INCOME TAX BILL

HC Deb 14 March 1945 vol 409 cc257-340

Order for Second Reading read.

3.39 p.m.

The Chancellor of the Exchequer (Sir John Anderson)

I beg to move, "That the Bill be now read a Second time."

This Bill is a long Measure dealing with a very complicated subject-matter, and I hope that I may be able to earn your approval Mr. Speaker, if your unspoken approval, by dealing with it in a brief speech. This Bill carries out certain proposals on post-war industrial taxation policy which I outlined in my Budget speech last year. I think I may fairly claim that these proposals, of which I then gave a fairly full description, were welcomed on all sides of the House as well as in the country generally. In spite of the length and complexity of this Bill —inevitable complexity because Income Tax law has to cover all varieties of circumstances and conditions and is necessarily intricate in its character—the basic conceptions embodied in the policy are simple and straightforward. I shall not to-day attempt to take the House through a mass of detail. Any necessary explanations of particular Clauses can probably best be given during the Committee Stage. What I should like to do now is to explain to hon. Members in brief outline the basic ideas behind the Bill, giving special mention only to one or two items which seem to me to merit at this stage further explanation. Fuller details of the actual provisions of the Bill are contained in the Explanatory Memorandum printed with it and of course any matters on which hon. Members may desire further elucidation at this Second Reading stage can be dealt with by my right hon. Friend the Financial Secretary when he comes to reply.

Perhaps I may be permitted to quote from my Budget speech. In that speech I commended to the House a general proposition. It was that the taxable profits of industry should be: real profits in the sense that those profits should be struck only after making all proper deductions and allowances, especially adequate allowances such as might be made on a commercial basis for the amortisation of money expended on assets which are used up in the making of the profits."—[OFFICIAL REPORT, 25th April, 1945; Vol. 399, c. 672.] I went on to say that the appropriate allowances for capital expenditure are of supreme importance in relation to the work of reconstruction at the end of the war when industry of all kinds may have to embark upon, modernisation and re-equipment. This Bill is accordingly concerned with new or improved allowances for various types of capital expenditure on which industry will have to embark if we are to hold our place in the world.

Modernisation and re-equipment of industry mean, first, new plant, new machinery and new buildings, and the first two parts of the Bill carry out the reforms which I promised in respect of expenditure on those objects. As the House is aware, the cost of plant and machinery is already under the existing law written off against profits over its life by the annual depreciation allowances and by the obsolescence allowance at the end when the plant is scrapped and replaced. I proposed last April greatly to accelerate this process by writing off 20 per cent. of such expenditure on plant and machinery as soon as it is incurred. In the case of buildings, on the other hand, there is at present no general allowance for depreciation, apart from certain provisions relating to special war-time depreciation and apart from the annual allowance for mills and factories. My proposal for buildings is similar to that for machinery —that there should be an initial allowance in this case not of 20 per cent. but of 10 per cent., and that the balance of the cost should be written off over a period. In the case of machinery, the annual allowance which follows the initial allowance varies with the nature of the machine. For buildings, under these proposals, the annual allowance will be a general one of 2 per cent. per annum. Existing industrial buildings will not, of course, qualify for the initial allowance, but they will qualify for the annual allowance for such balance of a life of 50 years as may remain.

Let me, at this stage, say quite frankly that I know there will be some disappointment that the new allowances for buildings are to be confined in general to buildings used in productive industry and that, for example, offices and hotels are excluded; but I made it quite clear in my Budget speech of last year that my proposals would be deliberately framed in this way, in order to benefit productive and creative industry. The reasons that have led me to make this distinction will, I think, commend themselves to the House. I propose to the House that we should, as an act of conscious policy, deliberately weight the scales in favour of those forms of capital investment which are most necessary to the industrial strength of the community. It is productive or creative industry that provides in the main industrial employment and is the foundation of our national prosperity. It is the production of things and the export of things rather than the distribution at home of things that matter most in this connection.

Moreover, it must not be forgotten that the provisions of the Bill are generous, and indeed, costly to the general body of taxpayers. If all trading premises were included—and if an extension were made I do not see how one could draw the line—the cost would be very heavily increased and, incidentally, the task of administration would be rendered very difficult. That is the more reason, I suggest, why we should advance on a limited front, at any rate at this stage, and confine the direction of these reforms to the area in which they will do most good to the nation as a whole by encouraging the re-equipment of productive industry, including, of course, the industry of agriculture. Finally, I must point out that the discrimination in favour of productive industry applies only to buildings. All trades and the professions will share in the benefits of Part II of the Bill, which is concerned with plant and machinery.

There are one or two important respects, and these I would like to bring, specially to the attention of the House, in which I have gone rather further in the Bill than I promised to do last April. In the case of plant and machinery, as the proposals have taken shape, all expenditure whether on new or on secondhand plant and machinery, will rank for the initial allowance, and I propose to extend the allowances to expenditure on plant, on machinery or on new buildings incurred before the termination of the war. My original proposal, I would point out, was that these post-war changes in Income Tax policy should come into force only as from an appointed day which would follow the termination of hostilities. It has been strongly represented to me that in many cases expenditure may in fact be incurred on post-war account before the appointed day, and that any uncertainty as to the date when these changes will come into operation might militate against prudent planning for the future.

I, therefore, propose in the Bill that any expenditure incurred after April of last year, when my proposals were first announced, will rank as from the appointed day for the initial allowance, except, of course, in so far as the expenditure may already have been written off under the provisions of the existing law. The same process of ante-dating will apply also to the provisions of Parts III and IV of the Bill, which relate to capital expenditure incurred by the extractive industries and capital expenditure incurred by the agricultural industry.

In the case of the extractive industries —by which I mean quarries, mines, oil wells and the like—I promised that a depreciation allowance should be introduced to cover expenditure on various types of capital asset of which the useful life is limited by the life of the mineral or oil deposits which are being worked. This is done in the Bill. The cost of the assets will be written off against profits over the life of the deposits which are being worked.

Mr. Tinker (Leigh)

Does that mean that the right hon. Gentleman will have statistics taken out to find out how long the deposits are likely to last and that on that basis he will base his calculations?

Sir J. Anderson

That is rather more a point for the Committee stage; but an estimate will be formed of the life of the deposits, and allowances will be made for the writing off of the-assets which will be subject to adjustment later on, if better information becomes available.

The House will have noticed that in Part IV of the Bill a special scheme is provided for agricultural buildings. What I promised last year was that the agricultural industry should be given relief in the same measure as was proposed for the ordinary industrialist. In the case of plant and machinery, the agricultural industry will be treated like any other industry and the farmer will enjoy the same allowances in respect of expenditure on plant and machinery as are enjoyed by anyone else. But in the case of buildings and agricultural works in general, I have come to the conclusion that it is not practicable, for a variety of reasons, to deal with expenditure on precisely the lines proposed for the ordinary industrialist. Agriculture, I would point out, is already, under the law, in a different position, in that the existing law already allows certain capital expenditure on buildings to be included in a maintenance claim and to rank for relief on the basis of a spread over of five years. To superimpose on those existing provisions the new scheme in the form in which it applies to industrial buildings would, in practice, be unworkable.

In the first place, it would be impracticable, in the circumstances of the industry, to write off, over the balance of a 50 years' life, that part of past expenditure which has not already been allowed under the existing law, because that part could not, in most cases, be identified with any certainty; and apart from the difficulty of determining the life of agricultural works it would be impossible in most cases to say whether there had been subsequent additional expenditure, or whether the works had been replaced and the whole or a part of the expenditure allowed under maintenance claims. In the second place, it would be extremely difficult to separate out that part of agricultural expenditure which does not already qualify for relief, and proceed to write it off for a long period with a system of balancing allowances and charges, having regard to the changes of ownership and the splitting of estates which are common in this industry.

What I propose, therefore, is this: I propose that the treatment of agricultural buildings and works should differ in two respects from the general scheme. Existing buildings, the cost of which does not qualify to be written off under the existing law but which might qualify, if the buildings were treated as industrial buildings, for an annual allowance of 2 per cent. over the balance of a 50 years' life, will not, in fact, qualify for any further allowance beyond what the present law allows. That is a modification against the interests of agriculture. On the other hand, relief in respect of new buildings and works, so far as it is not already given under the existing law, will be given under the Bill, on the basis of a spread over a 10 years' period. That is in favour of the agricultural industry. The two together, I suggest, apply the principle which underlay the whole of my proposals last year, with due regard to the special circumstances of the agricultural industry. If hon. Members will examine these provisions, I think they will agree with me that, having regard to the various difficulties, to which I have briefly alluded, that would attend an attempt to fit agriculture into the general scheme, the proposals actually embodied in the Bill do represent, as I have said, a fair, perhaps a generous, but not an unreasonable application of the general principles underlying my proposals.

Sir Alfred Beit (St. Pancras, South East)

Does what my right hon. Friend is saying apply to agricultural buildings?

Sir J. Anderson

Yes, I am dealing with new building costs of agricultural buildings, as distinct from industrial buildings. In regard to industrial buildings I am carrying out literally the proposal I outlined to the House last April.

Mr. Coleģate (The Wrekin)

Does the proposal include forestry and buildings in connection with forestry?

Sir J. Anderson

In regard to forestry, the position is that plant and machinery will, as I have made clear already, be dealt with in exactly the same way as all other plant and machinery. Those buildings which are analogous to industrial buildings—those which house saw mills or buildings for the storage of timber—will qualify for the appropriate allowance. But it may be—I am not quite sure—that there are, in connection with forestry, buildings analogous to ordinary farm buildings. If that should be so, and I really do not know the facts, the answer to the question—I am very glad it has been put—is that the Bill, as it stands, would not extend to such buildings, in the special provisions which I have just explained will apply to agricultural buildings. It is a point which may be raised in Committee, and if there is substance in the point I am prepared to meet it. As drawn, the Bill does not apply to forestry as such. Forestry, in other words, is not within the definition of husbandry as used in the Bill. I hope that I have made the point clear.

As regards the other provisions of the Bill, I think I need only refer briefly to one or two points. Part VI embodies the outcome of the promise I made in the course of the Finance Bill Debates last year to consider the question—this is a point in which my hon. Friend the Member for Walsall (Sir G. Schuster) may be specially interested—of extending the relief given by last year's Finance Act to industrial research expenditure, so as to cover expenditure of that kind which may be incurred immediately, without waiting for the appointed day. Research is another case of rather special treatment. The explanation of the provisions of Part VI must inevitably be somewhat technical and I apologise if it seems complicated. It really is, in substance, quite simple. The explanation is this: In the case of expenditure on industrial and scientific research which takes the form of payments to centralised research institutions or universities, the Bill includes a provision which runs parallel to the arrangements made in respect to the new allowances on plant, machinery and buildings. That is to say, it will give relief as from the appointed day in respect of payments of this kind made after April of last year. So far that is exactly in line with what is being done for industry in general, and that, so far as it goes, carries out my promise of last year. I now propose to go further with regard to capital expenditure that may already have been incurred by traders in the provision of their own laboratories and research buildings.

Capital expenditure of that kind would not have attracted any allowance under the law as it existed before last year's Finance Act, though in the absence of the special provisions in Part VI of this Bill, the buildings would rank as industrial buildings for the purposes of the relief which is given under Part I of the Bill in respect of existing industrial buildings that have had a life of less than 50 years. But where research buildings have been erected since January, 1937—that is the point with which I am dealing —I propose a further measure of relief. Buildings erected since 1937 will, of course, rank, as the law stands, for the exceptional depreciation allowance, which under Part VII of the. Bill will have the effect of writing the cost down to the value as at the appointed day after the war. I propose to treat the value which is written down in the same way as new expenditure on buildings for industrial research, that is to say, to allow it to be deducted from profits over a period of five years. In other words the residual value of that expenditure already incurred since 1937 will be written off over five years, just as under the Act of last year new research expenditure will be written off over a period of five years. I think this will be found, on examination, to represent a reasonable solution of a difficulty that would arise if there were no transitional arrangements, and if buildings erected after the appointed day ranked for a five years' spread, whereas buildings erected before the appointed day, but after 1937, would only receive the same treatment as ordinary factories.

The provisions of Part VII of the Bill carry out the promise given by my predecessor that the allowance for exceptional war-time depreciation will accrue, not only in respect of buildings, plant and machinery that have been sold or have become obsolete, but also in respect of buildings, plant and machinery that may be retained in the business, but have fallen in value. The original cost will be written down to the post-war value, and this will ensure that any loss incurred by the trader on capital cost by way of provision of buildings, plant and machinery for national rearmament and the war effort, will be allowed as a deduction against profits arising from the expenditure. Allowances will be given by an even spread from April, 1939, onwards and will therefore operate over the period of war-time rates of taxation.

Those are the outstanding features of a Bill which I may fairly claim is inspired by the genuine desire of the Government to prepare for, and to stimulate, that forward surge of productive industrial activity on the part of our people on which the whole of our programme of reconstruction and reform must depend. I expect the Bill to make a vital contribution to our preparations for peace, and it is to this end and with that view that I commend it to the House.

4.6 p.m.

Mr. Pethick-Lawrence (Edinburgh, East)

The House is indebted to the Chancellor of the Exchequer for a lucid statement with regard to this somewhat complicated Measure, and it was none the worse, if I may say so, for not having occupied a very great deal of time. So far as I am concerned I propose to emulate the Chancellor in that healthy competition on brevity which I hope, Mr. Speaker, will gain your good graces, as you said earlier in the day. But before I come to any broad general statement in regard to the Bill itself, I propose by way of introduction to say a few words about the attitude of my Party to this and somewhat similar questions relating to industry.

The Labour Party differs from the party opposite as to the extent of the field in which it is desirable for public ownership and control to operate in industrial enterprise. We stress the need for its enlargement because we believe that private enterprise cannot be relied upon to serve the general interests of the community, either as producers or consumers. But I hope that we are all agreed, Conservatives, Liberals and Socialists, that British industry must be highly efficient. In some ways it is going to be a very difficult time for this country after the war. Not only have we lost a great deal of our overseas assets, but we shall be in a new world, confronted with other nations, very powerful, and with very great means of adaptation at their disposal. Without standing for any undue nationalism, we cannot get away from the fact that the two great friends of ours in this war may become, to some extent, our competitors in the world when the war is over. It is interesting to observe that these two competitors differ fundamentally in their approach to this problem. The United States of America is the great protagonist of private enterprise, and it has amassed immense productive machinery almost exclusively by the methods of private enterprise. On the other hand, in the other great colossus, the Soviet Socialist Republics, we have a country which has decided to take up Socialist enterprise, publicly owned and publicly controlled, and yet it too, under this method, has also performed miracles of development in the years that have preceded this great war. The proofs that it has been efficient and successful are the wonderful results of its war effort, differing in that respect so fundamentally from the failure of the Czarist regime in the last war.

