Problems of Empire/The Finance of Federal Government for the United Kingdom

by Thomas Allnutt Brassey

THE FINANCE OF FEDERAL GOVERNMENT FOR THE UNITED KINGDOM.

A Paper read before the Royal Statistical Society, January, 1903.

Congestion of Parliamentary business and remedies.THE great and increasing difficulty of carrying on the business of a vast Empire, the affairs of the United Kingdom as a whole, and the domestic concerns of England, Wales, Ireland, and Scotland, with our present Constitutional machinery, is generally admitted. The congestion of business in the House of Commons has become so serious as to threaten a breakdown in parliamentary government. Two remedies present themselves. On the one hand, Parliament might be relieved of the Imperial business by the establishment of an Imperial Parliament, with Colonial representatives, to deal with all Imperial business. For this remedy public opinion is not yet ripe, either in the mother country or the Colonies. The Colonies are not yet prepared to tax themselves for the maintenance of the Navy and Army, and until they are prepared to bear their fair share of Imperial burdens they have no right to a voice in the control of Imperial policy. On the other hand, it is possible for Parliament, while retaining in its own hands Imperial business, as well as all matters affecting the United Kingdom as a whole, to hand over to subordinate legislatures in England, Scotland, Ireland, and possibly in Wales, the power to deal with the internal affairs of each country. This implies the establishment of a federal form of government in the United Kingdom, somewhat similar to that which exists in Canada. It would be out of place to give the arguments for and against this great reform in our Constitution in this paper, which is based on the assumption that such a reform has become a necessity.

Financial difficulties.The main difficulty in devising a workable scheme of federal government for the United Kingdom is that of adjusting the financial relations between the Imperial Government and the subordinate national legislatures. It has been asserted that Imperial cannot be separated from national finance, and that the problem is so complex as to be insoluble. Problems which have been solved in other countries, such as Germany and the United States, and under the British flag in Australia and Canada, cannot, however, be admitted to be beyond the capacity of British statesmen. It is, at any rate, well that in a society of experts such as this, they should be ventilated and discussed; and it is as a humble contribution to the discussion that I venture to offer this paper. Though the principal suggestion is my own, most of its conclusions are the result of much discussion with others.

Conditions of problem.In order to appreciate the conditions of the problem, it is necessary to study the 'The Return of Revenue and Expenditure'^[1] (England, Scotland, and Ireland) annually issued under the authority of Parliament.

		England.	Scotland.	Ireland.
Revenue as contributed		£ 113,244,000	£ 14,919,000	£ 9,505,000
Expenditure on civil administration (excluding charges on Consolidated Fund, cost of collection of customs, half cost collection inland revenue,* and Post Office expenditure.........	$\scriptstyle {\left.{\begin{matrix}\ \\\\\ \\\ \\\ \ \end{matrix}}\right\}\,}$	22,559,000	3,227,000	5,919,000
Balances available for Imperial expenditure, including Post Office.....................................	$\scriptstyle {\left.{\begin{matrix}\ \\\ \end{matrix}}\right\}\,}$	90,685,000	11,692,000	3,586,000
*  If a proportion of the inland revenue (e.g., income tax and estate duties) is reserved to the Imperial authority, the cost of collection of this revenue should be an Imperial charge. This has been roughly estimated at half the total cost of collection of the inland revenue.

The first fact brought out by this return is that the expenditure for Imperial purposes (including the expenditure on Post Office services as Imperial, for reasons which will appear later) represents about three-fourths, and the national expenditure only one-fourth of the total expenditure.

The second fact to which it is necessary to call especial attention is, that the different countries of the United Kingdom at present demand for their civil administration very different proportions of the revenue which they contribute to the Exchequer, and consequently their contributions to the Imperial expenditure are not proportionate to their revenues. The expenditure on civil administration in Ireland is nearly double that of Scotland, the excess in Ireland being mainly under the head of law charges and police.^[2]

Thus, while England contributes 80 per cent, and Scotland 78·4 per cent., Ireland only contributes 37·8 per cent, of her revenue to Imperial purposes. From this fact it results that it is impossible to adjust the financial relations between the Imperial and national authorities on a general plan applicable to each country alike.

Thirdly, it must be noted that Imperial expenditure exceeds the proceeds of either direct or indirect taxation, so that it cannot be defrayed out of either taken alone.

Having stated the principal difficulties of the problem before us, it becomes necessary to determine the conditions of a satisfactory solution.

Sources of Imperial revenue.1. The Imperial revenue must be elastic, and therefore ought to be drawn from sources capable of producing a considerable and immediate increase.—If the Empire becomes involved in war, if a large increase in shipbuilding for the Navy is required owing to the activity in foreign navies, the Chancellor of the Exchequer has immediately to raise funds. The income tax is the first tax he resorts to. It is essentially his reserve to meet demands such as those described. It clearly cannot be handed over to the national authorities; and the same remark applies in a somewhat lesser degree to customs and excise.

