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being technically received into the Exchequer.
The total may be classified conveniently as fol-
lows: Fixed annual charge for the main body
of the debt, £28,000,000; army, £29,000,000;
navy, £33,000,000; education, £16,000,000; mis-
cellaneous, including the cost of collection of
taxes, the administration of justice and the
civil services not included under heads already
enumerated, £17,000,000; post office, including
telegraphs, £16,000,000; and amount handed
over to local authorities, £11,000,000. The
amount credited to education is chiefly made
over to local school authorities, but only on
conditions which give the central government a
very large measure of control, not only over the
expenditure of the money so granted, but also
over what is raised from local sources. The
£11,000,000 granted to local authorities, com-
monly called the ^Exchequer Subsidies* or
^grants in aid of rates,* consist of sums which
are either fixed or vary with the yield of cer-
tain taxes, and are not now directly connected
with central control, with the exception that an
amount equal to half the cost of the pay and
clothing of a police force may be deducted from
the grants due to an authority if it fails to
maintain its police force to the satisfaction of
inspectors employed by the central government.
The method of distribution between the various
authorities is extremely complicated, and differs
in England, Scotland, and Ireland. Scarcely
anyone professes to understand it, and it is
based on no sort of principle except that it is
largely dependent on certain proportions which
prevailed in 1888. This plan was adopted as a
temporary expedient, and has been continued
not on account of its merits, but because it

Revenue. — The total revenue, including the
£10,000,000 of allocated taxes already mentioned,
amounted to £154.000,000. The great heads
were: Customs, £34,500,000; excise (internal
duties on commodities), £35,600,000 ; estate
duties (inheritance taxes), £17,300,000; income
tax, £31,300,000; stamps, £8,200,000; house duty,
£1,900,000; post office and telegraphs, £21,000,-
000 ; and miscellaneous revenue, £3,800,000. The

customs included only one export duty, that im*
posed upon coal, producing £2,300,000, and this
was abolished in 1906. The imports of tobacco
brought in £13400,000, tea, £6,800,000; sugar,
£6,200,000; spirits, wine, and beer, £5,100,000.
The excise drew in one way and another nearly
£33,000,000 from taxes on the manufacture or
sale of beer and spirits, so that nearly £38,000,-
000, or 30 per cent of the. whole tax-revenue,
was derived from intoxicating liquors. The in-
heritance taxes, christened by Gladstone and
now commonly called the ^Death Duties,* con-
sist of two distinct parts, one of which is grad-
uated from one to eight per cent according to
the aggregate value of the whole property left
by the deceased; so that if a man dies worth
£400, one per cent has to be paid, and if he dies
worth over £1,000,000, eight per cent The other
part is graduated according to the relationship
of the new owners of the property to the de-
ceased, so that for example, while property be-
queathed to descendants or ascendants is ex-
empt, property falling to brothers or nephews is
charged three per cent, and property falling to
persons without any relationship to the deceased
is charged 10 per cent. Thus, taking the two
parts together, if a man leaving £400 bequeaths
it all to his children, one per cent only will be
paid, while on a millionaire's estate left to per-
sons not related to him, the duties will together
amount to 18 per cent. The Income Tax was
levied at the rate of is. in the«£ (1. e. five per
cent), but incomes under £160 are exempt, and
^abatements* are allowed on incomes between
£160 and £700, which, when the rate is is.,
amount to £8 to persons having between £160
and £400, £7 10s. when the income is between
£400 and £500, £6 when between £500 and £600,
and £3 10s. when between £600 and £700. Much
the greater portion of this tax is Collected at
the source,* or at any rate before the income
actually reaches the ultimate recipient For ex-
ample, the tax on the income arising from lands
and buildings is collected from the occupier,
who then, if he is not the owner, has an in-
alienable right to deduct the tax when paying
his rent; so too the tax on the income from
stocks, shares, and bonds of corporations is col-
lected from the corporation. But this practice
does not defeat the right of the individual land-
owner or stockholder to exemption or abate-
ment if his total income from all sources is
under the prescribed limits; he makes up ac-
counts with the collectors, declaring his whole
income and showing how much has been de-
ducted from its various parts, and if it then ap-
pears that too much has been paid, the excess is
repaid to him in cash. So far as the portion col-
lected at the source is concerned, the tax works
with great efficiency. The amount of evasion
which takes place in regard to the other part,
for which personal declarations of the amount
of income are required, is very variously esti-
mated, but there is little doubt that it is in
process of diminution owing to the greater pub-
licity of modern methods of business and to the
checks supplied by the death-duties, which are
administered by the same department. Stamps
consist mainly of duties on commercial and
speculative transactions. # The House duty is
levied at the rate of 9& in the £ (3^ per cent)
of the rental value, but there are lower rates

