View source for Taxation in eighteenth-century Britain

From the Glorious Revolution to the French Revolution, Britain’s taxation system operated to provide its navy and army with the indispensable monetary means required to maintain the military forces and the credit of the central government for the next war. In times of international conflict the shares of public revenue directly appropriated for military purposes rose massively. During the intermissions of peace the proportion of taxes allocated to the navy and army fell, but interest payments on the national debt rose steadily to absorb between 40 and 50 per cent of government revenue. [sources?]

The Increasing War Expenditures

From the Restoration onwards to Waterloo, taxes collected for central government increased steadily in direct response to demands for the funding of military expenditures. A long series of ‘mercantilist wars’, occupying nearly half of all the fiscal years from the reign of [[Charles II]] through to that of George IV, imposed ever increasing tax burdens on the incomes of British citizens and upon their economy. The Second Dutch War had cost about five million pounds in three years. The cost of central government to British taxpayers leapt forward as a result of wars fought in the reigns of [[William III|William]] and [[Anne I|Anne]]. William’s war cost five million pounds and more each year; in 1709 war cost nine million pounds. Modern wars, it was noted in 1778, especially between England and France, have been in great measure competitions of expense. But the debt climbed to dizzy heights during the Seven Years War and the [[American War]], from less than 80 million in 1757 to more than 240 million in 1783. This figure peaked as a result of the protracted and expensive conflict with Revolutionary France and Napoleon from 1793 to 1815.

Such vast sums could not have been provided without the drastic reorganisation and redistribution of taxation which 1688 made possible. The various items of revenue were at last consolidated into a single national account. To pay for the wars, after experiments with poll taxes and a tax on servants’ wages, reversion was made to the Interregnum system of supplementing customs and excise by a far heavier land tax. 1688 reversed the landed class’s victory of 1660: henceforth wars fought in the interests of trade were paid for by the gentry and, through the excise, by the poorer classes who had no vote anyway. Any attempt to pay for war by taxation would have required a total recasting of the land tax, the introduction of a direct levy on personal and business incomes, and the establishment of a centralized bureaucracy capable of assessing and collecting the new revenues. Thus, tax evasion, corruption and frauds on the revenue were pervasive throughout Britain.

The Evolving Structure of Taxation from 1660 to 1815

Traditionally, ordinary peacetime expenditure was met largely from direct taxation, principally in the form of the land tax and taxes of other immovable and visible items of private property, collected from legally defined lists of taxpayers. In the reign of William and Mary direct taxes provided the central government with something like 47 per cent of its income. Indirect taxation, in the form of customs and excise duties, went partly to support the Crown’s civil list, partly to sustain the interest payments on the national debt. In essentials, this system remained unaltered from the days of Walpole to those of the younger Pitt. Throughout the period it lacked only an income tax to qualify for the accolade of modern [what?]. Eighteenth-century fiscal policy might be depicted as a holding operation against the introduction of an income tax. Wealth rather than income emerged as the only practicable index of capacity to bear taxes.

However, the burden imposed by wartime borrowing imperceptibly changed its character. As the proportion of the annual budget allocated to the payment of interest rose, so the part played by the indirect taxes which sustained it became more prominent. In the 1730s, out of an annual budget of about five million, two million represented interest payments, most of it funded from excise duties established during the wars of William and Anne. By the 1780s some nine million of a budget of about thirteen million went to pay for the debt [source?]. Indirect taxation as a proportion of the whole rose. Even in war time, when the land tax was levied at its highest rate, direct taxes played a limited part in the calculations of Treasury ministers. In 1720 they produced 38 percent of the total tax yield, in 1760 26 per cent, and in 1780 20 percent [source?]. This trend toward indirect taxation caused concern, not least because it was obvious that taxes on consumption bore disproportionately hard on the poor consumer. In fact Walpole’s successors at the Treasury were conscious of the social hardship inflicted by excises, and sought at least to divert them from the basic necessities of life. The four taxes regarded as objectionable in this respect, those on salt, soap, candles, and leather, contributed a much smaller part of North’s budgets than they had of Walpole’s. But there were also items, notably tea and ale, which for practical purposes were necessities rather than luxuries, and which were undeniably taxed at a high and increasing rate. High-minded anxiety about the effect of taxation on the poor was reinforced. Generally, between 1660 and 1815 British citizens carried an ever-increasing load of taxes. 

British taxation became more progressive or less regressive when the threats of French invasion loomed large in the 1690s and again in the 1790s. Then saw the introduction and implementation of Britain’s first income tax from 1799 to 1816. Financial crises from 1796 to 1799 enabled Pitt to persuade Parliament and the tax-paying public that a big share of the extra revenue required to combat the dangers from Revolutionary France had to be raised within the year and from taxes on income and wealth.

Sources:

Hill, Christopher. ''The Century of Revolution. 1603-1714''. London: Nelson, 1980.

Langford, Paul. ''A Polite and Commercial People. England 1727-1783''. Oxford: Clarendon Press, 1989.

O’Brien, Patrick K. “The political Economy of British Taxation, 1660-1815” ''Economic History Review'', 2nd ser. XLI, I(1988), pp. 1-32.