gfJl-/ THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES v.'.// / The Natioe!s.. Income -ti^^, ^ ^-^ AN OUTLINE OF NATIONAL AND LOCAL TAXATION. BY F. W.^RAFFETY AND W. H. CARTWRIGHT SHARP, m.a., ll.b., Barristers-at-Law, LONDON THOMAS MURBY & CO., 6, BouvERiE St,, E.G. K 1 <>- -^ i^o^^) t ■> CONTENTS. -J} CHAP C/3 >- I. INTRODUCTION II. THE NATION'S REVENUE ' . or ^ III. THE PRINCIPLES OF TAXATION . IV. THE NATION'S TAXES . V. THE NATION'S INCOME FROM NON-TAX O SOURCES CO o VI. THE NATION'S DEBT VII. THE CONTROL OF EXPENDITURE C3 VIII. LOCAL TAXATION .... IX. REVENUE AND PROTECTIVE TAXES EXPENDITURE OF THE NATIONS . SELECT LIST OF AUTHORITIES . INDEX ....... PAGE 7 12 21 33 54 59 69 74 89 115 116 117 38G'772 « ft C e « t Cc . £600 „ £120 ;^600 „ ;^700 „ £^0 Anyone is further entitled to deduct from the amount of his income the premium he pays upon a policy of life insurance ; while earned incomes, including pensions or payments for past services, of less than £2,000 are also * Bagehot. Biographical Studies. THE NATION'S TAXES. 45 entitled to a rebate.* Thus in 1908-9 the income tax was IS, in the £, but on earned incomes of less than £2,000 the rate was 9d. We see then that, with the income tax at that rate, a schoolmaster with a salary of £380 a year, will only pay £8 5s. od. per annum as his share ; if a brewer earns £1,200 a year, he will pay £45 Income tax ; a man living on an annuity left him by will of £600 will pay £24 ; a clerk earning £180 a year will pay 15s. Merits of the Tax. — Charges have been made against the Income Tax mainly upon four lines. It is said that this tax presses too hardly upon the man with a small income — a charge which is not so justifiable at the present day, although a more highly graduated tax might be anticipated. Incomes over, say, £5,000 a year might pay at a higher rate. Another complaint was that, by charging earned and unearned incomes at the same rate, industry was discouraged — on incomes of less than £2,000 this is no longer true. Perhaps a similar distinction between earned and unearned incomes upon amounts above £2,000 is theoretically desirable, but any idea that a man is discouraged from endeavouring to grow rich, because part of his profits will be taken away by Income Tax, is scarcely well founded. A third ground of com- plaint was, and is, that this tax puts a premium upon lying, because it is largely left to the taxpayer to declare the amount of his income. Undoubtedly there have been, and still are, many evasions of their proper share of payment by unscrupulous people. The machinery for detecting these evasions has been improved, and those whose weekly earnings amount in the aggregate to more * Deductions for " wear and tear " of plant and machinery may be allowed, while ministers of religion can deduct up to |th from the value of a dwelling-house which they rent, in respect of such pajt as is used for the purposes of their office. 46 THE NATION'S INCOME. than ;£i6o a year cannot now so easily escape bearing their share of taxation as was formerly the case. Still even at the present time, it is scarcely an over-estimate to reckon that some eight or ten per cent, of the total amount of income which should be subjected to tax escapes payment. The chief and abiding objection to the tax is its inquisitorial character. This, to certain persons and businesses, is a profound grievance. On the whole, however, it is undeniably a just and useful tax. More than any other it brings home to the individual citizen the cost of government, and ensures a careful supervision of current expenditure and all fresh proposals affecting public money. Is it excessive ? — Despite many complaints about the burden of taxation, there is little doubt that the British taxpayer receives good value for his money. When it is remembered that a man who earns £400 a year, and neither smokes nor drinks, pays only about £<^ income tax, and in other taxes but a trifling amount, it is seen that, in com- parison with the benefits afforded by a good system of government, the burden he bears is but slight. Even if he drinks and smokes in reason, the total amount he pays in taxes can hardly be regarded as an extortionate demand for the advantages accorded to him. The Schedules. — ^The different kinds of income taxed are specified in the five Schedules A. B. C. D. and E. of the Income Tax Act, 1853 (16 and 17 Vict. c. 34.). Schedule A. is for income derived from the ownership of lands, houses, and most other kinds of real property. Nearly one-fourth of the revenue derived from Income Tax is obtained from incomes included under this schedule. The basis on which owners are at present taxed is the actual or proper letting value of their land in its present THE NATION'S TAXES. 47 condition, i.e., the actual rent paid, if the property is let at a rack rent, or, if the property is not so let, the annual rent which a tenant would reasonably be expected to pay. In the case of lands one-eighth, in the case of houses one-sixth, of this amount can be deducted as representing the cost of repairing or keeping the property in order. If A. owns a house worth £240 a year, and land worth £320, he would deduct £40 from each for the upkeep of his property. Thus he must pay on an income of £480. This income being between four and five hundred, an owner in 1908-9 would pay tax on £330 @ is. per £., for this is not earned income : that is to say, he pays £16 los. od. a year. If the property is occupied by a tenant, the tenant pays the income tax and deducts the amount from the next payment of rent. If the property is untenanted and allowed to lie waste, entire relief from the tax is afforded. Taxation of Land Values. — Many contend that this basis is a wrong one, since it enables landowners to keep back a large part of their land from the market, to charge fancy prices, and to exact a disproportionately high price for such portion of their estates as is devoted to building or industrial purposes. It is urged that the proper basis of taxation is not the actual use to which the land is put, but the full economical use to which it ought to be put. At present, it is said, those who retard develop- ment by misuse of their land, are rewarded by having to pay little or no income tax, while every improvement of land leads to an increase of the money due in taxes or in local rates. It is suggested that the taxation or rating, or both, of land values would force landowners to lower rents and to devote more of their land to buildings, farms or small holdings. As against this, it is contended that 48 THE NATION'S INCOME. such benefits would not accrue, that much overbuilding has already taken place, that certain land is already too heavily encumbered, and that hardship and injustice alone would result. Into these discussions we need not enter. Schedule B. is for income from the occupation of lands — this is chiefly farmers' profits : if they prefer, they may be charged under Schedule D. on the actual profits they make. Only a fraction of the Income Tax comes from this source, for few farmers seem to make over £i6o a year, and the majority of them are therefore exempt from this tax. The income from the occupation of land is assumed to be one-third of the annual letting value of the land. If a farmer pays £600 rent for a farm, he will be regarded as deriving from it an income of £200. If the rate is is. per £, his income being under ;f400, he pays tax on £40 only at the rate of gd. per £ : that is to say, 30s. a year. Schedule C. provides for incomes derived from certain securities. This might well disappear and be included in Schedule D., but for the fact that these incomes can be collected at the source, while those in Schedule D. are mainly based on the declaration of the income tax payers. From this schedule only one-fifteenth of the Income Tax is derived, but with less trouble than from incomes scheduled in any other parts. Schedule D. is by far the most important of the Schedules. Three-fifths of the whole tax is drawn from this source. Under this schedule are included incomes from businesses or professions, most earned salaries, profits from railways, mines and certain other concerns and investments. The usual basis of taxation on profits from businesses and professions i.a the average of such profits for the three THE NATION'S TAXES. 49 preceding years ; but any one is now entitled, if he wishes, to be charged on the actual results of the year, and can reclaim any over-payment made on the basis of the average for the three former years. On profits from mines the basis is the average of such profits for the five preceding years. Schedule E. is concerned with the salaries of Govern- ment, corporation and public company officials. As in Schedule C. this tax is collected at the source and cannot be evaded as is the case with many incomes under Schedule D. About one-fifteenth of the Income Tax is derived from this Schedule. Compulsory Collection of Taxes.— Under the Taxes Management Act, 1880, all assessed taxes are subjected to the control of the Board of Inland Revenue. Officials are appointed, under the titles of Commissioners, Surveyors, Assessors and Collectors of Taxes, with different functions to fulfil, in order to ensure the correct payment by all persons liable. Under Schedules A. B. D. and E., notices are given to taxpayers, and returns of their incomes under these various heads must be made by them. If no return is made, the commissioners may assess or surcharge the taxpayer. If a false return is made, or if any trick to. elude payment is detected, or if a fraudulent claim for exemption is attempted, heavy penalties — usually amounting to three times the whole amount of duty payable — are imposed upon those who are found guilty of such practices, and these penalties may be recovered within three years of the commission of the offence. Under the 2ist section of the Finance Act, 1907, an employer must, on notice from an assessor, furnish a return of the names, addresses and earnings of his employees, save in the case of those who are employed by him alone, and D 50 THE NATION'S INCOME. whose total annual wages are less than £i&o. In the case of companies the secretary must make this return. If the tax is not paid within the time required, the taxpayer's property may be distrained upon, or he may be imprisoned until he gives security for payment. [d.) DEATH DUTIES. A series of duties are included under this head, but only Estate, Legacy and Succession duties need be mentioned here, as the others bring in but a trifling amount. Death duties are paid on the passing of property at the death of the former owner, and those now in force are modelled on the duties imposed by the Finance Act, 1894, when Sir William Harcourt, Chancellor of the Ex- chequer, made great changes and improvements on the death duties then in existence. These duties are payable on and carry interest from the day of death. I. Estate Duty. — In 1907-8 this tax realised about £14,360,000. It is levied on the total value of the estate ; i.e., of the property of whatever nature passing to others on the death of the former owner. This includes not only what the deceased leaves by will, and what passes to his relatives if not dealt with in any will, but also property which on his death passes under former deeds or wills, and gifts made by the deceased within the last year of his life ; but of course no duty is paid on any property, such as a pension, which dies with him. Estate duty is not paid on estates of a smaller net value than ;^ioo. On larger sums the rate charged varies with the value of the estate. Thus an estate of £1,000 pays 2%, an estate of £1,000,000 is charged 10%, and on an estate exceeding £1,000,000 the first million pays THE NATION'S TAXES. 51 10% and the balance higher rates according to the amount. Settled property of a greater value than ;f5oo, pays an additional 1% duty. Property is said to be settled when its future descent is fixed beyond the life of the immediate successor. If the total value of the settled property is less than £500, small fixed duties may be paid instead. This duty is known as Settlement Estate Duty. 2. Legacy and Succession Duties are paid on personal and real estate respectively ; each is paid on the capital value of the legacy or succession at rates per cent, varying with the relationship of the recipient. Thus, a legacy of any sum to a daughter would be charged at 1%, to a niece at 3%, but, if left to a person not a relative of the deceased, it would pay 10%. In 1907-8 legacy and suc- cession duties produced about £4,000,000 and £730,000 respectively. 3. Corporation Duty. — Although invariably included under this head. Corporation Duty cannot be regarded as a Death Duty. Upon the contrary, it is a tax imposed upon bodies corporate and incorporate which do not die and, for that reason, escape the payment of Death Duties. This duty, which brings in to the Exchequer about £50,000 a year, is an income tax of 5% upon the net annual value, income or profits, of the property belonging to such a body. The property of the Crown, of Friendly Societies, and of charitable, religious, and other such bodies, is exempt from this tax. ie.) STAMP DUTIES. Under this head are included a vast number of uncon- nected and miscellaneous taxes which are for convenience paid by impressed or adhesive stamps and which in 52 THE NATION'S INCOME. 1907-8 produced nearly £8,000,000. Practically all duties paid in this fashion are " stamp duties," save that stamps for postage or telegraphic purposes, fee and patent stamps, and stamps to indicate the payment of certain death duties, are not included under this heading. The existing duties are framed on those prescribed by the Stamp Act, 1891, with a few modifications. Bills of sale, leases, mortgages, and transfers of land must be stamped in accordance with the value of the property transferred ; the share capital of companies, bills of exchange, and promissory notes also pay in accord- ance with their value. On receipts of {2, and over, and on cheques, a penny stamp must be affixed. Heavy stamp duties are paid on admission to their calling by barristers and solicitors, and on the certificates of practising solicitors, as also by those who receive a grant of letters patent of nobility or the title of baronet. But stamps, like licences, are merely a convenient method of collecting revenue ; the taxes they represent have little or nothing else in common. (/.) INHABITED HOUSE DUTY. Nearly £2,000,000 is derived from this source each year. This is a tax charged on the full annual value of inhabited houses worth more than £20 a year, the rate of the charge varying with the annual value and the type of building. Thus a dwelling-house pays a higher rate than business or lodging-houses and hotels, while a distinction is drawn between houses of a yearly value of over £60, those between £40 and £60, and those under £40. This tax, a lineal descendant of the old hearth and window taxes, is imposed on the occupier, and cannot be deducted from rent, save in the case of a dwelling house occupied by more than THE NATION'S TAXES. 53 one family. A building is regarded as an inhabited house when someone, other than a caretaker, is in the habit of sleeping there. Inhabited house duty is really a form of income tax. {g.) LAND TAX. This is a rapidly dwindling, antiquated and unequa source of revenue, which in 1907-8 produced £730,000. It is charged on lands and moneys derived from lands. Its basis is a valuation made over two centuries ago, which is ridiculously disproportionate to present value. By the Finance Act, 1896, it is provided that the tax shall not exceed one-twentieth of the annual value of the property. By the Finance Act, 1898, persons whose total income is less than ;^i6o are wholly exempt, those whose income is under £400 only pay one half of the full tax. In the case of houses let to tenants,* the tenant pays the tax in the first instance, but can deduct it from the next payment of rent unless he has specifically under- taken to pay it himself. Redemption. — Anyone who has a legal interest in the property, save a tenant at rack rent, can redeem the tax by a payment which is generally equal to about thirty years' purchase of the amount of the last assessment, and has a first charge on the property redeemed for such portion of the redemption money as is due to him from others interested in the property. This tax has been largely redeemed in recent years. * That is to say, if the tenant holds at a rack rent, i.e., a rent representing the full annual value of the property. If the property is at a nominal or inadequate rent, the landlord and tenant share this tax between them in proportion to the value of their respective interests. CHAPTER V. THE NATION'S INCOME FROM NON-TAX SOURCES. The most important source of non-tax revenue is the profits of government departments of a semi-trading character. Nearly three-quarters of a million a year is derived from the Mint : this department is concerned with coining the requisite ready money of the realm. A loss is made on gold coinage, but a considerable profit on that of silver and copper. The Post OfDce. — This is a department concerned with many undertakings. Though established mainly for the convenience of the public, it has incidentally proved a valuable source of revenue. It undertakes the carriage of letters and parcels, the transmission of money by money order, postal order and telegram, the management of the telegraphic and of a telephonic service, a scheme of small insurance and annuities, and the functions of a Savings Bank. For the carriage of letters and communication by telegram and telephone the State possesses a monoply ; but in the other businesses, with which this department is concerned, it is but one of many competitors. Of these multifarious duties of the Post Office the original one of delivering letters is the most important. Strange to say, a post office for letters to foreign countries was established half a century before inland posting was undertaken ; the latter was first set on foot in the reign of Charles I., and was for letters between London and Edinburgh, with branch 54 INCOME FROM NON-TAX SOURCES. 