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

The System Of National Finance - IV

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 Executive receives from Parliament its power
to act, in the manner described in the last chapter.
The greater part of the taxes it is authorised to
collect under permanent statutes. For the collec-
tion of income tax and tea duty it receives each
year an authority which applies to that year only.
Even in their case the basis of assessment and the
manner of collection are governed by permanent
statutes. The skeleton of the tax is permanent;
all that the annual Finance Act does is to give it
life for another year. It is essential that the
Executive should be able to collect the tea duty
and any fresh duties of customs or excise or any
increases in old ones as soon as it is made known
that they are to be imposed. Were it not able to
do so, importers and manufacturers would scramble
to rush dutiable goods into the country and to clear
their stocks in the interval before the new or
higher duties became operative, and the revenue
would suffer. Thus it would largely defeat the
purpose of any change had the Executive to wait
to impose the new rates and charges until all the
formalities could be fulfilled which are needed to
make the Finance Bill law. For that reason it is


customary for the Committee of Ways and Means
to pass the resolutions imposing the income tax
and tea duty, and any new or increased duties, on
the same day as they are announced in the Chan-
cellor's Budget speech ; and there was formerly a
custom or tradition according to which the Execu-
tive thereupon at once exacted them from those
upon whom they were imposed, trusting to the
passing of the Finance Act to regularise the matter
in due course. The custom was upset or destroyed
by a decision of the courts in the case of Bowles
v. Bank of England, part of the aftermath of the
rejection of the Finance Bill of 1909 by the Lords.
In that case it was decided that, custom or no
custom, there was no legal authority to exact
income tax until the resolution of the Committee
of Ways and Means had been clothed by the
Finance Act with the force of law. To put matters
back on the old footing it was necessary to pass a
special Act of Parliament, the Provisional Collection
of Taxes Act of 1913, by which it is enacted that
where a resolution is passed by the Committee of
Ways and Means providing for the variation of
any existing tax or for the renewal of any tax in
force, and the resolution contains a declaration that
it is expedient in the public interest that the
resolution should have statutory effect, the resolu-
tion shall for a limited period have statutory effect
as if contained in an Act of Parliament, and where
the resolution provides for the renewal of a tax all
enactments which were in force with reference to
the tax as last imposed by Act of Parliament shall
during the said period have full force. It is provided
that the resolution shall cease to have statutory



effect if not agreed to by the House within
ten sitting days after the resolution was passed
by the Committee. The confirming Bill must
be read a second time within twenty sitting
days of the passage of the resolution, and the
statutory effect of the resolution is to expire
in any case after four months. This Act applies
to duties of customs and excise and to income
tax only.

As soon as the Committee of Ways and Means
has passed its taxing resolutions, the Executive is
fully armed by this act with all the powers which it
needs to collect the revenue for the year. There is
no interval in which manufacturers and importers
can forestall any new charges, unless it be the hour
or two between their announcement by the Chan-
cellor of the Exchequer and the passing of the
resolutions by the Committee.

The work of collection is done by the Board of
Customs and Excise and the Board of Inland
Revenue. To give a detailed account of the
manner of collection of every tax and duty and of
ever}' other source of revenue would lead us too
far into a field of unnecessary detail. It will be
enough for our purpose to consider the methods ( by
which two typical classes of revenue are gathered
in : one indirect, the duties of customs and excise ;
and one direct, the income tax.

In early days, the King's taxes were received
in gold and silver. The sheriff collected the coin
and carted it to the King's Exchequer, where it
was put into a chest. When the payments had to
be made, it was with coin from the chest. In these
days of banks, the process of collection is more


