NEW CLAUSE.—(Amendment of s. 18 of Finance Act, 1932.) (Hansard, 17 June 1936)

§ Mr. FOOT
I beg to move, "That the Clause be read a Second time."
This is a somewhat different Clause from the last one I moved. It deals with an amendment of Section 18 of the Finance Act, 1932. I have no doubt that the Chancellor of the Exchequer regards this Clause or something like it as a hardy annual, because something of this kind is raised each year. We consider that it is an important matter, and we put this down as a sort of token Clause. It does not represent all that we want or all the changes we should like to see in the system of depreciation allowances. It is simply a way in which we can call attention to the operation of that system. Section 18 of the Finance Act, 1932, provided that wear and tear allowances should be increased in every case by one-tenth. This Clause would make it one-fifth. Instead of a 10 per cent. increase, there would be a 20 per cent. increase.
It is high time that our system of wear and tear and obsolescence allowances was overhauled. On former occasions, in bringing forward a proposal of this kind on the Finance Bill, I have given the Committee such figures as I have been able to obtain showing the difference in the allowances made in this country and in some other countries. In this country, as a general rule, it is true to say that the wear and tear allowance amounts to 8¼ per cent. or thereabouts on the declining value of the machinery. In France, Belgium and Italy it amounts to 1076 10 per cent. of the original value. In Germany, as I understand, it was until recently 20 per cent. in the first year and 8 per cent. on the declining value thereafter. In the last year or two in Germany, I understand, arrangements even more advantageous have been made. Last year I was told by the Financial Secretary to the Treasury, now the Secretary of State for War, that there was no exact comparison, and that figures like these were slightly misleading because there were differences between the Income Tax system in one country and that in another.
The figures I am putting to the Committee have been obtained for me by a manufacturer in my constituency who has been at the greatest pains to arrive at comparable figures, and they are endorsed by representatives, whom I have seen, of the Association of British Chambers of Commerce. They show that there is a considerable difference to the advantage of the foreigner as between the allowances given in this country and the allowances given elsewhere. But even supposing it is not possible to make exact comparisons between this country and other countries, I submit that a system which met the needs of industry quite adequately 20 years ago is entirely unsuitable to the needs of industry to-day. Only a short time ago in this House we were discussing the Employment of Women and Young Persons Bill and one of the reasons given in support of the two-shift system was the shorter life of machinery in these days as compared with a few years ago. It was said by the spokesman on that Bill—and I entirely agree with him—that because machinery is so much more expensive and its life so much shorter, it was necessary to work the machines for 16 hours out of the 24, instead of only eight. If that be true—it was an argument put forward from the Government Benches—it is an argument which certainly supports the Clause which I am bringing forward.
1077 After all we always have in any progressive society a change-over from one set of industries to another. There is always a state of affairs in which you have certain industries declining and other industries taking their place. In the last few years in this country it is the heavy industries which have shown a tendency to decline, and the new and lighter industries which have shown a tendency to increase, and to re-absorb the unemployed we have to look in the direction of the lighter industries, who use lighter machinery. It is precisely because of that great increase of lighter machinery that we need some overhaul of our system of wear and tear allowances, because it depreciates much faster than the heavy machinery which was more in use 10 or 15 years ago. I know that it may be said that if the machinery does not last so long, that will not make so much difference, because when the machine comes to an end the manufacturer is able to claim the obsolesence allowance. That is true in some cases, but I do not think it entirely compensates.
The distinction which the supporters of the Clause make is that the manufacturer can claim only the obsolescence allowance if he replaces the machine. He is not able to make any claim if the machine is not replaced, or if it is not replaced with a machine which the authorities hold to be sufficiently similar. It is different in some other countries, notably Australia, where an allowance is made when the life of the machine comes to an end or the manufacturer gets rid of it, whether he replaces it or not. That is one of the changes which I should like to see introduced in our own Income Tax laws. I realise that it is not very hopeful in this year, of all particular years, to bring forward a proposal of this kind, but there are some of us who represent industrial constituencies who do attach a good deal of importance to it; and even if the Chancellor of the Exchequer says that it is not possible to do anything this year, I hope that he will tell us that he is bearing this matter in mind, because many of us feel that it is vital that some change should be made in our system of depreciation allowances in order to facilitate the re-equipment of British industry.

