discussion was likely to be felt in the treatment of the financial
policy of the nation. Canons as to the proper system of administration,
taxation and borrowing come to be noticed by statesmen
and officials.
These influences may be followed out in their working by observing the chief lines of adjustment and modification that followed the conclusion of peace. Relieved from the extraordinary outlay of the preceding years, the government felt bound to propose reductions. With commendable prudence it was resolved to retain the income-tax at 5% (one-half of the former rate), and to join with this reduction the removal of some war duties on malt and spirits. Popular feeling against direct taxation was so strong that the income-tax had to be surrendered in toto, a course which seriously embarrassed the finances of the following years. For over twenty-five years the income-tax remained in abeyance, to the great detriment of the revenue system. Its revival by Peel (1842), intended as a temporary expedient, proved its services as a permanent tax: it has continued and expanded considerably since. Both the excise and customs at the close of the war were marked by some of the worst defects of a vicious kind of taxation. The former had the evil effect of restricting the progress of industry and hampering invention. The raw materials and the auxiliary substances of industry were in many cases raised in price. The duties on salt and glass specially illustrated the bad results of the excise. New processes were hindered and routine made compulsory. The customs duties were still more restrictive of trade; as they practically excluded foreign manufactures, and were both costly and in many instances unproductive of revenue. As G. R. Porter has shown, the really profitable customs taxes were few in number. Less than a score of articles contributed more than nineteen-twentieths of the revenue from import duties. The duties on transactions, levied chiefly by stamps, were ill-graded and lacking in comprehensiveness. From the standpoint of equity the ground for criticism was equally plain. The great weight of taxation fell on the poorer classes. The owners of land escaped giving any return for the property that they held under the state, and other persons were not taxed in proportion to their abilities, which had been long recognized as the proper criterion.
The grievance as to distribution has been modified, if not removed, by the great development of (1) the income-tax, (2) the “death” or inheritance duties. Beginning at the rate of 7d. per pound (1842–1854), the income-tax was raised to 1s. 4d. for the Crimean War, and then continued at varying rates; reduced to 2d. in 1874, it rose to 5d., then in 1894 to 8d., and by 1909 appeared to be fixed as a minimum at 1s., or 5% on income from property. The yield per penny on the £ has risen almost uninterruptedly. From £710,000 in 1842, it now exceeds £2,800,000, though the exemptions and abatements are much more extensive. In fact, all incomes of £3 per week are absolutely free (£160 per annum is the precise exemption limit), and an income of £400 derived from personal exertion pays less than 512d. per pound, or 214%. The great productiveness of the tax is equally remarkable. From £5,600,000 in 1843 (with a rate of 7d.) the return rose to £32,380,000 in 1907–1908, having been at the maximum of £38,800,000 in 1902–1903, with a tax rate of 614%. The income-tax thus supplies about one-fifth of the total revenue, or one-fourth of that obtained by taxation. Several fundamental questions of finance are connected with the taxation of income and have been dealt with by English practice. Small incomes claim lenient treatment; and, as mentioned above, this leniency means in England complete freedom. Again, earned incomes appear to represent lower ability to pay than unearned ones. Long refused on practical grounds (as by Gladstone and Lowe), the concession of an abatement of 25% on earned incomes of £2000 and under was granted in 1907. The question whether savings should be exempt from taxation as income has (with the exception of life insurance premiums) been decided in the negative. Allowances for depreciation and cost of repairs are partially recognized. Far more important than these special problems is the general one of increased tax rates on large incomes. Up to 1908–1909 the tax above the abatement limit of £700 remained strictly proportional; but opinion showed a decided tendency in favour of extra rates or a “super tax” on incomes above an assigned amount (e.g. £5000), and this was included in the budget of 1909–1910 (see Income-Tax).
In close relation with the income-tax is the estate duty, with its adjuncts of Legacy and Succession Duties. After Pitt’s failure to carry the succession duty in 1796, no change was made till Gladstone’s introduction in 1853 of a duty on land and settled property parallel to the legacy duty on free personality. Apart from certain minor alterations, the really vital change was the extension in 1894 of the old Probate Duty into a comprehensive impost (entitled the Estate Duty) applicable to all the possessions of a deceased person. This “Inheritance Tax”—to give it its scientific title—operates as a complementary property tax, and is thus an addition to the contribution from incomes derived from large properties. By graduation the charges on large estates in 1908–1909 (before the proposal for further increase in 1909–1910) came to 10% on £1,000,000, and reached the maximum of 15% at £3,500,000. From the several forms of the “Inheritance Taxes” the national revenue gained £14,500,000, with 412 millions as a supplementary yield for local finance. The immense expansion of direct taxation is evident on comparing 1840 with 1908. In the former year the Probate and legacy duties brought in about one million; the other direct taxes, even including the “House duty,” did not raise the total to £3,000,000. In 1908 the direct taxation of property and income supplied £51,500,000, or one-third of the total receipts as against less than one-twentieth in 1840.
But though this wider employment of direct taxation—a characteristic of European finance generally—reduced the relative position of the taxation of commodities, there was a growth in the absolute amount obtained from this category of duties. There were also considerable alterations, the result of changes in the views respecting fiscal policy. At the close of the Great War the excise duties were at first retained, and even in some cases increased. After some years reforms began. The following articles amongst others were freed from charge: salt (1825); leather and candles (1830); glass (1845); soap (1853); and paper (1860). The guiding principles were: (1) the removal of raw materials from the list of goods liable to excise, (2) the limitation of the excise to a small number of productive articles, with (3) the placing of the greater part (practically nearly the whole) of this form of taxation on alcoholic drinks. Apart from breweries and distilleries, the excise had little field for its work. The large revenue of £35,700,000 in 1907–1908 was derived one-half from spirits (£17,700,000), over one-third from beer, while most of the remainder was obtained from business taxation in the form of licences, the raising of which was one of the features of the budget in 1909. As a feeder of the revenue the excise might be regarded as equal to the income-tax, but less to be relied on in times of depression. Valuable as were the reforms of the excise after 1820, they were insignificant as compared with the changes in the customs. The particular circumstances of English political life have led to perhaps undue emphasis being placed on this particular branch of financial development. Between 1820 and 1860 the customs system was transformed from a highly complicated arrangement of duties, pressing with severity on nearly all foreign imports, into a simple and easily understood set of charges on certain specially selected commodities. All favours or preferences to home or colonial producers disappeared. Expressed in financial terms, all duties were imposed “for revenue only,” and estimated in reference to their productiveness. An assimilation between the excise and customs rates necessarily followed. The stages of the development under the guidance of (1) Huskisson, (2) Peel, and (3) Gladstone are commonly regarded as part of the movement for Free Trade; but the financial working of the alteration is understood only by remembering that the duties removed by “tens” or by “hundreds” were quite trivial in yield, and did not involve any serious loss to the revenue. Perhaps the most remarkable feature of the English customs of the 19th century was the steadiness of the receipts. In spite of trade depressions,
