| Since its introduction to the western world, tea has | | | | In addition, although the supply of tea continued to |
| grown in popularity and is now the second most | | | | increase as tea plantations became more productive, |
| popular beverage in the world after water. Throughout | | | | the price remained high as the East India Company |
| its history tea demand has grown as a result of its | | | | (granted a monopoly on tea imports by the English |
| good taste, health and medicinal properties and | | | | Government) artificially manipulated supplies to maintain |
| increasingly efficient channels of production and | | | | prices. |
| distribution. | | | | High Taxes and Manipulated Supply Lead to Smuggling |
| Perhaps the most important benefit of tea for tea | | | | as a Growth Industry |
| drinker is that aura of good feeling and stress | | | | A pattern developed in English commerce in tea. As |
| reduction for those who regularly consume the | | | | taxes were raised on tea imports, smuggling increased |
| beverage. | | | | in a successful attempt to meet the underlying growth |
| Tea growing and distribution became big business | | | | in demand for tea. But smuggling and high taxes had a |
| throughout the world as enterprising individuals and | | | | direct relationship and smuggling produced a negative |
| companies invested in tea plantations and distribution | | | | effect on the English economy and population at large. |
| assets to meet the growing demand for tea. As the | | | | Although taxation is important for raising revenue, most |
| business grew, national governments saw tea as a | | | | economists know that high taxation encouraged |
| valuable source of revenue. Government regulation | | | | smuggling, and the quantity of tea being smuggled was |
| and taxation often had a detrimental effect on free | | | | directly linked to the level of duty levied on legal tea |
| commerce and customer satisfaction however. | | | | imports. In England, at the beginning of the eighteenth |
| The growth in popularity of tea in a country like | | | | century, the government's need to finance a war in |
| England, a country whose tea culture is well | | | | Spain led to an increase in taxation on tea, and the |
| established, is a good case study on the social and | | | | price of leaves rose dramatically. |
| fiscal influences on the consumption of tea. | | | | The tax was outrageous and fueled the activities of |
| During the sixteenth century in England, tea became a | | | | the tea smugglers. Duty was later slashed by Henry |
| popular beverage mainly for the upper classes. Based | | | | Pelham in 1745. This meant that more tea was brought |
| upon a unique taste and realization of tea health | | | | in legally - the quantity passing through customs more |
| benefits, more efficient channels of distribution and a | | | | than doubled - and the increase of tea imports on |
| growing understanding of the life style benefits of tea, | | | | which duty was paid actually led to the government's |
| imports grew slowly at first. Nevertheless, this growth | | | | revenues from tea being increased. |
| accelerated into the 18th century. | | | | But in the 1750s the need to finance another war led |
| During this time taxation, smuggling and adulteration of | | | | to the duty on tea being raised again. This in turn led to |
| tea became significant factors in the English tea | | | | a surge in the business of the smugglers, which |
| culture. | | | | continued to flourish throughout the third quarter of the |
| Considering tea a tropical luxury, the English | | | | eighteenth century. |
| government saw revenue raising opportunities in tea to | | | | Though illegal, the smugglers had the support of millions |
| fund a military buildup that supported expansion of the | | | | of people who could not otherwise afford to buy tea. |
| British Empire. | | | | Much tea was smuggled in from continental Europe, |
| By the eighteenth century, tea was a hugely popular | | | | shipped into Britain via the Channel Islands and the Isle |
| drink in Britain, but, to the ordinary consumer, it was | | | | of Man. Although smuggling was widespread, in the |
| also prohibitively expensive. Smuggling of tea became | | | | first decades of the eighteenth century many of the |
| a growth industry in England as smugglers profited as | | | | smugglers themselves operated on a very small scale. |
| they met the demand for lower cost tea by ignoring | | | | Many smugglers used their own small boats and the |
| oppressive customs duties. | | | | contraband tea was then sold on to personal contacts |
| This created a demand among the British population | | | | and local shopkeepers. |
| for cheaper tea, and when that demand could not be | | | | It was by now widely acknowledged that the only |
| met by legal means, a great opportunity was | | | | way to tackle the smuggling problem was to make tea |
| presented to those people who were less than | | | | cheaper - in effect, to reduce the duty paid on it. So |
| concerned about breaking the law. From the beginning | | | | the East India Company, who had powerful allies in the |
| of the eighteenth century, the trade in smuggled tea | | | | British Parliament, lobbied for the duty to be lowered. |
| began to flourish. | | | | The power of the corporate world was thus added to |
| This was tea that was brought in illegally - it was not | | | | popular demand for permanent change in the tea tax. |
| imported by the East India Company, and it did not | | | | It was when William Pitt the Younger became Prime |
| pass through customs. Being light and easy to | | | | Minister in 1783 that the work of the anti-tea duty |
| transport, tea was a very profitable smuggling | | | | forces finally achieved their goal. As a former |
| commodity - even more so than alcohol in which there | | | | Chancellor of the Exchequer, Pitt was familiar with tax |
| was also a healthy smuggling trade. | | | | policy and the impact of high taxes on tax revenue. He |
| The State Needs Money | | | | understood that raising the tax rate often resulted in |
| Like any state, 18th Century England was no exception | | | | decreased tax revenue. |
| to the need to raise revenue. Mercantilism was the | | | | Pitt slashed the tax on tea, and made up for the |
| English policy and a military presence was required to | | | | revenue lost by hugely increasing the window tax. This |
| support the English role in overseas colonies and | | | | was a property tax which was much easier to |
| possessions. Expansion of world interests requires two | | | | enforce. The Commutation Act of 1784 reduced the |
| things: a strong military and funds to support military | | | | tax on tea from 119 per cent to 12.5 per cent. The |
| activities. | | | | smuggling of tea ceased to be profitable, and the |
| The state looked to import duties and excise taxes as | | | | smuggling trade vanished virtually overnight. More |
| a way to raise the necessary funds and these taxes | | | | importantly tea was treated as a necessity rather than |
| soon became excessive. The Government had to | | | | a luxury with long term implications for lower tea taxes. |
| legitimize the tax and did so by treating tea initially as a | | | | The consumption of lower taxed tea rocketed, so |
| "luxury" that could support high duties in the eyes of | | | | much so that even with the reduced rate of tax, the |
| the public. Later, tea was correctly classified as a | | | | amount of revenue collected from tea was soon |
| "necessity" that would only support lower levels of | | | | restored and eventually exceeded pre-reduction |
| taxation. | | | | revenue. Equally important, tea became the standard |
| Before the Tax Reform Act of 1784 for example, the | | | | beverage for most of the entire English population. |
| price of tea was burdened with taxes and duties of | | | | Tea drinkers had the window tax to thank in part for |
| over 100% of the pretax price. | | | | the boost in popularity of their favorite beverage! |