Because of the American colonists' non-importation agreement of 1768 following the Townshend Duties, the East India Company had been losing money from a lack of sales of tea to the colonies. In 1770, Lord North had repealed four of the five Townshend Duties, keeping only the tax on tea. The American colonists had refused to buy the commodity, which had resulted in financial difficulties for the East India Company.
In 1773 Lord North's ministry had passed the Regulating Act for India to control the activities of the Company. The government also took measures to help the East India Company to increase its sales by passing the Tea Act. The East India Company had suggested that the 3d per lb tax should be removed to encourage the colonists to buy the tea. North could not do this on principle, since the Declaratory Act passed by Rockingham's ministry did say that the British government could legislate for the colonies, and Britain needed (in his eyes) to maintain the right to legislate.
The Tea Act
The government made a loan of £1.4 million to the East India Company which was to be allowed to ship tea directly and on its own account to America.The Company would pay the 3d duty on the tea's entry into the colonies but was exempt from reimbursing the English customs for the 1/- English duty which would previously have fallen on it. The consequence was that tea would sell at 10/- per lb in America, not the £1 which it had fetched recently. This would increase its consumption and so the Company would be helped out of its financial difficulties. Furthermore, the Company aided the government by taking measures against smuggling now that it was delivering direct to America. The tea was consigned in known quantities and to authorised merchants acting as Company agents. However, by that time, the colonists were suspicious of British motives and the Tea Act led directly to the Boston Tea Party