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for houses of between £20 and £60 rental value,
and houses under £20 in Great Britain and all
houses in Ireland are exempt. The Post and
Telegraph receipts include a heavy tax of 10
per cent on the gross takings of the National
Telephone Company, as well as the receipts of
the Post Office from its own telephone trunk
wires and its telephone service in London and
a few other places where it competes with
the National Company. The whole of the Post
Office profit comes from the mails, trie tele-
graph business being a losing one. In miscel-
laneous revenue the most important item is about
a £1,000,000 from the Suez Canal Company's
shares, which, it is well to remember, are a
wasting property, the canal having been con-
structed on a 99-year concession.

Local Finance. — To give an absolutely ac-
curate account of the finances of local authori-
ties in the United Kingdom is impossible owing
to the complicated relationship of the various
local authorities to each other and to the central
government, and also because the three king-
doms, England, Scotland, and Ireland, have en-
tirely different systems and methods of account-
keeping. The aggregate debt in 1904, including
of course the £71,000,000 of debt to the central
government mentioned above, is stated (after
deducting accumulated sinking funds) at about
£450,000,000, but about £40,000,000 of this con-
sists of the debt of harbor and dock trustees
which is secured only on the harbors and docks,
and in no way upon the taxes of any locality,
and therefore ought not to be reckoned as local
debt. The remainder represents capital invested
in (taking the larger of the various items ap-
proximately in order of magnitude) waterworks,
street and road improvements, schools, drain-
age, gasworks, tramways, electric works, work-
houses, asylums, and the innumerable other
works and buildings required by modern civil-
ized and especially urban communities. The
aggregate annual repayments of debt and pay-
ments to sinking funds amount to a little over
two per cent on the total, but the annual addi-
tions considerably exceed this amount, so that
the debt increased nearly £200,000,000 in the 10
years before 1904. Since then there has been
an exceptional increase owing to the conversion
of the capital of the London water companies
into debt of a board representing the various
local authorities within the area of supply; this
adds about £40,000,000 without much altering
the liabilities of the inhabitants or owners of the
area concerned. About half the # total capital
has been raised for purposes which are often
provided for by private enterprise^ such as
waterworks, gasworks, docks, electric works,
tramways, and cemeteries, and the other half
for purposes which are seldom so provided for
in modern communities.

The expenditure from revenue of the au-
thorities, including repayment of debt, amounted
in the year 1902-3 to about £111,000,000. About
£15,000,000 of this was met by the allocated
taxes and other national grants, chiefly for
education, spoken of above, about £58,000,000 by
^rates,* and the rest by the special charges
levied for commodities and services supplied,
and all kinds of miscellaneous revenue. The
accounts of subsequent years will show very
large increases in the national grants for edu-

cation received by the local authorities, not
only because the grants for education have
actually increased, but also, and in much larger
measure, because under the Education Act of
1002, the local authorities now receive the
grants for the ^voluntary* schools handed over
to them by the act The amount raised by spe-
cial charges for commodities supplied will also
be very largely increased in consequence of the
fact that Londoners' payments for water are
now received by a local authority, instead of by
a number of companies.

