The 1909 People's Budget was the Liberal Government's key weapon in instigating social reform and marked a final move away from the system of Gladstonian finance, which had seen the Liberals traditionally associated with retrenchment in government expenditure and an emphasis on self-help. With its radical plans to redistribute the burden of tax and finance social provisions, such as old age pensions, the Budget was swiftly rejected by the landed majority in the House of Lords, sparking the first constitutional crisis of the twentieth century.
Lloyd George’s first Budget gave the Liberal administration the opportunity to solve a number of problems it faced by the beginning of 1909. Firstly, it would allow the Government to boost its public popularity following a series of by-election defeats in 1908, which had chipped away at its 1906 parliamentary majority. Secondly, it would give Asquith and his ministers the opportunity to re-assert their authority over the unelected House of Lords, who had persisted in throwing out a number of the Government’s more radical bills, since it took office. The Licensing Bill had become the latest victim of the Lords veto, having been rejected in late November 1908. Lastly, and most importantly, the Budget would provide a means of tackling the growing problem of counterbalancing decreasing revenue from taxation, with increased expenditure on social measures. As a result of this pressure, which was exacerbated by increased naval expenditure, Lloyd George was predicting a deficit of around £17 million for the forthcoming year, by the end of March 1909. Ominously for the Liberals, the difficulty of balancing the nation’s budget had prompted further calls for tariff reform.
The 1909 Budget therefore gave the Liberals the opportunity to redress all these problems and protect the system of free trade and instigate a more democratic fiscal system in the long-term, as well as paving the way for radical social reform.
In order to raise the necessary funds to finance their progressive social measures, the Government proposed that income tax should be raised from 1s to 1s 2d in the pound, with a supertax of 6d in the £ on the amount by which incomes of £5,000 or more exceeded £3,000. The Budget plans also included proposals to raise indirect taxes on certain goods such as tobacco, whisky and petrol. But Lloyd George’s most controversial plan was to tax the land of wealthy landowners, with increases in death duties and heavy taxes on the profits made from the sale and ownership of property. These included a Development tax of 1/2d in the £ on any added value realised by the sale of land, where the profit was solely due to public effort and expenditure, a 20% tax on increment value and a reversion duty of 2s in the £ on the enhanced value of property when it reverted at the end of a lease. There was also a mineral rights duty of 1s in the £.
After around 14 Cabinet meetings, the Budget was finally presented to the House of Commons on the 29th April. The Liberal Chancellor claimed that his was a War Budget, designed, for raising money to wage implacable warfare against poverty and squalidness. Yet beyond this impressive phrase, Lloyd George’s four-hour speech is not regarded as one of his more commanding parliamentary performances.
On the 30th November, the Finance Bill was resolutely rejected by the House of Lords, by 350 votes to 75. The Prime Minister, Asquith, subsequently moved a motion to dissolve Parliament, declaring the act to be a breach of the constitution and usurption of the rights of the Commons. The House of Lords had gone one step too far this time, breaking an ancient, yet unwritten constitutional prerogative forbidding the Upper Chamber from rejecting financial bills put forward by the elected Lower House. The issue was portrayed as one of the peers versus the people at the ensuing election in January 1910 and Lloyd George toured the country addressing working class crowds and stressing that the rich landowners that filled the red benches of the Lords would rather see the food of the masses taxed, rather than pay for important measures to fight poverty from their own overflowing pockets. His most renowned speech at Limehouse used particularly forceful language and even provoked a letter of complaint from the King.
Although the Liberals were returned to Parliament having lost 100 seats, they had still won an important moral victory over the Lords and the Conservative opposition and on the 28th April 1910, the Lords were finally forced to accept the Budget, which passed into law after no fewer than 70 parliamentary days of debate and 554 divisions.
Politically, the Budget was important because it allowed the Commons to achieve a lasting victory over the House of Lords, by paving the way for the passing of the 1911 Parliament Act. Historians have, however, largely rejected the view that the Budget was deliberately drafted by Lloyd George with the aim of provoking the House of Lords into rejecting it. Nonetheless, in creating the circumstances for the Government to re-assert their authority, the Budget gave the Liberals both the financial and the political means to press ahead with its planned social reforms, which formed the first foundations of Britains welfare state.
Economically, the Budget was also a success, raising much more money than revenue estimates had predicted and giving a realised surplus of £5,607,000 in 1910-11 and £6,545,000 in 1911-12. Only the controversial land taxes proved of debatable worth and were later scrapped by Lloyd George’s post-war coalition.