A fiscal constitutional crisis: tax avoidance and evasion in inter-war Britain

Inter-war Britain witnessed rising tax avoidance and evasion, reflecting a combination of elite opposition to higher tax rates and the almost complete absence of any effective legal or reputational sanctions against tax evaders. Legal tax avoidance carried little social stigma and even illegal evasion rarely led to criminal prosecution or public censure, on account of the confidential, non-judicial procedure by which cases were resolved. This paper explores how a combination of elite opposition to higher tax rates, a growing judicial ideology (especially in the higher courts) based around protecting ‘civil liberties’ (essentially construed in terms of private property rights), and an ambiguous stance on tax avoidance among policy-makers, created the conditions for the rapid growth of tax avoidance. This in turn fostered a booming tax avoidance industry that became a persistent feature of the British tax environment. The paper also explores the wider political economy of tax avoidance and evasion and how a political philosophy shared by leading judges, right-wing ‘anti-waste’ movements, some Conservative politicians, and many wealthy taxpayers, formed a precursor of neo-liberal political philosophy. Finally, it charts the changed tax climate of the late 1930s, when the growing threat of total war aligned the interests of the wealthy with those of the rest of society and allowed policy-makers to present tax payment as a patriotic duty. In this context, collective liberty and an ideology of ‘fair shares’ eclipsed the rhetoric of the rights of the propertied individual, thereby undermining the legitimacy of tax avoidance