, Britain
On Monday 15 February 1971 a shopkeeper in Bolton opened up with two sets of prices, a conversion chart on the counter and a till that took both currencies. Decimal Day had been planned for years and the practical effect on the day was chaos at the point of sale, arguments about rounding, and a persistent belief among customers that everything had gone up.
That is the level at which economic history is worth telling. Not what the Chancellor said, but what happened to the person doing the banking on Friday afternoon.
The 1970s were about inputs you could not control
Decimalisation was administrative. What followed was not.
The oil shock of late 1973 raised the cost of everything that moved. Then, from 1 January 1974, the three-day week: commercial users of electricity were restricted to three consecutive days' supply a week, running until 7 March. A business could not simply work harder to get through it, because the constraint was physical. Firms that had stock to sell survived better than firms that had to make something.
In the middle of that came VAT. It arrived on 1 April 1973 at 10%, replacing purchase tax and Selective Employment Tax, and it changed what being in business involved. For the first time a great many small firms were keeping records for a tax that applied to their sales rather than their profits, with a registration threshold that dragged more of them in each year as prices rose.
And prices rose extraordinarily. Annual inflation ran above 20% in the mid-1970s, peaking in 1975. For a small business, high inflation is not an abstraction about the value of money. It is quoting a job in March and buying the materials in June. It is a customer on 60-day terms paying you back in money worth noticeably less. It is deciding whether to hold stock as a hedge and finding you have tied up all your cash in timber.
The 1979 Budget then raised VAT to a single 15% rate while cutting the basic rate of income tax, and exchange controls were abolished that October. The tax burden moved from earning to spending, which was a different business to be in.
The 1980s rewired finance, and then rewired local taxes
The early 1980s recession hit manufacturing hardest, and it hit it while interest rates were high. Firms that had borrowed to expand at the end of the 1970s discovered that debt service is not negotiable.
What followed changed the plumbing. The Building Societies Act 1986 let building societies compete more widely, and on 27 October 1986 the London Stock Exchange's Big Bang abolished fixed commissions and the separation between brokers and jobbers, and moved trading onto screens. The visible consequence for the City was obvious. The invisible consequence for a small firm in Stoke was that credit became easier to get through the second half of the decade, and then abruptly did not.
Income tax rates fell across the decade, reaching a 25% basic rate and a 40% top rate in 1988. Then came the Local Government Finance Act 1988, which from 1990 replaced locally set business rates in England and Wales with a uniform national multiplier, following a revaluation that was the first since 1973. Businesses in places where rental values had risen sharply saw their rates bills change beyond recognition, which is why transitional relief schemes exist at all.
The domestic equivalent, the community charge, is better remembered. The business one mattered more to businesses.
1992 cost more in interest than in headlines
On 16 September 1992 the government raised the base rate from 10% to 12%, announced a further rise to 15% that was never implemented, and withdrew sterling from the Exchange Rate Mechanism. Rates then fell steadily.
For anyone running a business with borrowings, the story of 1990 to 1992 was the two years before that afternoon rather than the afternoon itself. Rates had been held high to defend the currency, into a property downturn and a recession. Firms with a mortgage on their premises and an overdraft on their stock were paying for both at rates that made ordinary trading impossible.
VAT had also gone to 17.5% in 1991. Between them, the tax rise and the interest cost squeezed retailers and builders at the same moment, which is why the early 1990s left a permanent mark on the balance sheets of firms that survived it.
The long calm, then 2008, then the things that came after
The decade after 1997 was, for most small firms, unusually uneventful in macroeconomic terms and quite eventful in regulatory ones. The National Minimum Wage arrived in April 1999 at £3.60 an hour for workers aged 22 and over, with a lower development rate. Employers who had been paying below that adjusted, and the sector that noticed most was hospitality.
Then Northern Rock in 2007, Lehman Brothers in September 2008, and a credit contraction that reached the real economy through the simplest possible mechanism: overdrafts were withdrawn and facilities were not renewed. Bank Rate was cut to 0.5% in March 2009 and stayed at or near that level for years. Cheap money did not help a firm that could not get a facility at any price.
VAT went to 15% temporarily in December 2008, back to 17.5% in January 2010, and to 20% in January 2011, where it has remained. Pension auto-enrolment began staging in from 2012 and eventually reached every employer. The National Living Wage was introduced in April 2016 at £7.20 for workers aged 25 and over, and both the rate and the qualifying age have been revised since. Making Tax Digital made VAT filing a software obligation from April 2019.
Then 2020 stopped trade outright for whole sectors, and the state paid wages directly through the Coronavirus Job Retention Scheme, which is not something any previous generation of British business owner had experienced. From April 2023 the main rate of corporation tax rose to 25%, with a 19% small profits rate and marginal relief between £50,000 and £250,000 of profit.
The pattern is that the threshold moves and the business does not
Seventy years of this produces one lesson that repeats in every decade.
The rules under which a business operates are not fixed, and they move without reference to whether the business is doing well. A VAT threshold that was comfortably above your turnover becomes a threshold you have crossed, because prices rose. A rateable value set at one revaluation is reset at the next. An interest rate that made a purchase sensible becomes one that makes it ruinous. A wage floor that applied to nobody you employ is extended to a younger age band.
Firms fail during shocks, but the more common failure is slower. A business built entirely around one set of conditions keeps operating exactly as it did while the conditions drift, and the drift eventually exceeds the margin.
Where this shows up in the game
A Business Baron career can start in any year from 1930, and the economic history is not background art. The VAT rate in any year is the rate that applied that year. Decimalisation, the three-day week, the 1990 rating revaluation, 1992 and 2008 arrive on their dates and do to your company what they did to real ones. From the present day onwards the economy is generated rather than scripted, because we would rather simulate plausible cycles than pretend to forecast.