2. It is desirable that the revenues of both the Imperial and national authorities should be raised from direct as well as indirect taxes, so that neither may be felt to press unduly on any class of the community.—There are four principal heads of taxation:—Customs, excise, estate duties, and income tax. The two latter fall almost entirely on the well-to-do-classes, the former on the whole community. If the Imperial authority were to depend altogether on the revenue from customs and excise, and the national authority on that from estate duties and income tax, or vice versâ—in other words, if the whole burden of one or other category of expenditure fell on a limited class of taxpayers, and the masses of the people who possess the voting power were unaffected by it there would be no efficient check on extravagant expenditure for Imperial or national purposes,

Imperial revenues. 3. It is desirable that the Imperial authority should have under its own control sufficient revenues to meet the Imperial expenditure.—If the Imperial authority had to call on the national authorities to contribute to Imperial funds in the event of war or for any other reason, there would obviously be grave danger of conflict between the Imperial and national authorities. The war for which the increased expenditure was required might be unpopular in one of the countries of the United Kingdom (a recent instance of this^[3] will occur to every one here present); that country might and probably would refuse to make the contribution required by the Imperial authority. How in this case is the contribution to be collected? To collect revenue at the point of the bayonet is an impossibility. It is therefore necessary that a scheme for adjusting the financial relations between the Imperial and national authorities should provide the former with sufficient sources of revenue to meet Imperial expenditure under all circumstances. Grants may have to be made from Imperial funds to meet national expenditure. Indeed, such a grant will certainly have to be made in some form or other, at any rate for a period, in the case of Ireland.

Irish finance. 4. It is necessary to treat Ireland on exceptional lines.—This necessity does not only arise from the greater cost of civil government in Ireland, but from the fact that Ireland is a poorer country than England and Scotland. The reports submitted by various sections and individual members of the Royal Commission on the Financial Relations between Great Britain and Ireland, are unanimous on the point that Ireland contributes to the general revenue a sum largely in excess of the proportion which she would contribute were that contribution based on her relative taxable capacity. Mr. Childers places this excess at 2¼ millions per annum.

Two other considerations of great importance must be noted. The commercial and fiscal policy of the United Kingdom has been guided mainly by the interests of Great Britain; and while there has been during the last sixty years an enormous increase in the material well-being of the people of Great Britain, the population of Ireland has diminished to nearly one-half, largely owing to the heavy decline in the value of agricultural produce, and the consequent restriction of the demand for agricultural employment. Mr. Childers summed up the grounds for the claim of Ireland to special treatment as follows:

'Ireland being a country mainly inhabited by agricultural producers, could support its present population upon the corn and meat produced there without having recourse, under ordinary circumstances, to a foreign supply of these articles, and could, at the same time, export a surplus of these foodstuffs. The population of Ireland consumes a rather large amount, in proportion to its wealth, of spirits, tea, and tobacco. This being so, it does not appear that a fiscal system which raises no revenue from foreign foodstuffs, but does raise a large revenue from spirits, tea, and tobacco, is advantageous to the population of Ireland, although it may be advantageous to the population of the United Kingdom looked at as a whole. It may even perhaps be said that just as Ireland suffered in the last century from the protective and exclusive commercial policy of Great Britain, so she has been at a disadvantage in this century from the adoption of an almost unqualified free-trade policy for the United Kingdom.'

Secondly, the extension to Ireland of the income-tax, and the equalisation of the spirit duties during the period 1853-60, imposed an increased burden on the Irish taxpayer amounting to nearly two millions a year.

Local Taxation Account.5. It is desirable that the Local Taxation Account should disappear altogether from the accounts of the Imperial Exchequer, and that the National Legislatures should deal in future with all grants in aid of Local Taxation.—The local taxation revenue is derived from customs, excise duty, and estate duty. The amounts contributed under each head in 1900-01 are as follows:—

	England.	Scotland.	Ireland.	Total.
Customs	£ 183,000	£ 19,000	£ 16,000	£ 218,000
Excise—
Spirits	624,000	187,000	106,000	917,000
Beer	399,000	20,000	31,000	450,000
Licences	3,516,000	370,000	—	3,886,000
Total excise	4,539,000	577,000	137,000	5,253,000
Estate duties	3,550,200	474,000	141,000	4,237,000†
† Including 72,000l. from Imperial sources.

In addition to the above, there are payments from the Exchequer revenue to local taxation accounts of 98,900l. in the case of Scotland, and 1,054,000l. in the case of Ireland.

