A brief history of tax - The Chartered Institute of Taxation

INAUGURAL LECTURE
A brief history of tax
In this article based on her inaugural lecture, Jane Frecknall-Hughes looks at
historical issues which have a bearing on tax today
Taxation is not only fascinating in
its own right academically, but has
an everyday relevance that many
other subjects may, indeed, lack. Tax is
something that affects all our lives on a
daily basis, yet knowledge of how taxes
work or appreciation of their impact is not
as common as one might wish.
There is in academia a general lack of
appreciation of the ways in which taxation
interacts with other academic subjects,
as it is relevant in accounting and finance,
public and local finance, law, economics,
psychology, sociology, management,
philosophy (especially ethics), political
science and history. The last, together with
law, form the focus of this article.
For the the man on the Clapham omnibus,
there is frequently a disconnect between the
daily impact of taxation and the Government
policies underlying it, which we often
become actively aware of only when they
hit the media headlines. We certainly do
not have a general consciousness of how
we came to be where we are today or of the
vast underlying back history of taxation. By
this term I refer not only to the history of the
subject itself, but its inseparable effects on
historical events and human behaviour.
If we look back in time, we will see that
as now, in the past, means and devices were
employed that were driven by the nature of
the times and the art of what was possible,
but nonetheless have a clear relevance and
resonance for our current times.
tax theory – a historical perspective
When discussing taxes and tax theory, it
is customary to refer to the four famous
canons of taxation outlined by Adam Smith
in his work An Inquiry into the Nature and
Causes of the Wealth of Nations (1776) as the
defining characteristics of an effective tax.
These are equity/proportionality, certainty,
convenience and efficiency, as follows:
1. The subjects of every state ought to
contribute towards the support of the
Government, as nearly as possible, in
proportion to the revenue which they
respectively enjoy under the protection
of the state. (Equity/proportionality,
ie, contribution in accordance with a
person’s ability to pay.)
KeY pointS
• Tax and tax avoidance go back into
the dawn of democracy in the UK
• Some of the issues we regard as
modern problems in fact were also
relevant 800 years ago
• Looking back over the history of tax
can offer some interesting parallels
for the modern observer – and maybe
some lessons
2. The tax which each individual is bound to
pay, ought to be certain, and not arbitrary.
The time of payment, the manner of
payment, the amount to be paid ought to
be plain and clear to the contributor and
to every other person. (Certainty.)
3. Every tax ought to be levied at the time,
or in the manner, in which it is most likely
to be convenient for the contributor to
pay it. (Convenience – although ‘least
degree of inconvenience’ might be a
better way of putting this.)
4. Every tax ought to be so contrived, as
both to take out and to keep out of the
pockets of the people as little as possible,
over and above what it brings into the
public treasury of the state. (Efficiency,
that is, it does not cost more to collect the
tax than the levy itself would produce.)
To these four canons, which are still
relevant today, has been added a fifth in
more recent years, that of neutrality. This
means that the tax system itself should
influence as little as possible the way in
which economic activities are carried out.
In addition one would also hope to
find that any tax system is flexible (ie,
capable of being altered without too much
difficulty to cope with changes in economic
circumstances); is relatively simple to deal
with and understand; and is perceived as
being equitable by those upon whom it is
imposed.
However, we have to remember that
these are ideals and in real life taxation
often has fallen far short of meeting them.
Common themes emerging are problems
of defining what is (or should be) taxed,
whether tax collection can be increased by
decreasing the tax rate (the Laffer curve
effect), the use of taxation for non-fiscal
purposes and to attempt to alter behaviour,
tax protests, unintended consequences,
Revenue discretion, evasion and avoidance –
all of which, arguably, remain with us today.
King John
King John was nothing if not an innovative,
extortionary and opportunistic tax collector.
He was perennially short of funds, as the
Treasury was depleted by the demands of his
predecessor, Richard, in terms of overseas
wars, building castles in contested French
demesnes and the ransom demanded for his
release.
