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a revenue of £29,400,000 obtained by income and inheritance taxes, the restoration of the duties handed over to local authorities and a lowering of both exemption and abatement limits on the income tax would have raised the contribution to nearly £35,000,000. The existence of a fund so readily available justifies the conclusion that direct, rather than indirect, taxation should, in the first instance, supply the additional funds that may be needed.

In regard to the last great head of revenue—the so-called “stamp duties-it seems that the disposition to extract small gains from commercial acts and instruments is unjustifiable. With the close interconnexion of the various countries of the world, and the possibility of rapidly shifting securities from one market to another, heavy taxation is unfruitful, while even small duties are hampering and uncertain in their incidence. The temptation to extract a quarter of a million, and thus get a balance on the right side, by manipulating these commercial imposts is a strong one, and therefore to be all the more strongly resisted.

Thus, a very brief examination of the main heads of revenue leads to the belief that direct taxation is on the whole the least objectionable mode of deriving a further moderate increase from the annual produce of the community, and that the mere retention for imperial use of the funds collected by imperial officers would accomplish this end. The restoration of the portion of spirit and beer duties which are in the same position would also be legitimate. In fact, the attempts made in recent years to relieve the pressure on local finance—though not without some warrant from financial principles-have unfortunately intensified, if not actually caused, the cramped and entangled situation of the Exchequer. The confusion that resulted from direct Exchequer subsidies, was on the whole less than that which the present method produces. When financial aid has to be given, the assignment of a distinct tax, with its consequent removal from the imperial accounts, is the best course. Besides, the creation of the agricultural grants is really a return to the old system of direct grants in aid with its well-known inconveniences.

The present relations between expenditure and receipts may be also regarded with advantage in another way; and for this purpose the comparison instituted above between the years 1860 and 1898, will again be employed. In 1859–60, with the expenditure at £70,000,000, there was a surplus of over a million. But to obtain this result, the income tax had to be placed at 9d. with the low exemption limit of £100, and the full charge on income of £150. The tea duty was ls. 5d. per lb., coffee paid 3d. per lb., and nearly £6,000,000 was obtained from sugar. A large number of duties on manufactured articles still remained in force, and also those on important raw materials, as, e.g., imported timber. In 1898–9, the revenue raised by imperial agencies was nearly £118,000,000, or an increase of over £46,000,000, though the income tax rate was lower by id., the tea duty only 4d. per lb., and sugar was duty free, while all protective duties had disappeared. Against these many reductions the only substantial increase has been in the death duties. It is thus plain that if additional outlay is required for really national purposes, there is an abundant reserve power in the country on which to draw. The British citizen of 1899 stands in nearly the same position of superiority over his predecessor of 1860, that the latter occupied over the unhappy taxpayers of the Napoleonic war time. Should occasion require, the yield of revenue could be rapidly increased by heavier duties without more suffering than actually occurs under the tax systems of all other countries.

1 The increased difficulty caused in expounding or investigating the condition of the national finances is evident to readers of budget speeches or public accounts.

One item in the expenditure account must be set apart for special examination, viz., the provision for the debt charge. Here, again, some unnecessary mystifications have been introduced. One section is easily understood: it is the amount due for interest and management, which clearly forms a part of the general expenditure account. Next comes the amount applied to terminable annuities. Here the total contains (1) a gradually decreasing interest charge, and (2) a correspondingly increasing repayment charge. This latter is, of course, merely a disguised surplus which is used to pay off debt, as is apparent when the term of the annuity expires, and the whole sum falls into the last section of the total debt charge, which is simply the residue of the fixed (or perhaps we ought now to say the fluctuating) amount set apart for the debt charge. As the realised surplus of each year is devoted to the payment of debt, it is obvious that, scientifically, a portion of the fixed charge belongs to this head, and it is a portion which will be continually growing, if the total allocation for the debt is firmly maintained at a fixed sumn. This is, however, the very thing that Chancellors of the Exchequer have failed in doing. The £28,000,000, which was Lord Iddesleigh's appropriation, has been by a series of steps reduced to £26,000,000, £25,000,000, and now to £23,000,000, in order to avoid the need of any unpopular measure of taxation. Nor is this all. No. 34. – VOL. IX