Both those countries, the United States, with private enterprise, and Russia, with its public ownership, have amassed quantities of capital undreamed of before in the history of the world. It is the com- mon view of all parties in this House that we cannot allow Britain to lag behind those two great countries, in friendly rivalry with them, let us hope, and we in this House and the political forces in this country would never be forgiven, and rightly so, if we permitted our differences as to the extent to which there should be public or private enterprise to allow Britain to lag behind. We certainly cannot have the worst of both worlds. Whether we have public enterprise, or private enterprise, or to the extent we have one and the other, it has got to be highly efficient, and that implies the creation of new capital on a scale we have never known before in this country. It is from that background that my hon. Friends in this House, and those who agree with us in the country approach this problem.

We should not be agreeable to the Chancellor of the Exchequer making great subsidies to private enterprise which, when the time comes, as we think it will, when many of them fall under public control and ownership, would mean a larger ransom to be paid for purchasing them. Further, we agree with the Chancellor in his refusal to allow all profits that are ploughed back into the business to escape the normal Income Tax, partly because we recognise that that would open the door to very grave abuses which could not be checked. That does not, however, in the least mean that we are opposed to recognition of proper depreciation as a set-off against gross profits. The only condition we make is that it shall be a fair estimate of depreciation and shall be neither in defect nor in excess of a firm commercial estimate of what that fair depreciation shall be. During the Committee stage of the Bill, when the actual details of each one of these principles is brought under consideration, our energies will be devoted to securing that the amount of depreciation shall be fair.

That brings me to the terms of the Bill itself. Though the Chancellor, quite rightly, went back II months to his Budget Statement, this matter did not arise, in the first instance, only a year ago. It has been an outstanding grievance with industry for many years—I think for 20 or 30 years at the very least—that the practice of the Inland Revenue in estimating depreciation did not tally with the practice inside the actual business itself, as computed by auditors and accountants of the highest order. They have complained that in effect they were being taxed on profits that they did not make. The point of view of the Treasury was expressed by saying that, however much it might be wrong during the process of depreciation, yet when it came to the final settlement of obsolescence it was tidied up. That was never satisfactory to industry as a whole. The Chancellor, therefore, made this promise a year ago, to deal fundamentally with this issue, and as is always the case with the present Chancellor, what he has promised a year ago is, I think it will be admitted, faithfully fulfilled in this Bill. It may not go as far as some people like, but it goes at least as far as he himself said, and a little further than his promise.

There is one point in regard to which I would be interested if, when the Financial Secretary comes to reply, he is able to give us more detail. This Bill, as I understand, does two things. In the first place, it changes the law in certain particulars and alters the basis of depreciation by law; and, in the second place, to some extent at any rate without changing the law, it changes the practice of the Board of Inland Revenue. It would be interesting to be told how far it does the one, and how far it does the other.

I take the view that most of the details will have to await the Committee stage, but there are two or three points which, I think, are worth mentioning. The first is the nature of the relief. The nature of the relief is to bring to earlier date the allowance for depreciation. In some respects, the proposals of the Bill amount over the whole period to an increase of the amount of depreciation, but the main effect is to ante-date the time when the depreciation comes into account. My hon. Friend the Member for Chesterfield (Mr. Benson), who has a lynx eye in all these matters, has come to the conclusion, as I understood his speech on the Budget, that the advanatges conferred by the Chancellor's proposals are very much smaller than is sometimes estimated. I take a somewhat middle view between exaggerated hopes and the rather depreciatory remarks of my hon. Friend. I think that in the ante-dating of the relief there are considerable advantages to the industrialist. In the first place, he gets a relief round about the time when he incurs the heavy expenditure. In the second place, he gets a relief that is sure, and he gets it at a time, certainly so far as the present is concerned, when Income Tax is very high. We all hope—and I think the Chancellor would give us confidence that that hope will be justified—that there will be some measure of reduction in the high rate of Income Tax during the next 10 or 20 years. I know that sometimes those hopes are not as well founded as people suppose. After the last war the ordinary man and woman thought that Income Tax was going gack to where it was before the war began. Although it went back, it never went anywhere near that figure. I hope that that experience is not going to be repeated. But that is speculation: all I can say is that Income Tax is extraordinarily high at present, and that the industrialist will get the relief when Income Tax is what it is to-day. He has that assurance by this proposal. I would not therefore go so far as my hon. Friend the Member for Chesterfield did in writing down the benefits that this Bill proposes to confer.

The next point is the field of enterprise which this Bill covers. The Chancellor has given a general description of the field, and I understand that there are Members who will take exception to the limitations imposed. I want to raise the question of one industry in which a large part of my constituency is concerned, the fishing trade. I am not clear from the terms of the Bill—and my constituents are anxious on this point—whether the boats and tackle of fishermen are covered by this Bill.

Sir J. Anderson

Boats will be treated in the same way as plant or machinery.

Mr. Pethick-Lawrence

I am very glad to hear that, and I need not proceed with the point. As long as the Chancellor is quite clear about that, my people will be satisfied, but they expressly asked me to put the point. I think the Chancellor will admit that it is implied rather than stated. There is no provision in the Bill which mentions boats. If there is any ambiguity, perhaps the Chancellor will make it quite clear.

There is one point on which we have not had any enlightenment. I have not seen any statement of the cost of the concessions included in the Bill. It is not stated in the explanation at the beginning, and I do not think the Chancellor gave it in the Budget Speech. It may be that it is too speculative a subject to venture on, but this House is entitled to know roughly what these changes are likely to involve to the Revenue. I do not mean that the House will grudge them, but the House should be told roughly what sort of figure the Chancellor has in mind.

I will keep the promise I made to be brief. I have not gone into details, because I think they are Committee matters. I have explained the attitude of my party to this question, and I need hardly say that we shall support the Second Reading of the Measure. I hope that it will play its part—I would not exaggerate its importance—in enabling British industry not merely to re-equip itself, but to launch out and become as efficient as industry in those other great countries which will be our competitors in the hard and difficult years that follow the conclusion of this war.

Mr. Bowles (Nuneaton)

Does my right hon. Friend agree to the exclusion of the distributive trades? We have always been told that it was not a question of production—that problem was solved in the 19th century—but of distribution.

Mr. Pethick-Lawrence

My hon. Friend is entitled to raise that point when the time comes. I was not expressing a party opinion on it, and we shall see how the Debate goes. My hon. Friend will be able to express his point of view when the time comes, and, no doubt, those who sit with him will be able to do so.

4.24 p.m.

Sir Georģe Schuster (Walsall)

As some of my remarks an this Bill will be critical, I would like to start with two preliminary observations. First, I want to pay a tribute to the very high standard of terminological exactitude observed by my right hon. Friend. He has, as he himself said, been better than his word. Secondly, I would like to emphasise that, in spite of my criticisms, I regard this Measure as representing a great advance.

We have to consider it from two aspects. The first is the aspect, on which my right hon. Friend himself has dwelt, of this Measure as an aid to the re-equipment of British industry. The second is its aspect as a Measure for the reform of our Income Tax system. As to the first, I recognise that the proposals will be helpful. I agree with my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) that the initial allowances, although it can be argued that they are not gifts but merely anticipations, will in their practical effect be definitely helpful. The only point that I wish to make on this general aspect is that as an aid to the re-equipment of industry the effects will not be very great. This Measure is rather in the nature of one which removes obstacles and hindrances; it does not afford great positive aid. Beyond that, I want to express the hope that at some time soon we shall get from my right hon. Friend a comprehensive statement of his conception of what are going to be the financial requirements of British industry, and how they are going to be met. We constantly get little pieces of what one might regard as a jig-saw puzzle put before us. We have had this Measure to-day; we had the Finance Corporations a week ago. These are small things. I want to see the picture as a whole. I want to be satisfied that the Government has an adequate conception of the problem as a whole. Turning to the second aspect of this Bill as a tax reform Measure, it would, as I have said, be ungenerous not to recognise that it marks a great step forward. At last we get recognition of the principle that the writing off of expenditure on capital assets during the life of those assets is to be regarded as part of the outlay incurred in earning profits. So far, so good; but in my view the Bill is marred by certain very grave blots, arising from the fact that this principle is not to be consistently applied, and that arbitrary distinctions are to be drawn.

The first serious blot is the terrible complexity of the Clauses.. Many of us have spoken in the past on the complexities of our Income Tax law. I can only say that after attempting to construe this Bill I have found the existing confusion worse confounded. I see in its provisions a most fertile ground for disputes, uncertainties, and delays. I see in it an instrument which will create the need for hours of fruitless work and hordes of fruitless workers. My right hon. Friend has drawn a distinction between productive and non-productive work. The kind of work that this Bill will involve is really non-productive work—worse, it is work which hinders production. I would beg that, even if we cannot get it now at this stage, we may get in the near future a simplified Income Tax law based on clear principles. I feel that a very good ship has been spoiled for a ha'porth of tar, and that instead of getting, as I had hoped at one time that we should get, a beautiful new stream-lined model of legislation, we have a patched-up contraption, which only the most learned expert will be able to operate.

I think it is worth while dwelling for a moment on this blot of complexity, because it has a significance which we in this House should appreciate. If one asks why all these complications, or if one tries to discover the meaning of the many apparently unintelligble Clauses, the answer, I submit, is this. At every point the framers of this Bill' have been endeavouring to devise, not a simple, consistent Measure, based on the clear principle that all the outgoings incurred in earning the revenue of a business represent expenditure chargeable against profits, but have rather said something like this: "We are going to apply this principle in certain cases and not in others. We are going to exercise discrimination. In certain cases where we think it is right the true costs shall be allowed. In others, not. In fact, we shall not be guided by clear principles, but we are going to use taxation as an instrument of policy aimed at helping specific activities, but being very careful to exclude that help from others which we do not consider need help." I want to put it to the hon. Members that the House should watch very closely any attempt of this kind. My right hon. Friend has been perfectly frank and has said that he definitely wants to help certain types of industry. It is for this House to consider most seriously whether this is justified.

This leads me to my third criticism, which is on the nature of the distinction that is drawn there. I want to submit that the discrimination in this Bill has, in fact, been drawn both wrongly and unfairly, and, in support of this, though there are many other illustrations which I could give, I want to concentrate upon one point only the distinction between industrial and non-industrial buildings. I submit that it is intrinsically wrong to draw a distinction between two types of economic enterprise, and I submit that that distinction has been drawn in this Bill in a way in which it is very difficult to understand and which may be quite unworkable in practice. I want to argue further, because my right hon. Friend referred to the cost of these measures, that the ideas underlying the distinction really represent false economy and that, in the long run, the Revenue will not benefit.

What does this Bill do? So far as it concerns buildings, it specifically excludes offices, shops, hotels and certain warehouses. But offices are necessary to the management of any business, and I submit that depreciation of them is an essential part of the cost of production. Hotels, too, may be a very important part in our post-war national development; indeed, they may be one of our most valuable sources of dollars or other foreign currency. I do not, however, want to develop these two points, because I want to argue chiefly on the case of the business of wholesale and retail distribution. Hon. Members know that I myself have certain definite business connections with the distributive trades, but I beg the House to take what I say not as representing the views of an interested party. I want to put my argument on the grounds of the national interest, and, if relief is to be given to the distributive trades, I want the results to be, not increased profits to traders, but lower costs in distribution. Retail shops are a normal instrument of distribution, and, together with warehouses used in connection with them, they must be provided for and amortised in connection with the cost to the consumer. I want to put it to the House that the productive processes on which the welfare of the people of this country depends include all steps which have to be taken for converting raw materials into goods in the hands of the ultimate consumer. I say that it is ridiculous to suppose that efficiency and economy in certain of these steps is in the national interest but that what happens with regard to the remainder does not matter at all. I want to argue that distribution is a major factor in our national economy which will become of increasing importance.

I should like to convince the House of this importance. Unfortunately, we have no accurate estimates of what the process of distribution costs, but I have tried to make a rough calculation, and I put it to the House that, on pre-war figures, the cost of retail distribution amounted to something like £650,000,000 sterling. That is a rought shot, but I happened to be investigating certain lines of distribution as a Member of the Select Committee on National Expenditure in this war, and one of the things which we pointed out in one of our reports was that the cost of distributing meat alone, under Government control in 1941, amounted, on wholesale distribution, to £23,000,000, and, on retail distribution, to £45,000,000

Mr. Graham White (Birkenhead, East)

Including the subsidy?

Sir G. Schuster

Not including the subsidy; that is quite different. Then we had some figures given by the Ministry of Food applicable to 1942 which I understand gave the results of the costs of food distribution alone, amounting to something like £450,000,000 a year. It does not matter whether my figures are exact or not. They are near enough to give the House an idea of the scale of this problem. If the total cost is only £600,000,000, and if 25 per cent. of that £600,000,000 could be saved, that £150,000,000 that would be gained would be just as great an advantage to the nation in helping to keep up the standard of living or keeping down its cost as £150,000,000 saved in what is called productive industry.

I want to take this opportunity of urging that the most searching scrutiny should be made by the Government into the methods and costs of distribution. This is one of the tasks which most urgently needs tackling after this war by those who will be carrying the responsibilities for the general economic conditions of the country. I consider it a very grave blot on the present Measure that it seems to imply a total failure to recognise the significance of this process of distribution. I do not think there is any justification for laying a discriminatory tax on premises required for that purpose. In the national interests, the costs of distribution need to be reduced—not that the Exchequer should add to that cost. I think it is particularly unfortunate that the Bill should take this line now just at a moment when if we look ahead to the conditions likely to prevail after the war and the tasks which the Government will have to perform in carrying out its full employment policy—it is particularly unfortunate that we should make this discrimination now, because I believe that, in a new in- terpretation of the functions of distribution lies one of the hopes for regulating the balance between national resources and the consumptive power of the country.

There is no time to develop that point fully now, and I want to go on to argue that the dividing line between industrial and non-industrial buildings, as drawn in the Bill, is confused and likely to be unworkable. I have already emphasised that it is going to be a rich field for the Income Tax experts and lawyers of all kinds, and I think it is important to appreciate that this attempted discrimination is really responsible for the greater part of the complexities of the Bill. For example, a very great number of these complexities arise from the fact that, according to its own interpretation, buildings may be industrial during part of their lives and non-industrial during other parts. Therefore, you have to produce a set of "in-and-out" clauses.

Apart from this, as far as I can understand the Clauses, the dividing line as drawn will lead to all sorts of anomalies, and I want to give one or two illustrative cases which, on my interpretation of the Bill, will arise. I may interject that these are only the interpretations of a layman and do not represent the views of experts. I shall be glad to be proved that I am wrong. My first example is this. A sports pavilion for workers employed by a trader —any trader whether engaged in retail distribution or not—is to be treated as an industrial building. A warehouse owned by the same trader, if he is only in the retail business, is not. Next, a warehouse used for the storage of goods by a manufacturer is an industrial building; a warehouse used for storing exactly the same goods by a retail trader is not. As a third case, a warehouse used for storing fresh British apples is not an industrial building, but a warehouse used for storing fresh Canadian apples is, as also is a warehouse used for storing canned or dried apples. I submit that these are absurdities.

