434.4»7 2,400,078 Miscellaneous . 4,000,000 3,822,980 Margin for Contings. Unclaimed Dividends 150 000 6,751 Total . . . 50,763,582 49,882,322 Budget 0/1851-2. (Feb. 17 & April 4, 1851.) 385 REVENUE. Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. Customs Excise . Stamps . Taxes . Income Tax Post Office . . Crown Lands . Miscellaneous . Old Stores . . £ 20,400,000 14,000,000 6,310,000 4,348,000 5,380,000 830,000 160,000 262,000 450,000 £ 20,000,000 14,000,000 6,310,000 3,780,000 5,380,000 830,000 160,000 262,000 450,000 £ 20,673,954 H.543.895 6,346,311 3,691,226 5,283,800 1,056,000 190,000 287,845 395,287 £ Window Tax "1 <> , , , J. 1,856,000 repealed J J ' House Tax \ > 720,000 imposed ) ' Loss 1,136,000 Timber and "| Coffee Duties > 400,000 reduced : loss J 1,536,000 But deduct -. Total . . 52,140,000 51,172,000 52,468,319 2,176,996 moiety of Window Tax f 568,000 Surplus . 1,892,829 925,000 this year Deficiency Net Loss 968,000 EXPENDITURE. Head of Service. Estimate. Result. Remarks. £ £ Debt .... 28,092,000 27,978,526 Cons. Fund Charges 2,600,000 2,614,416 Army .... 6 >593>945 6,828,662 Navy .... 6 >537>°55 6,010,000 Ordnance . 2,424,171 2 >338,44 2 Miscellaneous . 4,000,000 4,1 14,266 Kafir War . . . 300,000 Unclaimed Dividends ... 107,009 Total . . . 50,247,171 50,291,323 C (' 3 86 Budget of 1852-3. (April 30, 1852.) REVENUE. Head of Revenue. Basis of" Estimate. Estimate. Result. Remarks. £ £ £ Customs 20,572,000 20,396,828 Income Tax con- tinued tor one year. Excise .... 14,604,000 14,890,382 Revenue from Crown Stamps .... 6,339,000 6,920,373 Lands increased by Taxes .... 3,090,000 ... 3,194,271 transfer of some charges Income Tax Post Office . . . 2,600,000 938,000 5,187,000 5.593.043 1,045,000 to the head ot Miscel- laneous Expenditure. Crown Lands . 235,000 252,000 Miscellaneous . 260,000 . . . 487.175 Old Stores . . . 400,000 464,146 53,243,218 Total . . . 49,038,000 51,625,000 Surplus . 461,000 2,460,742 Deficiency . 2,125,000 EXPENDITURE. Head of Service. Estimate. Result. Remarks. £ £ Debt .... 27,950,000 27,918,027 Miscellaneous estimates increased by Cons. Fund Charges 2,600,000 2,533,826 transfer of charges from the Crown 6,491,000 350,000 [6,768,488 Lands revenue. Army .... Militia .... Navy .... 6,493,000 6,511,540 Ordnance . 2,437,000 2,488,389 Miscellaneous . 4,182,000 4,132,207 Kafir War . . . 660,000 430,000 Total . . . 51,163,000 50,782,476 Budget of 1853-4. 387 (April 18, 1853.) REVENUE. Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. Customs Excise .... Stamps .... Taxes .... Income Tax . Post Office . . . Crown Lands . Miscellaneous . Old Stores . . . Total . . . £ 20,680,000 14,640,000 6,700,000 3,250,000 5,550,000 900,000 *390,ooo 320,000 460,000 52,890,000 807,000 £ 20,022,000 14,391,000 7,000,000 3,250,000 5,845,000 900,000 390,000 320,000 460,000 52,578,000 495,000 £ 20,703,048 15,263,549 6,956,819 3,241,701 6,117,303 1,104,000 395,888 511,450 481,146 54,774,905 New duties imposed, net gain, 1,344,000/. Old duties reduced or repealed, net loss 1,656,000/. * The estimate for the Crown Lands was swelled by a sum of 135,000/. on account of repayments in respect of Metropolitan Improve- ments. Surplus . Deficiency 3.524.785 EXPENDITURE. Head of Service. Debt .... Cons. Fund Charges Army . Militia . . Navy Ordnance . Miscellaneous Kafir War . Unclaimed Dividends Total . . . Estimated saving on conversion of Stock . Total . . . Estimate. £ 27,804,000 2,503,000 6,582,000 530,000 7,035,000 3,053,000 4,476,000 200,000 Result. ~£~ 27,738,927 2,500,529 6,415,000 6,942,769 2,900,000 4H7L559 230,000 51.336 Remarks. 