However, John’s tax measures succeeded
in the early years of his reign because he
had one of the ablest financial advisers that
England has ever produced, a largely unsung
hero by the name of Hubert Walter, who
combined the role of Chancellor (of the
Exchequer) and Archbishop of Canterbury,
and had been head of the legal system as
it then was. He not only controlled John,
but also national finances until his death in
1205, and had done so under Richard, and
Richard’s and John’s father, Henry II. He was
particularly good at amending taxes to which
people were accustomed, to obtain more
money but without causing undue unrest,
and apparently with a reasonable degree
of equity. Some of the taxes that existed at
that time we would not today consider as
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INAUGURAL LECTURE
their power to bear it and to revolt, when
the restraining influence of Hubert Walter
was no longer there. John inherited a
nearly bankrupt kingdom, depleted by his
predecessor and made worse by wars in his
own reign which the right financial advice
from the right man in the right place at the
right time was on the way to rectifying by
extending the use of customary measures,
not introducing new ones which would
create disharmony. These events resonate
clearly for our own times.
profiLe
name Jane Frecknall-Hughes
position Professor of Law and Head of the Law School
company The Open University
tel 01908 332565
email j.frecknall-hughes@open.ac.uk
p r o fi l e Jane Frecknall-Hughes is currently Professor of Law and Head
of the Law School at The Open University, to which post she was appointed from 1
December 2011, to lead forward the School’s research, scholarship and teaching. This
article summarises Jane’s recent inaugural professorial lecture in her previous post as
Professor of Accounting at The Open University. This is based on her research, which
centres on taxation with taxation history being a particular interest.
taxes, but it is common to consider any input
into the royal Treasury at this time as a tax,
however derived.
Walter’s death produced a crisis in
taxation, in that Walter’s restraining
influence on John’s rapaciousness was lost,
leading to extreme taxation measures.
Desperate for money, John lost no time,
following a disagreement with Rome, in
seizing church property. Crown envy of the
church’s wealth was nothing new, although
monarchs generally exercised a degree of
restraint. John then sold their property back
to the clergy, while retaining some part of
the church revenues as an income stream.
The revenue John obtained from church
sources undoubtedly meant that he did not
ask for so much from the barons, and so
deferred the tax revolt which led to Magna
Carta. Over half the clauses in the 1215
version of Magna Carta, incidentally, refer to
John’s financial exactions.
Another scheme was also devised for
relieving the clergy of substantial sums of
money. Although priests were supposed to
be celibate, the Church had great difficulty
in enforcing this, and many parish priests,
it is believed, had undergone some form
of marriage, or kept housekeepers, who
were rather more than this. Henry I had
fined the clergy for disobeying the Church
in this matter – at the same time as selling
them licences to do so. John ordered all
the clergy’s womenfolk of this nature to be
seized and held for ransom.
From the tax events of John’s reign in
general, it is easy to see how economic
hardship led to people being taxed beyond
moving forward in time
Often the habits of society at large provide
the means by which taxes can be raised,
for example, because people drink, smoke,
drive cars, travel by air, etc. A Government
may be faced with taxing something that is
widespread (leading to a broad tax base, so a
lot of people/things are taxed) or expensive
(leading to not so broad a tax base, but
compensated for because tax is applied
to higher cost base). An ideal ‘thing’ for a
Government to tax is something which is
both widespread and expensive, as this can
raise a lot of tax revenue – but, as some of
my examples show, it has to be something
that will last for a reasonable length of time.
Typically ‘things’ are taxed by the use
of excise duties (or taxes). These were
particularly prevalent in England during the
17th, 18th and 19th centuries.
Excises are very flexible taxes, and have
been popular for centuries in a wide variety
of different countries. Their advent in
England and the English colonies in the 17th
century is likely to be associated with the
arrival of William of Orange, when he came
to England from the Netherlands in 1689, as
excises had gained great popularity at this
time in Holland. The word ‘excise’ itself is
derived from a Middle Dutch word (‘excijs’),
one of the meanings of which is ‘assessment’.
the 17th-century tax base
Taxes were introduced on a variety of things
(though some had existed before this in
different forms):
• salt (1694);
• births, deaths and marriages; bachelors;
sea-borne coal; spices, beer, wine, spirits,
tea, coffee, cocoa; and tobacco (1695);
• windows (1696, lasting until 1851), also
later, bricks and wallpaper;
• trades via hackney carriages (1694) and
hawkers (1697);
• malt and leather (1697)
• variously later – male servants, hair
powder, soap, candles, hats and gloves.
