fort v. The Commissioners, and of the Marquess of Anglesey v. The Commissioners,' decided that Income Tax must be deducted before reckoning the Mineral Rights Duty. In consequence a large amount had to be repaid, and the revenue from this source suffered a permanent diminution of some 6%. The tax differs so greatly from the others in the group that it should be considered separately; and hereafter when I speak of the "land values duties," this one will not be included.

2

The total net receipt from the three duties dependent on valuation was £612,787 up to March 31, 1914; the cost of valuation and collection was £2,178,397.

In extenuation of this amazing deficit it is maintained that the work of the Valuation Department has justified its existence by increasing the yield of the Death Duties. From April 1, 1910, to March 31, 1914, the official valuation of real property passing on death averaged 6.16% greater than the valuation brought in by the accounting parties. In Ireland, during the period from September 1, 1910, to March 31, 1914, the increase averaged 5.26 % of the total value of real property passing on death.

But there are three reasons why the present Valuation Department cannot be given all the credit for this. (1) The department charged with collecting death duties has always succeeded in increasing the valuations of estates. To quote the fifty-seventh report of the Commissioners of Inland Revenue (p. 146): "Prior to

1 [1913] 3 K. B., 48.

? Between April 1, 1914, and March 31, 1915, the amount paid into the treasury on account of the Land Value Duties, including the Mineral Rights Duty, was £412,000. During the previous year it was £715,000. No details are available for the separate duties, but it seems likely that the duty on minerals furnished the greater part of the amount. The estimate for 1915-16 is £350,000.

This figure is really too favorable, as the early valuations included selected properties of which the department had notice in 1909–10, which yielded a more than average increase. Cf. the fifty-seventh report, p. 146. The proportion in 1913-14 was 5.18%, in Ireland 5.26%.

the introduction of expert valuers in the spring of 1909,1 the increase obtained by the then existing organization was an average of 3% upon the whole real property passing." (2) The department was so reorganized in the spring of 1909, a whole year before the passing of the Finance Act, that at a trifling cost it performed the necessary valuations nearly as well as now. The department thus reorganized was described by Mr. Lloyd George in the House of Commons, October 29, 1909, as being "efficient "; and the report of the Commissioners of Inland Revenue for 1909-10 attributes to it a "substantial increase" in the yield of the duties.2 (3) The land values duties, by reducing the value of land, especially in cities, have diminished the value of property passing on death and consequently the yield of the death duties. The extent of this effect cannot be ascertained, but that it is so seems indisputable, both on the grounds of theory and from the testimony of landowners. Even if land values were previously over-estimated, as was frequently the case, they at least paid higher death duties on that account.

However the apologists for the Valuation Department do not attribute to it an increase of more than £900,000 in the yield of the death duties up to March 31, 1914, and £325,000 for the ensuing year. Adding this to the land value duties, but excluding of course the Mineral Rights Duty, we still find a deficit of £665,000 on April 1, 1914, or an estimated deficit of £770,000 on the same date in the present year. As far as can be estimated from the weekly reports of the Treasury, the deficit

1 Italics my own.

2 Amounting in one week to over £100,000. Cf. House of Commons Debates, October 29, 1909. In fact, as far as proportions go the increase was apparently greater under this arrangement than it has been since, for it was only 6.16% between April 1, 1910 and March 31, 1914; but Mr. Montagu stated in the Times, May 7, 1914, that from May, 1909, to March 31, 1914, the average increase was 6.31%, of which be admitted 3% would have been obtained anyway.

must be increased some £200,000 because of the falling off in the revenue from the land value duties since the beginning of the war.

The taxes brought in by the other activities of the Valuation Department are hardly worth mentioning. It makes valuations for the stamp duty on property passing by gifts inter vivos, but the revenue derived in consequence cannot be stated and is certainly small.

There has been some talk of using the site values obtained as the basis of taxes or rates on the single tax principle. Besides their inherent inaccuracies, and those due to the failure of many owners to claim their full legal rights, these values are now six years out of date, and to use them for that purpose would be extremely unfair.

It is said also that the costs of the valuation must be regarded as a capital expenditure, and that deficits in the first few years will not prevent its being profitable in the long run. There is some truth in this argument, but it makes little difference, for the valuation once established is not perpetual. A revaluation is required every five years for the Undeveloped Land Duty;1 and for the other two duties property must be revalued every time it is transferred, or every fifteen years if owned by a corporation. It is safe to assert that after fifteen years the worth of the present valuation from a fiscal point of view will be very slight, and that after thirty years it will have no usefulness at all except for historical purposes. And in any case interest should be charged on the cost, if it is a capital expenditure. Taking the most reasonable estimate of the net cost, nearly £130,000 a year will be required to pay it off in twenty-five years with interest at 4%. The annual yield of the duties

1 No attempt has been made to carry out the first of these valuations, which was due in 1914.

cannot be expected to average more than £1,000,000 during the next twenty-five years, especially as the war will have a bad effect on land values. The costs of administration may run as high as £250,000, and can hardly be less than £150,000 per annum.1 Consequently in the period from 1910 to 1940 the cost of collecting these duties will average from one-fourth to one-third of their total amount. The average cost of all duties collected by the Inland Revenue Department fluctuates from year to year between 2 and 3 %.

So far only the cost to the government has been considered. There is also a great loss to landowners, whether taxable or not. Transactions are delayed or prevented by the fact that the amount of duty payable on the property is unknown. Legal expenses are greatly increased, and owners also often find it necessary to employ expert valuers to test or oppose the official valuation. In addition to these actual costs there is the dread of more to come.

III. SOME CONCLUSIONS

In the opinion of an overwhelming majority of builders and dealers in land, the land values duties are largely responsible for the remarkable decline in the number of new buildings annually erected. They are not the sole cause, for there is reason to believe that building was carried to excess in the years preceding 1907, and a reaction would normally be expected. The proponents of the duties declared, however, that they would stimulate building, by reducing the price of land. There can be no doubt that land values have fallen, and mortgages and other forms of investment in land have

1 Cf. the salaries of the permanent officials, p. 803, above. It is impossible to get an official estimate on this point.

lost their popularity since the famous budget was introduced. Whether or not the values set on estates by the government valuers were too low, they certainly were the cause of much calling-in of mortgages, and builders have ever since had much more difficulty in obtaining capital. At the same time they require higher profits to offset the increased taxes and risks. The result is shown by the following table, compiled from the Inland Revenue reports on Inhabited House Duty.

Part of the slump shown in the first column for 1911 may be attributed to the general revaluation of that year, which raised some houses hitherto exempt into the tax-paying class. But the figures in the second column cannot be so explained, as the total number of premises could not be perceptibly reduced by a revaluation, and the last previous valuation, in 1904, had no such effect. According to the census of 1911, the number of houses uninhabited, or being built, in proportion to the number of inhabited houses, was the smallest since 1861.