§ One source Mr. Deputy Speaker to which I must look for part of this further sum is the vehicle excise duties. I realise that the motoring public have already had to stomach the increase in the hydrocarbon oil duty as well as an increase in Purchase Tax on cars and motor-cycles. But I think that there is nonetheless a good case for adding an increase in the vehicle excise duties, in the situation with which I have to deal. Private motoring is growing at an enormous rate in this country. It is in most ways a highly desirable but not always an essential feature of life.
§ The vehicle excise duties therefore offer a buoyant source of revenue, and one which cannot be regarded as unduly regressive. About 50 per cent. of families—and these overwhelmingly within the poorer groups—are still without cars. These groups will therefore escape the direct effects of the impost which I propose. But it will be an all-round increase, although the increases will not all be at the same rate, and some indirect effects, flowing from the resulting increase in industrial and distributive costs, will therefore extend to those who do not own cars.
§ In 1965, when the duties were last revised, my predecessor made a much smaller increase in the rates on private cars than on other vehicles. I therefore feel 283 justified in proposing a substantial increase in the annual rate for private cars—from £17 10s. to £25, or about 43 per cent. The new rate will be approximately equivalent in terms of purchasing power to the rate charged on a ten horse-power car at the inception of the duties in 1921.
§ The rates for motor-cycles, three-wheeled vehicles and pedestrian-controlled vehicles were simplified in 1965 and in some cases were increased by as much as 100 per cent. I therefore propose a smaller proportionate increase for this category of vehicles, from the existing rates of £2, £4, and £8 respectively, to £2 10s., £5 and £10—increases of 25 per cent. At the same time, I am proposing that small powered three-wheelers, which are comparable with mopeds, should pay duty at the rate of £2 10s. rather than the £10 rate which they would otherwise attract.
§ Finally here, I propose to make a general increase in the duties on goods vehicles. Not to do so would leave the new private car rate considerably higher than that for the lightest goods vehicles. At the same time, I have considered with my right hon. Friend the Minister of Transport the effect on the heaviest goods vehicles of an increase in vehicle excise duty combined with an increase in fuel duty, on top of the wear and tear charges and the abnormal indivisible loads charge propose in the Transport Bill.
§ We feel that, in a situation in which I have to impose this extra taxation, it would not be right to levy these new charges as well. My right hon. Friend has therefore decided in the new circumstances not to proceed with these charges, and she will shortly be tabling amendments to the Transport Bill to this effect.
§ I propose that the duties on heavy goods vehicles should be increased by amounts of about 50 per cent. That compares favourably with the wear and tear charges which would have been equivalent to an increase of about 75 per cent. in the vehicle excise duty. I also propose that the duties on light goods vehicles should be increased by smaller amounts, falling to 33⅓ per cent. Smaller increases will be applied to showmen's vehicles and to the smaller goods vehicles operated by farmers. I shall also be proposing minor changes in the law to clarify the rate of 284 duty appropriate to vehicles used for both private and commercial purposes, and to extend slightly the eligibility for trade licences.
§ The yield from these increases is estimated at £126 million for a full year and £119 million in 1968–69. This brings the score to £440 million for a full year and £397 million in 1968–69. If I stopped now, the central Government's borrowing requirement next year would be reduced to £732 million. But I have to tell the House that this is still not yet nearly enough, if the Budget is to achieve the objectives which I have set for it. I have still a substantial sum to find, and only two main sources to which I can look for large amounts are the Selective Employment Tax and the field of direct taxation.
