The Certainty of Tax and Death

How did income tax come into being? Not as you might have expected as a way of redistributing wealth but because we were at war. It is generally accepted that modern income tax was introduced in 1799 proposed by Dr Henry Beeke, Dean of Bristol. His book Observations on the produce of the income tax, and on its proportion to the whole income of Great Britain opened the Pandora’s box that became the tax regime we know today. Prime Minister William Pitt the Younger introduced income tax in his budget of December 1798 as a means to pay for weapons and equipment for the Napoleonic Wars.

Pitt’s new graduated (progressive) income tax began at a levy of 2 old pennies (less than 1p) in the pound, and increased up to a maximum of 2 shillings was intended to raise £10 million a year. But, like so many Chancellors since, he got his sums wrong and actual receipts for 1799 totalled only a little over £6 million. Now for some (temporary) good news, Pitt’s income tax was levied from 1799 to 1802. It was abolished in 1803 by Henry Addington who became Prime Minister after Pitt’s resignation. However Income tax was re-introduced by Addington in 1803 when hostilities with France resumed. It was again abolished in 1816 one year after the battle of Waterloo. Opponents of the tax, who thought it should only be used to finance wars, wanted all records of the tax destroyed along with its repeal. Records were publicly burned but sadly copies were retained in the basement of the tax court.

The respite, which came about principally from public hostility (perhaps a lesson for today) lasted thirty years. Then in 1846 Robert Peel re-imposed the tax, this time as a peacetime measure. It was, of course, only meant to be temporary. But the increasing cost of government commitments, pushed up by the Crimean War of 1853-56 (tax and war seem inseparable), made this an increasingly remote prospect. Income tax has remained ever since.

By this somewhat circuitous route we get to the relevance and moment of April 1916. That is the month Lloyd George, newly in office as Prime Minister, lifted the top rate to five shillings (25p) in the pound to pay for the war (See related links below for more). The sums raised were never enough and The National Debt went stratospheric and has been climbing ever since. World War II and all others since have added to the burden.

The returning soldiers soon discovered that the promise of “land fit for heroes” was an empty one. They found instead a war-weary land hamstrung by debt. They entered a world of austerity, with few, if any, safety nets which makes our present austerity look like a walk in the park.

The cost of war is always borne by succeeding generations so it was in 1918. Churchill’s catastrophic decision to return to the gold standard in 1925, was a significant contributor to the 1926 National Strike. The crash of 1929 completed the cycle of unemployment, deflation and indebtedness, which were the direct, if unintended, consequences of WW1.

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John O'Keefe

Appendix

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