James was a profligate spender of royal revenue and his Chief Minister Robert Cecil knew that any change would take time. The financial position of the Crown had been eroded by over 50 years of inflation. But one area targeted by Cecil was an area all but untouched by Elizabeth and Lord Burghley (Cecil's father). This involved the revenue raised via Crown lands and Custom and feudal rights. The Book of Rates which set down the value of commodities that attracted duties had not been changed since the reign of Mary Tudor. A new book was issued in 1604.
In the same year, a decision was taken to lease out the administration of Custom dues in return for an annual rent. Therefore, Cecil could anticipate a certain amount of capital flowing into the royal coffers each year. This farming out of Custom dues attracted a large number of very wealthy men who clearly felt that they could make a great deal of money from them. A group associated with Cecil won the contract and they took out a seven year lease (1604 to 1611) paying an annual rent of £112,400. The value of Custom dues in the final years of Elizabeth had been about £100,000 a year, so this represented a decent increase for the Crown.
£112,400 was a massive sum of money for the time but the end of war with Spain presented far more opportunities to export goods and thus increase the revenue that could be made from these Custom dues. The money made was so great that in 1607, the men that won the contract agreed to increase their annual payment to £120,000. In 1611, the lease was extended for £136,000. In 1614 when another seven-year lease was issued, the rent was fixed at £140,000 a year. In just ten years, the value of the Custom duties had risen by £28,000 a year. However, the men who leased out these Customs duties must have been confident of making a large profit - hence their desire to pay such a large annual amount. Lionel Cranfield, Lord Treasurer from 1621 to 1624, estimated that the clear profit for the 1604 to 1611 lease had been £200,000, averaging £28,500 a year.
While the farming out of Custom dues proved lucrative to James, it did miss one major point. If those who had been granted the lease could do so well out of it - over and above the rent paid to the Crown - how much more could the Crown have made if it had in place the mechanism to administer these Custom dues effectively? If a group of wealthy men could do so, why couldn't the government? There is little doubt that Cecil was a hard-working individual but even this was beyond him.
The success of Custom dues to the holders of the contract also presented the Crown with another major issue. If they wanted to regain control of these lands and get the maximum revenue from them - i.e. similar to the £200,000 gained over and above the rent for 1604 to 1611 - the Crown would have to tread on the toes of some very wealthy men who had become very powerful at a local level and also highly influential in the House of Commons. Cranfield had remarked in the early 1620's that men who paid for the first seven year lease, now lived in "great estates". Farming out the lease to these men rather than taking them on was probably the wisest choice. It was also a recognition that each was good for the other as the men who held Custom duties rent also acted as the king's banker. To ensure that their very lucrative set-up was not disturbed by royal intervention, the syndicate that owned the contract to collect Custom dues loaned the king large sums of money both officially and unofficially. They were happy to pay the king an annual rent payment before they had gathered the rent due to them. This amounted to an annual interest-free loan which the Crown used to pay off debts. The syndicate also advanced James formal loans on which interest was paid. Between 1618 and 1619, the Crown received £40,000 and from 1621 to 1625, a total of £120,000 was loaned with interest to the Crown.
While ultimately the Crown lost out in financial terms by Custom farms, it was a system that suited both parties involved. The Crown got large sums of money that it desperately needed while the syndicate that won the contract had every incentive to work hard to accrue as much from the contract as was possible.
"James I and Custom Farms". HistoryLearningSite.co.uk. 2006. Web.