§ The Chairman
May I suggest that the Amendment standing in the name of the hon. Member for Chesterfield (Mr. Benson)—in page 14, line 40, to leave out "after the appointed day "—and the Amendment in the name of the hon. Member for Colchester (Mr. Lewis)—to leave out "the appointed day," and insert "the first day of January, nineteen hundred and forty-five."—be discussed together.
§ Mr. Benson
I beg to move, in page 14, line 40, to leave out "after the appointed day."
I have put down this Amendment, in order that we may have some elucidation of what is, to me at any rate, obscure at the present time. The proposals of the Chancellor that certain concessions should be given in respect of expenditure on scientific research, and in a later Clause on capital expenditure on scientific research, are to be delayed until the appointed day. I have spent some time in trying to understand what his remarks in reply to the Second Reading Debate really mean. I am not clear. It seemed to me that his remarks applied to research for war purposes. He makes various references to expenditure already incurred, and later on points out that the expenditure already incurred obtains certain relief under existing Acts, but the relief given under existing Acts applies solely to expenditure for war purposes.
§ Mr. Benson
Does the right hon. Gentleman suggest that it is only expenditure for war purposes before the appointed day that shall obtain relief? I do not think that that will altogether satisfy the Committee. We want expenditure for peace time purposes and on research on the turn-over from war to peace to receive the benefit of the concession. I know that little can be done at the present moment in peace time research, but it is very probable that before long we shall be able to turn over part of our industry to peace objects. Japan may hang on longer than Germany and in that case, as is already happening in America, a certain amount of industrial plant and energy might be released for civilian and postwar needs. It is there that research is vitally necessary and just as necessary as for war purposes, and, as far as I can gather from the remarks of the right hon. Gentleman, that type of research will not get any relief until after the appointed day. Is that what the Chancellor means? If so, I do not think that he has met the wishes of the Committee. If, on the other hand, I have misread what he said, and all forms of research will get relief, even if they occur before the appointed day, there is no need for the elimination of the appointed day. But I cannot understand, if it is to have no effect, why the appointed day is put in. If relief 2004 after the appointed day is to be retrospective on all forms of expenditure on research, why put it in? There must certainly be some distinction between before and after the appointed day, and I shall be very glad if the Chancellor of the Exchequer will explain what it is.
§ Mr. Lewis (Colchester)
The concession proposed by the Chancellor of the Exchequer in respect of the expenditure on scientific research is a very valuable one and I am most anxious that industry should get the benefit of it as early as possible. The Committee will have noticed that I have tabled an Amendment suggesting that, instead of some indefinite date in the future as the appointed day, a definite date should be inserted in the Bill. The date I suggested was the beginning of next year, and I understand that, if the Amendment proposed by my hon. Friend the Member for Chesterfield (Mr. Benson) were carried, it would have the effect that the benefits would come into operation immediately, and to that I would not object. Therefore, I am prepared to support his Amendment. The point of pressing for an early commencement of these benefits is surely that research obviously has to precede plans for definite action. Research from its nature usually takes a long time. If any practical benefits are to accrue to industry in a period reasonably near the conclusion of hostilities, it is obvious that research must take place very soon otherwise the effect of the research, the resulting activities of industry will be long delayed.
The purpose of the Chancellor in giving the concession is to further the development of British industry. He has shown that he is very much alive to the urgent necessity, for example, of the development of our export trade. That depends upon our providing articles that other people want, upon our constantly being alive to improvements which are introduced and upon introducing fresh improvements ourselves. It is, to say the least of it, disappointing that the Chancellor, having brought himself to the point of agreeing that expenditure on research, as laid down in the Bill, can be set off against Income Tax, should postpone that benefit to some indefinite date in the future. He might argue, for example, that, if the Amendment which is being moved by the hon. Member for Chesterfield were carried, there might not 2005 at the present moment be the people available to carry out the research. Nevertheless, there may be some available. No one knows what the effect of present operations against Germany may be, but later on there may be many more people available for civilian employment than there are now.
