CHAPTER III

Chapter 274,367 wordsPublic domain

DISTRIBUTION OF THE NATIONAL INCOME

Taking the population of the United Kingdom, 1908, at 44,500,000, and the total income at £1,844,000,000, we get an average income per head of about £40.

Thus, if the income of the nation were equally distributed amongst its inhabitants, a family of five persons would enjoy an income of about £200 per annum.

But how is the £1,840,000,000 actually divided amongst our people? Contrasts between great riches and extreme poverty are every day presented to our eyes. Can we do anything to reduce to a definite shape our vague conceptions of riches and poverty?

Investigation of the material at our disposal has convinced me that it is hopeless to do very much in the way of detailed classification of incomes. Our census methods are ridiculously inadequate, and our inquisition into individual incomes is but partial. It is possible, however, to depict the subject of distribution in broad outlines with considerable accuracy.

As we have already noticed, the £160 line at which assessment to income tax begins, divides the national income into two almost equal parts. Those persons who have more than £160 per annum enjoy an aggregate income of £909,000,000. Those persons who have less than £160 per annum enjoy an aggregate income of £935,000,000.

Let us endeavour to discover how many persons have an income of £160 and upwards.

A certain amount of confused light is thrown on the subject by the returns of the Inland Revenue Department. Under Schedules D and E, which relate to profits from "Businesses, Concerns, Professions, Employment, etc.," to use the official language,[11] the commissioners give us a record of the number of individual assessments which are made. A summary of these is as follows:—

INCOME TAX. SCHEDULES D AND E. PROFITS FROM BUSINESSES, CONCERNS, EMPLOYMENTS, ETC.

Number of Gross Income Assessments. Assessed. (_a_) Persons not employees 416,661 £109,900,000 (_b_) Firms (number of partners not known) 53,663 80,500,000 (_c_) Public Companies (number of shareholders unknown) 37,937 291,000,000 (_d_) Local Authorities 11,985 24,000,000 (_e_) Bankers, Coupon dealers, etc., deducting tax on behalf of the Revenue not available 33,100,000 (_f_) Employees (Schedule D) 114,074 27,100,000 (_g_) Employees (Schedule E) 471,564 109,600,000 --------- ------------ 1,105,884 £675,200,000 ========= ============

We have thus a record of 1,100,000 _assessments_, but these assessments do not always correspond to individual tax-payers.

Item _a_, "Persons not employees," gives us the fact that 416,661 individuals are taxed in respect of trading or professional profits. Item _b_ reveals the existence of 53,663 firms with an unknown number of partners. Item _c_ covers a great many large and small shareholders. Item _d_ covers a large number of investors who have lent money to local bodies. Item _e_ similarly covers many persons of property deriving interest from various securities which are taxed "at the source." In items _f_ and _g_ each assessment refers to an individual.

Further, these 1,100,000 assessments are made under Schedules D and E only, which cover but £675,000,000 out of a total gross assessment to income tax of £1,010,000,000 in 1908-9. There remain to consider Schedules A, B, and C.

A moment's reflection will show that from these three schedules, which deal respectively with realty, farmers' profits, and government securities, we can expect little assistance. The assessments under Schedule A are made upon tenants, who in the majority of cases are not the actual and ultimate tax-payers. The number of assessments is enormous; we do not know it, but it would not help us if we did, for it has no relation whatever to the number of property owners. Under Schedule B, as is explained elsewhere,[12] there are few income tax payers. Under Schedule C certain interest from home and foreign government securities is taxed, but not by assessment on the actual tax-payers.

