Things were looking bad for Britain in the fight against Napoleon in the late 1790s. French forces were better organized than Britain's, and an invasion was imminent. As if that weren't bad enough, Britain's government finances were a disaster. To replenish the country's dwindling financial resources, Prime Minister and Chancellor of the Exchequer William Pitt the Younger devised some creative solutions.
In his December 1798 budget, he proposed an income tax to raise funds for the war against Napoleon. On January 9, 1799, this "temporary measure" went into effect.
The Income Tax
Per the Act of 1799, persons with annual incomes exceeding £60 would be subject to a 1% tax, while those with incomes over £200 would be subject to a 10% tax. Children may be eligible for a tax break of up to 5% of their income. Beginning in June of that year, six equal payments would be due.
Pitt calculated that the country's taxable income was around £100 million. He estimated that he could bring in approximately £10 million at a rate of 10%. He quickly realized that this was impossible, so he lowered his estimate to £7.5m. However, his hopes would continue to be dashed. Despite the hiring of tax inspectors, just about £6 million was collected as merchants and manufacturers often evaded their taxes, considering it an intrusion in people's finances.
An End To The Tax?
After Napoleon's defeat, locals warmed up to the idea of a tax and associated it with Napoleon's defeat. Soon, people even began considering the tax part of their patriotic duty.
Addington, Pitt's successor, successfully repealed it in 1802 after a peace treaty had been struck with Napoleon. However, the precedent was set, and the next year, when war broke out again with the French, Addington brought back a modified version of the tax.
It wasn't abolished until 1816 after the Battle of Waterloo had concluded, and its elimination was reputedly met "with a thundering roar of acclaim" in Parliament.
In 1842, under old-fashioned Prime Minister Sir Robert Peel, income tax was reintroduced after a twenty-six-year hiatus. Since then, it has existed in some form or another.