How did income tax come about: the "temporary" tax of 1799
A tax introduced "for a while" to cover the cost of war has survived for more than two centuries. Why William Pitt's income tax was needed and how it differs from today's income tax.
"This tax is temporary and will be abolished as soon as the war ends". This promise was heard in Britain in 1799. The war ended and the tax was indeed abolished, but it soon came back and has never gone away since.
Why was a tax on income in particular needed?
At the end of the 18th century Britain was fighting an expensive war against Napoleonic France. The treasury relied mainly on customs duties, excise duties and levies on visible property such as houses, windows and horses. Such taxes roughly knew where wealth was, but they did not see a person's actual income.
Prime Minister William Pitt the Younger announced a new idea in the budget of December 1798: a direct tax on a person's annual income. The tax was introduced in January 1799.
Let us see the difference with a simple example (prepared by the author, hypothetical). There are two neighbours: George, a merchant, lives in a large house, but his trade is slack. Thomas, a lawyer, lives in a small house but has many clients. The "window tax" takes more from George because his house is large. Income tax, on the other hand, takes more from Thomas because he earns more. Income tax shifted the tax burden from "visible wealth" to "actual income".
How did a "temporary" tax become permanent?
Pitt's tax was in force in 1799–1802. During the Peace of Amiens, in 1802, Henry Addington's government abolished it. But the war resumed, and from 1803 the tax returned in a new form. The UK National Archives catalogue records that this tax of 1803–1816 was called the "property and income tax".
The lesson of history is simple: once the state has "tasted" a new source of revenue, it is hard for it to give it up. That is why the word "temporary" in tax laws should always be treated with caution.
Then and now: how much has income tax changed?
| Feature | 1799, Britain | Today's income tax |
|---|---|---|
| Purpose | Covering specific war costs | Permanent budget revenue |
| Duration | Declared "temporary" | A permanent tax |
| Who calculates | Often the taxpayer's own statement | In many cases the employer, i.e. a tax agent, withholds it |
| Checking income | Paper statements and local commissioners | Bank and employer data, electronic returns |
| Public attitude | Strong discontent, seen as an intrusion into private life | Normal practice |
The next big turn came in the 20th century: the idea was born of taxing not income but the value added at each stage.
See also
Sources
- UK Parliament, Living Heritage: Income tax · income tax introduced by Parliament in 1799 to cover the cost of the war against Napoleon; initially met with discontent
- Association of Taxation Technicians: The History of Income Tax and HMRC · Pitt proposed it in the December 1798 budget; Addington abolished it in 1802 and reintroduced it in 1803
- The National Archives catalogue: Particulars of Account of Land and Assessed Taxes · the tax of 1803–1816 was called the "property and income tax"
- J. Cooper (Journal of British Studies): William Pitt, Taxation, and the Needs of War · Journal of British Studies, vol. 22, no. 1 (1982)
- Example and table · prepared by the author, hypothetical figures