HC Deb 01 June 1933 vol 278 cc2181-90

Section eighteen of the Finance Act, 1932 (.which provides for additional deductions in respect of wear and tear of any machinery or plant during any year of assessment) shall have effect as if the words "one-fifth" were substituted for the words"one-tenth."— [Mr. Dingle Foot.]

Brought up, and read the First time.

9.41 p.m.


I beg to move, "That the Clause be read the Second time."

I raise this subject of wear and tear allowances because I think it is one which has commanded increasing attention from manufacturers and industrialists during the past year. On the 9th March the Chancellor received a deputation from the Association of British Chambers of Commerce, who put their views on this subject very strongly before him. I would remind him of what was said on that occasion by the Chairman of the Finance and Taxation Committee, Mr. Lakin-Smith: The association is being continually urged by chambers of commerce throughout the country to urge upon you the insufficiency of the existing allowances for wear and tear, and the urgent need for some relief upon that portion of profits earned which is not distributed but put to reserve and is required for the development and extension of a business. I think it is relevant to compare the allowances made in this country with those made elsewhere. The Committee may have seen a letter on this subject which appeared in the "Times" newspaper of 31st March. It was a letter from a Mr. G. Bonar, one of the leading manufacturers in my constituency. He had been at considerable pains to get into touch with manufacturers in other European countries who were in the same line of business as himself, and to obtain a comparison between the depreciation allowances made in this country and those granted in European countries.

The Committee are aware that in this country, up to last year, the rate of depreciation generally allowed was in the neighbourhood of 7½ per cent., and that last year it was increased to 8¼ per cent. upon the declining value of the plant or machinery. In France, Belgium and Italy they allow 10 per cent. per annum, not on the declining but on the original value. In Germany they allow 20 per cent. in the first year and 8 per cent. on the declining value thereafter. I think I am right in saying that the scrap value of machinery is in the neighbourhood of 3 per cent., and therefore at the present rate, and in the view, at any rate, of the Inland Revenue authorities, it takes 41½ years in this country before machinery is reduced to scrap, whereas in France, Belgium and Italy they can write off not the amount less scrap value but write off the whole cost of the machinery in 10 years. I suggest to the Committee that this is a very striking contrast, and it must be apparent that British manufacturers are placed under a very serious handicap.

The Chancellor may reply that, on the other hand, generous provision is made for obsolescence allowance. That is true, but so do other countries. The obsolescence allowance only becomes effective if expenditure is actually incurred in replacing plant, but if there are no renewals it follows that there are no allowances. Very often it is the case that there are disputes between manufacturers and the Inland Revenue as to whether a new machine is, in fact, a replacement of an old machine. If a manu- facturer sells his plant and does not replace it by other plant or another machine, he gets no allowance whatsoever.

I ask the Committee to compare that situation with the one that prevails in Australia, where a manufacturer obtains full allowances in respect of any loss sustained by him if he sells machinery, whether he replaces it by other machinery or not. This is a subject of some importance to industrialists, and I would like to put two points very briefly to the right hon. Gentleman. It would be of great interest to many people if he could give us his view of the suggestion that was made to him on 9th March, at the interview to which I have already referred. The suggestion, which was reported in the "Financial Times" the following day, reads: I suggest that in the Finance Bill, 1933, there should he a Section to the effect that in respect of the assessable profits of any business, whether owned by private or public limited companies or privately owned, assessed under Schedule D for the assessment year 1933–34 and each subsequent assessment year, any portion of such assessable profits not exceeding one-sixth, which shall, during the two assessment years following the year of assessment, be expended upon a Capttal extension in plant or buildings for the sole use of the business, shall be allowed as a deduction from the assessable profits of the year of assessment in which the amount is expended. So far as I am aware, that is an entirely new suggestion. I should like to have the Chancellor's view, if he has formed one, upon it.

If the right hon. Gentleman can give us no concession this year in respect of depreciation, there is a matter that he might consider in the next 12 months, before he produces his next Budget, and that is an alteration in our system of dealing with wasting assets, upon which, at the present time, no allowance is made. We make no allowance for the depreciation of buildings in this country, whereas in Germany an allowance is made of from 2 per cent. to 5 per cent., and in France and Belgium of 5 per cent. of the original value. They can write off the cost of a building in 20 years, whereas the Board of Inland Revenue in this country assume that a building lasts for ever. This is a matter of very considerable importance to the industrialists of this country. The system which we have, even with the concession that was made last year and for which we are grateful, is not equitable in its demands upon industry, and it has not kept pace with the march of invention. If the Chancellor of the Exchequer cannot meet us now, I hope that in the future he will be able to see his way to bring the allowances made to British industry into line with the allowances made to the industry of continental competitors.

9.50 p.m.


