img2 820x410 - A look at the history of Income tax in Britain

A look at the history of Income tax in Britain

Income tax is the most common means of tax that we are used to. As the name suggests, it is a tax on the income earned. It is the greatest example of socialism in today’s world and is based on the principle that everyone who receives income has an obligation to provide part of it for the cause of the greater good.

In this post, we look at the historic context of income tax in Britain. It was first introduced in 1798 by William Pitt the Younger. The intention of this tax structure at the time was to raise revenue to buy military equipment for the war with Napoleonic France. In a sense, people contributed part of their income to the crown to ensure the safety of themselves and their fellow citizens.

When it was introduced, it was quite nascent and its objective was to raise an annual revenue of GBP 10 million. It resulted only in 6 million in reality. One of the reasons was that at the time of introduction, the tax only applied to wealthy people above a certain threshold. Later, however, the threshold was widened to increase the collectible revenues.

img - A look at the history of Income tax in Britain

With time, its structure was solidified by adding many of the concepts we can see today in modern Britain. For example, the concept of debiting the tax directly from source was introduced in 1803 by Henry Addington. There, however, remained a controversial aspect of implementing a tax during times of war. This became especially significant after the historic battle of Waterloo, when people were poorer and the tax came as a heavy burden on them.

As a result, the tax was repealed in 1816. But as is always the case if you recall basic macroeconomics, tax appears in significance when there is a widening deficit. This was exactly the case in 1842, when the tax was reintroduced. To avoid earlier controversies, it applied again only to the rich, and remained so for many, many years.

The colonial era began and the sources of tax began to shift increasingly towards the colonies, especially wealthier ones at the time such as Africa, United States and India. British citizens enjoyed a period of prosperity, unburned by the shackles of taxation. We can say with certainty that tax was not a public burden till the beginning of the 20th century.

The 20th century saw the rise of significance of taxation, especially due to the universal appeal of socialism as a way to reduce widening inequality. Of course, there was also the contentious issue of military spending during the two major world wars. The tax rate became 30% by the end of the 1st world war and covered an average on 10 million British citizens.

The tax rate has stayed at these levels and has increased further. IT shows no signs of slowing down. Across Europe, a range of 30%-50% is the new normal today. One can only wonder what the situation would have been had there been no wars.

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