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«THE HAMLYN LECTURES Thirty-Third Series INTOLERABLE INQUISITION? REFLECTIONS ON THE LAW OF TAX H. H. Monroe STEVENS THE HAMLYN LECTURES THIRTY-THIRD ...»

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Earlier in the century, in his Vinerian lectures at Oxford, Blackstone6 had identified the principal sources of revenue. They included the duties of customs and excise, the former payable at the ports on merchandise exported and imported, the latter "an inland imposition, paid sometimes upon the consumption of the commodity, or frequently upon the retail sale, which is the last stage before the consumption." Blackstone acknowledged that the assessed taxes on such items of expenditure as servants, carriages, horses, dogs, clocks or watches or on a variety of commodities commonly consumed by those with ample resources provided a convenient and economical way of estimating the individual taxpayer's ability to pay and of raising revenue. Like all taxation, however, these imposts involved derogation of common law standards. Blackstone castigated the procedures involved in such taxation, thereby setting a proper pattern for all future generations of lawyers.7 "The rigour and arbitrary proceedings of excise law seem hardly compatible with the temper of a free nation" he declared. Moreover, the sudden and summary proceedings adopted in case of transgressions operated "to the total exclusion of the trial by jury, and disregard of the common law."

To much the same effect that other great guru of the age, Adam Smith8: "Every tax ought to be so contrived, as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the state. A tax may either take out or keep out of the pockets of the people a great deal more than it brings into the public treasury, in the four following ways." He enumerates the first three: the great number of officers required to levy the tax, the disincentive effect of the tax, and the consequences of the temptation created by the tax to avoid it: "The law, contrary to all the ordinary principles of justice, first creates the temptation, and then punishes those who yield to it."

The fourth way is similar to Blackstone's objection: "Fourthly, by Blackstone loc. cit. Introduction.

For the continuing influence of Oxford on the development of the Common Law see Louis Blom-Cooper QC and Gavin Drewry Final Appeal (Clarendon Press, Oxford, 1972), Chap. VIII.

Blackstone loc. cit. Book 1, Chap. 8.

Adam Smith, The Wealth of Nations, Book V, Chap. II.

The Backdrop of History 5 subjecting the people to the frequent visits and the odious examination of the tax-gatherers, it may expose them to much unnecessary trouble, vexation and oppression." On another occasion9 Adam Smith developed this theme specifically in relation to a general tax on income: "It is easy to lay a tax upon land, because it is evident what quantity every one possesses, but it is very difficult to lay a tax upon stock or money without very arbitrary proceedings. It is a hardship upon a man in trade to oblige him to show his books, which is the only way in which we can know how much he is worth. It is a breach of liberty and may be productive of very bad consequences by ruining his credit; the circumstances of people in trade are at some times far worse than at others."

Pity poor Pitt. The people were unlikely to welcome any further picking of their pockets and when it came to a choice of methods, the pundits were not helpful. Adam Smith had said it again10: "The more taxes may have been multiplied, the higher they may have been raised upon every different subject of taxation; the more loudly the people complain of every new tax, the more difficult it becomes, too, either to find out new subjects of taxation, or to raise much higher the taxes already imposed upon the old... When a nation is already overburdened with taxes, nothing but the necessities of a new war, nothing but either the animosity of national vengeance, or the anxiety for national security, can induce the people to submit, with tolerable patience, to a new tax." Pitt first adopted the "better the devil we know" expedient: he upped the assessed taxes. In January 1798 Parliament passed "An Act for granting to His Majesty an aid and. contribution for the prosecution of the War."1 Those who had paid tax on their male servants, carriages or pleasure horses, on their houses, windows, dogs, clocks or watches, were to pay again, three times over.

Some taxpayers paid up. For example, the printed records of the Middle Temple disclose that during the Treasurership of Sir John Scott, later Lord Eldon, there was paid on December 13, 1797 £25 described as "Servants, tax on ten men, and twenty per cent, thereon." The accounts for the following year, 1798-1799, include the entries "18 Dec. Servants' tax, and twenty per cent, additional, Adam Smith quoted by William Phillips, "The Real Objection to the Income Tax of 1799," [1967] B.T.R. 177.

Adam Smith loc. cit. Book V, Chap. II.

38 Geo. III., c. 16.

A Calendar of the Middle Temple Records. Edited by Charles Henry HopwoodK.C. 1903.

6 The Backdrop of History £24, and £4 additional and Clock Duty £33.7.6.... 4 April. Three instalment of increased assessed taxes for prosecuting the War £72. 0. 0." 13 It seems possible that other taxpayers were less scrupulous or less prompt. The measure which Pitt introduced to Parliament in December 1798 and which became law on January 9, 1799 as the first ever Income Tax Act,14 being substituted for the 1798 Act, included these opening words: "We your Majesty's most dutiful and loyal subjects... taking Notice that the Provisions made for that purpose... have in sundry Instances been greatly evaded, and that many Persons are not assessed under the said Act in a just Proportion to their Means of contributing to the Public Service...."





Adam Smith notwithstanding Pitt had decided—under the stress of war—to take the ultimate step, to introduce a new tax which would take a man's income rather than his expenditure as its scale.

So, as a temporary wartime measure, the income tax was born and its form for the next century and a half at least determined. That Pitt had the points taken by Adam Smith well in mind is apparent from the terms in which he introduced his measure15: "Impressed, then, with the importance of the subject, convinced that we ought, as far as possible, to prevent all evasion and fraud, it remains for us to consider, by what means these defects may be redressed, by what means a more equal scale of contribution can be applied, and a more extensive effect obtained. For this purpose it is my intention to propose that the presumption founded upon the assessed taxes shall be laid aside, and that a general tax shall be imposed upon all the leading branches of income. No scale of income indeed which can be devised will be perfectly free from objection of inequality, or entirely cut off the possibility of evasion. All that can be attempted is, to approach as near as circumstances will permit to a fair and equal contribution. I trust that the opinion of the country will concur with the disposition of Parliament to give that energy to our exertions, to give that stability to our resources, which our present situation and our future prosperity demand."

