It should be observed that these figures are for gross income, and some adjustments have to be made before we can arrive at the total income of that part of the nation which has the mingled pleasure and pain of paying Income Tax.

From the £1,010,000,000 brought under review in 1908-9, the Inland Revenue authorities allowed the following deductions before arriving at taxable incomes:—

So that Income Tax in 1908-9 was actually collected not upon £1,010,000,000 but upon £693,300,000.

But we have not to make all the above deductions in arriving at the actual income of the income tax paying class. We have only to deduct those items which are not the real income of that class, viz.:—

Deducting these items we get:—

GROSS ASSESSMENTS TO INCOME TAX CORRECTED[3]

This figure may be compared with the £719,500,000 given on page 11 of "Riches and Poverty" (1905) for the fiscal year 1902-3. The increase is no less than £104,600,000 in five years, and this increase is especially commended to the notice of those critics who have worked so hard to whittle away a little from my estimates of 1903-4. The onward sweep of the figures has been magnificent; and accomplished facts now provide the apologists of the rich with the task of explaining away another £100,000,000 or so per annum.

To resume, the £824,100,000 arrived at above, handsome figure as it is, is certainly not complete. There is unquestionably still a considerable amount of evasion under Schedule D of the Income Tax. The landlords of Schedule A cannot escape assessment because the tax is paid by occupiers and deducted from rent, but there is a certain amount of under-assessment. Under Schedules B, C and E evasion is, for the most part, difficult or impossible. Under Schedule D,[4] however, a large number of incomes are understated and many which ought to be assessed escape altogether. It is almost as true to-day as it was in 1861 that, in the words of Mr Lowe's Draft Report to the Income Tax Committee of that year, "Schedule D depends on the conscience of the tax-payer who often, it is to be feared, returns hundreds instead of thousands, and who is certain to decide any question that he can persuade himself to think doubtful, in his own favour." It is recorded by the Income Tax Commissioners in their Twenty-Eighth Annual Report that when, in 1803, taxation at source was substituted for self-assessment in the case of all income but business profits, the effect was to make the produce of the tax at 5 per cent. in 1803 almost equal to that of 10 per cent. in 1799, showing that in the earlier year those who assessed themselves unaccountably overlooked one-half of their incomes. Dudley Baxter reminds us in his classical paper on the National Income[5] that in his Budget Speech in 1853 Mr Gladstone quoted a remarkable instance of evasion. When Cannon Street Station was constructed, twenty-eight persons claimed compensation for the loss of annual profits which they estimated at £48,000. The jury, after considering their case, awarded them £27,000. They had returned their profits to the Income Tax Commissioners at £9,000! In recent years the formation of limited liability companies has frequently revealed profits far in excess of those previously stated under Schedule D. Whatever figure we allow for such evasion must, in the nature of the case, be conjectural. In "Riches and Poverty" (1905), p. 13, I estimated evasion and avoidance as 20 per cent. of the declared profits. Twenty per cent. of £365,000,000 (the profits of "Businesses, Professions, etc," assessed under Schedule D) in 1902-3 was £73,000,000. We have since had remarkable proof of the reasonableness of this estimate. In 1907-8 the gross assessments to Income Tax rose by £36,000,000 (see p. 11). There is little doubt that part of the rise was due to Mr Asquith's enactment (Finance Act, 1907, Clause 19) differentiating between earned and unearned incomes on the condition that earned or partly earned incomes up to £2,000 a year were declared by their owners. For the financial year 1907-8 does not include the profits of the good year 1907 which (see Chap. 21) were not assessed under our averaging system until 1908-9. It was the new personal declarations which led to the revelation of income hitherto escaping tax, and part of the £36,000,000 rise in assessments in 1907-8 is undoubtedly part also of the estimate of £73,000,000 escaping tax which I made in "Riches and Poverty" (1905). For 1908-9, therefore, I reduce my estimate of income escaping tax accordingly. I now take it as £60,000,000 in 1908-9.

Another point for consideration is the amount of profit received by persons in this country from places abroad. It is exceedingly difficult to tax the whole of such profits. In 1908-9, £88,800,000, made up as follows, was ear-marked by the Commissioners as profit received from abroad:—

ASSESSED PROFITS EAR-MARKED AS RECEIVED FROM ABROAD, 1908-9

The total profit received or receivable yearly in this country from oversea investments it is impossible to estimate precisely, but there is good reason to believe that it is not less than £140,000,000. It should not be imagined, however, that the whole of the difference between this sum and that ear-marked by the Commissioners escapes assessment. Undoubtedly some of it eludes taxation, but a considerable sum, it should be remembered, is included with ordinary business profits under Schedule D. A few illustrations will make this clear. Messrs Armstrong, Whitworth & Co. have a shipyard in Italy the profits of which are received in this country, but are not distinguished from the ordinary profits of the company in the income-tax assessment. The same is true of such a firm as Lipton Ld. which owns extensive tea plantations in Ceylon. The profits made in Ceylon and remitted to this country are included in and assessed with the general profits of the business. There are a large number of firms which similarly own foreign or colonial property or branches which are organic parts of their businesses and are often the sources of their materials. When allowance is made for these facts it is probable that some £115,000,000 of oversea profits (including the nearly £90,000,000 or so actually ear-marked) are assessed to income tax, leaving but about £25,000,000 unassessed.