We do not want a further period to elapse before these provisions are put into operation. I cannot see how the Chancellor, having made up his mind to grant a concession, can reasonably object to seeing it put into operation. If people are not available, no harm will be done, the concession will not operate. Therefore I cannot see that the Revenue can lose anything and I ask him very seriously to consider whether the concession might not be applied either by fixing an early date or by doing what the hon. Member for Chesterfield suggests and put it into operation now.
§ Mr. Owen Evans (Cardigan)
I wish to support the Amendment moved by the hon. Member for Chesterfield (Mr. Benson). One cannot see why the Chancellor of the Exchequer wants to postpone this concession, especially after he realises, as I am sure he does, the warm welcome which it has received from industry generally. The only point I wish to make is that it is now clear that very substantial expenditure Will have to be incurred by industry in research. It is not compulsory, but it is called for if industrialists are to do their job well and efficiently for the purposes of the war. Now, substantial expenditure is being incurred, for which no allowance is made for Income Tax or E.P.T. purposes. I suggest, therefore, that the Chancellor might give the Committee some idea of what is in his mind as to the appointed day, and how soon it will be. With this, is linked the point made by the hon. Member for Chesterfield with regard to the very substantial expenditure incurred in converting plant from war time to peace time conditions. I think some concession should be made to meet cases where very heavy expenditure is being incurred. I appreciate that some of that expense could be paid for properly by negotiation by the Government, as I know is being done in many instances, where it is called for by a Government Department. My right hon. 2006 Friend the Chancellor of the Exchequer must know that while those negotiations continue indefinitely, interminable delay will he involved in putting these particular instruments down for the purposes of the war. I venture to appeal to the Chancellor to see whether he cannot offer some concession, and whether he will supply the real reason for postponing this matter indefinitely.
§ Sir George Schuster (Walsall)
I will not repeat the arguments that have been advanced in support of the Amendment moved by my hon. Friend the Member for Chesterfield (Mr. Benson) but I strongly support those arguments. I feel that the case is amply made out for opening the door to these concessions so that it may encourage research at once. I believe that my right hon. Friend must feel the force of that, too. I only want to explain the points which I would like him to clear up. I thought, originally, when I listened to what he was saying in the Debate on the Finance Bill, that he was, in fact, giving us all that we could possibly ask for; but, on rereading that passage, I am in doubt and I feel there is great obscurity on the matter.
We are concerned with two classes of new relief for research expenditure—that covered by Clause 26 and that covered by Clause 27. The former covers current expenditure and the latter capital expenditure. As I understand it the position taken up by the Inland Revenue authorities and by my right hon. Friend also was, that so far as current expenditure was concerned, the existing Regulations substantially allowed all genuine current expenditure on research to be treated as legitimate expenses, but that there was some possibility of doubt on certain points. Therefore, in order to avoid any sort of doubt my right hon. Friend proposed to put a Clause into the Bill so that there should be no further argument about any of these points of doubt. That, many of us welcomed greatly, but I want to point out that if the result of this Clause is to make all the existing deductions applicable now only after the appointed day, then, instead of giving us a benefit, that will on the contrary make the situation much worse. Apart from that point, when I reread my right hon. Friend's words in the Debate on the Finance Bill, it seemed to me that he had really in mind capital expenditure, and that is the point which I want cleared up.
2007 I do not agree with the hon. Member for Chesterfield that he was talking about war expenditure, I think his words indicate that he was talking rather about capital as distinct from current expenditure. But I want to remind my right hon. Friend that in an earlier passage he referred to representations which had been made to him both before the Debate and in the Debate. He said:The Board of Inland Revenue and I felt that there was weight in their representations made on those points…Then there is this sentence at the end.…When the appointed day comes, the outstanding part of that expenditure will qualify to be written off, as if it was expenditure incurred after the appointed day. If it is capital expenditure, it will be written off within a period of five years and we shall take steps to make that point clear."—[OFFICIAL REPORT, 23rd May, 1944; Vol. 400, c. 699.]Does my right hon. Friend mean that the new proposal is that items which are to be treated as capital expenditure should all be allowed but must be spread over five years; therefore, if, say, £10,000 on an item of capital expenditure had been spent two years before the war, he would say "Well, there are three-fifths of that £10,000 to be written off after the appointed day, and you may now write it off at the rate of £2,000 a year but you will not have been allowed the full amount of the £4,000—the remaining two fifths in the two years before the war"? I am only raising the point for purposes of clarification, because as a matter of fact, I believe that my right hon. Friend in his heart wants what we want. Believing this, some of us put this Amendment down, in the hope that we would be able to give him an opportunity to say that that was really what he meant.
