| Summary: | The theory of sound finance which dominated British fiscal ideology in the Victorian and
Edwardian periods hindered Britain's ability to respond decisively to the German challenge to
Royal Navy supremacy from 1905-1908, as the then Chancellor of the Exchequer, Asquith,
concentrated on reducing the National Debt and retrenchment of naval expenditure. This was a
mistake as it encouraged Germany's naval ambitions. The Government, constrained by the
ideology of sound finance, did not realize the enormous resources available to it by shifting the
focus of taxation to direct sources of revenue through the income tax and death duties. As Royal
Navy supremacy had to be maintained regardless of the cost and the Liberal Government was
committed to social reform, a reform of the fiscal system was necessary. Lloyd George fully
exploited the fiscal system in his "People's Budget"of 1909, relying heavily on innovations
previously introduced by Asquith, and it fulfilled the Government's revenue requirements
admirably up to the outbreak of war in 1914. The Liberal Government was able to finance both
the supremacy of the Royal Navy and costly social reforms, in the process introducing the era
of both modern Government finance and the welfare state in Britain.
|
|---|