Local Taxation has been the subject of inquiry by a Royal Commission, which issued its final Report in 1901. It appears unnecessary for our present purpose to enter at length into the history of the grants in aid of local taxation; but the following facts and conclusions, summarised from the report of Sir George Murray and Sir Edward Hamilton, must be noted. In 1888 nearly the whole of the licence duties and a proportion of the probate duty were assigned under Mr. Goschen's proposals to the local taxation account the object of the latter being to secure a contribution from personalty to local finance. In 1890 the beer and spirit surtaxes imposed in that year were assigned to the councils of counties and county boroughs, to be applied by them to technical instruction. On this Sir George Murray and Sir Edward Hamilton remark, 'There seems to be no reason why these surtaxes should be so assigned, any more than any other fraction of the public revenue, since they are in no way local, and have nothing to do with technical education, or any other service locally administered.' The Finance Act of 1894 imposed a uniform system of death duties on realty and personalty alike, and the contribution in aid of local rates can no longer be identified as a contribution by personalty. It has become simply a grant out of the general revenue of the country. In 1896 a portion of the estate duty on personalty was assigned to provide the relief given to agricultural land under the Agricultural Rates Act. In Acts subsequently passed for Scotland and Ireland, the assistance to the ratepayers has been provided by a direct charge on the consolidated fund, because the proceeds of the estate duty on personalty in Ireland were insufficient for the purpose in view. The result is that there is one arrangement in force in England, and another in Scotland and Ireland. The present system of assigned revenues therefore confuses the public accounts, which consequently do not show the expenditure for which the State has made itself responsible, and also the local accounts, making it difficult to ascertain the relief afforded to the ratepayers by the Exchequer.

Local Taxation Account.For the above reasons we may conclude that there is no advantage in continuing the present system of assigned revenues, under which the surtaxes on beer and spirits, the licence duties, and a proportion of the estate duties, are earmarked for the local taxation account, and that the grants now given from these sources in aid of local taxation can be as well or better met by a contribution from general revenue. If this be the case, it follows that such grants can be made from the revenues handed over to the national authorities just as well as from Imperial funds, and that there will be no necessity, under a scheme of Federal Government, for complicating Imperial finance with a local taxation account. It has been necessary to make this point clear, so that we may not be prevented from dealing with customs, excise, and estate duties, as seems best, when we come to suggesting an adjustment of the financial relations between the Imperial and local authorities.

Customs and Excise.6. The control of Customs and Excise Duties on Beer and Spirits must be reserved to the Imperial Parliament.—Customs duties appear clearly to belong to the province of the Imperial authority; though it has been suggested (notably in the report of Lords Farrer and Welby and Mr. Currie on the Financial Relations between Great Britain and Ireland) that Ireland should be given control of all sources of taxation. Excise, including beer and spirits duties, ought primâ facie to be in the hands of the national authorities. On the other hand, excise duties are closely related to customs duties, and if the national authorities were given power to deal with the excise duties as they pleased, and the several authorities imposed (as they probably would impose) duties at different rates in the several countries, it would necessitate the erection of customs barriers between England, Scotland, and Ireland. The inconvenience would hardly be tolerated in the present state of opinion. The fixing of the rate, not only of customs duties but of the excise duties on beer and spirits, must therefore remain under Imperial control.

Post Office.7. The Post Office should remain under Imperial control.—There is obviously great convenience in retaining the administration of the Post Office in the hands of the central authority. Nearly the whole of the profit of the department is made in England. In Scotland the profit is but small; in Ireland the Post Office is worked at a loss.^[4] Though there might be some desire on the part of the national authorities to take over the Post Office administration on account of the patronage involved, it is here assumed that the Post Office will remain under Imperial control.

Appropiate items of revenue for National management.8. Certain items of revenue which are peculiarly suitable for management by the national authorities should be allocated to them.—These include licences and railway duty, land tax and inhabited house duty, and miscellaneous revenue, from which the revenue in 1900-01 was as follows:

	England.	Scotland.	Ireland.
	£	£	£
Licences	3,550,000	371,000	211,000
Railway duty	315,000	24,000	—
Land tax and house duty⁠	2,321,000	146,000	—
Miscellaneous duty	792,000	82,000	116,000

Of the total revenue, amounting to 4,136,000l., derived from licence duties, no less than 3,886,000l. is local taxation revenue. On Mr. Goschen's original proposal to hand over to the local authorities the collection and variation of the licence duties, the Royal Commission remarks: 'It cannot be doubted that in the case of such licences as the dog and establishment licences, the collection of the duties by the local authority would add considerably to their yield.' Whether the licence duties should be collected by the national or local authorities is a question which need not concern us here. It is, at any rate, clear that they should not form part of the Imperial revenues. The land tax and inhabited house duty appear to belong more properly to the department of national than Imperial finance. The fact that in Ireland no such taxes at present exist, gives considerable scope to the national authority for raising additional revenue, should such be required. The total miscellaneous revenue in 1900–01 was 2,237,000l., of which 1,247,000l. was derived from Imperial sources, and the balance from the respective countries to the amount given above. With the possible exception of the revenue derived from the Bank of England (178,000l.) the miscellaneous revenues should clearly be handed over to the national authorities. The revenue from Crown lands amounts to 465,000l., of which 408,000l. is derived from England, 24,000l. from Scotland, and 33,000l. from Ireland. On the whole it appears desirable to hand over the Crown lands to the national authority.