52,183,000 100,000 52,083,000 The estimate for the Army as here given includes the vote for the Com- missariat ; and the estimate for the Navy includes that for the Packet Ser- vice, though Mr. Gladstone stated them separately. 51,250,120 3 88 Budget of i 854-5 (March 6 & May 8, 1854.) REVENUE. Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. Customs Excise . Stamps . Taxes . Income Tax . Post Office . . Crown Lands . Miscellaneous . Old Stores . . £ 20,175,000 14,595,000 7,090,000 3,015,000 6,275,000 1,200,000 259 000 320,000 420,000 £ 20,875,000 17,495,000 7,090,000 3,01 5,000 12,832,000 1,200,000 259,000 320,000 420,000 £ 20,496,659 16,179,169 6,965,514 3,036,136 10,515,369 1,299,156 272,572 316,904 414,674 59,496,154 6,196,808 Income Tax raised to 14^. in the £. Duty on Scotch and Irish spirits raised. Malt duty raised from 2s. 8^5 X 3 ^"7,125,5' 3 * This sum shows the estimated ul- timate produce of the new taxes, but the whole amount expected within the year was 59,496,000/., the defi- ciency of 3,545,000/. being provided for by the issue of Exchequer bonds. Total . . 53,349,000 63,506,000* 3,543,000* Surplus Deficiency 2,840,000 EXPENDITURE. Head of Service. Estimate, March 6. Estimate, May 8. Result. Remarks. Debt Cons. Fund Charges Army & Commiss. Militia . . . Navy & Packets . Ordnance . Miscellaneous . Extraordinary Mili- / tary Services . . \ £ 27,546,000 2,460,000 7,502,000 530,000 8,280,000 3,846,000 4,775,000 1,250,000 £ 27,546,000 2,460,000 7,802,000 1,030,000 12,830,000 4,486,000 4,775,000 2,100,000 £ 27,864,533 1,839,290 [8.380,882 14,490,105 5,450,720 5,867,432 1,800,000 Total . . . 56,189,000 63,039,000 65,692,962 Budget of 1855-6. (April 20 & Aug 2, 1855.) 389 REVENUE. Head of Revenue. Customs Excise . Stamps . Taxes Income Tax Post Office . . Crown Lands . Miscellaneous . Total . . Surplus Deficiency Basis of Estimate. £ 20,500,000 17,071,000 6,81 5,000 2,920,000 13,535,000 1,438,000 260,000 800,000 63>339> 000 Estimate. Result. Remarks. £ £ 2 2,450,000; 2 1 ,788,77 1 17,921,000:16,636,670 6,815,000! 6,894,307 Sugar, Tea, and Cof- fee dutiesincreased. Irish and Scotch Spirit duties raised. Income Tax fixed 2,920,000! 2,958,626 at n> ' 4 395>°59 19,654,585 10,411,544 6,930,913 4,200,000 These sums are not included in the expen- diture. * In addition to this amount, theChancellor of the Exchequer pro- vided for 2,coo,ooc7. further expenditure, viz. i,ooo,oco/. to pay Total . . . 79,899,519 86,034,000* 88,428,345 off Ways and Means Bills, issued in 1854-5, and 1,000,000/. in part ot lo.in to Sardinia. 39° Budget of 1856-7, (May 19, 1856.) REVENUE. Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. Customs Excise .... Stamps .... Taxes .... Income Tax Post Office . . Crown Lands . Miscellaneous . £ 22,524,000 16,348,000 7,000,000 2,950,000 16,000,000 1,070,000 260,000 1,000,000 £ 23,850,000 17,170,000 7,185,000 3,1 10,000 16,355,000 2,810,000 260,000 1,000,000 £ 23,321,843 18,165,000 7,372,209 3,116,046 16,089,933 2,886,000 284,857 1,098,174 This being the first year in which the gross reve- nue has been estimated, I have given under the head of " Basis of Esti- mate" the sums which would have been esti- mated as net revenue up- on the former system. No alterations were made in taxation this year. Total . . . 