Introduction
So, picture this.
A (high quality) tea towel… with an image of each of the monarchs to be coronated over the last 100 years or so.
We can list some key tax facts of the period to add a bit of pzazz!
Yes, it is a lot of faces and exciting facts. Luckily, we can probably combine Edward VIII and George VI for obvious reasons. Phew.
What, you want some research notes about what exciting facts we can print on this high quality item? Ok. Strap yourself in.
[If anyone fancies rustling these up and selling them on the Mall tomorrow, then I am happy to licence you the idea…]
The Monarchs
Who are the runners and riders…
| Monarch | Date of coronation |
| George V | 6 May 1910 |
| Edward VIII | 20 January 1936 |
| George VI | 11 December 1936 |
| Elizabeth II | 6 February 1952 |
| Charles III | Tomorrow |
George V (period 1910-1936)
1910 – a different world, about to change for ever?
Back then, income tax was only paid by a tiny proportion of the population (2%), as the tax-free allowance was set at £160 per year (a high threshold at the time).
Tax as a % of GDP in 1910
Unfortunately, Gross Domestic Product (“GDP”) estimates for the UK did not begin until decades later, so it is not possible to provide an exact figure for tax as a percentage of GDP
However, estimates suggest that tax revenue in 1910-1911 was equivalent to around 10-15% of GDP. Tax revenue in 1910-1911 was therefore a relatively small proportion of the overall size of the UK economy.
Tax changes in the period
The tax changes in the period came thick and fast as the world began to change – particularly during and after the First World War. It was a time of immense economic and social change. All of these factors shaped the tax system.
In 1910, the UK introduced a system of income tax that replaced the previous system of property tax. The new income tax was initially set at a rate of 6%, but it was increased to 7% in 1914 to help fund the war effort.
Immediately afterwards, in 1911, the UK introduced a system of National Insurance, which provided workers with benefits such as sickness and unemployment pay. The system was funded through contributions (though the contributory principle has been somewhat severed since) from both employers and employees.
In 1915 a “super tax” was introduced to help fund the war effort.
Tax monkey business
The dawn of high taxes also led to the dawn of tax avoidance.
Right at the end of the period, in 1936, the famous judgement was handed down in the Duke of Westminster case. The case involved the grand old Duke coming up with a number of creative ways to pay his gardeners using annuities. This gave birth to the doctrine that:
“Every man is entitled, if he can to order his affairs so as that the tax attaching under the appropriate acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax”
This would shape the decisions in tax avoidance cases for decades to come.
We also saw the introduction of the Transfer of Assets abroad provisions and the almost immediate attempts to circumvent it (Congreve and Congreve).
Edward VIII and George VI (period 1936-1952)
1936 – the tax base
In 1936, the tax-free allowance had been reduced significantly from its initial level in 1910. Stealth tax was born! So, a larger proportion of the UK population was subject to income tax in 1936.
Approximately 11% of the UK population were paying income tax. This represented a significant increase from the number of taxpayers in 1910, when only around 2% of the population paid.
Still, the vast majority of the UK population did not have to concern themselves with icky income tax. Taxes were still only for the big people.
Estimates suggest that it is likely that tax revenue in that year was equivalent to around 15-20% of GDP.
Tax changes
During World War II, the UK government introduced a range of measures to increase tax revenue, including the introduction of a tax on war profits. This tax applied to companies that made excessive profits during the war period and was intended to ensure that businesses shared the burden of the war effort.
Towards the end of WWII, in 1944, the Government introduced Pay-As-You-Earn (PAYE). This introduced the ground-breaking concept that required employers to deduct tax from employees’ pay-checks and remit it to the government on their behalf.
In 1948, the UK government expanded the system of National Insurance. Contributions were deducted from employees’ pay and employers also contributed. Initially, it was a flat tax but then became linked to earnings in the early 1960s. It is only since around 1978, people have suggested that income tax and NICs should be merged. But things don’t happen fast in the tax world!
Elizabeth II (1952-2022)
Tax base
In 1952, income tax in the UK had been in place for several decades and the tax-free allowance had been further reduced since 1936.