Alternative plans.We are now in a position to discuss alternative proposals for adjusting the financial relations between the national and Imperial authorities. It is possible to proceed on one of two main principles. Under the first, the quota which each country is to contribute to Imperial expenditure would be fixed, the national authorities taking the whole balance of the revenue after their quota is paid into the Imperial exchequer. Under the second, each country would be given sufficient revenue to meet its estimated expenditure on civil government, together with such powers of taxation as would enable the national authority to meet any increase in such expenditure, the Imperial authority retaining in its own hands for Imperial purposes all revenues not handed over to the national authority, as well as the power to impose fresh taxation.

If the first principle were followed, the quota to be borne by each country would have to be fixed by Royal Commission.

If the second principle were adopted, the expenditure on civil government in the respective countries being ascertained, the national authorities would be given sufficient revenue to meet their expenditure. Excluding civil government expenditure charged on the consolidated fund (over three-fourths of which represents expenditure on courts of justice), Post Office expenditure, cost of collection of customs, which would in any case remain an Imperial charge, and half the cost of collection of inland revenue, some items of which would be allocated to the Imperial and others to the national authorities, the national expenditure (or local expenditure, as it is called in the returns) in 1900-01 was as follows:—

	England.	Scotland.	Ireland.
	£	£	£
National expenditure (Part III. Return)	34,769,000	4,961,000	7,306,000
Deduct
Post Office expenditure	10,457,000	1,352,000	1,061,000
Collection customs	663,000	97,000	63,000
Half collection inland revenue	768,000	147,000	91,000
Charges on consolidated fund	322,000	138,000	172,000
	12,210,000	1,734,000	1,387,000
Expenditure on civil government	22,559,000	3,227,000	5,919,000

Of the above expenditure, 12,500,000l. is devoted to education, and nearly 11,000,000l. represents grants in aid of local taxation.

Taxing power of the National authority.Provided that the national authorities are given at the outset sufficient revenues to meet the above expenditure, and adequate powers of taxation to enable them to meet any possible increase, a plan based on this principle appears to be as fair to them as that of fixing the quota which they are to contribute to Imperial expenditure. Moreover, a plan based on this principle has great advantages: (1) it is simple and easily intelligible; (2) it obviates the necessity for periodical inquiry as to taxable capacity; (3) it adjusts the financial relations on a basis which has a reasonable prospect of being permanent; (4) it gives the national authorities a sense of financial responsibility, and would tend to check extravagant expenditure, a point of utmost importance; (5) it is fair to the Imperial authority, and would enable surplus revenue from sources reserved to the Imperial authority to be used for the reduction of the national debt. Under a plan based on the first principle, the quota to be contributed by each country being fixed, the whole of the surplus due to an expanding revenue would go to the national authority, who would use it for its own purposes.

The following plan is based on the first principle:—

(1) A National contribution to Imperial revenues.The quota of Imperial expenditure to be borne by each country to be fixed (subject to periodical revision in to accordance with predetermined principles). The exceptions to the powers of the national legislatures in finance should include only customs, excise (excluding licences and railway duty), and postal rates; all powers over these sources of revenue should be reserved by the Imperial Parliament to itself. Excepting the reservation of licences and railway duty to the national legislature, the Imperial Parliament would also have full and unfettered power to impose whatever other taxes might be necessary to meet its expenditure, provision being made for the adjustment of balances between the Imperial Exchequer and the several nationalities, in accordance with the quota due from each of the latter. And beyond this reservation (but not within it) the national legislatures would also have full power to impose any taxes required to meet their several expenditures. Thus there would presumably be a concurrent use of income tax, estate duty, and stamp duties by the Imperial and national authorities.

Its advantages and disadvantages.The advantages of this plan are claimed to be that while it leaves the Imperial Parliament entirely unfettered as to means of raising its revenue, it imposes on the national legislatures only such restraints as are involved in the common fiscal and trade policy of the United Kingdom. Its disadvantages are (1) that the elasticity of the Imperial revenues would be impaired, and (2) that the concurrent use of the same taxes by the national and Imperial authorities would lead to complication of accounts and difficulties in collection.

As regards the first objection, it is practically certain that the national authorities would resort to the use of income tax and estate duty. Assuming that both the Imperial authority and the national authorities levied an income tax, the income tax would be fully utilised in time of peace, and there would be little, if any, reserve to meet the emergencies of war.

