§ Mr. Callaghan
I now come to a major tax proposal. I have seen many statements in the Press and elsewhere to the effect that I shall be increasing the Purchase Tax rates on motor cars. This is very productive of revenue and I have considered it carefully. Representatives of the motor vehicle industry have called on me, and I have listened to what they had to say. I have come to the view that the domestic market for cars will not be so expansive this year. I have, therefore, decided not to increase the Purchase Tax on cars. I hope that the nation will be rewarded by a substantial increase in the volume of motor vehicle exports in 1965.
In these circumstances, there is a clear case for looking to the vehicle Excise duties. The existing rate of duty on a private car is in money terms now only half as much again as that for a 10-horsepower car in 1921, and the same as that for a 15-horsepower car; in real terms the rate of the duty has, of course, fallen a long way.
The Buchanan Report on Traffic in Towns, published in 1963, estimated that over the following 10 years the number of motor vehicles in Great Britain would double. In five years" time there may well be something approaching 18 million vehicles on our roads, including 291 12 million cars. It will bring great benefits to many, but it is also bringing serious problems in its wake: congestion, delay and inconvenience, the need for new large-scale investment in roads and urban re-construction, and the "social costs" of the motor age.
I believe that it is right, in these circumstances, to ask motorists to make increased contributions to general revenue, and I therefore propose to increase the rate of duty on cars from £15 to £17 10s. a year. For the national average mileage, about 7,500 miles a year, the extra cost will work out at less than a tenth of ld. a mile.
I think that there is a case for introducing a differential system for charging duty on cars. As it stands this duty, unlike the duties on goods vehicles, is not graduated but is charged at a flat rate. I intend to look into the possibility of creating a new differential system for cars; but there are serious problems to overcome. There is, of course, no question of going back to the discredited horsepower system. While this possibility is being looked into, I am proposing a moderate flat rate increase of £2 10s.
I propose to simplify the schedule of rates for motor cycles, three-wheelers and pedestrian-controlled vehicles. Motor cycles will now pay £2, £4, or £8 a year, according to engine capacity, but there will be no extra charge on side-cars.
Then there are goods vehicles. The rates for these have increased by only 20 per cent. in money terms since 1933. There is a strong case for adjusting the charges, taking into account that in real terms they are now so low compared with before the war. I therefore propose a general increase of 50 per cent. in all the rates on good vehicles and associated vehicles.
I am also taking this opportunity to make a considerable simplification in the schedules of rates on goods vehicles. The present seven scales will be reduced to three: normal goods vehicles, farmers" goods vehicles, and a general concessionary schedule. I am not proposing any increase in the rates of duty on buses or hackney carriages, in view of the special problems facing the bus operators.
The Finance Bill will contain provision to enable the Ministry of Transport to 292 make grants to bus operators for the costs incurred on stage services as a result of the 6d. increase in the hydrocarbon oil duty I announced in my autumn Budget. This legislation follows discussions with the industry with whom this method of operating the scheme of relief has been agreed. A Financial Resolution will be required.
The Finance Bill will also contain three minor changes in the law relating to vehicle licences—the first for administrative reasons, and the other two to put right anomalies in the existing law.
The rise in the operating costs of goods vehicles per capacity ton mile resulting from these changes in the licence duties will be small—ranging from 2 per cent. to 4 per cent. The effect on export costs will be small; but these duties are among those taken into account in calculating the export rebates, and any adjustments which are necessary will be made after time has been allowed for the renewal of vehicle licences at the new rates.
These increases, which will come into effect tomorrow, will yield £48½ million in 1965–66, and £54 million in a full year. The increases on private vehicles will raise the retail price index by less than a twelfth of a point.
I turn now to direction taxation.