The three basic sources of taxes were direct taxes (taxes on private property, especially land, wealth and income), indirect or excise taxes (taxes on domestically produced goods and services, consumption) and customs (duties on imports).
It is obvious that direct taxes affect mostly the upper classes, since property and wealth are very common in these social layers. However, taxation of aristocracy declined during the 18th century and did not rise until Pitt managed to introduce an income tax in order to face the national danger from 1797-1799. The reasons that aristocracy did not contribute to this increase of taxes were mainly political, since elite was still very powerful during the period after Restoration and opposed to any direct taxes of parliament. Not until aristocrats had to confront Napoleon did they pay higher taxes in order to protect their property rights in Britain.
Furthermore, the taxation of imports changed together with the change in their composition and origin. More specifically between 1700 and 1801 manufactured goods, as a share of total imports, declined from 28% to 5% but at the same time raw materials rose from 45% to 56% and food stuff increased from 27% to 39%. So, British taxation policies turned against foreign manufactured goods in order to favor domestic production. In the same context, taxes for imports of raw materials that could not be produced domestically and were necessary for the needs of British production were taxed at a low rate. In few words this complex taxation system that has to do with imports reflects the British policies towards ''foreign, friendly and imperial countries in an evolving international economy'' and at the same time was aiming to encourage domestic production.
By the late 17th century the burden of taxation was carried by domestically produced goods and services via indirect taxes but also from taxes on imports. It is characteristic that direct taxation fell from 36% to 15-20% of tax revenue, while at the same time indirect taxation rose from 26% to 50% of tax revenue. This system that emphasized indirect taxes lacked only income taxes to be characterized as modern. However, this system was severely criticized since poor people had to pay proportionally more indirect taxes. That led a lot historians to characterize the effects of this source of funds really regressive. However, Pitt the younger realized that wealthier people should pay more indirect taxes through their preferences in products. Therefore, he defined the distinction between the 'luxuries' and 'necessities'. On this notion some products were highly taxed and others were not, according to which category they fell into. In other words, poor people were ''punished'' when they were consuming ''luxuries'' like tobacco and spirits but also they could have ''cheap'' access to ''necessities''. Furthermore, it is very important to mention that the burden of excises did not influence growing sectors of industry like cottons, woolens and metallurgy.
Overall, efficiency from these taxes may have been lost, but this discrimination between ''necessities'' and ''luxuries'' limited the consequences of indirect taxes. In addition, the fact that low taxes were imposed on products that were closely related to the industrial sector did not discourage their consumption. Also, customs were imposed in such way to encourage the domestic production in two ways. First, the import of goods and services that could be produced domestically were highly taxed and at the same time imports of raw materials that could not be produced at home were taxed at a lower rate. It should be also highlighted that these high taxes secured the success of wars after Restoration, giving the opportunity to the industrial sector to grow via continuation. From the above it seems that high taxes imposed in such way did not discourage industrialization.
Apart from the sources of taxation it is important to mention how the ability of the British state to collect and impose taxes led to the encouragement of industrialization.
From Glorious Revolution to Industrial Revolution
As mentioned in the introduction, the change from monarchy coincided with the transition from tax farming to direct collection by central government. This transition gave the privilege to government to raise taxes whenever it considered it to be right and on this occasion government rose taxes to fund the involvement in Napoleonic and Revolutionary wars. This ability of the government to raise taxes gave the impression to the markets that government could raise the taxes in order to pay back any possible loan from them. Consequently, government could borrow more easily and this in turn led to the rise of bond markets. British governments after Restoration, in order not to loose this ability of borrowing, or better their credibility, during peace time increased taxes to repay the debt. This growing government spending in loanable funds led historians like Williamson to argue that government was crowding out private investment. However, the fact that government retained its credibility led to the flourishing of financial markets. Therefore, albeit the national debt increased from the policies of borrowing money for wars, government's ability to repay the loans, had as a consequence the rise of financial markets which in turn financed Industrial Revolution. In conclusion, Glorious Revolution gave the power to Central Government to raise taxes which helped governments to borrow money which resulted in the flourishing of bond and financial markets which in turn financed Industrial Revolution.
Conclusion
Governments after Restoration did not succeed completely in achieving their goals of equity and efficiency since some of the taxes were not fair and were really high. However, these taxes secured the success of wars and thus the continuity of industrialization. Also, the measures of necessities and luxuries seemed to have balanced partly the loss of equity. However, we should consider whether the level of industrialization would be the same even if the government had not imposed such taxes. This question does not seem to have one commonly acceptable answer, but in general taxes, if they did not encourage industrialization, did not prevent it.
Bibliography
- R. Harris, “Government and the Economy, 1688-1850” in R. Floud and P. Johnson eds. The Cambridge Economic History of Modern Britain, Vol. I
- M. J. Daunton, Trusting Leviathan: the Politics of Taxation in Britain, 1799-1814 (2001)
- P.K. O’Brien, “The Political Economy of British Taxation, 1660-1815”, EcHR, 41,1988
- Paper Handouts by Victoria Bateman
R. Harris, “Government and the Economy, 1688-1850” in R. Floud and P. Johnson
eds. The Cambridge Economic History of Modern Britain, Vol. I, ch.8.
P.K. O’Brien, “The Political Economy of British Taxation, 1660-1815”, EcHR, 41,
1988
P.K. O’Brien, “The Political Economy of British Taxation, 1660-1815”, EcHR, 41,
1988