§ Mr. Edmund Harvey (Combined English Universities)
I would like to say how much I hope that the Chancellor of the Exchequer will accept this Amendment, or indicate a very early date at which this very valuable concession will come into force. I want to make special reference to paragraph (c) which applies to money that is given to universities, university colleges, and research institutes for research work. It is, surely, of very great importance that the work should be instituted at the earliest possible date. We are, happily, we may believe, approaching the time when we shall get into the transition towards peace, and it is very im- 2008 portant that plans and arrangements for post-war work and research connected with it should be undertaken without delay. The preliminary work, inevitably, must take time. Therefore, the very earliest date that is is possible to make this concession for work of that kind ought, in the national interest, to be fixed in the Bill, and I hope very much that Chancellor of the Exchequer will bear that in mind.
§ Sir J. Anderson
I am afraid I do not see my way to accept the Amendment but I hope that the information I am about to give will leave by hon. Friends without any sense of disappointment as a result of my decision. May I first point out that in the discussion which we have had, two quite different matters have been covered? The provision in Clause 26, to which the Amendments relate, is mainly a provision relating to revenue expenditure but not wholly so; it covers also, I would point out to the hon. Member for Walsall (Sir G. Schuster), certain items of capital expenditure. It may be convenient if I first explain in a few words why the provisions of Clause 26 has been thought necessary, seeing that revenue expenditure is already allowed under Income Tax practice as a charge upon profits.
In the first place, under paragraph (a) which is concerned wholly with revenue expenditure, there is a comparatively small part of expenditure which might not be covered by the existing practice—that is expenditure which, according to existing practice, might have been held to be too remote from the purposes of the trader's business to be brought in as a legitimate business expense. This Clause enlarges the conception of what is legitimate for that purpose Under paragraphs (b) and (c) of Clause 26, there is, I think, no extension of existing practice except in relation to capital expenditure. The effect of Clause 26, so far as (b) and (c) are concerned, is to bring in capital expenditure incurred by a research association which is not allowed now, at any rate, is not allowed if the expenditure is specifically earmarked for capital work. Under (c), similarly, capital expenditure incurred in a university institution is brought in here for the first time. Under war conditions there is very little expenditure of a capital nature being incurred for purposes of research, except in connection 2009 with the prosecution of the war. There is no doubt that a great deal of current expenditure—expenditure of a revenue nature—is being incurred which is allowed under existing practice but, so far as capital expenditure is concerned, practically nothing is being incurred unless it is directly for the prosecution of the war, for the simple reason that labour and materials are not at present available for any other purpose.
I have been asked why I should bother about an appointed day if, in fact, capital expenditure is not being incurred now except for purposes of the war. I explained, as regards capital expenditure incurred for the purposes of the war, that the relief given by this Clause is really not immediately necessary because of the special war-time relief that is available under which the capital works in question can be written down at the end of the war to their residual value, but the explanation is perfectly simple. I have two reasons for not wishing to fix an appointed day now, or to bring this provision into force immediately so far as capital expenditure is concerned. There might be advantages in bringing it into force, although it might not be immediately used to any considerable extent, because it would be there ready against the time when expenditure can be incurred. My first reason may not appeal so strongly to hon. Gentlemen as it does to me. I do not want to put myself in the position of appearing to hold out an advantage by this Clause of which people cannot avail themselves because I think that will disturb people's minds, and will lend some additional force to a demand which I must contemplate and which I feel bound to resist, that where, owing to shortage of materials or for any other reason, a plan for capital expenditure on research cannot be put into force, the trader concerned should be allowed to earmark a sum of money out of his profits, have that exempted from taxation, and have it made available for expenditure at a later period in a later Income Tax year when the obstacles standing in the way of capital expenditure have been removed.
