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Title:Riches and Poverty (1910) Author: Leo George Chiozza Money Release Date: February 23, 2021 [eBook #64616] Language: English Character set encoding: UTF-8 Produced by: Turgut Dincer, Chris Pinfield and the Online Distributed Proofreading Team at https://www.pgdp.net (This file was produced from images generously made available by The Internet Archive) *** START OF THE PROJECT GUTENBERG EBOOK RICHES AND POVERTY *** Transcriber's Note: Obvious printer errors have been corrected. Hyphenation has been rationalised. Wider tables have been split into two. BRITISH INCOMES IN 1908-9 RICH 1,400,000 persons £634,000,000 COMFORTABLE 4,100,000 persons £275,000,000 POOR 39,000,000 persons £935,000,000 The Aggregate Income of the 44,600,000 people of the United Kingdom in 1908-9 was approximately £1,844,000,000. 1,400,000 persons took £634,000,000; 4,100,000 persons took £275,000,000; 39,000,000 persons took £935,000,000. (See Chapters 2 and 3.) RICHES AND POVERTY (1910) BY L. G. CHIOZZA MONEY, M.P. ELEVENTH EDITION METHUEN & CO. LTD. 36 ESSEX STREET W.C. LONDON First Published (5s. net) October 1905 Second Edition December 1905 Third Edition July 1906 Fourth and Cheaper Edition (1s. net) January 1908 Fifth Edition (1s. net) February 1908 Sixth and Seventh Editions (1s. net) March 1908 Eighth Edition (1s. net) May 1908 Ninth Edition (1s. net) December 1909 Tenth Edition, Revised (5s. net) March 1911 New and Cheaper Issue (1s. net) June 1913 Eleventh Edition (5s. net) March 1914 TO MY WIFE T PREFACE TO THE TENTH (REVISED) EDITION, 1910 HE present edition of "Riches and Poverty" revises my estimates of the distribution of the wealth of the United Kingdom down to the year 1908. The effect of the revision is to show that in the five years that have elapsed since this work was first published, the distribution of wealth has grown even more unequal. The comparative stationariness of money wages of late years is a fact upon which the labourers themselves, and not less the nation of which they form by far the greater part, are to be commiserated. I write at a time when a great deal of discontent is becoming evident amongst large masses of the population; it may be well for those, and they are many, who have written in condemnation of that discontent, to ponder the following pages, and in particular to compare the profits recorded by the Inland Revenue Commissioners with the evidence as to wages collected by the Labour Department of the Board of Trade. My own view of the subject is, that the massing of capital in large units has so considerably strengthened the hand of capital in its dealings with labour that in recent years Trade Unions have comparatively lost much ground. To-day the masters in many of our industries can exercise collective powers much more effectively than Trade Unions. Combination amongst employers in some trades has reached a point at which it has become possible to rule alike the price of products and the price of labour. While since 1900 nominal or money wages have been at a standstill, the cost of living has continued to rise. The retail cost of food in London rose 9 per cent. in 1900-1908. Therefore British real or commodity wages have fallen heavily since 1900. A London platelayer, when he has the privilege of working seven days a week, can earn 21s. a week in 1910 as in 1900, but the real value of the 21s. has fallen by about 9 per cent.; in effect, that is, he earns 1s. 10d. a week less than in 1900. Now 19s. 2d. is not a just wage for a London platelayer. The statements which were made in the 1905 edition of "Riches and Poverty" proved to be uncomfortable reading for many, and I have now a great many books on my shelves in which they have been discussed. The attempts to refute them have entirely failed. It is now generally accepted that the number of Income Tax payers is approximately what I stated it to be, and the increase of Income Tax assessments indicates that my estimates of the income of the rich did not err on the side of liberality. Work such as is attempted in these pages ought, of course, to be entrusted to the hands of a permanent Census Department, empowered to collect information, and instructed to analyse and diffuse it. In the absence of such a Department, and in the lamentable condition of our national statistical records, the conclusions of a private investigator are only too likely to be called in question by those who do not stomach what he has to say. It may be said that the disagreeable estimates I have presented in the frontispiece of this volume rest upon private authority, and that they cannot be accepted without great reservation. I should like to direct attention, therefore, to a series of facts which are official, which cannot be denied, and which rest upon the basis that they represent masses of property actually taxed. I refer to the estates which pass at death in the United Kingdom year by year, and which are valued for the purposes of the death duties. The following facts, to which I called attention for the first time in "Riches and Poverty," can be easily memorized, and every one ought to know them. Year by year, as regularly as the seasons, properties pass at death in the United Kingdom, free of all debts, absolutely net, to the value of, in round figures, £300,000,000. Of this £300,000,000, the aggregate of approximately 80,000 separate estates, as much as £200,000,000, or thereabouts, is left by about FOUR THOUSAND (4000) PERSONS. I repeat that these figures are not my estimates, but the official figures ascertained and published by the Inland Revenue Commissioners. They can be verified by any reader of this book by reference to the latest Official Report of the Commissioners of His Majesty's Inland Revenue (Cd. 4868. Price 1s. 7d.). Those