55 posts to other places. Charles II. granted the profits of this department to his brother, who afterwards reigned as James II., for at that date the monopoly of carrying letters within the realm was regarded as a perquisite of the Crown, not as a national undertaking. Down to the end of the eighteenth century the mail was carried by relays of horsemen ; these were superseded by mail coaches, and the coaches in turn by the railway, while the train is now partially replaced by motor vans. For many years prior to 1840 the minimum charge was 4d. per letter for a distance of fifteen miles or under from the post office where the letter was posted ; to send a letter from Birmingham to London cost gd., from Edinburgh or Glasgow about is. 2jd., and these sums were paid by the receiver, not by the sender of the letter. Everyone is familiar with the story of mingled pathos and fraud which led Sir Rowland Hill to commence and eventually to succeed in his campaign for penny postage within the realm. In 1840, thanks to his efforts, a uniform penny post was established for letters weighing not more than half an ounce. At the same time the old privilege of franking letters was abolished. This was the privilege accorded to peers, members of the House of Commons and certain officials of sending and receiving letters without paying postage. All that was necessary was for the person privileged to write his name on the corner of the envelope. When postage was costly this privilege was often abused, for it was a common practice to get a Member of Parliament to write his name on other people's letters and get them carried post free. Many changes have been introduced since 1840, allowing heavier letters to go at cheap rates. In 1870, postage on postcards and newspapers was reduced to |d. Penny 56 THE NATION'S INCOME. postage to most of the Colonies has been recently estab- lished, while, from October ist, 1908, postage between this country and the United States of America has been fixed at id. per ounce. In 1838 the transmission of money by money orders, and in 1881 the transmission of small sums by postal orders, were undertaken by the Post Office. In 1861 it commenced Savings Banks, which at present allow 2j% per annum on deposits up to £200 ; while in 1864 the issue of insurance policies and annuities for small sums was inaugurated, but has proved rather a failure. Parcel Post was commenced in 1883 and, although not a monopoly, has proved cheap and efficacious. These various under- takings have upon the whole been most successful. The net profit from them in the year 1907-8 was over £5,000,000. Telegraph and Telephone. — A branch of the Post Office which is considered independently of these in the National Budget is that of telegraphic and telephonic communi- cation. The financial results of these two services are now set out separately, but until 1908-9 no distinction was drawn between them. Together they showed in 1907-8 a working loss of over half a million. At reduced rates the telegraph service might pay, but ^d. a word with a minimum charge of 6d. is too heavy to encourage the constant despatch of telegrams by the people at large. This service commenced in 1870, and though not yet a financial success, the convenience afforded to the public undoubtedly more than counterbalances the pecuniary loss involved. Old Age Pensions. — One other work which is now per- formed by the Post Office is the payment of Old Age Pensions, and the supply of forms of application for such INCOME FROM NON-TAX SOURCES. 57 pensions. This is obviously not a remunerative under- taking but merely a service rendered to the public. Other sources of non-tax revenue are the annual con- tributions due from the Bank of England ; interest on loans ; dividends on Suez Canal Shares ; Crown lands ; fee and patent stamps ; and various other small items. One or two of these sources call for further mention and, in passing, it may be remarked that one of the most in- teresting, although minute, is conscience money. The Chancellor of the Exchequer receives a small sum each year by way of conscience money — that is to say, a fraction of the money of which certain taxpayers have defrauded the Revenue, and which the pangs of conscience lead a few of them to refund. There is the more im- portant item known as "Appropriations in Aid," which consists of moneys derived from rents, sales of stores, etc, received by the great departments, the Army and Navy, and spent by them without the figures appearing in the Budget Statement. This is by some attacked as an erroneous principle. In 1907-8 such appropriations amounted to nearly ;^io,ooo,ooo, and this amount should in fact be added to the year's expenditure. Fee and patent stamps, wrongly classed as non-tax revenue, are respectively taxes on obtaining justice in the Courts of Law — in theory and sometimes in practice borne by the unsuccessful party — and a payment for the grant of monopoly rights to inventors, who are thus rewarded for their service to the public. They produce about £1,000,000 annually. Suez Canal Shares and Sundry Loans. — In 1859 the Suez Canal was commenced by the Universal Company of the Maritime Suez Canal. The Company's shares con- 58 THE NATION'S INCOME. sisted of 100,000 founders' shares and 400,000 ordinary shares of ;f20 apiece. Of the ordinary shares Ismail, Khedive of Egypt, owned 176,600, and these were bought from him by the British Government in 1875. Lord Beaconsfield, who was then Premier, was freely criticised for indulging in national speculation ; time has, however, shown that he was justified, not only because the shares pay well, but on account of the influence obtained by the British Government over the main thoroughfare to the East. Of late years the annual dividends on our shares have realised over £1,000,000, and their market value has risen from about ;^4,ooo,ooo to over £31,000,000. From time to time the British Government has advanced loans to Fiji and other places : the interest and part repayment of such loans amount to some £60,000 annually. The Crown Lands. — The rents and profits of these estates at one time formed the greater part of the King's revenue. The generosity of many of our monarchs, in making grants of portions of the Crown lands to their favourites, or as a return for services rendered, constantly decreased their extent very seriously, and even the frequent con- fiscations and forfeitures of the property of disloyal and rebellious subjects were insufficient to counteract these grants. If the King's income became too small to meet the expenses of government, the deficit had to be made good by applying to Parliament for further revenue, and Parliament, instead of levying taxes upon the nation at large, frequently declared past grants of the Crown lands void, and in this way replenished the royal purse. In the reign of Henry VIII. , the confiscations of the Church estates increased the extent of the Crown lands considerably, but Elizabeth sold a large part of them THE NATION'S DEBT. 59 to raise money which would enable her to dispense with summoning a Parliament. The Stuarts and William III. by lavish grants once more seriously reduced their extent until, in 1702, all alienations of the Crown lands were forbidden by statute. Since the reign of George III., the sovereign has on accession surrendered to the nation all claim to the bulk of these lands and has accepted a Civil List in return. These estates are now managed by the Commissioners for Woods and Forests, and in 1907-8 produced profits of which ^520,000 was paid into the national Exchequer. Part of the Crown lands is now being used for the allot- ment of small holdings, under the direction of the Board of Agriculture. CHAPTER VI. THE NATION'S DEBT. Why debt is incurred. — We have so far dealt with the income from which ordinary expenditure is met each year. But there are many heavy expenses which would prove of too crushing a weight if they had to be met out of moneys raised by taxation in the year they were incurred. If such a method were adopted a prolonged war under modern conditions would be impossible. The pressure of taxation would cause the taxpayers to clamour for " peace at any price." Then, too, it is clear that permanent works, such as naval bases and new govern- ment buildings, are more properly paid for out of capital than out of income. For these and other purposes recourse is had to borrowing. Loans are contracted, and 6o THE NATION'S INCOME. their repayment is spread over a considerable period of years. Money may also be borrowed for schemes which for a long time are only a source of outlay, but which may eventually prove a most profitable national invest- ment. Afforestation is a good example of such a scheme. A Royal Commission on afforestation recommended, in January 1909, that this should be undertaken by the Government upon a large scale. " Money expended in afforestation differs in kind from other calls on the national purse. It is a productive investment of capital. No stronger justification for proceeding by loan than a repro- ductive outlay exists."* The Commissioners were unanimously of opinion that for forty years a considerable sum would be required to purchase and plant suitable land. After that time, the sale of timber would suffice to meet the normal expenses, including the upkeep and extension of the forest. After eighty years a large annual surplus would be derived which would show a good per- centage on the total cost of the undertaking at compound interest. Eventually the whole accumulated cost would be paid off from the proceeds, and the nation would be in possession of a most valuable property, free from mort- gage or encumbrance, bringing in many millions a year to relieve taxation. History of Debt. — In Athens, Persia, Rome, and other great states in classical times, the rulers used to hoard vast treasures, so that in time of need there was a large fund to fall back upon. In England and nearly all other countries until the close of the seventeenth century, money could only be raised by monarchs incurring * Second Report (on Afforestation) of the Royal Commission on Coast Erosion and Afforestation. Vol. ii., part i., p. 42, sec_^i4. THE NATION'S DEBT. 6i special expenditure, which could not be met by a levy from their subjects, by mortgaging the Crown lands or pledging the Crown jewels.* Nor was it an uncommon thing for kings to repudiate the debts which they had in this way incurred. With the development of banking, and the security of constitutional government, a different expedient has been universally adopted — borrowing on public credit. For all practical purposes the history of our National Debt may be regarded as commencing in the reign of William III., although small amounts had been raised on the strength of public credit as early as the days of Charles II. On the accession of William III., war had to be vigorously carried on abroad, and at home the Jacobite cause had many adherents. Money was urgently needed, but a recourse to heavy taxation would have caused the smouldering discontent in England to have broken out into open rebellion, and a counter-revolution might have been successful. The only feasible way of raising the requisite funds was by borrowing. Borrowing had indirectly one good effect, for the lenders knew that, if the Stuarts returned, their principal and interest alike would be lost, and this naturally made those who had lent their money, staunch supporters of the Revolution. Upon the other hand, the instability of affairs made men cautious about lending to the King at all. A strange picture of the insecurity of public credit at that time is brought to our minds in Burke's account of the raising of the National debt.t " The Chancellor of the Exchequer * Prior to their expulsion from the kingdom in 1290 a.d., money was also raised by "squeezing" the Jews, t See Burke : Letters on a Regicide Peace. (World's Classics Edn. : Vol. vi., p. 136.) 62 THE NATION'S INCOME. of that day, Montague, the father of public credit, counter- securing the state by the appearance of the city, with the Lord Mayor of London at his side, was obliged, like a solicitor for an hospital, to go cap in hand from shop to shop to borrow a hundred pounds and even smaller sums. When made up in driblets as they could, their best securities were at an interest of twelve per cent." On the death of William III., the National Debt amounted to ;£i2,ooo,ooo. By 1815 it had reached its highest point, and, counting in the capital value of ter- minable annuities, exceeded £900,000,000. In war time the debt has rapidly increased, for wars invariably entail a heavy drain upon national resources, and the huge expenditure required to carry them on can only be met in part by extra taxation. In times of peace nearly every year sees a small amount of the debt paid off. Thus, at the commencement of the Boer War in the autumn of 1899, after forty-three years of comparative peace, the National Debt had been reduced to about £625,000,000. When the war was at an end in 1903, it stood at £798,300,000, but by the end of the financial year 1907-8, the total had been again reduced, and amounted to £762,300,000. Every time the debt has increased, men have proclaimed that now at last the utmost limit has been reached, and that the State must founder if more indebtedness were incurred. Fortunately the increase of our population and the expansion of our commercial wealth has been so great, that our present burden is less oppressive than the debt of but £50,000,000 was to our ancestors in the reign of George II. But, though our finances might stand the strain of four or five times our present indebtedness without absolute ruin, there is no doubt that the burden is a heavy one and that a prudent THE NATION'S DEBT. 63 Chancellor of the Exchequer will always provide for annual reductions in time of peace. Not only does the diminution of national indebtedness relieve the taxpayer from the payment of interest upon such part of the principal as is repaid, but all reductions tend to give elasticity to public credit. Lessening the Debt would enable future governments to obtain fresh loans on better terms and with greater ease, if we were again involved in a costly war, or if a large sum were required for carrying out some great and expensive scheme, such as the nationalisation of land, railways or canals. The Composition of the National Debt. — The whole debt of ^^762,300,000 on March 31st, 1908, was made up of ;^39,4oo,ooo representing the capital value of terminable annuities, £46,450,000 unfunded debt, ;£5o,o85,ooo various loans, and £625,600,000 funded debt. Terminable Annuities have from time to time been created by granting, in return for money advanced to the nation, annuities for life or for a certain fixed number of years. In the early days of the National Debt, great difficulty was often experienced in getting men to finance the State ; and so a small annuity on every £100 advanced was often thrown in, as a special inducement to lenders, in addition to the stock they obtained. The system of payment by a terminable annuity for so many years is no longer favoured, and will soon go the way of the old lottery system in this country ; life annuities are, however, still issued. Unfunded Debt consists of money due on Exchequer bonds, and Exchequer and Treasury Bills, representing sums between £100 and £1,000, all of which are prepared by and paid at the Bank of England. Exchequer bonds, introduced by Gladstone in 1853, are issued for three years 64 THE NATION'S INCOME. or some other such period of time, and bear a fixed rate of interest. Exchequer bills, first issued in 1696, bear whatever date of payment the Treasury choose, and carry interest fixed every quarter by the Treasury in accordance with the prevailing rate ; they are of exactly the same nature as promissory notes. Treasury Bills have just the same characteristics as Exchequer Bills, but are issued for very short periods and never for more than twelve months. The sanction of Parliament is required for the issue of these bonds and bills, and is granted to meet temporary deficiencies of cash, or to enable the State to advance loans at a slightly higher rate of interest to assist certain private enterprises. Exchequer and Treasury Bills, being negotiable instruments, form a sort of paper currency which is in some demand and is generally at a premium ; for, if at any time such bills are below par, the rate of interest is increased. In consequence of their convenience these bills usually carry less interest than government stock, and some of them are always kept in circulation. Various Loans have been raised from time to time under the special provisions of certain Acts, such as the Barracks Act, 1890, for the particular purposes therein defined. The Funded Debt is by far the greatest and most im- portant part of the nation's indebtedness. At first loans were borrowed on the security of particular taxes which were specifically assigned to the repayment of these loans. That system has long been in abeyance and all the National Debt services are now charged on the Consolidated Fmid. To raise a loan in 1694, the Bank of England was estab- lished by the Tonnage Act of that year, which authorised the subscription of £1,200,000 by subscribers who were to be formed into a Corporation with various privileges, THE NATION'S DEBT. 65 and to be called " The Governor and Company of the Bank of England."