(iv) The duty on companies' share capital.

566. Rate of duty and yield.—The duty on companies' share capital was increased from 5s. per cent. to £1 per cent. by the Finance Act, 1920, with effect from the 20th April, 1920.

The net receipt (Great Britain) was £697,517 in 1913-14 the lowest point to which it fell during the War was £210,605 in 1916-17. Immediately after the Armistice there was an unpre cedented boom in company flotations, reflected in the following figures :

£ 1,024,9615s. per cent. still in 3,645,088

force.

567. Incidence.-The companies' capital duty tends to fall on the company, and not to be passed on in prices to the consumer. Ultimately, the effect is upon the shareholders, since the duty is a charge against the profits of the concern. (In the case of the private company, of course, the distinction between company and shareholder hardly exists for this purpose.)

568. Criticisms by witnesses.-The Association of British Chambers of Commerce (Ev., p. 291; E. in C., 69-70) and the Law Society (E. in C., 3 and 8) both expressed the opinion that the companies' capital duty is harmful in reducing the number of company registrations, and also the amount of capital for which registration is sought. Sir Felix Schuster, while considering the duty rather too high, did not think it had actually interfered very largely with the formation of new companies (Q. 114). The Law Society recognised that the number of companies formed in recent years was large and showed no sign of diminution, but contended that, "were it not for this heavy impost, the number of registrations would undoubtedly be larger (E. in C., 3); the Society had in mind the conveyance duty (cf. para. 556) as well as the companies' capital duty. The registrations of companies (England only) in 1913 and in post-war years are recorded as follows in the Board of Trade Reports on Companies :- Registrations (in England only). Average amount

Numbers.

569. When the numbers of registrations are seen, and when it is remembered that the companies' capital duty (even though in combination with the conveyance duty) is not the only expense of company formation which has increased, it appears to be doubtful whether registration has been materially restricted by the duty. The creation of new companies is influenced by very wide causes, as we remarked in discussing how far the Income Tax had a bearing upon it (para. 404). The capital duty and conveyance duty must not infrequently have turned the scale against amalgamations and reconstructions, but we hardly think it likely that they have seriously interfered with the creation. of new companies, or that, as the Law Society suggest (E. in C., 9), they have deterred many foreigners from forming companies here and also driven Englishmen to register abroad, instead of here, companies formed to carry on business abroad; besides, in many foreign countries similar duties are in force. Although we do not regard the companies' capital duty as a good type of tax, it is arguable that the benefits of incorporation are such that companies can afford to pay something for them, and that the existing duty, paid once and for all, is not very excessive, especially since the Corporation Profits Tax has been repealed.

570. With regard to the average amount of capital registered, it would be very mistaken to attribute the whole of the diminution to the effect of the Stamp Duties. In the first place, allowance must be made for the fall in the price level. Then again in 1919 and 1920 large nominal amounts of capital were registered, because a sanguine view was taken of trade prospects and it was thought that a great deal of capital would be required. There can be no doubt that in later years the difference between the capital registered and the capital actually issued to the public has been narrower, but it is not clear that the tendency to put the capital lower does any great harm, although it may occasionally have the result, pointed out by Mr. Randle Holme, one of the Law Society's representatives, of hampering private businesses in raising new capital and somewhat prejudicing their credit. (Q. 7651.)

(v) The duty on cheques.

571. Rate of duty and yield.-The duty on cheques was raised from 1d. to 2d. by the Finance Act, 1918, with effect from September, 1918. The net receipt and the approximate number of cheques used (Great Britain) have been as follows, from 1913-14 onwards:

:

572. Incidence.-The duty falls on the person drawing the cheque, and is borne by him, unless he can pass it on in some business transaction. The trader may generally be assumed to pass the duty on to the consumer, since it enters into the costs of all traders, including the marginal man.

573. Criticisms by witnesses.-It was contended by several witnesses that the restoration of the 1d. duty would very substantially increase the use of cheques. Mr. Beaumont Pease, however, could not find that the 2d. duty had diminished their use (E. in C., 23). Sir Felix Schuster thought that, with the duty at 1d., cheques would be used more freely for payment of wages, and that more banking accounts would be opened. (Q. 114.) Mr. Samuel thought that small shopkeepers would take to the use of cheques, if the duty were only 1d. (Q. 1007), and the National Chamber of Trade-a federation of local bodies consisting mainly of distributing traders, and the smaller craft traders represented that "maintenance of the war increase of 2d. for such a long period after the conclusion of the War has created a very definite sense of grievance besides leading many to avoid payment by cheque whenever it can be done (E. in C., 13). The Drapers' Chamber of Trade of the United Kingdom suggested that "a reversion. to 1d. cheque stamps would probably mean the quicker payment of small debts which in the aggregate throughout the country would mean greater greater and quicker turnover of capital" (Ev., Appendix II, para. 5).