The ^rates* are taxes levied by the local au-
thorities at a rate of so many shillings or pence
in the pound of the annual value of land and
all things attached to the land in the concrete
form of buildings or works of any kind. The
idea of the Elizabethan rate for the relief of the
poor undoubtedly was to assess inhabitants ac-
cording to their ability, and down to 1840 at-
tempts were frequently made to extend the sys-
tem which long prevailed in some parts of the
country of assessing stock in trade and other
visible personal property. But experience
showed that such taxation was utterly unsuit-
able for small localities, and when the law
courts at last began to favor these attempts,
legislation intervened. The tax is usually levied
from the owner in the important case of small
house property in England, but in almost all
other cases from the occupier of the property.
The occupier has no right of deducting rates
paid from his rent unless he has so contracted
with his landlord, and a contract of this kind
is scarcely ever made. There is at present,
under the Agricultural Rates Act, a rebate of
50 per cent in favor of agricultural land, and
there are some other differentiations in the
cities. The •rates® are elastic, certain, cheaply
collected, and singularly free from disturbing
effects upon production. The fact that they are
unpopular is sufficiently accounted for by their
enormous yield and their obvious character.

Financial Control. — The finance of the cen-
tral government, according to the present theory
of the British Constitution, is vested in the
House of Commons. All financial legislation
must originate there, and the Commons will not
permit any alteration of their measures by the
Lords. But in the House of Commons itself
the power of initiation in matters of finance is
now entirely in the hands of the Ministry.
Estimates of expenses and receipts made up in
the government departments are considered or
amended by the Ministry in private. The result
is then laid before the House of Commons by
the Chancellor of the Exchequer in his •Budget
Speech.* A ministry will rarely submit to
modify its proposals in any important respect,
so that the House has to choose between ac-
ceptance of the budget and a change of govern-
ment No ordinary member of the House can
directly propose an increase in taxes or ex-
penses, the theory being that it is the King who
asks his faithful subjects for money, but anyone
may propose reductions. The estimates are put
before the House in immense detail, but this
very detail defeats its own end, as there is not
and cannot be, time to consider the whole to
any good purpose. The estimates are conse-
quently passed without material alteration.
This absence of real control by the House of

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Commons is probably favorable rather than un-
favorable to economy. The necessity of finding
new taxes or increasing old ones is much more
immediately before the eyes of the Ministry
than of the House of Commons, and the Min-
istry has also more reason to fear popular re-
sentment against any increase of taxation. It
is, moreover, in immediate and constant associa-
tion with permanent Treasury officers whose
influence is generally cast against 'temporary
expedients, for staving off the day of reckoning.

In the councils which conduct the local gov-
ernment of the country there is nothing like the
Ministry in Parliament, and the system of con-
trol consequently has a nearer resemblance, as
has sometimes been observed, to that prevailing
in the United States Congress. The committees
charged with the various departments of the
council's work, with the assistance of their
executive officers, each prepare their own esti-
mate of expenses for the coming year. These
are then all added up and put before the Finance
Committee, which usually hands them on with
little or no alteration to the Council, merely
adding its own estimate of receipts other than
rates and a recommendation to the Council to
make a rate of as many pence in the pound as
is calculated to make up the balance required.
The Council discusses the estimate of receipts
and expenses thus put before it, and any mem-
ber may move alterations in any item. Such
motions are frequently made and sometimes,
especially, of course, in the smaller councils,

The local authorities have no power to con-
tract debt without special authority. For most
purposes this now means that sanction must be
obtained either from Parliament by special act
or from the department of the central govern-
ment, called the Local Government Board.
Loans must always be accompanied by pro-
visions for repayment within the time for which
Parliament or the Local Government Board's
inspectors calculate the work on which the
money is to be spent will last. That the pre-
scribed sum is being set aside every year for re-
payment is ascertained by the Local Government
Board in each case. Some authorities are for-
bidden by statute to borrow more than an
amount bearing a certain proportion to the an-
nual rateable value of their area, but these
enactments are rendered practically inoperative
by other legislation, and have no influence what-

