House of Commons Hansard Debates for 10 Mar 1992

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Second, the capital allowances available for business cars are currently restricted for cars costing more than £8,000. That limit is now unrealistically low and I propose to increase it to £12,000, enabling full capital allowances to be given on most business cars. This measure will cost £50 million in 1993-94, building up to £220 milion when the change has its maximum effect. But the revenue cost in the long term will be small.

At present, most taxi and car hire firms and driving schools cannot recover the VAT they pay on their cars even though their cars are their business. I propose to end this anomaly from 1 August, at a cost of £50 million in 1992-93.

Those measures will go some way towards improving the neutrality of the tax system as its affects cars purchased by businesses. But I have one further measure to announce, which will affect all those buying new cars.

In 1973, car tax was introduced, to make up the difference between VAT and the former purchase tax. It has remained unchanged, at 10 per cent. of the wholesale price, ever since. This tax distorts consumer spending, and car manufacturers have long complained that our taxes on new cars are higher than those of other main European producers. This Government have always sought to reduce distortions in the tax system, and I therefore propose to reduce car tax by half, to 5 per cent., from midnight tonight. That will directly reduce the tax burden on all new cars. I trust that car dealers will respond by passing the full benefit of this reduction--about £400 on a typical family car--to the buyer. The halving of car tax will cost about £635 million in 1992-93, and £765 million in the following year.

EXCISE DUTIES

I turn now to excise duties. Last year I raised the duties on alcohol in line with inflation, and I propose to do the same this year. From 6 pm tonight, this will mean an increase in the tax on a typical pint of beer of just over 1p, just under 5p on a bottle of wine and 28p on a bottle of spirits. I also propose to raise the duty on unleaded petrol and on diesel in line with inflation.

On leaded petrol, I propose a rather larger increase, of 7 per cent., taking the tax differential between leaded and unleaded petrol to over 5p a litre. That will continue our long-standing and successful policy of encouraging motorists to move away from leaded petrol, which now represents little more than half the market. I propose to increase vehicle excise duty on cars, taxis and light vans by £10, and to freeze it again this year for lorries. I propose to raise the duty on tobacco by about 10 per cent.-- roughly the same real increase as last year. That will add 13p to the price of a packet of 20 cigarettes. The duties on other tobacco products will also rise by about 10 per cent., apart from that on pipe tobacco, which will rise only in line with inflation. Benjamin Franklin once remarked that nothing was certain except death and taxes, but for some people the latter may help to delay the former. As for the irreconcilables--among whom I count myself--I have one minor compensation : I propose to abolish from 1 January 1993 the duty charged on matches and mechanical lighters.

I also have a change to announce on betting duty, with consequences for the racing industry. I propose to cut the

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rate of betting duty by one quarter of 1 per cent., reducing the tax take by £15 million in 1992-93. My right hon. Friend the Secretary of State for the Home Department will be announcing later today his determination of the horse race betting levy, and he will be making proposals to ensure that the greater part of that reduction will be channelled to the horse racing industry. That is an important part of the measure, and I shall review the cut in betting duty next year.

A proportion of the reduction, of course, will be attributable to betting on greyhound racing. I hope that voluntary arrangements can be found to direct some of that money to help the greyhound racing industry, and my right hon. Friend will be exploring the possibilities with interested parties.

I should also tell right hon. and hon. Members quite clearly what I am not proposing. I know that there is particular concern about the European Commission's proposals on the taxation of alcohol. But let me make it clear : I will not accept any deal in Brussels that would ride roughshod over the interests of the British cider industry. Nor will I accept a deal that would allow member states to continue to levy no excise duty on wine which they make but which forces them to put up duties on spirits which we make.

CHARITIES Over the past 13 years, we have introduced a number of measures directed at encouraging charitable giving. We introduced the payroll giving scheme. We have extended and widened value added tax reliefs--and my right hon. Friend the Prime Minister, when he was Chancellor, introduced the gift aid scheme.

Gift aid allows tax relief on one-off donations of £600 or more. It has been a considerable success. Charities have received nearly £200 million in income under the scheme. I propose that from 1 July 1992 the minimum gift should be reduced to £400--the figure proposed by the Council for Charitable Support and the Charities Tax Reform Group. I shall not go further, because I know that some charities are concerned that to do so might reduce the attraction of regular giving through charitable covenants.

