The British victory in the Seven Years' War (1756–1763), known in America as the French and Indian War, has been won only at a great financial cost.

During the war, the British national debt has increased more than fourfold, rising from £72,289,673 (equal to £10.1 billion today) to almost £329,586,789 by 1764 (equal to £42 billion today).

Post-war expenses are expected to remain high because the Bute ministry decides in early 1763 to keep ten thousand British regular soldiers in the American colonies, which will cost about £225,000 per year, equal to £30 million today.

The primary reason for retaining such a large force is that demobilizing the army will put fifteen hundred officers out of work, many of whom are well-connected in Parliament.

This makes it politically prudent to retain a large peacetime establishment, but Britons are averse to maintaining a standing army at home so it is necessary to garrison most of the troops elsewhere.

Stationing ten thousand troops to separate American Indians and frontiersmen is one role.

The outbreak of Pontiac's Rebellion in May 1763 apparently reinforces the logic of this decision, as it is an American Indian uprising against the British expansion.

The main reason to send ten thousand troops deep into the wilderness is to provide billets for the officers who are part of the British patronage system.

George Grenville becomes prime minister in April 1763 after the failure of the short-lived Bute Ministry, and he has to find a way to pay for this large peacetime army.

Raising taxes in Britain is out of the question, since there had been virulent protests in England against the Bute ministry's 1763 cider tax, with Bute being hanged in effigy.

The Grenville ministry therefore decides that Parliament will raise this revenue by taxing the American colonists without their consent.

This is something new; Parliament had previously passed measures to regulate trade in the colonies, but it had never before directly taxed the colonies to raise revenue.