Countries across the West are strapped for cash. The fiscal constraints created by the pandemic and the war in Ukraine have forced governments to choose how to get the right balance between taxation, spending, and borrowing to restore healthy finances and economic prosperity. This comes at a time when many on both Left and Right recognise that the current economic consensus has run out of steam. State bureaucracies, riven with sclerotic complexity, intervene in an ever-growing number of ways but with no success, as growth and living standards continue to stagnate. Such a situation cries out for radical reform to reshape what the state does and how it does it.

It has been done before. Most conservatives and free market liberals traditionally point towards the 1980s when Margaret Thatcher and Ronald Reagan upended the postwar consensus. But there are other historic examples that should inspire fresh thinking and bold action. One such example is the period between the end of the American Revolutionary War in 1783 and the advent of Pax Britannica in the 1850s, when a series of Tory and Conservative ministries from William Pitt the Younger to Robert Peel oversaw a fundamental transformation of the British state, which laid the foundations for national greatness during the Victorian era. Although much more is asked of the state today, there is a zeal for reform that is now clearly missing.

Beginning a remarkable 18 years in power as prime minister, at the unusually young age of 24, Pitt’s primary task was to rationalise Britain’s fiscal, administrative, and imperial policies in the wake of defeat in North America. The loss of the US colonies not only cost lives and prestige. It also caused the national debt to increase and weakened the economy. Enlightenment philosophers such as Adam Smith were interested in the science of politics, shedding light on how states could be better adapted to modern economic life. His The Wealth of Nations was published in 1776, the same year as the American Declaration of Independence. Pitt took up this challenge with gusto after securing an historic election victory in 1784.

Smuggling was rampant in 18th-century Britain as excessively high and complex custom duties led to people risking prosecution for avoidance rather than paying the taxes. Starting with the Commutation Act of 1784, Pitt replaced the range of custom duty rates, averaging around 119 per cent, with a single rate of 25 per cent. The window tax was also introduced, leading to the phenomenon of Georgian townhouses having bricked up windows, alongside taxes on other luxury goods to raise revenue. Custom duties were also lowered on wine, spirits, tobacco, and other goods, but resources for revenue enforcement were scaled up as well. More inspectors and better training improved efficiency. As a result, revenue increased by up to £2 million a year by 1792. The Consolidation Act of 1787 rationalised and simplified custom duties further. The number of Treasury account books fell from around 70 folios to about a dozen. Pitt introduced a sinking fund as part of his efforts to restructure and reduce the national debt.

Pitt had also won broad support as a reformer, promising to introduce parliamentary reform and support the abolition of the slave trade. Neither were achieved in his lifetime and his own parliamentary reform bill was defeated in 1785. While Pitt remained an abolitionist, albeit not as fervent as his friend William Wilberforce, he cooled towards the need for reforming the franchise. Pitt believed he could still faithfully serve the king, the constitution, and the nation under an unreformed constitution. The breadth of his fiscal and administrative reforms proved Pitt was a talented politician and defied the expectations of early critics who believed his ministry would not last. In a 1792 Budget speech, Pitt congratulated himself on his success and the state of the economy, singling out Smith’s work for praise, and delivered tax cuts in the expectation that peace would continue.

But the French Revolution’s descent into disorder and anarchy, causing the overthrow and execution of Louis XVI, sparked a European conflagration lasting over two decades. The fiscal and monetary instability created by the French Revolutionary and Napoleonic Wars caused massive domestic upheaval, leading to soaring bread prices, unemployment, and bank failures. Much of Pitt’s efforts to reduce the national debt and restore financial stability had come undone by the war against France from 1793 to 1815. Once it became clear that the war with France would not be short, Pitt adapted his financial and administrative policies accordingly. In 1796, he issued a ‘loyalty loan’ of £18 million in return for government stock that was fully subscribed within four days. Paper currency was expanded to support monetary stability. Borrowing grew by 50 per cent in five years leading to 1798. Taxes on salt and tea were increased and the first ever income tax was introduced to fund government spending and keep borrowing costs down. Pitt also pursued interventionist policies to control the price of grain and provide poor relief, hoping to keep social order intact at home.

This expansion of the state required immense rhetorical and parliamentary skill from Pitt and would define future policy for decades. After his death in 1806, Pitt was succeeded by several prime ministers during the Napoleonic Wars, most of whom were his followers, but he set the fiscal and monetary template for the conduct of the war effort. Pittites found cohesion as a party around the continuation of ‘Mr. Pitt’s System’, as his policies came to be known. Pitt certainly followed certain principles, but he was a pragmatist who adapted himself to the challenges of the time, transitioning from the peaceful 1780s to the revolutionary 1790s. He fundamentally reshaped the British state in dramatic ways that inspired later generations.

As Britain emerged from the Napoleonic Wars, Lord Liverpool, appointed prime minister in 1812, was faced with the immense task of postwar reconstruction. Pitt’s policies had guided him and his predecessors for the previous decade, but peace brought new problems. The income tax expired in 1816 due to the opposition of property holders in parliament weary from war, removing a useful tool in the ministry’s struggle to bring down borrowing and the national debt. In 1819, new taxes were increased, and the sinking fund was used to return to a budget surplus. The 1819 Budget was a crucial turning point that allowed the ministry to restore fiscal responsibility and ensure the state could fulfil its functions in an increasingly unstable political climate aggravated by the 1819 Peterloo Massacre and the 1820 Cato Street Conspiracy to assassinate the cabinet.