Out of annual revenue the authorities may
generally spend as much as* they please, the un-
popularity of rates being regarded as a sufficient
safeguard against extravagance. In regard to
one expenditure only, that for poor relief, the
central government attempts to prevent too
much being spent, at any rate in one or two di-
rections, such as relief to persons not required
to enter the workhouse and relief to the able-
bodied. In other matters the influence of the
central government, when exercised, is almost
always in favor of increased expenditure. The
threat of "withdrawal of the grant® in respect of
a particular school is used every day by in-
spectors of the central Board of Education in
order to compel a local authority to spend more.
The central government appoints officers to audit
the accounts of the greater number of local au-
thorities, but the auditors of the municipal bor-

oughs (which include all the great cities) iff
England are elected, under the Municipal Cor-
porations Act of 1832, by the ratepayers. This
election is almost always a farce, and the more
important city councils have had to provide a
proper audit in addition to the one thus pro-
vided by law.

Bibliography. - Information as to the actual
position of British finance can only be obtained
by piecing the facts together from a large num-
ber of parliamentary publications, usually
known as a Blue-books.» Among the most im-
portant of these are the annual returns entitled
Rational Debt,* which shows the different
kinds of debt existing at the end of each year
from 1835 to 1906; < Government Departments
Securities,* which gives the amount of the
State's securities held by the State itself; the
Finance Accounts of the United Kingdom; the
( Postmaster-General's Report,* the < Annual
Local Taxation Returns for England and
Wales, > and the same for Scotland and for
Ireland. Besides the above, for historical pur-
poses the following parliamentary papers may
be found useful : ( History of the earlier years
of the National Debt from 1694 to 1786* (C.
9010), and Proceedings of the Commissioners
for the Reduction of the National Debt from
1786 to i890> (C. 6539) ; Local Authorities Lia-
bilities (No. 306 of 1905) : < Reports of and
Evidence taken by the Royal Commission of
1897 on Local Taxation.* Among general
works on finance dealing preeminently with
British conditions C. F. Bastable's < Public
Finance* (3d ed. 1903), is the most complete
and up-to-date and gives plentiful references
to earlier works. For the history of taxation,
consult Stephen Dowell, < History of Taxation
and Taxes in England* (2d ed. 1888), and
Cannan, ( History of Local Rates in England*

Edwin Cannan,
Appointed Teacher of Economic Theory in the
University of London; Author of ^History
of Local Rates in England,* etc.

18. Great Britain — Banking. Banking in
Great Britain as now carried on is the product
of a continuous process of evolution; it owes
very little to external influences, and can only
be properly understood in the light of the study
of its earlier developments. Its strength is the
strength derived from long tradition founded
upon experience, and its weakness is the weak-
ness inherent in a system which has developed
with the smallest possible amount of legislative
control. This weakness is shown in a lack of
logical coherence and in an occasional absence
of proper definition.

There are few evidences of banking in the
modern sense of the term in England before the
17th century. In the middle ages the bankers
were mainly money changers and money lenders ;
they dealt in coin, not in credit. The Italian
colony of the Lombards, however, who gave
their name to Lombard street, seem to have
been well acquainted with the use of bills of ex-
change, and the banking business of the country
was chiefly in their hands after the expulsion
of the Jews at the end of the 13th century.
During the 16th century, however, the power of
the colonies of foreign merchants in London
rapidly declined, ending in the breaking up of

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the German colony in the Steelyard by Queen
Elizabeth. In the 17th century it became cus-
tomary for the wealthier classes to intrust their
spare cash to the keeping of the London gold-
smiths, a body of men whose occupation in-
spired the necessary confidence. The transition
from goldsmith to banker was a natural and
easy one, and the goldsmiths' 'cash notes*
gradually acquired a degree of negotiability.
Some of the existing London private bankers
find their origin in the goldsmiths of the latter
half of the 17th century. Outside London the
early type of country bankers was evolved from
the class of substantial merchants. Thomas
Smith of Nottingham, for instance, who is the
earliest country banker of whom we have any
record, and who certainly carried on business
as early as 1688, originally combined the busi-
ness of a mercer with that of a banker.

