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TOBACCO Next, tobacco. With effect from 6.00 pm tonight, the total tax on a packet of 20 cigarettes will go up by 1...
TOBACCO Next, tobacco. With effect from 6.00 pm tonight, the total tax on a packet of 20 cigarettes will go up by 11 pence - a duty increase of 7.3 per cent. The duties on other tobacco products will rise by the same proportion. In addition, I have decided to strengthen the commitment on tobacco duties that the Government has given in the past. I intend to increase tobacco duties on average by at least 3 per cent a year in real terms in future Budgets.

I believe that the approach we are adopting in Britain is the most effective way to reduce smoking. It is clearly a nonsense for some European countries to ban advertising to protect state-owned tobacco industries, but then impose markedly lower levels of tax.


Turning next to the duties on alcohol, let me start with beer. I have listened carefully to the arguments put by the industry about the declining consumption of beer in this country, the effect of the change to end-product duty and the growth of cross-Channel imports of beer. Taking all these factors into account I have decided that for the first time in five Budgets, there will be no increase this year in the duty on beer.

Let me assure the House that this decision has nothing whatever to do with the drinking habits of the Chancellor of the Exchequer! And to prove this, I am also proposing to freeze the duty on spirits for a further year. The spirits industry, which is a major UK export business, is facing similar problems to the brewers. I know that my proposals will be warmly welcomed by the House, and will give RH and HMs from Scotland something to celebrate on St Andrew's Day.

For wine, sparkling wine and cider, I propose to raise the duty in line with inflation. This will add 2 pence to a bottle of wine. But it will not take effect until after Christmas. Mr Deputy Speaker, the overall effect of all the tax measures I have announced will be to raise revenue next year by a little under £1 3/4 billion. By 1995-96, that will rise to about £5 billion, and to £6 billion by 1996-97, about 3/4 per cent of GDP.

These sums fall a long way short of the reduction in the borrowing requirement I judge necessary. As I announced earlier, I intend with my Budget to reduce the Public Sector Borrowing Requirement next year, not by £1 3/4 billion, but by £5 1/2 billion, with a reduction by 1996-97 of £10 1/2 billion. The central challenge I have faced in finalising this Budget is how this gap could be bridged. Every commentator realised that one of my options would be to extend the VAT base. The main candidates are food, children's clothes, transport, sewerage and newspapers. A powerful case for each of them can be made, and no amount of lobbying need put us off. But before looking at that, I have always made clear that my first responsibility as Chancellor is to get public expenditure under the firmest possible control.

I have already announced that the Government's new spending plans fully meet the remit agreed by Cabinet in June. But when the House comes to study the Red Book it will see that the figures for the new control total in each of the next three years are different from those set out in the March Budget and the cash ceilings agreed by the Cabinet in June.

Mr Deputy Speaker, the explanation for this difference is simple. The Cabinet has decided to establish new spending plans which are not just consistent with the ceilings set in June. We have decided to set plans which in each of the next three years are lower than the June ceilings. Our spending plans for the coming year have been reduced by more than £3 1/2 billion. The new control total for next year will be £3 1/2 billion below the level we set last year, and £8 billion below the plans that we first set two years ago.

And that is not all. In 1995-96 we have reduced the new control total by £1 1/2 billion and in 1996-97 by nearly £3 billion. Taking into account lower debt interest payments resulting from lower borrowing, I expect that, as a direct result of the Budget, total public spending over the next three years will be around £10 billion less than we assumed in March.Including also the reduction in cyclical spending as the economy recovers, and other changes, the total reduction in public spending over the next three years compared to the March Budget projections will be no less than £15 billion.

Those public expenditure savings dramatically reduced my need to raise taxes to get the borrowing requirement down. As a result of that achievement - and only because of that - I can now confirm that I have no need this year to propose any changes to the VAT base. Throughout the public spending round, all my Cabinet colleagues understood that the essential job in this Budget was to move back towards a balanced budget. And we all understood the clear preference on this side of the House for this to be done, so far as possible, by firm control of public spending. That is what we said we would deliver. And that is what we have delivered. Because that is what is required to keep the recovery going.

CONCLUSION Mr Deputy Speaker, my Budget today puts Britain firmly on course for a sustained period of rising prosperity and falling unemployment, based on low inflation and healthy public finances. This is a no-nonsense Budget which deals directly and firmly with the main challenges facing the country today. Above all, it is the Budget of a responsible Government which is determined to bring lasting recovery to Britain. I commend it to the House.

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