HC Deb 19 March 1968 vol 761 cc279-81

I clearly need to make substantial, though still progressive, use of Purchase Tax. There are at present three rates of Purchase Tax: 11 per cent., 16½ per cent. and 27½ per cent. The lowest rate includes furniture and clothing (except for children's clothing, which is and remains exempt). It also applies to a wide range of household utensils: Lord Butler had a hard time for bringing them into tax in 1955, but no one has since found it possible to take them out. Here I propose a relatively small increase of approximately one-seventh to bring them to a 12½ per cent. rate of tax. The middle range includes confectionery, ice cream and soft drinks. Here I propose an increase of approximately a fifth, bringing them to a 20 per cent. rate of tax. The third rate, now 27½ per cent. applies to motor cars and most durable consumer goods as well as to a wider range of luxury or substantially less essential goods. Here I propose to split the rate. For motor cars, motor cycles, refrigerators, washing machines, etc., there will be a similar increase of approximately one fifth to 33⅓ per cent. But I think that in our present circumstances it is desirable that there should be a new, much higher, rate for luxury and other less essential goods.

For these, therefore, there will be an increase of rather over four-fifths—to 50 per cent. This rate will apply to furs, jewellery and imitation jewellery, gold and silver watches and clocks, gramophone records, smokers' requisites, cameras and other photographic goods, pictorial reproductions, diaries, calendars and greeting cards, fancy and ornamental articles, perfumery, and various toilet preparations and requisites. Full details will be given in the White Paper.

In addition, I propose to bring within the scope of the tax, tape recorders, which will join gramophones at 33½ per cent., pre-recorded tapes to join records at 50 per cent., and still and ciné projectors to join cameras and other photographic goods, also at 50 per cent. I think this is a wholly justified extension, and that many people will be surprised to know that these goods have so far escaped tax.

All these changes both of rate and of scope of Purchase Tax will apply from midnight tonight.

It would perhaps be appropriate at this stage to say that, in consultation with my right hon. Friend the President of the Board of Trade, I have decided not to use the Budget statement to impose further restrictions on hire purchase. This is in many ways an easy and attractive method of reducing demand. But there are several countervailing arguments. The first is that hire purchase restrictions do not have a long-term effect. They make an immediate impact and then die away over a period of months. That is almost the exact opposite of the effect that I wish to produce with this Budget. This Budget is concerned with an 18-months to 2-year strategy, over which period domestic demand is reduced as export demand builds up. The second point is that hire purchase restrictions on cars have already been tightened in November.

On top of this, the Purchase Tax increase and other imposts, I do not consider that a further turn of the screw here would be right. But, without cars, the effect of a further hire purchase restriction would be much reduced. It would bear only on a narrow range of industries, many of them subject to Purchase Tax at the rate which is now being raised from 27½ to 33⅓ per cent. and industries not at present fully stretched. Third, there are objections to over-frequent changes in the hire purchase regulations. There have already been four in the past year. For a twelve-month period I consider that to be enough.

The total yield of these Purchase Tax changes will bring in £163 million for a full year. But as Purchase Tax is collected quarterly in arrear the extra revenue in 1968–69 will be only £127 million. This brings the total additional revenue from Customs and Excise duties to £314 million for a full year, and £278 million in 1968–69. I still have a substantial sum to raise; but before I go on to tell the House how I propose to raise it I have three further small points to make in the Customs and Excise field.