Pitt imposed new taxes to wipe out the deficit while cutting expenditure drastically to increase the government annual income. He also reduced frauds in the revenue by establishing an improved system of auditing. He wanted to make sure that income due actually reached the exchequer.
Smuggling became his first target. It was estimated that smuggling exceeded 20% of imports and accounted for half all tea in Britain, creating an obvious loss of revenue. High duties made smuggling profitable, so Pitt decided to reduce duties. This made an illegal, and therefore risky, trade much less profitable. Tea duties, averaging 119%, were reduced to 25%. Duties also were reduced on wines, spirits and tobacco. By 1789, quantity of tea passing through Customs had doubled and in one year (1784-5) the Exchequer got an extra £200,000. By 1792, government revenue had increased by £3 m as a result of legal increased consumption. The 1787 Hovering Act also attacked smuggling by extending the duties of Customs officials to 12 miles off-shore. Again, revenue rose.
The Window Tax was increased. This tax had been charged since 1697; it was cancelled in 1851 although it was withdrawn from houses with fewer than seven windows in 1792. The Window Tax was easy to administer, difficult to evade and was a form of direct tax paid by those best able to afford it, therefore it was impartial. These increases in taxes compensated for the losses in customs revenues.
In 1786 Pitt introduced a sinking fund on a new principle: an annual surplus of £1,000,000 was to be used to purchase stock and allowing him to accumulate it at compound interest for 28 years, by which time the income from it would amount to £4,000,000 a year. In 1792 another act provided that a sinking fund of 1 percent should be attached to every new loan, which would thereby be redeemed within 45 years. It was essential to Pitt’s plan that surpluses would be built up by taxation rather than borrowing. Also the Act placed administration of the fund in the hands of specially appointed ‘Commissioners for Reducing the National Debt’ to ensure optimum efficiency. The system worked reasonably well in peacetime because there was an annual surplus of revenue. A government commited to the achievement of regular surpluses inspired confidence in public finances and thereby helped to stimulate a climate of investment. However, after the outbreak of war in 1793, the government redeemed debt bearing a low interest by fresh borrowing at a higher rate of interest.
Territory was vital to Britain’s trade and empire. Britain's increased possessions in India made it necessary for the administration there to be supervised by the government rather than be left in the hands of the commercial East India Company. The Indian territories were very profitable and how to govern British India became highly controversial. Pitt introduced his own East India bill (1784). He set up a new government department, the Board of Control, to supervise the directors of the company. He also ended an inappropriate division of authority in India by making the governor general supreme over the subordinate governments of Bombay and Madras. In 1786 a supplementary act increased the authority of the governor general over his own council.
Although Pitt had improved Britain significantly, how much of the improvements were actually down to himself. Some of the measures were already in action before he became Prime Minister. He inherited and adapted, the ideas and policies of others. The situation may have improved anyway with Pitt's intervention. Yet there was an enormous change between 1783-93.
Unlike his father, Pitt the Younger had a talent for finance. During the period between 1783-93, he rescued the nations finances from the brink of disaster, negotiated new tariffs with France and clung to neutrality as long as possible, so Britain did not have to finance another war until 1793. Pitt directed taxation policy and debt reduction with skill and persistence and his contribution to the reform of the government was massive. From all the points that I have described, I deduce that Pitt the Younger played a key role in the national revival of Britain.