Winston Churchill

‘Those who live to the future most always appear selfish to those who live to the present.’—Emerson.

AT the Treasury the appointment of the new Chancellor of the Exchequer had been received with no little apprehension. Every great department has an atmosphere and identity of its own. No politician, however popular in the country or influential in Parliament, can afford to be indifferent to the opinion formed of him by the Civil Servants through whom and by whom he works. Concealed from the public eye among the deeper recesses of Whitehall, seeking no fame, clad with the special knowledge of life-long study, armed with the secrets of a dozen Cabinets, the slaves of the Lamp or of the Ring render faithful and obedient service to whomsoever holds the talisman. Whatever task be set, wise or foolish, virtuous or evil, as they are commanded, so they do. Yet their silent judgments of their masters and their projects do not pass unheeded. Although the spell still works, it loses half its potency if these spirits are offended or alarmed; and padded walls of innumerable objections, backed by the masonry of unanswerable argument, restrain the irreverent or unworthy from the fullest exercise of the powers they may have won by force or favour.

Over all public departments the department of finance is supreme. Erected upon the vital springs of national prosperity, wielding the mysterious power of the purse, the final arbiter in the disputes of every other office, a good fairy or a perverse devil, as ‘My Lords’ may choose, to every imaginative Secretary of State, the Treasury occupies in the polity of the United Kingdom a central and superior position. No school of thought is so strong or so enduring as that founded on the great traditions of Gladstonian and Peelite finance. Reckless Ministers are protected against themselves, violent Ministers are tamed, timid Ministers are supported and nursed. Few, if any, are insensible to the influences by which they are surrounded. Streams of detailed knowledge, logic and experience wash away fiscal and financial heresies; and a baptism of economic truth inspires the convert not merely with the principles of a saint but—too often—with the courage of a martyr.

To many who had spent their lives at the Treasury, Lord Randolph’s arrival was a shock. They regarded him, we are told, as ‘an impossible man,’ as ‘one whose breath was agitation, and whose life a storm upon which he rode.’[57] They had instinctively resented the assaults he had delivered against Mr. Gladstone, ‘the best friend the Civil Service ever had.’ They remembered that, not long before, Lord Randolph had made himself the mouthpiece of a harsh attack upon one of their number. He was known to have expressed privately a candid opinion that they were ‘a knot of damned Gladstonians.’ Lastly, they had read his Fair Trade speeches; and, notwithstanding the reputation he had made at the India Office as a departmental chief, he still appeared in the eyes of Treasury officials as a Minister who would ride roughshod over their habits and violate all their most cherished financial canons.

This mood was short-lived. The disquieted officials found a Minister assiduous and thorough in work and scrupulously patient and quiet in discussion. He possessed the very rare gift of keeping his mind exclusively devoted to the subject in hand, and impressed on all those with whom he worked the idea that the business on which they were employed was the only one of interest to him. No time spent with the Chancellor of the Exchequer was ever wasted. No interruption of any sort was suffered. No one ever left his room after an interview without having at any rate gained a clear knowledge of his views and intentions. Around all played an old-fashioned ceremony of manner, oddly mingled with a sparkle of pure fun, which charmed everybody. In a month the conquest was complete. Every official worked with enthusiasm in his service and all their mines of information were laid open to his hand. It has often been said that Lord Randolph won his popularity among permanent officials by his subservience to their views. This is by no means true. If he cast away altogether as vicious and unpractical the Fair Trade opinions which he had urged, and which commanded so much support among the Tory democracy, it will also be seen that he was able to enlist the interest and positive support of his subordinates in schemes far outside the orthodoxy of the official mind. His stay at the Treasury was short; but his memory was long respected. He left behind him golden opinions and dearly treasured reminiscences. He took away with him friendships which lasted him his life.

