§ I now turn to other forms of taxation. The direct attack on the foreign balance which I have described eases our problem but cannot be a substitute for an improvement in the balance of visible imports and exports. The improvement we made in 1965 must be sustained until we generate a surplus. It is my judgment that we shall not do this unless we take firm action at home to release more resources for exports and for the substitution of imports.
§ It is against this background that I have considered what additional taxation 1452 I should propose. At this point I must come back once more to the need to moderate increases in incomes. To some extent the answer to the question—"how much extra taxation?"—lies in the hands of those now preparing and negotiating new wage claims. I do not think enough people yet realise the extent to which they hold the key in their own hands. If increases in incomes are related to productivity and do not outstrip it, my task is made more easy, and taxation needs to be less fierce.
§ I should add that I have received many representations for relief and have considered them carefully. In other circumstances I should like to meet a number of them, but the Committee will have deduced that this is not a year in which I shall be able to extend reliefs—nor do I think the country expects it.
§ The question is rather, what form the extra taxation should take in order to achieve our objectives. First, I considered the perennial friends of all Chancellors, beer, tobacco and spirits, but they have suffered heavy increases of duty in two successive years and I think I should leave them to get their breath back on this occasion. So I do not propose any increase there.
§ The other major revenue raisers are, of course, the Purchase Tax and the Income Tax. The Purchase Tax has been left untouched for some time. A rise in the 25 per cent. rate to 33⅓ per cent. would bring in about £110 million, and I can get nearly another £100 million from increasing the 10 per cent. rate to 15 per cent. Likewise, an increase of 6d. on the standard rate of Income Tax would bring in over £120 million in a full year. These are considerable sums and they are raised with the minimum administrative difficulty by those efficient agencies the Inland Revenue and the Customs and Excise. My judgment is that any two of the three possibilities I have mentioned would be necessary.
§ Nevertheless, these traditional instruments have substantial disadvantages. They provide no positive incentives to bring about structural changes in the economy; and some of them, if used in present circumstances, might merely depress manufacturing output, check productivity, shatter industry's confidence and halt investment and modernisation.1453
§ I therefore put all of them on one side. There will be no increase in the rates of Income Tax, Surtax, Purchase Tax, vehicle licence duty or other Customs and Excise revenue duties.
§ From the representations that have been made to me I know that these decisions will be a great relief to manufacturing industry and will encourage firms to go ahead with their plans for expansion and modernisation. I shall, of course, renew the usual Regulator powers for use should the occasion arise in either direction, up or down.