I beg to support the proposed new Clause, and I hope that the Chancellor will be able to give some consideration to it. It is identical in form, although differing slightly in detail, to the one which stands in my name. There is no subject on which manufacturers feel a greater sense of grievance than that of depreciation. In theory, a manufacturer can, in the long run, get all the depreciation allowances to which he is entitled. Under, I think it is, the Act of 1918—I forget for a moment—an industry can approach the Board of Inland Revenue in order to have settled the proper rate of depreciation. When I was connected in an official capacity with a certain industry I remember going to Somerset House with a deputation. Ultimately we came to a settlement that was not too bad, but even the settlement at which we arrived left us feeling that the industry was not getting an adequate allowance for depreciation.

I believe that, broadly speaking, it is true to say that every manufacturing company has two statements of profit and loss, one that is communicated to shareholders and one which is ultimately communicated to the Board of Inland Revenue. The profits that the company themselves regard as having been made, are always something less than what the Inland Revenue believe that they have made. It has never been the case that the allowances for depreciation are adequate. I know that, when plant has been written down to a certain point, and is disposed of, because it has become obsolete, and replaced by other plant, there may be allowances; there may be, there should be and, legally, there are allowances for obsolescence to which, theoretically manufacturers are entitled. When I discuss it with manufacturers, they say: "yes, it sounds all right, but it does not work out satisfactorily in practice."

When the Income Tax was raised from 4s. to 5s. in the £ in September, 1931, the then Chancellor of the Exchequer, in order that the taxation imposed upon the development funds of limited companies—funds which are not distributed in profits—should not be overwhelmingly large, agreed that the depreciation allowance should be increased by 10 per cent. I am told by many of those who are engaged in industry that they do not regard that concession as adequate. Accordingly, some of my hon. Friends and myself put down an Amendment to increase the allowance from one-tenth to one-sixth. The hon. Member for Dundee (Mr. D. Foot), with a similar Amendment, proposes to go a little further and make it one-fifth. It is a little difficult to discover what sum is involved. Probably it is not dissimilar from that which was involved in the proposed change in Entertainments Duty which the Chancellor of the Exchequer has rejected. I shall not be in the least surprised if he explains that, on financial grounds, he cannot do what we ask this year.

I hope that the Chancellor will consider a complete overhaul of the principle upon which depreciation allowances are granted. There ought to be far greater freedom. I want to see manufacturers replacing their plant with much greater freedom than at present. The Income Tax restrictions are a definite check upon enterprise in this country. I want to see plant thrown out with the greatest rapidity, not because it is incapable of performing its function, but because it can be replaced by plant which can do the job more cheaply. In spite of the opinion that the world is producing too many goods, I am convInced that the world is producing far too few goods, because everybody that I know is much too hard up, and that is the real test. I hold the view that the increased efficiency of industrial operations is the sole basis whereby you may raise the standard of living, and everything that stands in the way of that, whether it be a system of taxation or anything else, calls for modernisation. I Sincerely hope that, if not in this Budget, the Chancellor of the Exchequer will be able to overhaul entirely the sytem of depredation allowances in this country.

9.55 p.m.

Brigadier-General SPEARS

I beg to support the proposed new Clause. I represent a large industrial city, where the living of thousands of people depends upon machinery and the effectiveness of machinery. The better the machines, and the more up to date they are, the more orders will be secured for the factories in which they are installed. I have had representations from practically all the managers of the big factories in my constituency—and there are many of them— begging the Chancellor of the Exchequer to consider giving some relief in this connection.

The desire of the Government is, as we know, to help industry where and how they can, and no greater relief could be given to industry than by relieving taxation, and relief from this kind of taxation would bring the remedy to the sore spot in a way that nothing else could. There is a reason which might, perhaps, lead the Chancellor to consider this proposal a little more favourably now than he would have a few months ago. The tendency to-day is to lower tariffs, that is to say, to lower the barriers of protection of our industries, and, surely if that is so, everything ought to be done to enable our industries to compete on a more equal footing with their rivals abroad. The relief which is asked for would give a direct encouragement to those manufacturers who are most ready and willing to replace their machines, and are most ready to scrap machinery which happens to be out of date. As has been said, the normal rate deductible from Income Tax assessments for wear and tear of machinery is 7½ per cent. That rate was fixed a long time ago—


8¼ percent.

Brigadier-General SPEARS

It is 8¼ now, but it was 7½. That rate was fixed when machinery lasted longer, when competition was far less keen than it is to-day, and when the necessity for replacement was far less urgent than it is now. To-day machinery becomes obsolete much more quickly than it did a few years ago, and certainly it is the opinion of all the manufacturers in may constituency, who have to meet competition in the world markets, that the relief granted last year, although they were very grateful for it, is found in practice not to work out as sufficient. It is true that when machinery is scrapped, in the year in which it is scrapped relief is granted up to the value of the machine that has been scrapped, but, from the point of view of the factories, it would be fairer, and far more satisfactory, if the annual rate of relief bore a closer relation to the life of the machine than it does at present. Let me quote an example to show how things work out to-day. I will take the hypothetical case of a machine valued at £10,000, whose life is estimated at 10 years. In the ninth year, the manufacturer will still be paying on an assessment of over £4,600, although in the following year he will have to scrap the machine. I hope that the Chancellor of the Exchequer will give what relief he can, and I am certain that whatever relief is granted will bear fruit in the very near future.