To sum up, the number of assessments to income tax is not known, and, if it were known, it would be very much greater than the number of individual tax-payers. Two-thirds of the income tax is collected, not directly from the persons who owe the tax, but indirectly or "at the source." It is possible for an individual tax-payer to appear more than once in each schedule. With delightful humour the Inland Revenue Commissioners give a hypothetical case of a composite income of £5000 per annum, made up as follows:—

HYPOTHETICAL COMPOSITE INCOME

Schedule. Amount. A Profits from the Ownership of Lands, Houses, etc. £500 B " from the Occupation of Lands 200 C " from Government Securities 200 D " as an Author 100 D " as a Solicitor (partner in a firm the total profits of which are £5000) 2,500 D " from Investments in a Public Company (total profits of the Company, £55,000) 500 D " Investment in Municipal Stock 100 D " from Investments in Foreign Bonds (payable by coupons cashed in the United Kingdom) 100 D " Salary as a Land-Agent 500 E " Salary as a Borough Auditor 300 ------ £5,000 ======

This hypothetical gentleman, who is at once a landlord, a farmer, a fundholder, a man of letters, a lawyer, a shareholder, an investor in foreign bonds, a land-agent, and a borough auditor, does great credit to the sense of humour of the Inland Revenue authorities, and may be called an extreme case. There are, however, tens of thousands of fortunate or unfortunate persons who are at once business men, investors, and landlords or houselords, and it is clear that if we are to arrive at the actual number of individuals who earn or receive incomes of £160 per annum or upwards we must proceed by other methods.

Before leaving the table on page 33, however, the reader should take note of the low range of incomes it reveals, so far as individuals can be detected in the list:

Per Annum. (_a_) The 416,661 persons not employees have an average income of £260 (_f_) The 114,074 employees taxed under Schedule D have an average income of 230 (_g_) The 471,564 employees taxed under Schedule E have an average income of 230

Many of these individuals have other sources of income beside their earnings, but the low mean income of each class remains remarkable when that fact is taken into account. Classes _f_ and _g_ cannot possibly deceive the Income Tax Commissioners as to their incomes, for the law compels employers to tell the authorities exactly what their employees earn. With an average as low as £230 it is clear that the majority of salaries lie between the exemption limit of £160 and £200 a year. The under payment of the middle class stands revealed.

If the reader takes note of these facts he will be less surprised by the results of the analysis to which we will now proceed.

We now turn to what information is available upon the subject of individual incomes. So far as the poorer classes of income tax payers are concerned, some clear light is afforded by the Income Tax Commissioners in a table showing the number of persons claiming abatements. This table, which is of great importance, is given on page 37.

These abatements are claimed by certain individuals who satisfy the Commissioners that their entire incomes, _from every source_, lie between £160 and £700 per annum. Thus we get definite information that in 1908-9, 779,552 individuals declared their incomes to be within these limits.

The record of the number of abatements is worth particular attention. In 1893-4 the limit of exemption was £150. In the following year the exemption limit was raised £10 to £160, and for the first time an abatement was allowed upon incomes up to £500. In 1898-9 abatements were introduced on incomes up to £700.

INDIVIDUAL INCOMES BETWEEN £160 AND £700 Defined by claims for abatements

----------+--------------------------------------------------------------+ | ABATEMENTS. | +----------+---------+-----------+---------+---------+---------+ | | £160 on | £100 on | £150 on | £120 on | £70 on | | £120 on | incomes | incomes | incomes | incomes | incomes | |incomes of|exceeding| exceeding |exceeding|exceeding|exceeding| Year. | £150 and |£160 but | £400 but |£400 but |£500 but |£600 but | | under | not | not | not | not | not | | £400. |exceeding| exceeding |exceeding|exceeding|exceeding| | | £400. | £500. | £500. | £600. | £700. | ----------+----------+---------+-----------+---------+---------+---------+ 1893-4 | 509,397 | | | | | | 1894-5 |} | 436,325 | 13,010 | | | | 1895-6 |} | 449,003 | 20,375 | | | | 1896-7 |} | 464,017 | 23,492 | | | | 1897-8 |} | 481,306 | 26,056 | | | | 1898-9 |}Exemption| 495,791 |} | 31,669 | 11,115 | 3,940 | 1899-1900|}limit and| 515,680 |} | 38,055 | 16,861 | 6,714 | 1900-1 |}abatement| 530,014 |}Abatements| 42,123 | 20,520 | 8,647 | 1901-2 |}altered--| 554,727 |}extended--| 46,967 | 23,899 | 10,490 | 1902-3 |}see next | 575,444 |} see | 49,610 | 26,737 | 11,982 | 1903-4 |} column | 603,338 |}following | 51,922 | 27,777 | 12,879 | 1904-5 |} | 612,548 |} columns. | 53,384 | 29,227 | 13,483 | 1905-6 |} | 622,437 |} | 56,305 | 31,100 | 14,886 | 1906-7 |} | 628,818 |} | 58,704 | 33,150 | 16,607 | 1907-8 |} | 638,482 |} | 64,560 | 39,166 | 22,272 | 1908-9 |} | 648,310 |} | 66,523 | 40,721 | 23,998 | ----------+----------+---------+-----------+---------+---------+---------+