who are acquainted with the facts know, as Mr Balfour recognized in reply to me in a debate in the House of Commons on September 13th, 1909, that the official figures I have quoted would be larger but for the passing of property inter vivos in avoidance of the death duties. But, to take the figures as they are, an under statement of the wealth of the rich, I put this question to those who come to consider the estimates I have made: If, in the United Kingdom, out of £300,000,000 a year passing at death, as much as £200,000,000, or two-thirds of the whole, is left by only 4000 persons, does it not follow, as the night the day, that the distribution of the national income must necessarily proceed on some such lines as those estimated in the frontispiece to this volume? And with that question I once more issue these pages to the public. L. G. CHIOZZA MONEY Chaldon, Surrey October 1910 CONTENTS PAGE BOOK I THE ERROR OF DISTRIBUTION CHAPTER I Thoughts arising out of a Great Controversy The false assumption that customs duties can determine prosperity 3 Evidences of riches and poverty as "arguments" 4 "Thirty per cent. of our population underfed" 5 A question of distribution 7 {ix} {x} {xi} {xii} CHAPTER II The National Income The total product consists of goods and services 8 The exchanged product can be measured 9 Income Tax assessments; my 1905 estimate confirmed 11 The income eluding taxation 13 Income from abroad 15 Aggregate of incomes exceeding £160 per annum 16 Growth of Income Tax income in five years 17 Aggregate of small incomes lying between Income Tax payers and wage-earning classes 20 Aggregate of incomes of manual workers 29 Aggregate of the national income 31 The Income Tax exemption limit bisects the total product 31 CHAPTER III Distribution of the National Income The average family income 32 Investigation of number of Income Tax payers 33 Number of incomes under £700 39 Number of incomes over £700 measured by number of large houses 43 Approximate number of Income Tax payers 44 Persons with respectively more and less than £160 per annum 47 One-half of entire product taken by 12 per cent. of the population 47 One-third of entire product taken by one-thirtieth of population 48 A poor people thinly veneered by the well-to-do 49 The movement in 1903-1908 50 CHAPTER IV The Estates of Rich and Poor The graduated Estate Duty of Sir William Harcourt 51 Deaths per annum in the United Kingdom 54 Numbers and values of estates passing at death in recent years 55 Savings of the poor 57 Rich and poor estates in an average year 59 CHAPTER V The National Accumulation Estimate of the accumulated wealth of the United Kingdom 62 Public property, Imperial and local 65 The national and local debts private mortgages upon public assets 67 British wealth in private hands 68 Foreign wealth in British hands 71 Average wealth per head 71 CHAPTER VI The Monopoly of Capital Living property owners estimated from Death Duty records 73 Growing avoidance of Death Duties 77 120,000 persons own two-thirds of the national capital 79 The alleged "capital" of the working classes 80 Those rule who own 80 CHAPTER VII The Area of the United Kingdom Area the fundamental attribute of land 81 Almost the entire area in private hands 82 One-half the area owned by 2,500 persons 83 The number of landlords 84 Estimate of land rents 86 Why the aggregate of land rents is relatively small 87 The cheapening of food 87 The small areas of the town 88 The rent-charge formed by local rates 90 CHAPTER VIII Those who Work and whose who Wait Effect of congestion of capital upon distribution 93 Practical examples of the distributive process 94 Capital largely divorced from business ability 99 Schedule D profits compared with paid-up capitals 100 Effect of appreciation of securities upon position of the wage-earners 101 Railway profits and railway wages 102 Calculating the labour factor 103 Capital takes the lion's share 106 CHAPTER IX Profits, Bad Trade and Unemployment Growth of profits in recent years 107 Rise and fall of wages in recent years 108 Growth of profits compared with rise and fall in wages 110 Labour bears the brunt of depression 115 Records of unemployment of Trade Union members 116 The Trade Union unemployment rate probably representative 119 How Trade Unions keep the tools sharpened 121 The great majority of the British people lack security of tenure of employment 122 "Remedies" for unemployment 123 Insurance against unemployment 123 Labour Exchanges no remedy 124 CHAPTER X Part of their Wages Accident and disease concomitants of wages 125 Laxity of factory inspection 127 Accidents in factories and workshops 127 Diseases of occupations in factories and workshops 129 Accidents in mines and quarries 130 Accidents on railways 136 Accidents on ships 137 Accidents in certain engineering works 137 Aggregate of reported accidents and cases of industrial disease 138 Phthisis as an industrial disease 139 Physical deterioration not an accident 140 CHAPTER XI Consequences The governance of the rich 141 The direction of life and labour through expenditure 143 The cotton trade and the fate of its products 144 The demand for woollens 145 The call for boots 147 The waste of labour of nominally useful workmen 149 The parable of the temporary supper-room 149 The parable of the Ascot frock 151 Mr Rowntree's primary poverty line 153 The possible call for commodities by the poor 154 The agricultural labourer's call 155 The boot employee as a customer for the textile employee 156 The Error of Distribution connotes the misdirection and degradation of labour 156 CHAPTER XII The Waste of Capital The national accumulations small in relation to the national income 159 More evidences of poverty than of wealth 159 The moral of oversea investments 160 Six thousand millions of capital wasted in forty years 