Accepting these figures, we arrive at the following estimate of the total income enjoyed by those persons who have over £3 per week:—

INCOME OF PERSONS ENJOYING OVER £160 PER ANNUM, 1908-9

The foregoing figures relate to the fiscal year ended March 31st, 1909, the latest period for which detailed figures are available.

It is necessary to point out again that while this fiscal year 1908-9 covered the assessment of the calendar year 1907, which was a year of great profit-making, it did not fully assess the profits of that boom year. Under Schedule D of the Income Tax the profits assessed in 1908-9 were the profits of the three years 1905, 1906, and 1907. That is to say, the figures just arrived at, £909,100,000, are an understatement of the true aggregate incomes of those having upwards of £160 a year in 1907. The actual income of the income tax payers in 1907 greatly exceeded £909,000,000.

In "Riches and Poverty" (1905) my equally conservative estimate of the income tax payers' aggregate income for 1903-4 was £830,000,000. We therefore get the following comparison:—

GROWTH OF AGGREGATE INCOME OF PERSONS ENJOYING OVER £160 A YEAR

And this remarkable growth in five years is shown in spite of the fact that I have allowed for £13,000,000 of income tax assessment as being due to increased severity of collection, for I have assumed that £13,000,000 more of existing home profits were revealed in 1908-9 than in 1903-4.

Now let us turn to the incomes which do not exceed £160 a year, and which, therefore, are not assessable to income tax.

First of all, we have the class of small incomes which lie between the manual workers and the income tax payers. We cannot hope, in view of the poverty of the information which our present Census methods place at our disposal, to estimate this part of the national income with any degree of confidence, and we can at best arrive at a rough approximation. I estimate that in 1908, of our "occupied" population, about 3,100,000 were neither income tax payers on the one hand nor manual labourers on the other hand. That is to say, they were petty tradesmen, civil servants, clerks, shopmen, travellers, canvassers, agents, teachers, farmers, inn-keepers, lodging-house-keepers, pensioners, and so forth, whose profits or salaries are below £3 per week. At what rate can we estimate their average income?

The total includes a very considerable number of young persons between 10 and 20 years of age. The teachers, some 250,000 in number, include pupil teachers of both sexes whose remuneration begins at a few shillings per week, and as a whole the teaching profession is wretchedly paid. The commercial and law clerks, some 500,000 in number, include juniors, office boys, and poorly paid girl typists. As to shopkeepers, there is an exceedingly large number of these distributing agents whose incomes are of the slenderest dimensions. Unfortunately we do not know how many shops in the United Kingdom have an annual value of less than £20, but their number must be very great, and the petty tradesmen who keep them have to work hard for poor returns. We have also to remember the quite considerable number of shops which are branches of great distributive firms and managed by shopmen with small salaries. As to shop assistants in general, their salaries are exceedingly small. I am informed by the National Amalgamated Union of Shop Assistants, Warehousemen and Clerks that the average male assistant "living in" gets from £25 to £30 per annum plus "premiums" and board and lodging, while "living out" the average is about £74. Grocery and boot salesmen in the shops of big distributing companies, who often are not required to "live in," get from 20s. to 30s. per week. The wages of the "managers" of shops are sometimes as low as 25s. per week. As for the value of the "living in," this may be illustrated by the fact that in a certain West of London house, where "living in" is the rule, a man applied for permission to "live out." He was told that he could do so, but that only £5 per annum extra could be allowed him. In a return to the Board of Trade for the purpose of statistics, the same employer would doubtless value the same "truck" at £30 or £40 per annum. I have before me the wages paid to the young women who work for a great multiple shop firm with 200 shops; they range from 3s. to 11s. per week!

Passing to the class of commercial travellers and canvassers, there is perhaps no calling in which earnings vary so greatly. While there are a number in the income-tax class, there are thousands of men included in the class we are now considering who live on "commission only," and thousands more who are paid by generous employers 15s. to 25s. per week plus a small commission. Advertisement and book canvassers are engaged upon widely varying terms, and many of them have a very precarious livelihood.