* From time to tmie other loans were negotiated with the Bank by granting continuations or extensions of these privileges. Prior to 1751, the interest on the Debt was paid by the Exchequer, but since that date the management of the Debt and the payment of interest has been undertaken by the Bank, which receives as remuneration £^25 per annum on every £1,000,000 of debt up to £500,000,000, and £100 per annum on every £1,000,000 beyond that amount. Issue. — At the present time, when the Government desires to raise a loan, it no longer applies to the Bank, but issues stock for which it invites the public to subscribe. The Bank has, however, a right to commission on public loans subscribed at its offices. When anyone advances money to the State, he now receives, in return for the amount he subscribes, stock of a certain face value, which entitles the holder to a permanent annuity of so much per cent, on this face value, until the Government choose to redeem the stock at that figure. Under this system a subscriber rents out, rather than lends his money, for he cannot claim repayment of the principal advanced, but only the dividends due on the stock, although, of course, he may sell his holding for what it will fetch in the market. Transfers of stock are carried out by altering the name of the stockholder in the books kept for that purpose at the Bank of England. In former days when public credit was instable, loans were so difficult to obtain that, as is still the case in some states to-day, an advance of about £50 could procure stock of a nominal value of £100. In 1798, for example, * For the history of the Bank, see Macaulay : Histoiy of England, ch. XX. ; and Bagehot : Lombard Street, ch. iii. £ 66 THE NATION'S INCOME. a loan of ;^i3,ooo,ooo was required, and for every ^^loo advanced, the subscriber received 3% stock of a face value of £175, 4% stock of a face value of ;^20, and an annuity of 6s. for 62I years. At the present day our Government can usually obtain the full amount of the face value of its stock, and sometimes the stock is issued at a premium. Consolidation and Conversion. — From time to time stocks bearing very different rates of interest were created. To perpetuate this variety was obviously inconvenient. In 1751, a vast number of stocks bearing various rates of interest were consolidated and converted into 3% Consols, and a similar process has on other occasions been adopted. When the prevailing rate of interest in the money market has gone down, the government of the day has given stock-holders the option of being paid off at par, or of accepting a lower rate of interest. Thus it has come about that all our government stocks at the present time carry interest at the rate of 2j%, or 2|%. Sinking Fund. — It has always been an acknowledged principle that, in times of peace, the National Debt ought to be lessened. The first Sinking Fund for this purpose was established by Sir R. Walpole in 1716. The surplus produced by the taxes allocated to pay interest on the Debt was formed into a fund which would, at compound interest, eventually extinguish our indebtedness — for almost magical properties seem to have been ascribed to the workings of compound interest at that date. At the same time that this Sinking Fund was being formed, fresh indebtedness was being incurred, which naturally counterbalanced the attempt to diminish the bulk of the Debt. Another Sinking Fund was inaugurated in 1786 by the younger Pitt and employed in purchasing government THE NATION'S DEBT. 67 stock, while money was borrowed to replenish this fund from time to time. As Gladstone pointed out, " The Sinking Fund established by Pitt was another form of mischief. By means of the Sinking Fund you were con- stantly buying up stock at 3, 4, or 5% below the rate at which you were simultaneously creating stock in order to find the money to make the purchase." The folly of this system of procedure was clearly shown up by Dr. Hamilton in 1813 in his book " Inquiry on the National Debt," enumerating various general principles of finance with regard to public loans. Even at this date one of his principles may be worth quoting ; for " financial errors appear to be endowed with something approaching immortality," and within quite recent years the ridiculous pastime of paying off debt with borrowed money has been indulged in. As Hamilton stated, " The amount of revenue raised in time of peace ought to be greater than the expense of a peace establishment, and the overplus applied to the discharge of debts contracted in former wars, or reserved as a resource for the expenditure of future wars. The excess of revenue above expenditure is the only real sinking fund by which public debt can be discharged." A sounder Sinking Fund was inaugurated by Sir Stafford Northcote in 1875, the permanent charge for debt being fixed at twenty-eight millions. Unfortunately, it has not been feasible to observe this rule, and the Sinking Fund has been " raided " on many occasions to meet annual expenditure, and has constantly been suspended. Up to 1899 all arrangements for the redemption of the National Debt were incorporated in separate bills but, since that date, they have been embodied in the annual Finance Bill. During the last few years the Sinking Fund has 68 THE NATION'S INCOME. been vigorously replenished and, between the financial years ending 1905 and 1908, the nation's liabilities have been reduced by over £36,000,000. Purpose of Loans. — Enough has now been said about the history and working of the National Debt. We have seen that in time of war borrowing is necessary, while for certain permanent works it is an advisable course to adopt. Occasionally, however, money has in times of peace been borrowed for purposes which ought rather to have been provided out of income ; for as David Hume pointed out in his essay on Public Credit, "It is very tempting to a minister to employ such an expedient as enables him to make a great figure during his administra- tion, without overburdening the people with taxes or ex- citing any immediate clamours against himself." Expendi- ture which should be met out of annual income ought never to be raised by loan. One of the great disadvantages of this system is that loans do not cause their effect to be felt at the time they are raised and that therefore less attention is devoted by the public to the expenditure of borrowed money, and wasteful prodigality is not subjected to such keen criticism and resentment. Sanction. — No loan can be contracted without the sanction and authority of Parliament. Not only does this serve the purpose of subjecting the proposed expendi- ture both beforehand and afterwards to party criticism, which acts to some extent as a check on too great ex- travagance but there is here another safeguard for con- stitutional government, since the Crown or Ministry cannot dispense with summoning Parliament by employing borrowed money to carry on the government of the country- CHAPTER VII. THB CONTROL OF EXPENDITURE. We have already seen that no loans can be raised, and that no taxes can be legally imposed, without the authority and sanction of Parliament ; and we have investigated the machinery for contracting such loans and the various sources from which money is derived each year to pay for the different objects of government. It now remains to glance at some of these objects, to consider the control over expenditure, and to examine the checks which secure that the nation's money shall only be used for the purposes and in the manner approved by the representatives of the nation. Classes of Expenditure. — The purposes for which the national funds are expended are well known, and there appears to be no need to define them further than has been already done in the first chapter ; but the proportionate amounts expended upon the various classes of national objects is of interest. Taking 1907-8 as our typical year, we find that the navy cost ^31,141,000, the army £27,115,000, and that National Debt services amounted to ;f29, 500,000. The National Debt is, almost in its entirety, the burden bequeathed to the nation by past wars ; so that, adding the debt services to the cost of the army and navy, we find that out of a total expenditure of £151,812,000 no less than £87,756,000 is annually required to pay for past and to prepare for future wars. The cost of collecting the revenue (including the main- tenance of Post Office, Telegraph and Telephone Services) 69 70 THE NATION'S INCOME. amounted to £20,149,000, while £11,115,380 was paid out of national revenue to assist local government.* Thus it is found that only about a fifth of the whole expenditure, or to be more exact £32,000,000, is employed upon all objects, unconnected with war, with which government is concerned — and even in this amount are included certain pensions for naval and military service. If, however, we add to this sum the amount of the contribu- tion to the Local Taxation Account, we find the national expenditure is composed as follows : — Navy, Army and Debt Services . . /Sy, 756,000 Expenditure for peaceful purposes .. 43,307,094 Total real expenditure .. .. .. ;^i3i,o63,o94 Cost of collecting Revenue . . . . 20,749,000 Total of all expenditure .. .. /'i5i,8i2,o94 Control. — The great bulk of the revenue is collected by the Commissioners of Inland Revenue, the Commissioners of Customs! and the Postmaster-General. The money collected is paid into the Exchequer Account at the Bank of England, and the daily payments in are notified to the Comptroller and Auditor-General. This official, whose office was created in 1866, is the head of the Exchequer and Audit Department, and is a permanent Civil servant, independent of party. His duties, signified by his title, are to control the issue of the nation's funds, and to audit its accounts. He may not have a seat in either the House of Lords or the House of Commons, his salary is charged on the Consolidated Fund, and he can only be * See Chapter viii, t The functions of Commissioners of Inland Revenue and Com- missioners of Customs are now performed by the Commissioners of Customs and Excise. This amalgamation of the Customs Department with that of Inland Revenue is in pursuance of an Order in Council which took effect from 1st April, 1909, and which was made in exercise of powers conferred by section 4 of the Finance Act, 1908. THE CONTROL OF EXPENDITURE. 71 removed for misconduct, upon a petition passed by both Houses of Parliament. The Consohdated Fund is the name given to the nation's money standing to its credit in the Exchequer Account at the Bank of England. Certain expenses are " charged on " the Consolidated Fund, and are known as Consolidated Fund Services ; all expenses not so charged are known as Supply Services. Consolidated Fund Services consist of the Civil List, the payment of interest and of the expenses of manage- ment and the part repayment of the principal of the National Debt, national contributions to the Local Taxa- tion Account, the cost of maintaining the Courts of Justice, salaries of the judges and other non-political officials, pensions, annuities and certain miscellaneous expenses and allowances, such as contributions to Greenwich Hospital. These expenses are all paid under the authority of per- manent statutes, and are not granted annually by Parliament. Supply Services, upon the other hand, are all authorised by parliamentary authority each year for a year. This distinction is in many ways useful. The salaries of judges and other non-political officials should not be subjected to party criticism or to the arbitrary action of Crown or Government. If the amount of their emoluments were dependent on party considerations, undue pressure could be brought to bear upon them in their decisions and their conduct of affairs. Upon the other hand, the salary of a member of the government is properly a question for the consideration of the House of Commons, and a reduction of salary may be proposed in order to afford an opportunity to discuss a minister's conduct or policy. Issue. — ^The Consolidated Fund cannot be drawn upon without first complying with certain formalities which 72 THE NATION'S INCOME. prove a check upon unauthorised expenditure. A Royal Sign Manual Warrant, authorising the issue of the sum required and countersigned by two Lords of the Treasury, is sent with other documents, styled Treasury Warrants and Issuing Letters, to the Comptroller and Auditor- General. This official first fully satisfies himself that the amount demanded, and the purposes for which it is demanded, are both strictly in accordance with votes of Parliament, and that the various documents are in the proper legal form. When he is fully satisfied upon these points, he directs the Bank of England to give a credit for the amount required. The Treasury is then entitled to draw upon the Consolidated Fund to that amount, and usually causes the sum authorised to be transferred to the account with the Paymaster-General of the depart- ment for which it is required. The heads of the department are informed that this part of the sum voted to them by Parliament is standing to their credit, and they may proceed to use it. The Treasury cannot interfere with the general financial business and the contracts of a depart- ment, beyond calling upon any department which seems to be spending too much money, to revise its accounts, and to see whether it has sufficient funds for the public service for the rest of the year. Audit. — When the money has been spent, the depart- ment must account for the disposal of every penny of it to the Comptroller and Auditor-General or his assistants, who must be satisfied that it has been spent in exact accordance with the votes of Parliament. This official must further make out separate reports upon the expendi- ture of every important department, and must embody in it any suspected irregularitj'' or any expenditure to which he takes exception. THE CONTROL OF EXPENDITURE. 73 Departmental Expenditure and Receipts. — A department may occasionally have to meet certain expenses before the authority of Parliament has been obtained. In such a case the payment must be ratified within the year, or it is an illegal payment which cannot be met out of the nation's money. Save in the case of sums voted for naval and military departments, no portion of a grant to a department for one purpose can be applied by it to any other purpose, but the surplus is handed back to the Exchequer together with any extra receipts pro- ceeding from the sale of old stock or other incidental proceeds. The departmental accounts and the report upon them by the Comptroller and Auditor-General are submitted to the Committee of Public Accounts of the House of Commons. On this committee there are always men of commercial and financial experience, and the reports and accounts are carefully gone into and scru- tinised. If the Committee is not fully satisfied on any point, it inquires into the matter, however small the amount at issue, and endeavours to obtain clear proofs that everything has been honestly and regularly conducted. The Committee then reports to the House upon the way in which the money of the nation has been expended. Summary. — In this fashion a complete check over expenditure is maintained, and the House of Commons, which in the first place assented to the several votes for expenditure and sanctioned the means of raising the money required, can at the end of the year see whether the supplies it voted have been expended in strict accordance with the authority and wishes of the House. Thanks to this elaborate and effective system, and to the fact that the accounts of one year are not allowed to run into the accounts of the next, every surplus or deficit 74 THE NATION'S INCOME. being annually dealt with, Parliament and the nation can estimate the financial position of this country at any time with an exactitude which is unknown in the case of any other people. And yet, as we have seen, the system is still open to some criticism, as omitting material items. CHAPTER VIII. LOCAL TAXATION. The burden of national taxation is often considered grievous ; but complaint does not end there. The rates excite an even sterner remonstrance — using the term " rate " to cover all those charges which are exacted from the citizen by officials who do not represent the National Government. The demand for efficiency in matters of local government has become more and more urgent during the last fifty years ; and, side by side with this, a great number of duties have been imposed upon local authorities, and services have been performed, of which our fathers little dreamed. The interests of public health, the provision of public buildings, the multiplication of officials, the more exacting requirements of education, have all entailed a vast increase in local expenditure. An approximate estimate of such expenditure for all purposes is over £160,000,000 a year. Sources of Local Revenue. — The whole of these moneys is not, however, provided by rates. Large grants are made in return for an ef&cient discharge of certain semi- national, semi-local services out of the sums voted by Parliament. Then, too, many local authorities possess LOCAL TAXATION. 