History of The English Fiscal System - Further Forms of Tax Raising

Further Forms of Tax Raising

The Lancastrian era, extending over two thirds of the 15th century (1399–1471), is noticeable for introducing new forms of direct taxation. The standard tax, the tenth and fifteenth, was failing to meet changing conditions in that, as towns decayed, further allowances had to be given amounting to over 15% (£6,000), which, with other deductions, lowered the yield from tenths and fifteenths to £31,000. To supplement this, a 5% land tax affecting only large land owners was introduced in 1404, a lower rate of 1⅔% being applied to the less wealthy in 1411. A house tax made its appearance in 1428 while taxes on knights' fees and other freeholds were also tried. In 1435 and 1450, a graduated income tax was employed. The minimum rate, 2½%, applied to incomes under £100 (or under £20 in the tax of 1450) rising to 10% on higher incomes, thus evidencing the need for greater revenue. Interestingly at this time, such methods showed a disposition to adopt foreign models, particularly those of France and Italy.

As to indirect taxation, receipts at first seemed to decline so that subsidies were granted for specified fixed terms, albeit that the victory of Agincourt gained a life grant for Henry V. After the enthronement of Edward IV, however, the tenth was literally taken up and voted (1472) by Parliament as a special military provision only. However, it failed to raise the necessary revenue, thus forcing the King to fall back on older forms of grant.

Extra taxes on aliens were levied under both Lancastrian and Yorkist rulers but with little profit. The most original contribution of Edward IV's reign to fiscal policy was that of benevolences or payments by wealthy subjects of sums requested by the king. Voluntary in form, these were, in fact, compulsory, and later became one of the great grievances against which Parliament had to struggle.

Broader financial issues marked the Tudor period as the era of national monarchies arrived, necessitating the maintenance of greater military and naval forces, as well as more costly machineries of administration. Both external and fiscal policy were affected by the set of ideas that developed into mercantilism while the state of finance reflected the monarch's personal character, particularly in the 16th century, so that decided contrasts could be found. For example, Henry VII carried his desire to replenish the royal treasury depleted by the Wars of the Roses to the point of establishing a "reign of fiscal terror", through the rigid enforcement of feudal incidents rather than appeals for parliamentary aids, and the establishment of a system of "Chamber Finance" run by the staff of his Privy Chamber mirroring the functioning of the slow and inefficient Exchequer. He was followed by the lavish prodigality of Henry VIII while Elizabeth's financial policy was very different from that of either. In addition, the desire for a vigorous foreign policy, the hope of encouraging native industry and the sentiment of retaliation against the trade regulations of other countries interfered with the strict aim of earlier times, namely the obtaining of the largest possible yields.

The whole public economy was regarded as existing only for the furtherance of national power. It is this more complex policy together with new influences such as the discovery of America, the Renaissance and the Reformation that gives special interest to the financial problems of the sixteenth century.

The first head of public income at the disposal of the sovereign was that of the crown lands. Although these were diminished over time by grants to the King's relatives and favourites, they were simultaneously built up via resumptions and forfeitures. On the whole, though, losses and gains were thought to be in balance by the close of the 14th century. Crown lands were, however, an inelastic form of revenue, and their great impoverishment - begun in the 15th century by the Lancastrian kings, (in particular, Henry VI) - was caused through expenditure pressures, profligacy and wholesale plunder by officials.

Edward IV failed to capitalise on the many forfeited estates reverting to the crown during the wars of the roses of the 15th century, so that the main opportunity for aggrandizement was afforded by the dissolution of the monasteries and gilds under Henry VIII. As a result, the great mass of property passing into royal possession was in part assigned to nobles and officials, the remainder being distributed during his children's reigns. Thus, the dwindling importance of land and rents to the public revenue continued. Similarly, feudal dues also became subordinate notwithstanding occasional attempts rigorously to enforce them. The degree of personal monarchy exercised by the Tudors, depending as it did on popular support, therefore tended to encourage the collection of dues other than taxation. Similarly restrained was the use of the old right of purveyance, finally abolished in 1660.

In the 16th century, the obtaining of additional revenue from crown lands and the royal prerogative was exploited to the full. These were now, however, far less profitable, the prevailing political and social conditions increasingly pointing to the need for direct taxation to become the principal source of revenue raising. Among the many calls for further revenue, the chief included the need to maintain the ever expanding machinery of state and price rises caused by growing supplies of precious metals, the effects of which extended into the 17th century.

One form of direct taxation remained from Edward III's the reign. Tenths and fifteenths continued to be voted in while attempts to introduce new methods failed. In 1488 a military grant framed on the model of the abortive tax of 1472 yielded only a little over one third of the estimate (£27,000 out of £75,000), the unsatisfactory result preventing further experiments during Henry VII's reign. The foreign policy of Henry VIII, particularly his French expedition with its enormous outlay, accounts for the graduated capitation tax of 1513, which, despite anticipation, yielded even less than the tax of 1488 (£50,000 instead of £160,000). But these failures cleared the way for a more effective form of direct impost, a general tax (1514) on land and goods which was at first modest - 2½%. However, it was soon raised to 4s. in the pound on land and 2s. 8d. in the pound on goods, a scale evidently devised with reference to the older tenth and fifteenth, which henceforth became subordinate.

The subsidy became the established mode of grant under both Tudors and Stuarts, though by degrees it underwent a change similar to that of its predecessor. Under the taxing statutes, elaborate provisions were made for its assessment and collection in order to secure the greatest possible return. However, old habits proved too strong and the subsidy slipped into the same groove as that of the fifteenth and tenth, in practice becoming a grant of about the same amount as the yield of the preceding subsidy (Dowell).