‘Our anxiety,’ wrote Lord Welby in 1896, ‘as to our new chief was soon dispelled. He met us from the outset with perfect frankness, which soon became cordiality; and I cannot recall a word or a line of his during his autumn office which I should have wished unspoken or unwritten. Not that he was an easy or an unexacting chief. He expected subjects to be laid before him fully, clearly and intelligently; and he was keen to mark default. He was, in short, a Minister of the type that Civil Servants appreciate. He ruled as well as reigned. He had a mind, and made it up; a policy, and enforced it. He was quick in acquiring information, quick in seizing the real point, quick in understanding what one wished to convey to him, impatient in small matters and details and contemptuous if one troubled him with them. Above all, he was accessible; ready and willing to hear what one had to say, whether it accorded with his own views or not. Doing business with him was most interesting. Not being a respecter of persons he criticised freely and pointedly men and matters.... In "chaff" he was unsurpassed. He was singularly free from affectation of knowledge he did not possess. Could one fail to take an interest in a chief "who always showed us sport"?’

Many tales of Lord Randolph in these days have been preserved. We have a glimpse of his first meeting with a rather dismayed subordinate in the historical Board Room at the Treasury—the stiff and formal cut of his frock-coat, the long amber cigarette-holder, so soon produced, the eternal cigarette, and ‘an old-world courtesy of manner’ which surprised and disarmed a preconceived dislike. We see him going down to the City with Sir Edward Hamilton to lunch formally with the Governor and Directors of the Bank of England and hovering for half an hour outside in a panic of nervousness which robbed him for the time of his self-confidence. We see him once, and once only, when the Court of Exchequer, presided over by its Chancellor, settles the list from which Sheriffs are selected, in his robes of office—those imposing and expensive robes which seem to assert the opulence which should result from thrift, rather than thrift itself. His cynicism was disarming. We are told how, when the dreadful subject of bimetallism cropped up, he turned to Sir Arthur Godley and said: ‘I forget. Was I a bimetallist when I was at the India Office?’ When he received an influential deputation of sugar-refiners and sugar-planters in protest against the foreign Sugar Bounties, he created general consternation by inquiring, with immense gravity, ‘Are the consumers represented upon this deputation?’ We are even told how he complained to a clerk who put some figures before him that they were not clear and he could not understand them. The clerk said that he had done his best, and, pointing them out, explained that he had reduced them to decimals. ‘Oh,’ said Lord Randolph, ‘I never could make out what those damned dots meant.’ But this was surely only to tease.

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Reproduced by permission of the proprietors of ‘Punch.‘ BELLEROPHON JUNIOR. ‘I THINK THIS’LL FETCH ’EM!!’ ‘The Chancellor of the Exchequer states to the Board that Her Majesty’s advisers desire to satisfy themselves that the clerical establishments of the Civil Service, of the Naval and Military Departments, and also of the Revenue Departments, are organised generally upon a principle which secures efficiency without undue cost to the public.’—Treasury Minute, Sept. 14. Punch, September 25, 1886
Reproduced by permission of the proprietors of ‘Punch.‘ BELLEROPHON JUNIOR.
‘I THINK THIS’LL FETCH ’EM!!’