67,152,000 71,740,000 72,334,062 Surplus . Deficiency . 13,961,000 9,373,000 3,254,605 EXPENDITURE. Head of Service. Estimate. Result. Remarks. Debt Cons. Fund Charges . Miscellaneous . Collection of Revenue Vote of Credit . . ■ £ 28,660,000 1,750,000 20,747,000 16,568,000 6,800,000 4,588,000 2,000,000 £ 28,681,177 1,773,726 20,8l 1,242 13,459,013 6,626,734 4. 2 36,775 The original estimates for the Army and Navy were as follow : — £ Army .... 34,998,000 Navy .... 19,876,000 The reduction in consequence of the peace was 17,559,000/. Total .... 81,1 13,000 75'588,667 Loan to Sardinia . 1 ,000,000 1,000,000 Budget of 1857-8. (Feb. 13, and July 17, 1857.) REVENUE. 39 1 Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. Customs Excise .... Stamps .... Taxes .... Income Tax Post Office . . . Crown Lands . Miscellaneous . £ £ 22,850,000 17,000,000 7,450,000 3,1 50,000 1 1,450,000 3,000,000 265,000 1,200,000 £ 23,109,105 17,825,000 7>4 I 5>7'9 3> I 5 2 >°33 1 1,586,114 2,920,000 276,654 1,596,887 67,881,513 The original estimate was for a surplus ot 891,000/., after paying oft'2,2 50,000/. of debt; the result shows a deficiency of 24.7,346/. without reckoning the debt. If the debt is reck- oned, the deficiency is *>497.34 6/ - Total . . . 66,365,000 891,000 Surplus Deficiency 247.34 6 EXPENDITURE. Head of Service. Debt Cons. Fund Charges Army Navy Packet Service . Miscellaneous Collection of Revenue Persian War . China War . . . Repayment of Debt Total Estimate. £ 28,550,000 1,770,000 1 1,625,000 8,109,000-) 965,000 j 7,250,000 4,690,000 265,000 63,224,000 2,250,000 6 q, 474, 000 Result. £ 28,627,103 2,919,198 12,915,157 10,590,000 7,227,719 4,358,988 900,000 590,693 68,128,859 2.2^0,000 70,378,859 Remarks. The Expenditure includes a sum of 1,125,206/. paid out of the Consolidated Fund for the purpose of redeem- ing the Sound dues. From statement made the 17th of July, the tot.il esti- mated expenditure appears 67,684,000/. ; deduct from this 2,250,000/. (Debt.) Estimate of ordinary ex- penditure = 65,434,000/., leaving estimated surplus of 9 3 1 ,000/. 392 Budget of 1858-9. (April 19, 1858.) REVENUE. Head of Revenue. Basis of' Estimate. Estimate. Result. Remarks. £ £ £ Customs 23,400,000 23,400,000 2-M 1 7.943 Irish Spirit duties Excise .... 18,100,000 18,600,000 17,902,000 raised to 8j. per gallon. Stamps .... 7,550,000 7,850,000 8,005,769 Stamp duty on bankers' cheques. Taxes .... 3,200,000 3,200,000 3,162,000 Income Tax . 6,100,000 6,100,000 6,683,587 Post Office . . . 3,200,0C0 3,200,000 3,200,000 Crown Lands . 270,0C0 270,000 280,040 Miscellaneous . 1,300,000 1,300,000 2,125,944 Total . . . 63,1 20,000 63,920,000 65,477,284 813,402 Surplus . 3 10,000 Deficiency . 