574. We think that the effect of the 2d. stamp is a good deal exaggerated, although we have no doubt that a reduction to 1d. would do something to encourage the freer use of cheques and banking facilities. It is sometimes argued that the 2d. stamp tends to make people draw cheques for larger sums than they did before the duty was increased, but, quite apart from the duty, they might be expected to draw larger cheques simply on account of having to pay higher prices for almost everything. We think that this natural tendency exists-possibly aided to some slight extent by the 2d. duty. So far as it is true that larger cheques are drawn on account of higher prices, the fixed 2d. duty cannot be said to represent twice as heavy a charge as the pre-war 1d.

It does not seem, then, that the 2d. stamp should be much more discouraging to the use of cheques than the 1d. stamp used to be. From the numbers of cheques (para. 571) it will be seen that in pre-war days there was an annual increase of about 5 per cent. There was a slight decrease in the year following the raising of the duty (possibly due to reduced stocks being kept by the banks) but in the next two years of boom nearly 15 per cent. was added each year. The slump in 1921 brought the number down to a more normal level and an increase of roughly 5 per cent. has taken place from 1922-23 onwards.

575. Considerable stress was laid by Sir Felix Schuster (Ev., p. 11; E. in C., 13), Mr. Samuel (E. in C., Ans. 13), and the Chambers of Commerce (Ev., p. 291; E. in C., 71-2) on the prospect of reducing the currency note circulation, if the duty were halved or abolished. We cannot believe, however, that such a step would have any considerable bearing on the monetary position, even if the result were a marked increase in the use of cheques; it is the total volume of currency in circulation, rather than the amount of cheques or notes comprised, which is of real importance.

(vi) Duty on receipts.

576. Rate of duty and yield.—The receipt duty, applicable to receipts for £2 and upwards, was raised from 1d. to 2d. by the Finance Act, 1920, with effect from September, 1920. The yield of the tax cannot be exactly distinguished from figures of postal revenue, since in most cases the ordinary postage stamp is used for receipts. In recent years it has been in the neighbourhood of £2 millions: it does not appear that the doubling of the duty has effected the giving of stamped receipts.

577. Incidence. --The incidence tends to be on the consumer, but cannot be allocated with certainty.

578. Criticisms by witnesses.-Very little mention was made of the 2d. receipt duty. The National Chamber of Trade linked it with the 2d. cheque duty as engendering a sense of grievance (E. in C., 13) and the Association of British Chambers of Commerce held that both alike should be reduced to the pre-war rates (Ev., p. 291; E. in C., 72). There is little to be said in favour of a duty on receipts except that where, as in this country, people have grown accustomed to it, it is an easy enough method of raising a not altogether negligible revenue. Its great defect is that it can be very simply avoided by not giving a receipt. It may be of interest to mention that from 1783 to 1853, when Mr. Gladstone introduced the fixed 1d. duty, there was a graduated duty. From 1815 to 1853 the scale rose to as high a maximum as 10s. on receipts of £1,000 or more. The repeal of the graduation in 1853 resulted in a larger yield. As Mr. Gladstone said, it was a duty entailing very considerable. inconvenience and had been evaded wholesale.

General Conclusion.

579. The Stamp Duties are a cause of occasional irritation to the citizen, and of some recurrent friction in business, and particularly in finance. While they are open to many objections, they do not seem in practice to meet with much opposition from the general taxpayer, and they may be held to illustrate the saying that an old tax is a good tax. Nevertheless, in relation to their moderate yield, we are disposed to think them one of the less satisfactory parts of the British tax system.

SUB-SECTION VIII: THE CUSTOMS AND EXCISE DUTIES.

THE INCIDENCE OF THE DUTIES AND THEIR MORE IMMEDIATE EFFECT ON PRICES.

580. In regard to the existing Customs and Excise duties, the question of incidence, in the sense in which we use the term (cf. para. 288 et seq.) is not controversial, as it is in the case of the Income Tax. There was general agreement among witnesses that, broadly, the duties are passed on in price to the consumer.

581. It is, however, a debatable question how far the duties are a clean addition to price. The actual movement of prices is not a complete test: prices are open to all the varied forces of supply and demand, and, particularly in the case of imports, the market is sensitive to changes in world conditions. follows that the exact effect of a change in a rate of duty may quickly become obscured.

It

582. Even the movement immediately after an increase or decrease of duty cannot be entirely relied upon for in the case of many dutiable goods the article sold retail is a blend, the components of which may often easily be altered to at least a slight extent. When, therefore, the price of a dutiable article rises or falls exactly in accordance with a change in the duty, it cannot in all cases be said with absolute confidence that the two changes are exactly equivalent.

583. We may glance briefly at some considerations which may affect the addition to price, when a duty is substantially increased. Let us take the case of a commodity manufactured in this country. The increase in duty, when added to prices, will normally cause demand to slacken to some extent, and supply will be adjusted accordingly. In the case of diminishing returns, a reduction of supply should tend to bring about some fall in the cost per unit of production, and then-in theoryless than the full tax ought to be put on to the price : under increasing returns, where the cost per unit is increased by a reduction of supply, more than the tax might be put on. Professor Pigou, who referred to this aspect of the subject, did not think it possible to measure the variations in unit cost. He