I have another reason, which is stronger, and it is this: There are strong practical reasons why the treatment of particular items of expenditure for Income Tax purposes and the purposes 2010 of E.P.T. should be closely correlated; they may not be identical. I do not wish to make effective and operative provisions for dealing with capital expenditure for research purposes in relation to Income Tax until I have worked out appropriate provisions with regard to E.P.T. I hope to be able to work out these provisions in connection with the relief it is proposed to give for the development of industry in general in the course of the next few months, and that objection will fall to the ground. My intention is to fix the appointed day for the purposes of research as soon as the matter has assumed any practical importance, as soon as people begin to be in a position to expend any material sums of money on capital expenditure for research. Therefore, nothing will be withdrawn from the beneficiaries under this plan, which I am embodying in this Bill, by a postponement of the day on which it comes into operation. For these reasons I wish to retain in the Bill the provision by which these and other related Clauses come into operation upon the appointed day.
Before I conclude I would like to clear up a point put by my hon. Friend the Member for Walsall who, I think, misunderstood what I intended to convey in my Second Reading speech. In regard to expenditure that may be incurred now on research before the appointed day the position will be this: Between the time when the expenditure is incurred and the appointed day whatever provisions are appropriate with regard to writing off will apply. Depreciation allowances will be granted and there will be, at the appointed day, a sum still outstanding on the books of the concern. In so far as expenditure incurred on research has not been written off, the whole of that residual expenditure will be treated exactly as if the expenditure had been incurred after the appointed day. The whole of it will then be written off under the present Clause; it will not be apportioned arithmetically between the period of incurring the expenditure and the appointed day and the remainder of the five years still to run. The whole of the expenditure not written off will, as from the appointed day, come under the provisions of this Clause and will be written off over a period of five years—
§ Sir J. Anderson
Five years from the appointed day. I think that meets my hon. Friend's point, and I hope that in the light of the explanation I have given my hon. Friends will not press this Amendment.
§ Mr. Lewis
The appointed day means such a day as Parliament may determine. I take it that in practice it means that the appointed day cannot be fixed in this Finance Bill. Supposing a great change in our circumstances comes about this autumn and capital expenditure on research is incurred between autumn and next spring, would such expenditure be covered? Would it be retrospective?
§ Sir J. Anderson
The effect of my proposals will be that any expenditure incurred before the appointed day will rank in so far as it has not been written off.
§ Sir G. Schuster
I, personally, have such confidence in the Chancellor of the Exchequer that I would not wish to press the matter after he has spoken as he has, and I have no doubt that my hon. Friend the Member for Chesterfield (Mr. Benson) will ask leave to withdraw the Amendment. I do, however, want to urge upon my right hon. Friend the very great importance of seeing that research work is started in good time. We know that a great deal is now being done in the United States and many of us have the feeling that British industry has dropped behind, and that our position after the war will be one of very great urgency. I am sure my right hon. Friend appreciates that, and I hope that he will use his influence in the Government to ensure that, in this very difficult question of the allocation of resources, research work on processes which will be required by this country after the war will receive serious consideration even in time of war.
§ Mr. Benson
In view of the way in which the Chancellor has explained what he intends to do, I beg to ask leave to withdraw the Amendment. I take it from what the right hon. Gentleman said that we may expect the appointed day at a fairly reasonable time. All that is delaying it, it seems, are the technical problems to be worked out in relation to Income Tax and E.P.T., and when these 2012 are finally and satisfactorily resolved the appointed day will be appointed.
§ Amendment, by leave, withdrawn.
§ Sir Wavell Wakefield (Swindon)
I beg to move, in page 14, line 41, after "trade," to insert "or profession."
Recently, I have drawn the attention of my right hon. Friend to the fact that inventors and others who make research their profession have not, as individuals, been able to secure relief for the expenses they have incurred in making that research or invention. The Chancellor, in reply to Questions I have put to him, has shown every sympathy, but I would like to suggest that it is not clear in this Clause as it stands whether or not an individual who carries out research, and from that research makes inventions, is, in fact, able to get the relief, which it is intended by this Clause he should have. The purpose of this Amendment is to ensure that a man who carries out research and makes inventions will be able to benefit by being able to claim expenses incurred in that way. It may well be that a doctor or consultant carries out valuable research work which costs him money. It seems, therefore, reasonable that he ought to be able to charge that expense against any gains or profits which he may make and I hope the Chancellor will favourably receive this Amendment.
