put forward, served to convince him that a higher symmetry and co-ordination were required. He saw that any scheme which involved four or five different duties, and which attempted to deal with personal estate by means of a graduated ad valorem tax on the estate as a whole, and later with real estate by means of consanguinity on individual benefits, would not bear controversial examination. The death duties had grown up in a series of successive expedients. They were an admitted patchwork, but a patchwork to which the House of Commons had become accustomed. So long as they were left untouched, their anomalies and entanglements would be tolerated, or even admired; but if they were to be remodelled, re-graded and, above all, increased, they would have to stand fire, their whole structure would be criticised, and a new plan would be damned because it resembled an old plan long respected. The Chancellor of the Exchequer, therefore, began next to inquire as to the ‘possible effect of a graduated ad valorem tax on real estate corresponding to the graduated tax on personal estate,’ and his mind was soon determined in favour of such an assimilation of the death duties on the two classes of property. The method by which to achieve this object involved, of course, the whole question of graduation. Should graduation be regulated by the total mass of property passing by any one death, whether composed of realty or personalty; or partly of one and partly of the other; or should it be governed by the total benefit received by an individual on succession, whether out of realty or personalty, or both combined? Should the rate of duty depend upon the total wealth of the testator or upon the respective windfalls of the heirs? These questions have been long and fiercely debated. The Childers Budget of the year before had aimed at an equalisation of the death duties on real and personal property by means of an extension of the account duty, but it contained no element of graduation. The rate of duty was to be the same for large properties as for small (except very small) estates, and was to apply equally to realty as to personalty. Lord Randolph did not adopt this idea. His scheme was to graduate the duty according to the value of the individual succession. What the living man got, not what the dead man left, was to be the unit of graduation.
If, for example, by the death of A., X. took 2,000l. personalty and 3,000l. realty, Lord Randolph would have combined the two, and have applied the rate (say, 3 per cent.) levied on a succession of 5,000l. If by the same death Y. took 20,000l. personalty and 30,000l. realty, Lord Randolph would have applied the rate (say, 6 per cent.) for a succession of 50,000l.; and so on, always graduating the rate according to any one person’s succession; so that the successor to a small benefit would pay a low rate of duty, and the successor to a large benefit a high rate of duty. In short, Lord Randolph was for a graduated succession duty instead of a graduated estate duty. The Finance Act of 1894 has asserted and established the opposite principle. Sir William Harcourt looked simply at what a dead man left or liberated, and on the aggregate of that amount the graduation now in force depends. Thus it may very well happen, and often does happen, that a successor to a small benefit—perhaps a succession worth no more than 500l.—pays the highest rate (8 per cent.) of estate duty; because his succession is part of an aggregate estate worth one million. The principle which governs the Finance Act of 1894 was laid very plainly before Lord Randolph in 1886. But he rejected it in favour of the graduation on the individual succession, saying, after one long discussion at Somerset House, ‘My instinct tells me that it is wrong.’ It is curious that his instinct, whether right or wrong on the technical question, anticipated the principal objections which Mr. Balfour and Mr. Chamberlain urged against Sir William Harcourt’s Bill, and indicated the line of principle to which the whole Conservative party was subsequently committed.
This choice being made, the Chancellor of the Exchequer turned his attention to the principle of consanguinity. Why should graduation be regulated by kinship? Does not kinship find its adequate expression in the dispositions made by the testator? Does not the testator naturally select his wife and children as the objects of his bounty in preference to relations of remoter degree? Why should the State complicate its affairs by recognising the principle of consanguinity in a taxing statute? Lord Randolph Churchill therefore proposed to discard the principle of consanguinity altogether. All existing duties on properties of whatever kind, passing by death after a given date, and in dispositions taking effect after that date, were to be swept away. Real property was to be placed on the same footing as personalty, and chargeable no longer on life interest, but on capital value. The one graduated succession duty, graduated on amount of benefit received and not depending at all upon consanguinity, was to replace them all. The old probate, account, legacy, inventory (Scotland) and succession duties were to be left to work themselves out by lapse of time, that process being accelerated by a liberal system of discounts.
It is, perhaps, of some interest to contrast this scheme with that which now holds the field. We now enjoy a duty called ‘estate duty’; an extra duty, levied in certain circumstances on settled property, called ‘settlement estate duty’; and, finally, the legacy and succession duties, depending on the consanguinity existing between the donor and the donee. We now assert the vicious principle of taxing property instead of persons. We try to tax the dead instead of the living. The State refuses to consider for purposes of graduation anything so personal as the sacrifice of the heirs, and bases itself on the mass of the inheritance. Conjoined with this in utter contradiction we have a cumbrous and elaborate recognition of such a purely personal and private principle as consanguinity.