As regards the second objection, it must be admitted that under the Constitution of the Australian Commonwealth concurrent powers of taxation are granted to both the Commonwealth and State Parliaments. The collection and control of customs and excise are vested in the Commonwealth Parliament, but the States retain the power to impose customs and excise duties until the imposition of uniform duties by the Commonwealth. For ten years after the establishment of the Commonwealth not more than one-fourth of the net revenue from customs and excise may be applied by the Commonwealth to its own expenditure. The conditions in the United Kingdom and Australia are utterly dissimilar. In Australia the major part of the expenditure is state or local, and there was no pre-existing Commonwealth debt charge. In the United Kingdom, which has to bear practically the whole burden of defending the Empire, three-fourths of the expenditure are Imperial, and only one-fourth is local or national. A plan which may be workable in Australia may be totally inapplicable to the United Kingdom. The objections to this plan, and to the principle on which it is based, may be summarised as follows:—

1. An elaborate inquiry must be held periodically to fix the quota to be contributed by each country to Imperial expenditure. Such inquiry would lead to friction and to constant agitation on the part of the different countries that their quota should be reduced.

2. No sufficient financial responsibility would be imposed on the national authorities for meeting their new expenditure.

3. A budget surplus would belong to the national authorities and not to the Imperial authority, and therefore could not be utilised for the reduction of the national debt.

4. To allow to the national authorities the concurrent use of income tax would impair the elasticity of the Imperial revenues, and would fetter the action of the Imperial Chancellor of the Exchequer in meeting a national emergency.

5. The concurrent use of the same taxes would lead to difficulties of collection and confusion of accounts.

These objections are, in my judgment, fatal to the plan and to the principle on which it is based.

(2) National Revenue to be allocated to authorities.Let us now see whether it is possible to devise a plan based on the principle of providing the national authorities with sufficient revenue to meet the national (including local) expenditure.

The minor branches of revenue, viz., licences, railway duty, land tax, inhabited house duty, and miscellaneous revenue, would produce only a small proportion of the sum required in each case. What other branches of revenue can be handed over to the national authorities? Customs and income tax must, for the reasons already given, clearly remain in Imperial hands, and whatever may be done with the revenue derived from the beer and spirit duties, the rates of duty must be fixed and the duties collected by the Imperial authority. Excise duties on beer and spirits constitute, with the exception of customs, by far the largest item of the revenue contributed by Ireland. Customs and excise duties on beer and spirits together account for over six millions out of a total revenue of 9½ millons. Estate duties seem on the whole more suitable for Imperial management than for national control; and if the revenue from estate duties were handed over to the national authorities, there would be a surplus in the case of England, and a deficiency in the case of Scotland and Ireland. This deficiency would have to be made good by grants from the Imperial Exchequer. The claim of Ireland to special treatment, for the reasons given earlier in this paper, might render it desirable to hand over the estate duties in Ireland to the Irish National Authority. Stamps, on the other hand, appear better suited for national control than any of the other items of revenue we have been considering. If the revenue from stamps, in addition to the minor branches of revenue already mentioned, were handed over to the national authorities, the position would be as follows:—

	England.	Scotland.	Ireland.
	£	£	£
Licences	3,550,000	375,000	211,000
Railway duty	315,000	24,000	—
Land tax and. house duty	2,321,000	146,000	—
Stamps	6,939,000	623,000	290,000
Miscellaneous revenue	792,000	82,000	116,000
Crown lands	408,000	24,000	33,000
	14,325,000	1,274,000	650,000
Expenditure on civil administration	22,559,000	3,227,000	5,919,000
⁠Deficiency	8,234,000	1,953,000	5,269,000

Objections to to meeting deficiency by grants from the Imperial Exchequer.This deficiency could be made good by grants from the Imperial exchequer, and this is the course which commends itself to some of those who have studied the subject with me. The objections to it are that the proportion of the revenues of the national authorities which would be allocated to them, or under their own control, would be insufficient to give that sense of financial responsibility which it is so desirable that they should possess. This objection applies with especial force to the case of Ireland, in which only one-eighth of the national revenue would be allocated to the national authority. 'Grants of money,' say Lord Farrer, Lord Welby, and Mr. Currie in the report already quoted, 'made by Parliament are more likely to impoverish than enrich the community which receives them, tending as they do to weaken the spirit of independence and self-reliance.' To this weighty opinion I attach the utmost importance. The system of grants from the Imperial revenue in aid of local taxation certainly does not tend to economy in local expenditure. A plan based on large grants from the Imperial exchequer to the national authorities would have a similar effect on national expenditure. There is a further objection that the cordial co-operation of the national authorities would not be secured if the whole of the proceeds of excise were paid into the Imperial exchequer. Illicit distilling and frauds on the revenue would become rife, unless the national authority had a direct interest in seeing that the police forces under their control gave effective assistance to the Imperial revenue officers in the collection of the beer and spirit duties.