The Selective Employment Tax has some considerable advantages to commend it. It is the only means we have of taxing services, which are increasingly used in a relatively prosperous society, particularly by the better-off and which, in view of the changes I have just announced, could be very lightly burdened compared with goods if I were to leave S.E.T. where it is. The effect of the tax on the prices of services has not been as great as some people feared, and figures published recently indicate that it may have had a substantial and beneficial effect on productivity in the service trades—notably distribution—and perhaps also in the construction industry. For many years past there has been a steady tilt in the balance towards employment in the service trades compared with that in manufacturing industry. This has not been a healthy development in an economy placed as ours is. In the year ended 30th June, 1967, however—admittedly a period of falling employment—it looks as though that tilt has been sharply reversed: employment in the service trades has declined relatively to that in manufacturing industry. S.E.T. seems likely to have had a big effect here. Another by no means negligible advantage is that S.E.T. is a very cheap tax to collect, much more so than income tax or purchase tax, and still more than any sales tax or tax on value added.
§ On the other hand I am aware that it is not a wholly popular tax, but that is not perhaps a unique distinction for any tax. Collecting the tax from all employers and giving back all or part of it 285 to some looks, I recognise, a cumbersome procedure, and I hope that at some time in the future—though I fear that it cannot be yet—we can arrange to collect the tax only from those who are liable to it. There is also argument about its effects, which cannot easily be resolved on the basis of the relatively short experience of its working so far. I am glad to say, however, that Mr. Reddaway, of Cambridge University, has agreed to undertake an inquiry into the effects of the tax. The terms of reference will be: to examine and report on the effects of the Selective Employment Tax on prices, margins and productivity in industries on which the tax falls as a net burden, and the consequent effects on the economy generally.
§ This inquiry will be independent of Government, save of course that we shall be ready to give Mr. Reddaway any information he needs for the purposes of the inquiry. I intend to publish his report in due course.
§ I should have liked to have had the results of this inquiry, and indeed to have been able to devise a less cumbersome method of administering the tax, before making any further changes in the rate. But these easy options of waiting are simply not available to me if I am to take the steps which are essential to get the economy right this year. I therefore propose an increase of 50 per cent. in S.E.T. with effect from 2nd September of this year; this increase will raise the rate for men from 25s. to 37s. 6d. a week, and the other rates in proportion. The increase will be refunded to those employers who already qualify for refunds of the existing tax. This change in itself would yield an additional £165 million net for a full year, and £155 million net in 1968–69. The additional tax will be payable in Northern Ireland, but the revenue accruing in that country will, like the existing yield from the tax in Northern Ireland, be paid to the Northern Ireland Exchequer, who are responsible for their own refunds.
§ I am, however, making certain modifications in the incidence of the tax as a whole which will reduce the additional revenue by £4 million in 1968–69 and £13 million for a full year. These changes are as follows: (a) I propose to leave the effective rates of tax for part-time employees as they are, by increase 286 ing the refunds; (b) I propose to extend the effective rates for part-time employees to all employees over the age of 65. I trust that this will forestall any tendency the tax might have to discourage the retention of elderly people in jobs in the service trades for which they are well fitted.
§ In addition I am aware of the difficulties created by the tax for those parts of development areas where there is little opportunity for employment in manufacturing industry. The tourist trade is of particular importance in these localities, and I therefore propose to refund Selective Employment Tax to hotels in certain rural parts of development areas. My right hon. Friend the President of the Board of Trade will be giving the House more details of this, and of another scheme for assisting the hotel trade in the country as a whole, when he speaks tomorrow.
§ There are two further points on S.E.T. I should make. The first is, Mr. Deputy Speaker, that even with the 50 per cent. increase in S.E.T. the total on-cost of employing labour in the service trades, counting social security contributions and labour taxes, will be less in this country than in any E.E.C. country and very substantially less than in three of them. The overall figure here will be about 14 per cent., as against about 16 per cent. in Luxembourg and in Germany, 19 per cent. in Holland, 27 per cent. in Belgium, 37 per cent. in France, and 45 per cent. in Italy. The on-cost of employing manufacturing labour here will of course be only a fraction of those in any of these countries.
§ The second point is that the increase I have announced will not prevent for the future any desirable re-casting of the tax in the light of Mr. Reddaway's report and any other available evidence.