3,990,0001 . . . EXPENDITURE. Head of Service. Estimate. Result. £~ 28,527,484 1,940,655 12,512,291 9,215,487 7» I 69,473 4>5i5>9 6 9 39 '»943 390,580 Remarks. Debt .... Cons. Fund Charges Army .... Navy & PacketService Miscellaneous . Revenue Collection Expenses of China ) War (Naval) . J Expenses of Rus- ) sian War . . ) £ 28,400,000 1,900,000 1 1,750,000 9,860,000 7,000,000 4,700,000 63,610,000 1,500,00c 2,000,00c The expenditure would have been greater by 3,500,000/. if the Sinking Fund had not been put an end to, and the Exchequer Bonds reissued. Total . War Sinking Fund Exchequer Bonds . 64,663,882 67,1 10,00c Budget of 1859-60, (July 18, 1859.) REVENUE. 393 Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. Customs Excise .... Stamps .... Taxes .... Income Tax . Post Office . . Crown Lands . Miscellaneous . £ 23,850,000 18,530,000 8,100,000 3,200,000 5,600,000 3,250,000 280,000 1,530,000 £ 23,850,000 19,3 10,000 8,100,000 3,200,000 9,940,000 3,250,000 280,000 1,530,000 £ 24,460,901 20,361,000 8,043,598 3,232,000 9,596,106 3,3 IO,000 284,479 1,801,584 Income Tax raised from 5J. to yd. in the pound ; but the whole of the additional tyi. levied in the first half- year. Malt credit abridged by six weeks, estimated produce 780,000/. 256,000/. repaid by the Spanish Govern- ment is included in the MiscellaneousRe venue. Total . . . 64,340,000 4,867,000 69,460,000 253,000 71,089,669 Surplus . Deficiency . 1,587,380 EXPENDITURE. Head of Service. Estimate. Result. Remarks. Debt .... 28,600,000 28,638,726 Charge for the debt increased by the Cons. Fund Charges 1,960,000 1,964,394 fact that a certain part of the Long Army and Militia . 13,300,000 14,057,186 Annuities tell in upon the 5th of Jan. i860, and that a quarter's payment had to be made upon that day, whereas Navy & Packet Service 12,782,000 I 1,823,859 Miscellaneous . 7,825,000 7»7 aI >5 I 9 the regular time for the hair-yearly Revenue Collection 4.740,000 4>43 8 >54 8 payments was April 5. China War. 858,057 69,502,289 Total . . . 69,207,000 394 Budget of 1860- (Feb. 10 8c July 16, i860.) REVENUE. Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. Customs . Excise . Stamps . Taxes Income Tax Post Office . Crown Lands Miscellaneous £ 22,700,000 19,170,000 8,000,000 3,250,000 2,400,000 3,400,000 280,000 1,500,000 £ 23,430,000 21,361,000 8,295,000 3,1 10,000 10,872,000 3,400,000 280,000 1,500,000 £ 23>3°S>777 19,435,000 8,348,412 3,127,000 10,923,816 3.400,000 290,568 1,453,101 The figures given in the second co- lumn show the amount of the revenue il on the 1 6th of July, after the hill for repealing the Paper duty had b^'cii thrown out, and the duty on Spirits had been increased. According to the original estimate in February, the income would have been 70,478,000/., the expenditure 70,014,000/., and the surplus 464,000/. The amount of duties intended to have been remitted was on £ Total . . 60,700,000 72,248,000 1,286,000 70,283,674 2,558,385 Total relief . . £3,9? 1,000 Net loss to revenue . £2,108,000 Income Tax fixed at lod. in the pound. Malt and Hop credits further short- ened. Spirit duties raised to 101. per gallon. Surplus . Deficit . 9,400,000 EXPENDITURE. Head of Service. j Estimate. Result. Remarks. Debt Cons. Fund Charges Army and Militia . Navy & PacketService Vote of Credit. . Miscellaneous . Revenue Collection £ 26,200,000 2,000,000 15,300,000 1 3,900,000 500,000 7,500,000 4,700,000 70,100,000 3,300,000 220.000 £ 26,231,018 2,296,430 14,970,000 14,401,446 3,°+3.