Lord Randolph would have replaced these four or five duties of great complexity by one intelligible tax. He would have substituted one Act of Parliament for thirty or forty. He would have secured a far greater flexibility in case further increases of direct taxation were necessary. A vast simplification of the accounts required would have notably diminished the expenses of lawyers, valuers, accountants and actuaries, now attendant on the payment of death duties. The just complaint of the small inheritor from a great estate would have been prevented; and for various illogical or contradictory methods the one simple principle would have been erected, that taxation should be proportioned to ability to pay and to benefit received. The increase which Lord Randolph contemplated in the death duties would have been unpopular with the Conservative party. He was informed that the estate of nearly every member of the House of Lords would have been prejudicially affected thereby. But, in view of what befell in 1894, it is clear that wealthy people would not have been in the long run the losers by an early settlement.
The tax upon inhabited houses was respectably ancient in its origin. It had been first imposed in 1696, and had continued at various rates till 1834. Repealed in 1834, it was reimposed in 1851 by Sir Charles Wood on the abandonment of the duty on windows, and at the rate of 6d. for shops, beer-houses and farmhouses, and 9d. for dwelling-houses (those under 20l. annual value being exempt), it yielded in the financial year 1885-6 1,867,377l. to the revenue. Lord Randolph proposed to repeal the existing Act, thus cutting away the many important exemptions it contained, and by a new Act to restore the house duty to what it formerly was—namely, a tax on all houses inhabited either by day or night. He intended to revert to the old principle of graduation, to the old definition of an inhabited house and to the old lowest limit of taxable value. The new Act would further have repealed the provision in the law under which only one acre was to be included with the house for purposes of valuation—excepting the case of agricultural lands attached to farmhouses. Mills and warehouses used for storing goods were to be exempt; but it was provided that any person on the register of voters in respect of the occupation of a tenement should be liable to assessment for that tenement or part of a building; including even all who were entitled to vote under the service franchise as occupiers of apartments in Militia or other barracks. The scale of duty was lower for shops than for private houses, and progressed rapidly as the value increased. Value under 20l.: shops, 3d.; cottages, 4d. Value over 20l. and under 50l.: shops, 6d.; private houses, 9d. Value over 50l. and under 150l.: shops, 1s.; private houses, 1s. 6d. Value over 150l. and under 300l.: shops, 2s.; private houses, 3s. Value 300l. and upwards: shops, 2s. 6d.; private houses, 3s. 6d. This new tax was estimated to produce, on existing valuations, an additional revenue in the first year of 1,500,000l., and, what was of even more importance (having regard to future Budgets), was estimated to rise to 2,380,000l. in the second and subsequent years.
Under the heading of ‘extra stamps’ the Chancellor of the Exchequer proposed: (1) An alteration in the scale of duty upon patent medicines. The scale then in force under an Act of George III., and continued to this day, presses rather heavily on the 1d. and 2d. boxes, &c., of medicines sold in poor neighbourhoods. Lord Randolph’s new scale would have afforded relief to these small parcels, and have more than recouped itself on the larger and more costly.[58]
The yield of the old duty had been steadily increasing in later years. In 1869-70 it had produced 72,000l.; in 1879-80, 135,000l.; in 1885-6, 178,000l. It was estimated that Lord Randolph’s duty would produce an increase of between 50,000l. and 70,000l. in the first year (not, of course, complete) and of 100,000l. in the second year. But the yield of the future would have been much richer. The old scale of duty still in force produced in 1904-5 not less than 331,000l. Had Lord Randolph’s scale been in force the extra revenue would probably by now have exceeded 250,000l. a year.
The Chancellor of the Exchequer also proposed: (2) A 2s. per cent. stamp duty on the share capital of joint-stock companies. He estimated this to produce 100,000l. yearly, and 58,000l. in the year 1887-8. This plan was adopted by Mr. Goschen in 1888. The results exceeded expectation, and the tax yielded in the first year 158,000l. In 1899 the duty was increased to 5s. on share capital, and extended at half-scale to loan capital. The yield for 1904-5 was 388,000l. from share capital and 73,000l. from loan capital.
(3) A group of proposals comprising an extension of receipt duty to sums between 10s. and 2l.; the repeal of certain exemptions, such as a receipt written upon a bill of exchange, or upon a duly stamped instrument, acknowledging receipt of consideration money therein expressed; a duty on tickets of admission to places of amusement (French plan) and upon certain documents in the nature of vouchers, e.g. those given to persons making purchases at stores and other large trading establishments; a duty on certificates of proprietorship of shares, and upon letters of application for stock; and an assimilation of the duty on transfers of debenture and ordinary stock. This last has been since effected. The others, with all that may be urged in their behalf, must stand upon their mere recital. This group of revised duties was estimated to produce an additional 150,000l. a year, and the whole of the alterations in the stamp duties would have yielded 284,000l. in the first year and above 400,000l. in the next.