75 property from which an income is derived, and some have so estabhshed undertakings, Hke waterworks or tram- ways, that a profit is now available for the ratepayers. This is an increasing source of income and bears an analogy to the profit earned by the nation through the Post Office, but is not without its critics. The total local expenditure in 1905-6 was met, as to ^^74,000,000 from rates, £23,500,000 from government contributions and ;£30,ooo,ooo from loan issue, a large amount being also derived from reproductive undertakings. In many foreign countries local revenue is raised by an octroi duty on certain produce brought into the town, and this of course, while providing funds, is a sort of local " protection " which sends up the price to the con- sumer. Such a practice is not now followed in this country, but it may be noted in passing that the policy, sometimes indulged in, of keeping contracts in the hands of local contractors, instead of accepting lower tenders from outside, is a sort of " preference " which reacts on the rates. Under the name of " rate " are colloquially included water, gas, and electric light rates, which are really charges for definite supplies and bear more resemblance to trades- men's bills. They have, however, the same unpleasant insistence as rates proper, partly because payment can be enforced by summary measures, and partly because, in the minds of some people, what comes without effort through a pipe is a species of property for which the demand of payment may reasonably be resented. Over these " rates " there can, of course, be the easiest of all checks — that of economy or non-user. We refer to them here, simply to get rid of a misnomer, although we have already observed, and we shall notice hereafter to what 76 THE NATION'S INCOME. extent, these undertakings, when successfully worked in the municipal interest, have earned profits in relief of rates. Let us now glance at the sources from which local revenue is obtained, and first at that portion of local revenue which is not raised locally. National Payments to Local Taxation Account. — Until 1888, Parliament made annual grants-in-aid towards specific local services of a semi-national character, e.g., towards the maintenance of the police and certain roads, the expenses of pauper lunatics, salaries of Poor Law ofiicials, the institution of criminal prosecutions and other purposes. In 1888, a Local Taxation Account was formed into which were paid certain Assigned Revenues. This account v>^as placed under the management of the Local Government Board which apportioned the money among County Coun- cils. These Councils in turn allocated part of the sums they received towards certain expenses of lesser local bodies within the County. The moneys paid into this account were not until 1907 regarded as part of the National Revenue, but were " local taxation revenue," and various separate grants were made from national funds. Since the year ending 1907, contributions in aid of local taxation have been paid direct into the Consolidated Fund, and the payments to local bodies are charged on the Fund. Subsequent to 1888 additions were made, with the result that the Local Taxation Account for England and Wales consists of : — 1. The Local Taxation Licence Duties, and the penal- ties recovered in connection therewith, amounting in IQ07-8 to ;^4,i2o,ooo. 2. The Death Duty Grant, being 80 per cent, of half the proceeds of the Estate Duty from personal property, amounting in 1907-8 to £4,475,000. LOCAL TAXATION. 77 2 The Beer and Spirit Sur-taxes, being 80 per cent. of the additional Customs and Excise Duties of 3d. a barrel on beer and 6d. a gallon on spirits, amounting in 1907-8 to ;£i,402,ooo. 4. Grants under the Agricultural Rates Act, 1896 (since renewed), which further increased the Local Taxa- tion relief. Under this Act exemption for the occupiers of agricultural land was provided in respect of one half of certain rates, and, to meet this deficiency in local revenue, a fixed grant was made from the Exchequer, amounting to about £1,500,000 a year. In 1907-8 the total of the Local Taxation Subvention Revenue exceeded £11,000,000. Of this a variable payment is made from the Death Duty Grant in respect of the Diseases of Animals; and £300,000 a year for Police Superannuation is specially charged on the Beer and Spirit Sur-taxes, and divided equally between the Metropolitan Police and the Police Authorities of England and Wales. Subject to these charges, the Licence Duties are assigned to the County Councils in whose areas they are collected and the Death Duty Grant and Beer and Spirit Sur-taxes are apportioned in the same way as the former grants-in- aid. Towards Elementary Education, grants are also made direct to the Education Authorities according to the number of scholars and the efficiency of the Schools. In the year ended March, 1907, the amount of such grants was about £10,500,000. 78 THE NATION'S INCOME. Revenue Raised Looally. The Rate — the amount demanded by a local govern- ment authority as a contribution towards local expendi- ture — is based on a rough idea that the individual benefits by local services and improvements in proportion to the annual value of the premises he occupies. Once that " annual value " is determined — and its assessment has been, and is, the ground of much legislation and litigation and entails a complicated machinery — the amount payable is so much in the pound according to the requirements of local expenditure. Most local rates are assessed on the Poor Law valuation. It follows that, while the burden of taxation is equal throughout the country, the pressure of rates varies. But the advantages derived from payment of rates vary too ; so that the first enquiries made by those thinking of establishing a business or taking up their residence in a particular district, are " What are the Rates ? " and " What does the Local Authority do for them ? " i Although all general rates are payable according to the supposed ability of the ratepayer, judged by the value of the property he occupies, certain classes of property are exempt from rates, e.g., places of worship and certain schools, literary and scientific societies not for profit, burial grounds and, in theory. Crown property. The rates are collected from the occupier— unoccupied premises being exempt (except in the City of London, where they pay one-half the Sewers Rate). In the case of small property, or flat property, the landlord generally compounds for the payment. Extreme poverty may also be accepted as an excuse for payment. On the other hand, what is not an excuse but a " conscientious ob- LOCAL TAXATION. 79 jection," is sometimes set up by those who object to the purpose for which they allege the rate is to be devoted ; as where the " passive resister " refuses to pay voluntarily part of the Education Rate. What General Rates may be payable varies so much with the system of local government throughout the country, that a complete understanding of the rating system can only come with an accurate knowledge of the still far from uniform system of local government. It generally happens that an urban district has incurred heavy expenditure in connection with such works as sewage disposal, paving, and public buildings, for the general benefit, which in a rural district are either not needed, or are left to individual provision or provided only for certain areas. Urban and rural districts them- selves vary very much, some urban being small or scattered, and some rural populous in part and extensive. Urban powers may be conferred on rural districts with the consequent increased liability to rates ; and in ordinary rural districts there has recently been a marked tendency towards more stringent building bye-laws and regulations in the interests of public health. The Education Rate, in particular, varies very greatly throughout the country, and there is a strong feeling that education and its accompanying obligations should be much more a national charge than a local one. The purposes for which general rates are now made may be summarised as : — The relief of the poor. The expenses of education. Local government, offices, salaries, and buildings. Police. The maintenance of roads. 8o THE NATION'S INCOME. The lighting of roads and pubhc places. Sewage disposal^ scavenging, and the enforcement of sanitary provisions. The acquisition and maintenance of parks, open spaces, libraries and museums. Debt service on permanent works. Rates may also be levied for a great number of other purposes, the authority to expend money upon which may depend upon the adoption in the manner prescribed of special Acts of Parliament. New legislation is constantly placing upon ratepayers or their representatives, the duty or the option of undertaking further provision for the good government, better health, or education of the people at the expense of the rates. But a stranger might well be surprised to find that, while a library or museum may be, and often is, maintained from the rates, ordinary hospitals are supported by voluntary endowments and contributions. Local Government is administered in counties, boroughs, county districts, urban and rural, and parishes, each with its council, while the Poor Law is administered by Boards of Guardians. It generally happens that there is at least one borough or city in a county of which the town or city council has larger self-governing powers than the council of a district, and, if of over 50,000 inhabitants, the borough may be an administrative county itself. A county borough then makes contributions to the county towards the cost of assizes, jury lists, parliamentary elections, etc. All these local authorities have certain powers of expenditure and, in respect of permanent works, of borrowmg, for which they must in general seek the aid of the rates. The whole of the amount expended by them is not, as we have seen, raised in this way. LOCAL TAXATION. 8i Central Control. — Over the whole of our local govern- ment, and with special force over Poor Law authorities, the Central Authority, known since 1871 as the Local Government Board, has large powers in respect of sanction, compulsion, inquiry, audit and giving advice. The audit over those local authorities which are subject to it, it may be remarked, is not a mere checking of accounts and vouchers. It is regularly made by the district auditor who will disallow all items not sanctioned by law, and surcharge the payment on the members authorising it. There is an appeal to the Local Government Board, how- ever, from the district auditor, and a particular expenditure may either be allowed, or the surcharge in the particular instance be remitted. For example : a London Borough Council has appealed successfully against the refusal by an auditor to sanction out of the rates payment for an address to the Mayor, for carriages for the Mayor's attend- ance at services, and for posters and band programmes. What Bodies can Levy Rates. — In England and Wales, outside London, which has a system peculiar to itself, support from rates is required by County Councils, Town Councils, District Councils, and Parish Councils, as well as by Boards of Guardians. The Revenue of a County Council, the County Fund, for its ordinary and special work (such as Education, Asylums, and Small Holdings) is derived from County property, tolls, rents, etc., fines for breaches of bye-laws, etc., the Exchequer contributions, and the County Rate. This rate is collected, through the Guardians, from the various parishes in accordance with an assessment made by a committee of the Council itself on the property in each parish. The Guardians collect the rate through the overseers and pay the amount to the County Treasurer. F 82 THE NATION'S INCOME. A special rate may be made upon a district specially benefited by works. Payments are made out of the County Fund by the County Treasurer on an order signed by three members of the Finance Committee and the Clerk. Estimates are prepared at the beginning of each financial year, and accounts are kept as prescribed by the Local Government Board. There is an annual audit by the Board's District Auditor. In 1906-7 in England and Wales (excluding London) the amounts raised by county rates were, general, ;f2, 964,241, and special, ;^3,68i,i35, the average general rate being is. 6Jd, In a City or Borough the Council has powers as a Muni- cipal Corporation as well as exercishig those of a District Council. It may raise money and supplement the Borough Fund (from property, rents, tolls, etc.) by a Borough rate^ collected by the overseers of the poor. As a Sanitary Authority, the Council levies a general district rate collected by its own officials, which differs from the Poor Rate and rates levied with it in that agricultural land, railway and and canal property and tithes only pay at one quarter their value, the benefits they derive being much smaller. Whether a Borough has a separate Quarter Sessions, supports its own police force, has a Commission of the Peace, or many other powers, depends upon its size and importance, or the privileges conferred by its charter. Ordinary salaries and recurring payments can be paid without order, but other payments only on an order of the Council signed by three members and a clerk. There is no prescribed form for Borough Accounts ; the Audit is not by the Local Government Board Auditor, but by three auditors, one appointed by the Mayor, and two elected LOCAL TAXATION. 83 by the burgesses. The accounts must, however, be rendered annually to the Local Government Board. A Town Council, or " Municipal Corporation," as it is more correctly termed, must seek the authority of the Local Government Board for loans, and, if it is the Elementary Education Authority, the accounts of its Education Com- mittee, as well as those of its Distress Committee under the Unemployed Workmen Act, 1897, must be audited by the Local Government Board Auditor. The total Borough Income for 1905-6 was nearly ;^"5o,ooo,ooo to which national contributions amounted to nearly £5,800,000, and the rates contributed £i'j,2'jo,ooo. The total loans at the same period were in County Boroughs and other Boroughs £240,350,000, of which £140,000,000 was for reproductive undertakings. Municipal Trading. — Some notice of a subject must be made here which is of special interest to Borough and Urban District Councils, although it has its importance even in the eyes of a Parish Council, viz., the results of trading undertakings owned and worked by local authorities. These, on the whole, show an increasing return due to reproductive undertakings, and, from the last figures available in Boroughs, the proportion of revenue to disbursements upon this account appears to be as 5 to 3, the income from such undertakings being equal to nearly 23 per cent, of the total revenue. The relief to the Local Rates may be evidenced by a few examples, in some cases the result of financially suc- cessful single undertakings and in others of a balance on successful and unsuccessful municipal enterprise in such directions as tramways, water, gas, and electric light supply, markets and telephones. In the following towns 84 THE NATION'S INCOME. the relief to the rates amounted in a given year to is, 4d. in Abergavenny, $d. in Birkenhead, is. in Blackpool, io|d. in Leeds, yd. in Manchester, and is. yd. in Dews- bury.