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Home -> E. Hilton Young -> The System Of National Finance -> IVa

The System Of National Finance - IVa

1. Preface

2. I

3. Ia

4. II

5. IIa

6. III

7. IIIa

8. IIIb

9. IV

10. IVa

11. V

12. Va

13. VI

14. VIa

15. VIb

16. VII

17. VIII

18. VIIIa

19. VIIIb

20. IX

21. IXa

22. X

23. Xa

24. Xb

25. XI

26. XIa

27. XII

The chief head of revenue with which the Board
of Inland Revenue is concerned, the Income Tax,
is collected on a system of its own. It is a cum-
brous old machine, constructed when the taxpayer
was less well broken 1 to the bit than he is now.
When the Income Tax was born, the taxpayer was
fearful of oppression at the hands of the local tax
collector. Excise and excise man were still
words as capable of raising a riot as they had been
in Walpole's time. Dislike of inquisition into a
man's means was strong then, and is not yet extinct.
There are traces of all these things in the anomalies
of the income tax machine, and of states of the
social mind far more remote even than they. To
protect the taxpayer from official inquisition, the
collection of income tax is controlled by private
persons not in the employment of the state. These
are the District Commissioners of Inland Revenue,
men of good standing in the district for which they
act. If a taxpayer prefers to be dealt with by
professionals rather than by amateurs, he may put
himself into the hands of the Special Commissioners,


civil servants of high standing appointed by the
Treasury, who work at Somerset House. With
the Income Tax, as with the taxes with which we
have already dealt, assessment and collection are in
different hands. To do the work of assessment
Assessors are appointed by the District Com-
missioners. They are persons of repute in the
district (which is commonly the parish), not Govern-
ment servants, but in receipt of small fees. In
theory they assess the taxpayer's income, and
communicate the assessment to the Surveyor of
Taxes for the district. In practice the assessment
is made by the Surveyor on returns of income
made by the taxpayers and transmitted to him by
the District Commissioners, who have received
them from their Assessors. In fact the amateur
organisation of Commissioners and Assessors is of
very little practical importance in comparison with
the professional Surveyors. The discontented
assessee may complain to the Commissioners and
ultimately to the High Court of Justice.

So much for the assessment of the income tax :
now for its collection. To get in the money the
District Commissioners nominate and the Board of
Inland Revenue appoints Collectors in each parish
or other district, who must be " able and sufficient
residents." The local Assessor is often appointed
Collector also, which is a departure from the good
rule that collection and assessment should be in
different hands. These Collectors are not Govern-
ment servants, although they receive fees and
commissions, and they must be distinguished from
the professional Collectors of Customs and Excise.
They are nominally under the control of the


District Commissioners, but practically under that
of the professional Surveyor of Taxes. They
demand the amounts due for income taxes from the
victims. When they have collected them, they
proceed to transmit them to their central authority,
which is the Board of Inland Revenue. As already
explained, there is only one set of local and pro-
fessional Collectors of Revenue ; it is the Collectors
of Customs and Excise, who are the servants of the
Board of Customs and Excise. It is, therefore, to
them that the parochial Collectors of income tax
transmit their collections and the Collectors of
Customs and Excise transmit the amounts to the
Board of Inland Revenue. 1 The Surveyors of
Taxes also have an eye on the collection; they
compare the collectors' receipt books with their
remittances, and inspect and report upon their
schedules of arrears. There is a quaint statutory
provision still in force by which periodic " Receipts "
are fixed, special days on which the Collectors of
Income Tax must attend and account for their
collections to the official Collector of Customs and
Excise, when the Collector of Customs and Excise
may put the Collector of Income Tax to his oath
that all sums paid have been accounted for. 2 The
provision dates from days when trains and tele-
graphs were not, and letters were a shilling apiece.
Nowadays the times are still appointed for the
"Receipts," but if the Collector of the tax has
accounted to the Collector of Customs and Excise

1 Collectors of Customs and Excise now act as Collectors of
Inland Revenue under the Taxes Management Act, 1880. Their
authority is the Excise Transfer Order, 1909 (Statutory Rules and
Orders, 1909. No. 197).