§ Sir J. Anderson
I am sorry, but I cannot accept this Amendment. Its object is to enable professional men, as well as traders, to obtain deductions in computing profits for Income Tax purposes in respect of research expenditure of a revenue nature, and in respect of sums paid to approved associations, universities, colleges, research institutes and so on, carrying on research connected with their professions. That would be quite outside the scope of the proposals which I submitted to the House in my Budget Speech. I have no intention of extending the existing provisions applicable to expenditure which is not of a capital nature. If I were to allow contributions made by professional men to scientific bodies and institutions, as a deduction from professional income, I should get into exceedingly deep water. This is not a question of expenditure which is incurred for the purposes of earning income. That is the intention 2013 of the concessions which I am making in connection with trade and industry. I wish to allow all expenses which can be properly regarded as having been incurred for the purposes of the trade which is being carried on. But if I were to accept the Amendment, and similar Amendments on the Paper, I should be allowing as deductions for Income Tax purposes, payments which are really expenditure of income.
Professional men contribute in all sorts of ways to scientific institutions, and their contributions as such have never been allowed as deductions for Income Tax purposes. The case of a professional man incurring capital expenditure on research must be a very unusual one if he was not carrying on a trade or business. While I have every sympathy with research in all forms, I still must pay regard to the importance of maintaining the integrity of the Income Tax structure, and this proposal would involve an inroad, not, perhaps, substantial from the point of view of money but, in principle, one to which I could not lend myself.
§ Mr. Wootton-Davies (Heywood and Radcliffe)
Surely there are men who seek to invent and find things out, such as professional chemists and engineers. Are they to be excluded? Why not include purely professional men who set out to be discoverers?
§ Sir J. Anderson
The ordinary expenses of their professions will be allowed as deductions, but here we are dealing with contributions of all sorts and kinds, which I could not possibly admit. Reference has been made to inventions. The Committee is not concerned here with inventions as such. They are concerned with the antecedent research. If an invention results, and it is exploited, profits will come along, which will be dealt with in the ordinary way, and then the professional man may pass into the condition of a trader.
§ Amendment negatived.
§ Mr. Wootton-Davies
I beg to move, in page 14, line 43, after "related" to insert "directly or indirectly."
The object of the Amendment is to elucidate the position. As the Clause stands, I am left in some doubt as to what it will be. Are we all to remain 2014 tinkers, or bakers, or grocers? Is our research to be entirely confined to the things we have in hand? Surely in times like the present, when we want to expand our trade, every aid should he given to a firm to expand and develop research. Is the Chancellor going to limit the coal miner to coal, or the petroleum man entirely to petroleum? Then there is the position, once again, of the small man. If a small man belongs to a research association there will be no difficulty, but suppose anyone started some research and found that he had to employ other people to conduct part of it, would that be allowed?
§ Mr. Edmund Harvey
I support the Amendment, and I hope, although the Chancellor's last speech seemed to cast a shadow over succeeding Amendments, this at least may receive substantial consideration. It is, surely, of the greatest importance that firms should be encouraged to conduct scientific research into the by-products of their industry, from which they have not been making any appreciable profit in the past but which may be of very great importance. Waste material may by careful scientific research prove to contain material of great value and importance and it is certainly desirable to encourage research. I hope, having that in view, and the other issues which have been raised by the hon. Member, the Chancellor may see his way to accept the Amendment.
§ Mr. Price (Forest of Dean)
I should like to support the Amendment in order to elucidate just how far the Chancellor of the Exchequer will go in this matter, because I have a feeling that possibly the Inland Revenue might disallow expenditure unless they considered that it was directly connected with the profits of the concern. We know that the Chancellor is sympathetic to scientific research and he must know that it often takes a very long time before it bears fruit. It may even take years. I can quite conceive a company experimenting say, in research for the extraction of oil from coal. It might be regarded as being too near pure science and not sufficiently applied science. I want to see undertakings encouraged even to go into the realm of pure science, though this is mainly the work of universities and academic institutions, but still, if private undertakings will do the same, I 2015 think they ought to be encouraged. Quite a lot of important work is being done on certain classes of foods, yeast foods for instance, which may be of extreme importance in the Colonies and in Central Africa, and may have the effect of raising the standard of life of the native people. It is being done, of course, in Government institutions, but undertakings concerned in food production and in chemical research might want to go into it, and it might be held that they are not directly concerned. I hope it will be made clear that the Inland Revenue will take a liberal interpretation of this.