163 The demand for luxuries misdirects capital 164 The waste of capital in the game of competition 166 The waste of capital in weak and bogus company promotion 166 BOOK II TOWARDS ORGANIZATION CHAPTER XIII The Golden Key More trade and a better distribution 171 The social problem must be discussed with reference to the Error of Distribution 172 CHAPTER XIV The Nation's Children The renewal of the race 173 The verdict of anthropology 173 Injustice before birth and after 176 The innocence of the Factory Act 178 The Physical Deterioration Committee on reasonable care of the infant 180 The mothers of the future 181 The mothers of the present 181 Women health inspectors 182 The public medical service 183 The small cost of a public maternity fund 184 A Jewish example 185 The birth of a child a matter of national moment 187 Neglectful parents must be punished 187 The segregation of the unfit 187 Twenty-five million births in twenty years 189 CHAPTER XV The School The Error of Distribution and the heritage of the child 191 The nation loses the bulk of its intelligence and genius 191 The school must be a preparation for life 192 The doctor in the school 193 The school children of Bradford 194 "The child has got to be fed" 196 Observation and expression 199 The study of systematized knowledge 202 The teaching of hygiene and temperance 204 Compulsory continuation schools for both boys and girls 204 Can we afford to make our schools what we desire them to be? 207 CHAPTER XVI The Home An increasing population in a diminishing number of centres 209 Our many poorhouses 210 The years taken from the lives of the poor 211 Crowding and overcrowding 212 Tenement statistics 212 Overcrowding on area has increased 213 Not only death and disease but ugliness to be fought 215 Where further building should be prevented 217 The housing question as a land question and as a capital question 218 The community should be landlord 218 The taxation of land on its selling value would assist in municipalizing area 219 The small area needed to rehouse our city populations 220 The municipality must plan its extensions in advance 221 Some examples from Germany 222 An example in the United Kingdom 223 How land and capital enter into the housing problem 229 National housing loans needed 231 CHAPTER XVII The Empty Country The migration from the country to the towns 234 The decrease in agricultural employment and its causes 240 Agriculture must be an increasingly limited field for employment 240 The cheap land outside the towns 243 Is control of area worth half a year's income? 243 The community can acquire cheap land and make it valuable 244 Rising food prices 247 Neglected afforestation 248 Imperial questions must be treated on an Imperial scale 249 CHAPTER XVIII Organization An insufficient production of ponderable commodities 250 The small stream of ponderable things is made the subject of unnecessary services 251 Present production is wasteful 252 The waste of labour in competition 252 The waste of labour in distribution, etc 253 So called "natural" monopolies 255 Monopoly necessary if labour is to be fully economized 256 Power distribution and public control 256 The problem of monopoly illustrated by the milk trade 259 The milk trade typical of many other services 262 Municipal and joint-stock direction contrasted 263 The management of our railway companies 263 The prevalence of nepotism in private enterprise 264 The Belgian State railways 265 Coal production and distribution 267 The private trust the only alternative to public ownership 269 Public ownership of capital the only remedy for unemployment 270 Those govern who employ 271 CHAPTER XIX The Aged Poor Two million persons over 65 years of age and most of them poor 272 Mr Thomas Burt's return of aged paupers 273 Mr Ritchie's return of number of paupers relieved during a year 275 Of the population aged 65 and over, one in three is a pauper 277 Probable number of aged paupers 278 Length of the working life 280 The Charity Organization Society and cost 283 Mr Asquith's Old Age Pension Act 284 First year's working of Old Age Pensions 285 Old Age Pensions at 65 286 286 CHAPTER XX Adam Smith's First Maxim of Taxation The famous first maxim self-contradictory 287 Taxation in relation to the Error of Distribution 288 The doctrine of equality of sacrifice 288 An unanswerable case for repeal of all food duties 289 The duties on liquors and tobacco should remain 289 CHAPTER XXI The Main Instrument of Taxation Through an Income Tax taxation can be applied according to "ability" 291 The British Income Tax an ancient impost 291 The so-called "Land" Tax of 1692 was an income tax 292 The "Land" Tax of 1692 and the present Income Tax compared 295 A graduated Income Tax taxes unearned increment 296 The Income Tax in 1905 described 297 The "Abatements" 297 Schedule A described 298 Schedule B described 299 Schedule C described 300 Schedule D described 300 Schedule E described 302 The Inhabited House Duty a second Income Tax 302 The Finance Act of 1907 introduced differentiation between earned and unearned income 303 The Finance Act of 1909. Mr Lloyd George's reform of the Income Tax 303 Mr Asquith's differentiation illustrated 304 The Super-Tax 305 The Super-Tax as it really is 305 The Income Tax summarized 306 The Income Tax in effect 307 The Inhabited House Duty should be abolished 308 Simplification needed 308 Without a Census of Income the Income Tax cannot be properly enforced 310 Masters compelled to reveal employees' incomes 311 Taxation at the source might remain 312 The family man's allowance 314 Is an annual Budget debate necessary? 315 Mill and Bentham on Ethics of Taxation 317 A Plain Bill for the citizens' subscription to the National Club 318 CHAPTER XXII The Death Duties The Death Duty Reforms of 1907-9 320 My suggestions of 1905 now law 321 The plain justice of the Lloyd George Scale 322 The alleged burden of the Death Duties 323 Do our Death Duties waste the national capital? 