As a result, a larger proportion of the UK population was subject to income tax in 1952.
According to historical records, in the tax year 1952-1953, approximately 14% of the UK population now paid income tax. This represented a slight increase from 1936.
In 1952, it is likely that tax revenue in that year has creeped up even further such that it was the equivalent of around 20-25% of GDP. However, slap bang in the middle of Elizabeth II’s reign, it the OBR states that the all-time high (44.2%) for tax revenues was in 1981/2 and the beginning of Margaret Thatcher’s first stint as PM.
Tax changes
Introduction of Capital Gains Tax: In 1965, the UK also introduced a system of capital gains tax, which was levied on the profits made from the sale of assets such as property and shares. The tax was initially set at a rate of 30%.
In 1965, the UK introduced a system of corporation tax, which replaced the previous system of profits tax. The new tax was levied on the profits of companies and was initially set at a rate of 40%. The main rate of corporation tax was as much as 52% in 1984 which began to reduce therafter through Lawson, Brown and Osbourne. That historical reduction stopped this year when the rate was increased from 19% to 25% and small companies rate returned like a bad penny.
VAT was introduced in 1973 and represented a significant change to the UK’s tax system.
In 1997, we saw Gordon Brown’s much maligned ‘raid on pensions’.
Capital Transfer Tax was introduced in 1974 and all but replaced Estate Duty in 1975. It was rebranded as Inheritance Tax in 1984.
In recent years, there has been increased international cooperation on tax matters, which has led to the introduction of measures such as the Base Erosion and Profit Shifting (BEPS) initiative. The UK has been at the forefront of these developments and has implemented a number of measures to prevent multinational companies from avoiding tax in the UK.
In addition, the government has introduced a number of tax measures designed to encourage businesses and individuals to reduce their carbon footprint. These include measures such as the Climate Change Levy, which is a tax on energy use, and incentives for electric vehicles.
Tax monkey business (again)
Whereas the first Elizabethan age was all about Walter Raleigh and his potatoes (if Blackadder is an accurate historical source?), the second was all about a burgeoning tax avoidance industry. In the context of a Labour Government threatening to make the rich ‘howl in anguish’ and make their ‘pips squeak’ it was perhaps not a surprise that firms like Rossminster were so popular with the wealthy.
In 1982, Lord Templeman, in his marvellous speech in WT Ramsay v IRC, seemed to bury the spectre of the Duke of Westminster for good. However, news of the DoW’s demise was somewhat premature.
Decades later, we saw the introduction of DOTAS. Powerful in its own rate but has been used subsequently as a trigger for weapons of mass tax avoidance destruction in subsequent Finance Acts.
GAAR was also introduced in 2013. However, my own view is that this has not been as game changing as DOTAS paired with Accelerated Payment Notices, for instance.
Charles III and beyond (2022 onwards)
According to the Office for Budget Responsibility (OBR) forecast published in March 2021, it was estimated that around 55% of UK adults paid income tax in the tax year 2020-21. This figure includes both those who are employed and self-employed.
According to the latest figures from the Office for National Statistics (ONS), the UK tax revenue as a percentage of GDP was 34.3% in the financial year 2020-21. This is slightly higher than the 33.7% recorded in the previous year, primarily due to increased government spending in response to the COVID-19 pandemic. It is noted that other research has a much higher figure.
Perhaps of greater concern is that the UK’s tax burden is set to rise to a post-war high of 37.7 per cent of GDP in 2027-28.
What will we see from the Government during Chuck’s reign?
It is perhaps inevitable that we will see further advances in digitalisation (until we are all paid via a giant payments company in the sky… almost certainly operated by Capita).
Will we see simplification? Although everyone agrees it is warranted, appetite seems microscopic.
Further green taxes and incentives?
Wealth taxes, capital taxes and land value taxes?
Further limits to the non-dom regime.
Will we see that merger of income tax and NICs?
An equalisation of income tax and capital gains rates?
Don’t ask me… I spend my spare time designing souvenir tea-towels.
If you have any queries about this article, want to get in on my tea-towel idea, or want to discuss tax matters in general then please get in touch.