Abstract

"The Business Response to Increased Taxation of Business Profits: The United Kingdom During and After the First World War"

Mark Billings, Exeter University (exmb99hhd@gmail.com)

The First World War brought huge increases in government expenditure in combatant nations, mostly financed by borrowing (Broadberry and Harrison 2005). Many nations also introduced or increased taxes on business profits to raise revenues and to ease social tensions arising from aspects of the war such as inflation, allegations of ‘profiteering’, the direction of labour into military service and war-related industries, and other controls or regulations affecting the general population. The United Kingdom was an example of this broad trend; in 1915 the government introduced new business profits taxes which ultimately raised considerable revenue (Billings and Oats 2014).

As the war dragged on, the tax burden on individuals and businesses increased and businesses needed to find the cash necessary to settle their tax liabilities. Businesses, individually and collectively, lobbied for concessions which would reduce or defer these liabilities, flagging anomalies, unintended consequences, and undesirable effects, sometimes making unfavourable comparisons to similar taxes in other countries. The arguments presented were variously sophisticated and articulate but also self-serving, selective and even desperate. Officials in the Treasury, the Ministry of Munitions and the Inland Revenue (the tax authority) assessed these arguments and advised government ministers on appropriate responses. Although this lobbying had some success, businesses also sought to mitigate the impact of taxation in other ways, such as choices over contractual arrangements, financial and organizational structures, and, in a limited number of cases, corporate domicile.

This paper combines previously unreported evidence from Britain’s National Archives with prior literature to focus on how interactions with government shaped the business sector’s efforts to reduce the burden of wartime taxation. The paper argues that these efforts, although only partially successful, anticipated later, more systematic, attempts to manage the impact of business profits taxes (see, for example, Izawa 2022).