323 Gifts inter vivos 324 President Taft on the dangers of wealth monopoly 324 CHAPTER XXIII Of Revenue without Taxation A source of revenue not necessarily a source of taxation 326 A State without revenue 327 Socialism and revenue and taxation 327 The German Governments rich are Governments 328 Half the revenue of Prussia is derived from Socialism 328 Yield of Prussian State Railways 329 CHAPTER XXIV Conclusion Progress in 40 years 330 Some items in material progress, 1867-1903 332 What Dudley Baxter wrote in 1867 333 The poor within our borders to-day are as large in number as the entire population in 1867 338 The employer the effective schoolmaster 340 A poor government is a weak government 341 Sir Robert Giffen on taxation 341 We must have regard to both palliatives and remedies 342 Public ownership of capital must replace private ownership 343 The substitution of the public shareholder for the private shareholder not difficult 344 The uplifting of work through the reduction of toil 345 The statesman must take up the tools of the scientist 346 The appeal to the few 348 The appeal to the people 348 Index 351 D RICHES AND POVERTY BOOK I THE ERROR OF DISTRIBUTION CHAPTER I THOUGHTS ARISING OUT OF A GREAT CONTROVERSY URING recent years a considerable share of the thoughts of men has been devoted to the consideration of one part of our fiscal policy,—that part which is concerned with Customs duties. In public and in private, on hundreds of platforms and in thousands of homes, the ancient issue has been debated between those who hold that Customs duties should be imposed for revenue purposes only and those who contend that Customs duties may be used as instruments with which to direct wisely the agricultural, industrial and commercial development of a nation. In the arguments which have been adduced by both sides in this controversy a large part has been taken by evidence of the prosperity or want of prosperity of the United Kingdom, as though Customs policy were the sole factor in determining the wealth and progress of a people. Blind to the fact that a wise Customs policy can at best enable a nation to make the most of its natural advantages, extreme disputants have been engaged on the one side in piling up incontestable evidences of British wealth and on the other side in producing equally incontestable evidences of British poverty. The Free Trader has revelled in import and export, shipping, banking and revenue statistics, while the Protectionist has reminded us of the existence of millions on the verge of hunger, of hundreds of thousands of paupers, and of tens if not hundreds of thousands of unemployed. The Free Trader has demonstrated that, as a whole, we are a wealthy and a prosperous people. The Protectionist has been able to throw doubt upon that wealth and prosperity chiefly because it is an indisputable fact that, whatever may be true of our accumulated wealth and total income, every British city has its slums, its paupers and its out-of- works. The Protectionist has been unable to resist the Free Trade evidence as to the magnificence of our commerce and shipping and the increasing national income recorded by the Inland Revenue Commissioners. The Free Trader has had reluctantly to admit the existence, in our wealthy country, of social disorders and masses of extreme poverty which are terrible blots upon our prosperity. If one side has dwelt almost exclusively upon signs of wealth and the other side almost exclusively upon evidences of poverty, what else could be expected when a highly complicated problem became the shuttlecock of faction? Even honest politicians become afraid to make statements which may be treated as "admissions" when party feeling runs high. The more should we welcome the notable utterance of Sir Henry Campbell-Bannerman at Perth on June 5th, 1903: "But I take it (the Chamberlain policy of 'Preference') as confined to food, and it amounts to this, that the cost of the necessaries of daily life is to be raised to the people of this country in order that the Colonial producer may do more business, make larger profit, and the landowner get better rents. Now the pinch of this does not fall upon the well-to-do. It may be an inconvenience to a great number of people, but the real pinch of it falls upon a needier class altogether, who are sadly large among us. What is the population of the Colonies which I have named? About thirteen millions. This is the population who will share more or less the benefit of this new arrangement. In this country we know, thanks to the patience and accurate scientific investigations of Mr Rowntree and Mr Charles Booth, that there is about 30 per cent. of our population underfed, on the verge of hunger. Thirty per cent. of 41 millions comes to something over 12 millions—almost identical as you see with the whole population of the Colonies. So that it comes to this, that for every man in the Colonies who is benefited, one head is shoved under water in this country. I think I might set down that fact as almost enough of itself to condemn any scheme, however plausible. Surely the fact that about 30 per cent. of the population is living in the grip of perpetual poverty is, or ought to be, a sufficient answer to the Prime Minister's complacent suggestion that we can now afford to try experiments which fifty years ago were not to be thought of." These words have been widely used as a reply to the assertion that we are a prosperous people. Their true meaning is, that while we have acquired great wealth, and enjoy a considerable national income, that wealth and that income are not so distributed as to give a sufficiency of material things to