(f) Depreciation Fund for 5 per cent. War Loan 1929-47 and 4 per cent. War Loan (tax compounded) 1929-42.-The prospectuses of these loans provide that there shall be set aside monthly as a depreciation fund for purchasing for cancellation, whenever the market price falls below 95 in the case of 5 per cent. loan or 100 in the case of 4 per cent. loan, one-eighth per cent. on the original amount of the loan. Whenever the unexpended balance in the hands of the National Debt Commissioners reaches £10,000,000, issues to them are to be suspended. In the year 1925-26 the issues, which were required in respect of the 4 per cent. loan only, were £7,539,000. 211. The existing provisions regulating the total Sinking Fund to be applied in the year were laid down by the Finance Act of 1923, which repealed the fixed debt charge arrangement of 1875 and set up a definite annual provision for Sinking Funds of £40,000,000 for 1923-24, £45,000,000 for 1924-25 and £50,000,000 in subsequent years unless and until Parliament otherwise determines. The annual amounts fixed by this Act include the sums which fall to be issued under the specific Sinking Funds referred to above and also that portion of any terminable annuities which represents principal. 212. The allocation of the New Sinking Fund (1923) in 1924-25 and 1925-26 is shown in the following table : In 1925-26, owing to the fall of the 4 per cent. War Loan below par, Depreciation Fund issues amounting to £7,539,000 were necessary and the free balance was thereby reduced to £9,991,000. 213. By far the greater part of the New Sinking Fund (1923) is at present therefore hypothecated to particular items of debt. As regards the future, requirements for the Funding Loan, Victory Bonds and the debt to the United States Government (excepting variations due to exchange) can be foreseen; in each case the redemption provision increases, as the interest decreases as the result of redemption. The following table shows the approximate provision for various years :— 214. The remaining items, with the exception of terminable annuities, are clearly liable to considerable changes mainly dependent upon the course of market values. The Conversion Loan Sinking Fund, which runs while the stock is below 90 (that is, until the yield on the stock is just below 4 per cent.) will obviously continue for a considerable period, diminishing slightly as stock is redeemed. A liability of about £15,000,000 a year, very gradually falling, is therefore to be anticipated. The Depreciation Fund is a heavy contingent charge entirely dependent upon the market price of the loans to which it is attached; no reliable estimate of the future requirement can be made. The future issues for the purchase of securities tendered for death duties are also uncertain; so long, however, as Victory Bonds are below par, they are likely to be very substantial. 215. On the whole there is unlikely to be any very considerable change in the next decade from the present free balance of about £17 millions, less such issues as are needed in respect of the Depreciation Fund. Thereafter, unless and until the provision for Conversion Loan is no longer required, the free balance will tend to fall as the result of the increasing fixed charges shown in paragraph 213. 216. We may mention here a suggestion made to us by Dr. Dalton (in conjunction with proposals for an increased Sinking Fund) that specific Sinking Funds should be attached to the 4 per cent. Conversion Loan and the 4 per cent. Victory Bonds (as an addition to the present drawings) with a view to raising 65184 C 4 the market values of those securities, of which he thought additional issues at par might well be made when national credit reached a 4 per cent. and 4 per cent. basis respectively (Ev. p. 394: E. in C. 9). At the same time Dr. Dalton stated on the general question that he did not think the whole of the Sinking Fund provision should be attached to specific loans (Q. 5481). 