§ Sir J. Anderson
This is another Amendment which I do not propose to accept. I earnestly hope that the cumulative effect of the answers that I am giving in regard to these Amendments will not give the impression, here or outside, that I am not entirely sympathetic. I am, indeed. But the Clause has been deliberately drawn to go as far as is reasonable in the direction that hon. Members desire. The words used are "related to"—not "directly related to"—and they could not very well be construed as meaning "directly related to," because a few words later the word "directly" appears—"related to the trade and directly undertaken." If it had been the intention that they should be construed as "directly related," the word "directly" would certainly have been put in. May I call attention to the provisions of Clause 30, the definition Clause, which are directly relevant in this connection?references to scientific research related to a trade or a class of trades includeThe only limitation that I desire to see applied to expenditure covered by this Clause—and this will govern the administration of the Inland Revenue authorities—is a limitation which would exclude expenditure which is not expenditure for the purpose of the trade or business so much as a mere contribution to a good cause. That, however worthy, is an application of income and not an expenditure incurred for the purpose of earning income. For these reasons I ask hon. Members not to press the Amendment.
- (a) any scientific research which may lead to or facilitate an extension of that trade or, as the case may he, of trades of that class;
- (b) any scientific research of a medical nature which has a special relation to the welfare of workers employed in the trade or, as the case may be, trades of that class."
§ Sir G. Schuster
Again I am prepared to accept my right hon. Friend's assurance, but I want him to do his utmost to see that that spirit is conveyed to the Revenue authorities. May I call his atteniton to one or two points? In Clause 26 (a) the reference is to "that trade." When we come to (b) it refers to "class of trade." I should have been much happier if the words in (a) had been "class of trade." I feel that a distinction between "trade" and "class of trade" may be used by the Revenue authorities as indicating a certain narrowness of intention. Then I should like to refer my right hon. Friend to Clause 30. I quite agree with him that the definition there is very wide, but I want to ask who is really to decide. The words used are "any scientific research which may lead to" certain things. It is very difficult in advance for a non-technical man to say, "This piece of research is likely or unlikely to lead to an extension of the trade." Very often a valuable discovery is an unexpected one. I should like my right hon. Friend to bear that point in mind in regard to the instructions issued to the Revenue authorities.
Then I have one final point. Judging by what has happened in the past, some of us, who have gone into this matter and have tried to get evidence from all over the country as to how things were working out, had the point very strongly made to us that, whereas large concerns like Unilever or I.C.I. could say that practically every kind of research work which they undertook was "related" to their business, because that covers such an enormous range, some smaller concerns engaged on only one kind of operation were in much greater difficulty in proving the connection. I think that indicates the sort of point where we want to see that these definitions are interpreted in a generous way.
§ Sir J. Anderson
I am quite willing to look into the point my hon. Friend has made about the possible construction to be placed on the words "trade" or "class of trade." They were not intended to be limiting, and in the definition Clause where it sets out that references to scientific research related to a trade includes certain things, that again is not intended to be limiting or exclusive in any way. They were put in because it was suggested that doubts might be raised 2017 whether expenditure related to research outside the existing scope of the undertaking would or would not be covered. That is why the explanation was inserted. I do not think my hon. Friend need have any misgiving as to the spirit in which these provisions will be administered. It may not always be easy for a layman to decide the question whether a particular research is related to a trade or may result in an extension of the trade, but the Revenue authorities will have access to scientific and technical guidance in these matters. I have already indicated that in the administration of the existing provisions with regard to expenditure of a doubtful revenue nature and the expenditure by research organisations, the practice of the Revenue authorities has been to stretch the law to the utmost limit in order to encourage research. I do not think that there will be any backsliding in that respect.
§ Mr. Wootton-Davies
I hope that the Chancellor's officials will read and mark what he has said, and, in view of what he has said, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Clause ordered to stand part of the Bill.