A modification of plan 2 the best solution.These objections appear of such weight that I venture to submit the following plan:—The national authorities to be given the minor branches of revenue, stamp duties, licences, &c., together with the power of imposing new taxes (e.g., additional stamp duties, licence duties, taxes on advertisements and amusements). The Imperial authority to reserve to itself the revenue from customs, income tax, and estate duties, except in the case of Ireland. The revenue from estates duties in Ireland to be handed over to the Irish national authority. The revenue from the excise duties on beer and spirits to be treated as follows: In Ireland the whole, in Scotland one-half, and in England one-third to be handed over to the national authorities, the rates of duty being fixed, and the duties collected by the Imperial authority. The Imperial authority, of course, to have the power of imposing new taxes.

The revenue from the beer and spirit duties in 1900–01 was thus distributed (true contribution):—

	England.	Scotland.	Ireland.
	£	£	£
Spirits⁠	13,704,000	4,096,000	2,324,000
Beer	12,361,000	614,000	966,000
	26,065,000	4,710,000	3,290,009

Operation of proposed plan.One-third of the beer and spirit duties in England = 8,688,000l., one-half in Scotland = 2,355,000l. The financial result of this plan is therefore as follows:—

	England.	Scotland.	Ireland.
	£	£	£
Revenue handed over to national authorities	14,325,000	1,274,000	650,000
Estate duties	—	—	874,000
Add beer and spirits duties, proportions handed over	8,688,000	2,355,090	3,290,000
	23,013,000	3,629,000	4,814,000
Expenditure on civil administration	22,519,000	3,227,000	5,919,000
	Surplus. 494,000	Surplus. 402,000	Deficiency. 1,105,000

How the deficiency in the case of Ireland might be met.The deficiency shown in the above table in the case of Ireland might be met by assistance from Imperial funds for a fixed period of, say, ten years. Such assistance might be given by the Imperial authority retaining the control of and bearing the whole of the charges for the Royal Irish Constabulary and the Dublin police, but handing over to the national authority any saving from the gradual replacement of the semi - military police by less costly forces under the control of local authorities; or, if the control of the constabulary be surrendered by the Imperial Parliament, by a grant equivalent to the present cost of maintenance (viz., about 1,400,000l.). Ireland would be started with a surplus of 300,000l., which should be increased at the end of the period to 1,000,000l. by savings on the police force alone. Large savings may be anticipated under other heads of civil government expenditure, which in Ireland is admittedly excessive. All savings would be under the control of the national authority, and could be utilised for the purpose of developing the resources of the country.

Its advantages.For this plan the following advantages may be claimed:—

1. The national authorities would be provided with sufficient revenue to meet their national expenditure, and they would not depend (with the exception of the grant suggested for a specific purpose to Ireland) on doles or grants-in-aid from the Imperial exchequer, which are open to the gravest objection.

2. The revenue permanently allocated to Ireland should suffice not only to meet the cost of civil government when Ireland is governed with the consent of its inhabitants, but to yield a handsome surplus. If Ireland is governed for the same cost as Scotland, this surplus should amount to 1½ millions per annum, which could be used either for remitting taxation or on works of public improvement.

3. The Imperial revenue would be elastic, for the Imperial authority, though parting to some extent with the revenue from excise, would retain in its own hands income tax as well as estate duties (except in the case of Ireland), and customs. Income tax is by far the most elastic branch of the revenue, and is that which in the case of an increase or decrease of the tax rate gives the most definite and calculable and immediate result. It is this which makes it so important as a tax to meet Imperial emergencies.

4. The Imperial revenue as well as the national revenues would be raised from direct and indirect taxes.

5. The Imperial authority would reserve to itself sufficient sources of revenue to meet Imperial expenditure, and would not have to rely on contributions from the exchequers of the several countries.

6. There would be little difficulty in collecting the beer and spirit duties, and in preventing frauds on the revenue, and these duties would be willingly paid if the whole or a considerable proportion were earmarked for national purposes and paid into the national exchequer.

7. It imposes on the national authorities the financial responsibility of meeting their expenditure to the extent that if their expenditure increases, they must raise funds to meet the increase; and if economies are made, they can reap the benefit of those economies.

