History Of Tea – Taxes And Smuggling In 18th Century England

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History Of Tea – Taxes And Smuggling In 18th Century England

Article Description:

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Since its introduction to the western world, tea has grown in

popularity and is now the second most popular beverage in the

world after water. Throughout its history tea demand has grown as

a result of its good taste, health and medicinal properties and

increasingly efficient channels of production and distribution.

Additional Article Information:

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1212 Words; formatted to 65 Characters per Line

Distribution Date and Time: 2007-04-13 10:12:00

Written By: Jon M. Stout

Copyright: 2007

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History Of Tea – Taxes And Smuggling In 18th Century England

Copyright © 2007 Jon M. Stout

Golden Moon Tea

http://www.GoldenMoonTea.com

Since its introduction to the western world, tea has grown in

popularity and is now the second most popular beverage in the

world after water. Throughout its history tea demand has grown as

a result of its good taste, health and medicinal properties and

increasingly efficient channels of production and distribution.

Perhaps the most important benefit of tea for tea drinker is that

aura of good feeling and stress reduction for those who regularly

consume the beverage.

Tea growing and distribution became big business throughout the

world as enterprising individuals and companies invested in tea

plantations and distribution assets to meet the growing demand

for tea. As the business grew, national governments saw tea as a

valuable source of revenue. Government regulation and taxation

often had a detrimental effect on free commerce and customer

satisfaction however.

The growth in popularity of tea in a country like England, a

country whose tea culture is well established, is a good case

study on the social and fiscal influences on the consumption of

tea.

During the sixteenth century in England, tea became a popular

beverage mainly for the upper classes. Based upon a unique taste

and realization of tea health benefits, more efficient channels

of distribution and a growing understanding of the life style

benefits of tea, imports grew slowly at first. Nevertheless, this

growth accelerated into the 18th century.

During this time taxation, smuggling and adulteration of tea

became significant factors in the English tea culture.

Considering tea a tropical luxury, the English government saw

revenue raising opportunities in tea to fund a military buildup

that supported expansion of the British Empire.

By the eighteenth century, tea was a hugely popular drink in

Britain, but, to the ordinary consumer, it was also prohibitively

expensive. Smuggling of tea became a growth industry in England

as smugglers profited as they met the demand for lower cost tea

by ignoring oppressive customs duties.

This created a demand among the British population for cheaper

tea, and when that demand could not be met by legal means, a

great opportunity was presented to those people who were less

than concerned about breaking the law. From the beginning of the

eighteenth century, the trade in smuggled tea began to flourish.

This was tea that was brought in illegally - it was not imported

by the East India Company, and it did not pass through customs.

Being light and easy to transport, tea was a very profitable

smuggling commodity - even more so than alcohol in which there

was also a healthy smuggling trade.

The State Needs Money

Like any state, 18th Century England was no exception to the need

to raise revenue. Mercantilism was the English policy and a

military presence was required to support the English role in

overseas colonies and possessions. Expansion of world interests

requires two things: a strong military and funds to support

military activities.

The state looked to import duties and excise taxes as a way to

raise the necessary funds and these taxes soon became excessive.

The Government had to legitimize the tax and did so by treating

tea initially as a " luxury " that could support high duties in the

eyes of the public. Later, tea was correctly classified as a

" necessity " that would only support lower levels of taxation.

Before the Tax Reform Act of 1784 for example, the price of tea

was burdened with taxes and duties of over 100% of the pretax

price.

In addition, although the supply of tea continued to increase as

tea plantations became more productive, the price remained high

as the East India Company (granted a monopoly on tea imports by

the English Government) artificially manipulated supplies to

maintain prices.

High Taxes and Manipulated Supply Lead to Smuggling as a Growth

Industry

A pattern developed in English commerce in tea. As taxes were

raised on tea imports, smuggling increased in a successful

attempt to meet the underlying growth in demand for tea. But

smuggling and high taxes had a direct relationship and smuggling

produced a negative effect on the English economy and population

at large.

Although taxation is important for raising revenue, most

economists know that high taxation encouraged smuggling, and the

quantity of tea being smuggled was directly linked to the level

of duty levied on legal tea imports. In England, at the beginning

of the eighteenth century, the government's need to finance a

war in Spain led to an increase in taxation on tea, and the price

of leaves rose dramatically.

The tax was outrageous and fueled the activities of the tea

smugglers. Duty was later slashed by Henry Pelham in 1745. This

meant that more tea was brought in legally - the quantity passing

through customs more than doubled - and the increase of tea

imports on which duty was paid actually led to the government's

revenues from tea being increased.

But in the 1750s the need to finance another war led to the duty

on tea being raised again. This in turn led to a surge in the

business of the smugglers, which continued to flourish throughout

the third quarter of the eighteenth century.

Though illegal, the smugglers had the support of millions of

people who could not otherwise afford to buy tea.

Much tea was smuggled in from continental Europe, shipped into

Britain via the Channel Islands and the Isle of Man. Although

smuggling was widespread, in the first decades of the eighteenth

century many of the smugglers themselves operated on a very small

scale. Many smugglers used their own small boats and the

contraband tea was then sold on to personal contacts and local

shopkeepers.

It was by now widely acknowledged that the only way to tackle the

smuggling problem was to make tea cheaper - in effect, to reduce

the duty paid on it. So the East India Company, who had powerful

allies in the British Parliament, lobbied for the duty to be

lowered. The power of the corporate world was thus added to

popular demand for permanent change in the tea tax.

It was when Pitt the Younger became Prime Minister in

1783 that the work of the anti-tea duty forces finally achieved

their goal. As a former Chancellor of the Exchequer, Pitt was

familiar with tax policy and the impact of high taxes on tax

revenue. He understood that raising the tax rate often resulted

in decreased tax revenue.

Pitt slashed the tax on tea, and made up for the revenue lost by

hugely increasing the window tax. This was a property tax which

was much easier to enforce. The Commutation Act of 1784 reduced

the tax on tea from 119 per cent to 12.5 per cent. The smuggling

of tea ceased to be profitable, and the smuggling trade vanished

virtually overnight. More importantly tea was treated as a

necessity rather than a luxury with long term implications for

lower tea taxes.

The consumption of lower taxed tea rocketed, so much so that even

with the reduced rate of tax, the amount of revenue collected

from tea was soon restored and eventually exceeded pre-reduction

revenue. Equally important, tea became the standard beverage for

most of the entire English population.

Tea drinkers had the window tax to thank in part for the boost in

popularity of their favorite beverage!

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Jon M. Stout is Chairman of the Golden Moon

Tea Company. For more information about tea,

(http://www.goldenmoontea.com/greentea)

green tea (http://www.goldenmoontea.com/blacktea)

and black tea go to http://www.goldenmoontea.com