§ This pricing policy will form one feature of a comprehensive programme of measures for conserving energy and assisting the balance of payments by that means.269
§ My right hon. Friend the Secretary of State for Energy hopes to make a statement on other aspects of this programme before the end of the month. Meanwhile, I have considered whether there are any steps which I can take to promote the saving of energy in industry. There are already generous tax allowances for expenditure on plant and machinery in the form of 100 per cent. first-year allowance. But I propose now to raise the initial allowance for expenditure on the insulation of industrial buildings from the present 40 per cent. to 100 per cent.
§ The price of petrol in Britain, though it has already risen sharply in the last twelve months, is nevertheless below that in other European countries. I believe it is right to consider the price of petrol as a means of discouraging its wasteful use—
§ Mr. Healey
Accordingly I intend that the rate of VAT chargeable on petrol shall be increased. I have chosen to use VAT rather than the revenue duty on oil since this will ensure that the increased tax does not in general add to industrial costs and give a further upwards push to prices in the shops. It will also not increase fares on public transport. The normal VAT deduction procedure will apply to the new rate and accordingly industrial concerns registered for the tax will not be affected by the increase. Some small undertakings not required to be registered for VAT may find the increased rate on their purchases of petrol a particular burden, but they can of course apply if they so wish for voluntary registration.
The new rate will apply to petrol but not to derv or to liquified petroleum gas used as road fuel. The exclusion of derv from the increase will minimise the number of small undertakings who may have to consider voluntary registration. Moreover, diesel engines are more efficient in their use of energy than the petrol engines now generally available. I should make clear that if my proposed treatment of liquified petroleum gas should result in conversion to gas fuelling by many private motorists, I shall have to review the situation. The new rate on petrol will come into operation next Monday—at 25 per cent. It is esimated that it will yield 270 in addition about £200 million in a full year and add about 0.55 per cent. to the RPI—
§ Mr. Healey
That depends on the grade of petrol.
These necessary measures for conserving energy make it more than ever essential to ensure that the British people receive their proper share of the profits from the oil off our own shores. There will be legislation in a separate Bill entitled the Oil Taxation Bill to impose the new tax on the profits of the oil companies from the Continental Shelf, which was foreshadowed in the White Paper presented on 11th July 1974 by my right hon. Friend the Secretary of State for Energy.
The rules of the new tax, which will apply to deliveries of oil and gas after today, will be set out in the Bill; the rate will be determined by Parliament in the 1975 Finance Bill. My right hon. Friend the Paymaster-General will describe the tax and the associated measures affecting the companies' corporation tax liabilities in more detail in this debate tomorrow.
In one way or another, the measures I have described so far are designed to operate directly on investment and the balance of payments—which it must be the first priority of our economic strategy to improve.