But I propose some changes to the arrangements for tax relief on charitable covenants, intended to reduce administration costs for charities and to help them to maintain a steady and reliable flow of income. And I propose a number of minor improvements to the VAT reliefs available to charities and for aids to the disabled.

SAVINGS

Savings are a passport to personal independence and security ; the very foundation of a property-owning democracy. That is why, over the last decade, the Government have set out to lighten the burden of taxation on saving.

We have reduced the basic and higher rates of income tax, and abolished the investment income surcharge. We have stopped taxing the savings of non- taxpayers. And we have extended savings incentives to the mass of ordinary tax-paying savers by introducing tax-exempt special savings accounts-- TESSAs--which allow people to invest up to £9,000 over five years in a bank or building society account. We have also introduced new and popular incentives to invest in shares. In 1986 we introduced personal equity plans to enhance the attraction of investment in shares by

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making the income and capital gains from them free of tax. Today, I want to improve PEPs still further by removing the £3,000 limit on the amount that can be invested in unit or investment trusts. I propose that from April people should be able to invest up to the full £6,000 a year in qualifying investment and unit trusts. This new opportunity--which will cost £10 million in 1993-94-- will provide further encouragement to PEPs, and help to small savers.

We do not see the returns to savings as "unearned income", to be taxed more heavily than earned income. On the contrary, we will continue to lighten the burden of tax on savings, and to broaden the range of investments which receive savings incentives.

PENSIONERS

No one has benefited more from our encouragement of savings than pensioners. In the 1980s, most pensioners saw their real incomes rise sharply, as inflation fell and the value of occupational pensions rose. On average, pensioners' real incomes increased by more than a third between 1979 and 1988. More than half of pensioners now have a second pension ; and pensioners have seen their income from saving double since 1979.

I propose that the income tax allowances for the over-65s--both the personal allowances and the married couple's allowances--should increase in line with inflation. The income limit for the age-related allowances will also increase in line with inflation.

Increases in the age allowances can, of course, benefit only those pensioners who pay tax. But this year I also want to help the less fortunate pensioners--those whose savings have been eroded over the years by inflation ; those who have only modest occupational pensions ; and those who retired too early to take advantage of the growth of SERPS.

Last October, my right hon. Friend the Secretary of State for Social Security announced that the income support rates for pensioners would be increased this April by at least 7 per cent. ; and there were extra increases for disabled pensioners and the over-80s.

I now propose a further increase in income support rates, of £2 for single pensioners and £3 for pensioner couples. When this comes into effect, in October, all pensioners on income support will be at least £5.75 a week better off than they are now, and some will be as much as £10.70 a week better off. In total, some 5 million people will benefit. And it will bring the real increase in spending on benefits for poorer pensioners since 1989 to more than £700 million. The cost--some £145 million in 1992-93 and £305 million in the following year-- will be financed from within the existing public expenditure plans.

INCOME TAX

Turning now to income tax more generally, I do not propose this year to increase the basic rate limit, the level of taxable income above which people begin to pay higher rate tax. Compared with indexation, this will save £180 million in 1992-93 and £290 million the following year.

Nor do I propose any increase in the married couple's allowance for couples under 65 or the allowances that are linked to it. But I do have one significant change to

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announce. The introduction of independent taxation in 1990 brought privacy and independence to married women by ending the rule that a wife's income was assumed to be her husband's. This change was widely welcomed. However, it did not eliminate completely the discriminatory features of the old system.

At present, the husband receives the benefit of the married couple's allowance unless his income is too low to make use of it. That means that the husband's tax allowances are almost always greater than those of his wife. It also means that couples where the wife is a higher rate taxpayer and the husband is not pay more tax than couples where the husband is the higher rate taxpayer. That cannot be right. It is hardly surprising that the MCA has been described by some as the male chauvinist allowance.

I propose to change this system. From 1993-94, couples will have a choice. If they take no action, the husband will continue to receive the MCA as now. They will be able to decide that the wife should receive the whole allowance, or that they should split it ; or the wife will be able to claim half at her own request. This measure will have only a small effect on revenue--£10 million in 1993-94--but it will make the tax system much fairer to married women.

The Government have cut the basic rate of income tax by 8p since we took office in 1979, to 25p. And, as the House knows, we are committed to reducing the basic rate to 20p as and when it is prudent to do so. I reaffirm that commitment today.

For the year ahead, I propose that the personal allowance should be uprated only in line with inflation. It will rise from £3,295 to £3, 445. But having reflected carefully on the priorities for this year's Budget, I have decided that for the year ahead it is right to leave the basic rate at 25p in the pound.