Bachelor tax
In times of economic crisis, Governments
sometimes try to implement rather unusual
measures.
The so-called ‘bachelor tax’ was one
of these taxes. More formally, it was part
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INAUGURAL LECTURE
of the Marriage Duty Tax, authorised in
England by an Act of Parliament in 1694 and
implemented in 1695, which levied tax on
marriages, births and burials, but also upon
bachelors and widowers. It was imposed
initially for five years, and then prolonged to
1706, after which it was not renewed.
The background to the tax was again a
severe shortage of Government revenue,
on this occasion required to fight an almost
constant war against the French during the
reign of William III and his wife, Mary II.
As the name of the Act implies, a tax was
levied on all births, marriages and deaths. In
addition, an annual fee was charged on all
bachelors over 25 years of age and childless
widowers. Rates varied according to the
social status of the individual: the gentry
and nobility, and anyone with a personal
estate over £600, or an annual income of
£50, paid extra. Persons receiving alms
were exempt. In England, it seems that an
unmarried duke would pay a minimum of
£12 11s (in old money).
To assess this tax and prevent evasion, it
was necessary to have a complete listing of
the whole population. This was, in effect a
census, as it listed names, family and marital
status, and titles. The listings generated,
first in the summer of 1695, are the most
comprehensive of the English population that
existed before the 1801 census.
While one might think that a tax
on bachelors is unusual, it has often
been implemented or suggested,
as a strategy of Governments to
encourage population growth and
raise money at the same time.
Augustus Caesar attempted to
impose penalties (if not actual
taxes) on the unmarried in 18 BC,
as did the Spartans of ancient
Greece. The latter preferred
public humiliation, however,
to money-raising: bachelors in
Sparta were required to march
around the public market in
wintertime stark naked, while
singing a song mocking
their unmarried status.
The Missouri
legislature in the USA
attempted to levy such a tax in 1820, as did
the Russians under Peter the Great in 1702.
Indeed, there has been a recent suggestion
that it should be applied to wealthy Russian
bachelors, as many of these are, apparently,
unmarried. There has been a similar
suggestion, made in 2008, in Ireland in
regard to unmarried men over 18 (in this case
to re-establish the institution of marriage), so
it has not gone away.
Window tax
Moving on to consider the window tax,
this was introduced in England and Wales
in 1696. It was intended to tax people
relative to their wealth, as demonstrated
by the number of windows they had in their
houses, and was always accepted as a proxy
for income tax: the larger one’s house, the
more windows it was likely to possess and
so the wealthier one might be deemed to
be. Income tax was then an unwelcome and
controversial idea, as it would involve the
disclosure of personal details about income
to a Government authority, which was felt to
be a gross intrusion – an idea which dogged
income tax well into the early years of the
20th century.
On introduction, the window tax
consisted of a flat-rate house tax of two
shillings per house and a variable tax relating
Bachelors in Sparta were required to march around
the public market in wintertime stark naked, while
singing a song mocking their unmarried status
to the number of windows (if there were
more than ten windows). If a property
had between ten and 20 windows, four
shillings were due and if it had more than
20, eight shillings were due. The number
of ‘chargeable’ windows was variously
amended later on. In 1778, a variable rate tax
replaced the flat-rate one, which depended
on property value.
As windows could be easily counted, the
tax was regarded as non-intrusive and easy
to assess. However, the tax was regarded as
an impost on air and light, and when it was
finally repealed, it was on health grounds.
It was also relatively easy to avoid as when
inspectors came into a district to count
windows, house owners would brick them up
before they arrived and then unbrick them
when the inspectors left. Eventually many
tired of this continual cycle and left some
windows bricked up permanently – hence
they can still be seen in this condition today
in many English stately homes.
Brick tax
Brick tax was introduced in 1784 during
the reign of George III to help fund wars in
America. Bricks were originally assessed to
tax a rate of four shillings per thousand. To
try to get round this, manufacturers simply
made larger bricks, which resulted in the
introducing a maximum volume for a brick of
150 cubic inches (2,500cm 3 ).
