§ I deal first with indirect taxation. Here my aim is to help pay the cost of reducing the price of the more essential goods by increasing the tax on the less essential. The previous Government abolished purchase tax, with its separate rates, in favour of the value added tax with its single positive rate of 10 per cent. In this form it suffers from a major disadvantage. Any increase in the standard rate of 10 per cent. would push up the cost of living for the average person by raising prices across the whole range of taxable goods and services, essential and less essential alike. For this reason, I do not propose any change in the standard rate of VAT.
§ However, although I am not altering the standard rate of VAT, I am proposing some changes in the coverage of the tax. Many hon. Members, on both sides of the House, have always argued that it is inexcusable to charge VAT on essential aids for the disabled, such as kidney machines and invalid chairs, and on protective clothing, such as miners' and quarrymen's helmets and safety boots. I agree, and I shall be bringing forward an order to zero-rate those classes of goods as soon as possible. The consequent loss of revenue will be very small.
§ I have considered giving similar help to charities by zero-rating them. But there are many difficulties, not least how to define what most of us would regard as genuine charities—charitable status has been much abused in recent years. So I must renounce that option now. However, most charities will benefit from some of the proposals that I shall be announcing later.
§ When I commented from the Opposition benches on last year's Budget proposals, I complained that my predecessor had decided to cut the tax on peanuts, candy floss and humbugs, when the need was to help reduce the cost of essential foods. I have concentrated my aid where it always should have been—on essentials. 309 We must find the means of paying for this aid. I have decided to return to the original provisions of the Finance Act 1972 and apply the standard rate of value added tax from 1st April to confectionery, soft drinks, ice cream, potato crisps, and so on. which used to be charged with purchase tax. I propose to make this change by order. I estimate that it will yield £125 million in a full year.
§ I appreciate that this step may be unpopular with the children, although I met a delightful young lady outside No. 11 Downing Street this morning who recommended me to take precisely this step. But I know that many of those concerned with children's dental health will welcome it.
§ I now pass to the Customs and Excise revenue duties—those on alcoholic drinks, tobacco and hydrocarbon oils, for example. As the House knows, these are not levied as a percentage of price, like VAT. They are specific sums levied on given quantities of the goods concerned. and these sums have not been increased since 1969, although prices generally have increased greatly.
§ In other circumstances, I should be tempted at least to restore the real value of the revenue duties to what they were five years ago, and I believe that most people would regard this as highly reasonable in present circumstances. This would have increased Government revenue by about £1,450 million in a full year, enough to cover the whole cost of all the Government's expenditure proposals—pensions, food subsidies, and housing, the lot. But to do so now would produce a substantial net rise in the retail price index which would add to the pressure on the threshold provisions of stage 3 which we have inherited. I must therefore resign myself to a more limited objective.
§ So far as oils are concerned, I recognise that, because of the increases in world prices, the cost of all petrôleum products has risen sharply. Nevertheless, I believe that there is a good case for increasing the total taxation of road fuel, both to help conserve our supplies of oil and to reduce the pressure on our road system and to make life more tolerable in our towns and countryside. This will help to secure the economic use of scarce 310 resources and so contribute towards achieving one of my main aims.
§ However, I appreciate that a straight increase in the revenue duty on petrol and derv would increase commercial transport costs and this would give a further upwards push to prices in general. I therefore propose that the standard rate of value added tax should apply to petrol and other road fuels from 1st April, The normal VAT provisions for deducing input tax will apply to the VAT on road fuel purchased by all commercial and industrial undertakings registered for the tax, and neither industrial costs nor bus fares should therefore be affected by the increase.
§ I estimate that this change, which I propose to make by order, will yield £150 million in a full year. While on the subject of bus fares, I should mention that the Government intend to uphold the decision of the previous Government to increase the remission of fuel duty paid in respect of bus stage services.
§ As with hydrocarbon oils, so the rates of duties on alcoholic drinks and tobacco have not been raised since 1969. Indeed, when VAT was applied to these goods, the rates of revenue duty were abated by such amounts as were necessary to ensure that the total tax burden through duty and VAT was not, on average, increased. I consider that a greater contribution should now be sought from these goods. I therefore propose that the duty on spirits should be raised by such an amount as would increase the total tax burden—including the consequential VAT effect—by the equivalent of 20p a standard bottle of whisky or gin of average strength, and proportionately for other spirits.
§ I also propose to increase the tax burden—including VAT—on all wines, including British wines, by the equivalent of 10p a bottle on average. I think it appropriate that the same increase should apply to light table wines, consumption of which has been increasing rapidly, as to fortified wines.
§ In normal circumstances, I should have preferred not to change the duty on beer. But times are not normal, and I am sure that beer drinkers will accept that they, too, must make a further contribution. I therefore propose to increase the tax 311 burden—including VAT—on beer by the equivalent of 1p a pint on average.
§ I estimate that these changes, which will come into force tomorrow, will yield in duties an additional £40 million from wine and British wine, £20 million from spirits, and £100 million from beer in a full year, together with another £5 million for VAT on these goods.
§ In the case of the tobacco duty, too, I believe an increase is justified. Consumption has been rising steadily and, while I do not necessarily subscribe to the principle that the consumption of tobacco products should be curbed by fiscal means, I propose to increase the duty by such an amount as will increase the total tax burden—including VAT—on cigarettes by an average of 5p a packet of 20. I estimate that this increase, which will come into force tomorrow, will yield an additional £200 million in tobacco duty in a full year, together with £10 million for VAT.
§ I have carefully considered whether I can seek a contribution from the betting duties. I have concluded that an increase in the rate of duty on on-course betting would not be in the best interests of racing and would not be justified. The same considerations do not, however, apply to off-course betting, and I propose to increase the rate of duty from 6 per cent. to 7½ per cent. I should make it clear that I have in no way been influenced by reports of increased business done by bookmakers in conditions of electoral uncertainty. Any profits they may have made in these conditions recently are unlikely to be repeated for some time to come! I also propose to increase the rate of pool betting duty from 33⅓ per cent. to 40 per cent. I estimate that these changes, which will effectively operate from the end of this month, will yield £30 million in a full year.
§ The total yield in a full year from all the changes in indirect taxation I estimate at £680 million. The yield in 1974–75 is estimated at £585 million. This goes a long way to cover the demand effects of the increases in food subsidies and represents a shift of price from essential to less essential goods which I hope the House will approve.