refined. Payments nowadays, needless to say, are
made in the vast majority of cases not in coin but
in the convenient paper currency of cheques which
the banks make it their business to supply. We
have to bear in mind, throughout what follows,
that in speaking of payments and remittances we
are speaking, not of the transfer of sovereigns from
hand to hand, but of the transfer of credit from
bank to bank by means of bits of paper. The effect
is the same. Under our perfected banking system,
if A gives B a cheque, which is a document which
enables B to get sovereigns from A's bank, if that
bank is absolvent institution B is as well content as
if A had given him the money in little bits of gold.
Nor does B trouble himself actually to get the
sovereigns from A's bank : he gives the cheque to
his own bank, and then he is in a position to give
C a cheque on that bank for an equal amount. The
banks see to the adjustment amongst themselves of
the consequent transfers of credit. The result is
an immense saving of the time, trouble, and
expense which it would cost to cart about coin :
how great we shall see when we come to consider
the central operations in the transfer of credit at
the Bank of England. In the meanwhile it is
useful to bear in mind that the great bulk of all the
payments with which we are here concerned are
effected by cheques, and ;that in practice cheques
are nothing other than written authorities to a
bank to transfer credit from the account of one
person to that of another at the same or at a
different bank.

At this point it will be useful, too, to pause and
to point out a distinction which will help us in


steering a straight course through the intricacies
of the nation's accounts. It is the distinction
between a balance and an account. Suppose that
I have, in the common phrase, some money at the
bank. What I have is not of course some coin in
a box there. I have a right to call upon my bank,
a solvent debtor of large means, for a certain sum.
The sum for which I have the right to call upon it
is my balance there. If I have the right to call for
it in cash at a moment's notice, I call it a cash
balance. Now that balance is the difference between
the sums which I have paid into the bank and the
sums which I have drawn out of it ; and the record
of all those transactions is my account. A balance
is money or credit as good as money ; an account
is a record, and that is the distinction which it is
useful to bear in mind. A single balance of credit
may figure in many different accounts : it may be
recorded in a number of different ways and by a
number of different people. Unless the distinction
between the credit itself and the accounts in which
its origins and destinations are recorded is borne
in mind, there is a danger of losing sight of the
actualities of financial control in a maze of
technicalities. There is unfortunately an additional
source of confusion in the use of the word " fund,"
which is commonly used indifferently to mean either
an account or a balance.

In primitive times men kept their money in
coin, put away in boxes, and so did the state.
Now we keep it in the form of a balance at the
bank, and so does the state too. Just as the
average man of means has an account with his
bank, the credit balance of which is the money


which he has, so the state has an account with the
Bank of England, and the credit balance of that
account is its available money. Its account there
is called the Exchequer Account of the Treasury,
as already mentioned. The most important fact
about it is that it is one and not many. Formerly
different heads of revenue were paid into different
accounts. By the Exchequer and Audit Act of
1866, which completed a long process of consolida-
tion, all the different accounts were combined into
this one, which is also called the Consolidated
Fund. Sections 10 and 1 1 of the Act are as follows :
"The Commissioners of Customs, the Commis-
sioners of Inland Revenue, and the Postmaster-
General shall, after Deduction of the Payments for
Drawbacks, Bounties of the Nature of Drawbacks,
Repayments, and Discounts, cause the gross
Revenues of their respective Departments to be
paid, at such Times and under such Regulations as
the Treasury may from Time to Time prescribe, to
Accounts to be entituled 'The Account of Her
Majesty's Exchequer,' at the Bank of England and
at the Bank of Ireland respectively, and all other
Public Moneys payable to the Exchequer shall be
paid to the same Accounts, and Accounts of all
such Payments shall be rendered to the Comptroller
and Auditor General daily, in such Form as the
Treasury may prescribe : Provided always, that
this Enactment shall not be construed to prevent
the Collectors and Receivers of the said gross
Revenues and Moneys from cashing, as hereto-
fore, under the Authority of any Act or Regu-
lation, Orders issued for Naval, Military, Revenue,
Civil, or other Services, repayable to the Revenue


Departments out of the Consolidated Fund or out
of moneys provided by Parliament ( 10).

" All Moneys paid into the Bank of England and
the Bank of Ireland on account of the Exchequer
shall be considered by the Governor and Company
of the said Banks respectively as forming One
general Fund in their Books; and all Orders
directed by the Treasury to the said Banks for
Issues out of Credits to be granted by the
Comptroller and Auditor General, as herein-after
provided, for the Public Service, shall be satisfied
out of such general Fund ( n)."