2 Taxes Management Act, 1880. 100, 103.


satisfactorily before that day, as is nearly always
the case, his personal attendance is not required.

There is a part of the detailed machinery pro-
vided by the statutes which govern the collection
of Income Tax l which deserves mention, not for its
practical importance, but for its curiosity. When
our Governors in savage Africa impose a hut tax
upon the natives, they are wont to assess them
village by village, and to make the village as a com-
munity responsible for the whole amount assessed
upon it. It saves the Governor trouble to do so,
because it enables him to deal with the village head-
man as representative of the community instead of
with each individual taxpayer. In the law for the
collection of Income Tax there are the fossilised re-
mains of a similar primitive system of taxation by
village units. We find them in the provision that
the Parish is liable, under certain circumstances, to
make good defalcations by the local Collector and
to make up revenue which he has failed to collect.
This aged and outworn little piece of machinery
links up the modern system of revenue collection
with the Anglo-Saxon. Now the organisation of
the state is strong and centralised, and the improve-
ment of means of communication enables it to deal
directly with each taxpayer. Then it was weak and
distributed, and communications were difficult.
The feeble state made no effort to deal with the
individual taxpayer, but got the money out of the
local authorities and left them to recover it from
those ultimately liable. The history of taxation
has been the history of change from that system
to our present system of direct collection, and
1 Taxes Management Act, 1880. 79 (2) and ss. 112.


these fossils of the law of tax-collection link our
present civilisation with that of 1500 years ago.

We have now dealt in some detail with the
manner of collecting the indirect taxes, which are
the duties of Customs and Excise, and the chief of
the direct taxes, which is the Income Tax. Other
revenue received by the two great revenue depart-
ments, the Boards of Customs and Excise and of
Inland Revenue, is collected in the same way and
is all ultimately paid into the Exchequer Account
of the Bank of England. Revenue received by other
departments is dealt with in the same way. Post
Office revenues, the rents of Crown lands and
revenue from other sources collected by the
Woods and Forests, and the dividends from the
nation's holding of Suez Canal shares, all are paid
into the Exchequer Account. To that account
are credited also the minor receipts of various
departments, under the heading of Miscellaneous
Revenue, including in particular the profits made
by the Mint, which are principally derived from
the coinage of silver. In accordance with the
statutory rule that there must be only one central
account to which all revenue is paid, as the amount
of each of these minor contributions to the revenue
is ascertained, it is credited to the Exchequer
Account at the Bank of England. That is the rule,
but it is a rule subject to several exceptions ; and
since the rule is also law, for each of the exceptions
there is or ought to be some legal authority. To
complete the account of the system of revenue
collection we must deal with the exceptions to the
rule ; with the cases, that is, in which revenue
collected is not directly credited to the Exchequer


Account but is diverted to some other purpose.
They have some importance. It is upon the
Exchequer Account, usually under its alias of
the Consolidated Fund, that Parliament operates.
Money paid into it is under the direct control of
Parliament in its annual financial measures.
Money not paid into it may escape that control.
It matters, therefore, a great deal that when money
is not paid into it there should be parliamentary
authority for the proceeding and some provision
for securing Parliament's control of the receipts,
although under the circumstances the control can
be exercised in an indirect manner only.

The first exception to the rule is an apparent
exception only. Revenue collected for Customs
and Excise is gross revenue. Out of it large
allowances have to be made. When goods are
exported on which excise duties have been paid,
and when imported goods on which customs duties
have been paid are re-exported, the amount of the
duties is repaid in the form of rebates and draw-
backs. Local collectors retain a part of the funds
which they collect to make these repayments, and the
Accountant General's drawing account provides
the funds needed for payments of the sort at the
Head Office. Thus the revenue for which the
department has to account to the Consolidated
Fund is net revenue : it is the gross revenue
collected less rebates, drawbacks, and minor
allowances. The Board of Inland Revenue deals
in the same way with the big allowances which are
made annually to Income Tax payers. But even
in a case in which the need for the interception of
apart of the revenue is so obvious, express statutory



authority is needed for the retention. In the case
of drawbacks and rebates it is provided, as we have
seen, by Section 10 of the Exchequer and Audit
Act, quoted a few pages back.