In "Riches and Poverty," edition 1905, I wrote: "Nearly the whole of the farmers of the United Kingdom earn less than £160 per annum. Out of a total profit of £17,500,000 as much as £11,000,000 is excused on the ground that income is below £160. This £17,500,000 is the annual income of an uncertain number of the larger farmers, probably as many as 300,000, which gives an average income of about £60 per annum! In 1902-3, 302 farmers elected to have their actual profits assessed under Schedule D. They were assessed at £10,974, which gives an average of only £37 per annum. These 302 farmers paid an aggregate rental of £116,259!"

These remarks did not take sufficient account of the under-assessment of farmers' profits under Schedule B. It would probably have been nearer the mark to take one-half of the rental paid rather than the official one-third as representing farmers' profits. If we did so, the profits of 300,000 farmers would come out at say £26,000,000 instead of £17,500,000, and the average profit would run to £87 per annum. Even this correction, however, would leave the great majority of our farmers under the £160 income tax line.

These notes on some of the largest classes of persons which go to make up the order of incomes immediately under consideration will serve to show that we are dealing with working men and working women whose earnings are exceedingly small. It should also be remembered that many of them are subject to losses from terms of unemployment. Clerks and the poorer travellers have little security of tenure, and at any given time there are many out of work. Hundreds of applications are commonly received in reply to single advertisements for clerks and travellers. To the petty tradesman bad trade does not spell "unemployment," but it often spells keeping a shop which does not keep its proprietor for many months.

Taking everything into consideration, and remembering that no large incomes are introduced to weight the average, the upper limit being as low as £160 per annum, I do not think we can estimate the average income of the 3,100,000 persons at more than £75 per annum, and I should put the figure lower if I did not assume that a certain amount of interest is drawn by some members of the group. This estimate gives £232,000,000 as the annual income of those who are not "manual" workers, but whose incomes are not assessed to income tax because they are less than £3 per week.

I have thus assigned to these members of the lower middle classes no greater earning power than they possessed in 1903. I think I am well advised in this. As will be seen later, wages have been almost stationary of late, and there is no reason to believe that clerks, commission men, etc., have fared better. Even as I write there comes to me a letter from a man whom I employed when editing a newspaper some years ago. He says (August 1910), "My present wage is 25s. per week, with no allowance for lodging out when doing country work. It is easily understood that this is not a sum which allows of luxuries for the present or provision for the future." He is now a directory canvasser, one of thousands in the employ of a large firm of publishers.

Since these pages went to the printer, a Committee of the British Association has issued a Report (1910) on the group of incomes just referred to which largely confirms the conclusions I presented in 1905. The Committee arrive at an average earned income of £71 against the £75 which I consider to cover both earned and unearned incomes. They treat of 4,000,000 people where I treat of 3,100,000, but that is because, while I exclude manual labourers as a class, the Committee include many manual labourers. Thus the Committee include sweeps in this intermediate class, while I include them with the manual workers whose earnings we shall next consider.

We now come to the largest class of the working population, the "manual workers" commonly so called.

Including persons of both sexes and all ages, I estimate from the census returns the number of manual workers in our population of 44,500,000 at 15,500,000. This number includes, in addition to all those engaged in industrial, agricultural, and domestic service, soldiers, sailors, policemen, and postmen.

In 1886 the Board of Trade conducted the only Census of Wages made in the United Kingdom prior to 1907. (We have not yet had a report on the later Census.) Sir Robert Giffen, who in his then capacity as Assistant Secretary of the Board of Trade in charge of the Commercial Department, directed the Census, describes in his General Report issued in 1893 (C. 6889) the method adopted. Schedules were sent out to employers, after careful consideration of the circumstances of each industry, specifying the various occupations of each trade and asking for details as to rates of wages, the numbers employed at each rate, the hours of labour, and so forth.

As to industrial employment generally the following trades were investigated: Cotton, woollen, worsted, linen, jute, hemp, silk, carpet, hosiery and lace manufacture, smallwares, flock and shoddy manufacture, coal and iron mines, metalliferous mines, paraffin oil works, slate mines and quarries, granite quarries and works, stone quarries, china clay works, police, construction and care of roads, pavements and sewers, gasworks, waterworks, pig-iron manufacture, general engineering, iron and brass foundries, iron and steel, shipbuilding (iron and wood), tin plate manufacture, saw mills, brass and metal wares, cooperage works, coach and carriage building, boot and shoe making, breweries, distilleries, brick and tile making, chemical manure manufacture, and railway carriage and wagon building.

The details obtained related to 355,838 men, 80,253 boys, 151,263 women and 48,772 girls, and were considered by Sir Robert Giffen to be "representative of, perhaps, three-fourths of the manual labour classes of the United Kingdom." He also expressed the opinion that the "broad results shown by the census summary would not be sensibly modified by including the great mass of other employments not comprised in that summary."

In the following table the Board of Trade summarised the proportion of men, women, boys and girls working at various rates of wages, in 1886, in the industries which I have mentioned:—