* Municipal trading is, however, a subject too contro- versial to engage much of our attention ; but it is un- deniable that in a certain class of undertaking, not only can a cheap service be worked to the benefit of the in- habitants, but a profit can be made for the ratepayer. For example, the Hull electric tramwaj^s have, during ten years, provided a great convenience for the city and shown a total profit of £230,000. County Districts. — Other populous places in a county are generally Urban Districts, although these vary in size from 1,000 to much over 100,000 inhabitants. The general expenses of an Urban District Council are defrayed out of a general district rate, as the sanitary expenses are in a borough. The accounts, as well as the borrowing powers, of Urban District Councils are subject to the Local Government Board. The general district rate is about 3s. yd. The other parts of the County are grouped in Rural Districts, which are the same as the Poor Law Union areas, less the boroughs and urban districts. Inasmuch as these districts are often scattered and present great varieties, some town and some agricultural, the class of improvements — sewage, open spaces, allotments, etc. — varies throughout the district, and the corresponding expenses are charged as special in the parish or drainage district affected by them. The general expenses are paid out of the common fund provided by the Poor Rate, averaging is. y\d., to which, unlike a general district rate, * From a calculation in the Municipal Journal, 22 January, 1909. LOCAL TAXATION. 85 agricultural land, etc., contributes on its full value. In both urban and rural districts a private improvement rate may be made to recover the cost of outlay specially benefiting the property of particular persons. This is subject to appeal to the Local Government Board. The Audit is the same for Rural as for Urban District Councils. The Parish is the unit of local government in rural districts. A Parish Council may incur, with the consent of the Parish Meeting, expenditure to the extent of a 6d., otherwise a 3d., rate. With the consent of the County Council and the Local Government Board, a Parish Council may borrow, to a certain extent, for land purchase or permanent works, on the security of the Poor Rate. By adopting certain Acts of Parliament, a Parish Council may provide other services, such as Baths and Libraries, at an additional expenditure. These rates are levied by the overseers of the parish. Poor Law. — The expense of administering the Poor Law by the Guardians is paid out of the " common fund " of the Union. On few questions has public opinion been more keenly aroused in recent years than over the alleged extravagance and irregularity of Poor Law expenditure. Yet the control of the Local Government Board is searching. The whole question has been considered by a Royal Commission, and it is not improbable that, bur- dened with multifarious duties as they are, the Councils may, in the near future, be called upon also to take direct or indirect control of the Poor Law administration. The present expense of Poor Law officers (although half is charged on national funds) and the upkeep of the work- houses and other buildings causes a huge outlay, quite apart from the actual relief, indoor and outdoor, medical, vaccination, and miscellaneous expenses. The Guardians, 86 THE NATION'S INCOME. acting through the Assessment Committee, are also the Rating Authority charged with the preparation of Valua- tion Lists of all rateable property in the Union. In 1904-5 Unions in England and Wales expended ;^i4,440,ooo in relief of the poor. The Poor Rate proper (as well as those parts of it before noticed) is levied on the precept of the Guardians by the overseers of each contributory parish. This makes the " common fund/' together with the contributions paid through the County Council from the Exchequer Contribution Account towards the cost of officers' salaries, the maintenance of pauper lunatics, and the supply of drugs and medical appliances. This rate amounts to nearly is. 4d. The accounts of the guardians and master of a work- house must be kept in the form prescribed by the Local Government Board, and, together with those of the over- seers and assistant overseers, are audited half-yearly by Local Government Board auditors. London. — Quite unlike any other portion of the British Isles, London has a system of government embracing some features of county, city, and borough, and costing some £15,000,000 per annum. The County, which comprises parts of Middlesex and the surrounding counties, is governed by a County Council with more than ordinary powers ; but the Council has not the control of the Police Force, which, in the Metro- politan area, outside the City, is under the Home Office. The London County Council levies a rate which is equalised in the metropolis. In 1909 the general County Rate was IS. 5d., and the Education Rate is. 7|d. The City of London, with its ancient unreformed Cor- poration, has large funds from city lands, markets, etc. LOCAL TAXATION. ^7 There is a Police Rate for the support of the City Pohce, and a Sewers Rate. There is no Local Government Board Audit, nor is consent required for contracting loans. The City has an independence far removed from the other contributory parts of the County of London, the Boroughs, formerly governed by Vestries, but now by Borough Councils. The Borough Councils discharge local govern- ment and sanitary duties, making rates in the several parishes, which vary from about 6s. in Westminster to over IDS. in Poplar, but they also benefit by grants under the Equalisation of Rates Act. In both County and Borough Councils there must be a Finance Committee to authorise payments, and the audit and borrowing powers are subject to the Local Government Board. The Poor Law is administered in London as in the country by Boards of Guardians. In Scotland and in Ireland a similar scheme of Local Government prevails, under the partial control of the respective Central Authorities. The Glasgow Corporation has a " Common Good Fund " which it can use at dis- cretion. Education. — Whether the education authority is the County Council or the Council of the Borough or Urban District depends, outside London, on the population and whether the local authority, if the area is sufficiently large, elects to undertake this duty. Whatever be the authority, it acts through an Education Committee specially elected for the purpose. In England and Wales the average cost per child is about £3 4s. lod., while the total cost of education exceeds £20,000,000, of which nearly half has to be provided by rates. In London alone £5,500,000 is annually spent on this purpose, £1,000,000 being for Higher Education. In Scotland the cost of 88 THE NATION'S INCOME. primary schools in 1907-8 was nearly £2,000,000 ; in Ireland national education costs nearly ;;^i, 500,000. The Making and Enforcement of Rates. — We have seen that various local authorities depend upon rates for the support of their work, and it is obvious that they must be in a position to enforce payment. In accordance with the Valuation List in force in the parish, each rate- payer is served with a demand note to pay his quota of so much in the £ towards the sum required in the locality. The rate is then collected by the officials — subject to any valid objection, such as a defect in the form or particulars of the demand note. If the sum due is not paid summary proceedings can be taken and a distress may be put in on the goods of the recalcitrant ratepayer. If such distress be evaded or sufficient goods are not forthcoming, payment may be enforced by imprisonment. The Increase in the Rates and the growth of debt due to Local Government and Poor Law administration is a matter of constant criticism and justifiable anxiety. But it must not be forgotten that duty to the citizen, young, in full age, and in old age, was never so highly appreciated, and that the various local areas were never so creditably and efficiently served in the interests of the ratepayers by representatives who are entirely unremunerated, and by permanent officials who were never more able, specially trained and disinterested. It must also be borne in mind that against this debt there is an immense amount of corporate property; one part bearing its ordinary commercial value, another increasingly productive, and a third, from its very nature priceless, the common enjoy- ment of which is not only a great asset, but has its social effect on the well-being, character, and public spirit of the people. CHAPTER IX. REVENUE AND PROTECTIVE TAXES. We now approach a branch of our subject which has long been a troublesome one in the world's politics ; but, although in this country it has fallen so much within the province of the party politician, some mention of it cannot be omitted from a survey of the Nation's Income. Under our existing financial system taxes are imposed merely for revenue purposes. Customs are either put on commodities which are not produced at all in this country, or, when they are imposed on goods produced here, corre- sponding Excise Duties are levied. In this way the production of the articles taxed is neither fostered nor discouraged. Our market is left open to the competition of home and foreign producers upon equal terms.* It was of course the energy of Cobden which induced Sir Robert Peel to give legislative effect to the economic * To this equality there is an exception in the case of bounty- fed products. A bounty is a negative tax for, instead of producing revenue, sums are paid out of tlie national funds to the grower or exporter of such goods. The bounty-fed products are sold at far less than cost price to the importers, and the exporting nation is taxed to recompense the exporter. Such a system finds few adherents at the present day. The only important instance of a bounty-fed product is sugar. Prior to the Brussels Sugar Con- vention in 1902 we bought such sugar from Germany, Austria, Russia and other countries at very low prices, the foreign exporters being encouraged by bounties with a view to fostering sugar growing and refining. At that Convention Great Britain, on the ground that this system injured the sugar plantations of the West Indies, agreed to prohibit bounty-fed sugar. From this agreement we withdrew in 1908 in the interests of the home consumer. Cheap sugar, of course, greatly benefits also manufacturers of chocolate, confectionery, biscuits, jam, mineral waters and many other articles. 89 90 THE NATION'S INCOME. views of Adam Smith by the Repeal of the Corn Laws in 1846, and ever since that date these principles have guided our financial course. The supporters of the present system point out that this policy benefits the great army of consumers. " To buy in the cheapest market and to sell in the dearest " has for many years been their accepted maxim. But while this policy has brought a cheap and ready supply of food, raw materials and manufactured articles to the doors of all but the destitute, and has rendered even their lot more easy to alleviate, yet there are many who contend that the adoption of this system is detrimental to our manufacturers and other producers, and therefore to the country as a whole. A considerable body of opinion has always been in favour of " protecting the home market " for the home producer by imposing import duties on such foreign goods as can be produced in Great Britain. It is also hoped that at the same time a much needed increase of revenue may be raised by this means. The advocates of this doctrine have chosen the name of Tariff Reformers, while their opponents retain that of Free Traders. Unfortunately it has become difficult, owing to the stress of party politics, to discuss this complicated question in the judicial spirit it deserves. Complicated as such a financial problem must be, confusion is often worse con- founded by the introduction of issues which have really no connection with it ; by allegations of benefits which may well be due to other causes, or of disadvantages which are quite independent of fiscal policy. Comparison with other Countries. — Both sides are fond of comparisons with foreign nations. Tariff Reformers maintain that many other countries employing a system REVENUE AND PROTECTIVE TAXES. 91 of heavy protective duties, and especially Germany and the United States of America, have, during the last thirty years, greatly increased their commercial prosperity. The trade of these countries, and particularly their output of manufactures, has grown at a greater proportionate rate than that of Great Britain. This fact Tariff Reformers attribute to these protective duties which, they contend, enable foreign manufacturers to conserve their market and regulate their output. All contentions, however, which rest on comparisons with other countries must be accepted with extreme caution. Once we were practically the only great manu- facturing nation, and it is but in recent years that other countries have become our keen competitors in industry. This fact is quite independent of fiscal policy, for no system of taxation adopted by Great Britain could have checked the natural development of other nations. We could not hope to go on exporting machinery to foreign countries and, at the same time, to retain a monopoly in the production of manufactured goods. Apart from this fact, other nations would not have been content to remain purely agricultural and to arrest their natural progress towards an industrial future. Then, again, in a country that is just developing its industries, the propor- tionate rate of progress is inevitably greater than in one more advanced — just as a new business, starting from nothing, may for the first few years double or treble its annual turn-over ; but its proprietors may reasonably be satisfied if it then continues to progress at a much smaller proportionate rate of increase. Great Britain cannot be compared with the United States, which possesses not only twice our population, but also immensely greater territory and natural resources so rich as to render it 92 THE NATION'S INCOME. practically self-supporting. Nor must it be overlooked that absolute free trade exists between its component States, For similar reasons accurate conclusions could not be drawn from comparisons with Germany, which is also a large free trade area, thanks to its Customs Union or " Zollverein." Both these countries have but recently opened up their coal deposits. No fiscal system can have such effect on national prosperity as the possession and woirking of coal mines. It is not too much to say that Great Britain, Germany and the United States are the three great manufacturing countries because between them they produce four-fifths of the world's coal supply. Coal, we know, is not sent to start manufactures in places where raw materials are abundant, but these are brought to the neighbourhood of the coal fields. Spanish iron ore is exported : the Potteries are in the Black Country — not in in Cornwall where potter's clay is found : no cotton is grown in England, but the centre of the industry is Lan- cashire. Then, too, the energy of our people has been ascribed to our detestable climate, which has been called our greatest national asset — happily, an imperishable one ! It must not be lost sight of that climate, coastline, the skill, character and education of the people, as well as those other natural advantages to which we have alluded, are of paramount importance, and have all to do with the progress of a nation. Could Servia under the most perfect fiscal system rival in proportionate wealth the United States ? Yet the inventive genius, frugality and industry of the Swiss have projected their manufactures throughout the world. It must, however, be remembered that " in Switzerland they work about thirty per cent, longer hours than in England, and the wages of the Swiss workman are a REVENUE AND PROTECTIVE TAXES. 93 little above one half on the average of the British workman."* It is obvious that increase of trade, and especially pro- portionate increase, is not a final test in comparing the fiscal systems of different nations. National prosperity depends upon a multiplicity of factors, many of far greater importance than the particular policy of taxation adopted. For the same reason the arguments of Free Traders in support of the present system, based on the superior volume of our trade, the high wages of our workmen and the cheapness of necessaries in this country, cannot be regarded as conclusive. We have it from independent investigation that the hours of labour are shorter here than in Germany or in the United States ; rents are lower here, though, we are told,f housing is not as good, while commodities are so much cheaper as to neutralise the difference in wages even between England and America — at all events in the case of skilled workmen living in large industrial centres. " Several such workmen in different towns (in U.S.A.) have told me that the higher cost of everything does in fact swallow up the advantage, and I have met with none who stated the contrary." J In Germany wages are lower, and the cost of living is higher, than in this country. From the Board of Trade Report on the " Cost of Living in French Towns," made in 1909, we further learn that an English workman, with an average family, who went to France and endeavoured to maintain his accustomed mode of living would find his expenditure on rent, food, and fuel substantially increased, while his wages would be much lower and his hours of work longer. * Evidence of the Hon. C. A. Parsons in Vol. iv. of the Reports of the Tariff Commission. t Shadwell . Industrial Efficiency. Vol. ii., pp. 212-213. X lb. Vol. ii., p. 245. 