Pitt, then, was well aware of the hazards involved in introducing a new tax. He trusted to the exigencies of the current situation to reconcile the taxpayer to the tax. He would reject expenditure as a base and risk "the inquisition more intolerable than any tax,"16 to which Adam Smith had referred. However, the pill must be sugared.

Middle Temple Records loc. cit. p. 230.

39 Geo. III., c. 13.

Parliamentary History Vol. 34 1798-1800 December 3, 1798.

See [1967] B.T.R. 177.

The Backdrop of History 1 No one was to be bound to disclose the details of his income. He could accept the liability assessed. If unacceptable, disclosure was the price of escape. Such information as was disclosed would be used for no purpose other than quantifying liability for tax: all concerned would be sworn to secrecy. No awkward question need be answered, no confidential clerk called on to testify. So Pitt sought to meet the objections inevitably entertained by any true-born Englishman to any intrusion which might threaten his liberty and his right to conduct his personal affairs privately. The cloak of secrecy was wrapped around the administration of income tax;

dislike of, distrust for and discourtesy towards tax officials were institutionalised; the suspicions (dare one say the prejudices?) of all who cherished the common law were confirmed. Pitt's explanation of his proposed tax, how it would effectively be based on selfassessment and non-disclosure, is a masterpiece. First he explained that incomes under,£60 would be exempt and that abatements would apply to income between £60 and,£200. Over that figure, he explained, "The quota which will then be called for ought to amount to a full tenth of the contributor's income. The mode proposed of obtaining this contribution differs from that pursued in the assessed taxes, as instead of trebling their amount, the statement of income is to proceed from the party himself. In doing this it is not proposed that income shall be distinctly laid open, but it shall only be declared that the assessment is beyond the proportion of a tenth of the income of the person on whom it is imposed. In this way, the disclosure at which many may revolt will be avoided, and at the same time every man will be under the necessity of contributing his fair and equal proportion. How then it will be asked, is evasion and fraud to be checked? Knowing the difficulty of guessing what a man's real ability is, I do not think that the charge of fixing what is to be the rate ought to be left to the commissioners.

It would, I am persuaded, be most acceptable to the general feeling, to make it the duty of a particular officer, as surveyor, to lay before the commissioners such grounds of doubt, as may occur to him, on the fairness of the rate at which a party may have assessed himself.

These doubts and the reasons on which they are founded, are to be transmitted by the surveyor to the commissioners, in order that they may call for further explanation from the person concerned....."

The commissioners referred to are the local commissioners to whom the administration and execution of the tax would be entrusted. To qualify they would have a certain minimum property qualification. As Pitt explained, they were to be "persons as 8 The Backdrop of History respectable in their situation and rank in life, as independent of all real or imputed influence and as likely to discharge the duties of their station with attention and ability, as possible." The surveyor, in due course to become the government inspector, was the person to whom odium might attach. His task was to entertain suspicions and to voice them. Only if he entertained doubts should the taxpayer be called on to prove or justify. When finally the commissioners had fixed the rate of the taxpayer's contribution it was contemplated that a further appeal would lie to appeal commissioners, similar public-spirited individuals, but with an even higher property qualification. Seemingly they had little to do. They disappeared when the structure of the tax was revised: the decision of the commissioners, the General Commissioners as they became, was to be final and remained final for many years.

Pitt explained the circumstances in which a taxpayer might be required to condescend to particulars: "When doubts are entertained that a false statement has been given, it shall be competent for the commissioners to call for a specification of income. It will be necessary to simplify and to state with precision the different proportions of income arising from land, from trade, annuity or profession, which shall entitle to deduction. [It was contemplated that there would be abatements applicable to income from certain sources only.] The commissioners are then to say whether they are satisfied with the statement which has been given. The officer or surveyor is to be allowed to examine and to report whether there appears reason to believe that the assessment is adequate. When the day of examination arrives, the commissioners shall hear what the surveyor and the party have to allege in support of the objection and the assessment, and examine other individuals. The schedule, which shall be drawn up in such a manner as accurately to define every case of exemption or deduction, shall be presented by the party, with his claim clearly specified. [The schedule, as it eventually emerged, effectively provided for a return of total income under four heads subdivided into 19 cases with general and particular rules relating to deductions,]18 To the truth of the schedule he shall make oath. The party, however, shall not be called for, nor his confidential clerks or agents examined. If, however, he declines to submit to the investigation of his books, and the examination of his clerks, and other means of ascertaining the truth, it shall be competent for the See "The General Commissioners," B.E.V. Sabine [1968] B.T.R. 18.

W See, for the Sched., 39 Geo. III. c. 22.

The Backdrop of History 9 commissioners to fix his assessment, and their decision shall be final, unless he appeals to the higher commissioner. No disclosure is compulsory; but if the party is unwilling to disclose, he must acquiesce in the decision of the commissioners, who shall not be authorised to relieve without a full disclosure. With respect to the information which may be communicated to the commissioners, I should propose that they shall be strictly sworn not to disclose such information, nor to avail themselves of it for any other purpose separate from the execution of the act."

Here may I quote what Professor Street said in his 1968 Hamlyn Lectures, Justice in the Welfare State19? Dealing with the reasons for the rise of Administrative Tribunals, for practical purposes he dated their rise from the introduction of unemployment tribunals under Lloyd George's National Health Insurance Act 1911. "We usually call these bodies administrative tribunals. The name is a good one. It distinguishes them from the ordinary courts.



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