The "Red Duster".
In 1674, a Royal Proclamation of Charles II confirmed that the Red Ensign was the appropriate flag to be worn by English merchant ships. The wording of the 1674 proclamation indicates that the flag was customarily being used by English merchantmen before that date. At this time, the ensign displayed the English Cross of St George in the canton. The Red Ensign was also flown by ships of the Royal Scots Navy, with a Saltire in the canton.
In 1707, Acts of Union, ratifying the Treaty of Union that had been agreed the previous year, were passed by the parliaments of England and Scotland, thereby uniting the Kingdom of Scotland with the Kingdom of England (which included the Principality of Wales) in the United Kingdom of Great Britain. This resulted in a new red ensign which placed the first Union Flag in the first quarter. The new design of the Red Ensign was proclaimed by Queen Anne, who indicated that it was to be used by both the navy and ships owned by "our loving subjects." This was the flag that flew over the thirteen American colonies before the American Revolution and was a precursor to the flag of the United States.
In 1801, with another Act of Union, Ireland joined the United Kingdom, which resulted in the present Union Flag being added to the canton. The St Patrick's Cross was added to the Union Flag of the United Kingdom and, accordingly, to the first quarters of the British ensigns.
In 1854, the Merchant Shipping Act included a specific provision that the Red Ensign was the appropriate flag for a British merchantman. This provision was repeated in successive British shipping legislation (i.e., 1889, 1894 (section 73) and 1995).
Until 1864, the Red Ensign was also the principal ensign of the Royal Navy, and as such it was worn by ships of the Red Squadron of the navy, as well as by those warships that were not assigned to any squadron (i.e., those sailing under independent command). The white ensign and the blue ensign were also used by the Royal Navy.
Many in the Admiralty felt that the Royal Navy's use of three separate ensigns (i.e., the red, white, and blue) was outdated and confusing. Many also felt that steam merchantmen should be clearly distinguishable from warships. In July 1864, an order-in-council provided that the White Ensign was the ensign of the Royal Naval Service. The Blue Ensign was designated as the proper national colours for ships commanded by an officer of the Royal Naval Reserve, and (with an appropriate badge) as national colours for ships in government service. The Red Ensign was assigned to British merchantmen. This basic structure remains today.
A few years later (1867–1869), the Admiralty determined that the blue ensign charged with an appropriate badge in the fly would be used as the ensign by those ships in the armed, or public, service of the many British colonies. Most British colonies needed to use the blue ensign due to the fact that most had government vessels; some colonies, such as South Australia, had warships. As a result, the Blue Ensign was used throughout the Empire and thus became the model for the flags used by a number of colonies and former colonies in the British Empire. At the same time, the red ensign (which was designated in 1864 as the flag for merchant shipping) was used by merchantmen of those colonies which obtained an Admiralty warrant. Not all colonies obtained an Admiralty warrant, however; ones that did tended to be larger, and included Canada (1892); New Zealand (1899); Australia (1901); South Africa (1910) and Cyprus (1922). Those areas that did not have an Admiralty warrant used the plain Red Ensign, although unofficial local versions of the Red Ensign were used.