I believe that it is possible, desirable and, indeed, prudent to take a substantial step this year towards our goal of a 20p basic rate for all taxpayers. It is neither necessary nor desirable that anyone earning more than their personal allowances should start paying income tax at a rate of 25 per cent. With national insurance contributions on top, that means that the Government take a third of every extra £1 earned even from the low paid. In my view, that is simply too much ; and I believe that we can and should reduce that burden.

So I propose this year to cut the rate of income tax by 5p, to 20p, for the first £2,000 of taxable income. That will benefit every taxpayer in the country, but it will be of proportionately greater benefit to those on low incomes. It represents a decisive first step towards the Government's objective of a 20p basic rate.

In the next Parliament, we will gradually move closer to that goal. We will be able to do that in two possible ways : either by extending the width of the 20p band so that it covers increasing numbers of basic rate taxpayers, or by reducing the basic rate itself. Next year, nearly 4 million people on low incomes will already be paying tax only at the 20p rate. Their income tax bill will be cut by a fifth. That will improve their work incentives and make it more worth while for those not currently in work to take lower paid jobs. Nearly 25 million people--every taxpayer in the country--will see their starting rate of tax reduced to 20p. Combined with the indexation of the personal allowance, that will reduce taxes for the large majority of taxpayers by at least £2.64 a week.

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Mortgage interest tax relief at source will continue to be given at 25 per cent. for everybody, irrespective of whether they are a non-taxpayer, a 20p taxpayer, a basic rate taxpayer, or a higher rate taxpayer. But those in the 20p band will only be liable for tax at 20 per cent. on their savings.

The new 20p band will cost £1.8 billion in 1992-93 and £2.3 billion in the following year, broadly equivalent to the cost of a penny off the basic rate. But, in comparison with a penny off the basic rate, the 20p band will be of particular benefit to those on the lowest incomes. Indeed, about three-quarters of the cost will go to taxpayers earning less than average male earnings.

I now turn to the question of value added tax. I have a very important announcement to make, to which I hope the whole House will listen carefully. I have no need, no proposals and no plans either to raise or to extend the scope of VAT.

The total impact of the taxation proposals I have put forward today, taken together with measures announced since my last Budget, will reduce the burden of taxation by around £1.5 billion, equivalent to per cent. of GDP, in the next financial year.

PERORATION The Budget I have presented today is a Budget for the recovery. It maintains the policies that have slashed inflation and reduced interest rates. And it includes measures that will help businesses, large and small, up and down the country.

But it is also a Budget that cuts taxes for every taxpayer in the country, a Budget which marks another significant step in our constant drive to leave individuals and families with more of what they earn. Over the past decade our belief in low taxation has brought unparalleled growth in the living standards of the British people. My Budget today continues that process, and I commend it to the House.

Provisional Collection of Taxes

Motion made, and Question,

That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions :--

(a) Spirits (motion No. 2) ;

(b) Beer (motion No. 3) ;

(d) Cider (motion No. 5) ;

(e) Tobacco products (rates) (motion No. 6) ;

(f) Hydrocarbon oil (motion No. 8) ;

(g) Vehicles excise duty (rates : cars etc.) (motion No. 9) ; (h) Vehicles excise duty (rates : tricycles) (motion No. 10) ; (i) Value added tax (penalty for serious misdeclaration etc.) (motion No. 18) ;

(j) Car tax (rates) (motion No. 20).-- [Mr. Norman Lamont.] put forthwith, pursuant to Standing Order No. 50 (Ways and Means Motions), and agreed to.

Mr. Deputy Speaker : I now call on the Chancellor of the Exchequer to move the motion entitled "Amendment of the law". It is on that motion that the Budget debate will take place today and on succeeding days. The remaining motions will not be put until the end of the Budget debate next week, and then they will be decided without debate.

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Budget Resolutions and Economic Situation

AMENDMENT OF THE LAW

Motion made, and Question proposed,

That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance ; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide--

(a) for zero-rating or exempting any supply ;

(b) for refunding any amount of tax ;

(d) for relief other than relief applying to goods of whatever description or services of whatever description.-- [Mr. Norman Lamont.]

[Relevant document : European Community Document No. 10212/91 and COR2, the Commission's Annual Economic Report 1991-92.]