Let me turn to another point. Transport and storage are included as industrial purposes; therefore, apparently, buildings for transport and storage will be treated as industrial buildings, even if the transport and storage are carried on independently of any manufacturing undertaking. Apparently, however, the benefit is at once to be withdrawn if the transport and storage have to be regarded as ancillary to the purposes of a retail shop. I want to know how this is to be interpreted, and I want to know what is a transport undertaking, as there is no specific definition of a transport undertaking in the Bill. I want to know if a large retailing concern organises its own transport and storage in a separate company, whether those buildings will qualify as industrial buildings or be disqualified merely on the grounds that the same shareholding interests have control over the transport and own the shops. I submit that very serious consideration should be given to the complications, doubts and injustices involved in the cases which I have raised.

I have spoken about buildings in retail distribution, as well as hotels and offices, but really the issue about buildings goes very much wider than that. We have to face the fact that, according to this Bill, all buildings, excepting industrial buildings as defined, are to be regarded as everlasting and never qualifying for a depreciation or obsolescence allowance. That is a very well-known subject on which many of us have spoken in the House before, but I think it bears emphasising again, and I would like to quote what I myself said on the Finance Bill two years ago. I said that there were two main objections to the present system: First, no factor has been more powerful than our tax system in encouraging the patching up of old buildings and thus perpetuating slum conditions, both in factories and in human dwellings. Secondly, it illustrates the shortsightedness of our present methods. The Revenue really lose from them in the long run, not only because they encourage the retention of bad lay-outs, but also because they tend to make people go on patching up old buildings and to incur heavy costs for repairs. Both results reduce taxable profits."—[OFFICIAL REPORT, r8th May, 1943; Vol. 389, c. 1028.] In this connection it is worth reminding ourselves that there is no limit to the deductions from taxable income that can be claimed for repairs. If depreciation is not to be allowed on all buildings, including dwelling-houses—and I submit that there is a case for dwelling-houses to be included so as to encourage the re-building of slum properties—then I suggest that the easiest place to draw a line of distinction is that between dwelling-houses on the one hand and all buildings used for purposes of trade on the other. All business promises should be depreciable for tax purposes just as they must be depreciated in order to arrive at commercial profits.

I have concentrated on this discriminatory definition of industrial buildings. I want to close as quickly as possible, but there are several other important points to which I would just like to refer. First of all there is the way in which buildings constructed before the Appointed Day are treated. It seems to me to be unfair. The Chancellor of the Exchequer has told us something about a special Measure in respect of buildings for research purposes which I accept with gratitude. But with regard to other buildings it seems that the curtain is arbitrarily drawn down at 1937–38 and that any insufficiency of depreciation before that date is left to the taxpayer to bear out of his taxed profits. Secondly, Clause 49 dealing with controlled companies, seems to be both unintelligible and unnecessary. My third point is that there are many examples in which the Revenue authority vis-à-vis the taxpayer takes the well-known attitude of "Heads we win and tails you lose." The examples may not be important, but that kind of smart practice is wrong in itself, and tends to harm the reputation of the Government and the Revenue authorities. I can give examples of what I have in mind if I am questioned.

I turn to a fourth point. I have dealt with the position of the retail trade so far as concerns buildings, but I want to make this further point. The retail trade has also been, in my view, unfairly treated in the past in the interpretation of what is to be regarded as machinery and plant. I want to urge that machinery and plant should include all fixed and wasting assets whatever their nature and type which are used in the course of carrying out the trade. As illustration of the type of assets which I have in mind, I refer to shop fronts, bacon cutters, neon lighting signs, cash registers, counter and display cases, marble slabs, cabinets, etc. Such things cannot be regarded as anything but part of the apparatus whereby the retail trader carries on his business. Now the Bill is entirely satisfactory in the way in which it treats machinery and plant, and to-day the Chancellor of the Exchequer has emphasised that the new treatment of machinery and plant is to apply in every field and not merely to so-called productive industry. But nothing has been said, nor can I find anything in the Bill, as to the definition of those terms. I want to be assured that the definition of machinery and plant, so far as concerns the distributive trades, will in the future be satisfactory.

These are the only points I wish to raise to-day. I would sum up what I have tried to say under four heads. First of all, there is the urgent need for clarifying our Income Tax law; secondly, the danger of letting the application of a principle of taxation be regulated according to what I can describe as ulterior motives; thirdly, the urgent need for a proper appreciation of the function of distribution in the national economy; and lastly, I want to plead for—as early as possible—a comprehensive review by the Chancellor of the Exchequer showing how he assesses the task of financing the postwar re-equipment of British economic enterprise in the widest sense.

4.49 P.m.

Sir Georģe Broadbridģe (City of London)

I only desire to raise a certain matter concerning a particular interest, and I have been asked to do so by constituents of mine. It refers to British public utility companies, with British capital, which have obtained concessions, probably a lot of them a good many years ago, and those concessions at a certain date come to an end. When they terminate there is no compensation payable to those companies. Therefore it necessitates, and has necessitated, a heavy amortisation sum being set aside out of a company's revenue. I am only concerned with two companies at the moment. They are operating in the Argentine. One is a large waterworks company and the other a big drainage company. The amortisation amount that is set aside out of the company's revenue is allowed by the Argentine fiscal authorities, but the British taxation authorities will not allow that amortisation. The result is that they have to set aside a very heavy amount in order to cover the British taxation, resulting in very little profit being shown by these companies through the two taxations. They consider, therefore, that that is a wasting asset, and, seeing that they get no compensation after many years of work, they ought to be treated on the same basis as all other various industries are being treated. They have asked me to raise that point so that the Chancellor of the Exchequer can take the matter into consideration, probably at the next stage of the Bill.

I am also asked to point out that these companies are a very great adjunct to the export trade. They are continuously sending out and exporting all kinds of plant and machinery for maintenance and repairs as well as large quantities of stores. If when those concessions come to an end that trade stops, it cannot be a good thing for this country, and if those heavy amortisation charges go on and are not allowed, it will be impossible for anyone here to compete against any other country for those concessions, and that kind of business will be lost to this country. I therefore ask the Financial Secretary if, when he replies, he can make some statement as to whether anything is intended to be done or will be done in a matter of this kind. I understand that there are many of these public utility companies registered, with British capital, now operating not only in the Argentine but in other parts of the world.

I am sure that I am correctly stating what my constituents would say, namely, that they welcome this Bill. It may not be perfect but it certainly is a great help to our trade and industry. If it does not give us everything we want, it certainly is a great aid, as the Chancellor says, to help to rehabilitate and resuscitate this country's trade in every respect.

4.54 p.m.

Mr. Graham White (Birkenhead, East)

The Chancellor in his opening sentence described this as a lengthy Bill dealing with a complicated subject. It is a very notable Bill for several reasons, and with one exception they are all good reasons and favourable to the authors of the Bill. The unfavourable feature of the Bill which makes it true to type is that it lives up to the high level of the capacity of my right hon. Friend's Department for clothing legislative proposals in very obscure and technical language. I want to associate myself with everything that my hon. Friend the Member for Walsall (Sir G. Schuster) said in that respect. We have here a Bill which will be read more closely than almost any other Bill dealing with taxation by industrialists and the people of this country generally, and yet it is a Bill which for obscurity will rank with any that we have had in the past. I cannot help feeling a good deal of sympathy with the writer in a technical paper who was discussing this Bill. Having paid a compliment to those who have translated the Bill in the Explanatory Memorandum, he went on to say that, when he passed on to the rest of the Bill, a "chill struck his heart and numbness settled on his brain." I express my sympathy with that writer. Even I could understand the Explanatory Memorandum, but in these days one has hardly time to devote to such provisions as Sub-section (1) of Clause 1 or the last two Subsections of Clause 12. These are matters which really would require patience, prolonged research and expert advice before one could comprehend their meaning at all.

I would remind the House that this is a matter which has been raised, and is raised periodically, in this assembly and it is about time that something was done about it. It was about the year 1935 when one of these periodical protests was made against the obscurity of the Income Tax and the taxation code and a Committee was set on foot to deal with the question of codification and simplification. Lord Macmillan presided over the Committee, which did some very valuable work and produced a model Bill. I associate myself again with what my hon. Friend the Member for Walsall has said on this point, and say that it is a thousand pities that opportunity has not been taken by the Department to avail themselves of the recommendations made by that Committee and produce a Bill which could be understood by the people concerned, that is, nearly all of us, either directly or indirectly. That is one of the features of the Bill which is most unfortunate and I hope that the voices raised in this Debate in calling attention to the matter will not have been raised in vain.

The other features of this Bill for which it is notable are favourable. My right hon. Friend the Chancellor of the Exchequer is almost unique in having introduced a taxation Bill which is really popular. I cannot recall a taxation Bill in which people have sought to be brought within its scope. It is an unusual thing and it is worthy of note, and, furthermore, it is the first practical step taken to realise the fact which has been pressed more consistently in recent years, that taxation can be something more than an act of repression and retrogression; it can be made an instrument not only for stimulating industry and development, but also for furnishing the general body of income from which the Treasury and the taxation authorities draw their resources. It is a Measure to fortify the revenue. I do not go quite as far as the hon. Member for Walsall in that part of his speech in which he claimed that there was need for a clear definition Clause, or in the matter of the extension of the benefits of the Bill to other spheres, but it is quite clear that this is a Bill which aids in stimulating production and also in fortifying the revenue. If that is the case, it is obviously only an intelligent thing to do to see how far it can be extended still further. The Chancellor of the Exchequer has made a bridgehead with this proposal, and we shall look forward, in the light of his experience and with the encouragement he receives, to further advances.

I want to refer to the definite exclusion of hotels from the scope of this Measure, not because I am convinced that they should be brought in at this moment, but for another reason. It is perfectly true that if this is a Measure for stimulating the revenue, the hotel has a strong case for inclusion, for hotels bring visitors to this country and help people to move about the country, and so, in many ways, they increase the revenue and the taxable resources. The reason I refer to hotels at this moment is not to urge that they should be brought in here and now, but because, within the last few weeks, the Catering Commission has made recommendations with regard to the rehabilitation of hotels and the catering industry generally. As part of their recommendations, it is suggested that the National Exchequer should make considerable pecuniary contribution to the rehabilitation of hotels, more particularly in the evacuation areas. I want to ask my right hon. Friend, therefore, whether he will look into the recommendations of that Commission to find out whether the particular form now recommended to the Chancellor of the Exchequer by that body on behalf of the catering industry is, in fact, a better and a more effective way than would be the extension of the provisions of this Bill to the industry.

That leads me to say that this Bill is notable in another, and in a most commendable, way, by comparison with the form of Bills which we have had introduced into this House during this Session. One of the major difficulties we shall encounter when we pass into the period of development and reconstruction, is whether Parliament will be able to deal with the tremendous volume of business winch will be thrust upon it. If it is to succeed in that task, I think it is imperative that the Bills which are brought to this House shall be clearly expressed, their purpose clearly understood, and the legislative and administrative machinery thay call into operation shall be clearly defined and able to operate. This Bill, I am glad to say, answers to that important requirement, and it differs from the Requisition of Land and Buildings Bill, which seemed to run contrary to Government policy and trespass on the fields of half a dozen other Ministries, and it was quite clear that it could not operate with that clearness and lucidity which will be essential if we are to transact our business in an orderly way. I am glad to say that this Bill does not excite any animosity in me in respect to that, and I hope that other Bills which may come forward will be carefully related to the general scope of administration.

I do not wish to go any further into details regarding the proposals of this Bill. There are some matters that I think we might wish to discuss in greater detail in Committee. For example, criticism has reached me with regard to the proposal to tax the lump sum which might be received in respect of a patent alternatively to the patent being sold on a royalty basis. I cannot say that the criticism is well-founded. I think that if a man has to pay some taxation on a royalty basis I do not soc why he should not pay it as suggested in this Bill, However, that criticism is there, and I shall be glad if my right hon. Friend will give some effective answer to it.

The Bill is an important step forward. It is a remarkable reversal of fiscal policy in this country. It is true that we must not expect too much from it. It is impossible to provide for the full development of British industry by the purely negative method of tax relief. However, it does do something, and a good deal, to maintain and to stimulate what has been in the past—but which has been gradually squeezed out of existence—the constant and desirable flow of capital into industry through the ploughing back of profits into that industry. That highly desirable process has been practically throttled in recent years by retrogressive taxation and this Bill marks a reversal of that policy. My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) said that all parties in this House—Conservative, Labour and Liberal—would be united in desiring our industry to be efficient and up to date. He is quite right about that. It is a vital and basic consideration. He went on to suggest that there were differences between his party and the other parties on the matter of the ownership and control of industry. I think that views on that matter are perhaps not so seriously divergent as they were, and that one essential and overriding consideration with regard to the conduct of all industry in this country is that it should be devoted to the service of the consumer whose servant it is. If we leave that out, then we shall indeed be on the wrong road.

I would like to add one word in relation to what the right hon. Gentleman the Member for East Edinburgh said. I do not think it is generally recognised but, in the gradual development and transformation of industry, we in this country have a great advantage which I do not think they have in other countries. We have been in the field a long time. We have experimented far more than any other country on different types of industrial control, development and ownership. We have ranged from private enterprise conducted on the basis of piracy down to, in comparatively recent times, complete ownership, as in the case of the Post Office, with a whole range and variety of experiments from which something is to be learned. The one man who will certainly be wrong in his conception of the control of industry is the man who takes the manifold needs of mankind in all those intense varieties and thinks they can possibly be met by any one single formula for the control or ownership of industry. That man would clearly be wrong. Therefore, I come back to my main point, which is that this Bill will bring new hope and encouragement and stimulus to development and to industry. The complete revival of British industry will not be dependent on the negative basis of tax relief but it will depend on industry bracing itself and getting rid of the spirit of defeatism and slump-mindedness which have governed large sections of it over the last 20 years and more. If it will do that, and if it will devote itself to being really enterprising, to bring determined to scrap inefficient methods and to modernise its arrangements, I think it will serve the nation, and this Bill will help it to do that.

5.10 p.m.

