Lord Randolph Churchill

by Winston Churchill

A yearly tax of 5 per cent. was imposed in 1885-6 on the income of corporations as an equivalent for the death duties, which they escape. The yield in the first year was 34,000l. Municipal corporations were, however, exempted, although they paid income-tax on their realised property. By repealing this exemption Lord Randolph Churchill would have considerably increased the yield of the duty. Taking the accounts of ten municipal corporations of mixed sizes and importance, it was found that the average income derived from rentals, waterworks, gasworks, tolls, &c., exclusive of interest on investments, was 38,000l. Assuming there were 275 corporations—an assumption which left an ample margin—the gross income assessable would have been 10,450,000l., yielding a revenue of 522,000l. From this, however, a large deduction had to be made for interest paid on loans raised on the security of the property apart from the rates, leaving as the result of the tax a net addition to the revenue of 315,000l.

The Chancellor of the Exchequer proposed also to revive the tax upon horses and the special tax on racehorses which had been abandoned by Sir Stafford Northcote in 1874, from which a sum of 500,000l. would accrue to the State. In 1888, when Mr. Goschen endeavoured to re-introduce this duty, no serious objection was raised by the House of Commons. Strong opposition was, however, excited by the wheel and van tax which he suggested at the same time. In the hope of carrying the unpopular tax by linking it with one more favoured, Mr. Goschen declared that the two taxes must stand or fall together.

But the House was not to be cajoled. Both projects were withdrawn, and the transfer which has since taken place of all analogous duties to local authorities, seems permanently to have interfered with any attempt to secure this convenient source of revenue for Imperial purposes.

Two other classes of proposed extra taxation remain to be considered. If every one of the 70,000,000 cartridges which were used each season had a 1d. revenue stamp pasted over the shot end, the national resources would be enriched by 280,000l.[59] in a complete year. The sportsman whose unerring aim never required a second barrel, except for another bird, would in poetic justice enjoy a comparative immunity. But while his unskilful companion blazed away he might remember that at each discharge the stamp blown to pieces by the explosion would carry its tribute to the public treasury. Besides this, mainly with a view to putting a stop to their reckless use by boys and others, pistols were to be taxed 1l. a year and pistol-dealers 20l. a year; and brokers, whose responsible functions seemed to deserve some recognition from the State, were to be duly licensed at 5l. a year. By these sundries 300,000l. would be secured immediately, and about 400,000l. in a complete year. The augmentation of the wine duties by various devices, falling chiefly upon the higher quality wines, so as to yield an additional quarter of a million, raised the total of the new taxation to 4,500,000l. in the first year, with a considerable natural growth in prospect.

Of the steps by which Lord Randolph designed to diminish his expenditure only one need be considered here; for the transference of the 2,600,000l. grants-in-aid to another and larger fund is a matter chiefly of book-keeping, and the definite economy of 1,300,000l. which he regarded as so important belongs to another part of the story. But the proposal to reduce the Sinking Fund by no less than 4,500,000l. is startling enough to compel attention.

The condition of the National Debt was in 1886 peculiar. When Sir Stafford Northcote, as Chancellor of the Exchequer, in 1875 reorganised the service of the debt, he had, in order to make ‘steady and continuous efforts for its reduction,’ assigned a fixed annual sum of 28,000,000l., covering both interest and Sinking Fund, and payable, unless Parliament should in the meantime otherwise determine, as long as any debt remained outstanding. On March 31, 1875, the National Debt amounted to 769,000,000l.; and if Sir Stafford Northcote’s scheme as it stood on the statute book had remained unaltered, if no war or other disturbing element had intervened, this debt, without any addition to the yearly charge of 28,000,000l., would have been entirely paid off about the year 1930. This was the arrangement which Lord Randolph now proposed to revise, and it therefore requires closer examination. The full charge of 28,000,000l. came into operation in 1877-8. It was divided between interest and Sinking Fund. At the outset the proportion assignable to interest and management was between 23,000,000l. and 24,000,000l., and the proportion assignable to Sinking Fund between 4,000,000l. and 5,000,000l.; but this proportion steadily changed by the automatic working of the scheme. Year by year as the debt capital was reduced by the amount of successive Sinking Funds, that part of the 28,000,000l. required for interest diminished, and that part available for Sinking Fund proportionately increased. According to the moderate computations of Sir Stafford Northcote when presenting his scheme to the House, 230,000,000l. of the debt would have been paid off by the present year—1904-5. In that case the capital of the debt would now stand at about 540,000,000l., the interest proportion of the 28,000,000l. would amount to sixteen and a half millions, and the Sinking Fund proportion to about eleven and a half millions. Thus the scheme, which in the beginning imposed a charge on the taxpayer equivalent to 2½d. in the 1l. for the purposes of a Sinking Fund, automatically progressed until that burden would have become equivalent to 5d. in the 1l. at the present time, and rising further to 1s. or more in the 1l. before it reached its consummation. While already himself attaining a high degree of financial virtue, Sir Stafford Northcote indicated to his successors a standard three and four and five times as exalted.