----------+---------+----------+-------- | | | | | | | | Annual | Rate of | Total | Increase | Income |Abatement|in No. of | Tax. Year. |Granted. |Abatements|Pence in | | Granted. | the £. | | | | | | ----------+---------+----------+-------- 1893-4 | 509,397 | | 7 1894-5 | 449,335 | | 8 1895-6 | 469,378 | 20,043 | 8 1896-7 | 487,509 | 18,131 | 8 1897-8 | 507,362 | 19,853 | 8 1898-9 | 542,515 | 35,153 | 8 1899-1900| 577,310 | 34,795 | 8 1900-1 | 601,304 | 23,994 | 12 1901-2 | 636,083 | 34,779 | 14 1902-3 | 663,773 | 27,690 | 15 1903-4 | 695,916 | 32,143 | 12 1904-5 | 708,642 | 12,726 | 12 1905-6 | 724,728 | 16,086 | 12 1906-7 | 737,279 | 12,551 | 12 1907-8 | 764,480 | 27,201 |9 to 12 1908-9 | 779,552 | 15,072 |9 to 12 ----------+---------+----------+--------

It will be seen that since 1897-8 there has been a rapid increase in the number of abated incomes. This has been caused not by the sudden growth of incomes of this class, but by (1) the abatements being better understood, and (2) heavier taxation making it better worth while for individuals to claim the abatements. With the income tax at 1s. and 1s. 3d. it became worth while to fill up the form. We have, then, to thank the late war, and the increased taxation which followed it, for putting at our disposal a fairly complete record of the number of individual incomes between £160 and £700. Probably the record is still incomplete, and we must make an allowance for the fact. It is probable also that a certain number of persons of small income who ought to pay tax escape assessment. Both counts, however, are certainly well covered by adding a small percentage to the number of individual incomes revealed by the claimed abatements. In "Riches and Poverty," edition 1905, with the actual claims made standing at about 700,000, I suggested that 50,000 would be a fair estimate of the number not claiming abatements or who escaped taxation. But in five years some 80,000 new claims have been made. Over 27,000 of these were made in 1907-8; this was probably due to the clause in the Finance Act of 1907 compelling all employers, and not companies alone, to divulge their employees' incomes, thus bringing to light non-assessed incomes and causing claims for abatements by their owners. My estimate of 50,000 I should, in view of this further information, raise to 90,000 or 100,000, and at the present time I am inclined to think that some 40,000 incomes between £160 and £700 must still be regarded as either escaping tax or as being not reviewed in the abatements table. We thus arrive at, in round figures, 820,000 as a near approximation to the number of individuals who possess between £160 and £700 per annum.

The aggregate income of the 779,000 persons granted abatements in 1908-9 is not given in the report. We can, however, estimate it closely, and this is done in the following table, figures being added for the 40,000 persons whom we have assumed either to neglect to claim abatements or to escape taxation altogether:—

INDIVIDUAL INCOMES BETWEEN £160 AND £700 (1908)

Estimated Aggregates. 648,000 Incomes between £160 and £400. Average assumed to be £300 £194,400,000 67,000 Incomes between £400 and £500. Average assumed to be £450 30,150,000 41,000 Incomes between £500 and £600. Average assumed to be £550 22,550,000 24,000 Incomes between £600 and £700. Average assumed to be £650 15,600,000 40,000 (balance of estimated total of 820,000) Incomes of persons who either neglect to claim abatements or altogether escape taxation. Average assumed to be £300 12,000,000 ------------ 820,000 Incomes aggregate £274,700,000

To proceed, we see that some 820,000 persons enjoy an estimated aggregate income of £274,700,000 per annum. But the total income of the income tax paying classes we have already seen to be £909,000,000. There remains therefore, to form an estimate of the number of persons who enjoy the balance of £634,000,000.