Mr.Benson (Chesterfield)

Perhaps the most interesting innovation which this Bill introduces is the depreciation allowance for industrial buildings. It is important in this respect, that it will certainly draw attention to the condition of a very large number of industrial buildings in this country. I am not at all sure, if we look in the industrial North—it does not apply so much in the South—that we shall not find that industrial buildings are a good deal more obsolete and out of date than is our industrial plant. One finds important works housed in dilapidated sheds that have grown up haphazard and higgledy-piggledy without any planning; whenever there has been need for an extension, another shed has been built on a bit of adjacent land. There are entirely inadequate transport facilities, and the result is that, with the bad planning of the works, still situated where they were 5o or zoo years ago, there is excessive handling of goods, both in the reception and delivery, and an inefficiency which no modernisation of plant can overcome. For whether the plant be modernised or not, the lay-out and the method of production cannot be modernised because of the housing of the whole concern. In addition to that, you get bad lighting, which effectively reduces output.

A very large amount of the blame for inefficiency in British industry can, I think, undoubtedly be laid at the door of British industrial buildings, and I think my hon. Friend the Member for Walsall (Sir G. Schuster) used the right words when he referred to "industrial slums." Whether the Chancellor's proposals will be effective in stimulating the rebuilding of our industrial buildings is another matter and, quite frankly, I am entirely sceptical. The trouble is that the life of a building is so long that the allowance of 2 per cent. is spread over so many years that it is difficult to relate it to the cost of rebuilding. I am very sceptical as to whether this new allowance will be really efficient. However, I welcome it in that it calls attention to a very bad spot in British industry.

The part of this Bill in which I am most interested is Part II—the part which relates to machinery and plant. Part II will be valuable in so far as it succeeds in stimulating the modernisation of British industry, and that is the only basis on which we should judge it. I am not concerned in handing out money to industry unless I can get an adequate social return, and we certainly must judge the Bill by that criterion. The efficacy of Part II really depends upon whether the old rates of depreciation had any really depressant effect upon industry, whether they were inadequate, whether they did make industry rather loath to renew. Quite frankly, I am entirely sceptical about it. The hon. Member for Walsall said that the object of Part II is to remove certain obstacles. It would be rather difficult to deny that statement, but I do not think that the obstacles it does remove are very serious, because so far as depreciation allowances are concerned I do not believe any real obstacles to replacement are there. I know the argument of industry: that the allowances are inadequate, and that no prudent firm would ever dream of building up its depreciation reserves at the rates laid down by the Board of Inland Revenue. But that argument is essentially weak, for this reason. No matter at what rate of depreciation allowances are granted there is, ultimately and finally, the obsolescence allowance which gives zoo per cent, allowance over the life of the plant.

Sir Douģlas Thomson (Aberdeen, South)

The obsolescence allowance will only come in in connection with big industry. You might get a small factory where profits were not earned after the scrapping of machinery. Thus, the effect of getting an obsolescence allowance, if there are no profits, will be of no value.

Mr. Benson

It is true that the obsolescence allowance is allowed against the profits of the current year, but the average British firm does make profits. There may be isolated cases in which the scrapping of plant takes place in the year that there is a loss, but they are very rare.

Sir J. Anderson

The loss can be carried forward.

Mr. Benson

I had it in mind that the obsolescence allowance could not be carried forward. These things are very obscure but, anyhow, it is a marginal case. One thing that Part II does give is the right of full depreciation allowances and obsolescence for plant that is scrapped.

Sir J. Anderson

There is a six years' carry forward.

Mr. Benson

In that case the point raised by the hon. Member for South Aberdeen (Sir D. Thomson) falls to the ground

Sir D. Thomson

In a continuing business.

Mr. Benson

Certainly, in a continuing business, but by this Bill, if businesses cease, all depreciation allowance ceases.

Sir D. Thomson

The only virtue in the Bill is that it gives the depreciation allowance earlier. The hon. Member is talking about benefits and tax relief. It is only 100 per cent. that is being given a little earlier. It is a narrow point in Part II, and it is a small benefit.

Mr. Benson

That is exactly what I am trying to point out. I, also want to draw the attention of the House to this: If the argument of industry is that depreciation allowances have been far too small in the past then industry stands condemned out of its own mouth because in the past, whatever it may have done with its depreciation reserves, its plant has only been renewed when it has been written down to nothing, according to the existing rates of depreciation. That can be quite easily checked. One has only to realise that the actual cost of obsolescence allowance to the Treasury is a practically negligible figure, and that that can only come about if the plant is retained until it ha; been written down to nil.

What do the new proposals mean? Apart from the marginal case of the plant that is scrapped without being renewed, they give practically nothing. As the hon. Member for South Aberdeen said just now, they merely advance the rate of allowance over the period of the life of the plant. What happens in the normal case is this: over a period where a firm has scrapped plant continuously and regularly, and has not completely renewed its whole plant, the only effect of this Bill will be that the average amount of cash held in the firm's depreciation fund will be slightly larger than under the old rate. But firms do not, like Mr. Henry Ford, close a factory for 12 months, build a new one and re-tool. The process of replacing plant is continual and gradual. The only effect of this Bill will be to give a very slight increase in the amount of the funds of the depreciation reserves of industry. That is a very minor matter, because depreciation reserves are much smaller in industry than the free reserves. There is a far greater sum held in free reserves than in depreciation reserves. During the 12 years, 1924 to 1935, to free reserves something like £1,600,000,000 were put, whereas to depreciation reserves only something like £1,100,000,000 were put. Depreciation reserves are a revolving figure whereas in the case of free reserve the figure is largely additive.

One thing, however, is certain, that the free reserves held by industry are very much larger than the depreciation reserves, and that there will be only a small increase in the amount of the depreciation reserves. But I am not at all sure that that is an advantage. Unfortunately, our industry, for many years, has had what I might term a "gilt edged mentality." It has built up large reserves, but instead of ploughing them back into plant it has put them into Government securities. For years before the war—and I have said this before, and I repeat it now—British industry has tried to adopt the position of rentier instead of entrepreneur. Our job in this House is to break that spirit and that mentality. We must goad or compel British industry, in one way or another, to adopt a spirit of enterprise and I am not sure, in view of the past attitude of British industry trying to build up its financial reserves, that the best method of breaking that habit is to give it the opportunity of increasing its reserves. I am not sure that the Chanceller has not taken an entirely wrong line. I fancy that, like the well-known lady, he has taken the wrong turning—

Sir J. Anderson

Perhaps with less unfortunate results.

Mr. Benson

I do not know, we cannot yet gauge the results of this Bill. I suggest that instead of taking a step which will increase reserves he ought to have gone in the opposite direction. I suggest he might well consider the question of abolishing the whole system of depreciation allowances. That proposal is nothing like as fantastic as it sounds. If he would abolish depreciation allowances, and let industry recoup itself for wear and tear on the obsolescence allowances, the effect would be that industry would be much more anxious to scrap and replace plant, if that were the only way of getting hold of allowances. It would be a much simpler and more effective way of compelling industry to replace its plant frequently than the method adopted by the Chancellor. I suggest that the Chancellor should completely recast his whole depreciation and obsolescence system, adopt for simplicity a straight line depreciation rate, and that the whole of the allowance should be made on obsolescence when the plant is scrapped.

I go further than that. Let me give an example to show what I mean. Let us take a plant which should be depreciated on a straight-line 10 per cent. At any time within the first 10 years of the life of that plant, if it were scrapped, it would rank for 100 per cent. obsolescence allowance.

Sir J. Anderson

If it is replaced.

Mr. Benson

No, whether it is replaced or not, under this Bill.

Sir J. Anderson

Yes, under the Bill.

Mr. Benson

If the plant were retained after its life of, say, 10 years until the eleventh year, the 10 per cent. should work against the obsolescence allowance; if the plant is kept for it years the allowance should be 90 per cent., if it is kept for 12 years it should be 8o per cent., and if it is kept for 20 years it should be nil.

Sir Leonard Lyle (Bournemouth)

Who is to fudge if it is obsolete or not, if a hard and fast rule is made?

Mr. Benson

If the hon. Gentleman will look at Board of Inland Revenue tables he will find there plant of various kinds depreciated at various rates. It should be simple to calculate the appropriate rate. It may be true that there might be hardship and miscalculation as to what the life of the plant ought to be—whether it is too much or too little—but I am not concerned with that. I am concerned with the fact that we have to apply some stimulus to British industry, and I suggest that abolition of depreciation allowances and concentraion on making good wear and tear by obsolescence allowances if and when plant is scrapped is the best method, particularly if after the optimum life of the plant the allowance decreases. I suggest it seriously to hon. Members opposite as worthy of their support. Hon. Members opposite are wedded to something which they euphemistically call, "private enterprise." I suggest that private enterprise will exist only so long as it succeeds in being enterprising.

During recent years invidious comparisons have been drawn between British and American private enterprise. To-day my right hon. Friend the Member for East Edinburgh {Mr. Pethick-Lawrence) introduced a new comparison of efficiency and enterprise. He compared British industry with Russian enterprise. I believe that that will be a much more uncomfortable and more devastating comparison if the future turns out to be disadvantageous for this country. What is happening behind the Urals we do not know, but we do know that 25 years ago Russia was an illiterate and an agricultural country, and that in the last two or three years she has torn out the entrails of the industrialised Germany Army. That can only have been done as the result of a marvellous piece of industrial enterprise in the last 25 years. If hon. Members opposite want private enterprise to continue, they have to make it sufficiently efficient to compare with either American or Russian enterprise, and it is no use simply asking that depreciation and obsolescence allowances shall flow into financial reserves. We have to see that in one way or another if British industry cannot be persuaded into efficiency it has to be kicked into efficiency.

5.31 p.m.

Major-General Sir Edward Spears (Carlisle)

I hope the House will not think that I am debarred from saying a few words concerning this Bill because I happen to be a director of a West African mining company. I need hardly assure the House that I do not approach the subject from a personal point of view. The gold mining industry of the West coast of Africa is most grateful to the Chancellor of the Exchequer for the provisions of Part III of the Bill, which are extremely helpful. I rise simply to ask whether the right hon. Gentleman could just go a little further, in meeting the special case of the overseas mining industry. Would he consider introducing an Amendment which will allow mining companies operating overseas the option of bringing their capital expenditure falling under Parts I and II of the Ei11 under Part III. Allowances to write off expenditure on buildings, plant and machinery ought to be spread over the life of the mining deposits. There may well be cases in which that period will be less than the time within which such expenditure could be written off under the formula applicable to Parts I and II. The balancing allowance might be of no practical value if it only became available at a time when the deposit is worked out and there were no profits against which to set it.

I, therefore, ask the Chancellor to grant overseas mining companies the right to bring all their capital expenditure at the mines under Part III. It is not an enormous concession to ask for and I certainly hope my right hon. Friend will see his way to grant it. The gold mining industry of the West coast of Africa is of very considerable natural importance, and it will certainly not find it easy to operate in the competitive conditions of the post-war period. I hope the Chancellor will also consider making provision for allowances in the expenditure incurred in the acquisition of the mine itself. Of course safeguards to prevent abuse would have to be introduced, but surely it would be legitimate that, when a mine had been proved to be worth developing, those who have spent capital on acquiring a wasting asset—a mine is always a wasting asset—should be allowed to treat this capital in exactly the same way as capital expended on the mine. I would ask that the principle be accepted that expenditure incurred in the acquisition of a mine should be allowed as a charge against the revenue derived during the life of the mine.

5.35 P.m.

Sir Leonard Lyle (Bournemouth)

I do not propose to follow the hon. Member for Chesterfield (Mr. Benson) by combating the argument he put up with regard to private enterprise. Some hon. Members opposite endeavour to make out that British private enterprise is inefficient, because that seems to pave the way for their schemes for nationalisation, but I do not think that anyone could call British industry as a whole inefficient.

Mr. Benson

What would the hon. Member's standard of efficiency be—American efficiency?

Sir L. Lyle

British efficiency is good enough for me. The hon. Member claims that Russian efficiency is very great. I have no doubt that it is, but Russian industry has many other advantages. It has a labour advantage—such an advantage as we do not seek to secure at all.

Mr. Gallacher (Fife, West)

Is the hon. Member not aware that one of the greatest advantages is that the land is free and materials are free?

Sir L. Lyle

I have no doubt that there are many things that are good in Russia to-day, but there are many things that the British working man would not tolerate. Really British industry must not be looked on as so inefficient as some of the hon. Member's friends make out.

But I want to come off controversial ground; I want to bring out a particular point which concerns the hotel industry. Before we give the Bill a Second Reading, I should like to appeal to the Chancellor of the Exchequer once more, to see whether he can bring the hotel industry into Part I of the scheme. He has told us that he cannot very well do that because it is not a productive industry. While a line must be drawn no doubt, if the object of the Measure is to help the export trade and to help our foreign exchanges, we must try to assist every industry which will produce this result. It is high time that the hotel industry was regarded as an industry and not as a sort of parasitical luxury trade. It undoubtedly helps by creating invisible exports, particularly the invisible export of the tourist trade which, if properly handled, might bring £50,000,000 into the country. It is certainly essential that any number of hotels should be reconstructed and thoroughly modernised. And it is essential that new hotels should be built. The result of such activity would undoubtedly be to attract far more tourists to this country and if the work is not carried out, not only will there be many fewer institutions for overseas visitors when they come for business or pleasure but they will find a state of affairs which will not satisfy them and they will not come again, and they will advise others not to do so.

Perhaps hotels have been excluded partly because of the precedent established in the de-rating legislation. It seems to me, however, that it is unfair that, because the hotel industry was not sufficiently wide awake 16 years ago to get into the structure of de-rating, it should be penalised indefinitely. After all, transport undertakings got the benefit of de-rating and they also get the benefit under this Bill. If there is a case for helping transport there is just as good a case for helping the hotel industry. The Chancellor is sympathetic and anxious to help, but sympathy is not enough. It is very necessary to bring vital foreign exchange into the country. My right hon. Friend wrote me and pointed out that the new allowance will extend to plant and machinery and that the hotel trade will benefit from it in common with all trades. I do not see why it should be beyond the ingenuity of his Department to give hotels the additional benefits set out in Part I. I know that a line must be drawn, and that he cannot grant this to houses, but it would make a very vital difference to the hotel industry. I will not press for a final reply at this stage but I hope that my right hon. Friend will consult the experts and see whether there is some way by which he can get round the difficulty and bring hotels in.

5.44 p.m.

Mr. Cove (Aberavon)

I have listened to the Debate with very great interest. As far as I can sum it up, it has up to now been a series of special pleas for particular interests under the guise of the national interest. In the old days a Second Reading Debate did not go into the details of the Bill but dealt with the main principles involved, and I want to bring this Debate back to the main principles before us. The Chancellor of the Exchequer said that the production of things, rather than their distribution, made for progress. That is really the challenge involved in the Bill. Does production make for progress? Does increased technical efficiency make for progress? I challenge that. This is relief for capital expenditure. The Chancellor has raised the issue in his speech and we ought to address ourselves to that main problem. I find that the Tory Reform Committee, some of whose representatives are here, have addressed them- selves to the same problem. They apparently take the same line as the Chancellor did to-day when he said that the production of things rather than their distribution made for progress. The same theory obtains on the Tory Reform Committee, who say in "Tools for the Next Job": A rising standard of living cannot be achieved merely by stabilising output or redistributing income. A rising standard depends on an increase in our national wealth. The post-war problems of poverty, insecurity and unemployment will not be solved by the relief of capital expenditure. Under the conditions which obtain in the society in which we live, the greater the productive power and the more efficient the technical equipment may be, the greater the problem that arises in regard to unemployment and insecurity. [Interruption.] I hope that my hon. Friends on the Tory Reform Committee will reply, because we want to get down to fundamental issues on this Bill, which itself raises fundamental issues.