all our population. As for their use as an "argument" for Protection, we have but to turn to that land favoured of nature, the United States of America, to find records of poverty fully as distressing as our own. Mr Robert Hunter, the American sociologist, thus summarises the poverty of the United States of America: "There are probably in fairly prosperous years no less than 10,000,000 persons in poverty; that is to say, underfed, underclothed, and poorly housed. Of these about 4,000,000 persons are public paupers. Over 2,000,000 working men are unemployed from four to six months in the year. About 500,000 male immigrants arrive yearly and seek work in the very districts where unemployment is greatest. Nearly half of the families in the country are propertyless. Over 1,700,000 little children are forced to become wage-earners when they should still be in school. About 5,000,000 women find it necessary to work, and about 2,000,000 are employed in factories, mills, etc. Probably no less than 1,000,000 workers are injured or killed each year while doing their work, and about 10,000,000 of the persons now living will, if the present ratio is kept up, die of the preventable disease, tuberculosis." We have, then, to thank the fiscal controversy for this: In the belief that evidence of prosperity, or the reverse of prosperity, is a proof or disproof, as the case may be, of the wisdom of a particular Customs policy, we have been reminded at once of our riches and of our poverty. Through the controversy over that absurd phrase the "balance of trade," worthy landsmen have been reminded that the United Kingdom possesses half the world's seagoing ships, and poor clerks have learned with astonishment that our oversea investments produce over £100,000,000 of profits per annum. The unemployed workman, drawing from his beneficent trade union the small allowance with which his own thrift has provided him, and which barely keeps the wolf from his door, has learned that our imports of food—"chiefly from foreign countries"—are worth £200,000,000 per annum. Millions—other people's millions—have become common objects of the newspaper column, and it is probable that a great part of our population is now acquainted with the fact that the gross income brought under the review of the Income Tax Commissioners is about £1,000,000,000 per annum. It has also, alas, become familiar that our Poor Law expenditure reaches £17,000,000 a year, and that, even in our best years of trade, many of our skilled workmen are denied the means of earning their livelihood. While demonstrating our prosperity the good Free Trader has paused to write a cheque for a West Ham Distress Fund, or subscribed some shillings for a children's slum party. {3} {4} {5} {6} {7} The object of these pages is to help the reader to form an accurate idea of the distribution of the wealth which results from our industries and commerce. 44,000,000 people in the United Kingdom work to produce certain commodities, and a part of this output is exchanged for commodities produced in other lands. We produce, we export, and we import, and our home production increased by our imports and decreased by our exports constitutes a great income which is divided up amongst us in such manner that some of us are rich and some of us are poor. Let us endeavour to make concrete our ideas on the subject of riches and poverty, that we make quite sure what we mean when we speak of the wealth and prosperity of the United Kingdom. I CHAPTER II THE NATIONAL INCOME N considering and estimating the national income it is necessary to remind ourselves, in the first place, that our production, our exports and our imports, alike consist of both goods and services. The processes of thought and action result in the conception, production, distribution and use of ponderable and imponderable commodities. In an advanced community the greater part of the material and immaterial productions which are the expressions of its various activities becomes the subject of exchange. The many exchanges are made by reference to a common standard, and thus we are enabled to measure, in terms of money, the greater part of the national income. There remains a not inconsiderable production of ponderable and imponderable things which it is difficult or impossible to measure in terms of money, but upon which largely depends the happiness of a people. The material produce which does not become the subject of exchange, includes several very important items, amongst which may be mentioned the produce of the gardens or allotments of many agricultural labourers, and the production of clothing and the cooking of food by the women of the middle and lower classes. The immaterial things which do not come into the market are exceedingly important, especially to the poor. The household work of a poor woman with a husband and several children, if it could be measured in terms of money, would be worth a considerable sum. The imponderable part, the managing, the careful buying, the arranging, the cleaning, the serving, added to the manufacturing part, the cooking and the stitching, go often to make a sixteen-hours' working day, and who shall place a market price upon each of the sixteen hours? In the well-to-do household we also find the woman active for some fourteen or sixteen hours a day, but the product of the hours is more often immaterial than in the poor man's home. Thus the care of servants has been known to cause the expenditure of much time and anxiety by women of large income. A rich woman who has studied under Marchesi may exercise in private, to solace her father or lover, a soprano worth one shilling per note in the public concert-room. It is worth no less in the drawing-room, but in estimating the national income we have to neglect its market value just as we must