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[log in to unmask] (Ross Emmett)
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Fri Mar 31 17:18:42 2006
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Published by EH.NET (March 2004) 
 
Martin Daunton, _Trusting Leviathan: The Politics of Taxation in Britain, 
1799-1914_. Cambridge: Cambridge University Press, 2001. xiii + 438 pp. £40 
or $60 (hardcover), ISBN: 0-521-80372-1 and Martin Daunton, _Just Taxes: 
The Politics of Taxation in Britain, 1914-1979_. Cambridge: Cambridge 
University Press, 2002. xvi + 406 pp. £45 or $70 (hardcover), ISBN: 
0-521-81400-6. 
 
Reviewed for EH.NET by Hugh Pemberton, Department of Economic History, 
London School of Economics. 
 
 Despite the importance of taxation in the modern industrialized state, the development of
British tax policy has become surprisingly neglected. Taken together, therefore, these two
works by Martin Daunton (Professor of Economic History at Cambridge University) fill a
large gap in the literature, and fill it with considerable style.
 
As Daunton notes, "The capacity of any state to act and to realise its 
political goals depends, more than anything else, on its financial 
resources." Whereas in the middle ages rulers drew resources from their own 
estates or domains, by the sixteenth and seventeenth centuries the "tax 
state" was beginning to emerge in many parts of Europe -- encouraged by the 
search for new ways of raising revenue to finance the increasing cost of 
warfare, and by economic development and the emergence of a more complex 
and commercial economy which created new "handles" on that economy which 
taxation could grasp. The principal theme of Daunton's first volume, 
_Trusting Leviathan: The Politics of Taxation in Britain, 1799-1914_ 
(2001), is the sustained effort by British policy makers gradually to 
create a sense of trust in Britain's tax system after the strains placed on 
it by the Napoleonic wars. Daunton ascribes Britain's ultimate victory over 
France to its capacity to extract a higher proportion of its national 
income for military spending, partly through taxation and partly through 
the willingness of lenders to finance the national debt, confident that the 
state's ability to raise revenue would ensure repayment. Nevertheless, the 
unpopularity of what critics came to term the "tax-eater" state created a 
significant legitimacy problem. Whereas government expenditure had been 8 
to 10 percent of national income in the eighteenth century, by 1815 it had 
reached 23 percent of GNP. With the war over, but with continuing high 
levels of taxation needed to service the national debt built up during the 
war, taxpayers made common cause with radicals to decry the menace of 
militarism and "old corruption" -- the costs of royal extravagance, 
sinecures, and pensions, and the parasitism of rich landowners and 
financiers. Daunton's great success is to show how this political crisis 
was defused during the remainder of the long nineteenth century. 
 
The creation of trust essentially had three elements. The first was the 
reassuring of tax payers that their taxes would not be misused via an 
assault on "waste." This entailed an extraordinarily sustained program of 
expenditure retrenchment which reduced tax revenues to 9 percent of GNP by 
1900, though of course in a much larger economy. Second was a long and 
complex process of administrative reforms designed to contain political 
pressures for higher spending. Parliament was transformed from a forum in 
which competing interests negotiated their share of taxation into an 
auditor of expenditure -- a role made easier by the simplification and 
consolidation of government accounts; by the development of a culture of 
secrecy around the budget which successfully excluded outside interests 
from its production; by the institution of a single consolidated fund 
(which removed individual items of expenditure from Parliamentary control); 
and the linked direction of end of year surpluses to repayment of the 
national debt, thus preventing them being used later for electoral 
manipulation. 
 
The third element was the gradual creation of an ethos of "balance" and 
fairness in taxation. This involved gradual alterations in political 
language and culture, particularly in the Treasury and the revenue 
departments, coupled with the transformation of the structure of taxation 
with a marked shift away from indirect taxes. Perhaps the most successful 
innovation was the introduction of income tax in 1842 and the consequent 
transformation of narrowly based tax system riddled with inequities between 
classes and between interests, with taxes falling disproportionately on 
trade and industry, on producers, and on the poor. Introduced as a 
temporary measure by Peel, it was Gladstone's 1853 budget that ensured its 
acceptance by managing to balance the overall tax system without 
differentiating between earned and unearned income, applying an equal rate 
to all incomes to avoid demands for concessions from various interests. 
This process of trust-building is admirably set out by Daunton. One might 
ask, I think, if the story told here is a little too apolitical and 
over-focused on officials -- though in a profoundly technical policy area 
officials did wield enormous power and the party political battles fought 
over taxation are well documented elsewhere -- but Daunton does make a 
strong case that the enormous expansion in the scope of taxation in the 
twentieth century was only made possible by the high level of legitimacy 
that was created in the three-quarters of a century after 1815. The 
drawback of the process, which Daunton acknowledges but perhaps does not 
fully explore, was that Britain's minimalist tax state had consequences in 
terms of urban squalor, inadequate education, ill-health, poverty, and low 
life-expectancy that one might argue created pressure for a radical rise in 
public expenditure commitments and thus of taxation. 
 
Perhaps surprisingly, Daunton's second volume, _Just Taxes: The Politics of 
Taxation in Britain, 1914-1979_, does not begin in 1906 -- for the tax 
reforms implemented by the Liberals between 1906 and the outbreak of war 
represented the beginning of a marked break with the minimalist tax state. 
That it does not, is justified by the (perhaps debatable) assertion that it 
was still possible to argue that at the margin taxes still had the same 
impact on all, and that the reforms were therefore consistent with 
Gladstonian principles of balance and fairness. Instead, Daunton begins 
with the outbreak of war in 1914. 
 