It is proposed to relieve the owners of capital equipment. The whole bias of the trend of taxation in this country after the last war was in the same direction. We had subsidies for this, that or the other, subsidies for coalmines, shipping and beet sugar, all designed to effect efficiency of capital equipment, improve' productive power and turn out more goods at a relatively lower cost of labour employed. That only increased the problem and the difficulties. Let us take America between the two wars. Relatively, American productive power was immense, yet it had the greatest depression the world has ever seen, a more gigantic unemployment than existed in any country. From 1929 to 1932 there were millions of men in America out of work, and yet the technical efficiency of America was far beyond anything that existed in any other country. Technical efficiency is not the solution of this problem at this moment. I have here a document that has taken the Americans 20 years to produce. It is not a Socialist document. It is issued by the United States Department of Commerce and is entitled, "The United States in the World Economy. The International Transactions of the United States during the Inter-War Period." Let me read one or two sentences from this document: 'The United States in the World Economy' represents the culmination of more than 20 years of research by the Bureau of Foreign and Domestic Commerce on the balance-of-payments and international-investment position of the United States. Then it gives a summing up of the causes of the depression in America, a deep depression which had its repercussions here and in Europe, a depression which was an economic contribution to the establishment of Hitlerism in Germany. Then it says: Although numerous salutory lessons are to be drawn from the experience of the past, the conclusion that emerges most emphatically from the survey is the fundamental importance of maintaining conditions conducive to a more stable and ample flow of dollars in our transactions with other countries. The most essential of these conditions lies not in the field of foreign economic policy as such but in the attainment of a more fully and more smoothly operating domestic economy—the major determinant of the volume and course of our purchases and foreign goods and services. That is, under the system of American capitalism the lack of purchasing power among the masses of the people caused a world depression. It was not a lack of capital equipment in America or a lack of technical efficiency. It was simply a lack of the power of ordinary masses of people to buy what the technical efficiency which capital had could produce in goods and services.

If this Bill is an approach, as I gather from the Chancellor it is, to the problem of unemployment and insecurity that will come after the war, it is beginning at the wrong end. No Socialist would say that we ought to have inefficient industry or that we ought not to increase the total income or production of the nation. We believe in efficiency and in increasing the total amount of goods, but what we say is that the power should lie at the door of the ordinary common people to be able to buy back, as it were, what the technical efficiency of capitalism can produce. The priority problem, after the war, is not the problem of production. I totally disagree with the Chancellor there. The priority problem is the problem of distribution. Can we meet that under capitalism? We can do it tin war-time. We solved our unemployment problem in war-time because we had a national purpose directed to national aims. The Government is the great consumer. Unfortunately, its consumption, in the main, is for destruction. Can capitalism produce for welfare? It has not proved that it can yet. Under no form of political structure has it yet done it. Before the war we had over 4,000,000 families in the country with an income of less than £2 10s. 0d. a week and over 5,000,000 with less than £5 a week.

That is the problem the Government have to tackle; not the problem of producing more under the existing system of society, but the problem of distributing what can already be produced. I have heard the Minister of Production and others saying, "During the war, in spite of the fact that we have brought into the factories and workshops hundreds of thousands of unskilled people, while millions have gone into the Forces, we have, on a low level, if you like, of technical efficiency, increased the total production of British industry by 40 per cent." There is relatively no problem as far as production is concerned. The real problem lies in another field. The problem of modern society is to be able to consume what our technical efficiency can produce. These proposals mean that we are to relieve the owners of capital from the obligations they have to the community and throw in the burdens on to the general body of taxpayers, thus curtailing purchasing power. That is not a national outlook. The national outlook at this moment does not mean looking at each individual industry and throwing the burden of taxation on to the general community. It demands that we should see our collective economy as a whole, as Russia has done. We should, therefore, say that our first concern after the war is to see that our people have purchasing power in their hands.

We are living in this war period, as I see it at the moment, in a completely false economic situation. Even our savings have gone up in smoke. It is true that the total earnings of the working-classes and of consuming people have gone up, but wage rates have not gone up relatively to the increased cost of living. We have had a transfer from the relatively low-paid peace industries into the relatively higher-paid war industries, engineering and others.

The biggest factor—let us face it—at the moment, in this fictitious economic position in which the masses find themselves, is that they have made sacrifices for the war. They are working overtime. I believe that the figure of round about £450,000,000 or £500,000,000 of income going to working class homes depends upon the fact that the people are working overtime. That will go when the war is over. There will be a transference from the relatively highly-paid war industries into the relatively low-paid peace industries. The war will go, and overtime will go. Any Government will be faced, when the war ends, with the problem not of achieving more efficient production but of this crashing down of the total incomes going into working class homes. The factors which now obtain in war will have gone. If Britain is to face the new world, it will have to do so, not merely on a basis of increased production. I agree that we want increased technical efficiency but the major problem, the priority problem, will be that of increased purchasing power among the masses of our people, so that health and well-being may be here when this war is over.

6.2 p.m.

Sir Alfred Belt (St. Pancras, South-East)

The hon. Member, when he opened his remarks, did me the honour of quoting something from a book in the compilation of which I have played a small part, and he hoped that I or some of my friends in this House would be moved to reply to what he said. I am very glad to have the opportunity of doing so. I am rather sorry in some ways that there were not more people in the House to listen to the opening passages of one of the most reactionary, die-hard speeches that I have heard from the other side. The hon. Member opened his speech by definitely opposing improvement in technical efficiency, he proceeded by opposing increased production and then he closed by saying that he did not oppose it but that it would not help the situation.

Mr. Cove

I do not think that is a fair summary of my speech.

Sir A. Beit

That is what the hon. Member said.

Mr. Cove

I said that I did not oppose increased production.

Sir A. Belt

The hon. Member said both. He first opposed it and he then said it was quite a good thing, but that it would not be of any value to us. He proceeded along those lines and he also brought into the picture, as did also the hon. Member for Chesterfield (Mr. Benson), whom I am glad to see in his place, the present state of affairs in Russia. I would like to remind hon. Members that the present state of affairs in the industrial development of Russia has a great deal in common with our own industrial revolution of last century and that they are now going ahead on an expansionist basis in very much the same way as my hon. Friends and myself have advocated in the booklet from which the hon. Member quoted. The fundamental difference between this century and the last is obviously, as is well known to everybody, that the moral conscience of the world is more aroused now than it was then. What is the outstanding feature of Russia to-day? As anybody who has visited their factories knows, it is the increase in production per man-hour. That is all we have been asking should be done in this country and that is what we have been advocating in that booklet.

Mr. Silverman (Nelson and Colne)

Would not the hon. Member agree that the main difference between the two countries, the similarity which he has stated—

Mr. Deputy-Speaker (Mr. Charles Williams)

Russia has been used as an illustration, but it would obviously be wrong for us to turn this Debate into a Debate upon Russia. It is rather far removed from the purpose of the Bill.

Mr. Silverman

I was not proposing to do that, Mr. Deputy-Speaker, but was simply putting up a point to the hon. Member, who has been good enough to give way. I was saying that the difference is that one country has a problem of distribution which the other has solved.

Mr. Kirkwood (Dumbarton Burghs)

Is not another difference between the two countries that when the war is finished our workers will be in the same position as they were before the war, whereas, in Russia, they will know that everything in Russia is theirs?

Sir A. Beit

I am not allowed by the rules of Order and by Mr. Deputy-Speaker to continue too far into this subject, but perhaps I might be allowed to bring this digression to an end, with your permission, Mr. Deputy-Speaker, by saying that the position of the industrial workers, whether here or in Russia, will be very much the same, in respect of the example quoted by the hon. Member, who has pointed out that the very largely increased earnings of the present day are due to a high level of overtime. Surely the position after the war will be exactly the same in Russia as anywhere else, because that amount of work will be falling off and will no longer be available to the extent that it has been available during the war. Consequently it is clear that there will be certain readjustments in the life and prospects of industrial populations throughout the world, after the war. I must not pursue that point any further.

I would, however, like to link with it—and this has rather a bearing on the distribution question—some of the proposals Made by the hon. Member for Chesterfield. I only heard the last part of his speech, but I think it contained his most important practical suggestions, which I certainly hope the Chancellor will not put into effect. That does not mean that they were not very interesting to listen to. The hon. Member attacked British industry as having what he called "gilt-edged mentality" and for putting too much of their reserves into such investments as gilt-edged stocks. Consequently he proposed that they should not be allowed any sort of depreciation allowance, until the actual physical replacement of plant had taken place. I must say that, up to a point, anything to encourage the replacement of plant is obviously something at which we are aiming and which, in spite of the hon. Member's views, the Bill will go some way to achieve.

I would only say that the gilt-edged mentality, if indeed it exists, was very largely based upon lack of confidence. We shall see it again if such a lack of confidence shows itself in the future. Gilt-edged investments were only a repository into which this money was placed temporarily. Look at industry before 1914; I do not suppose we should find such a vast amount going into gilt-edged securities. After the complete disruption of world economy which was brought about by the first world war and which it might still take some time to rectify, a lack of proper balance was brought about, and it led to the gilt-edged mentality of which the hon. Member complains.

I am afraid that, in spite of what has been said by one or two other hoc. Members, I shall be obliged to bring up some lesser points. It may be said that they are points representing certain particular interests, but I would say by way of preface that legislation, in my experience, falls into two groups. There is the expected, when one generally knows the best or the worst of what is coming, and there is the unexpected, which often enough brings unpleasant surprises. The Biil is quite exceptional in one respect. It is an expected, foreshadowed Bill, but it has brought a great many present, unexpected surprises with it, I would like to quote by way of illustration, two of what I consider to be the most valuable concessions which we have been offered by the Chancellor.

The first is the extension of allowances to secondhand machinery. The second is that obsolescence allowance will be given irrespective of replacement, even if the machinery is scrapped, so long as the business continues. Those two points are particularly important and go beyond the promises originally made. I would like to bring up one or two other matters of some importance, and I hope that I may receive a reply.

With regard to buildings, on which subject we had a very eloquent speech from the hon. Member for Walsall (Sir G. Schuster), I would ask what are the conditions with regard to alterations to existing.buildings. Would there be the 10 per cent. allowance granted to any alteration to existing buildings? I ask that because I notice in the definition that "buildings" includes part of a building. Then with regard to existing buildings over 50 years of age, Clause 7 continues the existing basis, if that is the desire of the proprietors, for a further five years. I would ask that that period be extended to ten years, in view of the difficulties that will face industry after the war in starting any new constructional work. Reference was also made by one hon. Member to Clause 49, which deals, among other things, with evasion. It prevents allowances being given on sales between members of the same group or between firms over which the same people have control. It seems to put a group of industries of that type on a worse basis than different departments within one company.

I want to say a word on a matter to which no reference has so far been made, namely, to Part V, which deals with patents. The proposals here were fore- shadowed in the Chancellor's speech last year, and he has now carried out his promise that the purchaser of a patent may spread the expense over a period of some 17 years. The proposals in Part V seem to take away with one hand what they give with the other, because although Clause 31 refers to such expenditure as capital expenditure yet when we look at the other side of the picture and consider the inventor himself who is to receive the money from the sale of his patent, we find that it will be charged to the inventor as income, spread, if he wishes, over a period of six years.

We ought to stick to the principle which has been observed in the past, whereby such sales of patent processes were looked upon, as far as the inventor was concerned, as a capital asset and not as income. I would like to know what justification there is now, because a concession has been made to the person who purchases the asset, for converting it from an item of capital into an item of income, from the inventor's point of view. Surely one result of this change will be that that small band of brothers, successful inventors, will be driven to other shores or will be driven to effecting their sales in other lands. I would seriously ask my right hon. Friend whether he would not reconsider this matter so that the inventor is left in the same position as he was before.

There is one other point which I wish to make before I sit down. It affects the shipping industry. I understand, from the information I have received, that it will be impossible, on the replacement of a ship, assuming that a ship is now more expensive to build than the ship it is replacing, to get a wear-and-tear allowance on the replacement cost. The basic figure for wear-and-tear allowance will be reduced, I am informed, by the difference between the insurance value and the Income Tax value of the ship.

I will give an example of how that works out in practice. Let me take the case of a ship—there are not many such ships—which cost £5,000,000 to build. By the ordinary operation of the wear-and-tear allowance this ship has now been reduced in Income Tax value to a figure of £2,500,000. It is, of course, insured for its original value of £5,000,000. If that ship is lost, or is replaced, and the cost of the new ship is not £5,000,000 but £10,000,ocoo, as might very well be the cost to-day, the basic figure for the wear-and-tear allowance on the new ship will not be £10,000,000, which is what it has actually cost, but £10,000,000 less the difference between the £5,000,000 which is the cost of the old ship and £2,500,000, which is its present Income Tax value, that is, £10,000,000 less £2,500,000, namely, £7,500,000.

The shipping community have expressed some doubt about the value to them of the concessions in this Bill. Perhaps my right hon. Friend could, therefore, say something about the balancing charge, which is really the reason why the illustration I have given works out in the way I have shown. The balancing charge is an innovation. In the past, I think, there were only balancing allowances. It is because of the way in which the balancing charge works, that, in the case I have given, it will be found that the owner of a replacement ship will not be able to claim a wear-and-tear allowance, based on the actual cost to him of the new ship. Those are the points of criticism I have to make. I was, in fact, proposing to limit myself to those remarks, but I was diverted at the opening of my speech by what had been said by the hon. Member for Aberavon (Mr. Cove). Subject to such modifications as it might be found possible and desirable to make, arising out of the speeches that have been made this afternoon, this is a good Bill, which will be of the greatest possible benefit in the re-equipment of post-war industry.

6.18 p.m.

Mr. Jewson (Great Yarmouth)

We have listened to a great many speeches already, and most of them have welcomed this Bill. I, too, want to welcome it as a step in the right direction, though I do not think it really goes far enough. It is certainly in the national interest that people should be asked to pay taxes on the real amounts of their profits. The Inland Revenue authorities take very good care, and rightly so, to see that profits are not cut down below what they should be. But I think we should also be glad when we see them taking some care that those profits are not returned at a figure above what they really are, because that also is not in the national interest. We want the truth in accounts, and that is what we ought to be allowed to have, and this Bill takes us one step closer to getting at the truth than we have been hitherto.

