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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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Income tax returned in 1842 t o no warm welcome. Indeed, the Iron Duke himself, the D u k e of Wellington, was moved t o utter from his exalted situation in the House of L o r d s 3 7 : "We are aware of the odious nature of the powers given to the Commissioners and others appointed t o carry out its provisions, and to w h o m it must be entrusted, and we reconcile it only t o ourselves by the strong necessity of the case—nothing b u t t h e certainty that n o other course could be taken which would produce a revenue t o enable us t o meet the difficulties of the c o u n t r y, or t o take those measures which may be necessary for its prosperity, could have induced us t o propose such a measure t o Parliament; and, as I have said before, it will not be continued one m o m e n t longer than is absolutely necessary."

This was t h e Duke himself proposing the reintroduction of income tax to the House of Lords. If income tax had such friends as Hansard March 18, 1816 Col. 435.

Cited in the Introduction to "The Act for Levying a Tax on Property and Income [5 & 6 Viet. c. 35] with an Explanatory Introduction, Notes, A Copious Analytical Index and Tables for Computing the Tax" by Mordant L. Wells, of the Middle Temple, Barrister-at-Law.

Sir Mordant Wells, who later was Chief Justice in Calcutta, in 1842 had just been called to the Bar. It seems that then, as now, briefless barristers were in the habit of producing instant text-books on new legislation. This particular text-book, the earliest legal text-book on tax which I have been able to locate, would scarcely have increased its reader's knowledge of the tax. Apart from the copious index, the book added little or nothing to the text of the statute. Apparently over the years the genre has not changed.

For assistance in locating this surprising book, as for other help and kindnesses, I am most grateful to the Librarian of the Middle Temple and to the members of her staff.

The Backdrop of History 21 this, it scarcely needed enemies. Consider also the Duke's claim to familiarity with the odious powers possessed by the Commissioners.

Pitt, to put the matter crudely, had hamstrung the system to avoid odious powers. The system is hamstrung today. Times change but attitudes move slowly. And so, with the Duke of Wellington's qualified acceptance income tax came back for a third time; to stay for ever? Certainly it has the look of a permanency.

What conclusions are to be drawn from the history of how income tax came into the code? From the start it had a bad name.

Tolerable as an emergency measure imposed for a temporary period only, it none the less violated fundamental liberties. Local administration by worthy and reliable citizens was to reconcile the taxpayer to its imposition. The representative of Government was to have no more than an interventionist role. Separately identified, the surveyor was subject to the rulings of the local commissioners.

What his fellow citizens determined was to be final for the taxpayer.

It was not open to the surveyor to take matters further. All would be conducted behind closed doors. No one would know the taxpayer's means. The rich miser would remain concealed, the poor tradesman's credit unblemished. From the technical point of view, most of the tax would be deducted at source in any event; tenants could raise no objections when they could deduct tax from the rent ("Landlord's Property Tax excepted" was the well worn phrase) or mortgagors when they could deduct tax from interest. Paymasters and agents would attend to the deductions of tax from emoluments and stipends; the bank would look after any tax in relation to the funds. Only the tradesman or the professional man would be called on to declare the profits of his trade or profession. His oath that his figures were accurate would normally suffice. Nothing so troublesome as an account would be called for, and his books would remain unexamined.

Income tax, to become one day the most formidable fiscal device, the most pervasive impost, was thus persuasively and discreetly launched. Few enough of the common people would be concerned. Those in higher stations doubtless accepted what was trifling and temporary as tolerable. Lawyers could forget income tax and concentrate on the charms of the common law.

CHAPTER TWO

PARLIAMENT'S PART

Parliament's particular part in the taxing process is to pass the statutes. It would be putting it high to say that the task is discharged to the satisfaction of all concerned. Criticism, more particularly criticism concerned with the legal aspects of tax, tends to concentrate on obscurity and complexity: why cannot they say what they mean—clearly? Criticism of the manner in which taxing statutes and even explanations of taxing statutes, are set out and expressed is not new. Sir Alexander Johnston1 tells us that on the introduction of the income tax in 1799 a pamphlet was produced entitled "A Plain, Short and Easy Description of the Different Clauses in the Income Tax, so as to Render it familiar to the Meanest Capacity" and that a contemporary caricature shows "John Bull at his studies" scratching his head over the pamphlet and expostulating that "I have read many crabbed things in the course of my time but this for an easy piece of business is the toughest to understand I ever met with." In May 1853 when the Finance Bill was under discussion in the House of Commons, an Honourable Member, Mr. J. Phillimore, commented : "If this Act had been prepared by a Hindoo, he believed it would have been urged as a proof of the incapacity of the Hindoo mind." Jocular criticisms in the same vein were much in vogue when the 1965 Finance Act introduced the Corporation Tax.





Criticism is easy: the more difficult questions are whether the particular criticism is justified in relation to the statutory provisions criticised and, if so, what if anything can be done to ameliorate the defects of the legislation, when, in the same debate in 1853, Mr. Gladstone was urged to try consolidation as a remedy, his reply was the familiar one that there would not have been time to produce a consolidating Bill. What he went on to say is as relevant now as it was then and goes to the heart of the matter3 : "He did not like to be required to give any pledge on the subject of the consolidation of the various statutes bearing on the subject of the income Sir Alexander Johnston G.C.B., K.B.E., The Inland Revenue. The New Whitehall Series, No. 13 (George Allen & Unwin Ltd. 1965).

