Thursday, 24 January 2008

Income tax

In his budget speech of 3 December 1798 Pitt outlined his proposal to phase out the land tax and replace the assessed taxes with a new tax which no longer fell upon expenditure but upon incomes and in theory at least allowed the yield to rise in line with the income of the country. The idea was not new in principle: the oldest surviving annual levy, the Land Tax, included an element of income through rents. Pitt himself had considered the possibility of a comprehensive tax on either property or income in 1797. He followed familiar lines of consultation, with a handful of colleagues and officials and with figures outside the government.

He gained approval from the principal moneyed men in the city. His hopes of Parliamentary success rested on the impression that the necessity of such a measure appeared ‘to be so strongly felt ... both among the landed and the Commercial Interest’.
He proposed:
• A general tax of 2/- in the £ on all incomes of £200 or more.
• Incomes under £60 pa were exempt.
• Those between £60 and £200 were to pay on a graduated scale.
• Individuals were to draw up their own assessments and swear an oath as to their accuracy. If they did not do this, Crown commissioners, sworn to confidentiality, would assess them.

The Morning Chronicle had already described it as
‘a daring innovation in English finance’.
In the Commons there was bitter opposition: George Tierney:
‘This puts a tenth of the property of England in a state of requisition ... a measure which the French have followed, in their career of revolutionary rapine, and which the Chancellor of the Exchequer has, with all his eloquence, justly branded with the hardest epithets.’
In the ensuing parliamentary debates, income tax was called a confiscation of property, and it was alleged that it would impair investment in both trade and industry. It would permit spies to become acquainted with men’s private concerns; it would encourage the indolent at the expense of the hardworking. Fox believed that it would fall heaviest on those with incomes of between £200 and £600 pa.
‘If people will not resist this inquisition, they will resist nothing’.
But the bill became law within five weeks. In the last resort it commanded patriotic war-time assent.

How was it collected?
11 May: Bonner and Middleton’s Bristol Journal:
We hear the Commissioners of the Division of Wrington have directed short printed Forms of estimating Incomes to be distributed throughout the Division, which are drawn in so perspicacious a manner as to render further directions unnecessary and ignorance no plea for an improper statement.
This might be an over-optimistic statement. The investigative powers held at the discretion of Commissioners and Surveyors aroused a sense of outrage. It was repealed at the first opportunity after the war ended, and in a quite unprecedented step Parliament ordered that the Commissioners’ records be destroyed.

The final net collection from 5 April 1799 to 5 January 1800 reached the surprisingly low sum of £1,671,000 out of an aggregate of £6, 446,000 from ‘Land and Assessed Taxes’. The trouble lay with evasion. In April 1800 Pitt tried to remedy this: the taxpayer would now be required to itemise his income ‘divided and distinguished’ in amended schedules and likewise his claims for deductions, specifying the names and addresses of creditors and others concerned. He would not be allowed to aggregate the items: that would fall to the Commissioners in making their assessment of the net payment. The degree of secrecy allowed to commercial returns would be abolished. This aroused such hostility that it did not reach the statute book. A milder one was introduced instead.

Overall, the tax was collected with reasonable efficiency and it indicates the overall wealth of the nation.