The exception to the rule to be mentioned next
is more substantial. The Boards of Customs and
Excise and of Inland Revenue, before paying the
revenue which they collect into the Exchequer
Account, deduct enough to meet the expenses of
collection, and keep it in their own hands. Their
authority to do so comes from that Proviso to
Section 10 of the Exchequer and Audit Act which
has already been quoted. The manner in which
the credit retained by the departments is accounted
for is neat and even elegant. We may consider the
case of the Board of Customs and Excise as an
example. A Collector retains out of his daily
receipts enough to meet the current expenses of
his office, including salaries. What he retains
remains in his hands as a cash balance at his local
bank, for which he is responsible. He sends to the
Board vouchers for the amounts retained. Similarly
credits are periodically transferred from the
Account of the Commissioners at the Bank of
England to the drawing account of the Accountant
General, to provide him with a cash balance on
which to draw for the expenses and salaries of the
Board in London. An account is kept by the
Board of the total amounts thus retained for ex-
penses out of the gross revenue collected, and
once a month a claim is made upon the Treasury
for credit in respect of them. Rough adjustments
only are made in these monthly claims ; but every
quarter a careful adjustment is made, and at the


end of the financial year an adjustment as accurate
as man can make it. Grants, be it noted, have
already been voted by Parliament to meet the
expenses of the department according to the
Votes in the estimates. When the Treasury
receives a claim for credit from the Board, it makes
sure that grants have actually been so made by
Parliament to meet the expenses in respect of
which the Board has retained money. It then
makes a formal issue from the Exchequer Ac-
count to the Account of the Board, and deducts the
amount so issued from the credit voted by Parlia-
ment for the expenses of the Board, by debiting it
to the account of the Votes of the Board kept by
the Treasury. Having received the issue on to its
Account, the Board promptly pays it back into the
Exchequer Account. Issue and repayment are no
more than formal cross entries in the books kept
at the Bank, which serve to maintain the Exchequer
Account as an accurate record of revenue and ex-
penditure. The credit represented by these formal
entries never, as we have seen, actually reaches the
bank. It is retained and spent locally by the
Officers of the board.

In practice, for the sake of simplicity in account-
ing, the Board's daily deductions for expenses are
dealt with as if they were all made out of Customs
revenue, as distinguished from Excise revenue. The
daily statements of the district Collectors show the
amount of Customs and Excise revenue collected
for the day. The total Excise revenue collected
during the day is added up. This is credited
daily, less the Repayments, to the Exchequer
Account as Excise receipts. The balance is


credited daily to the Exchequer Account as
Customs Receipts: it is the Customs revenue
collected during the day, less the amount retained
for repayments and expenses. So, when the claim
on the Treasury is made, it is made on behalf of
the Customs revenue only, and one transfer only
to the Exchequer Account as Customs receipts is
all that is necessary, and not a double transfer to
the Account for both Customs receipts and Excise
receipts. The percentage of expenses, it may be
observed, to the gross amount of revenue collected,
on an average for the past ten years, is about 2*5
per cent.

Receipts are also intercepted in this manner for
several purposes other than the expenses of collec-
tion. Collectors in out of the way localities are
allowed to make use within their districts of their
local balances for payments on behalf of departments
other than their own, such as payments to local
pensioners for the Admiralty and War Office, and
for the Board of Trade. Vouchers for amounts
thus advanced to other departments are sent to the
Board of Customs and Excise in London. A claim
is made by the Board upon the debtor department.
That department, when it has verified the claim,
notifies the Treasury ; and the Treasury, by a book
entry, writes the amount of the claim off the Votes
Account of the debtor department, which records
the amount of the money granted to it by Parliament
for its expenses, and credits it to the Exchequer
Account as Customs receipts.