94 THE NATION'S INCOME. Thus we see that wages go further in Great Britain than they do in any other European country, and probably as far as they do in the United States, while the hours of labour are shorter here than elsewhere. Still it may be that unemployment is less extensive and less frequent, and that the conditions of labour, in mining and other industries, is superior among certain other nations. Un- fortunately, satisfactory evidence upon these points is not forthcoming. Looking at British trade at the present time as a whole, while certain industries have undergone a change and some have become extinct, others, such as cotton and electrical engineering, have increased to an extraordinary degree. When the whole position is examined, we find that our workmen are comparatively well off, though much improvement in their lot is still desirable ; our country is very far from bankrupt, yet our prosperity is less than we could wish, and the sad evidences of periodic, and even chronic, unemployment are before our eyes. Whether or not a change in our fiscal system would assist in bettering our industrial conditions and in increasing the general welfare of the nation, is a subject worth careful consideration ; and we must here contemplate the sug- gested reforms both from the point of view of the prosperity of the people, and of the possibility of raising in this way part of the growing revenue needed for the government of the country. A Protective Duty is one imposed on the importation of a commodity into this country, without a corresponding excise duty being levied on the same commodity when produced here. The result of such a tax is, of course, to give the home producers of the article taxed an advan- tage in competing with foreign producers in the home REVENUE AND PROTECTIVE TAXES. 95 market. A higher price or a more ready market, or both, is commanded, according to the amount of the duty. The important question is in the nation's eyes : — " Would the advantage to the growers and manufacturers protected outweigh the disadvantage to the consumer of having to pay higher prices ? " In other words, " Would the im- provement in those trades lead to more employment and better wages, and would that so beneficially affect the whole country that the rise in prices could be disre- garded ? " For a rise in prices must be assumed as inevitable, if the tax is to be of any protective value. It is so in other countries with a far greater home supply, both of food and raw materials ; and in these islands, stimulate agriculture as we may, we must always be largely dependent on foreign or colonial supplies of food. That reminds us that we must here notice, in passing, a qualification of the protective policy, which consists in the proposal to give a " preference " to colonial produce by lowering in its favour the duties on imported goods. It is often stated by advocates, who wish to exhibit all the attractiveness of a policy without assuming the burden of its unfavourable consequences, that the consumer does not pay the tax in these cases — that in fact the foreigner pays it, by reducing the price of his goods.* This, if it were true, would not be a very comforting reflection to the home producer who was hoping to secure protection from the foreigner through the tax. But, in reality, this has never been more than a taking catch-phrase for * A favourite method of expressing that " the foreigner pays," is to define protective taxes as a toll levied for the privilege of access to the protected market. It must be evident that the foreigner, if he does pay, is only like our old friend, the cigar im- porter, who at once adds the tax to his retail price. 96 THE NATION'S INCOME. electioneering, though a pretty old one. In 1881, for example, Lord Randolph Churchill, referring to one of his campaign speeches, wrote, " Fair trade and taxing the foreigner went down like butter. How the latter is to be done, I don't know ! " For the purpose of this chapter we must conclude, therefore, that a tax on imported commodities will, in the long run, be added to the price in whole or in part. Only in a modified form can the foreigner be said to pay any of it. The ordinary laws of supply and demand would con'^inue to regulate prices. Just that amount of a com- modity which can be made to show an average rate of profit is at present produced here ; if more could be produced to sell at a higher price, capital would naturally flow more and more in that direction until production had so increased that rates of profit in that line of business were again reduced to the normal level. We see then that if the suggested duties are to have the effect of keeping out any considerable part of the goods of the foreigner, the British supply must be increased, and for the increased supply to be produced at a profit, prices must rise. In some few instances, if the duties remain small, as the majority of Tariff Reformers appear to desire, the foreigner might pay some part of the duty. Any foreign firms which by special processes or natural aptitude are now able to produce more cheaply than the bulk of other foreign or British makers, and which now obtain a specially large rate of profit on the goods they send us, might still, under a protective tariff, be able to sell their products here at a profit ; but such profit would then be reduced by the difference between the duty imposed and the amount by which the price of their particular product REVENUE AND PROTECTIVE TAXES. 97 was increased in our market. In such a case the burden of the duty would be divided to some extent between the foreign manufacturers and the home consumers. Then, too, large surplus foreign stocks might be so offered that the whole of the duty would be paid by the producer, either in the hope of securing the particular market or when his surplus is unsaleable in his native country. Here the reformer, merely on the look-out for Revenue, might find some encouragement. This kind of offer would still continue, plus part of the duty, although obviously not to such an extent as it does at present when there is no duty to pay. Transactions of this nature have become a special object of remark in this controversy under the name of " Dumping ; " and perhaps a few words of explanation may be useful as to this phenomenon of modern trade. " Dumping " (by derivation, the act of shooting out the contents of a waggon in a heap) has come to mean, in commercial and political parlance, the placing of the surplus of any product of country A. upon the market in country B. at a price supposed to be less than that of the ordinary cost of production. This transaction is often said to be due to the facilities afforded in protected countries for disposing of the first part of the stock in the home market at such renumerative rates that the remainder can be " dumped " elsewhere at a heavy reduction, and yet a profit be made on the total output. Great Britain has been called the " dumping-ground," and even the " dust-heap " of the world, owing to the freedom with which such stocks can be placed on our market. It is of interest to notice that in the other branch of dumping- cutting down the price to secure the market — our own manu- facturers are very active ; and on the Continent, Great G 98 THE NATION'S INCOME. Britain is herself known as " The Champion Dumper." We see the very same thing in domestic trade rivalry when a big " stores " enters into competition with smaller retail shops. What are the effects upon a country of the kind of dumping from which we are said to suffer ? It is clear that, if the article dumped is a finished manufacture, the retail trader and the consumer are benefited by the cheap supply available — the particular goods being sold at a much cheaper rate than obtains in their place of origin, or than that at which such goods are usually sold in our own market. But it is also obvious that the temporary derangement of the price is a bad thing for the home producer of the type of article dumped, and that his output and profits are temporarily diminished. We are thus brought back to the old question : whether the pro- ducer or the consumer has the greater claim. But it must be borne in mind that dumping of this kind is only an occasional feature of trade. The German or American manufacturer has not always these surplus goods to offer at such prices. His normal output will be that which will show the greatest profit in ordinary years, and he will not purposely create a surplus which he must sell at a loss, or at the risk of a very small profit, any more than a draper who has sold out his "job lines " can go on sacrificing fresh stock on the same terms. Dumping of finished articles is on a par with the sale of a large bankrupt or remainder stock, good for consumers at the time, bad for ordinary dealers at the moment, but, in both cases, having only a temporary effect. Whether this kind of dumping benefits or harms the nation as a whole is a most difficult question. REVENUE AND PROTECTIVE TAXES. 99 But when the commodity dumped is either a raw material, or some partly manufactured article which is used in certain of our own manufacturing processes, or is a machine or an implement of trade or agriculture, then, not only ordinary consumers, but some of our manufacturers and agriculturalists must be benefited. This advantage has at times been so great that, for example, by buying steel plates, the raw material of shipbuilding, at low prices from some other country, we have been enabled to com- pete successfully in the market of that country against the local shipbuilders for the completed ship made from those very plates. A Protective Policy would certainly increase the amount of British commodities consumed in our own market, but special work will always surmount a " Tariff Wall," because the buyers in all countries will have it. For instance, there are some lines of woollen goods which are only produced in France, while in continental shops " English-made " clothes and other articles are highly priced. In the case of goods of which similar kinds are made both here and abroad, the market might be tem- porarily kept for home made goods at increased prices ; but, unless the duty is periodically raised or made abso- lutely prohibitive, such market is bound to be invaded to some extent by goods coming in subject to the tariff ; witness our own exports to the most highly protected countries, such as Russia. In an early stage of industrial development manufactures may certainly be fostered in this way, but that is not the problem to be faced in this country. Protection is being asked for industries already fully established, but no longer able to compete here in cheapness or in quality or in both with foreign competitors. 100 THE NATION'S INCOME. The contention of Free Traders is that such industries must wake up and improve, as the cycle trade has done,* or else must gradually pass away, as sugar-refining has passed ; that we must concentrate our capital and our energies upon the production of such goods as we can produce better and more cheaply than any other nation ; that, in this way, by exchanging products in which we excel for those which other peoples can produce more advantageously, we shall for the same labour obtain more and better goods of all kinds than if we devoted part of our energies to the production of articles in which we do not excel ; natural selection should be allowed a free hand, and will gradually divert our productive energy into the fittest channels. Upon the other hand, it is contended by Tariff Reformers that we should endeavour to produce at home all that is needed for home consump- tion, and that, in order to foster production in lines where we are not superior to foreign producers, our home and colonial producers should be protected from outside com- petition. What Articles should be Taxed. — Proposals for taxing imports, both as a means of revenue and of protecting trade, may be divided according to three different schools of thought. Some would only tax manufactured articles ; more suggest taxes on both manufactures and foodstuffs, while many would also impose duties upon raw materials. The probable effect of taxes upon each of these possible classes of articles may now be considered separately. * Between 1 890-1 896, British manufacturers could not produce a good, inexpensive type of bicycle. Large imports of cycles from America flooded our market, these machines being both cheap and sound. By diligence, economy and improved processes, British cycle manufacturers now produce the finest and cheapest cycles in the world, and in 1907 only ;^399 worth of cycles were imported from U.S.A., while Great Britain exported cycles to the value of over half a million. REVENUE AND PROTECTIVE TAXES. loi Protective Taxes on Manufactured Goods. Prosperity must be judged by the welfare of the nation as a whole, not by the wealth of a few capitalists nor even by the prosperity of certain classes or trades. It is possible for the total possessions of a nation to be very great while the lot of the many is very little removed from starvation. The mass of the people can only flourish when employed with regularity in healthy and remunera- tive callings. But at present, in every known industrial community, there are periods of unemployment for the workers which bring acute distress. It has been contended that every manufactured article produced abroad and sold here, which might have been produced in this country, is adding to our unemployment ; and that, if all these goods were made here, there would be no unemployment in Great Britain. This is the largest claim ever made for Tariff Reform. Foreign workmen, it is argued, are pocketing the wages our own artisans and labourers might earn, and the remedy is a simple one, dependent on tariff adjustment. On the other hand, some Free Traders rather too complacently regard the total volume of the nation's trade, which is a poor consolation to the man out of work or precariously subsisting on half-time or very low wages. When Tariff Reform is advocated as a remedy for unemployment, it is admitted by the fairest of its advocates that it could only be a partial one. It must not be forgotten that trade fluctuations, the conditions of the labour market, and the very require- ments of some trades, render a certain amount of unem- ployment inevitable, as in the professional classes. Many a man was either never fitted, or for various reasons has become unfitted, for the work he tries to secure ; and many again do not conscientiously pursue any regular 102 THE NATION'S INCOME. calling, but are content to be mere casual labourers. These are the first to feel the pinch of bad times ; and some are so far removed from the skilled or regular class of workman, as to be in the category of the unemployable. It is not for such a class that any alteration of the fiscal system can do any good. When we look at general unemploy- ment, some test can be obtained by comparing the state of things in countries which have a protective tariff. We see that there, too, unemployment is at times very acute ; and that the condition of the unemployed, owing to the higher price of necessaries, is generally much worse than it is in Great Britain. In this little book, however, it would be beyond our province to deviate too far into the many economic questions which lie about this great subject. The question of cures for unemployment is one of those debatable matters which must be merely glanced at here. Imports balance Exports. — But with regard to the argu- ment of more employment being found through the ex- clusion of foreign goods or produce, it must be remem- bered that these imports must be paid for. They are not paid for in money or bullion ; for we possess no gold or silver mines, and, on an average, we import some three millions' worth of gold and silver more than we export in the year, and during the last decade this balance has become even greater. In fact, these imports are paid for by exports of goods and by invisible exports, i.e., services, such as shipping, banking, and money-lending, rendered to foreign countries, or rather to individuals in foreign countries. Now the vast majority of our exports consists of goods most of which have given the maximum of employment in manufacture ; and coal of which about three-fourths of the whole value is attributable to the labour expended REVENUE AND PROTECTIVE TAXES. 103 upon it.