We shall see presently the effect of the Proviso
to the first paragraph, and the meaning of some of
the other clauses in these sections.

Roughly speaking then we may say that the
Exchequer Account at the Bank of England is the
state's one Revenue Account, and its balance on
that account is the money which it has. After this
short preface we are in trim to consider the system
on which the money is collected. It will help us
to follow on the one hand the transfers of credit
from the accounts of the taxpayers to the account
of the state ; and on the other the system of accounts
by which those transfers are recorded and checked.

Let us deal first with indirect taxation. A
matter of interest is the men who do the work.
The organisation of the central authority, the Board
of Customs and Excise, has already been described.
Ramifying from the Board at the Custom House
there is a numerous local staff. The country is
divided into districts and over each district there
is a Collector of Customs and Excise. Under each
Collector there are several Surveyors of Customs


and Excise, and under each Surveyor there are a
number of Officers, each of whom has his local sta-
tion, and a number of Preventive-men. The total
staff numbers over 8000, of whom nearly 700 are
Surveyors, some 5400 are Officers and some 1500
form the Preventive Staff. In the arrangement of
their work there is that parallelism which we have
already noticed as the secret of good administration
in financial matters. For every officer who does
the actual work of collecting, there is another who
acts as a check upon him. This is brought about
by a separation of the functions of assessment and
collection. Take for example the collection of excise
duties upon the whiskey produced at a big distillery.
If the distillery is big enough, it is made the perma-
nent station of an Excise Officer. The Officer
communicates to the Surveyor of the district, who
is his immediate superior, the amount of whiskey
sent out from the distillery. The Surveyor acts
as assessing officer : he determines the amount of
duty payable, and thereby " raises a charge "
against the Collector of the district, who is his own
immediate superior. Next he communicates his
assessment to the Collector and to the central
office, and it then becomes the duty of the Collector
to collect the amount of the assessment. Thus
assessment and collection are in different hands :
should any evilly disposed person seek to defraud
the revenue by corrupting its agents, he has not
one official to deal with but two, and three if we
count the Excise Officer.

Surveyors assess, and Collectors collect what
Surveyors have assessed. The actual collection
takes place as follows. The assessed person attends


at the Collector's office to pay the duty. The
Collector is legally entitled to demand cash ; in
practice small sums only are so paid. By arrange-
ment the Collector agrees to take the payer's
cheque : it must be either a bank cheque, which is a
cheque that is drawn by the payer's bank itself
under arrangement between them, or a cheque
guaranteed by a bank. Cheques and the small cash
received are paid in daily by the Collector to his
official account at an approved local bank. In
seven of the chief provincial cities, where there is a
branch of the Bank of England, that branch is the
Collector's bank. In other places it is common for
the Bank of England to appoint some local bank as
its agent, and it is generally with that agent that
the Collector banks. Having paid what he has
collected into his local bank, the Collector remits it
daily to the account of his Head Office at the Bank
of England in Threadneedle Street. If he banks
with a local branch of the Bank of England, the
branch itself notifies the Bank in London, and
the Bank in London gives credit for the amount
received, while the branch deducts it or " writes
it off" the Collector's local account. If he banks
with a local agent of the Bank of England, the
Collector receives from the agent a bank receipt
for the amount paid in and sends it to the Bank in
London. The amount is then " written on " in
London and "written off" in the country. That is
the way in which the great bulk of the remittances
are made. If his bank is neither branch nor agent
of the Bank of England, the Collector draws a bill
at sight, 1 which is the same thing as a cheque, on
1 From Scotland, a seven days' bill.


his local bank, and sends that to the Bank of
England. The Bank gives credit for the amount of
the cheque and deducts that credit from the account
kept with it by the London head office or London
agent of the Collector's local bank. Such is the
banking mechanism of the remittances, by which
the Collector transmits daily the amount of his
collections to the Bank of England in London. He
also notifies his own head office daily of the
amount which he has transmitted.

