On this 100th anniversary of the Armistice, it would be appropriate to look at the effect that major conflict has had on taxation. Of course warfare increases Government expenditure exponentially and this requires it to be funded, normally by a combination of borrowing which leads to greater taxation after the war and increased taxation during the war.
The original Death Tax, forerunner of Estate Duty and IHT was introduced in the 1690s to fund King William’s war against the French. Income Tax was introduced as a temporary measure in 1799 to fund the Napoleonic wars. It was actually abolished twice; first in 1802 after the peace of Amiens with the French that lasted 16 months and then in 1816, the year after the triumph at Waterloo.
The First World War saw substantial increases in taxation as Britain struggled to finance the global conflict. This included the reduction in the personal allowance so that for the first time, ordinary working people were paying income tax.
The increased burden of taxation shouldered by the working man and woman was partially used as justification for the extension of the suffrage to men over 21 and women over 30 in 1918. Women finally obtained full equality with men in terms of voting in 1928.
The Second World War inevitably saw further increases in taxation and the introduction of Purchase Tax in 1940, again as a temporary measure. It lives on as VAT.
Wars saw marginal rates of tax approaching 100% and it took a long time for rates of tax to be reduced to pre-war levels. For example, it took until the 1990s before the rate of income tax for ordinary people to be reduced to the rates prevalent in 1936.
After the First and Second World War, Governments of all colours kept taxation rates high, both to enable them to repay war debts but also to fund the social programmes that had been promised during the wars. Some wartime measure took a great deal of time to reverse. Most people know that rationing did not end until nearly 10 years after the Second World War. Exchange controls introduced in 1939 were not abolished until 1979 and the war loan stock issued in the First World War was only redeemed by the Government when George Osborne was Chancellor nearly 100 years later.
The effects of war on the economy and taxation often last for decades after the guns have stopped firing.