Taxes on Spending

Ways and Means – in the House of Commons at 3:31 pm on 15th March 1988.

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I now turn to the taxation of spending.
I have one change to propose today affecting the coverage of value added tax, which will remain at 15 per cent. Confectionery was brought in to VAT by the right hon. Member for Leeds, East (Mr. Healey) in 1974, and the legal definition of confectionery goes back further still to the days of purchase tax. The emergence of new products has rendered this definition, rather like the right hon. Gentleman himself, somewhat obsolete. In particular, recent legal decisions mean that some cereal bars are subject to VAT, while others are not. I propose to clarify the law so that all cereal bars are taxed.
I propose to raise the excise duties as a whole broadly in line with inflation, but to make some modest adjustments within the total. The duty on cigarettes and hand-rolling tobacco will be increased, by the equivalent, including VAT, of between threepence and fourpence for a packet of 20 cigarettes. This will take effect from midnight on Thursday. The duty on a packet of five small cigars will rise by twopence, but that on pipe tobacco will remain unchanged.
As to the alcohol duties, I propose increases which, including VAT, will put about a penny on the price of a pint of average-strength beer and cider, fourpence on a bottle of table wine, and sixpence on a bottle of sparkling or fortified wine. There will once again be no increase in the duty on spirits. These changes will take effect from 6 o'clock tonight.
The existing duty structure is inhibiting sales of drinks known as coolers, which are mixtures of an alcoholic drink and a soft drink. I propose to introduce new lower rates of duty for these products, so as to encourage the young, in particular, to change to drinks with a lower alcohol content. For the same reason, I propose from 1 October to abolish the minimum duty charge on beer, which will encourage the promotion of lower-strength beers.
I propose once again to leave the main rates of vehicle excise duty unchanged. To recover the revenue forgone, I propose increases in petrol and derv duty over and above the rate of inflation, which, including VAT, will raise the price of petrol by between fivepence and sixpence a gallon, and that of derv by a little under fivepence a gallon. These changes will take effect from 6 o'clock tonight.
In my Budget last year, I sought to promote the use of lead-free petrol, with all the environmental benefits it brings, by introducing a duty differential in its favour. As a result, the number of garages selling lead-free petrol has more than trebled. But consumption remains disappointingly low.
Accordingly, I propose to double the duty differential in its favour by exempting unleaded petrol altogether from the duty increase I have just announced for leaded petrol. This means that, despite the higher production costs, the pump price of unleaded petrol should in future be below that of ordinary two-star petrol. I very much hope the petrol companies will now reinforce this concession by vigorously promoting the use of lead-free petrol.