From the very commencement of his career at the Treasury Lord Randolph began the exertions for economy to which he felt himself bound by his electoral pledges. In his private affairs he was usually extravagant and often unbusiness-like; but public money seemed to him a sacred trust. The character and extent of Treasury control over expenditure is very often misunderstood. It is represented sometimes almost as a statutory or constitutional power over the other departments. Such an idea is a complete delusion. The Chancellor of the Exchequer is able to exert his influence in two ways: first, over administration. In small matters not connected with policy, the Treasury acts upon a set of well-defined rules and principles, which the spending departments recognise and endeavour not to infringe and which are enforced more or less strictly, according to the relative authority of the Chancellor of the Exchequer and the other Ministers concerned. Secondly, there is the wide domain of policy; and in all great matters the control of the Treasury is neither more nor less than the personal influence of the Chancellor of the Exchequer upon the Cabinet. Of Lord Randolph’s attempt to assert that influence the next chapter must give some account; but in the meanwhile he laboured with industrious severity to effect administrative economies. On September 14 a Treasury Minute announced the appointment of a Royal Commission to inquire into the establishment and organisation of the great spending departments: ‘The Chancellor of the Exchequer states to the Board that Her Majesty’s advisers desire to satisfy themselves that the clerical establishments of the Civil Service, of the Naval and Military Departments and also of the Revenue Department, are organised generally upon a principle to secure efficiency without undue cost to the revenue.’ A variety of petty economies were effected by his personal authority. He discovered, among other things, that Government specie had to be conveyed in merchant ships, at much expense, because an old custom entitled naval officers to a high percentage. His indignation at hearing that Her Majesty’s gold could not be conveyed in Her Majesty’s ships because of claims by Her Majesty’s officers led to immediate action, and the practice was reformed forthwith.

A remark by the Comptroller and Auditor-General in one of his reports to Parliament drew his attention to another abuse. Of old times sums were issued out of the Civil List to the Secretary of the Treasury for secret service. No public account was rendered of the money thus expended. In 1783, many evils being alleged, Parliament, under the influence of Burke, was persuaded to limit this grant to 10,000l. a year; and that amount was yearly issued to the Secretary of the Treasury from 1783 to 1886. This branch of secret service was, of course, political and was quite distinct from that which is ordinarily known as foreign secret service. The money was used for the purposes of political organisation by the party which happened to be in power. Such a custom could not on any valid ground be defended. Yet for over a century the grant had never been seriously questioned. It might have been urged that the Liberals had always profited by this sum during their long period of power and that many famous men had assumed responsibility for it. Lord Randolph brushed such wire-puller’s arguments aside. Before he had been in office a month he introduced a Bill, which passed rapidly through Parliament, abolishing this payment altogether, and it has never since been renewed.

Until 1886 there had existed an octroi duty on coal coming into the Metropolis, the proceeds of which were divided between the City and the Metropolitan Board of Works. The principle of this duty was not unpleasing to the Conservative party. Its abolition was roundly denounced by the Standard and in high Tory circles. The Metropolitan authorities were glad to get money in an easy and painless manner. Powerful interests objected to a rise in the rates, while the abolition of a duty upon a necessary of life which affected the poor consumer, did not elicit much enthusiastic support. Lord Randolph took some time to make up his mind. He decided that an octroi duty was out of date, that it was a survival of a financial policy that had been emphatically condemned. He declined to countenance its renewal. His speech to the deputation may be read with profit by any who care to see the arguments against such an octroi put tersely, forcibly and without reserve. His impressions at the Treasury seem to have stimulated his mind to great activity and to have aroused in him a keen financial instinct. All sorts of plans were being moved forward by his agency towards and into the sphere of political action. He contemplated the purchase of Irish Railways by the State and their use as an instrument of economic development and of political and strategic control; and Lord Salisbury himself seems to have been persuaded by his arguments. He paid the closest attention to the coinage, and harboured a deadly design against the half-sovereign—‘that profligate little coin’—which he believed was an expensive and unnecessary feature of British currency. But there was one great scheme which overshadowed all the rest.

Parliament had no sooner risen than Lord Randolph turned to the preparation of his Budget. He knew that the duties of leadership in the next Session would demand his whole attention and physical strength; and, in spite of the labours of the memorable year, 1886, he succeeded, by what Sir Algernon West has described as ‘a performance never equalled,’ in getting ready and laying before the Cabinet his financial proposals for the year 1887-8. For nearly twenty years his projects have been veiled in mystery. The silence of the Treasury has remained unbroken. The few high officials who were admitted to his confidence and whose sympathy was enlisted in his plans, have kept their own counsel. Lord Randolph did not choose in any public speech to reveal what he had purposed. He is the only Chancellor of the Exchequer who never introduced a Budget; and in his lifetime rumour alone asserted that he had ever formed one. The time has now come when the abandoned Budget of 1887-8 may be fully unfolded in the form in which, during November, 1886, it received the provisional assent of Lord Salisbury’s Cabinet.