Hansard, May 27, 1853. Col. 725.

Hansard loc. cit. Col. 722.

Parliament's Part 23 tax. He was afraid the demand made was one which he should not be able to satisfy, for the Honourable Gentleman said that laws of this kind ought to be made intelligible to all persons who had not received a legal education. To bring the construction of these laws within the reach of such persons, was no doubt extremely desirable, but very far from being easy... The nature of property in this country, and its very complicated forms, rendered it almost impossible to deal with it for the purpose of the income tax in a very simple manner; but he concurred with the Honourable Gentleman in thinking that whatever could be done should be done; and also that when the House had determined what change it would make in the law, they should then proceed as soon as possible to get a consolidated law, not to be passed in a hurry, but to be deliberately considered, so that everything might be brought into the clearest and most connected form."

Mr. Gladstone as least showed willing. Of course, the plea today is that it would be some advance if laws of this kind were intelligible to those who have received a legal education. To which the riposte might be made that there is a notable absence in too many legal educations of anything which would assist the student in sorting out modern Finance Bills—but that is another topic. Mr. Gladstone's point that the complexity of the subject matter, both the tax and the situations in which it is to apply, will inevitably involve complex legislation is a fair one. As to consolidation, in 1853 Parliament would have to wait until 1918 for the next Act consolidating the Income Tax Acts, but it is only fair to acknowledge that the Taxes Management Act of 1880 was "An Act to consolidate Enactments relating to certain Taxes and Duties under the management of the Board of Inland Revenue." Certainly nothing happened in a hurry.

In that same 1853 debate, the Honourable Member for Manchester, Mr. John Bright, took exception to the extent to which the legislation under discussion relied on references to other Acts.

Objections to referential legislation and pleas for consolidation are often two sides of the same coin. One of the most recent and most forceful criticisms of referential legislation is to be found in the speech of Lord Diplock in the Joiner case4: "The modern practice of parliamentary draftsmen in preparing for adoption by Parliament legislation to effect a change in the existing law, particularly when the subject-matter of the law is one, such as taxation, in which legislative changes are frequent, is to express the changes to be C.I.R. v. Joiner [1975] 1 W.L.R. 1701, 50 Tax Cas. 449.

24 Parliament's Part effected in the form of amendments to the language of particular provisions in earlier statutes dealing with the same subject-matter.

This method of drafting becomes progressively more cryptic as amendments to previous amendments follow one another in successive statutes. The need to refer to and from and back and forth between ever increasing numbers of different statutes in order to discover what a particular provision of any of those statutes means reaches a point at which the difficulty of finding out what the law is may have the practical consequence of depriving the citizen of his right to know in advance of a decision of your Lordships' House, which must needs be ex post facto, what the legal consequences will be of a course of conduct which he contemplates adopting."

As to the problem of complexity, this too has been discussed in the context of codification. In 1927 a committee was established.

With Lord Macmillan as chairman it included such distinguished "tax" names as A. M. Bremner, Reginald Hills, Konstam and Fergus Morton, respectively one of the first members at the Bar to be identified as a member of the revenue bar, Sir Reginald Hills the longest serving Treasury "Junior" in Revenue matters who so served from 1919 to 1957, His Honour Judge Konstam whose distinguished and pioneering text-book held the field as the tax text book for many a long year and Lord Morton of Henryton, outstanding chancery lawyer and Lord of Appeal in ordinary. The committee laboured mightily. A draft Bill emerged in 1936. It never passed into law. But the committee also made a report which included a number of pertinent observations.5 The Committee reviewed the material with which they were confronted when they settled to their task and continued: "But the difficulty of codifying a system of law thus embodied in a mass of statutes, decisions and practice did not arise merely from the bulk of the material. The nature of the material presented difficulties even more formidable. In the first place, as already stated, the provisions of a large part of the existing law have remained unaltered since they were drafted over a hundred years ago in relation to the social and economic conditions then obtaining in this country. In 1806 the industrial revolution was in its infancy, large areas now completely modernised were still rural and agricultural, railways were unknown, gas was just coming into use but the practical applications of electricity were still undreamt of, the modern limited liability company had not yet been devised, no Married Women's Property Income Tax Codification Committee Report 1936 Cmd. 5131.

Parliament's Part 25 Act had been passed—but it is unnecessary to exemplify the vast changes brought about by the discoveries and developments of the nineteenth and the first thirty years of the present century, as well as by the Great War with its economic consequences. Yet the main instrument of taxation has through all these years never been overhauled in the light of the experience gained, or been adapted to modern conditions. The Legislators by adding a patch here and there, the Courts by interpreting particular provisions, and the Inland Revenue Department by devising practical expedients have enabled the system to continue to fulfil its function of raising revenue; but it is small wonder that the new wine has almost strained the old bottles to bursting point."

By way of illustrating the point made by the Codification Committee, consider Schedule E expenses. What expenses can be deducted from a man's salary to arrive at the figure on which his tax liability is to be calculated?



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