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Rh various kinds of revenue, particularly the indirect taxes, (4) the rise and growth of the national debt, combined with the creation of an effective banking system. The greater part of the 18th century was occupied with the working out of these results.

The government of William III. had to face the expenses of a great war and to allay discontent at home. As a preliminary step to the necessary settlement of the revenue a return was prepared, showing the tax receipts at over £1,800,000 and the peace expenditure at about £1,100,000. Parliament accepted the view that £1,200,000 per annum would suffice for the ordinary requirements of the kingdom. It, further, introduced the system of the (q.v.) and assigned £600,000 for the fixed payments placed under that head, leaving the remainder to be appropriated for the other needs of the state. As the “hearth money” had proved to be a very unpopular charge, it was, in spite of its yield (£170,000), given up. The temporary excise duties were voted for “their majesties’ lives” and the customs for a limited term. These branches of revenue were altogether insufficient to meet the pressure of the war outlay, and in consequence new heads of taxation—or old ones revived—came into use. A series of poll and capitation taxes were imposed between 1689 and 1698, but were after that date abandoned for the same reason as that for the repeal of the hearth money. The monthly assessment was tried in 1688; then came an income tax followed by “twelve months’” assessments in 1690 and 1691. The way was thus prepared for the property tax of 1692, imposing a rate of 4s. in the pound on real estate, offices and personal property. The old difficulties of securing returns made the tax chiefly one on land. It was under the name of “the land tax” that it was generally known. The 4s. rate brought in £1,922,712, a return which declined in the following years. To meet this a fixed quota of nearly half a million (a 1s. rate) was adopted in 1697, the amount to be apportioned in specified sums to the several counties and towns. The framework of the tax remained without substantial change till 1798, the time of Pitt’s redemption scheme. In 1696 houses were taxed 2s. each, with higher rates for extra windows. The beginning of the “window tax,” licences on pedlars, and a temporary tax on the stocks of companies complete the imposts of this kind. Stamp duties—imitated from Holland—were adopted in 1694 and extended in 1698: they mark the beginnings of the modern duties on transactions and the “death duties.” Large additions were made to the excise. Breweries and distilleries were placed under charge, and such important commodities as salt, coal, malt, leather and glass were included in the list of taxable articles, but the two last mentioned were soon relieved for the time. The customs rates were also increased. In 1698 the general 5% duty was raised by the new subsidy to 10%. French goods became liable to surtaxes, first of 25%, afterwards of 50%; those of other countries had to pay similar charges of smaller amount. Spirits, wines, tea and coffee were taxed at special rates. How great was the expansion of the fiscal system may be best realized from the fact that during the comparatively short reign of William III. (1689–1702) the land tax produced £19,200,000, the customs £13,296,000, and the excise £13,650,000, or altogether £46,000,000. In the last year of the reign, the opening one of the 18th century, the returns from these taxes respectively were: land tax (at 2s.), £990,000, customs £1,540,000, excise £986,000, or a total exceeding three and a half millions. The removal of the regular export duties in respect of (a) domestic woollen manufactures, (b) corn, was the only alleviation of taxation, and in both cases it was due to special reasons of policy.

Quite as remarkable as the growth of revenue is the sudden appearance of the use of public loans. In earlier periods a ruler had accumulated treasure (Henry VII. left £1,800,000) or had pledged “his jewels or the customs or occasionally the persons of his friends for the payment” of his borrowings. Edward III.’s dealings with the Florentine bankers are well known; but it was only after the Revolution that the two conditions essential for a permanent public debt were realized, viz.: (1) the responsibility of the government to the people, and (2) an effective market for floating capital. At the close of the war in 1697 a debt of £21,500,000 had been incurred, over £16,000,000 of which remained due at William III.’s death. Connected with the public debt is the foundation of the Bank of England (see ), which more and more became the agent for dealing with the state revenue and expenditure; though the exchequer continued to exist until 1834 as a real, even if antiquated institution.

Thus it is clear that by the end of the 17th century the new influences which date from the Civil War had brought into being all the elements of the modern financial system. Expenditure, revenue, borrowing to meet deficiencies are all, in a sense, developed into their present-day form. Increase in amount and some refinements in procedure, combined with improved views of public policy, are the only changes that occur later on.

Regarded broadly, the 18th and 19th centuries exhibit several distinct periods with definite financial aspects. In the ninety years from the death of William III. (1702) to the outbreak of the Revolutionary War with France (1793) there are four serious wars, covering nearly thirty-five years. There is the long peace administration of Walpole, and there are the shorter intervals of rest following each of the contests. From the beginning of the war with the French Republic to the year of Waterloo there is a nearly unbroken war time of over twenty years. The forty years’ peace is closed by the Crimean War (1854–56); and another forty years of peace ends with the South African War (1899–1902). During this time the older mercantilism passes into protectionism; and this, again, gives way before the gradual adoption of the free trade policy. At each time of war, taxation (particularly in the indirect form) and debt increase. Financial reform is connected with the maintenance of peace. Among the great financial ministers Walpole, the younger Pitt, Peel and Gladstone are conspicuous; while Huskisson’s services in the kindred field of economic policy deserve special notice in their financial bearing.

By taking the several great heads of revenue in order it is comparatively easy to understand the nature of the progress made in subsequent years. (1) 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. (2) 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. (3) 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. (1) The extreme rigour of the duties and prohibitions, aimed chiefly against French trade; and (2) 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,