Each generation, almost each decade, claims its right to revise its standards; and as the rate of human improvement was less rapid than the growth of Sir Stafford Northcote’s Sinking Fund, it had in 1886 become clear that the public would not acquiesce in the logical result of the 1875 scheme, or regard as a sacred obligation the exact fulfilment of a plan which, snowball fashion, rolled on with ever-accumulating weight and ended by requiring the exaction from the taxpayer during a small number of years of an amount in repayment of debt which sound reasoning could not justify. Already the scheme itself had yielded to the pressure of a passing emergency. Mr. Childers had suspended the Sinking Fund in great part during the Egyptian War and the Russian panic of 1885-6; Sir William Harcourt had permitted a smaller suspension in 1886-7. Indeed, Sir Stafford Northcote seems to have felt that his scheme could not be maintained in its fulness to the end, and that when the Sinking Fund had risen to a certain figure, the taxpayer of the day would claim to share with it the benefit resulting from the progressive diminution in the interest of the debt. If, then, it were conceded that the Northcote Sinking Fund could not be maintained in its entirety till 1930, the revision of the scheme became simply a question of the manner, the measure and the tune.

These considerations were strengthened by another set of arguments. In 1887 the funded debt amounted to 637,000,000l. A large part of this debt—probably 150,000,000l.—was held by public departments; another large part was held by banks, insurance companies and by trustees. It was computed later by skilled authorities that the holdings on this account were not less than 200,000,000l. As these holdings were practically not offered on the market for sale, the field for purchases of stock was comparatively narrow. If a large amount of Sinking Fund were applied to purchases of stock in this narrow field, the prices of Consols would be quickly and unnaturally inflated. This condition was actually reached in later years, when the public credit was so esteemed that the State enjoyed the privilege of paying 113l. to redeem 100l. of its own debt.

Lord Randolph decided that the time had come for a revision of the Northcote scheme. He found himself possessed of a lever capable of exerting on one occasion—and on one occasion only—a giant’s power. He was anxious that it should be made the instrument of great and substantial reform, and not wasted gradually for the sake of convenience or popularity. For the purposes, therefore, of effecting a reduction and a general readjustment of taxation and as an integral part of his Budget scheme, Lord Randolph proposed to reduce the total immediate charge of the debt from 28,878,000l. to 24,417,000l., thus effecting a saving of 4,461,000l., or, roughly, four and a half millions. The Northcote Sinking Fund would thus have been reduced by two-thirds to 2,160,000l. The reduction of such a great weapon of financial reserve as the Sinking Fund has proved in tunes of warlike emergency was practically replaced by the gain in expansive power supplied by an income-tax as low as 5d. The positive economy on naval and military estimates clears the Chancellor of the Exchequer from any charge of laxity or indulgence. His judgment on the main question of revision was ratified within two years by the high and severe financial authority of Lord Goschen, and was further confirmed eleven years later by Sir Michael Hicks-Beach. The former reduced the fixed charge from 28,000,000l. to 25,000,000l.; the latter reduced it again from 25,000,000l. to 23,000,000l., at which figure it stood when the South African War broke out. But these reductions, aggregating 5,000,000l. a year, were enforced, the one for the purpose merely of affording a petty relief to the taxpayer of the year, and the other to find ways and means for the growing expenditure of a Government, and not, as Lord Randolph had designed, for the sake of a large and harmonious reform.

By these methods, however they may be regarded, the Chancellor of the Exchequer would have become possessed of a surplus of noble proportions. And the distribution of the 12,500,000l. which he had secured is the coping-stone of the whole financial scheme. Tea and tobacco are familiar friends to the students of Budgets. Year after year their fortunes fluctuate in sympathy with those of the nation. In the year 1886-7 tea was taxed 6d. in the pound and yielded 4,514,874l. A reduction of 2d. upon tea is a generous boon to every poor household. The tiny packet is a farthing cheaper. The careful spoonfuls may be more freely bestowed; and the relief is gratefully acknowledged by an immediate increase in consumption. Lord Randolph had estimated that his reduction would cost the revenue 1,400,000l.; but this seems to have been an over-estimate, for when Mr. Goschen four years later was able to make this desirable change the loss to the revenue was only 1,100,000l., owing to the greater indulgence of the people.