Featured on Portsmouth Point: 1908; Budget and A Crisis

By Max B, Year 12

After the Chancellor’s intriguing budget speech last month, I feel that it is only appropriate to explore, potentially, the most important budget ever delivered to the House Of Commons.

It’s early 20th century Britain, amid a growing divide between the wealthy elite and the working class, a revolutionary budget is proposed to reshape the country’s social and economic landscape for years to come. Known as The People’s Budget, it was the first British budget which specifically targeted the distribution of wealth, sparking a constitutional crisis and leaving an ever lasting legacy on British politics which we can still observe today.

The budget was a direct response to the economic crisis which was present and ever growing in the early 1900’s. The period saw immense poverty and inequality alongside the rapid industrialization of Britain. With many workers being unable to afford basic necessities, there was an unprecedented demand for government intervention to address growing social problems among the people. Liberal Prime Minister, Herbert Asquith, and the Chancellor of the Exchequer, David Lloyd George, saw a large opportunity to promote social and economic reforms through the rise of New Liberalism. Since the mid 19th century, the party abided by strict rules, limiting reforms. These ‘rules’ were not enforced, rather a custom which had been made the norm under the rule of William Gladstone and what was called Gladstonian Liberalism. However, with the passing of Gladstone, new characters stepped forwards within the party with views that the party should tackle reforms for the people of the country, as we see with the party in the present day. This is what we refer to as the new liberalism movement. Prior to the rise of new liberalism, the Conservatives did not hold popularity amongst the working class in Britain. After the embarrassing events of the Boer war, the consequences of which left the economy inefficient and problematic, the party was left in ruin and was in no position to challenge the new, young and exciting liberal movement. The Liberals were given a huge mandate to enforce and set in place this new and highly anticipated legislation with the party’s huge landslide win in the election of 1908 where they won 400 seats, granting Asquith a supermajority. The 1908 People’s Budget aimed to address poverty, provide financial support for the elderly and fund necessary government projects, especially oriented towards defence. It was a landmark effort to fund new welfare initiatives, signalling a major shift in how Britain managed both financial and social issues.

To achieve their ambitious goals, Lloyd George and Asquith implemented several unprecedented measures in the 1908 Budget:

• The budget introduced higher income tax rates for high earners, marking the first time Britain adopted a progressive tax model, (which actually worked). Wealthy citizens would now bear a larger share of the nation’s financial burden, a move seen as both necessary and controversial.
• The new budget levied higher taxes on inherited wealth, making it more difficult for generational wealth to accumulate unchecked. By targeting inherited assets, the budget sought to address inequality at its root.
• Wealthy landowners, who often held vast amounts of property across Britain, faced new taxes on their landholdings. This was a particularly bold move, as many of these landowners held positions of influence within British society and the House of Lords.
• Additional taxes on items considered luxuries, such as motor vehicles, aimed to ensure that the affluent would contribute proportionally more to the welfare programs.

These taxes funded essential social programs such as pensions for the elderly, workplace improvements and reform in education. This focus on welfare made the People’s Budget a foundational piece of legislation of what would later become the British welfare state.

Although its intentions were good, in the opinion of the new liberals, the budget faced fierce opposition. This opposition was received, by majority, from the House of Lords whose makeup at the time was largely, if not all, Conservative landowners. Since many of the members of the upper chamber were owners of significant amounts of land, they viewed these new taxes as an unfair attack on them. In 1909, they used their legislative powers and rejected the budget, triggering an unprecedented constitutional crisis. This opposition was seen as a clash between the democratic power of the elected House of Commons and the aristocratic interests of the unelected House of Lords. David Lloyd George, who had fought for the budget tirelessly, went to the King and discussed with him about the potential to flood the House of Lords with liberal peers. The Lords saw this as an immediate threat to the chamber and their power and eventually agreed, reluctantly, to pass through the Parliament Act, 1911 which would not allow the Lords to block any budgets and would only allow them to veto legislation. However, before the act could be passed, the liberals would have to gather the support of the public to show that they had the mandate for both the People’s Budget and the Parliament Act. Another general election was therefore held in 1910 and, although they lost some seats, the liberals gained the support they needed. This marked a monumental shift in the governance of the British people, reducing the power of the elite and increasing the influence of the House of Commons.

Following the modification of the constitution and the amendment of the crisis which surrounded the issues with the House of Lords, the People’s Budget had several significant impacts. The progressive taxation measures began to shift the financial burden towards the wealthiest in society, aiming to narrow the gap between rich and poor and unite the country. By funding pensions, unemployment insurance and new improvements in the labour industry, for the first time the British government was involved in the social welfare of the people. Not only did this show the first signs of an emergence of the welfare state we know today, but also set in motion a new role for the government as a provider of social support to its citizens. Moreover, the budget conveyed to the people that it was the role of a functioning government to do this and not just a selling point for election campaigns.

The People’s Budget was more than a financial plan; it was the start of a social revolution that changed the traditional hierarchy of British society which had been the norm for countless centuries. By shifting tax responsibilities to the wealthy, funding welfare programs and asserting the House of Commons’ authority over the Lords, the liberal government created lasting change. The budget is, and was, a pivotal moment in the history of this country, marking a transition from elite feudalistic power to an increasingly democratic system which we are all a part of today.

Image credit: https://mhclgmedia.blog.gov.uk/2024/11/01/budget-boost-for-housing-local-growth-and-remediation/