Two effects of this tax were that many
smaller manufacturers went out of business
(they had to sell their inventory to pay their
taxes), and that architectural styles changed,
with a return to the use of wood in house
construction. The Government abolished
the tax in 1850 as it was considered an
impediment to industrial growth.
Soap tax
In England, there is evidence of soap
production in Bristol and Cheapside in
London from the 12th, 13th and 14th
centuries respectively. Soap was taxed
because it was expensive, and so provided
a good source of revenue – although few
people apparently washed (believing that
dirt actually kept out harmful diseases and
germs). During the wars against Napoleonic
France, soap tax increased so much that tax
inspectors would lock up the soap boiling
pans to stop illegal production at night. This
tax was repealed in 1835.
Candle tax
In 1709 a tax was introduced on all English
and imported candles, the rate on tallow
candles being one halfpenny a pound, and on
wax fourpence apound. These amounts were
doubled in 1711. The tax was unpopular and
was repealed in 1831.
Hats and gloves
There had long been rules as to who could
wear a hat and what it might be made of,
dating from medieval and feudal rules.
Hats, helmets, etc, were indicative of social
status and political connections (eg, in the
form of livery).
A hat tax as such existed from 1784–1811.
Apparently England was renowned for the
excellence of its hats – a trade helped to
develop by the French imposing a tax on hats
in 1690. By 1784 it was felt that the English
hat trade likewise could support a tax.
Hat retailers had to take out an annual
licence and have ‘Dealer in hats by retail’
written above their shop doors. Every hat
sold bore a duty according to its sale price.
This was collected by means of a stamped
ticket which was fixed to lining in the
crown of the hat. The hatter had to charge
separately for the stamp on the customer’s
bill. Inevitably, this led to questions of what
a hat was, as this had never been defined.
In 1767 a separate tax was imposed on a
certain kind of straw hat, called a ‘chip’
hat, but the fashion changed and the tax
collected was minimal. In 1804, however,
duties were imposed on substances from
which hats could be made, and on every
sort of hat (pretty much any head covering).
Perhaps rather surprisingly, this led to a
‘black market’ trade in hats.
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INAUGURAL LECTURE
A similar duty was imposed on gloves
and mittens between 1785 and 1794.
Tax on toiletries 1786–1800, especially
hair/wig powder
Between 1786 and 1800, taxes were also
imposed on a variety of perfumes, pastes,
balsams, ointments, waters, tinctures, tooth
powder, pomatum, etc. Perhaps one of the
more unusual items eventually to be taxed
was hair powder. This could be made from
various different substances, for example,
ground starch – and it was common to add
perfume and colouring (commonly powder
was coloured blue, pink, violet or yellow,
although off-white was most popular).
However, in 1795 the Government
introduced a tax of one guinea a year
payable by those who wished to wear a
powdered wig or directly powder their
hair, which was the death knell for an
already moribund fashion.
relevance for today
Let us just pause for a moment in
consideration of some of these more
outlandish tax provisions to point to the
relevance for the current day.
The bachelor tax was an attempt to
raise tax and influence behaviour. It did not
work very well or for very long. Using tax
to influence behaviour is as controversial
today as it was then. We are now, for
example, encouraged by higher duties on
alcohol to give up or reduce intake, the
latter more actively, perhaps, in Scotland
than England and Wales.
The need for a census was an unintended
consequence of the bachelor tax, as was the
imposition of a maximum brick size resulting
from the brick tax. Not all unintended tax
consequences are unwelcome, but some
can be – for example, in recent times the
10p tax rate problems and, perhaps, the
increase in company registrations when the
first £10,000 of company profits were freed
from corporation tax.
In terms of candles and soap, it seems
that the Government gave up a tax which had
a broad base and could raise considerable
revenue, especially after the development of
soap mass production. Why? One suggestion
might be an increasing concern for public
health and a better appreciation of what
contributed to it. Would it not have raised
more revenue to have lowered the duty on
soap, and thus collected more as it became
more widely available? It is, in fact, rather
difficult to find out very much about these
taxes. There is more about soap taxes on
soap manufacturers’ websites than in any
textbook that I have encountered.
