§ I reminded the House a year ago that the Customs and Excise revenue duties on alcoholic drinks and tobacco are levied not as a percentage of price, like VAT. but as specific sums on given quantities of the goods concerned. I said then that I was tempted to restore the real value of these duties to what they had been five years earlier, but because of the substantial net rise in the retail price index that would result, and because of the increased pressure this would have meant on the threshold provisions introduced by the previous Government, I resigned myself to a more modest objective.
§ The effective burden of these duties, including the increases I introduced then, has been further eroded by inflation over the past year. In addition, the period has seen a reduction in the overall weight of tax on these goods. They benefited, along with other goods and services, when I felt able, last July, to reduce the standard rate of VAT from 10 per cent. to 8 per cent.
§ Now, however, when I am forced to call for general sacrifices, when rich and Poor alike face increases in essentials like rent and rates and fuel prices, it would clearly be wrong to leave untouched such forms of consumption as smoking and drinking, when the effective tax burden on them would otherwise 306 continue to fall. Instead of changing the rate of VAT on these goods, I have decided that the duties should be increased to give precise effects on the bar or retail prices of all these goods across the board. I hope it will be appreciated that the size of these increases reflects the fact that in the circumstances of this Budget the alternative to them would have been either a higher target for the revenue from direct taxation or an increase in the standard 8 per cent. rate of VAT.
§ I am as reluctant now as I was a year ago to increase the duty on beer, but the level of increase that I feel must be made in the burden borne by other forms of drink and the relatively low incidence of tax on beer persuade me that the beer drinker cannot reasonably expect to remain unaffected on this occasion. I propose that the total burden—including 8 per cent. VAT—should be increased by the equivalent of 2p a pint on average.
§ As for spirits, I recommend that the duty should be raised by an amount which, taking the consequential VAT effect into account, will produce a 64p increase in the price of a standard bottle of whisky or gin.
§ My proposal for all wines, including British wines, is for an increased tax burden, including VAT, equivalent to 24p on a standard bottle.
§ From what I have already said it will be clear that I consider some increase must also be made in the tobacco duty. Some, I know, will welcome this. Indeed, I believe it will be welcomed with enthusiasm and relief by anyone who watched the recent television programmes en the relationship between smoking and cancer. When VAT is taken into account, the total tax burden on most packets of 20 cigarettes will be increased by between 5½p and 10p depending on size and type—the average increase will be 7p.
§ These increases in the excise duties are large by any standards, but I believe them to be necessary if there is to be some equity in the burdens that each consumer must bear. Indeed, I know many people were surprised when my November measures did not affect these goods. The changes in the revenue duties which I have outlined so far, and which will affect the rates of duty payable on goods cleared from midnight tonight, will yield in a full 307 year an additional £185 million from beer, £60 million from spirits, £80 million from wine and British wine, and £275 million from tobacco duty, together with a consequential increase of £25 million from the 8 per cent. VAT on these goods.
§ Before I leave the revenue duties, I should tell the House that I think it opportune to propose a change in the structure of certain of these duties. Traditionally we have charged revenue duties on imported goods as customs duties. These duties are essentially fiscal in character, but they include a small protective element which it would be more in accord with our general commercial policy to charge under tariff legislation.
§ If we are still in the EEC at the beginning of next year we shall not be able to treat revenue duties on imported goods as customs duties. But we shall be able to continue to raise whatever revenue we need by charging excise duties on imports. In fact this is a change of practice well worth making whether or not we remain in the EEC, and the Finance Bill will contain proposals to this end. There are five Budget Resolutions which provide the necessary foundation for this legislation. Though it may appear rather complex, it is essentially a legal restructuring; but it will involve some recasting of the duties on wine of fresh grapes and other wines. The revenue and price effects will be negligible, and there will be a valuable gain in flexibility in international negotiations for the future.
§ I have no changes to propose in the levels of betting and pool betting duties, which were increased last year. But I do consider that changes are now needed in other areas. The rate of bingo duty has remained unchanged since its introduction more than five years ago, and I propose that the basic rate should be increased to 5 per cent. with effect from 29th September 1975. Changes in the structure of gaming licence duty have been urged on me, and I am proposing here to restructure the duty so that it depends upon the current rateable values of gaming premises, and so as to provide for a smoother gradation in the various rate bands. But I take this opportunity to increase the level of the duty from 1st October next when existing licences will have expired.
308§ I also recommend changes in the tax burden on gaming machines. I propose that the net "take" on these should be liable to the standard rate of VAT from 1st November, but that this should be partly offset in respect of licences issued after the end of September by some abatement of the present duty rates on second and subsequent machines installed on individual premises and on holiday season licences. The overall effect of my proposals in the gaming and bingo fields is estimated to increase the yield by £12 million in a full year.
§ The total effect of all changes in Customs and Excise duties and taxes is estimated at £965 million in a full year.
§ It will be apparent that I have so far made no mention of the hydrocarbon oil duty. Hon. Members will know that a variety of suggestions have been put to me for altering the structure of taxation on road fuel, and indeed on road use in general. At the same time I have had regard to the fact that the tax burden borne by the private motorist has been increased twice in the last year, firstly by bringing petrol within the coverage of the VAT standard rate, and then by subjecting it to a VAT rate of 25 per cent. These changes, together with the recent increases in the pre-tax price of petrol, will have been particularly severe on those who need to make full use of their cars—those in rural areas or on shift work, for example. I have also taken account of the present depressed state of the motor industry, which is suffering both from the general recession in world trade and from the direct effects of the worldwide increase in petrol prices.
§ It is against this background that I have considered suggestions for increases in road fuel duty, or for the introduction of a two-tier petrol pricing system, as possible ways of achieving energy savings, or increasing Government revenue, or both. I have, however, come to the conclusion that further tax-induced price increases for petrol, with the same sort of distributional impact on people as the price increases over the last 18 months, should be avoided at this time. This includes two-tier petrol pricing which, if it were to have any appreciable impact on consumption, would require a large tax-induced increase in the price of all but a modest basic allocation for each motorist.
309§ Accordingly there will be no increase in road fuel duties, and two-tier petrol pricing will not be introduced. Petrol consumption has reacted appreciably to recent price increases and seems now to be running some 10 per cent. below what would have been expected on the basis of pre-1973 trends. Obviously future tax increases on road fuel cannot be ruled out, should the economic situation, or the energy supply position, require this.