217. We are of opinion that in the disturbed circumstances under which loans had to be raised during and immediately after the War period, the attachment of specific Sinking Funds (including the Depreciation Fund) in certain cases proved to be of distinct advantage in securing the success of the loans. From the point of view of the use of the Sinking Fund in raising Government credit and facilitating operations under more settled conditions, we are, however, inclined to think that definite attachment to particular loans tends to be disadvantageous. The present specific Sinking Funds are in the main attached to the longer term loans, and in one case to funded debt; that means that, upon the maturity of short issues, reborrowing (or conversion) has to be pro tanto greater than if the whole Sinking Fund had been free and available for such payments. The repayment of one type of stock side by side with reborrowing in another type is probably on the whole more disturbing to values than a simple reborrowing of a smaller sum. Nor can it be foreseen with any certainty that the stock to which a Sinking Fund is attached will prove to be that which over a long period it is most desirable to support. Leaving out of account the possibility that hypothecation may be a means of ensuring the continuance of the Sinking Fund provision (a matter which we discuss later), the ends in view can be equally secured by a judicious use of a free Sinking Fund; on the whole we do not therefore favour any extension of the earmarking of the Sinking Fund to particular securities. SECTION III. THE GROWTH AND PRESENT WEIGHT OF INCOMES. ON VARIOUS THE GROWTH AND PRESENT WEIGHT OF TAXATION. 218. We include in Appendices VIII and IX particulars of the rates at which the principal direct and indirect taxes have been charged from 1913-14 onwards, and we shall deal in due course with the weight of existing taxation under its several heads. It may be convenient, however, if we set out at once figures of the total net receipts for the years 1913-14 to 1925-26, distinguishing the main heads of duty. TOTAL NET RECEIPTS, 1913-14 TO 1925-26. (1) Inland Revenue Duties. (2) Customs and Excise Duties. (1) Inland Revenue £ £ £ thou- thou- thou- thou- thou- 43,902 59,424 112,373 186,538 214,857 257,708 317,030 340,665 334,934 21,649 22,368 24,363 25,098 25,742 25,144 36,638 40,614 45,146 314,375 271,433 275,458 258,065 63,910 61,747 62,989 67,833 1913 1914- 1915- 1916- 1917- 1918- 1919- 1920- 1921- 1922- 1923- 1921 1925 ន £ £ £ thou- thou- thou- thousands sands sands sands cession Duties, etc. Duty 735 414 369 524 651 Land Values Duties 87,809 108,484 170,090 389,315 504,816 623,674 717,551 691,154 518,729 479,504 436,717 442,349 427,408 6,499 8,628 13,962 14,312 12,519 16,054 17,747 16,861 17,582 75,227 81,570 120,783 127,198 109,467 163,129 283,336 333,813 323,355 9.603 9.285 6.249 5,714 13,246 13,678 11,317 15,716 282,620 265,481 234,425 237,704 Excluding Estate Duties and Stamps collected in Northern Ireland after 21st November, 1921. Great Britain and Northern Ireland (Reserved Taxes). The Customs and Excise Figures for 1923-24, 1924-25 and 1925-26 exclude payments by the Irish Free State in respect of adjustments to make up the attributable revenue of 1922-23. The figures for 1922-23 represent the attributable revenue of that year Repayments in excess of receipts. 219. It may be of interest to add figures of per head taxation, direct and indirect. These are not given for the years 1915-16 to 1919-20, for the reason that such population figures as are available for those years relate to the civil population only. Taxation per head of population, 1913-14, 1914-15, and This table follows the usual official classification under which all taxes levied in respect of consumable articles (i.e., all Customs Duties and all Excise Duties excepting Licences and Railway Duty) are regarded as indirect. THE BURDEN OF TAXATION, DIRECT AND 220. In this section we propose to illustrate how the total burden of taxation, direct and indirect, may fall upon taxpayers at different levels of income. We examine the incidence of the taxes later at this stage we make a general assumption that the burden of taxation is borne as intended, i.e., that direct taxes are borne by the payer and that indirect taxes are shifted by the payer and borne by the consumer. Our only concern, at present, is with the statistical aspect: we shall defer passing any judgment on the existing distribution of the tax burden until we have considered the purposes to which the revenue is applied, and have examined at some length the operation of the several taxes: these steps we will take in the succeeding parts of our enquiry. 221. In the main, both in general method and in detail, we propose to follow the lines adopted by Sir Herbert Samuel, when in January, 1919, he took as the subject of his presidential address to the Royal Statistical Society "The Taxation of the Various Classes of the People." We shall indeed adopt, or only slightly modify, many of his figures, and the wide extent of our indebtedness to him, which we at once acknowledge, will become apparent as we proceed. We have, however, pursued independent lines of calculation as regards tobacco and alcohol duties. |