OCR Specification focus:
‘government 1841–1846, finance and the economy including the budgets, income tax, banking, tariff reform and the sugar duties, business reform (companies and railways)’
Peel’s Conservative government (1841–1846) sought to restore financial stability and stimulate growth through tax reform, tariff reduction, banking regulation, and industrial modernisation.
Peel’s 1841 Inheritance
When Sir Robert Peel became Prime Minister in 1841, Britain faced severe economic distress:
A budget deficit exceeding £2 million.
High unemployment in industrial regions.
Rising prices of food and essential goods, largely influenced by the Corn Laws.
Declining confidence in government finance.
Peel recognised that a modern, stable economy required balanced public finances and a reduction in trade barriers to encourage industrial expansion.
Budgets and Income Tax
Peel’s Fiscal Strategy
Peel introduced a series of innovative budgets, beginning in 1842, aimed at restoring solvency and stimulating trade.
He reintroduced income tax at 7d in the pound (about 3%) on incomes over £150 per year.
This measure raised approximately £3 million annually, erasing the deficit.
Peel pledged that the tax was temporary, but it became a precedent for modern fiscal policy.
Income Tax (1842): A direct tax on personal incomes above £150, reintroduced by Peel to stabilise public finances and fund tariff reductions.
The revenue from income tax enabled Peel to reduce duties on hundreds of imported goods, lowering living costs and encouraging free trade.
Tariff Reform
The 1842 Tariff Reform
Peel abolished or reduced tariffs on over 750 goods, particularly raw materials essential to industry, such as:
Cotton
Wool
Dyes
Metals
This made British industry more competitive internationally.
Later Developments
In 1845, Peel’s budget went further by cutting duties on more items.
The principle of free trade gained momentum, weakening the old protectionist system.
The Sugar Duties
The Sugar Duties posed a political challenge, as they raised moral and economic questions.
West Indian sugar, produced with slave labour, was protected by high duties.
Peel reduced but did not abolish these duties in 1844–1846, attempting to balance:
Humanitarian concerns over slavery.
The need to reduce consumer prices.
The protectionist interests of British planters.
The Sugar Duties controversy highlighted divisions within Parliament over trade, empire, and morality.
Banking Reform
Peel’s 1844 Bank Charter Act
The Bank Charter Act of 1844 was one of Peel’s most enduring reforms.
It restricted the issue of banknotes to the Bank of England.
Other banks could only issue notes if backed by gold reserves.
The Act aimed to prevent inflation and stabilise currency.
Bank Charter Act (1844): Legislation ensuring the Bank of England controlled note issue, backed by gold, to maintain monetary stability.
The Bank Charter Act (1844) split the Bank of England into an Issue Department and a Banking Department, restricting private note issue and tying notes to gold-backed reserves.
Title page of the Bank Charter Act (1844), the statute that restructured note issue. It required a distinct Issue Department and curtailed private banknote circulation. The document underpinned Peel’s wider financial stabilisation. Source
This act laid the foundation for Britain’s modern central banking system and reinforced confidence in the economy.
Business and Railway Reform
Companies
Peel’s government reformed company law to encourage investment and entrepreneurship:
The Joint Stock Companies Act (1844) simplified registration.
It introduced greater accountability through compulsory disclosure of accounts.
These measures protected investors and fostered public confidence in business.
Railways
Railways were transforming Britain’s economy by the 1840s.
Peel introduced the Railway Regulation Act (1844), enabling government to purchase railways after 21 years if required.
The Act also ensured affordable travel for the poor through “parliamentary trains”.
The Railway Regulation Act (1844) required at least one daily ‘parliamentary train’ with covered third-class carriages, stopping at every station at a penny per mile.
Engraved interior of a third-class ‘parliamentary train’ carriage. It visualises the minimum service standard introduced by the Railway Regulation Act (1844). The social detail depicted exceeds the syllabus but helps students picture conditions the law sought to improve. Source
Railway expansion boosted employment, trade, and communications, but speculation also led to financial instability by 1845–46.
Beyond fare and carriage standards, the Act signalled firmer state oversight of railway companies via the Board of Trade and new regulatory powers.
Peel’s Economic Philosophy
Peel’s policies reflected a pragmatic yet reformist conservatism:
He retained income tax despite Tory unease.
He embraced free trade principles without fully abandoning protection.
His focus on fiscal stability, confidence in banking, and modernisation of business structures demonstrated a forward-looking approach.
Wider Economic Impact
Peel’s fiscal measures restored Britain’s creditworthiness and balanced the budget.
Tariff reform reduced the cost of living and encouraged industrial competitiveness.
Banking reform stabilised the currency and encouraged investment.
Business and railway legislation promoted growth but also revealed tensions between regulation and speculation.
Peel’s government between 1841–1846 thus marked a turning point in British economic history, combining prudent financial management with steps towards a liberal economic order.
FAQ
Indirect taxes, such as duties on goods, disproportionately affected the poor and risked fuelling discontent. By contrast, income tax targeted the wealthier classes, ensuring fairness.
It also generated enough stable revenue to allow Peel to reduce tariffs on raw materials, which in turn supported industrial growth and consumer affordability.
By reducing duties on raw materials like cotton, wool, and metals, Peel lowered production costs for British manufacturers.
This improved competitiveness abroad and boosted exports. Domestically, cheaper inputs encouraged investment and technological innovation in industries such as textiles and iron.
Some provincial bankers opposed the Act because it curtailed their right to issue banknotes.
They argued that local banks understood regional needs better than the centralised Bank of England.
Despite criticism, the Act endured, becoming a foundation for modern monetary control.
These trains offered working-class passengers affordable travel at a penny a mile, with basic comfort requirements such as covered carriages and seats.
It widened access to travel for labourers.
It allowed mobility between industrial towns and countryside.
It symbolised early government intervention in ensuring fair treatment of passengers.
Many Conservative MPs resented policies like income tax and tariff reform, which seemed to favour middle-class industrialists over traditional landowners.
The emphasis on free trade created divisions between Peelites (supporters of his policies) and Protectionists (defenders of landowning interests). These tensions would contribute to the eventual split of the Conservative Party after 1846.
Practice Questions
Question 1 (2 marks)
In which year did Peel reintroduce income tax, and at what rate was it first set?
Mark Scheme:
1 mark for correct year: 1842.
1 mark for correct rate: 7d in the pound (approximately 3%) on incomes over £150.
Question 2 (6 marks)
Explain how Peel’s government reformed the banking and railway sectors between 1841 and 1846.
Mark Scheme:
Up to 3 marks for banking reforms:
Mention of the Bank Charter Act (1844) (1 mark).
Recognition that it gave the Bank of England sole control of new note issues (1 mark).
Explanation that notes had to be backed by gold reserves to maintain stability (1 mark).
Up to 3 marks for railway reforms:
Mention of the Railway Regulation Act (1844) (1 mark).
Recognition that it required at least one daily ‘parliamentary train’ with set fares and standards (1 mark).
Explanation that it introduced greater government oversight via the Board of Trade and allowed possible state purchase of railways after 21 years (1 mark).
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