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428 commission to inquire into the natural resources and improvement of Imperial trade. Before the World War broke out, Lord Inchcape was already one of the most prominent figures in the British business world, being chairman of the P. & O. Steamship Company after having been chairman of the British India line which was amalgamated with it, and a director (and acting chairman) of the National Provincial Bank, with which the Union of London and Smith's Bank was subsequently amalgamated. As a representative of the shipping industry he took a leading part in all its affairs during the war, and in assisting the Government to sell its surplus ships after the war to private owners.  INCOME TAX (see ). I.. The income tax position in 1910 was briefly this. The rate of the tax was 1s. 2d. in the £, and the exemption limit was £160. Earned income paid at 9d. in the £ if the total income did not exceed £2,000, at 1s. if the total income did not exceed £3,000. Earned income over the £3,000 limit, and all “unearned” income, paid at 1s. 2d. in the pound. Graduation was effected partly by a series of abatements (of £160, £150, £120, and £70 for individuals whose total incomes did not exceed £400, £500, £600, and £700 respectively) and partly by the recently introduced super-tax, which was an additional duty or income tax, centrally administered, and charged by direct assessment on the recipients of incomes exceeding £5,000. Super-tax was charged in those cases at 6d. in the on every pound by which the income exceeded £3,000.

It will be seen that in 1910 the principle of graduation, which, after a long struggle, had at last been definitely adopted into the income tax system, was very imperfectly applied. There were abrupt “jumps” in the effective rate immediately above the various abatement limits, but between £701 (where the abatements ceased to apply) and £5,000 (where the super-tax began) there was no graduation at all. The total yield of the tax for 1910 was £38,344,767, and the yield for each penny of the rate was £2,738,912. Super-tax produced £2,702,892 from 11,713 super-tax payers.

From this position there was no considerable change until the Finance Act of 1914 increased the rate to 1s. 3d. and made an attempt at a more complete graduation. The rate on earned income rose by five steps instead of three to the maximum rate, which was reached above £2,500; unearned incomes (graduated now for the first time) went by three steps to the maximum rate, which was charged on incomes above £500. The super-tax limit was reduced from £5,000 to £3,000, and the super-tax, instead of being charged at a uniform flat rate of 6d., was charged, on the income in excess of £2,500, at seven rates rising from 5d. to 1s. 4d. in the £ on successive “slices” of income. The children allowance was increased to £20.

The Finance Act of 1914 which made these changes—very characteristic of the natural development of the tax—was passed on July 31 1914. Next week the World War broke out.

War Developments.—Owing to war requirements the rate of tax rose rapidly. The second Finance Act of 1914 increased it to 1s. 8d.; the first Finance Act of 1915 to 2s. 6d., the second to 3s.; in 1916 it rose to 5s. and in 1918 to 6s. in the pound. In 1918 also the super-tax limit was put down from £3,000 to £2,500 (on the Income in excess of £2,000) with a new scale of charges running up to 4s. 6d. in the pound.

But in addition to mere increases in the rate of tax the war was responsible for many other changes and developments. In 1915 the exemption limit was reduced to £130, and the “abatements” allowed to persons whose total income did not exceed £700 were reduced. This lowering of the exemption limit which was an attempt to spread the cost of the war down the scale of incomes at the same time as the excess profits duty was laid upon the larger incomes brought an immense number of new taxpayers under the purview of the Inland Revenue Department; and these new taxpayers were not only very numerous, but they were largely of the weekly wage earning class, a class wholly unaccustomed to the payment of any annual tax, or indeed to annual payments of any kind. To have legislated to make them pay income tax in one sum on their whole year's income would have been to invite failure. It was therefore decided to assess

quarterly and to collect tax quarterly from weekly wage earners employed by way of manual labour; and presently it was arranged that payment might be made in these cases by the purchase of income tax stamps to be stuck on a card and ultimately handed in to the collector.

The war and the high rates of tax also rendered necessary the provision of special reliefs for persons whose profits were adversely affected by the war; the granting of specially low rates of tax to soldiers and sailors; payment of tax in two half-yearly instalments; a further increase of the children allowance, and the grant, for the first time, of an allowance for a wife, in order that the heavy burden of taxation should be more fairly distributed between the bachelor and the family man.

“Double” Income Tax.—The rapid increase of taxation both in the United Kingdom and in the British Overseas Dominions brought into new prominence a grievance which, though long felt to be annoying and inequitable, had not hitherto been a very severe hardship. It arose from the fact that, owing to the income tax being imposed in the United Kingdom on all the income of a British resident irrespective of the country of its origin, income which arose in a Dominion and was taxed there was again taxed in this country in the hands of the resident recipient. With high rates of tax in both countries this hardship was suddenly and enormously magnified, and in 1916 an attempt was made to deal with it. Where the same income was assessed both in the United Kingdom and in a British possession relief was to be granted (as a maximum) so as to bring the United Kingdom rate charged on that income down to 3s. 6d. As the rate in force was then 5s. in the £, the maximum relief was 1s. 6d. When the rate was increased to 6s. in 1918 this provision was still continued, the effect being to increase the maximum relief to 2s. 6d. in the pound. The relief was granted at the expense of the British Exchequer. This attempt to remedy the double income tax grievance was admittedly only a temporary expedient, made without prejudice to the ultimate settlement between the Exchequers concerned, and it was coupled with an undertaking that the whole matter should be fully gone into after the war.

Non-deduction at Source.—The war was responsible also for a striking departure from the great principle of deduction of tax “at the source,” which since 1803 has been the characteristic feature of the collection of the tax. The necessity for attracting foreign money led to the issue early in 1917 of the 5% War Loan, 1929-47, subject to the condition that the interest on the loan should be paid in full without deduction of tax. Recipients of interest who were ordinarily resident in the United Kingdom were to be liable to direct assessment on the interest, but the interest paid to holders who were not ordinarily resident in the United Kingdom was altogether exempt from tax. The same course was followed in some other war issues, but the Treasury reverted after the war to the old method.

Farmers.—The rise in the price of commodities consequent upon the war drew attention to the income tax position of farmers. Under Schedule B of the Income Tax Acts, farmers had always been assessed not upon their actual ascertained profits but upon a conventional amount based on the rent or annual value of their farms. From 1896 to 1915 the Schedule B assessment, intended to represent the profit of the occupation of land, was fixed at one-third of the rent. Under war conditions this position rapidly became so favourable to the farmers that a change had to be made. In 1915 the Schedule B assessment for farmers was fixed at the full rent instead of one-third of the rent, and in 1918 it was raised to twice the rent. Seeing, however, that a farmer can always elect to be assessed under Schedule D on his actual average profits, and can, moreover, have his Schedule B assessment adjusted if his profits prove to be less than the conventional basis of twice his rent, he is still in a favoured position in spite of the six-fold increase in his Schedule B basis.

The Royal Commission, 1919.—Even before the war there had been many evidences of a desire for a general and searching inquiry into the income tax. Its administrative machinery was very old, and parts of it were in practice obsolete; the main features of the tax dated from a time when the conditions of business life were widely different from modern conditions; and the law on the subject could only be collected piecemeal and with much labour from half a hundred statutes. The Government had before the war promised to appoint a commission with full powers of inquiry, and this commission was on the point of being set up when war began. Postponement was inevitable. But in the meantime a very salutary work was undertaken by way of preliminary. This was the task of consolidating the existing income tax law into one comprehensive statute, a step very necessary to be taken before any thorough survey of the income tax position could be made by a commission consisting in the main of laymen. 