«9 6 7,41 1,820 4.487,448 The expenditure includes a sum of 50,000/. for fortifications, charged upon the Consolidated Fund, but not included in the Budget estimate. Total . . . 72,842,059 Suppy. Vote of Credit Revenue Estimates Expected Savings \n\ Revenue Dcprtmnt. j 73,620,000 86,000 73,534,000 Budget of 1 8 6 1 - 2 . (April 15, 1861.) REVENUE. 395 Head of Revenue. Basis of Estimate. Estimate. Result. Remarks. £ £ £ Customs. Excise .... Stamps .... Taxes .... Income Tax 23,585,000 19,463,000 8,460,000 3,1 50,000 1 1,200,000 23.570,000 18,788,000 8,460,000 3,1 CO, 000 10.350,000 23,674,000 18,332,000 8,590,945 3,160,000 10,365,000 Paper Duty repealed from Oct. 1, 1 861. Estimated loss 665,000/. Income Tax reduced to gd. Post Office . . . 3,520,000 3,520,000 3,510,000 Estimated loss 850,030/. If the expenditure on fortifications be deducted the deficiency is 1,442,006/. Crown Lands . Miscellaneous . China indemnity . 295,000 1,400,000 750,000 295,000 1,400,000 750,000 295,000 1,481,534 266,000 Total . . . 71,823,000 70,283,000 69,674,479 2.412,006 ! Surplus Deficiency 1,920,000 408,000 EXPENDITURE. Head of Service. Estimate. Result £ Remarks. £ Debt 26,180,000 26,142,606 Cons. Fund Charges 1,930,000 !-9+5>572 Army .... 15,256,000 15,570,869 Navy .... 1 2,029,000 1 2,598,042 Vote of Credit . 1 ,000,000 1 .230,000 Miscellaneous . 7,737,000 7,984,463 Revenue Departments 4,780,000 4,699,581 Packet Service . 995,000 891,920 Expenses of Russian"! War .... J 53.43 1 Fortifications . . . 970,000 This item w.is not included in the Budget estimate, being provided loan. for by 69,902,000 Deduct for Savings. 25,000 ... Total . . . 09,875,000 72,086,485 APPENDIX B. See page x 4.1 . HAVE found much difficulty in obtaining the mate- rials necessary for a fair comparison of the Taxation of 1840 and i860 with that of 1850. The in- formation which we possess as to local taxation is very imperfect, though we are now, I hope, in way of getting it much more satisfactorily than heretofore. I have to thank Mr. Bowring and Mr. Bucknall of the Board of Trade for the assistance thev have kindly rendered me in procuring such information as is here made use of. I. General Taxation not falling directly on Property :- :1 Taxes on articles of Food, and Tobacco . Manufactured Articles . . Raw Materials .... Duties affecting Trades and Professions Conveyances Newspapers and Advertisements Assessed Taxes (except Win- ) dowDutyandHouseTax) ) ingc :tly )pcr 1840 1850 i860 £ £ £ 29,862,522 31,820,798 39.'3 6 >75 8 ! 3>5 1 9>44 6 2,452,658 1,561,490 ! 2>975>974 764,000 3'9'3°9 2,908,759 4,464,906 6,400,745 696,279 648487 582,068 s 382,142 51 1,418 139,402 1,566,761 1,491,308 1,312,697 41,911,883 42,153.575 49,452,469 Appendix B. 397 II. General Taxation falling directly on Property : — Land Tax, House Tax, Win- dow Tax, Probate, Legacy, Succession, and Insurance Duties, &c. Stamps on Deeds and other instruments affect- ing Property, and Schedules A and C of the Income Tax. 1 840 £ 7>7°3>5 l 3 1850 £ 12,451,776 i860 £ i5>H3»7'4 It will be observed that the great increase in the produce of indirect taxation arises under the head of duties on articles in the nature of food, and on tobacco. The increase is due, not to addi- tions to taxation, but to the large increase of consumption of taxable articles. The