The conversion of stock into annuities is proceeding at the rate of 1,000,000 pounds a month, and the increased annual charge already is 250,000 pounds. Certainly to this extent the estimated three millions of surplus might be fairly reduced; but to reduce the surplus to 1,200,000 pounds or 1,600,000 pounds would be an entire abandonment of the system adopted by the Finance Committee and the Government. It seemed to me that the members of the House of Commons were all in favour of the income tax; all the Peers against it. The Duke was strongly against it. He apprehended the reduction of establishments, and particularly the pressure of the tax on men of 1,200 pounds a year, and under. If I imposed the income tax, I would make it the means of a thorough reconciliation between the higher and lower classes. In this manner only would it be effectual and make a strong Government. I object greatly to Goulburn's deductions from the old income tax. He excepts _occupiers_; that is, as regards land occupiers, quite right; but he excepts manufacturing capital and capital engaged in commerce. Now, why should the man who has 100,000 pounds in a manufactory, and makes 10 per cent, on that sum, pay nothing, while the man who invests his 100,000 pounds in the funds gets only 3 1/2 per cent, and pays 5 per cent, out of that reduced profit? The man who has a manufacturing or _commercial capital_ is a _saving man_. He can afford to pay something to the State, and why should he not? So the lawyer who may be making 10,000 pounds a year is to pay nothing. If he takes 5,500£. a year and becomes a judge, he pays 137 pounds 10 shillings. Yet his interest is still for life. In all this there seems to me unfairness. If the tax be imposed as it is proposed, it will be very difficult to include afterwards the classes now exempted. It will be impossible to take off the tax, and whenever a tax is unpopular, those upon whom it presses will say, 'Take it off. It is only adding 1/4 or 1/2 per cent. to the income tax.' A real property tax is the fairest of all taxes--but an income tax is the most unfair even when it affects all income; but when it affects the income of some who have a life interest, and not the income of others in the same situation, it is most unfair indeed. It is quite erroneous to suppose that those who pay an income tax are the only persons who suffer from it. The reduction of establishments, the diminished consumption, the increased economy in every article of expenditure on the part of those affected by it have necessarily the effect of reducing the wages of labour. The labourer may buy some things cheaper, but he has less wherewith to buy. _Sunday, March 14._ Saw Hardinge at two. Told him how we stood as to the question of taxation. He said he thought the income tax would be popular, but agreed with me in thinking it should be established on strictly just principles.