Excise Taxation and the Origins of Public Debt

Conventional accounts of the origins of the British fiscal state have an aversion to exploring in detail the advent of markets for debt securities. Most historians agree that in the British Isles the transition from a late medieval demesne-state to a tax state occurred in the seventeenth century, culminating in the Financial Revolution of the 1690s (Schumpeter, 1918; Braddick, 1994, pp. 1–21).¹ Yet no major work of scholarship has looked closely at the link between the two. For most scholars what began during the Civil Wars and Interregnum reached fruition only after the Revolution of 1688/1689. Some authors may acknowledge that post- 1688 finance was built on pre-1688 practices, but few have attempted to reconstruct these practices in any detail, much less to link them to the Financial Revolution and the new species of public borrowing which financed the eighteenth-century state. Those who have done so at all have tended to locate structural change within the Restoration period (Brewer, 1988, p. 95). By overcoming the significant archival challenges of reconstructing Interregnum experiments in public finance, this book illuminates the origins of the durable institutions, structures and practices that formed the foundations of the fiscal state in the British Isles. More importantly, however, especially in the second decade of the twenty-first century, this study firmly locates the origins of the public debt in Interregnum experiments with excise taxation.

The most remarkable feature of the English excises is the speed with which excise taxation became a permanent part of the revenue. Exploring the political negotiations that led to the imposition of the excises in July 1643 helps to explain why this outcome is so surprising. By employing previously under-used sources in the National Archives, the Bodleian Library and the British Library, it is possible to reconstruct how the parliamentary excise was administered during the First Civil War. To a surprising degree, Parliament was responsive both to petitions from special interests that pled hardship and to complaints from the excise commissioners about the extent of frauds and evasion. Many of the practices, which became standard later, were first introduced during this period. Recent historiography of resistance to the excises fundamentally mischaracterises the difficulties that the parliamentary regime faced in raising the needed revenues amidst civil war and constitutional fracture.

The excise ordinances of the 1640s had been used to secure ever-increasing amounts of short-term debt. The original commissioners of the excise, who were servants of the state, had been hired for their willingness to make loans to the government in advance of receipts. When they proved unable to meet Parliament’s borrowing requirements, private parties were permitted to make loans with the revenue from these ordinances as security. There is a general consensus that the public debts incurred by the Long Parliament cast a long shadow over the financial stability of the Commonwealth and Protectorate regimes, thereby ensuring the retention of fiscal innovations like the excise and complicating factional rivalries in the city. This chapter reconstructs the various secondary markets in excise-backed government paper and analyses the decisions to dispose of capital assets (the bishops’ lands, Crown lands, and the dean and chapter lands) in the late 1640s. As the now classic works of H.J. Habakkuk (1963) and Ian Gentles (1980, 1981) demonstrated, both public faith bills and military debentures were deeply discounted in well-developed secondary markets in the late 1640s and early 1650s. These developments prove to be the most important context for understanding the ‘re-modelling’ of the excise in 1649–1650. In 1650, Parliament introduced farming because financiers refused to make loans unless they had direct control over the revenue pledged as security. Far more than localised resistance, the state’s credit needs shaped the development of the excise establishment.

Investigations into the institutional culture of the Commonwealth excise commission reveal that the basic administrative structure was in place by 1650. Redactions of the detailed minutes of the parliamentary Committee for Regulating and Improving the Excise demonstrate the regime’s commitment to supervising the excise establishment. They show that both tax farmers and sub-commissioners were monitored and that farming represented not so much a policy shift towards private interests as one strategy among many employed to enhance both revenue collection and access to credit. Both in its substance and in its procedures, the administrative law around the excise developed out of precedent set down in this period.