As a result, each subsidy was approximately £100,000 in the middle of the 16th century, but had fallen to only £80,000 by its close. The parallel vote of the clergy in convocation (which, after 1533, was confirmed by Parliament) amounted to £20,000. Usually, Parliament voted a number of tenths and fifteenths plus subsidies, e.g. Elizabeth's first Parliament voted her two fifteenths and tenths plus a subsidy, or, taking the usual values, £160,000. At times of war, such as the attempted invasion by the Spanish Armada, however, votes were enlarged by granting further tenths, fifteenths and subsidies. The history of the subsidy is instructive as regards its tendency to become inelastic over time, approximating to a fixed sum only. Thus, it followed the path of later medieval taxation forming the - albeit undesigned - model for subsequent land and property taxes.

Under the Tudors, port duties - the subsidies on wool, hides and leather, plus tunnage at 3s., and poundage at 5% - were granted to each sovereign for life. These, together with the hereditary customs, supplied considerable revenue for crown's use and no better indication of the increased power and popularity of the monarchy can be found than during this era, the contrast with the suspicious, grudging attitudes of the Plantagenet and Lancastrian parliaments signifying a change in the national sentiment. However, increasing the duty on Malmsey wine (1490) had a retaliatory rather than a fiscal aim, being directed against the Venetians who had previously imposed restrictions on English trade. For the same reason, increases were later imposed on French wine in particular.

Although restrictions on imports and exports as well as hostile measures against foreign merchants were matters of economic rather than financial policy, they had the indirect effect of increasing the control exercised at the ports. However, the loss of Calais (1558) dislocated the system of the staple by cutting off a vital centre of customs revenue. It may also have contributed to the changed method of valuing duty. Thus, in 1558, fixed valuations were, for the first time, substituted and set down in a book of rates. More stringent reforms and regulations followed, in particular against smuggling and fraud by corrupt officials. Despite such reforms, however, the cost of collection remained unduly high throughout the Tudor period.

As in the 14th century, the subsidy had followed both old and new customs. Similarly in the 16th century, impositions levied by royal prerogative also supplemented the parliamentary subsidy, although their principal employment occurred during the following century. A further, significant indication of the future of indirect taxation was furnished by grants of monopolies to inventors, producers and traders. When these affected important commodities, they operated in the same way as taxes farmed out to collectors and, although crown profits therefrom were small, they effectively enhanced prices and excited discontent, promise of redress finally taking place after the hostile debate of 1601.

It may fairly be said that one of the greatest struggles between the Stuart kings and Parliament centred round financial policy. It is beyond dispute that taxation was one sphere of conflict and, from the accession of James I (1603) to the start of the Civil War (1642), the legal basis of indirect taxation was tested for port duties in the Case of Impositions (the John Bates case), whilst that of direct taxation was considered in the even more famous Ship Money case, forever associated with John Hampden. Similarly, Parliament also debated impositions, monopolies, votes of subsidies and the proper application of funds therefrom as well as other related matters. Despite this, however, the overall system showed signs of expanding and adapting to the growing needs of the state.

The direct grants of the parliaments of James I far exceeded those of earlier reigns - for example, in 1606 fifteenths and tenths, three lay and four clerical subsidies - although efforts to extend other sources of revenue by exercising the royal prerogative naturally reacted on this spirit of liberality. The last fifteenth and tenth was voted in 1624, from which date this old-established form disappeared leaving the subsidy only. In spite of Charles I's high-handed policy, five subsidies were voted after the Petition of Right had been accepted, and even the Long Parliament made similar grants. At or near the outbreak of the Civil War, it also granted the king a graduated capitation tax.

Other modes of direct taxation were used without parliamentary sanction. The collection of antiquated feudal dues was enforced through the special courts (particularly the Star Chamber) with a rigour long unknown. James had tried the French device of a tariff of honours and he and his son both employed the benevolence until the Petition of Right made such a levy illegal. But by far the most serious innovation was the collection of Ship Money, a course forced on Charles by his determination to rule without Parliament. These writs embodied the ultimate expression of the ingenuity of the King's advisers in the invention of means to enable him to do so. The first writs secured over £100,000, and were followed by five further issues (1634–1639) bringing in an average return of £200,000 or about three lay subsidies. Like the benevolence, Ship Money was declared to be illegal (1641).

The contest respecting monopolies settled by Elizabeth's withdrawal was revived under James, finally being stopped by the Statute of Monopolies (1624) which declared such grants to be utterly void. Certain exceptions (as in the case of the soapboilers) permitted the raising of revenue by what was, in fact, a rudimentary excise and plans for a general excise were also discussed, especially as a substitute for feudal dues, though these were not reduced in practice. In the early part of the 17th century, customs steadily increased from £127,000 in 1604 to nearly £500,000 in 1641 due to the growth of English trade, the adoption of new books of rates – 1608 and 1635 – the fixing of higher valuations and also the inclusion of new commodities, in particular, wine, currants (the subject of controversy in Bates' case) tobacco and sugar.

One interesting development was the adoption of the farming system on a larger scale, an evident imitation from France. Distinctions were made between the great, the petty and the sugar farms, and opportunities for gain were afforded to the relevant officials. Constitutionally, the life grant of subsidies, voted in accordance with Tudor usage to James, was withheld from Charles by Parliament because of his overbearing policies. However, between 1628 and 1640, all customs revenue was raised by the use of the prerogative only, an avenue that was finally closed by The Tunnage and Poundage Act 1641 which made such extra-parliamentary customs illegal.

In short, financial progress from the Conquest to the crisis of the Great Rebellion was marked by an almost complete shift of revenue-raising methods. The King had ceased to maintain himself and the royal demesne and the prerogative rights included in feudalism had become totally subordinate, being replaced by direct and indirect taxation.