* If we check imports we check exports, as without this method of exchange, our customers abroad could not pay us. If we manufacture goods formerly imported from abroad, we shall cease to manufacture those goods we used to send out by way of payment unless we take some other import in kind to pay for them.f The labour to be expended on goods in substitution for those kept out may at best only balance the labour no longer to be expended on goods which used to pay for those imported. There is hardly any subject to which the dictum of Burke is so applicable, that statesmen must have long views ; for there are so many seemingly attractive reforms in finance and trade, the merits of which vanish in the ex- perience. Fitness of Trades. — ^Then there is something to be said for the theory of the fitness of trades. It is contended by Free Traders that, under a system of free imports, those trades survive and flourish which are best suited to the country and the people. Perhaps, in these days of universal adaptability and absence of distinguishing genius, * Eighty per cent, of our exports, and about twenty-three per cent, of our imports consist of goods wholly or partly manufactured. Of coal, we export infinitely more than we import. Thus in 1907 v/e imported 31,000 tons, but exported 85,188,000 tons. t " The temporary payment for imports by an export of money is not unusual, and a persistent unfavourable exchange can be remedied only thus ; in such circumstances the export of gold or silver is the export of a convenient commodity {e.g., gold-pro- ducing Australia). Over a long period (in non-gold-producing countries, e.g., Great Britain) the purchase of imports by export of money is evidently impossible. Not to dwell on the fact that in a few years the whole metallic stock would disappear, the general range of prices in a country depends on the quantity of money in circulation. The export of money reduces its quantity and there- fore lowers prices ; but lower prices check imports and encourage exports. A transient excess of imports or exports will be speedily corrected by a flow of money from or to the country where the disturbance exists." — Bastable : Commerce of Nations, p, 191, 104 THE NATION'S INCOME. this argument may not have so much force as it once possessed. But an attempt to foster an unsuitable trade, like time spent on training a boy for the wrong pursuit, results in money and energy being taken from the fit to be thrown away or to produce but middling returns by being expended upon the unfit. The higher price has to be paid for the inferior article, as no one who has once tried to light a French match will ever forget. Climatic conditions, at all events, need recognition. Adam Smith has reminded us that grapes could be grown in hothouses in Scotland and good wine made therefrom — but at thirty times the cost of French burgundy. Competition a Stimulus. — Nor must we forget the effects of foreign competition in acting as a stimulus to our manu- facturers and forcing them to keep abreast of all the latest methods of production. Not to go back to the Huguenots and the Flemings, hardly a year passes but we are indebted as a nation to the skill and inventive genius of foreign inventors and workmen. Every year we learn new processes from them and in our turn improve upon such processes. The effect of such a stimulus upon the cycle trade has already been mentioned. Motor-cars and boots are two other instances which must at once occur to everybody ; roller skates being only a later example. The absence of such a stimulus often leads to national slovenliness. This, we have been told, by a writer we have quoted often,* is the reason why the United States, so rich in natural resources, still requires a prohibitory tariff against foreign manufactures, which she surely ought to produce better and more cheaply herself, and which ♦Shadwell: Industrial Efficiency, Vol. I., pp. 25 and 248. Vol. II., p. 450. REVENUE AND PROTECTIVE TAXES. 105 accounts for the comparatively paltry amount of manu- factured goods exported by that country. If the effect of a tariff is only to change employment and not to increase it, the wages of the majority of the workmen employed, even in the trades protected, can scarcely be improved in the long run. For, except where special and highly trained skill is essential, wages are ruled by the conditions of the general labour market. Practical Difficulties.— There remains the great diffi- culty in practice, if Tariff Reform is approved in theory : the framing of the schedule. What manufactures are to be on the list, and what are to come in free? What is the amount of the duty; is it to be fixed, as in the United States, or on a sliding scale, as in France ; is it to be adjusted annually by Parliament ? What are the arguments which will prevail in favour of, and against the inclusion or the alteration of taxes upon the various articles ? Is any Parliamentary election to turn upon the promises of an individual candidate to advocate the claims of some chosen trade ; and is the national welfare to be sunk in the interests of the local industry ? Every proposition for a tax begins with a small duty, of which the effect, it is said, will be lost on the consumer. But no trader is content to admit this as its goal ; nor has such a step been found suf&cient in other lands when tariffs have once been introduced. Pressure, political and com- mercial, has almost invariably forced the hands of govern- ments, both for an upward and an extended tariff.* We see the movement even in Canada against the slight preference accorded to British manufactures. And a recent talented American critic of our constitution, who, • For example, the proposals of the French Tariff Commission in 1909, io6 THE NATION'S INCOME. having studied us to such effect, may be presumed to know his own country, has written : — " However men may talk about a scientific tariff, the adjustment of the schedules in a legislative chamber involves in practice concessions among the various forms of industry, each of which urges its own claims to the utmost of its power."* Great value must also attach to the opinion of one who was no party politician, writing at a time when this policy was not a matter of controversy, and who is now recognized as one of the most original thinkers of the middle of the nineteenth century. In his study of Pitt,t Bagehot, referring to the protective legislation of the latter part of the eighteenth century, wrote : " The first duty of the English Legislature, it was believed, was to develop English industry and to injure foreign industry. Our manufactures, it was thought, could be made better by Acts of Parliament ; the manufactures of our rivals, it was believed, could be made worse. The industry of the nation worked in a complicated network of fetters and bonds." In the contest for protection, the small and struggling industries, having little wealth and power, come off worst, although these are the industries which would seem to require most assistance. If a tariff were once set up there is little doubt that there would be a premium on lobbying and a great danger of corruption. And even when a tariff is framed, the most elaborate schedules cannot define everything ; new and composite articles are always being manufactured which can be referred to different categories, with widely different results. Dispute, delay, troublesome litigation, and even bribery at the Custom House are inevitable. * Lowell : The Government of England, Vol. ii., p. 517. t " Biographical Studies," REVENUE AND PROTECTIVE TAXES. 107 Protective Taxes on Food. The general arguments for and against taxing foreign manufactures are applicable to food-taxes ; but there is a much greater difficulty in practice for those who advocate the taxation of food. Every Tariff Reformer feeJs that it is impossible to regard such a proposal without serious apprehensions when it is remembered that the cost of food will be increased. A third of the nation is already under- fed, and any likelihood of making their food dearer must be contemplated by all with grave hesitation. Even in France, which in ordinary years imports but a very small percentage indeed of its corn supplies, the general cost of bread is considerably higher than in England. These considerations are felt by many who favour the taxation of manufactured articles, and they would therefore exclude all foodstuffs from the schedule. Rings, trusts and com- bines are feared as a possible result of protective duties on manufactures ; if it should become possible to " make a corner " in foodstuffs, the effect can only be viewed with dismay. But the home agriculturalist demands the same protection as the manufacturer, while on the imperial ground of a " preference," the taxation of food is necessary. Preference means that trade between the Mother Country and the Colonies should be encouraged by allowing colonial produce to come into this country on paying lower duties than are demanded on similar produce from foreign countries. Thus a tax sufficient to protect the home producer against the colonial producer is required, and a higher tax against the foreign producer, so as to allow a preference to be accorded to the colonial producer. It has been anticipated by some ardent advocates that the policy of preference would lead to an agreed interchange io8 THE NATION'S DEBT. of our manufactured articles for colonial raw materials and agricultural produce. In the light of their strenuous protestations, the idea that in return for our greater willingness to take their foodstuffs, the colonials would only give a half-hearted attention to the development of manufacturing industries, can no longer be cherished- In Canada, Australia, and our other great colonies, they are as ambitious of their industrial future as they are loyal to the Empire. It has been contended that without preferential treat- ment the colonies will drift apart or cease to value their attachment to the mother country. This consideration is, happily, not within the scope of our investigations into the Nation's Income. It is also contended that the preference would so encourage the growth of food supplies within the Empire that eventually the increased supply would reduce prices to their present level ; but this is in the nature of a far off divine event for which the present self-denial is considered too great. Therefore another argument is put forward, viz., that it is wise, even at some initial sacrifice, to encourage food production within the Empire so that, in the event of a war with countries from which we now obtain our chief supplies, colonial foodstuffs may be available. Impressed as we may be by this motive, it must not be forgotten that our supplies from distant colonies are much more likely to be cut off than those from neighbouring countries. We might maintain a preponderating power at sea and yet our mercantile marine in distant quarters might be interfered with ; while from European sources a supply might be safely ensured by concentrating our navy around our coasts. Looked at from the standpoint of this country alone, a safe and adequate supply from all markets is REVENUE AND PROTECTIVE TAXES. 109 required both in war and in peace. Our communications should therefore be free with all ports, so that if America be cut off, Russia may be open to supply our needs. From the point of view, therefore, of the Nation's welfare, apart from the interests of agriculture or the Colonies, taxes on foodstuffs are at present wisely discarded. Protective Taxes on Raw Material. Those who advocate the inclusion of raw materials in the list of articles to be subject to protective taxes escape some great difficulties. If the contention that our colonies must be bound to us by commercial preference be correct, clearly not only the Canadian corn-grower, but also the Canadian lumberman, must be propitiated ; not only must those colonies which produce manufactures and foodstuffs be favoured, but preference must be given to the staple industries of all our colonies. If unequal treatment be accorded to them, some colonials would possess an undoubted grievance. " Manufactured Article " and " Raw Material."— Another great difficulty which is avoided is the embarrassing distinction between manufactured articles and raw materials. Is the term " raw material " to apply only to natural products, or is it to denote all articles which are not in the final state in which they are put upon the retail market ? Is an article to be regarded as " manu- factured " only when it has arrived at such a stage that no further manufacturing process can convert it into a still more highly finished or composite product ? The finished article of one manufacturer is very often the raw material of another. Steel-plates are manufactured articles to the manufacturer but raw material to the ship-builder. no THE NATION'S INCOME. A prevalent misconception is that a raw material is an article the value or cost of which is not due to any large extent to the labour expended upon it. Yet coal is always classed as a raw material ; : and in twenty shillings- worth of coal, delivered at one's house, there is about five shillingsworth of coal and fifteen shillingsworth. of labour. The vast bulk of finished manufactured articles cannot pretend to possess so large a proportionate labour value. The obvious disadvantage of a tax on raw materials is that the price of the finished articles will be increased. Not only will the home consumer be burdened, as in the case of taxes on other commodities, but the manufacturer of the more finished goods will be hindered in competing in foreign markets. So clearly is this perceived, that the Tariff Commission on Agriculture proposed that agri- cultural machinery should not be subjected to protective taxes, while, from evidence before that body upon engineering, we learn that " a large quantity of iron comes from Sweden, and that cannot be dispensed with ; we have to face that."* The effect of taxes on the raw materials of shipbuilding in the United States, although nearly all the necessary raw materials are produced in that country, is clearly seen from evidence given before the U.S.A. Maritime Commission. It was there reiteratedt that American builders could not compete against those in Free Trade countries, and that the raw materials from which ships are constructed cost about forty per cent, more in America than they did in this country. The result is * Evidence of Sir Andrew Noble. Reports of The Tariff Com- mission, Vol. iv., par. 513. t e.g., Evidence of Messrs. Lee and Orcutt. REVENUE AND PROTECTIVE TAXES, in that American shipping has dwindled into insignificance, while British shipping has steadily progressed. Other Effects of a Tariff. Revenue. — The very important question of the possi- bility of raising a large revenue from protective taxes must never be far from our view. But, if the protection afforded to home production be absolute, no foreign goods will come in and no revenue will accrue. While, conversely, if the amount of goods now entering this country would still be imported, there is no protection afforded. But let us suppose a half and half result to ensue. Some goods still come in, some are kept out. Under the present system the whole tax paid by the consumer, less the cost of collection, goes into the Ex- chequer. Under the suggested system, the whole tax upon imported goods would continue to enter the Ex- chequer. But, in regard to commodities manufactured in this country, the Exchequer would in no way benefit from the extra burden upon the consumer, consisting of the inevitable increase of the price. This burden upon the consumer would in such a case simply swell the profits of the home manufacturer and, to some degree, of his work- men. The people, as a whole, would have to pay far more in increased price than the amount which enters the Public Treasury. If a large revenue is raised by the State through protective duties, a still greater burden must be borne by the people at large. It should also be borne in mind that " broadening the basis of taxation " must inevitably lead to heavier charges for collection of the duties. Retaliation. — It is said that a further advantage of the suggested system which cannot be obtained under Free 112 THE NATION'S INCOME. Trade is " freedom of negotiation " with other states for a mutual lowering of duties, and power to retaliate by raising our scale of duties against any nation which will not bargain with us, or which gives better terms to some of our trade rivals. The policy of hitting back naturally appeals to most men, although the history of tariff wars, indulged in by other nations, shows that the advan- tages eventually gained are almost always microscopical, compared with the loss of trade suffered by the countries engaging in such contests. Other powers with great " Tariff Revolvers " have not been able to obtain in- creasingly favourable terms from one another.* At the present time Great Britain has treaties with almost all civilised nations containing what is called the most favoured nation clause. This clause provides that neither nation shall charge the goods of the other at any higher rate than it charges the similar goods of any other country. Thanks to these treaties, if other nations indulge in a tariff war, such concessions as they do eventually wring from one another are to our benefit, for Great Britain automatically shares the spoil without suffering the evil effects of the combat. The adoption of a system of protection with a grant of preferential treatment to our self-governing colonies would, of course, entail a breach or a modification of all these treaties, and we should cease to obtain the benefits which we now derive from them. Nor must it be forgotten that there is at present nothing to prevent Parliament dealing out an even severer punishment than a mere raising of duties. If the facts were held to warrant such drastic action. Parliament could * e.g.. Many American goods imported into France are charged at a far higher rate than EngUsh goods. REVENUE AND PROTECTIVE TAXES. 