The reader who has accustomed himself to the giant Budgets of modern times must turn his mind and contract his fancy to the humbler figures of a vanished age. The cost of governing the United Kingdom and of providing for the defence of the Empire during the early ‘eighties fluctuated between eighty and ninety millions a year. This was in itself a distinct increase on the estimates of Lord Beaconsfield’s Administration; and Tory speakers were wont to dwell with genial malice upon the fact. The various wars which had disturbed Mr. Gladstone’s rule had left their marks upon the economy of the Army. The money raised by the Vote of Credit in 1885 had been scattered with a lavish hand, and prominent men in both parties were concerned to notice some apparent relaxation in the strictness of Treasury control. Few, indeed, thought so seriously of the future as Lord Randolph Churchill, and his prediction that a ‘Hundred-million Budget’ would be an event of the future was generally regarded as unduly pessimistic. But nevertheless the times were not unfavourable to retrenchment, and there was a healthy demand for departmental reform. With estimates standing at under ninety millions small economies were not disdained. The Ministers of those days had not learned to expand their view of the public resources. A saving of a hundred thousand pounds was regarded as a matter of legitimate congratulation. A reduction of a million was an achievement.

Yet at the same time the narrow scrutiny to which expenditure had been so long subjected and the habitual reluctance of statesmen to enlarge its bounds, left no very obvious opportunities to the new Chancellor. The field had, except for some small patches, been well and thriftily gleaned. Nor did it seem at first sight that the system of taxation which had for five years received Mr. Gladstone’s approval would readily lend itself to striking or sensational treatment.

On the other hand, however, more than one great tendency to change was apparent. The whole question of the Sinking Fund was ripe for reconsideration. The remodelling of the death duties thrust itself before every Chancellor each succeeding year. Above all, the inevitable and swiftly approaching departure in Local Government, involving as it did a complete readjustment of national and local finance and the transference of large responsibilities and resource from Whitehall to the County and Borough Councils, required a strong and daring mind at the Treasury.

Certainly Lord Randolph Churchill’s plan did not err on the side of timidity. He contemplated nothing less than a complete reconstruction of the revenue. The general rate of expenditure and the whole condition of the National Debt were examined anew by a searching and audacious eye. Hardly a single tax was left untouched. The death duties, the house duties, the stamp duties, the wine duties, were all the subject of reform. Immense reductions were proposed in existing taxes. Numerous new taxes were devised. All these changes were not a mere meddlesome and vexatious shifting of burdens from one shoulder to the other. They were each and all essential parts in a vast financial revolution.

The first object of the Chancellor of the Exchequer was to effect a large and substantial reduction in taxation. He desired especially to diminish those taxes which fell upon the lower middle class. He laboured to transfer the burdens, so far as possible, from comforts to luxuries and from necessaries to pleasures. He applied much more closely than his predecessors that fundamental principle of democratic finance—the adjusting of taxation to the citizen’s ability to pay. His second object was to provide a much larger sum of money for the needs of local bodies, so that the impending measure of Local Government might be wide and real in its character. His third object was to effect a certain definite economy in the annual expenditure.