4.42 pm

Mr. Neil Kinnock (Islwyn) : First, I offer the traditional congratulations to the Chancellor of the Exchequer on the delivery of his speech, especially since he had a lot of information to offer and took rather longer providing it than he did last year and than has been customary in recent years. Nevertheless, we listened with interest. Indeed, I offer my congratulations with rather greater felicity than I usually do because this will be the last speech by a Conservative Chancellor for many years to come.

I also want to follow an even more pleasant tradition and welcome several of the measures that the Chancellor announced this afternoon. The step that he made in the direction of radical reform of the Budget process is certainly worth a warm welcome. It has been the policy of our party for some years past, and it is good that there is a consensus. The job of the right hon. Member for Huntingdon (Mr. Major) will be made easier next year when he speaks from my current position after the change has taken place.

We should also like to welcome several of the changes that the Chancellor is introducing in respect of businesses, large and small. I refer to changes in the VAT arrangements for small businesses and the effective freezing of the uniform business rate--and to other arrangements to do with the inflation rate. We are bound to wonder, as we opposed the introduction of the UBR in the first place, why the Government waited until the recession had continued for 21 months instead of making earlier changes which would have saved many good businesses. The UBR is lingering evidence of the shambles of the poll tax system, and any changes in the right direction are to be welcomed--before we make the further changes that will be welcomed by business during the rest of this year, when we introduce our reforms.

For the automobile manufacturing industry, which has been under terrible pressure, especially during the recession--and still--the changes in the special car tax must be welcome. The Chancellor has made here another worthwhile step worthy of our support.

We also support the modest but welcome steps that he has taken in respect of the British film industry. I had hoped last year that he would take up the proposals of the working party ; I am glad to see that he has rectified that this year. As the right hon. Gentleman is making large changes to the business expansion scheme this might have

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been an opportunity for him to make the scheme serve the interests of the film industry, which certainly needs support and which, given its remarkable record again last year, is worthy of that support. We are in the midst of the longest recession since the 1930s, with unemployment rising towards 2.75 million again, with record repossessions and bankruptcies. What our country needed today--

Mr. Tim Smith (Beaconsfield) : Will the right hon. Gentleman-- [Hon. Members :-- "Sit down!"]

Mr. Kinnock : What our country needed today was a Budget for strengthening Britain and promoting sustainable recovery out of the recession caused by the Government. What we got was a Budget to try to bribe voters with borrowed money which they will have to repay. The borrowing that the Government are raising to finance tax cuts is not, as the Chancellor would insist, prudent economic strategy : it is a panic- stricken pre-election political sweetener.

For the sake of a few weeks of an election campaign the Government are going to try to saddle the British electors and taxpayers with many years of debt. The borrowing-- [Laughter.] When Conservative Members realise that the Government are running a public sector borrowing requirement of £28 billion perhaps they will be a little more silent on the subject--the more so since the PSBR is the result of a combination of long-term failure and recession and short-term fear in the face of the electorate.

The kind of borrowing that the Government propose--the extra borrowing to fund tax cuts--will not provide a single extra school or hospital. It will not provide a single extra place on a training scheme or in a childcare nursery. It will not create a single extra research project or transport improvement, or put an extra policeman on the streets. This debt is just extra Tory dead-weight debt, an extra £2 billion which gives a new meaning to the idea of state funding for political parties.

There are no excuses for this Government. In 13 years of power they have had £100 billion worth of oil revenues, £40 billion worth of income from privatisation and the revenues from the highest tax burden ever imposed on the British people by any Government. At the end of all that, the best that the Chancellor could come here today and forecast in his Budget statement was a paltry 1 per cent. growth, further rises in unemployment, a continuing balance of payments deficit, despite the recession, and a PSBR of £28 billion. That is double this year's PSBR, which the Chancellor acknowledged to be £14 billion. What a terrible confession--

Mr. Tim Smith : Will the right hon. Gentleman give way?

Mr. Kinnock : What a terrible confession the Chancellor had to make to the effects of a mismanagement that has brought this country to the point where the Government have got those finances and that growth into such a parlous state. Even now, it is quite probable that the Chancellor is not making a dependable forecast. He is having one of his visions of green shoots all over again. He started having his attack of green shoots--his equivalent of pink elephants--last year in his Budget speech. He started promising then

"the recovery will begin around the middle of the year"-- that is, in 1991. He told us that output would increase

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"by about 2 per cent."--[ Official Report, 19 March 1991 ; Vol. 188, c. 165.]