Our best clue to these persons, who individually possess incomes exceeding £700 a year, is to be found in the number of rich men's houses in the United Kingdom.

In Great Britain an Inhabited House Duty is levied upon the occupiers of all houses and residential business premises of an annual value exceeding £20. The duty being graduated, we obtain records of the houses of Great Britain classified according to their rentals. The duty is not levied in Ireland.

The Inland Revenue report gives us the following interesting record.

GREAT BRITAIN ONLY: PRIVATE DWELLING-HOUSES OF £20 AND UPWARDS: 1908-9

Class of House. Number of Class of House. Number of Houses. Houses. £ 20 and under £25 384,583 | £ 20 and over 1,473,214 25 " 30 256,906 | 25 " 1,088,631 30 " 41 414,663 | 30 " 831,725 41 " 50 104,949 | 41 " 417,062 50 " 61 125,051 | 50 " 312,113 61 " 80 61,498 | 61 " 187,062 80 " 100 38,898 | 80 " 125,564 100 " 150 44,953 | 100 " 86,666 150 " 200 16,563 | 150 " 41,713 200 " 300 13,649 | 200 " 25,150 300 " 400 5,207 | 300 " 11,501 400 " 500 2,416 | 400 " 6,294 500 " 600 1,187 | 500 " 3,878 600 " 700 723 | 600 " 2,691 700 " 800 472 | 700 " 1,968 800 " 900 323 | 800 " 1,496 900 " 1000 176 | 900 " 1,173 1000 and over 997 | 1000 " 997

The figures refer to Great Britain only, but the number of income tax payers in Ireland is small, the payment of income tax in that country, in 1908, being but £996,000 out of £31,860,000 paid by the United Kingdom as a whole.

If there were a constant ratio between incomes and rentals, and if every private house contained but one family, the record of houses would be a sufficient clue to the number of income tax payers; but there is no such correspondence, and a considerable proportion of the houses are let in tenements.

In London persons with an income over £160 a year rarely pay a rental less than £30. In the provinces a rental as low as £25 may sometimes represent an income tax payer. Many £25, £30, and even £40, and more houses in London and elsewhere are tenement dwellings. Some notorious London slums consist of houses of about £30 annual value. In West London 6s. a week, £15, 12s. a year, commands two poor rooms.

Some residential shops, etc., not included in the above list, house income tax payers, but usually the well-to-do shopkeeper lives away from his shop, the upper part of which is let to poorer persons.

These considerations make it impossible to deduce the aggregate of income tax payers from the house record, but it is a suggestive fact that in Great Britain there were in 1908 only 1,088,631 private houses of £25 and over. It is clear that the number of persons with incomes exceeding £160 a year cannot much exceed that figure, even when allowance is made for the Irish houses not included in the record.

As we have ascertained from the income tax abatement claims the approximate number of income tax payers between £160 and £700 a year, we are enabled to neglect the difficult relation of small rentals to incomes, and to concentrate our attention upon a simpler and more satisfactory problem, the number of houses likely to be in the occupation of persons with upwards of £700 a year.

It is submitted that persons in the Metropolis possessing an income of over £700 per annum are unlikely to occupy private dwelling-houses of an annual value below £60. Indeed, London householders with incomes below £700 sometimes pay higher rentals than £60. Against this fact we must, however, place the existence of many blocks of flats of high rentals which pay Inhabited House Duty, not per flat, but per block. I think we may balance the one consideration against the other, and assume that the private dwelling-houses in London exceeding £60 in annual value roughly correspond to the number of persons with £700 per annum and upwards.

In the provinces and Scotland rentals are lower, and I think we may safely draw the line at £50, in view of the fact that we are excluding, as in London, all residential shops, public houses, etc.

