TCH: After the Great Fire of London

???????????In 1666, a fire burned down much of London, leaving tens of thousands homeless and destroying numerous public buildings. The property lost was worth millions of pounds. So, rebuilding was more than a feat in engineering. A financial challenge also needed to be overcome. In the end, the rebuilding of London after the Great Fire of 1666 relied on the creditworthiness of its governing body and new tax revenues and philanthropic collections dedicated to reconstructing the city, an endeavor that was mostly accomplished in the span of just a few years.

Great Fire of 1666

???????????An accident in a London bakery caused the fire, the slow response to which proved costly. The Great Fire of 1666 struck the unfortunate city only a year after the Great Plague of London. It burned from September 2nd through September 5th, 1666 and destroyed 85% of the portions of city within its walls, and some parts outside.

???????????Few died but over 13,000 houses burned, along with 86 churches and the old St. Paul’s Cathedral, the city’s Guildhall, Royal Exchange, and customs house. Tens of thousands, maybe even 100,000, were made homeless. Many of these settled at Moorfields, an open space just north of London’s walls; the encampment for the homeless was visited by King Charles II soon after the fire was finally extinguished. The cost of the damages came to somewhere in the area of ￡8-10 million.

Corporation of London?????????

???????????The Corporation of London, a chartered corporation established in the 12th century, was the governing body of the City of London. The corporation was led by the Lord Mayor of London. It was one of the most creditworthy institutions in England, able to borrow at 5% to 6% in the years before the fire, a rate lower than that demanded by creditors to the monarch. This borrowing was done on a short-term basis, usually in the form of six-month loans. Despite this, as a further source of financing, the corporation also relied on an orphan’s fund established to provide a place to deposit the inheritances of orphans until they came of age. The City used this as a financing vehicle.

???????????The corporation’s revenues consisted of rents, fines, and certain fees but these failed to keep up with its expenses. The fire also threatened a permanent loss in revenues if the populace that left for Westminster or other suburbs never returned. Though poorly managed and financially strained by the Great Fire, the Corporation of London was still able to borrow at low rates in the years after the conflagration.

???????????Private houses were rebuilt with the help of reductions in ground rents for leaseholders who could afford to rebuild their properties. Meanwhile, the City was tasked with repairing the Guildhall, the markets, the prisons, and the wharfs, in addition to widening certain streets. Since revenues fell in the aftermath of the fire, the Corporation of London borrowed to rebuild infrastructure and public buildings. Its debt grew from under ￡300,000 just before the fire, to over ￡600,000 by 1680.

Coal Tax

???????????The City was dependent on the central government for support and that government was aware of its reliance on London for tax revenues and thus committed itself to rebuilding. Parliament passed two relevant acts, one establishing new courts for settling disputes related to fire damages and rebuilding and another establishing new building regulations and funding the reconstruction of London.

???????????The latter of these acts established a one shilling per ton tax on coal entering London, largely imported from Newcastle. This was the most crucial source of new revenues for rebuilding. It was a valuable concession since London consumed about one ton of coal per capita per year, about half for industry and half for domestic use. The coal tax helped fund a rebuilding, but not one along the lines of the bold plans submitted by Sir Christopher Wren, Robert Hooke, and John Evelyn. London would have to be rebuilt more expeditiously and more economically.

???????????This tax did not necessarily limit the borrowing of the City since the coal tax revenues were seasonal and initial revenues were low compared to expenses, requiring the city to borrow against future tax collections to raise immediate funds. It did this through a special ‘Coal Cash Fund’ designed to receive the tax revenues and borrow additional money for rebuilding.

???????????Despite this borrowing, interest rates held rather steady, even declining to the area of 4.5% as most of the rebuilding work was completed. This seems an unlikely outcome as the credit of the Corporation of London was worsening and the royal crown itself had defaulted in 1672, an event known as the ‘stop of the Exchequer’. Perhaps this event drew more savers to the City’s loans as an alternative though they could also have hoarded gold or silver instead. In any case, there were many lenders into the Coal Cash Fund. They were the middle classes and gentry, not only large institutions or aristocrats; most lived in London and the median loan was just ￡150.

