HC Deb 06 April 1976 vol 909 cc257-8

The higher rate of VAT applies to petrol, and if I did not take offsetting action on petrol duty the reduction to 12½ per cent. would reduce the price of petrol to the motorist. At a time when it is essential to conserve oil, I cannot allow this to happen; indeed, I believe that I should go further and more than offset the reduction of VAT. I therefore propose to raise the hydrocarbon oil duty on all road fuel by 7½p a gallon. This will mean a net increase of about 1p a gallon on petrol for the private motorist.

It will have two other consequences. First, the way VAT operates makes it very advantageous to misuse petrol bought on business account for private motoring. My proposals will greatly reduce this advantage. Second, the duty on fuel for diesel-engined road vehicles—derv—will also rise by 7½p a gallon. However, since the increase in oil prices began two and a half years ago the incidence of taxation on derv has fallen sharply, so that the incentive for users of this particular road fuel to economise has not been strengthened by taxation.

The proposed increases will come into effect at 6 p.m. on Friday 9th April, but it is not expected that prices will go up before Monday 12th April. This increase will not cause increases in the cost of stage bus services. Under existing legislation, there will be an increase in the rebate of duty paid to stage bus operators equivalent to the full amount of the duty increase.

The cost of the reduction in the higher rate of VAT on petrol will be £185 million in a full year. But my proposals for road fuel duty will offset this and produce a further net increase in revenue of £265 million in a full year. Overall, therefore, my proposals for the higher rate of VAT and for road fuel duty will produce a net revenue increase of £90 million in a full year.