A Brief History of Taxation: From Joseph's Grain to VAT in the UK

This guest article by Les Howard, a renowned VAT specialist and two-time Ceres Podcast guest, sheds light on the history of taxation—from ancient times to modern VAT. Curious to hear more from Les? Check out episodes 181 and 186 of the Ceres Podcast, where he joins Stelios for insightful discussions. For more, follow Les Howard on LinkedIn.

It's funny how taxation usually seems to have been introduced in a crisis but then retained.

The oldest known taxation was introduced by Joseph (you know, with the multi-coloured coat, although it was many years before he became Governor of Egypt, where the tax became necessary). The imminence of seven years of famine, after the seven years of plenty, triggered Joseph's suggestion to Pharaoh that a portion of each year's surplus be set aside for the famine years. This was implemented, and Joseph was hailed as a hero who had rescued the nation from total disaster. Post-crisis, 20% of citizens' produce became Pharaoh's.

Fast forward many centuries to the Napoleonic wars. The cost of the ongoing conflict in Portugal and Spain had to be paid for. So, as the seventeenth century ended, Income Tax was introduced. Explore the historical development of taxation in the UK, including early systems and legislative changes, through an archived overview from HM Revenue & Customs (HMRC) here.

Although Income Tax was repealed soon after the Battle of Waterloo, the Government later re-introduced it.

Fast forward again to World War II. The nation had incurred an enormous cost in leading the fight. So, Purchase Tax appeared, again, as a temporary measure. In particular, this tax made a distinction between non-luxury and luxury items. I still hear discussion about this distinction. Significantly, the Purchase Tax was a tax on sales (i.e., an indirect tax) rather than a tax on earnings (direct tax).

The 1972 Budget marked a key moment. The UK was about to join the Common Market (later the European Union) andVAT was already ubiquitous. The Chancellor borrowed from (or cut-and-paste) the existing Purchase Tax, and so VAT was implemented with effect from 1 April 1973.

Typically, the UK never really played by EU rules! The Principal VAT Directive articles 98-99 set the minimum rate of VAT for food to 5%.

Current rates across the EU are 5-10%. The UK was keen to maintain the anachronistic zero rate as a hangover from Purchase Tax, so it had to negotiate this, especially with the EU. (Comment: Why have a tax that generates no revenue?) Perhaps this was the real reason for Brexit!? 

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