§ I turn now to the taxation of personal income and spending. My Budget last year shifted some of the burden of personal taxation from earnings to spending. Today I propose to make a further move in this direction. Accordingly, I propose to increase the revenue from the excise duties by rather more than is required simply to keep pace with inflation — a less painful task now that inflation is relatively low.
I propose to increase the duty on cigarettes and hand-rolling tobacco by the equivalent, including VAT, of 6p on a packet of 20 cigarettes. This will take effect from midnight on Thursday. I do not, however, propose any increase at all in the duties on cigars and pipe tobacco.
I propose increases which, including VAT, will put between 1p and 2p a pint on most beer, depending on its strength, 1p a pint on cider, 6p on a bottle of table wine and about 10p a bottle on sparkling or fortified wine. In recognition of the current difficulties of the Scotch whisky industry, however, I propose to increase the duty on spirits by only 10p a bottle, well below the amount needed to keep pace with inflation. [HON. MEMBERS: "Hear, hear."] All these changes take effect from midnight tonight.
I propose to increase the duty on petrol and derv by amounts which, including VAT, will raise the price at the pumps by approximately 4p and 3¼p a gallon respectively. This does no more than keep pace with inflation. These increases will take effect from 6 o'clock this evening. As last year, I do not propose any change in the duty on heavy fuel oil.
I propose this year, however, to raise more revenue from the vehicle excise duty. For cars and light vans the duty will go up by £10 to £100. On the advice of my right hon. Friend the Secretary of State for Transport, the pattern of duty on lorries will be changed to correspond more closely to the amount of wear and tear that they cause to the roads. While there will be substantial increases in duty for some of the heaviest rigid lorries, for most lorries the rates will remain unchanged.
796 These changes in the excise duty will, all told, raise an extra £820 million in 1985–86, some £235 million more than is required to keep pace with inflation. The overall impact effect on the retail price index of these changes will be 0.5 per cent. This has already been taken into account in the forecast that I have given the House of 5 per cent. inflation by the end of the year.
I now turn to VAT. I have followed with interest the speculation that has built up over recent months about my alleged intentions for VAT. Most of it—such as the so-called proposal to levy VAT on books—has concerned matters which have not even been under consideration. But to have revealed this prematurely would not have stilled speculation; it would merely have concentrated it on those matters that were under consideration — a practice that no Chancellor, rightly, has sought to encourage.
I can now inform the House that, apart from one change I shall be proposing today, I do not intend to make any further extensions of the VAT base during the lifetime of this Parliament. This is, of course, a field in which European Community law has to be reckoned with and where we are bound by our treaty obligations, but as the House will be aware, where we are currently under challenge, we are vigorously fighting our case.
The one extension I propose to make concerns newspapers and magazines. At present, while all other advertising is taxed, newspapers and magazine advertising is not. There is no justification for this anomaly. It is one thing to maintain that newspapers and magazines should not be liable to VAT: quite another to argue that those who advertise in them should enjoy a similar immunity. Accordingly, I propose that, from 1 May, newspaper and magazine advertising should be subject to VAT. This will raise £30 million in 1985–86 and £50 million in a full year.
I also propose to change the VAT treatment of credit cards and similar payment cards—a part of the financial sector which has enjoyed exceptional growth over the past few years. I propose that, from 1 May, transactions between the companies providing the cards and outlets which accept them should be classified as exempt. This means that the companies will not be able to recover VAT in respect of such transactions. This will raise £15 million in 1985–86 and £20 million in a full year. It should not directly affect the charges made to card holders.
I also have a modest VAT concession to make. I have decided to extend the existing VAT relief for medical or scientific equipment bought with donated funds for use in hospitals and the like to cover computer equipment for certain medical uses. Customs and Excise will be announcing the precise details of the relief, which will take effect from 1 May.
Following extensive consultations, I propose to include in this year's Finance Bill legislation to implement most of the recommendations of the first two volumes of the Keith report on the enforcement powers of the revenue departments, including measures to deal with the problem of the late payment of VAT. This is expected to bring in extra revenue of about £50 million in 1985–86. By 1988–89, there will have been a cumulative once-for-all revenue gain of about £600 million. Proposals on the Inland Revenue aspects of the Keith report will follow in next year's Finance Bill.
The VAT changes I have just proposed will bring in £90 million in 1985–86, rising eventually to £215 million in a full year. They will have no impact on the RPI. The 797 additional revenue raised from the excise duties and VAT taken together will help me to lighten the burden of income tax.