It appears, then, that the revenue credited
directly to the Exchequer Account by the Board
of Customs and Excise equals the gross revenue


collected, less drawbacks, rebates, and allowances,
the expenses of the department, and local advances
to other departments.

The purpose of the system of deductions is to
economise. For economy's sake, money is used
where it comes to hand, without needless transfers
of credit to and from London. Local payments
are met out of local receipts, and accounts are
adjusted by book-keeping entries. The system is
simple and economical, but it involves leaving
large cash-balances in the hands of the Collectors.
Wherever local officials are thus left with money
under their control, good financial administration
demands that there should be constant supervision
as to the amount and the uses to which it is put.
In this case the supervision is provided by a staff
of inspectors under the control of the Accountant
and Comptroller General of Customs and Excise.
They circulate amongst the Collectors, paying
surprise visits to check their balances and accounts.
It is arranged that every Collector shall be so
visited at least once a year.

It was pointed out in the preceding chapter
that one of the means by which Parliament controls
the whole of the public finances of the year is
through its power, when it is considering the
estimates for the Revenue Departments in Supply,
to refuse to vote the money needed for their
expenses. In spite, it was said, of the fact that a
large part of the revenue is collected under
permanent statutes, Parliament can thus prevent
the Executive from getting any revenue at all, by
preventing it from applying any part of the
Consolidated Fund to the payment, for instance, of


its revenue collectors. It may be worth while to
point out that the system described, under which
the Revenue Departments intercept the sums
needed for their expenses out of the revenue and
do not pay them directly into the Consolidated
Fund, in no way impairs that means of control.
For suppose that Parliament has made no grant for
the expenses of the Revenue Departments, and
suppose that the Board of Customs and Excise, for
instance, retains nevertheless out of revenue
collected sums to meet its expenses. Then, when
it makes its monthly claim on the Treasury for
credit in respect of the amount retained, the
Treasury must answer, " We are sorry, but there
are no grants of Parliament standing to your
account out of which we can give you such a
credit." Failing to obtain the credit the Board and
its subordinates would be confronted with a de-
ficiency in their accounts of revenue collected,
and with the obligation to make it good out of
their own pockets. Without the authority of the
Parliamentary grant the Board must monthly make
good what it has deducted for expenses : in short
it must work for love or not at all. Expenses and
salaries of the Board of Customs and Excise
amount to about two and a half million a year, not
a sum which the officials are likely to subscribe
amongst themselves to pay for the fun of out-
manoeuvring Parliament.

The last exception to the rule that all revenue
goes to the Consolidated Fund, or rather the last
exception that can conveniently be dealt with here,
is provided by the Department of Woods and
Forests. As stated, it is net revenue only of the


Crown lands and properties which that department
pays to the Consolidated Fund, after deducting the
cost of keeping up the estates and so on. It may
be admitted that there are good reasons for the
exception. The department has the ordinary
business of land ownership to carry on, and it is
convenient for it to enjoy a wide freedom in fixing,
for instance, the percentage to be deducted from
receipts for repairs of fences and cottages. The
freedom however carries with it an exceptional
responsibility, and it is open to question whether
it would not be better in this case also to apply the
general rule, and to bring the administration more
directly under the control of Parliament by requir-
ing an estimate from the department of the
allowances to be made in the course of the year for
repairs, etc. A grant in respect of the estimate
would then be voted by Parliament in the regular
course, and the gross amounts collected would be
credited to the Exchequer Account.

We have now seen how the revenue reaches the
Exchequer Account of the Treasury at the Bank of
England, which is the Consolidated Fund. We
have noticed most of the noteworthy deductions
which are made from it before it is paid into the
account. One other class of deductions, Appropria-
tions in Aid, will be dealt with hereafter. In the
cases of the indirect taxes and of one principal direct
tax we have followed in detail the actual machinery
of collection. With that we have finished with
the business of getting, and we pass on to the
business of spending.

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