By the late 1790s, Britain found itself in dire straits in its struggle against Napoleon. French forces held a clear organizational advantage, and the threat of invasion loomed large. Making matters worse, the government's finances were in shambles. Faced with rapidly shrinking coffers, Prime Minister and Chancellor of the Exchequer William Pitt the Younger got creative in his search for solutions.
During his December 1798 budget address, he put forward a bold proposal: an income tax designed to fund the war effort against Napoleon. This so-called "temporary measure" officially took effect on January 9, 1799.
The Income Tax
Under the Act of 1799, anyone earning more than £60 annually would face a 1% tax, while incomes above £200 would be hit with a 10% levy. Children may be eligible for a tax break of up to 5% of their income. Starting in June of that year, taxpayers would owe the amount in six equal installments.
The country's taxable income, by Pitt's calculations, stood at around £100 million. At a 10% rate, he figured he could pull in approximately £10 million. That estimate proved wildly optimistic, and he soon revised it downward to £7.5m. Even that turned out to be wishful thinking. Despite deploying tax inspectors across the country, only about £6 million actually made it into government hands — merchants and manufacturers routinely dodged their obligations, viewing the whole scheme as an unwelcome intrusion into people's finances.
An End To The Tax?
Once Napoleon had been defeated, public sentiment shifted considerably. Locals warmed up to the idea of a tax and associated it with Napoleon's defeat. Before long, people even began considering the tax part of their patriotic duty.
Pitt's successor, Addington, managed to repeal the tax in 1802 following the signing of a peace treaty with Napoleon. But the genie was out of the bottle — the precedent had been established. When hostilities with the French resumed the next year, Addington reintroduced a modified version of the tax.
It would persist until 1816, when the conclusion of the Battle of Waterloo finally brought about its abolition. Its demise was reputedly met "with a thundering roar of acclaim" in Parliament.
Then, in 1842, old-fashioned Prime Minister Sir Robert Peel brought income tax back from the dead after a twenty-six-year hiatus. It has remained with us in one form or another ever since.