§ Mr. H. G. WILLIAMS
I am very glad the hon. Member is again raising this issue. He has done so on several previous occasions and I have supported him. I think that in principle he is thoroughly right. It is true that if you argue the depreciation question with those whose business it is to assess Income Tax, they say that, after all, you get all the depreciation to which you are entitled, and that later you get what you may not have got before in the obsolescence allowance. That does not alter the fact that among the industrial community you find an abiding sense of grievance on this subject. This is a direction in which we can stimulate improvements in industry. If we can overhaul the general system of depreciation I am certain that we shall raise the standard of efficiency and production of British industry. The more you encourage people to change plant when that plant can be replaced by improved plant, the better for our prosperity and employment. Incidentally, there are still some people who think that machinery causes unemployment. The, manufacture of machinery is far and away the largest industry in this country, and if it were not for the use of machinery there would be hardly any coal mining needed in this country. But I will not pursue that point or you, Captain Bonnie, will say that I am straying from the fundamental and immediate purpose of this new Clause.
The allowance of one-tenth was granted in 1932 at the time Income Tax was raised and now we are creeping back to that level, and, as it was recognised by, all that one-tenth was a help, but was' not adequate, the case for an improvement of the one-tenth is stronger now than on previous occasions when the hon. Member raised this important issue. Provided that you could have appropriate provisions against fraud, it would be a good thing if everybody were allowed to arrange his own depreciation. You could only write off 100 per cent. The only difficulty is that there might be fraud. I see no reason, providing you could have precaution against fraud, why people should not be free to claim for reduction of Income Tax every penny-piece which in their own books they write off their plant. I see no reason why a firm should have two depreciation accounts, one which they 1079 think desirable on economic grounds and the other which they are forced to make. There is room for reform. I am not, very hopeful of the chances of this Clause, because the Chancellor has not very much to give away, but I hope the hon. Member's advocacy will ultimately bear fruit, and that the Chancellor will give us some comfort to-night as to the prospect for the future.

§ The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)
I find myself in a difficulty because, in introducing this well-worn Clause, the hon. Member said it was to be regarded only as a gesture, and that what he wanted was a complete overhaul of the system of allowances for wear and tear. My hon. Friend the Member for South Croydon (Mr. H. G. Williams) also has not confined his advocacy to the particular Measure before the Committee. I see, therefore, that any argument that I may bring forward against the acceptance of the Clause will be met with the answer that that is not relevant, because he is not merely pressing for the Clause, but for something much more wide and general. Nevertheless I must address myself, in the circumstances, to the Clause that is before us. Not only was the concession of an increase of the wear and tear allowance given at a time when the Income Tax was 5s., but it was expressly described at the time by the then Chancellor of the Exchequer as a form of compensation to industry for raising the tax from 4s. 6d. to 5s. Subsequently the Income Tax was reduced to 4s. 6d., and the reason for the concession disappeared. Nevertheless, the increase in the wear and tear allowance remains. Now that compensation is made the basis of fresh demands. On that ground, therefore, it will be seen that the original concession was given for a particular purpose and that purpose no longer exists.
To come to another point. Suppose we doubled this allowance of 10 per cent., the effect would be only to shorten the time between the purchase of the machine and the time when the obsolescence allowance comes into play, because under the present system there is an annual amount allowed for the depreciation of the machinery on account of wear and tear and, if that allowance for wear and tear has not been complete, when the machine 1080 is obsolete and replaced by another machine, an allowance for obsolescence can be claimed. Although the hon. Member said that what he wanted was to provide that the obsolescence provision should apply not only in cases where the machine was replaced but in other cases where the machine was not replaced, his Clause would not deal with that point. If the Clause were accepted, it would cost £1,750,000 this year and more in a full year, and my Budget would be at once undone. In the circumstances I could not ask the Committee to accept it. I am always averse from committing myself to promises when I am not quite certain I shall be able to carry them out. I, therefore, refrain from giving any such undertaking as has been asked of me, but I am bound to say to my hon. Friend the Member for South Croydon, who says this is a grievance to industrialists, that that does not seem to be a conclusive argument because I hardly know any form of tax which is not regarded by those who pay it as a standing grievance.