At any rate, it is very refreshing to get rid, once and for all, I hope, of the idea which has been so prevalent in Inland Revenue circles, that buildings are everlasting. In the New Jerusalem they may be but not on this earth. Even the Great Pyramid, which in one sense seems to be everlasting, has degenerated a great deal from its pristine glory. We know that is far more true of the much more ephemeral erections which we put up in these days. It is surely, however, the height of absurdity if we are to maintain that a building is subject to depreciation when it belongs to one person and is used to store, as my hon. Friend the Member for Walsall (Sir G. Schuster) said, one class of apples, whereas if the same building belongs to somebody else, and ha.s a different kind of apples in it, it does not suffer any depreciation. We ought to get rid of that anomaly if we can. Moreover the Bill may encourage the destruction of buildings which ought to be destroyed. As I have said, buildings are not everlasting and I suggest that we do not want them to be. If we can encourage people to pull down their barns and build greater, so that they can earn more money for the Inland Revenue, we are doing something which is certainly in the national interest.

I wish also to put in a word for the tourist industry. The industry which is known in at least one great country as "Intourist" is a thing which may be very important, and which will be to a debtor nation, as we shall be after the war, far more important than it has ever been before. We have done little enough to encourage this industry in the past, and I would be very glad if we could do something definite to encourage it at the present time. Naturally in ray constituency we know how important hotels are, and I have said that I think that they are going to be a very much more important factor in our national life in the future. If, therefore, it was possible to include hotels in Part I of this Bill instead of excluding them, I for one would very much welcome that alteration, and I believe it would be the right thing to do from a national point of view. In any case, I welcome this Bill as a step in the right direction. Usually, when one has taken the first step others will follow. As the French say it is the first step that counts. I hope we can get a step further before we finish with this Bill. In any event, I feel sure it will be followed by further steps in the right direction in the future, if not now.

6.23 p.m.

Mr. David Eccles (Chippenham)

I welcome the statement of the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) that everybody in the House is anxious for the efficiency of production to be increased. The way in which he put it was much easier for us to understand than the speech of the hon. Member for Aberavon (Mr. Cove), who spoke afterwards. Surely, whatever system of economics we have in this country, we have to make our way in the world and sell our goods and get our imports, and we must keep up to date. This Bill has really nothing to do with distribution. It is a Bill designed to assist production. When the Chancellor is able to give relief from war-time taxation, I am glad to see that he gives it on costs of production before he pays any attention to relieving taxation on profits. If it is not possible to relieve all costs of their burdens, then I, for one, agree entirely with the principle of starting with production, and going on afterwards to shops and hotels, when that is possible. Before the last war too many people went into distributive trades compared with production. There is no doubt that the unemployment which disfigured all industrial societies made it more precarious to be a producer than a distributor, and we should do something to right that matter.

I want to say a word about Part IV of the Bill, which deals with agriculture. In order to appreciate Part IV I must ask the House to consider the background of the capital equipment of agriculture. When this war broke out agriculture was very seriously under-capitalised. That was due to low profits, which had obtained for 20 years. The prospective rate of profit is the measure of the attraction which any industry has for the capital resources of the country. If any hon. Member does not think my statement is correct that agriculture made very little money between the two wars, let him consider the wage rate. In spite of the fact that we had minimum wage regulation for 20 years before the war, agricultural wages only moved from 285. to 35s. a week throughout that period. That is a clear proof that no money was being made by that industry with which to re-equip the farms. The low profits kept down wages and prevented farmers and landowners from setting aside enough money to reequip agriculture.

We came to the war with a very undercapitalised industry. During the war two things have happened. In the first place, we have greatly improved the machinery on the farm. There is no doubt the mechanical equipment of British agriculture to-day is in every way better than in 1939. That is about the only part of the capital of agriculture which has been improved. There have not been the labour or materials to do anything else, but during the war the wage rate has been doubled, rising from 35s. to 7os. How has that extra wage been paid? Partly out of increased efficiency, increased output per farm worker and per farmer, brought about by the new machinery, and in part by the guaranteed prices. It has also been paid, we do not know to what extent, by subsidies, either to the farmer directly in the form of acreage payments, or through the price policy. That means that at the end of the war we shall be faced with a wage rate of 7os. which I know no hon. Member wishes to see go down. In fact, I take it as agreed that we cannot, after the war, allow the agricultural wage rate to go down, as it did after the last war.

Hon. Members may remember that throughout the period of 1919–39 a building labourer earned 50 per cent. more than the agricultural worker, and a bricklayer double as much. That gap persisted the whole time. We cannot return to that after the war, because we know we have to produce more food, that is an accepted policy, and for that we must have our men on the land, and they must be paid wages comparable with those of industry. How is that to be done? The only way I can see is to improve the capital equipment of agriculture rapidly to a point where the productivity of the farm worker is sufficient to cover the wage rate on the industrial scale. One can see how Part IV of the Income Tax Bill fits into that picture. It is, as the Chancellor said, fair and reasonable; and it might even be described as a generous provision for agriculture. It enables any capital expenditure on the construction of farm houses, farm buildings, cottages, fences or other works … to be charged against liability for Income Tax for a To-year period. That should prove a great stimulus to the re-equipment of the farms. But that is not generosity on the part of the House of Commons; it is simply good business. If we were to try to cover agricultural wages after the war by paying high prices to farmers, we should have to spend much more of the taxpayers' money than if we pursued policies like this, which help to provide the agricultural industry with more efficient tools. I want to ask one question about Clause 29. There are set out in the Clause the types of capital expenditure on the farm which rank for this allowance. Two of the main ways of improving the volume and the quality of agricultural production are the supply of water and electricity to farm land. Does the phrase "or other works" cover the capital cost of bringing water to a farm or of laying on electricity?

The Financial Secretary to the Treasury (Mr. Peake)

The answer in both cases is in the affirmative.

Mr. Graham White

Including cases where a special grant is made now for the installation of pumps during the war?

Mr. Peake

I cannot deal with special cases, but, broadly speaking, electricity and water supply are, covered by Clause 29. But there is a provision that if there is a subsidy that subsidy shall not be taken into account. The allowance will be only on the balance of cost to which the proprietor is put after deducting the subsidies.

Mr. White

I think that that would cover the fairly numerous cases I have in mind.

Mr. Eccles

I thank the Financial Secretary. That should prove of great assistance in bringing water and electricity to the farms. There is one point, arising on Clause 13(3), which is really a matter of principle, so I bring it up now instead of waiting for the Committee stage. Under that Clause, if a farmer makes a capital contribution towards the cost of laying on electricity—a thing which is very common —the electricity company will in future get only the wear-and-tear allowance on that portion of the cost which has been borne by the company. That is a change which is seriously detrimental to the farming industry, because at the moment the electricity or water company would get the wear-and-tear allowance on the whole cost of the installation, whether it is borne by the farmer or by the company. That is logical, because the electricity company have the obligation to renew the lines when they wear out. Under Clause 13(3), the electricity company will have to charge more for the electricity which it delivers to the farmer, because it will not be able to get the same wear-and-tear allowance as now. I hope that that is the result of an oversight. If not, I should be glad to know why the Bill takes back with one hand what it gives with the other.

I hope that we shall have more legislation on the same principle as firs Bill, namely, to relieve costs of tax burdens and to improve the instruments of production. When the hon. Member for Chesterfield (Mr. Benson) was complaining about the inefficiency of British industry he might have drawn attention to the fact that our taxation policy throughout the period between the two wars was making it unattractive to take risks. The Chancellor has started in the other direction, to make it attractive to take risks. I believe that if we go on in that way we shall not find these large sums piled up in balance sheets in gilt-edged stocks; we shall find that they are put to productive use, with the result that the capital equipment of British industries and agriculture will rapidly improve.

6.37 p.m.

Mr. Douģlas (Battersea, North)

It has long been a matter of complaint that the Inland Revenue has not, in computing liability to Income Tax, made depreciation allowances which were in accordance either with the best commercial practice or with the economic principles involved. The idea which underlies this Bill is quite a simple one, although nobody could possibly dream that from a perusal of it. One of the pleas which I want to make to the Chancellor of the Exchequer is in favour of some simplification in order to make the Bill agree with the principle which is at stake in it. At present the whole of the legislation concerning depreciation allowances is contained in some half-dozen Sections of the Income Tax Acts. The present Bill contains 65 Clauses and two Schedules, in order to rectify the errors of the present procedure. What is the point which one wants to secure in this matter? Surely it is simply that buildings, machinery, plant, and other things which are used for commercial purposes, do not last for ever. They have a term of life, after which they cease to be useful. Even if they remain physically in existence they become obsolete, and are no longer useful to satisfy the purposes for which they are required. Consequently, the original cost of that equipment has to be debited as part of the cost of production over the period for which the building or plant, or whatever it may be, remains in use.

That allowance for depreciation, as it is called, is strictly and properly part of the cost of production which ought to be written off over the estimated life of the asset. That is a very simple principle indeed, but the Bill does not apply it. Instead of giving a 'uniform reduction over the whole life of the asset, it gives in some cases 10 per cent. to begin with and two per cent. per annum afterwards, in the case of buildings, and, in the case of plant, 20 per cent. to begin with and varying allowances afterwards. The Inland Revenue, I believe—at any rate, there is nothing in the Bill to contradict the idea—are still calculating on the basis of percentages, with the result that instead of the amount being reduced it becomes more year by year. There is nothing in the Bill and nothing in existing Statutes to contradict that, but if it has been altered I am glad. The procedure has been further affected by the introduction of the balancing charge and the balancing allowance. That is quite unnecessary. It would be sufficient if the initial cost was written off uniformly year by year, no matter in whose hands the assets were, without taking into account the extraneous question of whether there is a sale of a greater or less value than the estimated amount at some intermediate period. That is the kind of basis on which business matters of this kind are frequently handled.

The right hon. Gentleman said that he drew a distinction—and that distinction is drawn in the Bill—between productive industry and distributive trades, but in fact the distinction is more or less meaningless. Production has not served its purpose until the goods reach the consumer. Under a system of mass produc- tion it is clear that they must inevitably pass through a number of hands before they reach the consumer. One means by which they do so—transport—is brought within the provisions of this Bill. Certain other means which are necessary—the whole business of storage, distribution and retail shops—are left out of it. But there is no more merit in producing an article in a factory than there is in deliver-it to the consumer after it has been produced. These are all necessary and essential parts of the economic service which is involved. It is because of introducing distinctions of that kind that the Bill has become so complicated. I suggest, in all sincerity, that there is no need to make that distinction upon principle. The distinction may be made upon financial grounds, upon the ground of the amount of Revenue which the Chancellor is going to lose by reason of this Measure.

I should like the Financial Secretary to tell us what estimate has been formed of the effect upon the revenue of the proposals, because there is nothing in the Explanatory Memorandum about any reason why the financial consequences of this measure are not mentioned, nor did the right hon. Gentleman give any indication of what the effect on the revenue would be. It may be that it will be considerable, and that on that ground the right hon. Gentleman draws the distinction between one part of the economic process and the other, and confines his relief to factories, railways, and certain other installations. If this relief is given all round, I see no reason why it should not be given not merely in respect of shops and warehouses, but in respect of dwelling houses.

One of the most serious features of our housing situation is that dwelling-houses are allowed to remain far longer than the period of their useful life, and they have become obsolete though they are still occupied. The result is that a very large proportion of the housing accommodation of this country ought, within a short time, to be pulled down and rebuilt. If there is to be depreciation of capital in respect of factories and industrial buildings, something which ought to be taken into account in computing liability for tax, there should be depreciation of capital invested in dwelling-houses, which are just as necessary for the population as the factories and other things which are brought within the scope of this Measure. If every kind of productive capital expenditure were brought within the scope of this Bill, and if it were conducted on the simple system of annual deductions, according to the estimated life of the asset, this Bill could be simplified to a very great degree and these enormous complications, introducing new developments in taxation legislation, which is already so excessively complicated, need not have arisen.

There is, however, another aspect of this matter, to which, so far as I recollect, no reference whatever has been made in the Debate. It is this. The increase of depreciation allowances will mean a reduction in the yield of Income Tax for all those businesses which benefit by it, and that must, inevitably mean that somebody else has to pay more taxation. Upon whom is that extra taxation to fall? It looks, under this Bill, as if it were going to fall mainly upon workers of all kinds, whether manual or otherwise does not matter for this purpose. They are the people who are entirely excluded from the scope of this Measure on the ground, of course, that they do not possess any capital, and, consequently, they do not incur any depreciation, but, after all, the human frame itself is subject to depreciation, and the working life of human beings is not so very long. While the Chancellor of the Exchequer is proposing to reduce the amount of taxation which falls upon the owners of capital, he should, at the same time, remember a still more deserving class of the community which ought to be relieved of some of the enormous burdens of taxation which they have suffered during this war. They are persons whose physical and mental energies were necessary to the operation of the machines, the owners of which the right hon. Gentleman is proposing to relieve.

6.49 p.m.

Commander Aģnew (Camborne)

I do not propose to follow the hon. Member for North Battersea (Mr. Douglas) in the remarks in the latter part of his speech, except to say that it is obvious that with this Bill, as with any other Bill, whether it deals with family allowances, relief or old age pensions, it is the general body of taxpayers who pay, and it is for this House to decide in what proportion they shall pay, according to their personal incomes. This Bill could not be classed,as objectionable because somebody has to pay for it. I do not think the House would agree with that at all. I think the Chancellor is to be congratulated, not for 'bringing in an Income Tax Bill, but because this particular Bill, unlike other Measures of the kind, is devoted to lightening some of the heavy burdens that rest upon industry; and I am very glad to note that opportunity has been taken, when bringing in a Bill to relieve industry, also to include the oldest industry in this country—namely, agriculture—which sometimes get left out of these benefits. Other hon. Members have dealt with the case for agriculture and I do not want to say anything about it now.

In its general effects I do not think the Bill will increase the personal incomes of the shareholders in companies; that is not its object; but it will, on the other hand, give some encouragement to the initiation of new enterprises, as well as assist in the carrying on of some sections of industry upon which the present tax law bears very hardly at the present time. It will, therefore, in its whole effects, stimulate the employment of the people, and is part of the general scheme which has been adumbrated in the White Paper on Full Employment which the Government brought in last year.

