These are the words of a moralist. To the easy-going many the smuggler was merely a plucky fellow who cheated the common foe of all, the Government, and helped poor folks to get spirits, tea, and tobacco at cheap prices. As for showing any reluctance to buy smuggled goods, this seemed “a pedantic piece of hypocrisy.”[235] It must also be admitted that Government had sinned against light; for the great reduction of the tea duty by Pelham in 1745 had almost put an end to smuggling in that article; but unfortunately his successors, when confronted with the results of war, re-imposed the old duties and thereby gave new life to the smuggler’s calling.[236]
The excess of an evil sometimes works its cure. It was the stupidity of the fiscal regulations in France which helped to turn the attention of her most original thinkers to the subject of national finance; whence it came about that Political Economy had its first beginnings in the land where waste and want were rampant. So, too, it was reserved for the son of a Kirkcaldy customs officer to note early in life the follies of our system; and, when further enlightened by contact with men and affairs, especially with the French Economistes, he was able to give to the world that illuminating survey of a subject where tradition and prejudice had previously reigned supreme. Finally, it was in the very darkest hour of Britain’s commercial and financial annals that remedial measures were set on foot by the young statesman who had laid to heart the teachings of the “Wealth of Nations.”
It is not easy to say whether Pitt owed more to Adam Smith or to Earl Shelburne. Probably the influence of the Scottish thinker on the young statesman at this time has been exaggerated; for it seems certain that the later editions of the “Wealth of Nations” were modified so as to bring them into line with some of Pitt’s enactments.[237] Further, Pitt made no public acknowledgement of his debt to Adam Smith until his Budget speech of 1792, when he expressed the belief that the philosopher, then deceased, had given to the world the best solution to all commercial and economic questions. It may be, then, that Pitt in 1784 owed less to Adam Smith than to his first chief, Shelburne, and to other men of affairs, including his own brother-in-law, that able though eccentric nobleman, Lord Mahon. Shelburne was the depository of the enlightened aims of that age; and, as Price pointed out, he and Pitt in the year 1782 were about to make reforms in the public service which would have saved the revenue some half a million a year.[238]
Now, with a freer hand, he took up the task which the Coalition of Fox and North had interrupted; and in a measure which supplemented his Budget, he proposed to cut the ground from under the smuggler by reducing the duty on tea from an average of 119 per cent. to 12½ per cent. on the cheaper varieties, though on the finer kinds of tea (Suchong, Singlo, and Hyson) he imposed a higher scale of duties.[239] Even so, he expected that the produce of the tea duty would sink at first from £800,000 to £169,000, though he must have hoped soon to recoup a large part of this sum. As there was a large deficit on the past year, it was necessary to devise a tax which would help to make up the temporary loss with no risk of leakage.
Such a source of revenue Pitt found in an increase of the window-tax. Every house with seven windows was now to pay, not four shillings, but seven shillings a year. On a house with eight windows eight shillings were paid, and so on, except that houses with more than ten windows paid half-a-crown per window. He reckoned the increase from this source at about £700,000. Whatever objections might be urged against the tax on the score of health, it certainly fell mainly on the middle and wealthy classes; for as many as 300,000 of the poorest houses went duty free. The impost may therefore be considered as a first rough attempt at taxation according to income. The change was beneficial in another way. The old customs duty on tea violated the canon of taxation laid down by Adam Smith—that a tax should take from the pockets of the people as little as possible over and above what it brings into the treasury of the State. The 119 per cent. duty seemed to challenge evasion, and the attempt to enforce it probably cost the country more than the tax yielded. The window tax belonged to the class of excise duties the expenses of which amounted only to about 5½ per cent. of the total yield; and the new impost could not possibly be evaded except by the heroic remedy of blocking up windows.
Thus, both in regard to economic doctrine and common sense (the former is but the latter systematized) Pitt’s experiment ushered in a new era in British finance and therefore in British commerce. The City of London welcomed the change, which promised to lead to the employment of twenty more clipper ships for the China tea-trade and to the destruction of the contraband tea-trade to these shores carried on hitherto by the French and Dutch East India Companies. Indeed, no sooner did this Commutation Bill (as it was called) gain general assent than the Dutch Company offered to sell to us its cargoes of tea at a loss of 40 per cent. on prime cost and expenses. This fact alone ought to have stilled all opposition to the measure; but Fox continued to oppose it with a vehemence worthy of a better cause; he was ultimately beaten by 143 votes to 40 (10th August 1784).[240]
We may note here that by further regulations of the year 1784 and by what was called the “Manifest Act” of 1786, frauds on the revenue were made far more difficult. Thus to Pitt belongs the credit of having done more than any minister (for he succeeded where Walpole largely failed) to stop a material loss and a grave moral evil.
It would be incorrect to claim that Pitt was the first to light on the idea of substituting lower and effective duties for the exorbitant and ineffective duty on tea. William Eden (the future Lord Auckland) declared that very many persons had advocated some such change, and he attributed to Lord John Cavendish the formation of the revenue committee, the results of whose inquiries were now utilized by the Prime Minister. Pitt, on the other hand, gave the credit of the measure to his relative, Lord Mahon. The mention of that nobleman reminds us of an incident which enlivened the debate. While sawing the air in order to emphasize his hearty approval of the death blow now dealt to smuggling, he gave Pitt a smart knock on the head, to the unbounded amusement of the House.
The details of the Budget itself do not imply a very firm belief in the principles of what is called Free Trade. As has been shown, the difficulties in Pitt’s way were enormous. The new loan, the funding operation, and the interest on the unfunded debt altogether entailed an added charge of £910,000 a year. This sum he proposed to raise by means that may be termed old-fashioned. Looking round the domain of industry, he singled out for taxation the few articles that were duty-free or were only lightly burdened. Men’s hats were now to pay a toll of two shillings a-piece (felt hats only sixpence), and thus bring £150,000 to the nation’s purse; female finery (ribbons and gauzes) was mulcted to the extent of £120,000. He also estimated that a duty of three shillings on every chaldron of coals (not only in London as heretofore, but throughout Great Britain) would bring in about £150,000; but he proposed to free from its operations all manufacturers who met with sharp foreign competition. Further, he imposed a tax on all horses used for riding or for pleasure, which he estimated at £100,000; and he eked out the remainder of the sum by duties on printed linens and calicoes, candles, hackney coaches, bricks and tiles, paper, licences for shooting, and licences for traders in excisable goods.
Most of these proposals were received with resignation, but several members urgently protested against the impost on coals as likely to be ruinous to industry, and ultimately Pitt withdrew it. This, however, led him to impose a tax on race-horses (especially winners), to raise the licence for shooting from one guinea to two guineas, to increase the postage for letters, and to curtail the privileges of franking letters by Members of Parliament. This had been disgracefully abused. Every member of both Houses had the right both of sending and of receiving letters free. As if this were not sufficient, in days when a shilling was an ordinary charge for the receiver of a letter, several members were known to sell envelopes which they had franked; and a large firm is said to have paid a member £300 a year for franking their correspondence. Pitt struck at these abuses by requiring that franked letters must bear the name of the member, the date, and the post town from which the letter was to be sent. By this and other restrictions a leakage which had amounted to nearly £200,000 a year was stopped, at least in part. The notion that every Member of Parliament ought to enjoy privileges which were withheld from the many was so deeply rooted that the abuses of “franking” persisted up to the time of the complete abolition of the privilege in 1840, when penny postage became the law of the land. Thus in January 1802 we find a distinguished diplomatist, Sir George Jackson, commiserating his sister on the scarcity of noblemen in Bath, which implied “a dearth of frank-men to fly to.”