The income tax has held an important place in the fiscal system of England for more than three quarters of a century. Even before it became a permanent feature it was used more or less systematically. As early as the fourteenth century, incomes had a place in the base for the levy of taxes in what were called poll taxes. The first real income taxes, however, were introduced by William Pitt, about the beginning of the nineteenth century. These taxes resembled subsequent measures in that exemptions and certain allowances were granted, and incomes were classified into schedules according to their nature. These taxes soon went into disuse, and during the succeeding years many tax experiments were tried. Laws were repealed and new ones enacted without, however, introducing any radical changes. For a quarter of a century the taxation of incomes was discarded, and it was not till 1842 that this form of revenue was revived.

Sir Robert Peel, who was confronted with the task of meeting a deficit in the treasury caused by tariff reductions, was responsible for reestablishing taxes on incomes. The enactment was made for but three years, but at the expiration of this time the law was again placed upon the statute books. The process of reenacting the law, with occasionally some slight modifications, has continued to the present time. The act of 1842 is, therefore, the basis of the present English income tax system, which is considered by many to be one of the most successful in operation.

Modern Schedules. - The classification of incomes into schedules has been a fundamental part of all the English income tax laws. The present law provides for five schedules. Schedule A comprises the income from land and buildings, in which is included the rental value of lands and buildings occupied by the owner, as well as receipts by a landlord. Schedule B is designed to cover the income from farm land, whether received by tenant or owner. Incomes from lands used in connection with industrial establishments are included in neither of these schedules. Schedule C includes "all profits arising from interest, annuities, dividends, and shares of annuities payable to any person, body politic, or corporate company or society, whether corporate or not corporate, out of any public revenue."

The incomes which fall under Schedule D are more than those of all the other schedules. These include, first, all incomes which accrue to any person residing in the United Kingdom from any kind of property, whether located in the United Kingdom or not; and all gains secured by any person residing in the United Kingdom from any profession, trade, employment, or vocation, whether this be carried on in the United Kingdom or elsewhere. Second, under this schedule is placed the returns arising to any person, whether a subject of Great Britain or not, whether a resident of the United Kingdom or not, from any profit in the United Kingdom, or any profession, trade, employment, or vocation carried on within the United Kingdom. A third part of this schedule reaches forms of interest, annuities, and profits which are not covered by the other schedules. Schedule E has been relatively unimportant and applies to salaries of public officials, government annuities, and pensions.

Graduation. - Graduation is provided for by exemptions, abatements, and supertaxes. Incomes of less than 160 are not taxed. The schedule of abatements is as follows: incomes of more than 160 but not more than 400, an abatement of 160; incomes of more than 400 but not exceeding 500, an abatement of 150; incomes of more than 500 but not exceeding 600, an abatement of 120; incomes of more than 600 but not exceeding 700, an abatement of 70. No abatement is allowed for incomes exceeding 700, but the rate, which is fixed each year, applies to the entire income.

The actual percentage rates, assuming the rate to be one shilling to the pound, for various amounts, would be as follows: 161, .0003 per cent; 400, 3 per cent; 401, 3.1 per cent; 500,3.5 per cent; 601,4.4 per cent; 700, 4.5 per cent. All amounts above this pay the proportional rate of 5 per cent.

Additional abatements are allowed for life insurance premiums, charities, and other benevolences, while land and building depreciation is also granted. One eighth of the income from land is allowed to be deducted, and the amount for building depreciation is one sixth. Under certain conditions the deduction may be as much as twice this amount. An abatement of 10 for each child under sixteen years of age is allowed to individuals whose income does not exceed 500.

Declarations. - The necessity of making a declaration of income in order to secure the benefit of exemptions and abatements is responsible for the fact that a majority of income tax payers declare the total amount of their incomes, even though the taxes are collected to a large extent at the source. The situation usually resolves itself into a refund of taxes which have been collected in excess of the amount which would have been taken had the abatement been deducted beforehand. The abatement claims usually run into the thousands, and it becomes necessary to refund thousands of pounds.

Modifications of Above Outline. - In an attempt to tax incomes more nearly in accordance with their ability to bear burdens, differentiations have been made and supertaxes have been placed upon the larger incomes. A distinction is also made between earned and unearned incomes. On incomes such as wages and salaries, the rate is usually reduced something like 25 per cent, while it is increased for incomes from investments. The supertax, for example, under one law was to apply whenever the total income exceeded 5,000, and was to be levied against the amount in excess of 3,000. Individuals subject to the supertax are required, under severe penalty, to make declaration of the fact to the fiscal authorities.

The administration of the system is somewhat complicated, yet apparently satisfactory. A large number of officials are concerned with assessments and collections. These appear to be remarkably free from political influences - a fact which aids materially in securing satisfactory results. As already indicated, an extensive use is made of collecting the tax at the source, which lessens the problem of securing income assessments, but which enhances that of making proper allowance for the abatements.

This broad outline of the English income tax may not conform to the details of a particular year, for these change somewhat with the adoption of the annual budget. The Great War, of course, necessitated changes to meet the emergency which will be noted in a succeeding chapter. The above outline, therefore, is intended to give some idea of the English plan as it had developed under normal conditions. As a whole, opposition to the income tax has broken down, and the tax now functions as one of the most successful features of the fiscal system.

Reasons for Success. - Some of the reasons for the marked success of the British income tax have been summed up by Professor Seligman.1 He points out that the system of assessment is successful because the assessors command the confidence of the recipients of incomes. The supervision is by men of high caliber, who are rendering service, not for private gain, but because they are animated by a spirit of public duty. The collection at source, furthermore, has eliminated the distasteful and disquieting inquisitorial procedure which arises from the attempt to assess incomes. The policy of keeping the rate low, of recognizing different classes of incomes, and the introduction of graduation and supertaxes, have had their influence in making the tax generally popular. The success of present income taxes in England is a monument to the thought and care which the fiscal experts exercised in organizing and proposing this form of revenue.