The number of houses in Great Britain of the classes referred to is as follows:—

PRIVATE DWELLING-HOUSES IN GREAT BRITAIN LIKELY TO BE IN THE OCCUPATION OF PERSONS WITH £700 PER ANNUM AND UPWARDS (1908-9)

Annual Value. Metropolis. Rest of England. Scotland. £50 to £61 76,141 10,739 61 " 80 18,502 37,075 5,921 80 " 100 10,033 24,875 3,988 100 " 150 12,593 28,411 3,949 150 " 200 5,110 10,075 1,378 200 " 300 5,541 7,427 681 300 " 400 2,645 2,437 125 400 " 500 1,408 960 48 500 " 600 748 424 15 600 " 700 504 210 9 700 " 1000 746 212 13 £1000 and over 826 145 26 ------ ------- ------ 58,656 188,392 26,892 ====== ======= ======

If the reader has not before examined the subject he will probably be exceedingly surprised to find that there are so few rich men's houses, and therefore so few rich men, in Great Britain. In England and Wales there are 247,048 houses and in Scotland only 26,892 houses likely to contain persons with incomes exceeding £700 per annum. There are nine times as many such houses in England as in Scotland. This corresponds closely to the income tax assessments. The yield of the income tax in Scotland is but one-ninth or one-tenth of the yield in England.

We have to add an estimate for Ireland. The yield of the income tax in Ireland is very small, about one-third of the yield of Scotland. If, then, we add 9000 houses for Ireland, we shall probably be near the truth.

We thus get the following figures for the whole of the United Kingdom, making our figures round:

PRIVATE DWELLING-HOUSES IN THE UNITED KINGDOM PROBABLY CORRESPONDING TO INCOME TAX PAYERS WITH £700 AND UPWARDS PER ANNUM (1908-9)

Number. London 58,700 Rest of England and Wales 188,400 Scotland 27,000 Ireland 9,000 ------- Total 283,100 =======

We can now arrive at an estimate of the total number of income tax payers. It is as follows:

INCOME TAX PAYERS OF THE UNITED KINGDOM (1908-9)

Incomes. Number. Between £160 and £700 820,000 Exceeding £700 280,000 --------- Total 1,100,000 =========

I think that this estimate of 1,100,000 may be accepted with confidence as a near approximation to the actual number of individual incomes which exceeded £160 per annum in 1908-9.

Taking 1,100,000 as a trustworthy figure, we are in a position to show how the population of the United Kingdom is divided by the line of income tax exemption. If we assume that each of the 1,100,000 persons is the head of a family of five persons, we get, by obvious calculation, the following result:

THE EQUATOR of BRITISH INCOMES

_In 1908 the Income Tax Exemption limit of £160 per annum divided the National Income into two almost equal parts._

DISTRIBUTION OF THE NATIONAL INCOME AS BETWEEN THOSE WITH MORE AND THOSE WITH LESS THAN £160 PER ANNUM (1908-9)

Number. Income. Persons with incomes of over £160 and their families (1,100,000 × 5) 5,500,000 £909,000,000 Persons with incomes of less than £160 and their families (total population less 5,500,000) 39,000,000 935,000,000 ---------- ----------- 44,500,000 £1,844,000,000 ========== ==============

These striking facts are expressed in diagrammatic form on page 45. Broadly speaking, it is shown that _one-half of the entire income of the United Kingdom is enjoyed by about 12 per cent. of its population_.

But a still more extraordinary conclusion emerges from the facts we have examined. Of the 1,100,000 income tax payers, 820,000 are persons with incomes over £160 and not exceeding £700. The aggregate income of these 820,000 persons we estimated at £275,000,000 (page 39), and the estimate is a liberal one. By subtraction from the total income of the income tax classes (£909,000,000) we see that the 280,000 rich persons with over £700 per annum possess an aggregate income of £634,000,000 per annum. The facts are clearly shown in the following table and in the diagram which forms the frontispiece of this volume:

RICHES, COMFORT, AND POVERTY, 1908

Distribution of the National Income as between (1) those with £700 per annum and upwards; (2) those with £160 to £700 per annum; and (3) those with not more than £160 per annum.