Despite the conceptual similarities between the royal imposts of the 1630s and the industrial excises of the 1640s and 1650s, these fiscal exactions receive separate treatment in the scholarly literature. The ‘Soap Makers Complaint’ of 1650 offers an opportunity to view disputes about the excise on soap through the lens of the controversies attendant to the earlier soap patents. Rather than offering evidence for generalised resistance to the excise by humble artisans, the ongoing pamphlet war between rival companies of soap boilers involved some of the most powerful men in London. Unpacking these rivalries reveals the highly contingent nature of the Long Parliament’s fiscal experiments, while also underscoring the contribution of parliamentary revenue committees to the development of the procedures and practices that governed the growing excise establishment. It also offers a case study in how the Long Parliament and Commonwealth regimes conducted their management of the public revenue and illustrates their commitment to standards of transparency and accountability that North and Weingast ascribed to the Williamite regime (North and Weingast, 1989).

As the great Cromwellian scholar Maurice Ashley observed almost eighty years ago, Oliver Cromwell had an essentially Elizabethan vision of government finance (Ashley, 1934, pp. 1–3). Cromwell abhorred reliance upon established London financial interests. In re-establishing the ancient Exchequer in 1654, he adopted none of the innovations of parliamentary finance. His animosity towards groups who had previously lent funds to the Commonwealth narrowed his regime’s financial base, even as the Protectorate’s other reformist projects bore fruit. As a consequence, Cromwell became dependent instead upon syndicates of farmers, who were willing to make advances to the regime in exchange for direct control of the revenue stream. Meanwhile, the Protectorate Parliaments fought Cromwell’s extensions of executive power by disabling the excise officers from imposing punitive measures without the cooperation of the local JPs. This re-played in a minor key the conflict that had brought England to civil war in 1641. By the end of Cromwell’s reign, most of the Protectorate excise farms had failed. These bankruptcies contributed to the financial difficulties faced by Richard Cromwell after his father’s death.

The Restoration of Charles II in 1660 did not mark the end of the mid-century experience with fiscal experimentation. Almost all of the surviving records of the Interregnum excise regime come from the investigations of the lord treasurer after the Restoration. The Treasury, assisted by Elias Ashmole, comptroller of the excise for the city of London and future accountant-general of the whole excise, was able to preserve for the restored regime the lessons of Interregnum finance Coffman, 2010, pp. 235–256). As salary books from both sides of the Restoration confirm, much of the excise establishment had survived not only the Protectorate but also regime change. These continuities in the administrative structures and in personnel facilitated the settlement of the excise. To a remarkable degree, the Restoration’s first lord treasurer was successful at brokering a compromise with local interests and in rewarding those who had been loyal to the Crown. Displaying commitment to the ‘ancient course of the Exchequer’ and to the rule of law, the Treasury was able to defuse resistance to the tax and secure continued access to financial intermediaries.

When Parliament resorted to excise taxation during the Civil Wars, they had intended it as a temporary expedient for financing what they understood as the extraordinary expenses of funding the war against the king. Permanent settlement of the excise was unthinkable. Yet amidst common law objections to excise taxation, both Hobbesian arguments about state sovereignty and rehabilitations of the civil law of merchants were available to pro-excise pamphleteers as independent justifications for Parliament’s imposition of the tax. These discourses evolved into the theory of compensatory taxation advocated by William Petty in 1662. Taken together, these print polemics point to a native discourse on the tax state that significantly pre-dates the late eighteenth-century contributions made by Adam Smith. The Interregnum’s experiment with excise taxation provides both the impulse and the context for a significant shift in attitudes towards the public revenue as a whole.

The British state, in a historical and ideological sense, evolved out of the need to develop a political language that abstracted sovereign power so that it was not dependent on a particular type of rule. Once established as a discursive category the state was taken to be transcendental. In a practical sense the bureaucratic state developed independence from the Crown, and from Parliament, as successive rulers became dependent upon taxation and public borrowing to finance the increasing scale and scope of warfare. All of this adds up to a much different specification of the ‘evolution of the constitutional arrangements in seventeenth-century England’ both before and after the Glorious Revolution (North and Weingast, 1989, p. 803), and points to a different genesis of ‘credible commitment’.