neglect that of the poor woman's apple-pie. With this reminder as to the production of unexchanged commodities, which, while important, are yet but an exceedingly small part of the product of the entire activities of our people, I proceed to an examination of the money value of that greater part of the product which is bought and sold. The collection of the Income Tax makes a more or less complete inquisition into the profits or salaries received or earned by those whose incomes exceed £160 per annum. Below that limit income tax is not payable, but a small amount of the income of persons with less than this £3 per week does actually come under the review of the Commissioners. If we take the figures of the latest period of which we have record, we find that in the financial year 1908-9 (i.e. the twelve months ended March 31st, 1909) the following particulars of gross incomes were ascertained by the Inland Revenue Officials (fifty-third Report of the Commissioners of Inland Revenue, Cd. 5308, p. 105):— GROSS AMOUNT OF INCOME BROUGHT UNDER REVIEW IN 1908-9 Schedule A. Profits from the ownership of lands, houses, railways, mines, etc. £269,900,000 Schedule B. Profits from the occupation of lands (Farmers' Tax) 17,400,000 Schedule C. Profits from British, Indian, Colonial and Foreign Government Securities 47,500,000 Schedule D. Profits from Businesses, Concerns, Professions, Employments, etc., including certain profits from places abroad 565,600,000 Schedule E. Salaries of Government, Corporation, and Public Company Officials 109,600,000 £1,010,000,000 The following table shows the growth of the aggregate during the past fifteen years:— {8} {9} {10} GROSS PROFITS ASSESSED TO INCOME TAX (From Inland Revenue Report)[1] 1893-4 £673,700,000 1894-5 657,100,000 1895-6 677,800,000 1896-7 704,700,000 1897-8 734,500,000 1898-9 762,700,000 1899-1900 791,700,000 1900-1 833,300,000 1901-2 867,000,000 1902-3 879,600,000 1903-4 902,800,000 [2] 1904-5 912,100,000 1905-6 925,200,000 1906-7 943,700,000 1907-8 980,100,000 1908-9 1,010,000,000 It should be observed that these figures are for gross income, and some adjustments have to be made before we can arrive at the total income of that part of the nation which has the mingled pleasure and pain of paying Income Tax. From the £1,010,000,000 brought under review in 1908-9, the Inland Revenue authorities allowed the following deductions before arriving at taxable incomes:— (a) Exemptions in respect of incomes under £160 per annum £58,400,000 (b) Abatements on incomes ranging from £160 per annum to £700 per annum 120,300,000 (c) Life Insurance Premiums 10,500,000 (d) Charities, Hospitals, Friendly Societies, etc. 11,800,000 (e) Repairs to Lands and Houses 40,100,000 (f) Wear and tear of Machinery and Plant 22,900,000 (g) Other Allowances 52,700,000 Total Deductions £316,700,000 So that Income Tax in 1908-9 was actually collected not upon £1,010,000,000 but upon £693,300,000. But we have not to make all the above deductions in arriving at the actual income of the income tax paying class. We have only to deduct those items which are not the real income of that class, viz.:— (a) Exemptions in respect of incomes under £160 per annum £58,400,000 (d) Charities, Hospitals, Friendly Societies, etc. 11,800,000 (e) Repairs to Lands and Houses 40,100,000 (f) Wear and tear of Machinery and Plant 22,900,000 (g) Other Allowances 52,700,000 £185,900,000 Deducting these items we get:— GROSS ASSESSMENTS TO INCOME TAX CORRECTED[3] Gross Assessments 1908-9 £1,010,000,000 Less Deductions as above 185,900,000 £824,100,000 This figure may be compared with the £719,500,000 given on page 11 of "Riches and Poverty" (1905) for the fiscal year 1902-3. The increase is no less than £104,600,000 in five years, and this increase is especially commended to the notice of those critics who have worked so hard to whittle away a little from my estimates of 1903-4. The onward sweep of the figures has been magnificent; and accomplished facts now provide the apologists of the rich with the task of explaining away another £100,000,000 or so per annum. To resume, the £824,100,000 arrived at above, handsome figure as it is, is certainly not complete. There is unquestionably still a considerable amount of evasion under Schedule D of the Income Tax. The landlords of Schedule A cannot escape assessment because the tax is paid by occupiers and deducted from rent, but there is a certain amount of under-assessment. Under Schedules B, C and E evasion is, for the most part, difficult or impossible. Under Schedule D,[4] however, a large number of incomes are understated and many which ought to be assessed escape altogether. It is almost as true to-day as it was in 1861 that, in the words of Mr Lowe's Draft Report to the Income Tax Committee of that year, "Schedule D depends on the conscience of the tax- {11} {12} {13} payer who often, it is to be feared, returns hundreds instead of thousands, and who is certain to decide any question that he can persuade himself to think doubtful, in his own favour." It is recorded by the Income Tax Commissioners in their Twenty-Eighth Annual Report that when, in 1803, taxation at source was substituted for self-assessment in the case of all income but business profits, the effect was to make the produce of the tax at 5 per cent. in 1803 almost equal to that of 10 per cent. in 1799, showing that in the earlier year those who assessed themselves unaccountably overlooked one-half of their incomes. Dudley Baxter reminds us in his classical paper on the National Income[5] that in his Budget Speech in 1853 Mr Gladstone quoted a remarkable instance of evasion. When Cannon Street Station was constructed, twenty-eight persons claimed compensation for the loss of annual profits which they estimated at £48,000. The jury, after considering