I turn now from companies to my other proposals for finding extra revenue. I begin with the indirect taxes. Last June I took an important step in implementing a change in the tax structure that everyone knew to be necessary. I carried out a substantial switch in the balance of taxation from direct to indirect taxes. I do not intend to go further in that direction this year. But I do intend to ensure that the real yield of indirect taxation is not eroded. Inflation can all too easily have that effect.
First, I shall deal with value added tax. Without the extra revenue from last June's Budget changes, it would have been quite impossible this year for any Government to avoid either much larger cuts in public spending or big increases in income tax. This is the first year in which the full yield of the 15 per cent. rate will be available. The yield will be some £12,450 million in 1980–81. I propose no change in the 15 per cent. standard rate of VAT. I am, however, making a number of technical changes to ease the administrative burdens borne by small businesses—about which I shall have more to say later.
There have been signs that some large companies may have been delaying their VAT payments to the Exchequer. This must be corrected at the earliest opportunity. Customs and Excise are already taking steps, with my approval and within the existing law, to reduce the attractions of delay. But more needs to be done. I shall, therefore, be asking the House to raise the maximum penalty for late payment. My proposal is that it should be expressed as a proportion of the tax at stake. In practice, that will raise the penalty for only the larger companies. For them the existing maximum penalty, of £100 plus £10 a day, is clearly inadequate.
I also propose to remedy an anomaly in the coverage of VAT. Lubricating and certain other oils are currently zero-rated, without any real justification. We shall be laying an order to charge them at the full rate from Thursday 1 May. That will yield an additional £12 million in 1980–81 and £17 million in a full year.
I want also to inform the House today of my decision on one of the options for staff savings in the Customs and Excise. Concern has been expressed by a number of my hon. Friends and by representative business organisations at the possibility that we might withdraw the facility of monthly returns for those VAT traders who are entitled to claim repayments. I have carefully considered representations about the effect on business cash flow, and I do not intend to pursue that option any further.
This year most of the additional revenue I need from the indirect taxes must come from the excise duties. Because they are applied to a physical quantity, the real value of their yield declines in times of inflation. A number of them have not been increased since early 1977 and many have been declining in real value over a much longer period. Accordingly, taking the duties as a whole, I am proposing increases which will reflect the impact of the last year's inflation and keep the real yield roughly constant.
Alcoholic drinks and tobacco
I start with the duties on alcoholic drinks and tobacco, which were last increased three years ago. I propose from midnight tonight to increase the duties on drinks by amounts which, including VAT, represent about 2p on the price of a typical pint of draught beer, 8p on a bottle of table wine and 50p on a bottle of whisky. The tobacco duty will be raised with effect from midnight on Friday. Including VAT, the increase will represent 5p on the price of a typical packet of 20 king-size cigarettes. There will be consequential increases for most other alcoholic drinks and tobacco products, but rather less than the full amount on pipe tobacco. The increases on alcoholic drinks will yield £273 million in 1980–81 and £288 million in a full year. The tobacco increases will yield £180 million in 1980–81 and £195 million in a full year.
Betting and gaming
Next come betting and gaming. I do not propose any changes in the general betting duty or the pool betting duty. But the Government have been persuaded by some of the criticisms of the present duty on casinos made by the Royal Commission on Gambling. That duty depends heavily on rateable value. It is not an equitable tax, and the more profitable casinos are seriously undertaxed. From 1 October, therefore, the present duty will be replaced by one related more closely to the profitability of casinos, and designed to produce about two and a half times as much revenue in a full year. At about the same time, the duty on bingo will be increased from 5 per cent. to 7½ per cent. Provision will also be made in the Finance Bill for restructuring the duty on gaming machines. We intend to remove the duty on penny machines, and propose to increase the revenue from the very profitable jackpot machines usually found in clubs. These changes will yield £5 million in 1980–81 and £20 million in a full year.
Vehicle Excise Duty
I turn now to vehicle excise duty. Our predecessors announced their intention to abolish the duty on cars and other petrol-driven vehicles. They proposed to make good the revenue loss by increasing the tax on petrol. As the House will recollect, after carefully reviewing the arguments, we decided that that was not a sensible change to make. Even if the tax had gone, the need for a vehicle register would have remained. That is essential to the police and for vehicle control. Much of the form-filling would have continued unabated. We decided that it was much better to keep the vehicle excise duty, but to achieve staff savings by streamlining its administration, along the lines which my right hon. Friend the Minister of Transport has already proposed. As part of that, he is announcing today that from October, four-monthly licences will be replaced by six-monthly licences. From August a stamp-saving scheme will be introduced to help motorists to budget for payment of this tax.
