§ In deciding how to raise the additional £100 million of revenue—
§ Mr. Maudling
I am coming on. Hon. Members are very impatient today. I do not know why.
First, I had to weigh the arguments as between direct and indirect taxation. I have come to the quite clear conclusion that in present circumstances I should not increase direct taxation. At the present time our need is for more productive effort and a growing rate of investment on the one hand, and for some restraint on consumption on the other. It seemed to me, therefore, that the classic arguments this year apply for choosing Customs and Excise duties rather than putting up Income Tax or, in other words, for levying tax at the point where money is spent, rather than deducting it where it is earned.
Moreover, direct taxation does not operate so quickly or effectively to limit demand. To raise £100 million by Income Tax could mean increasing the standard rate by 6d. Of the extra revenue this would bring in, one-third would be borne by companies; much of this would not fall to be paid until next January and it would be likely to lead to a reduction in companies' savings. 'To achieve the same economic effect, therefore, I would have to raise substantially more than £100 million in additional Income Tax. For these reasons, I have decided to look to indirect taxation for the necessary additional revenue.
Broadly speaking, the choice is between an increase spread across the 271 board and increases at a rather higher rate concentrated in certain sectors. The use of the Regulator, as the Committee is aware, at 10 per cent. brings in about £200 million. It would be possible to bring in about £100 million by a 5 per cent. increase across the board. I have decided, however, that this would not be the right way to proceed. [HON. MEMBERS: "Oh."] No doubt, all those hon. Members in favour of doing so will point it out in Committee.
There are several reasons for this. For example, an increase of 5 per cent. in Purchase Tax rates would create practical difficulties—we know of those practical difficulties, and I very much regret the absence of my hon. Friend the Member for Kidderminster (Sir G. Nabarro), for reasons I also regret—but the strongest argument seems to me that the regulator is designed to deal with short-term situations; and what we are facing now is not a short-term problem, but the long-term growth of public expenditure which calls for higher levels of revenue on a more permanent basis.