The theme of this second volume is very different from the first, focusing 
on the marked expansion of Britain's state, on increasingly bitter 
divisions over the use of tax to favor particular sections of British 
society, and on the marked decrease in the tax system's efficiency and 
electoral legitimacy. By 1979 it had become hard to argue that Britain's 
fiscal system was '"scientific, equitable and fair" and thus, argues 
Daunton, was the stage set for the Conservatives' attempt to cut taxes and 
roll back the British state. Essentially, _Just Taxes_ seeks to explain the 
background to the Thatcher assault, assessing through a careful 
chronological analysis of fiscal politics after 1914 why the British tax 
system developed as it did, and how taxation came widely to be condemned 
perhaps more for its form than its level. 
 
The high level of trust engendered by Victorian fiscal reform explains why 
Britain's tax system was able to weather both growing political pressure in 
the early twentieth century for redistribution via the tax and welfare 
systems, and pressure for higher military spending in the lead up to and 
prosecution of the First World War. It left Britain better placed than many 
countries to cope with the enormous strain put on it by cost of the war, 
and it explains why there was no crisis of consent when the level of tax 
failed subsequently to fall back to pre-war levels. The inter-war years, 
argues Daunton, then saw the containment of the radical threat from Labour 
via a remarkable increase in the level of government expenditure (by 1938, 
tax had reached 25 percent of national income) and an increasing transfer 
of income from rich to poor, with support for taxation consolidated via 
concessions to the "middling" middle class, a crucial element of 
Conservative electoral support. The Second World War then saw another 
increase in the level of taxation, which reached almost 45 percent of GDP 
in 1944. As with the First World War, an enduring displacement occurred -- 
sustained by an increase in rates of taxation, a widening of the tax base 
(not least via the implementation of "Pay as You Earn," an ingenious scheme 
of payroll deductions which drew many new tax payers into the income tax 
net), and the ending of middle class concessions. 
 
Compared with the long nineteenth century, therefore, there had been a 
radical shift in the purpose and effects of British taxation. Tax was now 
no longer solely viewed as a means of financing government expenditure. It 
was also being used to manage demand, to restructure the economy, and to 
promote social equity. Unfortunately, these aims sometimes conflicted. In 
particular, policy makers increasingly feared a trade-off between social 
equity and economic efficiency. 
 
By 1950, Daunton argues, there was a general acceptance both in the civil 
service and in the Labour government that that an overhaul of taxation was 
needed, not least because the system was increasingly over-dependent on 
income tax. The incoming Conservative government in 1951 had similar 
concerns, worried that very high marginal rates of personal income tax were 
eroding incentives, but it proved unable to reduce the tax "burden" to any 
significant degree because to do so would require deep and politically 
unpopular cuts to social services. Despite a Royal Commission on the 
Taxation of Incomes and Profits in 1951, a wide-ranging review of tax 
policy by the Treasury in the 1960s, and attempts by both major political 
parties to devise alternative visions of how tax should be used in a modern 
economy, a strategic reform of Britain's tax system failed to materialize. 
Partly this was the product of political reluctance to embrace reforms that 
would immediately produce many losers but whose benefits would be felt most 
in the long-term. Partly, Daunton argues persuasively, it was the product 
of civil service intransigence, particularly in the revenue departments, 
which found it hard to break with their Victorian institutional 
inheritance. Instead of a strategic reform program, a series of changes to 
tax took place that, while sometimes radical in themselves (for example 
Labour's 1965 introduction of capital gains taxation and overhaul of 
company taxation), were largely incoherent, often contradictory, and 
contributed massively to the growing complexity, decreasing efficiency, and 
reduced legitimacy of the tax system. 
 
One might quarrel with the argument that the overall level of taxation in 
1979 was unsustainable, as one might also like rather more attention to the 
Second World War, the fulcrum around which tax policy moved in this period. 
However, these are relatively minor quibbles. It is difficult to argue with 
Daunton's conclusion that a series of apparently rational decisions had by 
1979 produced a chaotic and inequitable tax system that was progressive in 
name only; and that this unfairness and incoherence had severely undermined 
the legitimacy of Britain's tax system in the minds of voters. As Kay and 
King remarked in _The British Tax System_ (Oxford, 1978) -- a key text for 
Daunton - "no one would design such a system on purpose and nobody did. 
Only a historical explanation of how it came about can be offered as a 
justification." _Just Taxes_ provides this explanation. 
 
The two volumes are not just for specialists, virtually all their chapters 
merit inclusion on reading lists for undergraduates studying British 
social, economic or political history in their respective centuries. If 
they have a fault, it is in their presentation of statistics, which is 
sometimes haphazard. This reviewer would have liked more graphs and tables, 
and more consistency in the data series presented. It is not clear, for 
example, how the formal incidence of taxation changed over the two 
centuries and the data that are provided on the changing structure and 
overall level of taxation are not always consistent. Nevertheless, one of 
the great strengths of these two volumes is that they present what can 
sometimes be highly technical subject matter in a consistently intelligible 
way, and they combine a broad view with an excellent exposition of detail. 
Each volume is a magisterial work of historical institutionalism in its own 
right. Taken together they represent a major achievement. 
 
 Hugh Pemberton is British Academy Postdoctoral Research Fellow, London School of
Economics. During this fellowship, he is conducting a program of research entitled
"Governance and the Development of Private Pensions in Britain since 1946." He is the
author of _Policy Learning and British Governance in the 1960s_ (Palgrave Macmillan, in
press 2004).
 
Copyright (c) 2004 by EH.Net. All rights reserved. This work may be copied 
for non-profit educational uses if proper credit is given to the author and 
the list. For other permission, please contact the EH.Net Administrator 
([log in to unmask]; Telephone: 513-529-2229). Published by EH.Net (March 
2004). All EH.Net reviews are archived at http://www.eh.net/BookReview. 
 
  
 
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