113 at once entirely prohibit any imports whatsoever from the country which was treating us unfairly. The popularity of retaliation is to a great extent based on the erroneous belief that the prosperity of other countries must be a misfortune to our own. This is an old fallacy, due partly to false economics and partly to what is not the best in human nature. Reciprocity. — One very successful instance of negotiation for a mutual lowering of Customs Duties was conducted by Cobden in i860, between this country and France, by a manipulation of the tariffs of each country. This treaty, after conferring great mutual benefit, ceased to exist owing to the recent tendency of France towards a stricter protective system. In bargains even of this nature, the necessity of giving a preference to the Colonies would, however, tie our hands, for we should not be able to reduce duties below a point, because we should then no longer be according to our colonists the preferential treatment promised to them. " Reciprocity " is always an end to be well kept in view, and, if in the inevitable taxes for revenue, some safe and impartial assistance could be rendered to home trade by treaty with foreign powers, we do not suppose there would be any outcry. We may see the day when aerial navigation has made all Customs barriers impossible — which would be a curious enforcement of " Universal Free Trade." Conflict of Interests. — If in the attempt to state some of the main features of this fiscal controversy, we have seemed to press hardly upon proposals for change, this must be not a little attributed to the fact that it is for the would-be reformer, like the plaintiff, to " make out his case." It is hardly possible to state anything with certainty, except that there is a conflict of interests at H 114 THE NATION'S INCOME. every turn between the consumer and the producer. This is appreciated by controversiaUsts on both sides, and each therefore argues that the benefit of his proposals wouldj in the long run, be felt by the country at large. " The greatest good of the greatest number " is recognised as the final test. Each party attempts to show — or does not hesitate to assert — whether at first advocating the interest of consumer or producer — that its policy would be for the ultimate advantage of all. The Free Trader in his ecstatic moments is apt to ascribe to Free Trade all the blessings of modern civilisation. The bold Tariff Reformer pronounces Tariff Reform as the sure sign of higher wages, absence of unemployment, and universal prosperity. It is not with either of these assertions that the serious student of financial and political problems will rest content. Wearied by the controversy and tortured by their own efforts at "clear thinking," many who are not students of finance may take comfort in the reflection that " the measure of a Nation's greatness, of its worth under this sky to God and to men, is not the quantity of cotton it can spin, the quantity of bullion it has realised ; but the quantity of heroisms it has achieved, of noble pieties and valiant wisdoms that were in it — that are still in it."* Yet our desire in these brief pages has been to show that honest investigation of the Nation's Income is connected with the highest interests and duties of citizen- ship ; and, if possible, to render that investigation simpler, more attractive, and more complete. * Latter Day Pamphlets, No. viii. THE EXPENDITURE OF THE NATIONS ON ARMY AND NAVY. Reference has been made on page 69 to the large pro- portion of our annual expenditure which is referable to war. The following authoritative utterance from a notable speech is of supreme interest : " The great countries of Europe are raising enormous revenues and something like one-half of them is being spent on naval and military preparations. You may call it national insurance, that is perfectly true ; but it is equally true that one-half of the national revenue of the great countries in Europe is being spent on what are, after all, preparations to kill each other. Surely the extent to which this expenditure has grown really becomes a satire and a reflection upon our civilization. Not in our generation, perhaps, but if it goes on at the rate at which it has recently increased, sooner or later, I believe, it will submerge that civilization. The burden ahready shows itself in national credit — less in our national credit than in the national credit of other nations — but sooner or later, if it goes on at this rate, it must lead to national bankruptcy." Rt. Hon. Sir Edward Grey (Foreign Secretary) in the House of Commons, March 29th, 1909. iifl Select List of Authorities. ANDRfAofes, A. Anson. Sir W. R. Ashley, W. J. Bagehot, W. Bastable, C. F. Dicey, A. V. Dowell, Stephen History of the Bank of England. Translated by Christabel Meredith (1909)- The Law and Custom of the Constitution (new ed., 1908-9). The Tariff Problem. Lombard Street (1873). Economic Studies (1879). The Commerce of Nations (1892). Theory of International Trade (2nd ed., 1897.) The Law of the Constitution (new ed., 1907). History of Taxation and Taxes in England (4 vols., 1884). Financial Reform Almanack and Year Book (annual). Jevons, W. Stanley Political Economy. (Science Primers Series, 1892). National System of Political Economy. Trans- lated by S. S. Lloyd (1885). Government of England (2 vols., 1908). Principles of Economics (Vol. I., 5th ed., 1907). English Local Government. (The Temple Primers, 1905). Parliamentary Procedure (new ed., 1906). Principles of Political Economy (9th ed., 2 vols., 1886). Riches and Poverty. (4th ed., 1908). Elements of the Fiscal Problem. Municipal Year Book of the United Kingdom (annual). List, Frederick Lowell, A. L. Marshall, A. Maxwell, R. C. May, Erskine Mill, John Stuart Money, L. G. C. . . Noble, John Shadwell, a. Smith, Adam Williams, W. M. J. Wilson, A. J. Wright and Hobhouse The Queen's Taxes (1870). Industrial Efficiency (2 vols., 1908). An Inquiry into the Nature and Causes of Wealth of Nations (Ed., 1904). The King's Revenue (1908). The National Budget (1882). An Outline of Local Government and Local Taxation (3rd ed., Hobhouse & Fan- shawe, 1906). 116 INDEX. Acton, Lord . . . . . • • • • • • • • • 9 Ad valorem duties . . . . . . . . . . 26, 27 Afforestation . . . . . . . . . . . . 33. 60 Agriculture, Board of . . . . . . . . . . 59 encouragement of . . . . . . 8, 107 Agricultural land, how rated . . . . . . 77, 82, 85 Agricultural Rates Act, 1896 .. .. .. .. 77 Annual parliaments . . . . . . . . . . . . 15, 20 Annual supplies . . . . . . . . . . . . 15 Annuities, life . . . . . . • • . ■ . . . . 63 post office scheme of . . . . . . . . 56 terminable . . . . • . . . . . . . 63 Appropriation Act . . . . . . . . . . . . 19M. Appropriation of supplies . . . . . . . . . . 14 Appropriations-in-aid . . . . . . . . . . . . 57 Army .. .. .. .. •• •• •• 9. 57. 69 Assigned revenues . . . . . . . . . . . . 76 Audit, national . . . . . . . . . . . . 20, 70, 72 local . . . . . . . • . • • . 81 et seq. Bagehot, Walter . . . . . . . . . . 44, 65, 106 Bank of England . . . . . . . . 57, 63, 64, 70, 72 Barracks Act, 1890 . . . . . . . . . . . . 64 Bate's Case Beer duties licences surtaxes Bill, finance money 13 36, 41 42 77 17 16, 17 private member's . . . . . . . . . . . . 17 supply . . . . . . . . . . . . . . 16 ways and means . . . . . . . . . . . . 19 Bill of Rights, 1689 13 Boer War, effects of , . . . . . . . . . 30M., 38, 62 Bond, goods in . . . . . . . . . . . . . . 35 Borough . . . . . . . . . . . ■ • . 82, 83, 87 Bounties . . . . . . . . . . . . . . . . Sgn. " Breakfast-table, free " . . . . . . . . . . 39 Brussels Sugar Convention . . . . . . • . . . 89M. Budget, The . . . . . . . . . . . . 8, 18, 57 Bullion .. .. .. .. .. .. 102, 103M., 114 Burke .. .. .. .. .. .. •• 61, 103 117 ii8 INDEX Canals, nationalization of Cards, playing Casual labourers Central control over local bodies Certainty, desirable in taxation Chancellor of the Exchequer . . Cheapness of necessaries, importance Chicory . . Churchill, Lord Randolph . . Citizenship, duties of ... Civil List . . Climate Coal, duty on importance of labour value in . . COBDEN Cocoa Coffee Collection, cost of cost must be small of national revenue Commission, Royal Commissioners of Customs and Excise of Income Tax of Inland Revenue of Woods and Forests Committee, Assessment . . Education . . Finance Public Accounts . . Supply Ways and Means . . Commodities, taxes on . . Comparisons between countries Competition, stimulus of Comptroller and Auditor General Confiscations Conscience money Consols Consolidated Fund Charges on Services . . Consumers, interests of 23, 27, 28 Control of Expenditure, local . . national 12 Convenience, desirable in taxation Conversion of Stock Corn Laws, repeal of Corporation Duty Cost, importance of Cost of living . . - • — 38, 17. 20, • 33. 63 . 36, 42 102 . II, 81 . 24, 26 8, 18, 31, 32, 61. 63 28, 90 . . 35. 41 . . 96 10, 114 . . 15, 20, 59, 71 92, 104 . . 3on. 92 102, no . . 30. 89 25. 35. 36«. •• 25, 35. 41 29. 30. 70. m 24, 29, 52, in 70 7, 60, 85 70 13 70 59 86 . . 83, 87 .. 87 73 .. 14. 19 19 28, 29, 96 90 et seq., 102 104, 105 70. 72. 73 .. 13.58 57 66 I9M., 64, 71, 72 70 20, 71 90. 94. 95. "4 Si et seq. 31, 46, 68, ch. vii. 24, 27 66 90 51 10 93 40. 89, INDEX 119 County Council . . Crown Lands . . . . . . . . 12 Currants, duty on Customs Duties . . . . .. 13. 19, 21, Custom House . . w x CX»£>S •• •• ■• •• •• Death Duty Grant Debt of local bodies Deficit Departments of Government . . Direct Taxes District Auditor District, Rural . . Urban . . Dog-licence Drawback " Dumping " Earned Incomes Economy . . Education Education Rate Equalization of Rates Act Equality, desirable in taxation Estate Duty Estates, The Three Estimates, supplementary Exchequer Account Bills Bonds Contributions to local bodies Excise Duties Licences Exemptions " Expectation of renewal " Expenditure, classes of local national . . need of . . Export Duties " Exports, invisible " " Favoured Nation " Clause Fee Stamps Feudal Rights . . Finance Act Fiscal System, effect of . . Fitness of Trades Food, taxes on . , 19 42. 44 10, II, 17 76, 81. 82, 87 13, 15, 16, 21, 57-59 •• 13. 25, 35 5, 33 et seq., 89, 113 22, 34, 35, 106 . . lOOW. 21, 23, 50, 51 . . 76. 77 80 . . 18, 73 21. 32, 57. 72, 73 22, 23, 24, 29-32 Si et seq. 79, 84, 87 79, 84, 87 . . 23, 42 . . 36 . . 97-99 44 . . 10, 75 9, II, 77. 83, 87, 88 79 .. 87 24 ■•50,77 15 20 20, 21, 70 20, 63, 64 . . 63 II, 74 et seq., 86 21, 23, 34, 41, 89, 94 . . 23, 41 et seq. 45«- 47. 50. 53. 78 43 69 74- et seq. 20, 31, 46, 68, ch. viii. 10, 102, 103W. . . 3on. 102 112 .. 21, 22, 57 12 I9«., 50. 53. 67 91, 94, ch. ix. 103, 104 39. 95. 100. 107. ^08 I20 INDEX " Foreigner will pay " . . . . . . . . . . 95 et seq. France .. .. .. .. .. .. 104, 105, 107, 113 Franking letters . . . . . . . . . . . . 55 Free Trade principles . . 34, 90, 100, loi, 102, 103, 114, ch. ix. Fruit, dried . . . . . . . . . . . . . . 36 Funded Debt . . . . . . . . . . . . . . 63, 65 Germany . . 32, 91. 92, 93 Gladstone , , 31. 44. 63, 67 Glucose . . . . 34. 41. 42 Government, objects and duties of . . 8, 9. 27, 69 policy determined by cost . . 10, 30, 61 Graduated Income Tax , , ■ • ■ • 45 Grants-in-aid , , • • • • 76 Guardians, Poor Law . . • • • • 81, 85, 86 Hamilton, Dr. • • • • • • .. 67 Hearth Tax , , • • • • . . 28, 52 Heir-Apparent . . , , • • • • . . 15M. Hospital . . , , • • • ■ 80 Hospitality, fund for international • • • • 9 Hours of labour , , . . 92, 93. 94 House of Commons , , 12-19, 70-73 House of Lords , , 16, 17. 18, 70 Hume, David • • 68 Imports balance exports . . .. .. 102, 103 Imports, of what British consist • . 103M. Imprisonment , , • • • ■ 50, 88 Income Tax . . 10, 21-25, 3c ), 43 et seq. Indirect Taxes . . , , • • 22, 23 , 24, 29-32 Industries, effects of Protection on 96, 97, 103, loi, 106, no Inhabited House Duty 21, 23. 52, 53 Ireland • • . • .. 87 Irish Famine ■ • • ■ 39 Irish Tobacco • ■ ■ • 37 Issue of debt • • ■.• .. 65 of nation's money « . 71 Issuing letters • 72 Jews, the • • • • • • .. 6in. King, The, assent through Commission .. 19 cannot levy taxes . . , , . . .. 14, 18 part in legislation . . • • ■ • 16. 18, 65 Land Tax ^ , ■ • ■ ■ • • •• 21, 53 Land Values, taxation of . . . . . . • • 47. 48 Legacy Duty . . • • . . . . 50. 51 Legislation, tendency of . . • ■• • • • • 9 Licence Duties _.. • -• . . • • 76, 77 INDEX 121 Licence, excise . . publicans Loans Lobbying, danger of Local Authorities, independence of powers of . . Local Government Board Local Revenue . . Local Taxation Account London, city of county of London County Council . . Luxuries, duties on 23 • . 42, 43 21, 63, 64, 68 106 II 80 et seq . . ch. viii., 80 .. 76,81 et seq. 41 70, 71, 76, 77 .. 78, 86, 87 86 . . 8, 86 27, 28, 42 Macaulay Manufactured goods . . Manufacturers, interests of Maxims of Taxation Mill, J. S Ministers of the Crown alone can propose expenditure Mint, The . ..14.65 . . 98, loi, 109 34, 36H., 40, 99 23, 24-29 25, 28, 33, 64 Money, L. S. Chiozza . . Monopoly, Morton's 'Fork . . Motor-cars Municipal Trading National Complacency . . National Debt . . services . . Natural resources selection Navy Necessaries, duties on . . Non-tax Sources of Revenue Octroi Duties Old-age Pensions Paper Duties Parcel Post Parish Parliament consent of how composed powers of procedure of " Passive Resister " Patent Stamps . . Paymaster-General 16 21.54 26 13, 32, 43, 54, 55, 91 13 23, 104 75. 83, 84 .. 8 12, 19, 60-65, 69, 71, ch. vi. 20, 64, 69 91. 92 100 ..9, 10, 57, 69, 108 25, 31, 38 .. 12, 21, 22, 32, 60, ch. v. 75 9. 56 17 54. 56 85 8, 16, 58, 71, 76 . . 13, 68, 69 16, 105 I, 13, 15, 20, 64, 71 16-18, 105 79 21, 22, 57 72 122 INDEX Petition of Rights, 1628 Police Political Economy, teachings Poor Law Poor Law Valuation Poor, too heavily taxed , . Population of Great Britain Post Office Postmaster-General . . " Preference " Prices, rise of Producers, interests of Prosperity of nations . . Protective Taxes 12, 29, 36M., Public Credit Purse, power of the of 89; 37. 89. Railway passenger fares Railways, nationalisation of Rate, burden of definition General District , how enforced how levied increase of Poor Water, etc. Raw material, taxes on . " Reciprocity " Redress of Grievances , Repairs, allowances for " Retaliation " Revenue, local . . national sole purpose of present system under protection Royal Sign Manual Warrant Savings Banks Scotland . . Settlement Estate Duty Ship-building Ship-money Sinking Fund Smith, Adam Small Holdings Speaker, the Spirits Stamp Duties Standard of living State aid, effects of 90 94 e/ 16 seq 21, 95 94. 95. , 100, 32 13 76, 77. 87 23 80, 85-88 .. 78 • • 26, 31 24 54 et seq., 69 70 107. 108, 113 95 98, 114 ch. ix. 93. 94. loi 102, 105, ch. ix. . . 61, 68 18 41 . • 32, 63 8. 10, 78 .. 78 78-82, 84 . . 75. 88 II, 47, 81, 82, 88 .. II, 88 82. 84, 86 74 et seq. 40. 92. 95' 99. 1 09-1 II .. 113 14 • • 45. 47 III, 112 II, 74 et seq. 16, 21, ch. iv. and v, 89 et seq., 113 90, 94. 97. Ill 72 • • 54. 56 87, 104 51 109, no 13 18, 66 et seq. 24, 25, 27, 38, 90, 104 . . 47, 50 . . 14, 17 .. 41, 42, 77 21, 29. 51, 52 . . 38 9 INDEX 123 Succession Duty . . . . . . . . . . . . 50, 51 Suez Canal Shares . . . . . . . . . . 16, 21, 57 Sugar refining . . . . . . . . . , . . . . 100 tax on . . . . . . . . 25, 37 et seq., 8gn. Supplies . . . . . . . . . . .. 12, 13, 14, ign., 73 Supply and Demand, laws of . . . . . . . . . . 96 Supply Services . . . . . . . . . . . . 71 Surplus 18, 73 SuR-TAXES on beer and spirits , . . . . . . . . . 77 "Tacking" .. .. .. .. .. .. .. 16 Tariff, difficulty in framing . . . . . . . . 105, 106, 109 Tariff wall .. .. .. .. .. .. 99, 113 Tariff Reform . . . . . . . . . . . . . . ch, ix. Tax, definition . . . . . . . . . . . . . . 21 how enforced or collected . . . . . . . . . . 49 how levied .. .. .. .. .. .^ 11, 13, 17 how sanctioned . . . . , . . . . . . . 15 Taxation, broadening the basis of .. .. .. .. iii burden of . . . • 8, 10, 22, 24-28, 30, 78, 96, 97 efforts to evade . . . . . . . . 8, 31, 45 principles of .. .. .. .. 11, 16, 21 Tea . . . . . . . . . . . . . . . . 25, 40 Telegraph .. .. .. .. .. 21, 54, 56, 69 Telephone . . . . . . . . . . .. 21, 54, 56, 69 Tobacco . . . . . . . . . . . . . . . . 36-41 Tonnage Act, 1694 . . . . . . . . . . . . 64 Town Councils . . . . . . . . . . . . . . 83 Transit Duties . . . . . . . . . . . . . . 30« Treasury, the . . . . . . . . . . 17, 24, 29, 64, 72 Treasury bills . . . . . . . . . . . . 20, 63, 64 warrants . . . . . . . . . . . . 72 Trusis . . . . . . . . . . . . . . . . 107 Unemployed Workmen Act, 1897 . . . . . . . . 83 Unemployment . . . . . . . . , . 94, 95, loi, 102 Unfunded Debt . . . . . . . . . . . . . . 63, 64 United States .. .. .. .. ..91. ioom., 105, 110 Valuation Lists . . . . . . 86, 88 Veto, the Royal .. .. .. •• .. .. 18 Volume of Trade . . . . . . . . . . . . 93 Wages . . . . . . . . . . . . 92, 93, 94, 105 War, financial effects of ,. . . . . . 59, 62, 68, 69, 70, 115 Window Tax . . . . . . . . . . . . . . 28, 52 Wine Duty ,. .. .. .. .. .. ..41,43 Zollverein . . . . . . . . . • . . . . 92 " The best of its Wind."— The School World. 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