§ I now turn to the means of preserving and strengthening the prospective Budget surplus. We certainly cannot afford to take any risks. I am intending to place very considerable reliance upon the success of the new savings campaign with the whole body of the public. I believe that voluntary savings may bring us something of an order of magnitude far beyond anything yet achieved. I have explained the Government's purpose to make a saving of expenditure of the order of £100 million this year; and I would say frankly that, if I had not been fortified by the willingness of my colleagues to co-operate in this task, I would have felt it my duty to propose very heavy increases in taxation. But public saving, that is compulsory saving, must, in present circumstances, much as I deplore it, still play an important rôle. I have to be, this year at any rate, another Mrs. Pardiggle after all. The difficulty is to measure the need, and to find the means which do the least injury to the morale of all our people.
§ That our economy is basically sound and in many ways stronger than for many years, we all know. We have escaped from the siege economy of the war and the years immediately following. It may be that in the first thrill of freedom we 886 have gone a little too far in the other direction. That is not to be wondered at; fresh air is rather intoxicating. But we must be careful. The whole world is watching us today. It will judge us largely by the degree of self-control and self-discipline of which we can prove ourselves capable. The prize of success is great; but so is the penalty of failure. For those whom we are asking to save, we must provide a stable £. For the whole sterling area and all that this implies, politically as well as economically, we must ensure that our balance of payments shall improve and our reserves reasonably well built up. The period of strain comes in the second half of the year. We must do everything we can now to prepare ourselves to take that strain.
§ How do we stand on the above the line surplus? The savings package which I have announced is estimated to produce a tax loss of £20 million in the year 1956–57. Of course, if the result is, as I hope, to stimulate savings on a very large scale, this tax loss is far more than offset from the point of view of inflation. It will pay for itself many times over. Nevertheless, I must be scrupulous. Even in so good a cause I cannot allow my surplus to be reduced by this £20 million. Moreover, I want not merely to maintain the surplus but to increase it. I want to send a message which really will be understood that we are determined to protect the £; determined to overcome our present difficulties. No one should doubt here or overseas, that there will be made that extra effort required to achieve success.
§ We have £445 million already in hand. What ought the reinforcement to be? I have thought a great deal about this—I have also had quite a lot of advice. In the end I have reached the decision that I must look in about equal proportions to indirect and direct taxation for the purpose.
§ Let me take, first, indirect taxation. The Committee will recall that the Tobacco Duty was raised sharply in 1947 and again by a smaller amount in 1948. Since then, the duty having remained unchanged, the prices of cigarettes and other tobacco have risen relatively little. The duty is a good deal less burdensome than it was eight or nine years ago. Whilst I am fully aware of the contribution already being made to the Exchequer 887 by smokers—the duty yielded £668 million last year—I am sure that part of the additional revenue which I need at the present time can best be obtained from this source. I accordingly propose to raise the duties on leaf tobacco by 3s. 0d. a lb. and to make corresponding adjustments in the rates chargeable on imports of cigars, cigarettes and other manufactured tobacco. The effect will be, for example, an additional 2d. on a packet of 20 cigarettes. It is estimated that this increase in duty will bring in £28 million in a full year and £27 million in the present financial year. The new rates of duty will come into effect as from tomorrow.
§ I have naturally had to consider the arrangements under which old-age pensioners are given partial relief from the tobacco duty. This scheme had its origin and justification in the large increase in duty in 1947, which raised the price of tobacco out of line with the post-war increases for other goods. In present circumstances I do not propose to extend it to cover the relatively modest increase now proposed. [HON. MEMBERS: "Shame!"]
§ Mr. George Thomas (Cardiff, West)Too mean for words.
Mr. MacmillanNow I come to direct taxation. After much consideration, I conclude that it would not be conducive either to increased incentives or to the successful operation of the savings campaign to place a further burden upon the Income Tax payer. I have therefore decided to secure my purpose in the field of Profits Tax. I propose to increase the rate of tax on distributed profits by 2½ per cent. and that on undistributed profits by 1½ per cent. The effect will be to increase the rates to 30 per cent. and 3 percent. respectively. The increases will take effect as from 1st April, 1956 and there will be the usual provisions for dealing with accounts which overlap that date. The yield next year will be £30 million. It is true that in 1956–57 these increases will not actually reach the Exchequer. They come in a year after. They will not therefore directly swell the surplus. Nevertheless the deflationary effect will not be deferred. The tax to be paid next year will have to be taken into account by boards of directors in formulating dividend policy and expenditure programmes 888 during this year. It will, in fact, be saved.
Before I sit down I have one further proposal to make. I am conscious of the burden which is borne in these expensive days by parents of the large family, and I have looked round for some small concession to help them. It must be something the benefit of which is widely spread, even more widely than the Income Tax field. I have in fact found it in the field of Family Allowances. A Family Allowances Bill will, we hope, be passed into law this Session. Its purpose is to raise the age to which the allowances will continue if children remain at school or apprenticed. The Government propose to ask Parliament to add to this an increase in the Family Allowance scale for the third and subsequent children at the rate of 2s. a week. The cost in a full year will be £10 million. If as we hope this change can operate from 1st October, the cost will be £5 million for this year. This of course will be in addition to the £2¼ million a year which is required to raise the age limit, for which we have already made provision in the Estimates.
Let us see how the balance sheet now stands. The savings package will cost £20 million. The Family Allowances £5 million—£25 million in all. Against this tobacco will bring in £27 million, the end of the bread subsidy £12 million and miscellaneous tax changes £1 million—£40 million in all. As a result £15 million will be added to the estimated surplus above the line, making it £460 million in all. A further £30 million of profits will be earmarked in this year, and although the money will not accrue to this year's surplus it will help to buttress and support it. The reduction of Government expenditure of £100 million will bring further reinforcement. With all these measures together I claim that our main objective will have been attained.
Naturally, I regret that I cannot propose all the various alleviations and mitigations, in the realm of both indirect or direct taxation, which have been pressed upon me. For the time being, these must wait. This is a savings Budget. The Budget surplus, the Government saving in expenditure, and private savings will make a foundation upon which we can take up without danger the task of increasing investment for the future. The rate of our progress during recent years has made it necessary to slacken the pace 889 a little, but the great forward march goes on.