However, excise duties on the necessities
of life had always been unpopular, which is
why the excise on beer was so unwelcome.
Beer was not drunk primarily because it was
alcoholic (though that might have been an
Box 1 – the tax advice Spectrum
Tax Tax Tax Tax Tax Tax
morale compliance planning avoidance ‘avoision’ evasion
added bonus), but because it was safe to
drink. The manufacturing process involved
boiling so it was safer than water, which was
often severely polluted. It was thus the drink
of the poorer classes, not a luxury item.
To provide a sound tax base, something
that is taxed has to endure and the tax
imposed has to be perceived as fair. The
tax on ‘chip’ hats, for example, ‘missed the
tax boat’ and that on hair powder was too
late by far to collect any really substantial
amount of revenue. It was a desperate
measure, again during the Napoleanic wars,
to raise funds. Income tax, introduced only
a few years afterwards in 1799, was a move
towards a wider tax base – income – which
while subject to fluctuation, would not be
subject to fashion.
avoidance
Some taxes are, of course, easier to avoid
or evade. We have seen this in terms
of the window tax and the hat tax. The
Government’s campaign against tax
avoidance is well known. However, opinions
of what is avoidance have varied over the
years, although there seem to have been
two basic ways in which the authorities
have looked at avoidance – either by
reference to where something has fallen
on a spectrum, (See Box 1) or by the way
something has ‘smelt’, that is, ‘fishy’. The
spectrum idea does actually appear to be
the more modern idea. By spectrum, I mean
what is shown above. One can decide where
an acceptable point lies.
The ‘smell’ or ‘sniff’ test appears to be
older. In an article in the British Tax Review in
1981, Ian Ferrier reports on a scheme in 1783
devised to ‘get round’ the payment of a two
pence Scot duty (a type of excise) payable in
Glasgow on each pint of ale or beer brewed,
brought in or sold in the city and suburbs,
in the case of Magistrates and Town Council
of the City of Glasgow v Messrs. Murdoch,
Warren & Co 2 Paton 615 52. The brewers,
based at Anderston, then far enough away to
be considered as not in the city or suburbs,
announced that they would cease to supply
the city, and made a contract with a certain
Mr Munro, who bought the beer and
supplied it to customers from the Anderston
premises. One is compelled to wonder
why the brewers could not have done this
themselves.
The case was taken to the House of Lords,
though it was then a somewhat different
Acceptable point?
body legally from that which it subsequently
became. Lord Mansfield was the foremost
judge, and had no qualms about judging
this a scheme which should not be allowed,
and ignored the ‘device of the intermediate
contract with Munro’. It was a perfectly legal
contract, but it smacked of what we would
now call unacceptable avoidance.
conclusion
Many tax ideas and problems have been
around for a very long time. I will conclude
by looking briefly at current environmental
taxes on certain kinds of waste.
The idea of such a tax is often to tax
the producer of waste to try to minimise
the impact on the environment, and/or
the costs of cleaning up. The RSPCA has
suggested re-introducing a dog licence
very much along these lines, although it is
interesting to note that the last dog licence
that existed was scrapped some time ago
as being inefficient: it cost more to collect
the tax than was raised.
The Romans, however, got there a
long time before we did, and, perhaps
unsurprisingly, did it rather more effectively.
In Rome, urine was collected from public
toilets and used in tanneries and laundries.
The ammonia it contained was needed to
cure leather and bleach togas. Urine was
similarly used, incidentally, many years
later in the production of Scottish tweed.
Thus we have waste products being put
to use in a way that we now are only just
beginning to emulate. In Sheffield, the city
council, for example, is running a trial of
council vehicles powered by methane gas
derived from sewage. The Romans, however,
went a step further. They not only actually
used the waste material, but taxed it. The
Roman emperor, Nero, levied a tax on urine
collectors (not, incidentally, on its producers),
which generated a substantial amount of
revenue. Vespasian, who was emperor
after Nero, continued to collect the tax.
Vespasian’s son, Titus, complained about the
unpleasant nature of the tax, but Vespasian
is alleged to have held aloft gold coins from
the tax collected with the words, ‘tell me, my
son, whether they smell’.
further information
References within this article can be
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com/ta/article/references-1018341
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