only articles included under this head upon which the duties have been raised since 1840 are these two, — Spirits. Chicory. The articles upon which the duties remain unchanged are, — Tobacco. Malt. Pepper. The principal articles upon which the duties have been reduced are, — Tea. Sugar and Molasses. Coffee. Cocoa. Corn. Wine. Vinegar (foreign). Hops (now repealed). Sago. Fruit (preserved and dried). The principal articles which have been entirely set free from duty are, — Fruit (fresh). Appe?tdix B. Meat. Salt provisions. Animals (living). Butter. Cheese. Eggs. Rice (except dust). Spices (except pepper). Vinegar (British). Under the head of Duties affecting Trades and Professions are included Licence Duties, certain Stamp Duties, and the Income Tax, Schedules B, D, and E. Under the head of Taxation falling directly on property are included, — Land Tax. House Tax. Schedules A and C of the Income Tax. Stamps on Deeds. Probates. Legacy and Succession Duties. Fire and Marine Insufances. III. Local Taxation. The items of the following return show the amounts derived from the principal sources of our Local Taxation, so far as reliable information can be obtained. Although the amounts do not all apply to the same year, I am assured that they are in the main nearly the same as the aggregate amount of any recent year. In addition to these items, however, there are many others of which it is at present impossible to estimate the amount with any confidence ; such as Sewers' Rates ; Lighting and Watching Rates ; Improvement Rates ; Metropolitan Rates, Tolls, and Dues ; Scotch Burgh Rates and County Assessments. The returns required under the Local Taxation Returns Act (i860) are, however, fast approaching completion ; and these will put an end to all uncertainty. Appendix B. 399 Rates. Poor Rates, England and Wales. 1859 to Lady- £ day i860 7,715,948 „ Scotland, Whit Sunday 1859 t0 J 86o 671,516 ,, Ireland, Lady-day, i860 .... 503,813 County Receipts, England and Wales, to Michael- mas, i860 1,222,765 Highways, Parish, England and Wales, to 25 th of March, 1859 2,174,962 Turnpikes, to 31st Dec. 1858, Eng. and Wales . 1,047,308 „ Scotland, to Whit Sunday, 1859 . 238,048 Church Rates, 1853-4, England and Wales . . 482,500 Grand Jury (Ireland) Presentments, 1 86 1 . . . 1,034,926 Scotland, Burgh Rates, 1854 (Sums paid for prose- cutions) 400,000 ,, County Police 24,000 Metropolitan (City) Rates and Duties .... 200,000 Total . £15,715,786 Adding the sums here given to the amount of general taxation, under head II, we arrive at a total of nearly 31,000,000/. as the amount of the taxation falling directly on property in i860, as com- pared with 25,451,000/. in 1850. I must, however, repeat that I am not fully satisfied with the data on which this calculation is founded, nor do I feel sure that my cal- culations are made on precisely the same principle as those of Sir C. Wood. CH1SWICK PRESS : PRINTED BY WHITTINGHAM AND WILKIN'S, TOOKS COURT, CHANCERY LANE. UJtti KNJA AT LOS ANGELES LIBRAKY UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. 0£C 1 11951 i '419& fiEC'D LD-URL FEB 2 OK t&2° CD Mi - «!*•* Form L9 — 15m-10,'48(BlO::'.i ) I :i 968 1 1980 3 115 8 00557 6854 M « 001 027 729 i ; ; ■ - .'■■ m ftyivti 1 . .'> .! \ 'V/ HB fl snumiBiBBn