The Finance Act 1909-10: A People’s Budget

The Finance Act of 1909-10, often dubbed “The People’s Budget,” was a landmark piece of legislation in British history. Proposed by David Lloyd George, the Chancellor of the Exchequer under Prime Minister H.H. Asquith’s Liberal government, it aimed to introduce radical social welfare reforms funded by significant tax increases. This budget triggered a constitutional crisis and fundamentally reshaped the relationship between the House of Commons and the House of Lords.

The context for the People’s Budget was a growing demand for social reform. The Liberal government had already initiated measures like old-age pensions and national insurance, but these required substantial funding. Lloyd George argued that the wealthy should contribute more to support these vital programs, leading to the nickname “People’s Budget” highlighting its intent to redistribute wealth towards the less privileged.

Key provisions of the Act included a substantial increase in income tax, particularly for the wealthy. A super-tax, effectively an additional income tax, was levied on those earning over £5,000 per year. Increased death duties (inheritance taxes) were also introduced, further targeting inherited wealth. Perhaps most controversially, the Act proposed a land tax on the increased value of land due to development or the activities of the community, a move fiercely opposed by landowners.

The rationale behind the land tax was that landowners were profiting from rising land values without actively contributing to that increase. The tax aimed to capture some of this “unearned increment” for the benefit of the public. Other revenue-raising measures included increased duties on tobacco and alcohol. The revenue generated from these taxes was earmarked to fund old-age pensions, health insurance, and other social welfare programs. The anticipation was that these expanded services would decrease poverty and improve the quality of life for working-class citizens.

The Finance Act faced fierce opposition, particularly from the Conservative Party and the House of Lords, which was dominated by hereditary peers largely drawn from the landowning aristocracy. They viewed the budget as a blatant attack on their wealth and privilege and argued that it would damage the economy. Their primary objection centered on the land taxes, perceiving them as confiscatory and unfair. After passing the House of Commons, the budget was unprecedentedly rejected by the House of Lords in November 1909.

This rejection sparked a constitutional crisis. The Liberal government argued that the Lords had exceeded their constitutional authority by vetoing a money bill. Traditionally, the Lords could only delay, not reject, finance bills. After two general elections in 1910, which the Liberals narrowly won, the government secured the passage of the Parliament Act 1911. This landmark Act severely curtailed the power of the House of Lords, removing their veto power over money bills and limiting their ability to delay other legislation. The Finance Act 1909-10 was finally passed in April 1910, becoming a defining moment in British political and social history. It not only funded crucial social reforms but also significantly altered the balance of power between the two houses of Parliament, paving the way for a more democratic and socially progressive Britain.