The estimates with which he was confronted amounted to 90,400,000l. The income which the existing taxes were expected to yield was 90,000,000l. The Chancellor of the Exchequer proposed to augment his income by extra taxation aggregating 4,500,000l.—namely, by an increase in the death duties of 1,400,000l., and in the house duties of 1,500,000l.; by extra stamps to yield 284,000l.; and by a wider application of corporation duty, worth 315,000l.; by the revival of a tax on horses to produce 500,000l.; by an increased tax on wine to produce 250,000l.; and by certain minor taxes, to be considered later, which were estimated to produce 300,000l. He proposed to diminish his expenditure by withholding the 2,600,000l. local grants-in-aid, for which a new provision was to be made; by a reduction in the charge for the debt of 4,500,000l.; and by a direct economy of 1,300,000l. He had, therefore, raised his income to 94,500,000l., and reduced his expenses to 82,000,000l., thus becoming possessed of a surplus income over expenditure of 12,500,000l. This surplus he intended to distribute variously. 5,000,000l. were to be available for the purposes of Local Government, in lieu of the old grants-in-aid of 2,600,000l. The indirect taxpayer was to be relieved by a reduction of the tea duties from 6d. to 4d., costing the revenue 1,400,000l.; and by a reduction of 4d. in the tobacco tax, costing 500,000l. The income-tax payer received the greatest advantage, for by a remission, costing no less than 4,870,000l., the rate of the income-tax was to be lowered from 8d. in the pound, at which it stood in 1886, to 5d. in 1887. These outgoings together aggregated 11,770,000l., and the Treasury was left with a final surplus of 730,000l.

These proposals require to be more closely examined. The principal feature of the new taxation was the re-grading and increase of the death and house duties. The death duties in force in 1886-7 were four in number—namely: (1) Probate duty upon the personal property passing on the death of any person, irrespective of destination; (2) the account duty, imposed since 1881 chiefly as a preventive to evasion of probate duty, and chargeable in respect of personalty included in voluntary settlements—death-bed gifts, &c.; (3) the legacy duty, upon benefit derived by the successor to personal property of the deceased at rates according to consanguinity; and (4) the succession duty, upon benefit derived by the successor to settled personalty and to the real property of the deceased, also at rates depending on consanguinity, chargeable, however, on the life interest and not on the capital value. Lord Randolph Churchill approached this complicated system of taxation with the double object of obtaining a larger revenue by a simpler method. He wanted more money and less machinery, fewer taxes and an increased return. His early inquiries at Somerset House and the discussion of the first suggestions which, coming fresh to the subject, he

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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.

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.

Who is there, of those who pay it, that will not look back with envy from these days of 1s. income tax, almost as a permanent charge in times of peace, to times when a tax of 8d. was regarded as abnormally high; when one Chancellor of the Exchequer was resolved to reduce it to 5d., and when his successor (Mr. Goschen) declared that, except for purposes of war, 6d. was a proper limit? Of all Lord Randolph’s proposals none, it may be safely said, would have been greeted with more general approval than his intended reduction of the income-tax from 8d. to 5d. At that time incomes below 150l. a year were exempt, but incomes of 150l. and less than 400l. were allowed an abatement of 120l. Incomes of and above 400l. a year had to pay on the full amount. Official statistics have always been silent as to the total number of income tax payers, it being apparently impossible to frame a trustworthy estimate. It is nevertheless probable that the bulk of persons who are called upon to pay this impost are included in the 150l.-400l. class. It was to this considerable class, composed mainly of persons emerging into an independence they have earned for themselves, and rising by their own industry from the level of exemption to that of income-tax-paying means, that Lord Randolph’s sympathies were directed. The small householder, pinched by having to pay in the early days of January the landlord’s tax under Schedule A, which he cannot recover till he pays his rent at the end of March; the petty tradesman or struggling professional man who defends a precarious respectability by a systematic thrift too often unknown to the burly wage-earner; these are the special beneficiaries from such a reduction, and they share in a peculiar degree in the general expansion of comfort and energy which must follow when five millions of money are surrendered by the State and left to fructify in the pockets of the people.

