The war against Revolutionary and Napoleonic France was as much an economic battle as it was an armed struggle, and it led to a remarkable rise in both Britain's population and its economic output. An enormous number of men were placed under arms. Towards the end of the war there about 130,000 in the Navy and about 350,000 in the army, not counting the militia, volunteers, yeomanry and East India Company forces.

In 1804 Lord Hawkesbury declared in Parliament that the armed forces, including militia but not volunteers, represented rather more than one in ten of the population of military age in Great Britain and Ireland. [1]

These men had to be fed and provided with arms, clothing and equipment, or the means for paying for these things abroad had to be found, for the British armies on the continent footed their bills instead of living on the country. The working population had also to find the means to pay Britain's allies abroad. Pitt's subsidies to the allies were met by the export of goods, and it was estimated that one worker could maintain two fighting men in the field. [2]

In 1793 the United Kingdom had a population of fourteen to fifteen millions. The National Debt stood at £ 240 million, and the annual expenses of government were between £ 18 and £ 19 million. Of this figure the Army and Navy accounted for approximately one third of total expenditure. As the normal revenue amounted to about £ 20 million, the Government budgeted for a small surplus. The war changed all of this. By 1815 the population had risen to some 20 millions and the National Debt had reached £ 900 million with consequent debt charges of 02 millions per annum. The Government's expenditure was around £ 100 millions a year of which a massive £ 56 millions went to the armed forces. [3]

To support the increase in expenditure new ways of raising revenue had to be found, and this led, in 1799, to William Pitt introducing income tax into Britain for the first time. There were, of course, many other forms of taxation but they were indirect taxes, on goods and trade, which allowed each person, in theory, the right to decide on what tax he paid. The new tax took away this long- held right and was, unsurprisingly, extremely unpopular.

In 1816, with Napoleon safely marooned on St. Helena, the tax was abolished and Parliament even voted for all Income Tax records to be destroyed. Despite its unpopularity it was the first British tax that was reasonably proportioned to means, and many saw it as a fair way to raise money. A leader writer in the Times in 1803 supported the view that "the tax must, we think, be accounted just and equitable as it leaves those persons who are affected by it in precisely the same relative situation one towards another, after its operation as they were previously to its imposition." [4]

The rate of tax varied throughout the war. In 1801 the rate was two shillings (10p) in the pound. Following the Peace of Amiens in 1802 the tax was repealed, only to be re-introduced after the renewal of hostilities. In 1803 the rate was one shilling in the pound on incomes of £ 150 or above per annum, ranging downwards to threepence (1.25p) in the pound on annual income of between £ 60 to £ 150. Those with earnings below £ 60 were exempt. This meant that the earnings of all labourers and workmen, apart from a few prosperous artisans, were exempt from the War Income Tax. the figure was finally settled in 1806 at two shillings, at which figure it remained until its abolition in 1816. [5]

The War Income Tax was made up of five "Schedules" which, in reality, were five separate and distinct forms of taxation. Schedule A was a tax on the rent of land and real property. Schedule B was a tax on the produce of the land. Schedule C taxed the interest received by the holders of Government funds, and Schedule D was a tax on the profits from trade and commerce, manufactures, professional earnings and salaries. Schedule E was a levy on certain "offices, pensions and stipends." [6]

Thus everyone with a sufficiently large income was caught in the net. Schedule A taxed the landowners for quarries, mines and ironworks, manorial dues, fines and general profits. Schedule B taxed farmers, including owners who farmed for themselves, "in respect of their profits from such an occupation." [7]

Schedule C taxed the incomes from annuities, dividends and shares payable to the Exchequer. Schedule D taxed the businessmen, merchants and industrialists and it included a "sweeping" clause taxing all forms of income not covered by the other schedules. Finally, Schedule E taxed the incomes of state employees.

It was perhaps inevitable that many would try to avoid the tax. As the minimum tax level was £ 60 per annum a large number of people declared their incomes to be between £ 50 and £ 60. Consequently in 1806 the tax-free allowance was reduced to £ 50. The Tax Office Guide Book of 1806 explained that "the regulation in former Acts by which exemption was granted on the whole of every person's income under £ 60 a year, which was intended to have a strict and limited operation, has been introductive of the greatest frauds upon the public. It is notorious that persons living in easy circumstances may, even in apparent affluence, have returned their income below £ 60. Hence it is that the legislature found the necessity of confining the exemption to £ 50, that their former returns may be made use of." [8]

The result of the change was to bring a whole class of new Income Tax contributors within the net.

After this change, the lowest annual yield was £ 11,905,858 in 1807, and the highest was £ 15,795,691.

Between April 1806 and 1816 the tax realised nearly £ 142 millions and there is no doubt that Britain could not have maintained the war at the level that it did had it not been for this tax. Yet Income Tax was not the major source of revenue during the war. [9]

It was the old Customs and Excise duties which still accounted for around half of the Government's total income. this was because the war had boosted the British economy to unprecedented levels of activity - the Industrial Revolution was gaining pace and Britain was established as the Workshop of the World.

In 1805 the declared value of our exports was £ 36,000,000. Of this amount Europe took £ 13,600,000, the USA took £ 11,000,000, the rest of North and South America £ 7,700,000, Asia £ 2,900,000 and Africa £ 750,000.

In 1806 the Berlin Decrees were promulgated banning British goods to Europe but trade continued to increase, and in 1810 total exports were £ 45,000,000. Even so, the Government had to resort to borrowing as taxation of all kinds amounted to only thirty- five per cent of the additional expenditure created by the war, and it has been calculated that Barings, the merchant bankers, with other financial houses remitted £ 57,000,000 between 1792 and 1816 to Britain's Continental Allies. [10]

Despite the rejoicing in 1816 upon its abolition, Income tax was to be return in 1842, but at a much lower level than during the Napoleonic Wars. It was not until Britain was faced with another major war, in 1914, that ministers dared to impose such a burden upon the tax paying public.

Notes