their case, awarded them £27,000. They had returned their profits to the Income Tax Commissioners at £9,000! In recent years the formation of limited liability companies has frequently revealed profits far in excess of those previously stated under Schedule D. Whatever figure we allow for such evasion must, in the nature of the case, be conjectural. In "Riches and Poverty" (1905), p. 13, I estimated evasion and avoidance as 20 per cent. of the declared profits. Twenty per cent. of £365,000,000 (the profits of "Businesses, Professions, etc," assessed under Schedule D) in 1902-3 was £73,000,000. We have since had remarkable proof of the reasonableness of this estimate. In 1907-8 the gross assessments to Income Tax rose by £36,000,000 (see p. 11). There is little doubt that part of the rise was due to Mr Asquith's enactment (Finance Act, 1907, Clause 19) differentiating between earned and unearned incomes on the condition that earned or partly earned incomes up to £2,000 a year were declared by their owners. For the financial year 1907-8 does not include the profits of the good year 1907 which (see Chap. 21) were not assessed under our averaging system until 1908-9. It was the new personal declarations which led to the revelation of income hitherto escaping tax, and part of the £36,000,000 rise in assessments in 1907-8 is undoubtedly part also of the estimate of £73,000,000 escaping tax which I made in "Riches and Poverty" (1905). For 1908-9, therefore, I reduce my estimate of income escaping tax accordingly. I now take it as £60,000,000 in 1908-9. Another point for consideration is the amount of profit received by persons in this country from places abroad. It is exceedingly difficult to tax the whole of such profits. In 1908-9, £88,800,000, made up as follows, was ear-marked by the Commissioners as profit received from abroad:— ASSESSED PROFITS EAR-MARKED AS RECEIVED FROM ABROAD, 1908-9 (1) India Government Stocks, Loans and Guaranteed Railways £9,000,000 (2) Colonial or Foreign Government Securities 23,200,000 (3) Colonial or Foreign Securities, other than Government, Coupons, and Oversea Railways other than those in (1) 56,600,000 £88,800,000 The total profit received or receivable yearly in this country from oversea investments it is impossible to estimate precisely, but there is good reason to believe that it is not less than £140,000,000. It should not be imagined, however, that the whole of the difference between this sum and that ear-marked by the Commissioners escapes assessment. Undoubtedly some of it eludes taxation, but a considerable sum, it should be remembered, is included with ordinary business profits under Schedule D. A few illustrations will make this clear. Messrs Armstrong, Whitworth & Co. have a shipyard in Italy the profits of which are received in this country, but are not distinguished from the ordinary profits of the company in the income-tax assessment. The same is true of such a firm as Lipton Ld. which owns extensive tea plantations in Ceylon. The profits made in Ceylon and remitted to this country are included in and assessed with the general profits of the business. There are a large number of firms which similarly own foreign or colonial property or branches which are organic parts of their businesses and are often the sources of their materials. When allowance is made for these facts it is probable that some £115,000,000 of oversea profits (including the nearly £90,000,000 or so actually ear-marked) are assessed to income tax, leaving but about £25,000,000 unassessed. Accepting these figures, we arrive at the following estimate of the total income enjoyed by those persons who have over £3 per week:— INCOME OF PERSONS ENJOYING OVER £160 PER ANNUM, 1908-9 Gross Assessments to Income Tax Schedules A, B, C, D, and E £1,010,000,000 Deduct Items not representing real income, etc. (see page 12) 185,900,000 £824,100,000 Add (a) For under-assessment under Schedule D 60,000,000 (b) Foreign profits escaping tax 25,000,000 £909,100,000 The foregoing figures relate to the fiscal year ended March 31st, 1909, the latest period for which detailed figures are available. It is necessary to point out again that while this fiscal year 1908-9 covered the assessment of the calendar year 1907, which was a year of great profit-making, it did not fully assess the profits of that boom year. Under Schedule D of the Income Tax the profits assessed in 1908-9 were the profits of the three years 1905, 1906, and 1907. That is to say, the figures just arrived at, £909,100,000, are an understatement of the true aggregate incomes of those having upwards of £160 a year in 1907. The actual income of the income tax payers in 1907 greatly exceeded £909,000,000. In "Riches and Poverty" (1905) my equally conservative estimate of the income tax payers' aggregate income for 1903-4 was {14} {15} {16} {17} £830,000,000. We therefore get the following comparison:— GROWTH OF AGGREGATE INCOME OF PERSONS ENJOYING OVER £160 A YEAR 1903-4. Estimate of "Riches and Poverty" (1905) £830,000,000 1908-9. Estimate of this Edition (1910) 909,000,000 Increase £79,000,000 And this remarkable growth in five years is shown in spite of the fact that I have allowed for £13,000,000 of income tax assessment as being due to increased severity of collection, for I have assumed that £13,000,000 more of existing home profits were revealed in 1908-9 than in 1903-4. Now let us turn to the incomes which do not exceed £160 a year, and which, therefore, are not assessable to income tax. First of all, we have the class of small incomes which lie between the manual workers and the income tax payers. We cannot hope, in view of the poverty of the information which our present Census methods place at our disposal, to estimate this part of the national income with any degree of confidence, and