10 p.m.


With the object of the Mover of this Clause and those who have supported him, as I understand it, I have very great sympathy. In other days, when I occupied a position of greater freedom and less responsibility than I do now, I frequently urged upon the Chancellor of the Exchequer of the day that he should do something, in his treatment of the reserves of manufacturing companies, to encourage manufacturers to devote more of their surplus profits to the replacement of their machinery by more up-to-date plant, which would enable them to produce their articles at a lower cost. I remember that in those days successive Chancellors always expressed sympathy, but always were unable to do anything to carry out what I desired. My feelings are just the same now as they were then. I agree with those who have said that there is a tendency to distribute in dividends money which would be much more wisely spent, in many cases, upon putting in new machinery—not because the old machinery is worn out, not because it does not do its work efficiently, but because there is some new machine available which will produce the same article either better or at a lower cost. Certainly, therefore, I sympathise with those who want to encourage manufacturers to do that. But, really, I do not think that the wear- and-tear allowance is the proper way of dealing with this matter.

I am not at all sure that the Committee will have appreciated what the position is about the wear-and-tear allowances, although I do not say that those who have spoken have not fairly and accurately stated the position. There is a good deal in the way in which it is emphasised. For instance, I think the hon. Member who moved the Clause said that the rates of allowances given in this country would mean, taken alone, that it would take 41 years for machinery to be written down to scrap value; but, of course, that is not the way in which the matter is dealt with, because, as the hon. Member knows, and, indeed, as he said, it is necessary to take into consideration, not merely the wear-and-tear allowance, but also the renewals allowance. In fact, a machine does not wear itself out for 41 years, because it is replaced at some time or other during its life, and, when it is replaced, the manufacturer is allowed to write off so much of the value of the old machine as has not already been given to him by way of allowances in previous years. I do not suppose that anyone suggests that you should write off more than 100 per cent. of the value of the machine you are going to replace. What happened when my predecessor gave this additional 10 per cent. was that he, too, had been asked to do something to free from taxation the reserves of companies which were to be used for this purpose. He, too, expressed sympathy, but there were very great practical difficulties in the way. He said he had not been able to devise any scheme which seemed to him satisfactory, but, in view of the additional burden that was being placed on industry by the increased Income Tax, he gave them, as a sort of compensation, this extra 10 per cent. on the amount of the allowance. But that 10 per cent. simply meant that there was an anticipation of the allowance which would otherwise have been made in later years—it simply piled up a little sooner in the life of the machine the allowances which were bound to be made in any case.

The manufacturers say that is not enough, and, if I gave them a fifth instead of a tenth, they would still say it was not enough, I do not think it is possible to do what the manufacturers want under a wear-and-tear allowance. It would not really show itself in any immediate profitable business. It would mean that manufacturers would be encouraged from time to time to put in machines rather earlier than they would otherwise have done and the effect of it, therefore, would not be very rapid. But, if there were nothing else to say against the proposal, I am really precluded from entertaining it now because of the cost. My hon. Friend the Member for Croydon South (Mr. H. Williams) is quite right. This addition would cost about £2,000,000 to £2,500,000. I am not in a position to say when the Chancellor of the Exchequer will have funds at his disposal which will enable him to deal adequately and satisfactorily with this question. All I can say is that I sympathise with and approve the object of those who put this proposal forward and, if and when I can see any opportunity of furthering that object, I shall certainly be glad to give it consideration.

10.7 p.m.


Those of us who have this proposal at heart, of course, realise the difficulties at the moment, and I doubt if any of us expected that my right hon. Friend would be able to meet us this evening and to do what we want. It is also clear that we cannot get all that is wanted under the wear and tear allowance. It is really obsolescence of a different kind, the need for replacing existing machinery, good in itself, by machinery of a new kind, for which we want an allowance. We are glad to know, as indeed we knew ourselves, that the Chancellor realises the absolute and paramount importance of giving every conceivable inducement to manufacturers to keep their plant up to the highest standard, or to bring it up to the highest standard if it is not there already, but we realise that it is impossible to do it at the moment. Of course, in the future, when it is not so impossible, we may be faced by a Chancellor saying it is a very complicated business and the practical administrative difficulties in the way of working it out are very great.

I would suggest to my right hon. Friend that now, at a time when he cannot actually do it, he might, at any rate, get the officials of his Department who deal With it and representatives of industry to go into the question and try in anticipation to find a solution of the difficulties so that, when happier days come and it is possible to afford the money needed for a reform of this kind, a practical measure may be forthcoming. In those days, when it is possible, I do not think the Chancellor of the Exchequer will in the end lose great revenue, because of the great economies that will be made through the allowances that the then Chancellor may be able to give. It will also mean that the businesses will be earning a higher rate of profit, which will make the Income Tax more productive in another way.

Motion and Clause, by leave, withdrawn.