During the 1640s, England and Wales were plunged into a bitter civil war, ending in 1649 with the execution of King Charles I and the establishment of a Commonwealth. However, the rule of the Lord Protector, Oliver Cromwell (paid the equivalent of £1.5m a year), proved unpopular.
After he died in 1658, his son Richard briefly took over, but was forced to resign a year later. The stage was set for the restoration of the monarchy and the return of the late king’s oldest son.
Charles II was formally proclaimed King by parliament in April 1660 (and had considered himself monarch from 1649 onwards), but he only reached London on 29 May. In return for the end of feudal dues, parliament nominally agreed to give the crown £1.2m (£150m in today’s money) a year.
However, the cost of various wars (including several against the Dutch) pushed spending well above that amount, while the projected revenues from customs and excise duties never appeared.
This led to soaring borrowing, and a clash between the King and parliament over control of taxation. Indeed, the English government was so cash-strapped that Charles II ended up selling Dunkirk to the French for £375,000 (£46.6m) in 1662. He also leased Bombay to the East India company for £10 a year from 1668, to save money on the costs of defending the region.
Even so, the government was forced to suspend debt payments several times, starting in 1672. Debt accumulated during Charles II’s reign (which ended on his death in 1685), along with the fiscal impact of the Dutch invasion of 1688/1689, would later result in the establishment of the Bank of England in 1694.