Chapter 28

The work which in these last years cost him most labour--in view of his failing health, it would have been well for his friends had he never undertaken it--was that given to the Committee on the Income Tax, of which he became chairman in 1906. Sir Bernard Mallet (now Registrar- General) writes in 1916:

"In the spring of 1906 the Government decided to appoint a strong Committee to inquire into the questions of graduation and differentiation of the income tax, which had for some Sessions been coming into prominence in consequence of the financial difficulties caused by the South African War. Mr. Asquith, then Chancellor of the Exchequer, offered the chairmanship to Sir Charles Dilke, who had never claimed to be an expert in finance, and only accepted it after strong pressure, and the Select Committee set to work accordingly early in May. Having taken up the work, which occupied most of the summer, Sir Charles threw himself into it with immense energy. He familiarized himself with all the literature bearing on the question, and he made a point of calling, as witnesses, not only the usual officials, but also as many outside economists and statisticians as might be able to throw light upon questions which, as he rightly conceived, lay at the root of any proper consideration of the problem before the Committee. He attached special importance to all the evidence bearing upon foreign and colonial methods and principles in the taxation of income and property, and to the endeavour he made to get at statistics bearing on the distribution of income--two vitally important factors introduced by him, for the first time, into any official handling of the subject.

"But the result of all the knowledge, thoroughness, and enthusiasm, which, as his friends could testify, he lavished without stint (and, it is to be feared, to the serious detriment of his health) upon the work, must have somewhat disappointed him. Sir Charles's attempts to deal with the matter in a comprehensive spirit and produce a report which would rival in interest the famous reports of two previous Select Committees on the subject, those of 1851 and 1861, were hampered by the necessity, under which the Committee lay, of devising a means to increase the yield of the income tax with the least political friction. The two expedients which came most prominently before the Committee were those of differentiating the rate of the income tax in favour of earned or precarious incomes, and of imposing a supertax upon the larger incomes. Both of these were included in the recommendations of the report which was ultimately adopted, [Footnote: Report of the Select Committee on Income Tax, II. of C. 365 of 1906.] and carried into effect in the Budgets of 1907 and 1909 respectively. [Footnote: See _British Budgets_, by Bernard Mallet (1913), pp. 262, 263, 274, 277-281, and 305, where also some comments on the recommendations of the Committee are to be found.] Sir Charles's own view was opposed to both these methods. He would have preferred to differentiation, even in the limited form (up to £2,000 a year) in which it became law, the method of separate taxation of property, or income from property, as in Prussia and Holland, if death duties were not considered as sufficient taxation upon property.

"He was certainly impressed by the unscientific character of the proposed differentiation; by the difficulty of distinguishing between 'earned' and 'unearned' incomes, and by the possibilities of abuse which this method of dealing with the question offered. Supertax he would have reserved for a national emergency, but it should not be supposed that his opposition to it implied opposition to graduation either in principle or in practice. He was, indeed, strongly in favour of a graduated income tax, but, in his judgment, a supertax was a somewhat clumsy way of effecting the purpose aimed at. In his opinion the universal declaration of all taxable incomes was an indispensable preliminary to the full and just graduation of the income tax, and written notes of his are in existence showing how much importance he attached to this point.

"Holding these views, he could not produce a report sufficiently decisive in its acceptance of the methods favoured by the majority of his colleagues.

"The stupendous increases which have taken place in the rates of the income tax owing to the present war, increases far surpassing anything contemplated by the Committee over which Sir Charles presided ten years ago, have thrown all such controversies as these into the shade; but apart from the practical results of its recommendations, which for good or ill left at the time a very decided mark on fiscal legislation, this investigation succeeded, owing mainly to his influence, in eliciting a quantity of evidence which will always make it of historical interest to students of taxation."