For those reasons, I am grateful to my right hon. Friend for what he is offering in this Measure, and such criticism as I have to make is directed to indicating that, in one Part of the Bill—Part III, that which relates to the extractive industries—he has, if anything, been too timid, and has not gone far enough, though admittedly in a good direction. Of course, it may be that the Chancellor was restrained in his natural inclinations by the watchdogs on the Revenue: side of the Treasury, but, however that may be the provisions relating to mining enterprises concede too little, I think, to be really effective. I do not call it niggardly, but I will call it in that respect inadequate. I want to confine my remarks on details in the Bill to Part III, which relates to the mining industries. Clause 21 defines the categories of expenditure for which allowance will be admitted. One category is that of searching for, discovering and testing the deposits of ore. What about the case, may I ask the Financial Secretary, where the search for these deposits proves abortive, either because the deposits are not found or are not sufficient to warrant proceeding further? Will any allowance be given in that case?

Mr. Peake

I rather imagine that, if the search proves abortive, then there is not any income against which any allowance can be granted.

Sir Joseph Nall (Manchester, Hulme)

But an abortive search may be made by an undertaking the rest of whose property is producing.

Commander Aģnew

I am grateful to my hon. and gallant Friend for his most timely intervention, which has reversed the fortunes of the day.

Mr. Peake

It is perfectly clear, in the case which the hon. Member for Hulme (Sir J. Nall) has mentioned, that each undertaking is a whole and its operations are looked at as one only.

Commander Aģnew

There is one remark I want to make in connection with this question of search and boring. Very often, of course, a mining enterprise has to acquire the land containing the source and has to acquire the rights to work it. It is admitted, I think, that this would be a very important factor where the agreement entered into is a lease on a royalty basis. If there is to be actual capital acquisition, it seems to me that there is a case for some allowance being granted on that, yet no allowance is provided in the Bill. In that connection the Bill, as drafted, compares rather unfavourably with the practice in some of the other principal mining countries of the world, namely, Canada, U.S.A. and Australia.

I want to say a word about the initial allowance which is provided for in Clause 22, which states that, in the construction of any works which are likely to become valueless when the source is no longer worked, an initial allowance may be paid. I ask my right hon. Friend specifically whether the kind of works that it is contemplated would receive this allowance include the sinking of a shaft and the development of the cross-cuts in order to obtain actual access to the ore body. The House will recognise that that kind of work is very costly indeed, and, so far as this concerns the mines situated in my own constituency, it has been one of the great obstacles to bringing new mining enterprise to that part of the country. Also, when the existing mining companies wish to do cross-cut development, entirely unremunerative in itself, they are prevented from doing so because there is no allowance at all on the heavy costs which they have incurred.

I want to say, supposing that I get a satisfactory answer on that point, that then the allowance of 10 per cent. is very little indeed. It compares again very unfavourably with mining practice in other countries, and I should have thought that that allowance might have much more approximated 50 per cent., which would have been appropriate in that kind of case, because, of course, the expenditure on shaft-sinking and cross-cut development is, in itself, entirely unremunerative.

One other point which I want to put to my right hon. Friend concerns the balancing allowance in that part of the Bill. There appears to be no provision for any balancing allowance to be credited on exploration and development when the source of the ores expires, and I think that there is there a gap in the Bill which ought to be filled. With regard to potential future output, it is not clear how the Commissioners are going to assess the value of that. It may be that, in countries such as Rhodesia or U.S.A., for instance, some of the ore bodies are so rich and thick and easily measured that one can estimate with comparative ease what the future potential output is going to be, but I defy anybody but the most expert people, and sometimes they have been proved wrong, to say 'when, in the case of Cornwall, the lodes are going to run out unexpectedly, or when, on the other hand, one will unexpectedly run into some rich vein which may make the mine last for a great many more years. How are the Commissioners going to carry out that task? But for the purpose of calculating the allowances it ought to be made clear, and defined in the Bill, that the output which will be regarded as potential future output should be output from deposits which have actually been proved and to which access has been obtained by that very expenditure which this allowance is seeking in part to amortise, not, on the other hand, on some vague prognostication which may in the event prove entirely wrong.

I have put a number of these rather detailed points to my right hon. Friend and I trust that he will be able to answer at any rate some of them, particularly the one with regard to shaft-sinking and crosscuts. On the whole, this Bill is a step forward with regard to the taxation of mining companies, though, as I have already indicated, it does not go nearly far enough. I hope that during the Committee stage it will be possible to make some improvements and to counteract the tendency which has been evident for some years for mining companies to cease to be registered in this country but to prefer instead to be registered in countries overseas where there is a more generous system of taxation allowances. I hope that that point will be borne in mind and that the Chancellor of the Exchequer will recognise that, to some extent, he is competing with Chancellors of the Exchequer in the Dominions and in foreign countries too. The Bill is welcomed, and if it can be amended it will be welcomed still more. There is nothing bad in itself about the Bill; it is only that it does not go far enough. I regard it as a component and constructive part of the general scheme which we must undertake, and which we are undertaking, in this country for the rehabilitation of industry.

7.3 p.m.

Mr. Bowles (Nuneaton)

I feel that the Government are trying very hard to make the capitalist system work after the war. Week after week Bills are being produced and they are all to take effect when the war is over, on the assumption, presumably, that the dominant party in this House will be Conservative and, therefore, believers in, and supporters of, the present system. Before I come to argue that, I would like here again to register a protest, similar to the one which was registered on the Second Reading of the Family Allowances Bill, against the practice of the Government of managing to get Bills through the House of Commons and making them Acts which are not mandatory on the Minister at all, but which come into operation at some time, and in this case it is the time which the Chancellor of the Exchequer may choose to appoint. That is all wrong. It is obvious that when the Germans are beaten in Europe the Coalition will break up and the Chancellor of the Exchequer, in fighting his seat, will be advised by the party head office to appoint a day for this Measure to come into operation. It is in the nature of a very unsavoury electoral bribe, the same as the Family Allowances Bill and other Bills, and I feel obliged to enter a protest as far as this Bill is concerned.

I had the temerity to interrupt my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) at the end of his speech. This Bill is designed to increase production and wealth in this country and has nothing to do with the greater issue of distribution. I reminded him that in the Labour Party's policy, called "Labour and the Nation," in 1929 we had a phrase which I have never forgotten, because it seemed to sum up the whole problem facing society to-day. That statement of policy said that the problem of production had been solved in the 19th century and that the problem facing the 20th century was the problem of the distribution of wealth. We have never suffered in this country, nor has any industrial part of the world, from inability to produce wealth. The difficulty has arisen from the inevitable conflict that takes place in a capitalistic organisation of society where the industrial producers are anxious to have the lowest possible wage cost in order that their goods may be put on the market at the cheapest possible price, which is naturally desired by producers and sellers. They also find that there is a need for workers with plenty of money in their pockets with which to buy the goods that industry is producing. I am convinced—and this is one of the reasons why I am a Socialist—that we cannot solve the problem of unemployment along lines of economy at home. We can only do it by arranging industry in such 'a way that the wealth produced by the people of this country should belong to the people of this country.

There are all the problems which have faced the 'Government of the country ever since there has been a capitalist State. My hon. Friend the Member for Aberavon (Mr. Cove) made a very interesting speech which stimulated certain hon. Gentlemen opposite to misrepresent his cardinal point. The hon. Member for Chippenham (Mr. Eccles) and the hon. Member for South-East St. Pancras (Sir A. Beit) both said that my hon. Friend did not believe in increased production and efficiency. Of course we do; we believe in an efficient society. I did not hear the first sentences of my hon.

Friend's speech, but he reiterated more than once his belief in the necessity for increased production and efficiency. I do not believe, as I said earlier, that this Bill is going to solve the problem facing society. My hon. Friend the Member for Aberavon pointed out what really was the trouble facing society, namely, lack of purchasing power in the pockets of the people to buy the wealth which they and others produce. Looking back over the last 25 years, I remember that various industries were subsidised and that something of a similar nature to this Bill was passed in 1928 or 1929 in the De-Rating Act, under which a great deal of industrial property as distinct from non-production premises, was de-rated by three-quarters. The present Prime Minister was Chancellor of the Exchequer and that was done in the hope of trying to deal with the unemployment problem that he and his party would have to face at the General Election in 1929. His term of office as Chancellor of the Exchequer having come to a conclusion with a great deal of unemployment in the country, it was felt possible to solve that unemployment, as far as the Election was concerned, by a certain amount of de-rating of industry. It was an attempt, in some way, to bribe the electors into believing that, if the same party were returned to power—of course they were not—the result would be that they would see that the employment policy under the De-Rating Act was carried out.

We on this side of the House believe that none of these completely insoluble problems facing hon. and right hon. Gentlemen opposite all the time can be solved along the lines they are proposing in this Bill. I am absolutely convinced of it and they must know it in their own minds. I do not know whether Conservatives feel it in their bones or in their hearts, but they know perfectly well that they are up against an insoluble problem. How are we to produce wealth when the main desire is to keep the cost of production at its lowest and, at the same time, find a market where the purchasing power is high? This question of distributing wealth or giving employment can be solved in various ways. Pharaoh did it in his day in Egypt and Hitler did it in 1933–39. We were able to do it from 1939 onwards. If you want to solve the problem of over- production by ordinary people, goods have to be destroyed as soon as produced; in other words, war gives the outlet, or about the only outlet. Fascism is the other outlet by which to solve the problem of over-production. Yet we are asked to give a Second Reading to a Bill which, to my mind, is bound to increase the problem facing anybody who believe in the maintenance of the present system.

The Chancellor of the Exchequer, in his speech, said that the idea was to increase the productivity of British industry. All well and good, but how is he going to guarantee distribution among the people? He referred to the need for greater export trade and to the fact that we had lost a great deal of our foreign investments. I do not know why that should be so impressive. Frankly, we did not lose all the investments between 1929 and 1939, but we had all along a vast amount of employment and poverty in this country. I see that the hon. Gentleman the Member for South Croydon (Sir H. Williams) is proposing a resolution, if the papers are right, at the Conservative Conference to-morrow, or the day after, advocating that the Government should go back to the policy which was the basis of the Ottawa Agreement in 1932. That has solved nothing. What was the policy at Ottawa? It was really and truly a policy to keep out goods that were produced outside the Empire; to put up a barrier against goods coming in which were so embarrassing. The whole system of society supported by hon. Members opposite is such a ludicrous one because it is, all the time, trying to shovel away the enormous wealth which its own people cannot consume and putting up barriers against the wealth that other countries produce, and which we might use to our advantage here.

We are faced in this House by the inexorable position facing a society which is based on the economics of scarcity. It may seem a contradiction of what I have been saying, but scarcity is to be a policy pursued by producers when they find that they cannot get rid of their products in the market. The things insisted upon today for the reorganisation of our steel industry are proposed with a view to restricting production in the interests of private owners in the various industries making up the cartel. It is a position which, I am sure, is completely insoluble. I do not know whether hon. and right hon. Gentlemen opposite have learned that the position is insoluble. They are only coming down here because it is their job to be here to support a society which is a most unsatisfactory society for the great masses of the people, or they have failed to learn any lessons from the past. I hope that the Bill will not be given a Second Reading. I have no confidence that it will do anything, and I hope that I shall carry some of my hon. Friends with me in the views that I have just expressed.

7.15 p.m.

Sir Ernest Shepperson (Leominster)

When I receive a letter from a constituent of mine appealing to me to do something to help him get further clothing, or petrol coupons, or some other thing, I take it up with the Ministry and, if I am successful, and that constituent writes to me expressing gratitude for what I have done, I have a great sense of pleasure that I have been able to do something to help. For a great many years the representatives of agriculture have been appealing to the Chancellor of the Exchequer to give some help, to improve the efficiency of our agricultural production. In response to that, we have this Bill. I want to thank the Chancellor for his response to our appeal for help, as my constituents have thanked me for the help that I have given to them. When my constituent, after some time, appeals to me for further help I; recognising what a good fellow he was to express gratitude, do what I can to help him on that second occasion. I want to ask the Minister to-night, because we have expressed gratitude for what he has done for agriculture, to think of the agriculturists as grateful people and, when we appeal again to him, as we shall, to do his very best to help us again.

7.17 p.m.

Mr. Summers (Northampton)

I hope, when I sit down, that I shall not be found guilty of having wasted the time of the House as the hon. Member for Nuneaton (Mr. Bowles) did for 10 minutes or more. I found it quite impossible to relate his remarks to anything with which we are concerned this evening. If he is searching for an excuse, he must, I suggest, look only at the completely obscure way in which this Bill has been drawn. That might lead anyone to depart from the normal forms of discussion. Seldom has a more obscure Bill been put before us.

It is becoming generally recognised that taxation is not only a means of raising money, but an instrument of social and financial policy. It has been pointed out before now, that, with taxation at very high rates, levied on criteria applicable to the individual—such as the more even distribution of wealth, or as an anti-inflation measure—it may well follow that damage will be done to the modernising of industry if industry does not have a fair share. When that topic is brought up in the House, two main suggestions are put forward for preventing ill effects on industry following from a taxation system as high rates based on individual criteria. Those are that some relief should be afforded on the undistributed profits, which are needed for modernisation and, what is even more important, that the sums which are taxed should be true profits, in the proper commercial sense, and not arbitrarily chosen profits in the terms of Inland Revenue technique. As I understand the matter it is in answer to the request made to the Chancellor that those two points of view should be borne in mind that we have this Bill put before us to-day. Here may I express my personal regret that I was prevented, for reasons quite outside my control, from being in my place to hear what the Chancellor said earlier in the Debate.

The Bill appears to have received a warm welcome, and I subscribe entirely to that view. For the first time, the principle is acknowledged that, at any rate for new plant and new buildings, the cost shall be written off over their lifetime, as a charge against profits. That is a very important principle to have recognised in our taxation technique. The initial allowances, which form part of this attempt to assist industry, are merely bringing forward what will, in any case, come to the firm concerned at the end of its life if it does not, in fact, come at the beginning, because not more than 100 per cent. of the cost of a piece of plant can be written off. That is not to despise the value of the initial allowance—I mention it in order that suggestions of higher initial allowances shall not be regarded as transferring a burden of tax to some other party, for they merely bring forward an allowance which would, in any case, be made on that piece of plant.

So far so good, but I regret that it has been confined to industrial buildings and, moreover, to new buildings at that. It has been suggested that, provided we do what we can to assist productive enterprise, that is as far as we can go, but if the principle is right that the capital cost of a project should be written off out of profits over its life, that principle is no less valid in the field of distribution than it is in the field of production. It has been suggested frequently that the price of goods to the consumer bears a strange relation to the price of goods as delivered by the manufacturer. Surely, therefore, we should do what lies in our power to reduce the cost of distribution, for not only has it a bearing as a background for our export trade, but clearly it is the price to the consumer which matters to him in discussing his standard of living. The Bill, as I read it, is to be confined to new buildings, but there will surely be many buildings, which have been built at Government expense, for purposes connected with the war and which private enterprise is at present being encouraged to take over and operate on peace-time production. I cannot see any reason why a manufacturer taking over such a factory should be denied the advantages of the initial allowances which are open to him, if he sets about building another factory in the field next door.