The largest claim upon the surplus was in respect of Local Government. Lord Randolph proposed to assign the revenue received from a large number of Excise licence duties to the various local authorities about to be established. As it was undesirable to saddle the new-born authorities with the difficulty and expense of collecting many duties for which they possessed no adequate machinery, he arranged that a large number were still to be collected by the State, and the proceeds, less the cost of collection, were to be afterwards transferred. Dogs, guns, game, carriages, servants, armorial bearings, auctioneers, hawkers, patent medicine vendors, plate dealers, refreshment houses, pawnbrokers, tobacco and sweets dealers, beer, wine and spirit dealers, and the new tax on horses, aggregating in all 2,700,000l., were to be thus for the time being reserved. But all licences which the local bodies could collect without any additional cost or trouble were to be handed over at once. 1,544,000l. worth of liquor licences fell into this latter class. They were to be granted, as heretofore, only on the production of a magisterial consent, and nothing was simpler than to make the paying of the duty and the obtaining of the consent simultaneous. Lord Randolph’s schemes on this point travelled beyond both the Budget and the Local Government Bill, and embraced local option in the drink traffic. He believed that the liquor laws ought to be intimately connected with Local Government. He wished to entrust local authorities with very large powers to regulate the sale of liquor in their districts; and he thought that if the revenue which arose from liquor licences was made an important source of revenue for the local authority, a salutary check would be provided against hasty or fanatical action, leading perhaps upon a popular impulse to total prohibition, and upon the rebound to an unrestricted sale. ‘When you are legislating,’ he said a year later at Sunderland (October 27, 1887), ‘about subjects which interest human beings, it is just as well not to leave altogether out of account human nature.’ The transfer by different methods of these sources of revenue, together with the contribution of 800,000l. in aid of the indoor poor, provided the round sum of 5,000,000l. as the foundation upon which Local Government was to be erected.

The preparation of such a Budget required an extraordinary exertion. Scheme after scheme was formulated, only to break down in discussion and to be dismissed. Many days—wrested by an effort from other pressing occupations—were consumed in study and reflection. But at length all was in order and the plan was in detail settled and complete. In every respect—in the definite economy, in the reduction in the expenditure on armaments, in the increase in the proportion of direct taxation, in the immense diminution of public burdens, in the enormous simplification of the death duties and the introduction of a logical system of graduation, in the ample provision for the needs of Local Government—it was a democratic Budget. Yet it was cunningly contrived. The importance and cohesion of the scheme would have secured it a momentum of its own. Objections upon detail could at every point have been answered by general principles. The low income-tax balanced the diminished Sinking Fund. The economies in public charges justified the remissions of taxation. The tremendous appeal to the middle classes of a 5d. income-tax would have provided the driving power needed from within the Conservative party. Nevertheless, it was in a grave and nervous mood that the young Chancellor introduced it to the Cabinet in the early days of December. He spoke long and earnestly. He exerted all his power of luminous and attractive exposition. The whole proposal was unfolded. His colleagues seemed for the moment fascinated. Objections and doubts were silenced together. No one cared to assail in detail a scheme all parts of which hung so closely together and which, in the mass, displayed such novel and spacious outlines. Even Lord Iddesleigh, the creator of the threatened Sinking Fund, consented to its dissolution for the sake of the integrity of the scheme. Lord Randolph had come prepared for an uncertain and protracted battle. He seemed to have won the victory at a single charge.

His friends at the Treasury waited anxiously for his return. Startled as they had been by some of his views, foreign to their traditions as was his treatment of the debt, they had been drawn into the momentum of what was, after all, a great design. They were prompt to offer their congratulations upon the Cabinet acquiescence. But Lord Randolph was far from confident. The silence of his colleagues oppressed him. ‘They said nothing,’ he told Lord Welby, ‘nothing at all; but you should have seen their faces!’ He proceeded to give instructions for checking every figure and recasting every calculation from the beginning, as if he apprehended some tardy attack, against which preparations should be made. This arranged, as was his habit he pushed the whole matter from his mind. ‘There,’ he said grandly to Sir Algernon West later in the day, ‘are the materials of our Budget. They are unpolished gems; put the facets on them as well as you can; but do not speak to me on the subject again until the end of the financial year.’