Revenue System in United Kingdom

Definition of Inland Revenue Account

The purpose of this account is to show that the person responsible has either paid inheritance tax or that none is payable.

History of the Revenue System

In a broad view the sources of revenue (in feudalism) fall under the following heads:

• The royal estates which were distributed over England, derived in part from the possessions of the old English kings, but increased by the confiscations that followed the events of the Conqueror’s reign, as well as by the doctrine that unowned land was the king’s (terra regis). Over fourteen hundred manors appear in Domesday as royal property. The forests, placed under special laws, yielded little revenue, except in the form of penalties on offenders. The rural tenants, who at first paid their rents in produce, gradually commuted them into money payments. As the royal demesne was favourable for the growth of towns the rents derived from urban tenants became a valuable part of the yield from the demesne; this, later, took the shape of a payment from the town as a unit (the firma burgi), a method which secured to the burghers freedom from the exactions of the sheriff and which was purchased by special payments.
• The feudal rights. These included the claim to military service; the three regular aids and the payments of relief at succession to a fief, as also the profits on wardships and marriages. Escheats and forfeitures completed the list. The yield from this source varied with the power of the king and was kept within bounds by the resistance of the tenants as shown in the provisions of Magna Carta.
• The administration of justice was a lucrative prerogative of the crown. Suitors had to pay for securing the hearing of their cases in addition to the fees for writs, and both amercements and compositions increased the receipts under this head.
• Two special classes contributed to the royal exchequer. As a great deal of the wealth of the country was in the hands of the church the opportunities afforded by the vacancies of sees, abbacies and priories were utilized for the purpose of securing the profits of these offices during the time in which there was no occupant; and this term was frequently prolonged by the king’s action or inaction. The Jews, until their expulsion, were an even more profitable class to the revenue. Being under the absolute control of the crown, they could be taxed at pleasure, either by taking a percentage of their property (e.g. in one case, one-fourth), or by levies for alleged offences. The existence of a separate exchequer for the Jews is an indication of their fiscal value.
• Direct taxation formed an extraordinary or occasional head of revenue. The Danegeld was succeeded by the carucage, and the commutation of military service introduced the scutage, but these forms were of little immediate importance, though very significant for the future course of development.
• Lastly come the dues claimed at the ports, which contain in germ the customs system of later times, though they rather resemble the harbour charges of modern ports and were very trivial in amount.

(…) A complete reconstruction of the revenue system became necessary at the Restoration. The feudal tenures and dues, with the prerogative rights of purveyance and pre-emption, which had been abolished by order of the parliament, could not be restored. Their removal was confirmed, and the new revenues that had been developed were resorted to as a substitute. Careful inquiry showed that just before the Civil War the king’s annual revenue had reached nearly £900,000. The needs of the restored monarchy were estimated at £1,200,000 per annum, and the loyal spirit of the commons provided sources of revenue deemed sufficient for this amount.

An hereditary excise on beer and ale was voted as a compensation for the loss of the feudal dues, and temporary excises on spirits, vinegar, coffee, chocolate and tea were added. All differences of “old” and “new” customs and subsidies had disappeared under the Commonwealth. The general or “great statute” (1660) provided a scale of duties—5% on imports and exports, with special duties on wines and woollen cloths—accompanied by a new book of rates. A house tax, levied after the French pattern, on each hearth, was introduced in 1662 and became established. Poll taxes were used as an extraordinary resource, as were the last subsidies, voted in 1663, and then for ever abandoned. Licences on retailers and fees on law proceedings were further aids to the revenue, which, in the later years of Charles II. and in the short reign of his successor, was with difficulty kept up to the level of the increasing expenditure.

The Commonwealth assessments were revived on several occasions, and indirect taxation was made more rigorous by the imposition of extra duties on brandy, tobacco and sugar, as also on French linens and silks. A very important development was the placing of the customs (1670) and the excise (1683) in the hands of special commissioners, instead of the system of farming them out to private collectors. The approach to modern conditions is further evidenced by the greater care in the administration. Amongst expert officials Dudley North (q.v.), as commissioner of customs, was the most distinguished. In this period, too, the beginning of the public debt as in the appropriation of the bankers’ deposits may be found. (…)

By taking the several great heads of revenue in order (in the 18th and 19th centuries) it is comparatively easy to understand the nature of the progress made in subsequent years:

• The land tax, established on a definite basis in 1692, was the great 18th century form of direct taxation. Varying in rate from 1s. (as in 1731) to 4s. (as in most war years), it was converted by Pitt in 1798 into a redeemable charge on the lands of each parish, and by this process has sunk from the amount of £1,911,000 in 1798 to £730,000 in 1907-1908. The great increase in other heads had impaired the value of the land tax as a fiscal support.
• Parallel with the movement of the land tax but showing much more rapid growth was the excise of the 18th century. Most of the articles of common consumption were permanently taxed. Soap, salt, candles and leather are described by Adam Smith as taxed, and that taxation is unreservedly condemned by him. In 1739 the excise duties brought in £3,000,000. By 1792 they had risen to £10,000,000. Their continued expansion was due both to the wider area covered and to the increased consuming power of the country.
• The customs were equally serviceable, and in their case the increased duties were even more considerable. The general 10% of 1698 became 15% in 1704, a fourth 5% was imposed in 1748, and in 1759 the general duties were raised to 25%.

Coincidently with this general extension of the customs duties special articles such as tea were subjected to increased duties. The American War of Independence brought about a further general increase of 10%, together with special extra duties on tobacco and sugar. In 1784 the customs revenue came to over £3,000,000. Two circumstances account for this slower growth:

• the extreme rigour of the duties and prohibitions, aimed chiefly against French trade; and
• the absence of care in estimating the point of maximum productiveness for each duty.

Swift’s famous saying that “in the arithmetic of the customs two and two sometimes, made only one” is well exemplified in England at this time. The smuggler did a great deal of the foreign trade of the country. Efforts at reform were not, however, altogether wanting. Walpole succeeded in carrying several useful adjustments. He abolished the general duties on exports and also several of those on imported raw materials such as silk, 464 beaver, indigo and colonial timber. His most ambitious scheme—that for the warehousing of wine and tobacco in order to relieve exporters—failed, in consequence of the popular belief that it was the forerunner of a general excise. Walpole’s treatment of the land tax, which he kept down to the lowest figure (1s.), and his earlier funding plan deserve notice. His determination to preserve peace assisted his fiscal reforms. Pitt’s administration from 1783 to 1792 marks another great period of improvement.

The consolidation of the customs laws (1787), the reduction of the tea duty to nearly one-tenth of its former amount, the conclusion of a liberal commercial treaty with France, and the attempted trade arrangement with Ireland, tend to show that “Pitt would have anticipated many of the free trade measures of later years if it had been his lot to enjoy ten more years of peaceful administration.” One of the financial problems which excited the interest and even the alarm of the students of public affairs was the rapid increase of the public debt. Each war caused a great addition to the burden; the intervals of peace showed very little diminution in it. From sixteen millions in 1702, the debt rose to £53,000,000 at the treaty of Utrecht (1713). In 1748 it reached £78,000,000, at the close of the Seven Years’ War it was £137,000,000, and when the American colonies had established their independence it exceeded £238,000,000. Apprehensions of national bankruptcy led to the adoption of the device of a sinking fund, and in this case Pitt’s usual sagacity seems to have failed him. The influence of R. Price’s theory induced the policy of assigning special sums for debt reduction, without regard to the fundamental condition of maintaining a real surplus. (1)

Resources

Notes and References

1. Encyclopedia Britannica (11th Edition)

See Also

Further Reading