Why Britain Is Broke

IMAGINE YOU ARE an Indian farmer in the 1820s. After every harvest, a buyer turns up at your farm and offers to purchase your crops. You are delighted. Price negotiated, the buyer pays you.

A few days later, a tax officer of the East India Company (EIC) arrives at your farm. He collects 50 per cent tax on the income you earned from selling your crops. That’s treble the tax your great-grandfather used to pay the Mughals. But you pay up anyway.

What you don’t know is that the buyer who bought your crops works hand-in-glove with the East India Company officer who, days later, took away as tax 50 per cent of the money the buyer paid for your crops.

But since they are different people coming to you at different times, you don’t connect one with the other. The buyer, working in concert with the East India Company, pays for your crops with money you end up paying as tax to the Company officer.

In effect, you have sold your crops to the buyer for free.

This extraordinary system operated throughout British colonial India. The 50 per cent tax collected from farmers, peasants, traders and landowners financed the Company’s overheads in India and funded its colonial wars as it ac­quired territory across India, from Travancore to Punjab.

Surplus funds were repatriated to the British Crown back in London. In 1858, the British government took direct charge from the East India Company of this lucrative operation that was fuelling Britain’s Industrial Revolution, building its civic infrastructure, and expanding the British Empire across the world.

Meanwhile, exports from India to Western Europe and North America were growing in popularity. The British colonial government now devised a new scheme. It asked European and American buyers of Indian exports to pay Britain in gold.

Indian exporters were given “council bills” in lieu of payment. The bills (IOUs, in effect) could be exchanged for cash by Indian exporters in India. There, however, was a catch. The council bills could be exchanged only in rupees from the colonial Indian account.

The amount Indian exporters received in exchange for the council bills was debited to the Indian revenue account comprising taxes collected from Indian farmers, peasants, traders and landowners.

The wealth of the West grew in the 19th century, financing rail networks, roadways, urban housing and factories. It was the era of easy colonial capital. What went wrong? Why are so many countries in Europe today facing economic hardship? Why in particular is Britain in dire financial straits?

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Thus, Britain was making India pay for India’s own ex­ports. Britain was not the only beneficiary of this financial sleight of hand. Buyers in rapidly developing countries in Western Europe and North America in the late 19th century welcomed a system where they received fine Indian goods at competitive prices which they could re-export at a profit.

The wealth of the West grew in the 19th century, financing rail networks, roadways, urban housing and factories. It was the era of easy colonial capital.

What went wrong? Why are so many countries in Europe today facing economic hardship? Why in particular is Britain in dire financial straits? The British Empire for centuries collected tax from over 50 colonies. Today, it has to balance its books with tax from just one treasury—its own. Prosperity, built over centuries, is in peril.

Writing recently in The Guardian, columnist Will Hutton pointed out grimly: “Two million British people report going without food for at least a day in any month. Malnutrition stalks children. Britain’s five-year-olds are among the shortest in Europe. One in three children live in poverty. It is time to stop talking and thinking of Britain as a rich country. We are poor and living on the edge. Britain is facing first-order economic development challenges. Large parts of the UK are scarcely better off than middle-income developing countries, and on current trends are about to get poorer.”

Saubhik Chakrabarty added in The Times of India: “Britain is probably the only high-income country subjected to a poverty survey by the United Nations. A 2024 paper noted that the UN in 2018 ‘delivered an excoriating report express­ing shock that the country had one-fifth of its population [14 million] in poverty and 1.5 million in destitution’.”

It is a predicament tax collectors of the East India Company had foreseen. They grew up in early-1800s Britain where life was hard and London a city swamped by rats and frequent plagues.

They knew extortionate tax on India’s farmers, peasants, traders and landowners was colonial Britain’s best opportunity to turn its fortunes around. But they always knew it wouldn’t last forever.

About The Author

Minhaz Merchant

Minhaz Merchant is an author, editor and publisher

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