O’Brien, Patrick K. (1988) “The Political Economy of British Taxation, 1660-1815”, The Economic History Review , 41/1, 1-32.
Disclaimer: this summary is written by the contributors of the blog and not by the author of the article. Any mistake is Manuel’s fault (and he shall be punished).
From the Restoration to Waterloo, warfare occupied nearly half the fiscal years, imposing an ever-increasing burden upon the British taxpayers (p.1). The sudden extra expenditures caused by the conflicts were met not through higher taxes but thanks to loans obtained on the London capital market. The British “tax system was [not] elastic or reliable enough to finance abrupt transitions”. The service of the debt contracted during wars soon took over most of peacetime budget (p.2).
The ‘funding system’
“This process of deferred taxation implied that most of the […] ever-rising volume of taxation collected in interludes of peace […] was transferred to holders of the national debt.” Taxation grew accordingly and Parliament managed to appropriate a much higher proportion of the nation’s wealth than the continental despots were able to squeeze out of their realms (p.4).
The tax burden was inequality spread: basic necessities were exempt from taxes (thus allowing the poor to escape indirect
taxation), Scotland and Wales were de facto sparred by a generally incompetent fiscal administration and tax evasion was pervasive (p.5). The author guesses “that 40% of Britain’s national income avoided taxes by legal and illegal means”. Meaning that the government appropriated some 15% in 1700 and 30% in 1810 of the effective tax base’s income. However the indirect mode of taxation used in Britain made the burden more acceptable than, for instance, in more-lightly-but-directly taxed France.
From 1670 to 1810, the country’s real income may have increased by a factor 3, while tax receipt increased 16 times over (p.6). During the Revolutionary Wars (1793-1801), only about 10% of the rise in revenues was covered by the expansion of the tax base due to economic growth (p.7). Overall the period is characterized by the “passive acceptance” of increased taxation (p.8).
The imbalanced expropriation
As a highly commercialized economy, the bulk of early modern Britain’s fiscal revenue came from indirect perception on domestically purchased goods and services rather than from the more traditional land tax (p.10). This was a somewhat progressive form of taxation:
“During 22 years from 1793 to 1815 something like 63% of the extra taxation required to combat France emanated from taxes failing […] upon the incomes, and consumption patterns of the rich. ‘The war for the defense of property’ seems to have been financed in large measure by taxes on those possessed of property” (p.13).
Nonetheless this was rather an exceptional case since the burden of taxation born by the aristocracy seems to have declined over the 18th century. Moreover, the 1816 repeal of the income tax canceled the sacrifices accepted during the war (the elite had lost the threat of French invasion that had compelled to accept a greater level of expropriation).
On the other hand, an increasing share of the state’s revenue came from excises, which tended to focus on a few sectors of the economy (p.16). To support trade, custom duties remained low, which implied that domestic consumption and production (“the middling ranks of British society”) bore a disproportionate portion of the expenses from wars it hardly benefited from directly (p.17).
From the 1660s onwards it appeared that wealth was easier to assess and tax than income. Based on 1692 estimates, each locality was given a fixed tax quota (p.19). The system was reformed in 1795 but failed to yield sufficient income to cover the cost of the Revolutionary Wars. Four years later, as French invasion was looming, Pitt managed to introduce an income tax (p.20). By then the nominal capital of the national debt had nearly doubled to £407 million. More income was needed to avoid the collapse of the credit system (hence the approval of the income tax in 1799-1816; p.22).
Mercantilism supposed to heavily tax the import of manufactured goods and let primary materials in almost freely. But as over the 18th century, the former dropped from 28 to 5% of total import, the Exchequer lost in the process a significant share of its income, which was not compensated by rising British industrial exports since those were hardly taxed at all. Finally a rising proportion of British trade involved the Empire or allied countries and was thus duty free (p.23).
Mercantile and colonial lobbies were strong enough to avoid Parliament to ever consider attending to this imbalance. Smuggling and “revolution” (in America) were two excellent ways to deter the lawmaker from persevering in such attempt when he tried (p.25). Excise (and stamp duty) hence became quickly the only way to fund the rising military spending (p.27). Unsurprisingly, the Commissioners for Excise soon revealed itself as one of the few highly efficient and smoothly run British administrations of the time (p.28).