The Excise Bill of 1733 met this evil by the establishment of bonded warehouses, and by the collection of the duties from the inland dealers in the form of Excise and not of Customs. The first measure would have made London a free port, and doubled English trade. The second would have so largely increased the revenue, without any loss to the consumer, as to enable Walpole to repeal the land-tax. In the case of tea and coffee alone, the change in the mode of levying the duty was estimated to bring in an additional hundred thousand pounds a year. The necessaries of life and the raw materials of manufacture were in Walpole's plan to remain absolutely untaxed. The scheme was an anticipation of the principles which have guided English finance since the triumph of free trade; but in 1733 Walpole stood ahead of his time. A violent agitation broke our; riots almost grew into revolt; and in spite of the Queen's wish to put down resistance by force, Walpole withdrew the bill. "I will not be the Minister," he said with noble self-command, "to enforce taxes at the expense of blood." What had fanned popular prejudice into a flame during the uproar was the violence of the so-called "Patriots." In the absence of a strong opposition and of great impulses to enthusiasm a party breaks readily into factions; and the weakness of the Tories joined with the stagnation of public affairs to breed faction among the Whigs. Walpole too was jealous of power; and as his jealousy drove colleague after colleague out of office, they became leaders of a party whose sole aim was to thrust him from his post.

Greed of power indeed was the one passion which mastered his robust common-sense. Townshend was turned out of office in 1730, Lord Chesterfield in 1733; and though he started with the ablest administration the country had known, Walpole was left after twenty years of supremacy with but one man of ability in his cabinet, the Chancellor, Lord Hardwicke. With the single exception of Townshend, the colleagues whom his jealousy dismissed plunged into an opposition more factious and unprincipled than has ever disgraced English politics. The "Patriots," as they called themselves, owned Pulteney as their head; they were reinforced by a band of younger Whigs - the "Boys," as Walpole named them - whose temper revolted alike against the inaction and cynicism of his policy, and whose spokesman was a young cornet of horse, William Pitt; and they rallied to these the fragment of the Tory party which still took part in politics, and which was guided for a while by the virulent ability of Bolingbroke, whore Walpole had suffered to return from exile, but to whom he had refused the restoration of his seat in the House of Lords. But Walpole's defeat on the Excise Bill had done little to shake his power, and Bolingbroke withdrew to France in despair at the failure of his efforts.

Abroad the first signs of a new danger showed themselves in 1733, when the peace of Europe was broken afresh by disputes which rose out of a contested election to the throne of Poland. Austria and France were alike drawn into the strife; and in England the awakening jealousy of French designs roused a new pressure for war. The new King too was eager to fight, and her German sympathies inclined even Caroline to join in the fray. But Walpole stood firm for the observance of neutrality. "There are fifty thousand men slain this year in Europe," he boasted as the strife went on, "and not one Englishman." The intervention of England and Holland succeeded in 1736 in restoring peace; but the country noted bitterly that peace was bought by the triumph of both branches of the House of Bourbon. A new Bourbon monarchy was established at the cost of the House of Austria by the cession of the Two Sicilies to a Spanish Prince, in exchange for his right of succession to Parma and Tuscany. On the other hand, Lorraine passed finally into the hands of France. The birth of children to Lewis the Fifteenth had settled all questions of succession in France, and no obstacle remained to hinder their family sympathies from uniting the Bourbon Courts in a common action.

As early as 1733 a Family Compact had been secretly concluded between France and Spain, the main object of which was the ruin of the maritime supremacy of Britain. Spain bound herself to deprive England gradually of its commercial privileges in her American dominions, and to transfer them to France. France in return engaged to support Spain at sea, and to aid her in the recovery of Gibraltar. The caution with which Walpole held aloof from the Polish war rendered this compact inoperative for the time; but neither of the Bourbon courts ceased to look forward to its future execution. No sooner was the war ended than France strained every nerve to increase her fleet; while Spain steadily tightened the restrictions on British commerce with her American colonies. The trade with Spanish America, which, illegal as it was, had grown largely through the connivance of Spanish port-officers during the long alliance of England and Spain in the wars against France, had at last received a legal recognition in the Peace of Utrecht. It was indeed left under narrow restrictions; but these were evaded by a vast system of smuggling which rendered what remained of the Spanish monopoly all but valueless.

The efforts of Philip however to bring down English intercourse with his colonies to the importation of negroes and the despatch of a single ship, as stipulated by the Treaty of Utrecht, brought about collisions which made it hard to keep the peace. The ill-humour of the trading classes rose to madness in 1738 when a merchant captain named Jenkins told at the bar of the House of Commons the tale of his torture by the Spaniards, and produced an ear which, he said, they had cut off with taunts at the English king. It was in vain that Walpole strove to do justice to both parties, and that he battled stubbornly against the cry for an unjust and impolitic war. The Emperor's death was now close at hand; and at such a juncture it was of the highest importance that England should be free to avail herself of every means to guard the European settlement. But his efforts were in vain. His negotiations were foiled by the frenzy of the one country and the pride of the other. At home his enemies assailed him with a storm of abuse.