Peter Clarke highlights a largely forgotten relationship between two significant events in Irish history around the 1850s, namely the Great Famine and the imposition of income tax on Ireland.
Income tax was introduced in England in 1799 as a temporary measure to fund the Napoleonic War. While the unpopular legislation was repealed in 1816, one year after the Battle of Waterloo, it was reintroduced in 1842 to finance commercial reforms and address the budgetary deficit. The legislation did not apply to Ireland, however, despite the passing of the Act of Union, which united Ireland with Britain in 1801.
At that time, Ireland’s widespread poverty was widely acknowledged. In 1841, the Census Commissioners reported that 43% of the Irish population was “living in the lowest state in cabins consisting of but a single room”. Some relief was provided by the Irish Poor Law Act (1838), which established the workhouse system to help those who were completely destitute. This system was developed to cater for about 100,000 people and was utterly overwhelmed when, in 1845, a new strain of blight attacked the potato crop on which the majority of the Irish population depended. The result was the Great Irish Famine.
Expenditure and the Famine
The Government’s response to the Famine consisted mainly of workhouses, public works such as cash for work schemes and, subsequently, soup kitchens as detailed in the Temporary Relief Act. However, the Poor Law Extension Act (1847) subsequently specified that responsibility for future famine expenditure would no longer be the responsibility of the Treasury but would instead be financed from local funds.
Unfortunately, famine and distress conditions continued in 1848 and 1849 with disastrous consequences. Poor Law unions slid further into debt and eventually, the Chief Commissioner of the Irish Poor Law system resigned on the grounds that the widespread destitution in Ireland, coupled with the indifference of the House of Commons, meant that he was placed in a position that “no man of honour and humanity can endure”.
Table 1 indicates the Treasury’s expenditure on the Irish Famine, which amounted to £10.7 million. However, one can argue that this amount is overstated. It should be noted that roughly £4.4 million of this expenditure was subsequently transferred to the Consolidated Annuities, which were repayable loans to be recouped through an annual annuity of £245,000. The Famine expenditure stands in stark contrast to the estimated £70 million Britain spent on the Crimean War, which lasted from October 1853 to February 1856.
The introduction of income tax
Of course, the debt burden of £4.4 million of Famine-related expenditure could not be repaid from existing resources. This debt burden was therefore abolished in 1853 in return for the extension of income tax to Ireland for a temporary period of seven years, after which it would expire in both Britain and Ireland.
It was estimated that income tax would yield about £450,000 per annum in Ireland. The then Prime Minster, William Gladstone, also increased duty on spirits, stating that “an Irishman should not be allowed to intoxicate himself more cheaply than an Englishman”. The increased duty on spirits was estimated to generate an additional £198,000 in revenue per annum and a quick calculation suggests that the additional revenues for seven years would equate to the total amount of Consolidated Annuities, which were written off.
However, Ireland had just experienced a famine period that led to unparalleled hardship and the decimation of its population. The 1851 Census reported a population of 6.5 million and calculated that, at the normal rate of increase, the total population of Ireland should have been in excess of nine million. It is therefore often stated that Ireland suffered losses of at least 2.5 million people through starvation, disease and emigration during this period. At this inappropriate time, Britain – which was at that time the most powerful nation in the world – imposed income tax on Ireland so that it would repay some of the famine relief expenditure. In a sense, the people of Ireland were required to pay for their own starvation.
The consequences
This income tax brought some new accounting challenges to Ireland as it applied to the income from trades, professions, vocations and employments. The 1853 Act stimulated a demand for professional accountancy services which, with other influences, was a factor in the formation of an Irish accountancy profession in 1888. For example, legislation provided that deductions were available for expenses that were “wholly and exclusively incurred” for business purposes – a clause that still exists. Such legislation required interpretation and, in addition, may have encouraged a move from the cash basis of accounting to the accrual basis when preparing basic financial statements.
Moreover, since capital expenditure items had to be excluded from the computation of business profit, more thought was required in defining such expenditure. Such accounting issues were also influenced by limited liability legislation introduced in 1855/56, which also included the requirement that auditors must not be shareholders in the client firm, thereby creating a demand for external accountancy professionals. Interestingly, income tax assessments were made using the average profits over a three-year period, but the taxpayer could opt for a single year of assessment. The practical implication was that a taxpayer whose income was decreasing over a period of time would be advised to use a single year as the basis of assessment. Conversely, if annual income was increasing, the taxpayer would be advised to select a three-year average as the basis of assessment.
Around this time, we see income tax services being advertised. For example, Mr Bliss advertised his services in the Freeman’s Journal on 1 May, 1856 as follows:
Income Tax (Ireland)
“Income tax papers, including claims for exemption from, and repayment of, Income Tax, filled up, and every information relating to the provisions of the Income Tax Acts afforded, upon application to A. Bliss, Income Tax Accountant, Offices, 33 Bachelor’s Walk.”
The consequences of the imposition of income tax on Ireland can also be discussed in a political context. The Crimean war resulted in the continuation of income tax in 1860 rather than its abolition. It was reliably reported that Ireland paid in excess of £20 million in income tax up to the end of the nineteenth century and while the initial number of Irish income tax payers amounted to just 20,000 individuals, its imposition had an adverse impact on public opinion. For example, the Freeman’s Journal reported in 1857 that “the movement against income tax has become almost universal in Ireland”. Committees formed in Dublin, Cork, Belfast and Londonderry also declared that “income tax is inquisitorial and inequitable”.
Opposition to income tax increased gradually over time and people came to believe that, under British rule, Ireland was an over-taxed country. This perception was a factor in the evolution of the nationalistic spirit in Ireland, which led to the formation of the Irish Free State in 1922. Ironically, the Irish Free State adopted the British income tax code and, therefore, willingly began life under income tax legislation whose imposition in Ireland can be traced directly back to the Famine.
Conclusion
It is appropriate to note the important statement in 1997 by the then British Prime Minister, Tony Blair, on the 150th commemoration of the Irish Famine. It read: “The Famine was a defining event in the history of Ireland and Britain. It has left deep scars. That one million should have died in what was part of the richest and most powerful nation in the world… is something that still causes pain as we reflect on it today. Those who governed in London at that time failed their people.”
Peter Clarke is Emeritus Professor at UCD. This article is based on ongoing research, funded by Chartered Accountants Ireland Educational Trust.