Various charges have been spread over a series of years involving the employment of loans, with the inevitable consequence of making the actual payment of debt more difficult to trace. If there is to be a separate capital account in the State economy, it ought to be established systematically, and not merely in a few cases hardly distinguishable from ordinary expenditure. But in dealing with so large a system as that of the United Kingdom, the revenue account is the fittest to meet all but extreme war expenditure, or that on profit-yielding business, and the payment for the reduction of debt should be the result of a clear surplus maintained for the purpose. The system of terminable annuities, as handled by Mr. Gladstone, enabled debt payment to be carried on under difficulties, and was for the time effective. With the present conditions, a return to the older policy of 1819, i.e. the assignment of a fixed annual sum to debt redemption, appears to have much in its favour. If the heavily-taxed England of 1820 could devote £5,000,000 to this purpose, twice the amount would not be excessive for the close of the nineteenth century. This method has besides the advantage of affording some fresh relief in the total debt charge during each year of its application, in consequence of the decrease of interest payments, and thereby showing the taxpayers the benefit of reducing liabilities. Indeed it may be said that the several reductions of the new sinking fund can only be defended as imperfectly realising what is effectively done by the policy proposed. A Chancellor of the Exchequer who looked the whole question fairly and squarely in the face would be able to put the scheme in an irresistible form before the House of Commons.

The establishment of this annual debt redemption charge need not necessitate the continuance of the investments in consols at an excessive price. The one drawback to Mr. Goschen's conversion of 1888 was the long term during which the new stock was to be irredeemable. But there are ample opportunities of investment in the local debt, which grows almost at the same rate as the imperial one declines. There is no reason why the next twenty-five years might not see the replacement of say £100,000,000 unproductive consols by an equal amount of local stocks representing equivalent assets.

To put together the conclusions reached, it may be said : (1) That national expenditure is likely to increase, or certainly to remain at its present level. (2) That the best mode of meeting incrcased charges within reasonable limits is by direct taxation. (3) That as there are no taxes now in existence which are markedly uneconomical, and as all revenue comes out of the annual produce,? there is no fresh resource available in the inclusion of new tax "objects.” (3) That slight alterations of duties, either on commodities or commerce, are objectionable, unless as experiments to ascertain the most productive point. (4) That debt reduction can only be the result of surplus, open or concealed, and that the maintainance of a definite surplus for the purpose is desirable.

Finally, it is plain that the inventiveness and ingenuity which make the reputation of a finance minister, when taxes are many and injurious, and when revenue is not easily raised, are not the qualities needed in so developed a system as the modern British one. A straightforward and direct treatment of the subject, leading to a plain and intelligible policy, and accompanied by full and unambiguous accounts are now the most essential requisites.


[Note.-The essence of the system of terminable annuities is the commutation of interest-bearing debt principal into an increased annual charge running for a limited number of years. English financiers have applied it chiefly in connection with the stock of “consols" held by public departments. Thus the Chancery and Post Office have surrendered consols held by them in exchange for annuities. The excess over interest received by them is applied to the purchase of stock in the open market, so that when the term of the annuity ceases the amount of consols held at its commencement is replaced, and the process can be repeated on this new accumulation. By the establishment of the new sinking fund in 1875 the importance of terminable annuities has been diminished as they are paid out of the fixed debt charge, and consequently their increase reduces the new sinking fund, and rice rersa. Hence the re-adjustment and prolongation of the annuities provided in this year's financial scheme adds complications, but is of very slight financial importance.)

1 The special case of revenue drawn from capital need not be noticed in the case of a country whose capital is growing.

? A few short annuities have been exceptions,



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In March, 1896, I contributed to the ECONOMIC JOURNAL a short paper on the subject of Poor Law Statistics in reference to this question, in which I dealt with some of the points raised by Mr. Loch and Mr. Yule in articles which had appeared in September, 1894, and December, 1895.

That I did not entirely satisfy Mr. Loch has been shown by some letters of his that have appeared recently in the Times, and it is true that one part of his paper was passed over by me-viz., that which concerned the relative decrease of pauperism in old age when compared with the diminution recent decades have shown in the extent of pauperism during the active years of life.

With this question I propose to deal now, and if I passed it by before, it was because there seemed but little between Mr. Loch's view and mine.

We agree that there has been an all-round improvement, and agree that the improvement amongst the old has been less than amongst the rest; we only differ as to the extent of the discrepancy and as to inferences to be drawn from it. It is difficult to apply any absolute test to differences in opinion of this kind, but as Mr. Loch seems to demand it, I will do what I can to meet him.

The gist of Mr. Loch's criticisms on my position as to this part of the question is that the statistics as I used them were imperfect, and that I improperly drew certain conclusions from their inherent inconclusiveness, while all the wbile further material and a sounder method lay ready to my hand, of which I neglected to avail myself. Following up this line in writing recently to the Times, he asserts that the figures of a single date (such as I for the most part employed) cannot supply material for a judgment of their own value, and claims that I have not

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