Church

???????????The Church of England provided an avenue for raising charitable funds for recovery through a system of charitable drives called ‘briefs’. Raising money for the victims of fire was a common aim of Church charitable drives at the time. Besides supporting individual fire victims, a special brief was organized for the construction of a new St. Paul’s Cathedral after the old cathedral was gutted in the fire. However, these two nationwide briefs raised not even ￡24,000 between them. Of this, ￡1,800 was lost; the Lord Mayor of London Sir William Bolton was accused of misappropriating these funds.

???????????Perhaps the largest ecclesiastical project after the fire was rebuilding St. Paul’s Cathedral, work which continued into the 18th century. Thankfully, this did not have to be done with the measly budget of ￡7,330, the amount raised by the brief dedicated to this cause. Ultimately, well over ￡800,000 was spent on the bare structure, or a total of almost ￡1.2 million if including its decoration. In all, the cost of construction amounted to over 2% of English GDP at the time, though it was built over several decades.

???????????To fund the undertaking, Parliament raised coal taxes by another two shillings per ton in 1670 but required that of the amount raised, four-and-a-half pence per ton (~19%), go toward rebuilding the cathedral. Another 56% was dedicated to the rebuilding of parochial churches and the remaining 25% to the City of London.

???????????The cathedral’s share of the coal tax amounted to about ￡5,000 per year. The coal tax was raised yet again in 1687, increasing the annual collections dedicated to the cathedral to about ￡19,000. Further donations contributed another ￡3,000 per year on average in the period from 1675 to 1688. Also, starting in the late 1680s, depositors could also lend to fund the cathedral at a rate of 5-6%, a new option for supporting its construction that proved far more popular and caused donations to trail off thereafter.

Rebuilding

???????????By the early 1670s, London seemed to be mostly rebuilt. The Corporation of London’s own expenditures on rebuilding peaked in 1671 and 1672, ultimately coming to ￡780,000, excluding financing charges. Though work on the cathedral hadn’t yet begun, its foundation stone only being laid in 1675, almost all of the other public buildings in the city had been rebuilt by then. However, the City was not very successful in generating income from its reconstruction projects, failing to seize the financial opportunities created by the destruction.

???????????In any case, the Corporation of London became greatly indebted and this contributed to the City’s default on its debts in 1683, when payment of interest was suspended. Servicing the debt cost more than could be met with the revenues the City raised and normal operating expenses, excluding the rebuilding, had risen sharply as well in the years since the Great Fire. There was also growing political resentment with the power of the City, so renewal of the coal taxes which supported its borrowing was put in doubt. Nonetheless, there seems to have been no rush of withdrawals or declined renewals of loans to the City, suggesting the eventual default was unexpected, a stunning shock to its long-held reputation as a reliable borrower.

Lesson

???????????Rebuilding London was such an urgent need and monumental task that its success required not just political will, new taxes, donations, and engineering resources but a population of willing creditors. Because of its reputation, the Corporation of London could attract these lenders. They were perhaps too willing as the City of London was able to borrow more cheaply with time, even as its financial situation worsened. They were perhaps distracted by the English crown’s own financial problems but in any case, though their investments may have saved London, it came with substantial risk along the way.

More from the Tontine Coffee-House

???????????Daniel Defoe, a witness to the Great Fire of London, wrote extensively on English trade and finance. Also read about how the Great Fire of Hamburg inspired the creation of the first reinsurance firms. Lastly, consider subscribing to this blog’s newsletter?here.?

Further Reading

1.??????Archer, Ian W. “Facing up to Catastrophe: The Great Fire of London.” The Oxford Historian, 2016, pp. 2–5.

2.??????Coffman, D'Maris, et al. “Financing the Rebuilding of the City of London after the Great Fire of 1666.” The Economic History Review, Feb. 2022.

3.??????Field, Jacob F. “Charitable Giving and Its Distribution to Londoners after the Great Fire, 1666–1676.” Urban History, vol. 38, no. 1, Apr. 2011, pp. 3–23.

4.??????Harte, Negley. “God Meets Mammon: The Financing of the New Cathedral.” Craftsman's Art and Music's Measure. 18 June 2008, London, Gresham College.

5.??????Sussman, Nathan. “The Financial Development of London in the 17th Century Revisited.” VOX, CEPR Policy Portal, Centre for Economic Policy Research, 28 Sept. 2019.