Owing to the unsatisfactory condition of the
public finances under the Stuarts, there was no
opening for a public bank such as existed in
Amsterdam and other European centres of in-
dustry. But the Revolution of 1688 saw the
control of the national expenditure pass from
the Crown to Parliament The national credit
became, for the first time, an important factor in
our economic development, and showed itself in
the growth of a national debt. The use of
credit spread rapidly and this led to the de-
velopment of modern banking. To the efforts
of William Paterson was due the establishment
in 1694 of the Bank of England, founded under
the wing of the Chancellor of the Exchequer,
Charles Montague, with the object of lend-
ing the whole of its capital, ii,200,ooo, to the

The Bank of England.— The Bank of Eng-
land is the pivot round which centres the whole
of modern banking in the # United Kingdom. In
no other country, whether in Europe or America,
does a bank occupy quite an analogous position.
It is not a State bank in the strict sense of the
term ; its capital is held privately, and its man-
agement is not in any way directly or indirectly
controlled by the State. On the other hand,
during its whole history, it has been more or
less under the protection of the State; its oper-
ations have been on occasion dictated by the
State ; its development has been marked by suc-
cessive loans of its capital to the State in return
for the confirmation or extension of its privi-
leges, and it still continues to exercise powers
and owe responsibilities delegated by the State.

The Bank of England is controlled by a
governor, deputy-governor, and a court of 24
directors who are elected by the proprietors on
the nomination of the directors. The selection
is generally made from the members of leading
mercantile firms, and the tradition is not to
elect a member of a banking firm or a director
of another joint-stock bank. The operations of
the Bank are now regulated by the Bank Char-
ter Act of 1844. This act divides the Bank of
England into two departments, the Issue De-
partment and the Banking Department. The
former, as will be seen in a later section, is so
strictly regulated by the act that its action is
automatic. The latter is for all practical pur-
poses as free from legal restrictions as any other
joint-stock bank. Yet free as it is from special
legal obligations, it has, by its action in the past

as well as by its present position, assumed pe-
culiar responsibilities, which, though ill defined,
are well understood, and which the Bank does
not attempt to disown. These responsibilities
are due especially to the Bank's position as the
Government banker, the bankers' banker, and
the keeper of the country's reserves. The Gov-
ernment accounts are kept by the Bank of Eng-
land, the national debt is managed, exchequer
bonds and treasury bills are issued and paid,
and many other incidental services of the kind
are rendered by the Bank. With regard to the
other banks, all the settlements at the London
Bankers' Clearing House are made by transfers
at the Bank of England, where each clearing
bank is bound to keep an account. Those
banks which do not possess a seat in the Clear-
ing House find it necessary to appoint one of
the clearing bankers as agent and to keep an
account with that agent. Practically every
banker in England can, therefore, draw either
directly or indirectly upon the Bank of England,
and the reserve of the latter has thus to be re-
garded both as the banking reserve of the
country, and also as the gold reserve, that is to
say, the reserve to insure the convertibility of
the note issue.

Appended is a copy of a weekly return of the
Bank of England.


An Account, pursuant to the Act 7th and
8th Victoria, cap. 32, for the Week ending on
Wednesday, the 13th day of June, 1906.

Issue Department.
Notes iMucd £51,803,100


Government debt £11,015,100

Other securities 7,434,900

Gold coin and balHon 33.353. 100

Silver bullion


Banking Department.

Proprietors' capital £14. 5 5 3. 000

Rest 3m»5L045

Public deposits (including exchequer, sav-
ings banks, commissioners of national

debt, and dividend accounts) 0,050,100

Other deposits 42,741,064

Seven-day and other bills 91.544


Government securities £i5.977»i33

Other securities 29,125,443

Notes 23,169,450

Gold and silver coin 1,414,736


Dated the 14th day of June, 1906,

J. G. Nairne, Chief Cashier.

The Private Bankers. — During the 18th cen-
tury, all the banks in England, with the excep-
tion of the Bank of England, were private part-
nerships, the number of partners being limited
by an act passed in 1708 to six. Now, however,

Online LibraryWilfrid RichmondThe Americana: a universal reference library, comprising the arts ..., Volume 10 → online text (page 20 of 185)