§ I now turn to the taxation of spending. So far as the indirect taxes are concerned, the overriding question this year is how far I should recover from the oil consumer the tax revenues I have lost from the oil producer, as a result of the massive fall in the oil price. Since November the price of petrol at the pump has fallen by anything up to 15p a gallon, but if the oil companies had passed on the full amount of the fall in the oil price to date, the price of petrol at the pump could have been 12p a gallon lower still. There is clearly scope, therefore, for a sizeable increase in petrol tax this year.
I have concluded, however, that at the present time, while I must certainly maintain the real value of the 180 revenue I get from the motorist, I will not increase it. But I do believe it makes sense to look again, in the light of the radically changed circumstances, at the relative weight of petrol tax and vehicle excise duty. Accordingly, I propose to increase the duty on petrol by an amount which, including VAT, would—if it were wholly passed on to the consumer—[HON. MEMBERS: "And it will be"]—raise the price at the pump by 7½p a gallon. [Laughter.] This is 2p more than is needed to keep pace with inflation, and that 2p enables me to keep vehicle excise duty at last year's level of £100 for cars and light vans, leaving the overall burden on the motorist unchanged in real terms. [HON. MEMBERS: "Hear, hear."] Moreover, given the very substantial increase in the oil companies' margins, there is clearly no need for the pump price of petrol to go up at all. Indeed, it ought to fall further. In the same way, I propose to increase the duty on derv by an amount which—if it were wholly passed on to the consumer, which, to repeat, it should certainly not be—would raise the price at the pump by 6½p, including VAT. This will enable me to avoid any general increase this year in the vehicle excise duty on lorries, too.
So far as the other oil duties are concerned, I have one or two changes to make—not to the duty on heavy fuel oil, which will remain unchanged as it has done since 1980, but I propose to increase the very modest duty on gasoil, by 1½p a gallon, and I propose to abolish altogether the duties on aviation kerosene, or Avtur—which at present is taxed for domestic flights only—and on most lubricating oils. All these changes in duty will take effect from 6 o'clock this evening.
Finally, so far as oil products are concerned, I am anxious to do what I reasonably can to assist the introduction of lead-free petrol. The case for this on environmental grounds is clear. I have therefore decided to create a duty differential in its favour to offset its higher production costs. My officials will be discussing with the oil companies how this can best be achieved in time for next year's Budget.
Next, tobacco. In the light of the representations that I have received on health grounds, I have decided to increase the duty on cigarettes by appreciably more than is needed to keep pace with inflation. I therefore propose an increase in the duty on cigarettes and hand-rolling tobacco by the equivalent, including VAT, of approximately 11p on a packet of 20 cigarettes. This will take effect from midnight on Thursday. As last year, I propose no increase at all on the duties on cigars and pipe tobacco, which are more heavily taxed here than in most comparable countries.
§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)Absolutely right.
§ Mr. LawsonNext, drink. As the House will recall, I was obliged in 1984 to increase the duty on beer by slightly more than I would have wished, as a consequence of the judgment against the United Kingdom in the European Court. I now propose no increase at all in the duty on beer. [HON. MEMBERS: "Hear, hear,"] Nor do I propose any increase in the duties on cider, table wine, sparkling wine, fortified wine or spirits. This last decision will, I hope, be particularly welcome in Scotland.
Finally, VAT, I propose to stop the misuse of long-stay relief for hotel accommodation, and make certain other minor changes, but I have no proposals for major changes in value added tax this year.
181 The changes I have announced in the excise duties will, all told, raise an extra £795 million in 1986–87, the same amount as I would have raised had I simply increased all the excise duties precisely in line with inflation. The overall impact effect on the RPI, if all the increases were fully passed on, would be one half of one per cent. This has already been taken into account in the forecast I have given the House of 3½ per cent. inflation by the end of the year.