If the duty is to remain, we should be wrong to allow inflation to go on eroding its real value. Because of doubts about its future, the rates of this duty have remained unchanged since 1977. I therefore make no apology for proposing increases in the duty on most vehicles of about 20 per cent., and on the heaviest lorries of about 30 per cent. this year. As a result, the annual duty on cars will increase by £10, to £60. The larger increase on the heaviest lorries will reflect the high road costs which they impose on the community. These changes will produce an estimated additional yield of £240 million a year, but will still leave the vehicle excise duty lower in real terms than after the last increase in 1977.
I have one further small change to announce in vehicle excise duty. Electric vehicles at present play only a small part in road transport. However, they are much cleaner and quieter than vehicles powered by internal combustion engines, and they could bring big future energy savings. Because we want to encourage their further development, I propose to abolish vehicle excise duty on them. The cost in 1980–81 will be less than £2 million.
Road fuel duties
In my Budget last June, I stated that there was a continuing case for measures that would help us to conserve oil. The price of petrol in the United Kingdom remains well below that in any other EEC country. If we are to ensure that our oil resources are not wasted, a duty increase is justified this year.
If we had decided, as the last Government had in mind, to replace VED progressively by higher petrol taxation I should have been obliged to consider increasing the price of petrol by at least 20p a gallon. That would have been necessary simply to replace the revenue formerly provided by VED. To match the VED increase I have announced would have taken the figure to 24p a gallon—and higher still if the present petrol duty were itself maintained in real terms.
Since we are retaining the VED, such large increases are not needed. Instead, I shall be increasing the duty on petrol, from 6 pm tonight, by the equivalent, including VAT, of 10p a gallon. For the past three years the rate of duty on derv has been higher than that on petrol. I have decided that we can no longer justify that differential, which has borne heavily on commercial and industrial users. Taking account of VAT, the increase in the duty on derv will be about 4p a gallon. That will mean that once again the duties on petrol and derv are the same. These increases will yield an additional £450 million from petrol, and £55 million from derv in 1980–81, and in a full year.
I also propose to raise the duty on heavy oil other than derv by about ½p a gallon from 6 pm tonight. This will yield an additional £50 million in 1980–81 and in a full year. I have decided not to increase the duty on burning oil and on domestic paraffin, which are the oils most commonly used in the home.
These VAT and excise duty changes will raise additional revenues of £1,260 million in 1980–81 and £1,305 million in a full year. They do not imply any real increase in indirect taxes as compared with 1979–80. The immediate impact effect on the RPI will be just over 1 per cent., but in the longer run these excise duty changes, by contributing to the reduction of the budget deficit, will help to ensure that inflation is brought down and stays down.
As I have explained, I do not believe that I should be justified in allowing the real costs of motoring and road transport to fall simply as a result of inflation. But if it is right in principle for road users to face a constant fiscal burden, it would not be fair to disregard the increasing unreality of the income tax charge levied on those who are partly sheltered from rising costs because they have a company car available for private use. The scales of benefit charged to income tax have been allowed to fall well behind any reasonable measure of true values. The present figures barely cover the current cost of tax, insurance and maintenance. That is unfair to the great majority of individuals who have to bear the full cost of car ownership, not to mention those who cannot afford to run a car at all.
I propose, therefore, to increase by some 20 per cent. the scale figures that are used for measuring the benefit of a company car for tax purposes. This change will be effective from April 1981. At the same time, there will be one modest relief. The qualifying annual mileage for business use, above which a reduced rate of tax is charged, should be reduced from 25,000 to 18,000 miles a year. In the light of our widespread consultations last year, I believe that these changes will generally be recognised as fair.
I have also been considering whether I ought to take action to charge tax on the value of petrol provided by employers for private use by their employees. This would present severe administrative problems, both for employers and for the Inland Revenue. Even so, I shall feel bound to contemplate action next year, if the provision of free petrol continues to spread at anything like its present rate.
As the burden of income tax is reduced, I would hope to see a decline in the provision of benefits in kind. It is consistent with that view for me to impose a reasonable charge to income tax on benefits which remain.
In that spirit, I approach one area this year that has so far escaped the eye of my predecessors. I refer to the provision for employees of items such as suits of clothing and television sets. I propose to double, from 10 per cent. to 20 per cent., the proportion of the value of such objects taken as a measure of the annual taxable benefit. And I shall impose an effective charge where the items concerned are subsequently acquired by the employee for less than true value. I am also taking steps to increase from 9 per cent. to 15 per cent. the rate of interest used to measure the value of beneficial loans to employees, and to raise to £200 the limit below which the benefit of such loans is not charged to tax.
Fringe benefits are charged to tax only if the employee earns more than a certain amount, now £8,500. The case for abolishing that threshold has been pressed upon us. I have asked the Inland Revenue to consult employers and others about the administrative problems that might be involved in such a change.