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Post-war taxation

During the early post-war years the establishment of the welfare state, the programme of nationalisation, and 'cold war' defence kept expenditure almost at wartime levels. It took many years for income tax to fall back to lower rates.

This gradual fall in the burden of direct taxation was possible through the increasing effectiveness of existing indirect taxes, and by introducing new and more efficient ones.


In 1973 Value Added Tax (VAT) replaced the purchase tax, which had been introduced in 1940. This was in anticipation of Britain's entry into the European Economic Community whose member countries were adopting similar systems of 'turnover taxation'.

Not only was it applied to a much wider range of purchased items, it was also applied to all businesses and services. Certain items were zero-rated, such as food, books and children's clothing.

The prospect of VAT and its wide application aroused a good deal of apprehension in Parliament. The 1972 Finance Bill, which gave approval to VAT, underwent much amendment in the Commons in order to ease many of the more serious objections raised by MPs. Its initial rate of 10 per cent came into effect on 1 April 1973.

The Poll Tax

There have been occasions when Parliament has taken unpopular decisions regarding taxation issues. In 1988, for example, it legislated for the introduction of the Poll Tax, or 'Community Charge'.

This was a new flat rated system of taxation devised to fund, and be managed, by local government. When implemented in 1989-90, however, it proved widely unpopular, and in the 1992 Local Government Finance Act Parliament repealed it and replaced it with the Council Tax.

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Did you know?

Because biscuits and cakes are zero-rated under VAT rules, and that chocolate-covered biscuits are taxed, the question of whether or not VAT should apply to Jaffa cakes was considered in court in 1991. The manufacturers won their case that their product was a cake and should not be subject to VAT.

Related information

Historic Hansard

The House of Commons debates the Second Reading of the Finance Bill 1972

The House of Commons debates the Second Reading of the Local Government Finance Bill (introducing the Community Charge)