The main objection.The strongest objection which has been urged against the scheme, and it has been urged by one whose opinion is entitled to the greatest respect, is that the hands of the Chancellor of the Exchequer would be tied if he wished to change the rates of the beer and spirit duties. For every additional pound he wished to raise for Imperial needs, he would be obliged to raise a further sum of, say, one pound, which would have to be handed over to the national exchequers, although they might not need it. If, on the other hand, he wished to reduce the duties, he would be debarred from doing so by the consideration that the national authorities would be suddenly deprived by his action of revenue on which they were counting. These objections might be overcome in the following way. If the Chancellor of the Exchequer wished to increase the duties, it could be provided^[5] that the additional yield of a duty, declared by Parliament to be a war or emergency tax, should go to the Imperial exchequer. If, on the other hand, he wished to reduce the rates of duty, grants could be made from Imperial funds to the national authorities to an amount equivalent to the loss of revenue they had suffered owing to the reduction of the rates of duty. It may be admitted that the treatment of excise proposed would have a tendency to render this important branch of revenue non-elastic, and yet the advantages of the plan may be held to outweigh this disadvantage.

The problem of adjusting the financial relations between the Imperial and national authorities is one which presents many difficulties, from the peculiar features of the case. Every solution is open to objections. I believe, from the study I and others have given to the subject, that the plan suggested in this paper is open to fewer objections than any other.

APPENDIX.

Extracts from Parliamentary Return 90, dated 8th July, 1901, 'Revenue and Expenditure (England, Scotland, and Ireland).'

Table I.
PART I. Revenue, 1900-01. 1. Revenue (Net Receipts).
[000's omitted.]

		As Contributed.
		From Imperial Sources.	By England.	By Scotland.	By Ireland.	Total.
Customs—		£	£	£	£	£
Exchequer revenue		—	20,915,	2,588,	2,798,	26,271,
Local taxation revenue		—	183,	19,	16,	218,
Excise—
Exchequer revenue		—	25,391,	4,532,	3,364,	33,287,
Local taxation revenue		—	4,539,	577,	137,	5,253,
Estate, &c., duties—
Exchequer revenue		143,	10,417,	1,191,	732,	12,483,
Local taxation revenue		72,	3,550,	474,	141,	4,237,
Stamps		35,	6,939,	623,	290,	7,887,
Land tax	$\scriptstyle {\left.{\begin{matrix}\ \\\ \end{matrix}}\right\}\,}$	—	2,331,	146,	—	2,467,
House duty
Income tax		358,	23,212,	3,016,	975,	27,561,
Total revenue from taxes		608,	97,467,	13,136,	8,453,	119,664,
Post office		—	11,722,	1,326,	729,	13,777,
Telegraphs		—	2,855,	351,	174,	3,380,
Crown lands		—	408,	24,	33,	465,
Interest on Suez Canal shares, &c.		830,	—	—	—	830,
Miscellaneous		1,247,	792,	82,	116,	2,237,
Total non-tax revenue		2,077,	15,777,	1,783,	1,052,	20,689,
Aggregate revenue		2,685,	113,244,	14,919,	9,505,	140,353,
Per cent		1·91	80·69	10·63	6·77	10·000
(a) For the Exchequer		2,613,	104,972,	13,849,	9,211,	130,645,
(b) For the local taxation accounts		72,	8,272,	1,070,	294,	9,708,

Table II.
Part II. Expenditure, 1900-01. (Exchequer Issues.)
[000's omitted.]

		On Imperial Services.	On English Services.	On Scottish Services.	On Irish Services.	Total.
		£	£	£	£	£
1.	Chargeable against exchequer revenue
	National debt charges	19,836,	—	—	—	19,836,
	Naval and military charges
	⁠(a) Army	91,925,	—	—	—	91,925,
	⁠(b) Navy	29,520,	—	—	—	29,520,
	Civil government charges
	⁠(a) On consolidated fund	723,	322,	138,	171,	1,354,
	⁠(b) Voted	3,690,	13,481,	1,955,	4,374,	23,500,
	⁠Total civil government charges	4,413,	13,803,	2,093,	4,545,	24,854,
	Collection of taxes	—	2,199,	391,	244,	2,834,
	Post Office services	601,	10,457,	1,352,	1,061,	13,471,
	Payments of local taxation account	—	—	98,	1,054,	1,152,
	⁠Total chargeable against exchequer revenue	146,295,	26,459,	3,934,	6,904,	183,592,
			$\underbrace {\qquad \qquad \qquad \qquad \qquad }$ 37,297,
2.	Met out of local taxation revenue—
	Miscellaneous local charges	—	8,310,	1,027,	402,	9,739,
	⁠Grand total	146,295,	34,769,	4,961,	7,306,	193,331,
			$\underbrace {\qquad \qquad \qquad \qquad \qquad }$ 47,036,
Per cent., England, Scotland and Ireland		—	73·92	10·55	15·53	100·00
Per cent., total		75·67	17·98	2·57	3·78	100·00

Table III.
Civil Government Charges, 1900-01. Details of Class III.

