Sir William Heathcote wrote to Mr. Gladstone, May 4, 1861:—
I understood you in your rebukes of Lewis in 1857, to be aiming not only at a change of his plan of finance in that particular year, but (if that were impossible, or at least could not be carried), at a resumption as early as circumstances would allow, of what you thought the proper line of action which he insisted on suspending. Income-tax and war duties on tea and sugar were and would continue to be, as I understood, the primary claimants for reduction of taxation, in your judgment.... The very vehemence of your convictions and expressions on both occasions perplexes me.
Mr. Gladstone replied the same day:—
... You think, 1. That I bound myself to the reduction of the tea and sugar duties as a policy for future occasions, and not merely for the issue then raised. 2. That in like manner I was bound to the reduction and abolition of the income-tax. 3. That even if there arose in the system of our expenditure a great change, involving an increase of ten or fifteen millions of money over 1853, I was still in consistency bound to hold over the first chance of reduction for income-tax, tea and sugar. 4. That consequently until these duties were remitted I could not propose to prosecute any commercial reforms involving, as nearly all of them do, a sacrifice of revenue for a time. 5. It is because I have departed from these positions by proposing a multitude of reductions and abolitions of duty, other than the three mentioned, and partly or wholly in preference to them, that you have lost confidence in my judgment on these matters (a confidence to which I do not pretend that I had ever any claim).
If I have interpreted you aright, and I hope you will tell me whether I have done so or not, this is all to me exceedingly curious; such are the differences in the opinions of men formed from their different points of view. Now I will give you mine. To give effect to the pledge of honour, by which I became bound in 1853, I made a desperate effort in 1857, with all the zeal of which I was capable, and with all the passion to which I am liable. It was my opinion that the course then taken would be decisive as to the operations in 1860, for the income-tax never can be got rid of [pg 633] except by prospective finance, reaching over several years, and liable to impediment and disturbance accordingly. I therefore protested against the whole scale of expenditure then proposed; as well as against particular kinds of expenditure to which I might refer. I likewise protested against the provision for that expenditure which the government of the day proposed. First, because the expenditure itself was excessive, in my view. Secondly, because in the mode of that provision I thought the remission of income-tax was large out of all proportion to the remission on indirect taxes; and this disproportion I regarded as highly dangerous. I determined to let no political prejudice stand in my way, and to test to the best of my very feeble power the opinion of parliament with respect to tea and sugar. I stated that if the opinion of parliament were against me I should not factiously prolong the contest but should withdraw from it. Not only was the opinion of parliament against me, but it so happened that the opinion of the country was immediately afterwards taken by a dissolution on that and on other kindred questions. The country affirmed the policy of Lord Palmerston, and the policy of a materially increased expenditure, by an overwhelming majority. I had misjudged public opinion; they had read it aright. After the dissolution of 1857, Sir George Lewis, who had previously raised the tea and sugar duties for one year, proposed to raise them for two more. I immediately followed in debate, and thanked him warmly for doing it. All this of course I can prove. I said, we are going to have more expenditure, we must therefore have more taxation.
As I have gone thus far with my history, I will conclude it. Notwithstanding what had happened, I did not absolutely abandon at that time the hope that we might still reach in 1860 a state which might enable us to abolish the income-tax. I had a faint expectation of more economy under another government. When Lord Derby's administration came in in 1858, they professed to reduce expenditure by £800,000, and to contemplate further reductions. I expressed my satisfaction, and gave them the extreme of support that I could. But I then clearly pointed out that, even with the scale of expenditure they then proposed, we could not abolish the income-tax in 1860. In a few months, their reductions vanished into air. In 1859 came the famous “reconstruction.” I took office in June, and found a scale of expenditure going on in the treasury far more prodigal and wanton than I had ever charged upon Lord Palmerston's first government. I found also that when the estimates had been completed, I believe entirely on their basis, there was a probable deficiency of four or five millions for a year of which nearly one-third had passed. And the expenditure was I think nearly seventy millions, or some fourteen millions more than in 1853. This was not the act only of the government. The opposition halloed them on; and the country, seized with a peculiar panic, was in a humour even more lavish than the opposition.
My view was, and I stated it, that we ought to provide for this expenditure in a due proportion between direct and indirect taxes. I showed that this proportion had not been observed; that we had continued to levy large amounts of war tax on tea and sugar, and had returned to the scale of 1853 for income. I proposed to provide the necessary sums chiefly by an increase of income-tax. But neither then (in July 1859), nor for nearly two and a half years before, had I ever (to my knowledge) presumed to speak of any one as bound to abolish the income-tax or to remit the additional duties on tea and sugar.
I fully expect from you the admission that as to these measures I could not in the altered circumstances be bound absolutely to the remissions. But you say I was bound to give them a preference over all other remissions. Nowhere I believe can one word to this effect be extracted from any speech of mine. I found in 1860 that all the reforming legislation, which had achieved such vast results, had been suspended for seven years. We were then raising by duties doomed in 1853, from twelve to thirteen millions. It would in my opinion have been no less than monstrous on my part to recognise the preferences you claim for these particular duties. All of them indeed would have been reliefs, even the income-tax which is I think proved to be the least relief of any. But, though reliefs, they were hardly reforms; and experience had shown us that reforms were in fact double and treble reliefs. I may be wrong, but it is my opinion and I found it on experience, that the prospect of the removal of the three collectively (income, tea extra, and sugar extra) being in any case very remote, it is less remote with than without the reforming measures of the last and (I hope I may add) of the present year. Had the expenditure of 1853 been resumed, there would notwithstanding the Russian war have been, in my opinion, room for all these three things. 1. Abolition of income-tax by or near 1860; 2. remission of increases on tea and sugar within the same time; 3. the prosecution of the commercial reforms.
It may be said that having set my face against an excess of expenditure I ought to have considered that a holy war, and not to have receded. Although I place public economy somewhat higher as a matter of duty than many might do, I do not think it would have been right, I do think it would have been foolish and presumptuous in me to have gone beyond these two things: first, making an effort to the utmost of my power at the critical moment (as I took it to be), and secondly, on being defeated to watch for opportunities thereafter. Since it should be remembered I do not recommend or desire sweeping and sudden reductions.
The chief errors that I see myself to have committed are these. In 1853 when I took the unusual course of estimating our income for seven years, and assuming that our expenditure would either continue as it was, or only move onwards gradually and gently, I ought no doubt to have pointed out explicitly, that a great disturbance and increase of our expenditure would baffle my [pg 635] reckonings. Again in 1857 the temper of the public mind had undergone a change which I failed to discern; and I attacked the government and the chancellor of the exchequer of that day for doing what the country desired though I did not. I name these as specific errors, over and above the general one of excess of heat.