Number. Income. RICHES

Persons with Incomes of £700 per annum and upwards and their families, 280,000 × 5 1,400,000 £634,000,000

COMFORT

Persons with Incomes between £160 and £700 per annum and their families, 820,000 × 5 4,100,000 275,000,000

POVERTY

Persons with Incomes of less than £160 per annum and their families 39,100,000 935,000,000 ---------- -------------- 44,500,000 £1,844,000,000 ========== ==============

Thus, to the conclusion that one-half of the entire income of the nation is enjoyed by but about 12 per cent. of its population, we must add another even more remarkable, viz.: that _more than one-third of the entire income of the United Kingdom is enjoyed by less than one-thirtieth of its people_.

The broad outlines thus drawn I shall not attempt to amplify, for, as will be gathered from the nature of the available material, such amplification would be of little value. Nor would any useful purpose be served by any arbitrary division of our population into "upper," "middle," and "working" classes. The three divisions of population at which we have arrived, although arbitrary, have naturally arisen in the course of our inquiry, and with some propriety we may term them respectively the Rich Classes, the Comfortable Classes and the Poor Classes.

The great fact emerges that the enormous annual income of the United Kingdom is so badly distributed amongst us that, out of a population of 44,500,000, 39,000,000 are "poor" in the sense that their incomes do not exceed £160 a year. It is no longer incredible that in a population of 44,500,000 people, enjoying an aggregate income of £1,844,000,000, there exist "30 per cent. living in the grip of perpetual poverty." When we realize that 39,000,000 out of our 44,500,000 are poor, measured by a very modest standard of income, the statistics of Booth and Rowntree cease to surprise us. In analysis, the United Kingdom is seen to contain a great multitude of poor people, veneered with a thin layer of the comfortable and the rich.

It will be of interest to compare the above statistics with those which appeared in "Riches and Poverty," edition 1905. The statement then presented was based on the Inland Revenue figures of 1903-4, and the frontispiece bore the heading "British Incomes in 1904." For the purposes of comparison, the 1905 edition figures may be attributed to 1903, since the fiscal year 1903-4 is as to nine months in 1903. Similarly, the figures arrived at in the above pages may be dated 1908, an interval of five years separating the two investigations.

The following is the comparison arrived at, after adjustment of the earlier figures by raising the estimated number of income tax payers in 1903 from 1,000,000 to 1,050,000, for the reasons given on page 38.

DISTRIBUTION OF BRITISH INCOMES

---------------------------+-----------------------+--------------------- | 1903 | 1908 |Figures of "Riches | | and Poverty," 1905 | | edition, adjusted[13]| | by raising estimate | RANGE OF INCOME. | of Income | | Tax payers from | | 1,000,000 to | | 1,050,000. | +------------+----------+------------+-------- | Number of | | Number of | | Persons. | Income. | Persons. | Income. ---------------------------+------------+----------+------------+-------- Persons with over £700 | | Million£ | |Million£ a year and their families| 1,250,000 | 570 | 1,400,000 | 634 | | | | Persons with over £160, | | | | but not over £700, and | | | | their families | 4,000,000 | 260 | 4,100,000 | 275 | | | | Persons with not more | | | | than £160 and their | | | | families | 37,250,000 | 880 | 39,000,000 | 935 ---------------------------+------------+----------+------------+-------- Totals | 42,500,000 | 1710 | 44,500,000 | 1844 ---------------------------+------------+----------+------------+--------

The result is to show that, in the five years, the wealthy classes have increased their share of the national dividend, both actually and relatively. We shall later find this conclusion confirmed by a comparison of the respective growths of taxed incomes and wage rates.

The stationariness of wages is a fact which closely demands the attention of the nation.

[Footnote 11: For a fuller explanation of these Schedules reference should be made to Chapter 21.]

[Footnote 12: See Chapter 21.]

[Footnote 13: The change in the proportions through the adjustment is insignificant and negligible, as will be seen by reference to the original estimate.]