The Window Tax

It was on July 24th, 1851, that the hated Window Tax was finally abolished. Introduced under King William III, it was not intended to hit poor people, and exempted cottages, but was designed to be in proportion to the wealth of the taxpayer. An income tax was thought too intrusive, because the government had no business knowing how much people earned. The Window Tax was initially levied in two parts. People had to pay 2 shillings annually (a tenth of a pound) per house if they had fewer than 10 windows, 6 shillings if they had between 10 and 20, and 10 shillings for those with more than 20 windows. In current values, 2 shillings then would be worth about £13.50 now.

Of course, taxes change behaviour, and dynamic models must take this into account. The tax did not raise the hoped-for sums because many people responded to it by bricking up some of their windows in order to avoid it. Visitors to Britain stare in fascination at some of our old houses, noting that where there was clearly once a window, there are now bricks or plaster. Sometimes this can be seen in whole rows of terraced houses. New houses were built with fewer windows to avoid the tax.

In Scotland a Window Tax was introduced after 1748. A house had to have at least seven windows, or a rent of at least £5 to come under the tax. When it was increased in the 1780s, some Scots opted, instead of bricking up windows, for the less costly recourse of painting them black, with a surrounding white frame. These were known as Pitt’s Pictures, after the prime minister of the day, and can still be seen in some places.

The Window Tax was unpopular, because it was seen by some as a tax on "light and air." The tax was increased many times, especially during the wars with France, but it was halved by the reforming administration of 1823, and ended altogether in 1851 after popular agitation.

It does provide a salutary lesson for those who would levy taxes. Increases in tobacco duty might be intended to raise money or to make people smoke fewer cigarettes, but they also encourage smuggling. Increases in alcohol duties might be for revenue or to cut alcoholism, but they also lead people to opt for cheaper booze, and in Scotland, perhaps even for opioids.

Stamp duties on house purchases result in fewer transactions because people stay put in order to avoid it. This leaves the elderly staying in larger homes than they need once their children have left, leading to a market shortage of homes suitable for young and growing families. There is a point at which income tax increases produce a fall in revenue as people put in less work and use tax-shelter schemes to avoid paying them. Higher corporation taxes lead corporations to locate elsewhere, and higher capital taxes lead people to move it beyond the reach of the tax man.

A ruling of the United States Supreme Court stated that "The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted," and a judicial ruling in the UK declared almost a century ago that the law did not require a person to pay the maximum tax if they could avoid doing so.

Two things in particular irritate those who would spend our money as they wish rather than as we wish. One of these is tax competition, which gives people the option of moving assets and earnings to lower tax environments. And the other is the ability of people to modify their behaviour in order to escape the incidence of taxes levied upon it. The history of the Window Tax is a good lesson.