He firmly anticipated "an added boost" in the "revival" in "consumer confidence". He said that the Budget deficit would be £8 billion. In reality, as the country knows to its cost, output did not grow by 2 per cent.--it fell. The promised revival in confidence and performance simply did not take place and the deficit was not £8 billion but, as the Chancellor has just told us, £14 billion--75 per cent. higher than his original forecast. The Chancellor's predictions were not simply inaccurate ; they turned out to be complete fiction. The Chancellor has told the Select Committee that

"forecasting is an inexact science"

and it may be that he is a hapless victim of the

forecasters--innocent putty in their hands. He is, after all, only the Chancellor of the Exchequer. In that case, we have to ask him what weight we can attach to the forecasts that he has been offering us this year, especially that on the PSBR.

We also have to ask the Chancellor, if the forecasters were inexact and he was consequently in error and knew by January of this year that he was wrong, how could he still say to the January meeting of the National Economic Development Council :

"The policy would not have been different had we known the outcome"?

People all over the country have lost jobs, businesses and homes. What faith can any of them have in a Chancellor of the Exchequer who says that, even had he known at the outset that this was going to become the longest recession, his

"policy would not have been different"?

Despite all the redundancies, the bankruptcies and repossessions, he still, as he put it himself, regarded unemployment and recession as a "price well worth paying". The Chancellor was sticking to his economic guns even when they were turned on the people of this country.

In his last Budget statement, the Chancellor told us that he was dedicated to

"a simple rule, which requires the Government to finance their spending honestly."--[ Official Report, 19 March 1991 ; Vol. 188, c. 167.]

When I heard the Chancellor laying down his simple rule, I was reminded of one of his predecessors. I recall the Chancellor who was excoriating "successive Governments" who, he said,

"had spent more than they were prepared to raise honestly from taxation and made up the shortfall by borrowing. They left that bill to be picked up by future generations."--[ Official Report, 20 March 1990 ; Vol. 169, c. 1016.]

It was a stern rebuke to those dishonest borrowers and, interestingly, it did not come from a Chancellor in the distant past, not from a Victorian or even from one of the advisers to Henry VII ; it came from the last Chancellor, the right hon. Member for Huntingdon, now the Prime Minister, just two years ago in his Budget statement.

When I compare those words about honest taxation and borrowing with the Budget we have just heard, a Budget in which the Government will borrow £28 billion, of which £2 billion will go for tax cuts, I realise that I do not have to condemn the Government--they are condemned out of their own mouth and on the basis of their own words. They are the dishonest borrowers whom their Prime Minister was so busy denouncing. It is not just the Prime Minister and the Chancellor who have cursed Governments for spending more than they were prepared to raise honestly from taxation.

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The Chief Secretary to the Treasury (Mr. David Mellor) : Will the right hon. Gentleman give way?

Mr. Kinnock : It is an exception to do so, but by all means.

Mr. Mellor : Will the right hon. Gentleman-- [Interruption.]

Mr. Deputy Speaker (Mr. Harold Walker) : Order. Have hon. Gentlemen started the election early? As I understood it, the Leader of the Opposition had given way.

Mr. Kinnock indicated assent.

Mr. Mellor : I am grateful to the right hon. Gentleman for giving way. Are we to take it that he intends to oppose the 20p tax band that the Chancellor has just announced?

Mr. Kinnock : It must have been the word "dishonest" that brought the right hon. Gentleman to his feet.

Mr. Mellor : Answer the question.

Mr. Kinnock : I will if the right hon. Gentleman will just shut up. I will answer it, no problem. We shall, next week, be offering our alternative Budget. The country will see in that how we shall have a much better offer to make to the taxpayers of Britain and to the people of Britain, who, in the great majority, want jobs, decent public services, a health service, an education system and not the bribes that the Government are offering them. [Interruption.]

Mr. Deputy Speaker : Order. The Chancellor was given a reasonable hearing and the Leader of the Opposition is entitled to no less. I very much hope that we shall not get into red card territory.

Mr. Kinnock : Thank you, Mr. Deputy Speaker.

The right hon. Gentleman and I just made a little history there because, as far as I know, it is the first time that the Leader of the Opposition has been interrupted in the course of his response to the Budget statement. What a shame, now that we have established this precedent, that we shall be changing the Budget process, so possibly the same conditions will not arise again. However, I can say on behalf of my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) that if the then Leader of the Opposition wants to intervene, he will give way.

Mr. Mellor : Answer the question.

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