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1. The ‘People’s Budget’: Causes and Consequences
by Professor Martin Pugh
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Why was the People’s Budget necessary?
It was simply a response to the predicament faced by the Chancellor of the Exchequer in
trying to raise enough revenue to cover the government’s anticipated expenditure for the
year ahead.
By early 1909 it became clear that the Exchequer faced a shortfall of revenue which Lloyd
George estimated at £16-17 million.
In short, the budget of 1909 had to involve some major changes.
For some time he and Winston Churchill, President of the Board of Trade, had been
planning a series of social reforms which could only be accomplished by expanding the
resources of the State.
Changing Political Attitudes to Taxation
For the budget of 1909 represented the culmination of a long period of rethinking about
national finance by both Liberals and Conservatives.
Throughout the nineteenth century Radicals criticised this on the grounds that vast
wealth, notably landed, was scarcely taxed at all.
The war in South Africa (1899-1902) turned this problem into a crisis.
In fact the Liberal alternative had already begun to emerge in the shape of Sir William
Harcourt’s budget of 1894 which introduced a radical scheme of graduated death duties
Who Did the Budget Tax More Heavily?
Only 25,000 people earned above £3,000 and those liable for super tax numbered
around 10,000.
After discussions in cabinet Lloyd George granted those with under £500 annual income
- the majority of the middle classes - a tax relief of £10 for every child under 16 years.
The Political Impact of the Budget
The immediate importance of the 1909 budget lay in its transforming effect on the
political situation
Between 1906 and 1908 the euphoria of the Liberals’ landslide election victory had worn
off.
Elections of 1907 suggested that the Labour party was gaining support.
When the peers finally threw out the budget in November by 350 votes to 75, Lloyd
George positively crowed: ‘We have got them at last’.
Although the Conservatives recovered some of the votes lost in 1906, their gamble had
clearly failed and the peers reluctantly swallowed the budget they had so vociferously
condemned a few months earlier.
Some questioned whether it was sensible to stick to a policy that had alienated working-
class voters and thus threatened to keep them in opposition indefinitely.

2. No longer was there any danger of Labour outflanking the Liberals and it is significant
that no further gains were made even in by-elections.
Why the Liberals did not Win More Seats in 1910
However, the outcome of the 1910 elections was by no means an unqualified triumph for
the Liberals. After all, the government had cut short a seven-year term of office after a little
over four years.
in January 1910 they were reduced to 275 seats (to 273 for the Conservatives), which
meant that they depended for a majority on the 82 Irish Nationalist and 40 Labour members
Constituency studies suggest that the Liberals succeeded in retaining working-class votes.
Lloyd George Widens His Political Ambition
Lloyd George spent less time defending the details of his budget than in attacking the Tory
peers.
The budget became the means of achieving a lasting victory over the Lords, though a
second election was required in December 1910. This was because the government could
not be confident of passing a bill to reform the upper house unless hundreds of new Liberal
peers were created, and the King insisted he would do this only after Asquith had won
another election.
The Consequences of the Parliament Act
The defeat of the peers had a powerful impact on the Conservative party.
In the medium term the effect was that Asquith’s government would come to the end of its
life by December 1915 at the latest. This turned out to be a difficult stage in the First World
War.
The Sun Sets over the Peers
Finally, the whole controversy over the budget and the Parliament Act contributed
powerfully to the steady decline of the House of Lords and the peerage in the British system
of government.
Yet, significantly the Tory leaders failed to redeem their promise despite rank and file
pressure to do so even during the inter-war period. Tacitly they accepted the
marginalisation of the House of Lords and, thus, of peers in general.
Never again would a peer become prime minister, though in 1963 Lord Home achieved the
impossible by renouncing his peerage and returning to the House of Commons.
Financial and Social Consequences of the Budget