On 9 January 1799, British Prime Minister William Pitt the Younger introduced a desperate and widely abhorred measure to help cover the cost of his country’s wars with France. As part of his government’s fiscal policy, Pitt introduced a direct tax on his citizen’s wealth – Income Tax.
Why was Income Tax introduced in 1799?
By the last year of the 18th century Britain had been in a continuous state of war with France for over six years. With the French seemingly on the up after victories in Italy and Egypt, Britain had to cover much of the crippling cost of sustained warfare as her continental allies faltered.
The powerful Royal Navy, which had just beaten the young Napoleon’s fleet at the Battle of the Nile, was a particular expense, as British ships patrolled the seas attempting to keep a lid on the energy and success of the new Republic of France. As a result, Pitt’s government were beginning to find themselves in a dire financial situation.
Something had to be done, and when the fiscal expert Henry Beeke suggested income tax as a sure-fire way to raise money, the idea was adopted and included in the budget at the end of 1798. It came into effect a few weeks later.
Pitt’s new graduated (progressive) income tax began at a levy of 2 old pence in the pound on incomes over £60, and increased up to a maximum of 2 shillings in the pound on incomes of over £200. Pitt hoped that the new income tax would raise £10 million a year, but actual receipts for 1799 totalled only a little over £6 million. Predictably, the outcry was furious.
Later that year the situation in France changed when Napoleon assumed supreme power, and in 1802 Britain and France signed a peace treaty – the first time Europe had known any equilibrium since 1793.
Here to stay
Pitt, meanwhile had resigned his office and his replacement, Henry Addington, openly castigated and eventually abolished the policy of income tax. However, like many politicians before and after, he then went back on his word and re-introduced the tax the following year when the peace broke down.
The tax would remain in place for the rest of the Napoleonic Wars. Only in 1816, a year after the Emperor’s final defeat, was income tax abolished again. Eager to wash their hands of what was seen as a dirty business, the Chancellor of the Exchequer bowed to popular demand and burned all government records of its existence in a public ceremony.
Inevitably however, once the genie had been let out of the bottle it could never be fully suppressed again. Another war, this time in the Crimea, called for the tax to be introduced by the great statesman William Gladstone, then chancellor.
By the 1860s income tax was seen as a sad but inevitable part of life, as it remains to this day. Across the world other countries followed suit, and in 1861 the US government introduced income tax to help pay for soldiers and arms with civil war looming.