Rewriting Income Tax Law 1907-56

“Grumbling as to the confusion and incoherence of Income Tax legislation has become chronic, with occasional paroxysms.” Those words, or others to the same effect, must have been said or felt many times by modern tax advisers, but they were spoken almost a century ago, in 1918, by Lord Finlay, the then Lord Chancellor. That year saw the first consolidation of the legislation dating back to 1842, and in his fascinating talk to the Worshipful Company of Tax Advisers’ Tax History Group on 5 March 2013, John Pearce gave an account of the history of Rewriting Income Tax Law, 1907-56.

John, who was seconded from the Revenue Solicitors’ Office to the Tax Law Rewrite Project from 1997 to 2005 and has researched previous ventures in this field in his retirement, distinguished between Consolidation – restating provisions contained in earlier Acts dealing with the same subject – and Codification, which restates the whole of the law on a subject, whether statute, common or case law. The latter is a far more ambitious project than the former, and may well require much more Parliamentary time.

The last century saw four consolidations, in 1918, 1952, 1970 and 1988 (the last two being outside John’s scope). Once the 1918 Act was passed, a Royal Commission was set up which reported in 1920 and proposed major changes to the law relating to income tax allowances and reliefs, and to tax administration. Thanks to determined opposition, partly whipped up by the General Commissioners for the City of London, but also because of political preoccupations, the administrative changes were dropped (and similar proposals were enacted only over 40 years later).

In 1927, Winston Churchill, as Chancellor of the Exchequer, announced a grand scheme for the simplification of income tax: and some significant changes were introduced in the 1927 Finance Act (notably the use of the current year basis of assessment for taxed income and the preceding year for other kinds). Churchill also said that–

"It is high time that an attempt was made to re-write the Acts governing the Income Tax in a clearer and more intelligible form. I propose to ask a body of experts of the highest qualifications to take the task in hand. Their labours will be long, but I hope when they fructify the fruits will be found to be both rare and refreshing."

The “body of experts”, a Codification Committee, comprising lawyers in private practice and government, laboured longer than Churchill could have imagined. By 1930, the Committee had met no fewer than 65 times, but had produced only 37 (very) draft clauses; the 1918 Act had 239 sections. This snail’s pace quickened under the chairmanship of Lord Macmillan from 1932, and a draft Codification Bill was finally produced in 1936. Revenue misgivings were one factor behind a lack of further progress by 1939; and by 1945 the Civil Service was clear that the draft Codification Bill was no longer of use.

After 1945, Sir Granville Ram, First Parliamentary Counsel from 1937 to 1947, was clear that the drafting of what became the 1952 Act should be entrusted to Sir John Rowlatt of the Parliamentary Counsel’s Office (son of the famous judge, Sir Sidney). The weight of other legislation introduced by the postwar Labour Government delayed the start until 1949; and, at this stage, the active support of Sir Edward Bridges, the Head of the Civil Service, was vital. With his encouragement and Rowlatt’s industry, the 1952 Act – the longest statute in history at that stage – was enacted with little controversy.

However, it was consolidation and not codification. Such was the annual growth of new tax statute law that Rowlatt himself thought wholesale codification impossible:

“What is most wrong with the Income Tax Acts is that there is more of them than anybody can possibly absorb, and this is quite certain to get worse every year.”

Few would disagree with this sixty years later. Rather than Churchill’s grand scheme, piecemeal reviews and improvements have been the norm. Another consolidation in 1988 was followed, much more recently, by the Rewrite Project which came to fruition after the millennium. John’s own experience on that Project team clearly informed his entertaining and informative talk.

David Williams

March 2013