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World War I and a new approach

Bicentenary of Income Tax

Even before the First World War, there was massive social change in Britain. By 1901, 80% of the population lived in towns - a rise from 50% in 1851 and a far higher proportion than in any other country. Real wages in the 50 years to 1914 doubled, allowing almost everyone in work the opportunity for recreation. Football clubs were established in virtually every industrial town in the last quarter of the 19th century, and drew huge crowds. Emmeline and Christabel Pankhurst led the suffragettes, campaigning for votes for women by withholding taxes and staging public demonstrations

Although the Unionists - a coalition of Conservatives and Liberals opposed to plans for home rule for Ireland - were in power at the turn of the century, the 1905 election saw a Liberal/Labour pact return the Liberals with a huge majority - and supported by 29 ‘Labour’ MPs (although the Labour Party was not formally established until 1906). With the new Government came a change in the way taxation was viewed - from a means of (largely) paying for wars to a way of supporting the welfare of the people

In 1907, Chancellor Herbert Asquith introduced the long-debated concept of ‘differentiation’ -taxing less on earnings than on investments. With Asquith’s elevation to Prime Minister in 1908, Lloyd George as Chancellor introduced non-contributory old-age pensions, and - in the ‘People’s Budget’ of 1909 - plans for a super-tax for the rich. The rejection of this Bill by the House of Lords led to the 1911 Parliament Act which removed the Lords’ power of veto.

Paying for the Great War
World War I was horrific - ten million dead and twenty-one million wounded, of whom about one-tenth were British. However, it accelerated change at home with better medical facilities, better provision for the young and old, and reward for the women’s movement which had stopped campaigning to join the war effort. In 1918, all adult men and women over 30 were given the vote: ten years later all adult women could vote.

At the start of the war the standard rate of income tax was 6%, which produced an income to the Exchequer of £44 million with a further £3 million in super-tax. By 1918, the standard rate had risen to 30% realising £257 million with £36 million more in super-tax. Increases in personal allowances eased the burden in part for taxpayers.

In addition to these taxes, an Excess Profits Duty was introduced to raise revenue and to remove the excessive profits that firms had made from the war effort. With this and other tax changes, the total collected rose to over £580 million - seventeen times the 1905 figure when income tax was still the legacy of Pitt, Addington, Peel and Gladstone.

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