The Commissioners of Customs and Excise keep
two accounts at the Bank of England : they are
(i) the Account of the Commissioners of Customs
and Excise and (2) the Account of the Accountant
and Comptroller General of Customs and Excise.
It is to the former that the Bank credits daily all
the sums received from the Board's Collectors;
and it sends daily to the Commissioners a pass-
book showing the state of the account. The sums
collected are not left standing at the credit of that
account. As we have seen, one of the fundamental
principles of our system of national finance is that
all revenue received is to be paid into a single
account, the Exchequer Account of the Lords
Commissioners of the Treasury at the Bank of
England, which also passes under the alias of the
Consolidated Fund of the United Kingdom, and by
the nick-name of the Exchequer for short. The
Commissioners of Customs and Excise make daily
transfers of the available balance of revenue re-
ceived from their own account at the Bank of
England to that general and central account. It
has then passed out of their control into that of the
Treasury. A cross-entry in the books of the Bank


is all that is needed to make the transfer. They
also transfer from time to time, and by a similar
operation of cross-entries in the books at the Bank,
a certain amount of credit from their own account
to the account of the Accountant and Comptroller
General. This last is a drawing account : it is the
account upon which the Accountant General draws
to meet the current expenses of the office, and for
other purposes to be mentioned.

Reverting to the distinction between balances
and accounts, we see that the credits collected are
in the hands first of the local bank and then of the
Bank of England. They are accounted for first in
the Collectors local account, then in the account of
the Commissioners at the Bank, and finally, as to
the bulk in the Exchequer Account at the Bank, as
to a part in the drawing account of the Accountant
General at the Bank. The process of collection
involves two transfers of a balance only : from the
taxpayer to the Collector's local bank and from the
Collector's local bank to the Bank of England. If
the taxpayer happens to bank with the Collector's
local bank, then there is only one ; and if the
Collector's local bank is the branch of a bank with
an account at the Bank of England, then there is
practically none: for the balance is written off
the taxpayers' account at the branch on to the
Collector's account : it is written off the Collectors 1
account on to the account of the Commissions of
Customs and Excise at the Bank of England, and
finally it is written off that account on to the
Exchequer account. The whole process is one of
book entries. It is worth while to follow out the
manner of collection in so much detail, if only to


enjoy the refinement of the modern system of

The local organisation of the Collectors of
Customs and Excise is the chief instrument for the
collection not only of duties of customs and
excise but of taxes of all sorts, both for the
Commissioners at the Custom House, who are in
direct control of the Collectors, and for the
Board of Inland Revenue also. Somerset House
does collect some of its own revenue and in
particular the stamp duties, which it collects at
local offices for the sale of Inland Revenue Stamps
such as those at Somerset House and at the Stock
Exchange in the City of London ; but it has no
district collectors of its own for the country as a
whole. It has its local surveyors, the Surveyors
of Taxes, to be distinguished from the Surveyors
of Customs and Excise. Surveyors and Inspectors
of Taxes number over 600, with 1000 clerks to help
them. Each Surveyor of Taxes has a district, with
an assistant surveyor and from two to four clerks
under him. The functions of the two sorts of
surveyors are similar. As in the case of the
Surveyors of Customs and Excise, it is the duty of
the Surveyor of Taxes to " raise a charge " against
a Collector. The Collector against whom he raises
it is the Collector of Customs and Excise, acting in
this connection as Collector of the Inland Revenue
as well. 1 There is thus the same parallelism and
division of functions in the collection of the direct

1 The organisation of tax collection in the country has been in
a state of unstable equilibrium since the transfer of the Excise to
the Customs in 1909. The tendency is for Somerset House and
the Custom House to separate their organisation and for each to
collect more of its own revenue.


taxes that we have already noticed in the collection
of the indirect. The Collectors collect the direct
taxes charged against them by the Surveyors of
Taxes, and remit them to the account of the
Commissioners of Inland Revenue at the Bank
of England. They account for them to those
Commissioners and to their own official superiors,
the Commissioners of Customs and Excise.
Periodically the Commissioners of Inland Revenue
transfer the proceeds of their collection from their
own account at the Bank of England to the Ex-
chequer Account.

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