May 25, 2023

How cutting tea taxes brought in more revenue and saved lives

How cutting tea taxes brought in more revenue and saved lives

During the sixteenth century in England, tea became a popular drink, mainly for the upper classes because of its cost.  It was kept at home in locked tea caddies, so the servants wouldn’t steal it. As an item in high demand it became a target for taxes.

By the 18th century tea was particularly highly taxed and as a consequence much of it was smuggled into Britain. Over 20,000 took part in armed smuggling gangs. Smugglers had widespread public support because they delivered tea at a price many more could afford.

Then, in 1745 Prime Minister Pelham slashed tea duties from 100% to 50%. As a result much more tea was brought in legally - the quantity passing through customs trebled - and within a few years revenue from tea duty had doubled.

With taxes still at 50%, smuggling did not, however, cease. In the 1750s foolish governments raised tea duties again, so smuggling expanded dramatically. The amount of tea smuggled in yearly at this time reached between 4 and 7.5 million lbs, significantly more than was brought in legally. Tea drinking was becoming ever more popular and widespread but the official imports of tea were not increasing.

In 1784 Prime Minister Pitt slashed the tax on tea from 119% to 12.5%. The smuggling trade stopped virtually overnight. The consumption of taxed tea rocketed and tea duty revenues substantially increased.

Interesting recent research by the economist Francisca Antman has shown an important public health consequence. The death rate fell, as water for tea had to be boiled, killing bacteria. Her research revealed that the practice of boiling water for tea lowered mortality rates by 25% in lower water-quality parishes. Further evidence for the proposition that tax cuts save lives.

Thanks to tax cuts, tea became the popular national drink that it remains today, no longer just the preserve of the upper classes.

Unfortunately as current high tax rates on spirits and other items demonstrate, politicians have failed to absorb history's lessons on the foolishness of excessive taxation.