we can at best arrive at a rough approximation. I estimate that in 1908, of our "occupied" population, about 3,100,000 were neither income tax payers on the one hand nor manual labourers on the other hand. That is to say, they were petty tradesmen, civil servants, clerks, shopmen, travellers, canvassers, agents, teachers, farmers, inn-keepers, lodging-house-keepers, pensioners, and so forth, whose profits or salaries are below £3 per week. At what rate can we estimate their average income? The total includes a very considerable number of young persons between 10 and 20 years of age. The teachers, some 250,000 in number, include pupil teachers of both sexes whose remuneration begins at a few shillings per week, and as a whole the teaching profession is wretchedly paid. The commercial and law clerks, some 500,000 in number, include juniors, office boys, and poorly paid girl typists. As to shopkeepers, there is an exceedingly large number of these distributing agents whose incomes are of the slenderest dimensions. Unfortunately we do not know how many shops in the United Kingdom have an annual value of less than £20, but their number must be very great, and the petty tradesmen who keep them have to work hard for poor returns. We have also to remember the quite considerable number of shops which are branches of great distributive firms and managed by shopmen with small salaries. As to shop assistants in general, their salaries are exceedingly small. I am informed by the National Amalgamated Union of Shop Assistants, Warehousemen and Clerks that the average male assistant "living in" gets from £25 to £30 per annum plus "premiums" and board and lodging, while "living out" the average is about £74. Grocery and boot salesmen in the shops of big distributing companies, who often are not required to "live in," get from 20s. to 30s. per week. The wages of the "managers" of shops are sometimes as low as 25s. per week. As for the value of the "living in," this may be illustrated by the fact that in a certain West of London house, where "living in" is the rule, a man applied for permission to "live out." He was told that he could do so, but that only £5 per annum extra could be allowed him. In a return to the Board of Trade for the purpose of statistics, the same employer would doubtless value the same "truck" at £30 or £40 per annum. I have before me the wages paid to the young women who work for a great multiple shop firm with 200 shops; they range from 3s. to 11s. per week! Passing to the class of commercial travellers and canvassers, there is perhaps no calling in which earnings vary so greatly. While there are a number in the income-tax class, there are thousands of men included in the class we are now considering who live on "commission only," and thousands more who are paid by generous employers 15s. to 25s. per week plus a small commission. Advertisement and book canvassers are engaged upon widely varying terms, and many of them have a very precarious livelihood. In "Riches and Poverty," edition 1905, I wrote: "Nearly the whole of the farmers of the United Kingdom earn less than £160 per annum. Out of a total profit of £17,500,000 as much as £11,000,000 is excused on the ground that income is below £160. This £17,500,000 is the annual income of an uncertain number of the larger farmers, probably as many as 300,000, which gives an average income of about £60 per annum! In 1902-3, 302 farmers elected to have their actual profits assessed under Schedule D. They were assessed at £10,974, which gives an average of only £37 per annum. These 302 farmers paid an aggregate rental of £116,259!" These remarks did not take sufficient account of the under-assessment of farmers' profits under Schedule B. It would probably have been nearer the mark to take one-half of the rental paid rather than the official one-third as representing farmers' profits. If we did so, the profits of 300,000 farmers would come out at say £26,000,000 instead of £17,500,000, and the average profit would run to £87 per annum. Even this correction, however, would leave the great majority of our farmers under the £160 income tax line. These notes on some of the largest classes of persons which go to make up the order of incomes immediately under consideration will serve to show that we are dealing with working men and working women whose earnings are exceedingly small. It should also be remembered that many of them are subject to losses from terms of unemployment. Clerks and the poorer travellers have little security of tenure, and at any given time there are many out of work. Hundreds of applications are commonly received in reply to single advertisements for clerks and travellers. To the petty tradesman bad trade does not spell "unemployment," but it often spells keeping a shop which does not keep its proprietor for many months. Taking everything into consideration, and remembering that no large incomes are introduced to weight the average, the upper limit being as low as £160 per annum, I do not think we can estimate the average income of the 3,100,000 persons at more than £75 per annum, and I should put the figure lower if I did not assume that a certain amount of interest is drawn by some members of the group. This estimate gives £232,000,000 as the annual income of those who are not "manual" workers, but whose incomes are not assessed to income tax because they are less than £3 per week. I have thus assigned to these members of the lower middle classes no greater earning power than they possessed in 1903. I think I am well advised in this. As will be seen later, wages have been almost stationary of late, and there is no reason to believe that clerks, commission men, etc., have fared better. Even as I write there comes to me a letter from a man whom I employed {18} {19} {20} {21}