The second phase of the ministry, following the Cabinet reshuffle of 1821, has been seen by historians as the emergence of the reformist ‘liberal Tory’ faction within Pittism as opposed to the more managerialist ‘High Tories’. Lord Liverpool supported ministers such as George Canning as foreign secretary, William Huskisson as president of the board of trade, and Sir Robert Peel as home secretary to pursue reform and attain the label of ‘liberal Toryism’ from future historians such as W.R. Brock. Budget surpluses were used to cut indirect taxes and tariffs in the 1824 and 1825 Budgets. This continued the Pittite model from the 1780s centred around making the state smaller and more efficient as the trade-off for staving off constitutional change. The 1815 corn laws, a protective tariff on corn, were simplified into a sliding scale in 1828. While there were certainly disagreements within this group, such as over the issue of granting equal rights to Catholics, their combined efforts did transform the British state with consequences lasting into the Victorian era.

Canning, Huskisson, and Peel did much to shape policy, but Lord Liverpool was the master of his Cabinet and held together the disparate factions of the Pittites. When he suffered a stroke and had to resign as prime minister in 1827, it is no coincidence that the ministry fractured and triggered a disintegration of the nascent Tory party. Later generations took a dim view of Lord Liverpool, with Benjamin Disraeli infamously dubbing him the ‘Arch Mediocrity’, but this has thankfully been subject to historical revisionism by Norman Gash and William Anthony Hay among others.

Lord Liverpool, schooled in the economic thought of Smith, was more inclined towards laissez-faire economics than Pitt. He did, however, support state efforts to promote church building and regulate child labour. He believed that the state existed to maintain balance and order between all classes and interests of the country. For the historian Boyd Hilton, liberal Toryism was essentially an ideological premonition of Thatcherism. However, there was a tension within the Tory party that went unresolved. Hilton has persuasively argued that ‘what happened in the 1820s was that two important elements of Pittism – political authoritarianism and economic libertarianism – grew less and less compatible’. This is not too dissimilar to what has happened to centre-right political parties in the 2020s.

Peel made his name under the Liverpool ministry as Irish secretary and then home secretary. Demonstrating a flair for administration, Peel was responsible for founding the Metropolitan Police and overhauling the criminal justice system, cutting the number of offences that had the death penalty and consolidating various offences that had accrued during the 18th century. As chairman of the bullion committee, he also supported the resumption of cash payments to control inflation. Peel believed absolutely in the authority of the state and did not trust public opinion unlike his liberal Tory colleague and rival Canning. Rejecting partisan loyalty, Peel was more technocrat than politician. Nevertheless, Peel picked up the broken pieces of the Tory Party and founded the Conservative Party in 1834 with his Tamworth Manifesto. Observing the rise of the middle and working classes after the Great Reform Act, Peel believed the British state needed to be reformed further to promote the national interest and prove that the government’s authority came with legitimacy.

Peel had to find new ways for the Conservatives to regain the initiative and launch constructive change that did not further weaken the political and religious status quo. Peel turned towards fiscal and administrative reform as his best method and used it to great effect during the 1840s. His 1842 Budget reintroduced the income tax to fund cuts to indirect taxes on consumption, addressing the ‘condition of England’ question regarding how to tackle the economic and social problems with industrial society. Rebalancing fiscal policy would lead to the burden of the state being shared more fairly. The corn laws were also modestly amended, and tariffs were simplified. The Bank Charter of 1844 reinforced the Bank of England’s position as lender of last resort and manager of the currency. The 1844 Budget renewed the income tax for another three years so Peel could continue to cut indirect taxes and tariffs. Norman Gash, the great biographer of Peel, argued that ‘he regarded his fiscal and financial measures as the main weapon of the government in dealing with the poverty, discontent and lawlessness which seemed to be undermining the structure of society’ and therefore worked towards ‘the production of more wealth, in the expectation that this would benefit all classes, rather than a redistribution of existing wealth within the community’.

By 1846, Peel had fully embraced free trade doctrine and made the momentous decision to repeal the corn laws, lowering food prices for the industrial working classes, which continues to divide Conservative politicians today. Despite the Conservative rebellion against the corn laws repeal, led by a young Disraeli among others, Peelite policies endured. Future ministries, Conservative and Liberal alike, continued to reduce tariffs and indirect taxes and the income tax became permanent in William Gladstone’s milestone 1853 Budget. Gladstone attempted to repeal the income tax later, but it proved too successful as a revenue raiser. Although the corn laws split put the Conservatives into the minority for a generation, Peel made possible the creation of a leaner British state based on scientific reasoning and meritocratic values.

The Pitt, Liverpool, and Peel ministries developed a transformative vision of the British state, producing landmark Budgets that helped move the country towards a new fiscal and administrative consensus in the mid-19th century. Two centuries later, there is a similar need for a radical reshaping of the state, but it will undoubtedly look very different from anything imagined by Georgian and Victorian legislators. Geopolitical competition, ageing societies, and technological change mean that more is being asked of the state than ever before. The lesson to be drawn from the Pittites, liberal Tories, and Peelites is the need to have a clear vision, practical policies to make that vision a reality, and the political will to put that plan into motion.