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Indirect Tax Changes

Volume 929: debated on Tuesday 29 March 1977

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I come now to my proposals in the field of taxation. First, indirect taxation. I have said on several occasions that it is desirable to readjust the balance between direct and indirect taxation. In recent years the share of direct taxes has risen under successive Goverments, mainly because inflation has eroded the real value of income tax thresholds and the value of many of the specific duties. This produces fiscal boost as well as fiscal drag—a point often forgotten by commentators. This, however, is not the year to take a major step to reverse the balance, since the prospect of a steady fall in the rate of increase of the RPI is of critical importance to the negotiation of a satisfactory new pay agreement.

Nevertheless I believe that in two fields some increase in indirect taxation is desirable to support important objectives of national policy, providing it does not have a major impact on prices.

Energy conservation must remain a major objective throughout the industrialised world. This is a message which emerges clearly from the recent OECD report on the "World Energy Outlook". The pressure on the world's resources of fossil fuels, particularly oil, is bound to increase, as that report makes clear. Unless countries respond vigorously, the energy imbalance which struck the industrialised world so severely in 1973 could be upon us again in a much more severe and intractable form. If we allow this to happen, the economic and social consequences will be incalculable.

We must instead open up new sources of supply, and act on demand with conservation measures and through realistic pricing policies. We can claim that the United Kingdom's record in these areas is good. We are well endowed with indigenous energy resources, and we are developing them vigorously. In conservation, we have made a good and effective start, but we must maintain the momentum and develop our polices if we are to stay among the leaders. Fuel saving can bring forward the time when the balance of payments moves into surplus and so remove a major obstacle to high employment. In addition there are reasons of transport policy for increasing taxation on the use of road vehicles.