Financing the Royal Navy,1905-1914 : Sound finance in the Dreadnought era

• Main Author: Campbell, Todd Christopher
• Language: English
• Published: 2009
• Online Access: http://hdl.handle.net/2429/3457

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.