	Imperial.	English.	Scottish.	Irish.	Total.
	£	£	£	£	£
Law charges	—	63,000	—	—	63,000
Miscellaneous legal expenses	13,000	34,500	—	500	48,000
Supreme court of judicature	—	318,000	—	—	318,000
Land registry	—	29,000	—	—	29,000
County courts	—	20,000	—	—	20,000
Police (England and Wales)	—	51,000	—	—	51,000
Prisons (England and the Colonies)	3,000	605,000	—	—	608,000
Reformatory and industrial schools (Great Britain)	—	193,000	61,000	—	254,000
Broadmoor criminal lunatic asylum	—	41,000	—	—	41,000
Scotland.
Law charges and courts of law	—	—	76,000	—	76,000
Registry house, Edinburgh	—	—	42,000	—	42,000
Crofters commission	—	—	5,000	—	5,000
Prisons	—	—	84,000	—	84,000
Ireland.
Law charges and criminal prosecutions	—	—	—	64,000	64,000
Superior court of judicature and other legal departments⁠	—	—	—	106,000	106,000
Land commission	—	—	—	128,000	128,000
County court officers, &c.	—	—	—	106,000	106,000
Dublin metropolitan police (including police courts)	—	—	—	93,000	93,000
Constabulary	—	—	—	1,341,000	1,341,000
Prisons	—	—	—	115,000	115,000
Reformatory and industrial schools	—	—	—	108,000	108,000
Dundrum criminal lunatic asylum	—	—	—	6,000	6,000
Total of Class III.	16,000	1,354,500	268,000	2,067,500	3,706,000

Table IV.
Civil Government Charges, 1900-01.

	Imperial.	English.	Scottish.	Irish.	Total.
	£	£	£	£	£
Class I. Palaces & public buildings	192,500	1,265,000	143,500	409,000	2 010,000
Class II. Public offices	1,002,000	886,000	137,000	334,000	2,359,000
Class III. Law charges & police	16,000	1,354,500	268,000	2,067,500	3,706,000
Class IV. Education	43,000	9,696,500	1,383,000	1,413,500	12,536,000
⁠"⁠V. Diplomatic and colonial services	2,084,000	—	—	—	2,084,000
Class VI. Pensions	242,500	270,000	22,500	99,000	634,000
⁠"⁠VII. Miscellaneous	110,000	9,000	1,000	51,000	171,000
Total civil government charges voted	3,690,000	13,481,000	1,955,000	4,374,000	23,500,000
Customs	—	663,000	97,000	63,000	823,000
Inland revenue	—	1,536,000	294,000	181,000	2,011,000
Total collection of taxes	—	2,199,000	391,000	244,000	2,834,000
Post Office	—	7,288,000	930,000	745,000	8,963,000
Telegraph service	—	3,104,000	381,000	252,000	3,737,000
Packet⁠"	601,000	65,000	41,000	64,000	771,000
Total Post Office services	601,000	10,457,000	1,352,000	1,061,000	13,471,000
Total revenue departments	601,000	12,656,000	1,743,000	1,305,000	16,305,000

Table V.
Contribution to Imperial Services.

This table shows the balances of revenue contributed by England, Scotland, and Ireland, respectively, which are available for Imperial expenditure after the local expenditures of those divisions of the United Kingdom has been met, according to the figures shown in Parts I. and II. of this return.

[000's omitted.]

Year 1900-01.	England.	Per Cent.	Scotland.	Per Cent.	Ireland.	Per Cent.	Total.	Per Cent.
	£		£		£		£
Total revenue as contributed	113,224,	82.26	14,919,	10.84	9,505,	6.90	137,668,	100
Local expenditure	34,769,	73.92	4,961,	10.55	7,306,	15.53	47,036,	100
Balance available for Imperial expenditure	78,475,	86.58	9,958,	10.99	2,199,	2.43	90,632,	100

It should be borne in mind that in the last quarter of 1900-01, as in the last quarter of 1899-1900, abnormal clearances of certain dutiable articles were effected in anticipation of increased taxation. The result was that in these years the amount paid in duty in respect of some articles, did not correspond with the consumption of those articles, nor consequently with the contribution of consumers to taxation. The amounts estimated to have been paid in anticipation in 1900-01 were 2,500,000l. under customs duties, and 1,050,000l. under excise duties.

1. The figures for 1900-01 have been used in this paper as more nearly approaching to the normal than the figures of 1901-02.
2. Cf. Table IV. in Appendix. The Royal Irish Constabulary in 1900-01 cost 1,341,000l.., and the Dublin Metropolitan Police 93,000l. If the police force in Ireland were on the same scale relatively to population as that in England, it should cost about half the above sum.
3. The attitude of Irish representatives on the South African War.
4. In 1900-01 revenue 903,000l., expenditure 1,061,000l.
5. Cf. financial scheme of Home Rule Bill, 1893, adopted in Committee of the House of Commons, clause 6: That if any special war tax should be imposed, the whole of the proceeds collected in or contributed by Ireland should go to the Imperial Exchequer.'