Then, again, on the old buildings, the life may well be 40 years and there may well be substantial years of life ahead of them. A building does not become obsolete nearly so fast as plant and machinery, but, as I read the Bill, there are to be only five years in which the current buildings and factories allowances may operate, after which they shall cease, and the owner of such a factory will be worse off than he is at the present time. I hope, if the Chancellor cannot see his way to remove the 50 year limit, that he will at least allow that five years during which the buildings and factory allowances may be earned, to be very substantially prolonged.

Clause 49 may have been introduced to prevent abuse of the arrangements here foreshadowed, but it does seem that the effect of it is to put companies in a group which may be transferring assets from one to another in a gravely prejudicial position, as compared with those which are not in any way connected with one another. This will undoubtedly affect large-scale production, where small units give place to large units of production in the interests of up-to-date and cheap manufacture. I hope that ways may be found to prevent companies so placed being prejudiced by the terms of that Clause, for which, as far as I can see, there appears to be very little good reason.

I do not know whether the. Chancellor has any jurisdiction over the activities of the Mint, but it would seem that he has found it possible to coin several double-headed pennies—"Heads I win and tails you lose." As an illustration I would draw attention to the fact that factories which have been built and have changed hands before they are put to use, are to be assessed at either the cost or the purchase price, whichever is the lower. The principle that underlies this Bill, in the changing of property from one owner to another, appears to be ignored—in many respects properly ignored—and the cost is the criterion of the extent of the allowances which are to be given. But here, if the purchase price is below the cost, the cost will never, in fact, justify a full writing off as a result of that lower limit being applied to price or cost, whichever it be.

Then in the matter of deferred repairs, if a buyer takes over property which has degenerated during the war, and is in a state of disrepair, clearly he will pay a low price for it. The deferred repairs allowance would presumably not be payable to him because the state of the plant would have been reflected in the price that he paid for it. At the same time, the seller, who might, alternatively, be looked upon as the person to whom a deferred repairs allowance might be paid, would probably be shut out by the Revenue on the ground that he had not, in fact, carried out the repairs. So it would seem that to neither party—neither the buyer of that property nor the seller —would a deferred repairs allowance be payable in those circumstances. There are certain cases where plant is let to a tenant who is responsible for the maintenance of that plant. As the Bill is drawn, it would see that the landlord is barred from the allowance for maintenance on the ground that he is not responsible for doing it, and the tenant is barred on the ground that he does not own the plant. Again, it would seem that to neither party is the allowance payable.

Mention was made earlier this afternoon of the extractive industries. I would put in a plea that the assistance towards capital expenditure, which is foreshadowed in the Bill in that sphere, should be extended to cover the rights over a site and the rights over deposits under the surface. They are charges which must be incurred, and they can only be written off out of profits. If the Chancellor really intends to reflect in taxation policy the principle of recognising that such costs can only come out of profits, that would seem the place in which that ought to be done. I understand that in America allowances known as "depletion" are in fact allowed under this heading, and I would hope that, in granting allowances, we shall not be behind our competitors from overseas.

The definition of capital is a very important matter, and I hope the Financial Secretary will make it clear—as the Chancellor did not do so—that the substantial reconstruction of all buildings will earn the initial allowance, and that merely on the grounds of improvement, they will not be barred from earning. In Clause II, on the same point, it would seem that the allowances are only to be payable in respect of work done on the ground finally to be covered by the building, and not in respect of drains or roads which lead up to the building, but which are, inevitably, part of the same project. It may well be that wording could be devised to make clear the Treasury's intention, but I hope they will not draw the limits of the allowances in too narrow a way, and say that capital expenditure properly associated with building, will not rank for the allowances to which it is entitled.

May I add this final word? While one should welcome the initial allowances as some contribution to the task of finding fresh capital for modernisation, they appear very small in relation to the greatly increased replacement costs of plant and buildings which are likely to prevail after the war as compared with costs before the war. It would not surprise me if, for some time to come, the great modernisation of our industry entailed increases of as much as 5o per cent. on pre-war costs, and if, as a contribution to that, a mere to per cent. is to be allowed, it leaves industry in a much worse position relatively than it was before the war, so that it will, in consequence, be much more difficult to do justice to its task. Inasmuch as the allowances are bringing forward a writing-off process there are good grounds for seeing that those allowances are made bigger, in order to assist the modernisation of our factories. In voicing the points I have made, which may have left an impression of criticism, I would like to end where I started, by paying a tribute to the broadminded approach which the Chancellor has made to the representations put to him on this subject and welcoming his acknowledgment of the principle of writing-off over the lifetime of the asset, and urging that he should carry that principle still further than he has thought fit to do to-day.

7.33 p.m.

Mr. Price (Forest of Dean)

The question 'has been raised in this Debate whether a Bill like this is really needed. The industrial set-up in this country being what it is, I agree that a Bill like this is necessary. Some speakers have suggested that a question of priority is involved here, and that it is the question of raising the purchasing power of the community rather than the re-equipment of industry, which ought to be borne in mind by us in this House. In my opinion, both are necessary. We must increase the purchasing power of our people, and also see that our industry is made up to date and fully equipped. It is true that our industry is not, as yet, anywhere near the efficient state in which it should be. The war, in some ways, has had an effect, but industrial efficiency is still uneven. Some industries are very forward, others much less so, and it is extremely important that the national income should rise after the war, otherwise we shall not raise our standard of living.

Russia has been mentioned to-day and no doubt Russia has raised her national income from a very low level. But you cannot compare Russia with this country, because you can only compare like with like. Russia began from scratch, but she has a fine economy, which has been of enormous advantage in enabling her to raise her national income from its previous low level. It is interesting to note that Premier Stalin has been able to get Russia to the high state of efficiency which she has reached only by making her pass through many lean years. A Socialist country had to do that, and did it with great courage. I hope we shall not have to pass through anything like that; I hope that with our industrial traditions, and our highly skilled personnel and a controlled and planned economy, we shall be able to pass through this difficult transition time into a high standard of living. It will, however, be a very difficult task. As I say, given the industrial set-up here, and assuming that there is private industry, we must have a Bill like this if we are to have industrial efficiency. Personally, I take the view that there should be a considerable expansion of public ownership, particularly of monopolies and public services, but I will not incur your displeasure, Mr. Speaker, by expatiating on that subject, because I think you would say that it is outside the scope of this Bill.

The fact is that by direct taxation the State has become, as it were, a sleeping partner in industry. I often think that it is more sleeping than partner, and the State seems to be so heavy-handed, that it is in danger of smothering its partner. Assuming that you are going to allow private enterprise to go on, and you have the present level of taxation, you must do something to make it possible to bring industry up to a high standard of efficiency. One weakness in this proposal is that I do not see where control can be put on to prevent any allowance made for depreciation from going into consumption. It is extremely important to see that any allowances made on Income Tax should definitely go to the re-equipment of industry.

However, I wish to raise one or two points concerning agricultural land and buildings. I am very glad that in Part IV repairs and improvements to farm buildings will be eligible for some advantage. At present, of course, a fixed allowance is given on the upkeep of agricultural property or, alternatively, the owner can, if he keeps accurate accounts, take a five years' average on his outgoings, and get allowances on his Schedule A Income Tax in that way. Now it seems that we are to get allowances for new capital developments. Under the 25 per cent. fixed amount, or the five years' average, capital expenditure does not come in—that is run- ning expenses and nothing else. Now it seems that we are to be allowed something for new works and buildings. That will be extremely important, because there are farms which are not really in a position to-day properly to produce dairy produce, especially milk. Owing to war conditions, and the big demand for milk, standards have relaxed, but there are plenty of farms where buildings should have concrete floors, water laid on, and a proper sterilising plant installed. Is that coming in as a capital expenditure? It certainly should do so. If it is regarded as outgoings against revenue, I presume it will not benefit. If we are to have our farms equipped for modem dairying, it is most desirable that improvements of that kind should be regarded as capital equipment, and should come in under these allowances, spread over 10 years.

The other point is in regard to depreciation allowances for machinery. So far as I can see, we are given little improvement under this Bill. At present the allowance is 10 per cent. plus one-fifth of io per cent. and that is to be raised to 10 per cent. plus one-quarter of 10 per cent., which is one-half of one per cent. increase. That is not much, although I am sure we must be thankful for getting in the Bill a 20 per cent. initial allowance for new machinery. This is a serious matter. Farms with relatively well-equipped machinery are being worked at a tremendous pace and that machinery is wearing out. There will be a great demand for re-equipment after the war, but the larger mechanised farms have had their working capital seriously depleted. I know one farm in East Anglia which made a profit of £30,000 last year, of which the owner was allowed to keep £1,200. In order to carry on his running expenses, he had to raise £6,000, and at the end of the year he was more in debt to the bank than he had ever been before. That cannot go on indefinitely. Either the State must take such property over, and run it, or it must allow a farmer enough running capital to keep going. It is a good thing that in this war at least it cannot be said that profits are being made on a large scale. But this much, at least, we must allow: We must allow industry, if it is to remain private industry, enough to carry on with and to have the best up-to-date equipment.

Finally, there is a Clause in this Bill dealing with scientific research. In this matter, I have already taken some steps, along with other Members, to advocate that money spent on scientific research should be considered in relief from tax. I am glad that the Chancellor has put something of this nature into the Bill because, in addition to new equipment, scientific research is absolutely essential if we are to obtain our position in the economy of the world.

7.45 p.m.

Mr. Spearman (Scarborough and Whitby)

I think the Bill, as a whole, has had the good reception which I am confident that it deserves. The only vigorous opposition has come from two quarters—the hon. Members for Aberavon (Mr. Cove) and Nuneaton (Mr. Bowles). The hon. Member for Aberavon opposed the Bill because it dealt with increasing production whereas what he said was wanted was increased purchasing power. The hon. Member is very much behind the times, as he and some of his colleagues are occasionally apt to be in economic matters. I think he was really trying to deal with a 1935 problem under 1945 conditions. It is true that ten years ago, there was inadequate purchasing power for the goods that we could produce. But if we look at the picture as it is now, as shown in the White Paper that was published at the time of the Budget, we see that whereas in 1938, the net aggregate income of everyone with an income of less than £500 a year amounted to just over £3,000,000,000, for the last year quoted, I think 1942, the aggregate income of these people amounts to just under £5,000,000,000, more than half as much again. During the war there has been a huge piled-up demand, people wanting goods that they have not been able to buy, and net savings have amounted to £8,000,000,000—roughly speaking twice as much as the value of all the goods produced in a prewar year. So that I do not think there is going to be any lack of purchasing power for a long time to come.

The time may come when the Chancellor will have to stimulate consumption by reducing taxation and by other measures, but I do not think he is going to be faced with that sort of difficulty for a long time to come. On the contrary, I can foresee him having to continue high taxation with rationing and controls after the war in order to release men and material for re-equipping industry. If costs of production are too high, the terms of trade will go against us, that is we shall have to export far more goods, in order to import far less. Hon. Members opposite may be consoled by the fact that if we cannot import, there will be lots of work, I expect there was lots of work in the Stone Age but the standard of living was a poor one. I do not think they will find it an appealing election cry to offer more work for less bread because that is what it will amount to. I am confident that the only way we can raise the standard of living, in fact the only way the Government can hope to fulfil the very heavy commitments they have been making, is to increase the general output. That means that we have to invest more money in capital equipment so as to improve the processes of production which did not always compare too well with other countries pre-war. American and German cost of production were in many cases lower than ours. There are two ways of dealing with that; one is the authoritarian method of State direction as to what should be spent and how it should be spent. That would, in my opinion, be a very dangerous method. It must lead to a completely totalitarian State. It would mean Whitehall, not the consumer, deciding what was to be produced. I do not think that this country would stand that for long. The other way is to make it worth while to re-equip industry. That depends on two things, the interest on money and the cost of depreciation. The cost of making the investment expressed annually in interest charges and in depreciation charges. If interest was at 4 per cent. the annual charge for writing off equipment over 40 years would be about the same as the interest charges. Over a shorter period, of course, the annual depreciation charge would be much greater. Therefore the question of depreciation is perhaps even more important than has been generally recognised. I think the Government, by keeping down interest rates, and by a fair depreciation allowance, can induce adequate re-equipment of industry to enable the country to compete with the whole world.

7.52 p.m.

Sir Peter Bennett (Birmingham, Edgbaston)

My hon. Friend referred to two speeches against the Bill. I was rather surprised at the line taken by those speakers, who suggested that this would not solve the question. I did not hear the Chancellor's speech, as I had to meet a deputation from Birmingham who came to state their views, in no uncertain terms, on another Measure which is coming before the House. But I should be very surprised to hear that my right hon. Friend suggested that this Measure was going to solve the question. I am sure it will not, but it will help. I do not think there is any royal way of solving our problems. There will have to be a large number of small approaches. There are very few things that can be achieved by one magnificent gesture. You build them up, and this is one of those Measures which will help us to build up after the war. I am very much interested in this because ever since I first spoke in the House I have been hammering away at the question of depreciation and endeavouring to persuade the Revenue authorities to look at the problem from a business point of view. It is a very welcome advance that the Chancellor has carried out his promise and is now bringing taxation and business practice more into line, but we have still some way to go.

We regret that the Bill does not go quite the whole way towards accepting, our principle, which I think is the only sound one, that the cost of everything that is used up in earning business profits should be amortised over its business life. I cannot see any objection to it. It is the only sensible thing to do. We have got this very considerable advance by this Bill, but it has not yet gone quite the whole way. I should like to support my hon. Friend the Member for Northampton (Mr. Summers) and ask why an arbitrary line has been drawn at the definition of industrial buildings. I do not see why industrial buildings should not include offices and everything essential to industry. I should like to see it extended to all premises required for business, cutting out dwelling houses, but including everything else that is utilised in the earning of profits, and therefore I feel that we might with reason ask that the Chancellor should treat the definition in the same way as we have to.

Fifty years is quite a reasonable assumption of life, but it is only an average. Some buildings will have an economic life of more than that period. This does not matter when we come to buildings erected after the Appointed Day, but there is hardship on the owners of existing buildings. After five years the mills and factories' allowance will cease. It has been going on for some time, but not long enough to cover more than a proportion of the cost by the time the Appointed Day is reached. The hon. Member for South-East St. Pancras (Sir A. Beit) said that five years was not enough and suggested ten years. I feel that we might leave it for the life of the building, because for many years, with labour and materials as scarce as they are to-day, industry will only have a limited allocation of them and, even if they wish to rebuild, many industrialists will be unable to do so in anything like five years, so I feel that the Chancellor might leave that indefinite until we return to more normal conditions.

The plant and machinery provisions are helpful, but they are only a relief, of course, during the time that the allowances are being granted. The major problem that we have to solve cannot be dealt with in this Bill, because we shall have an enormous amount of machinery to replace, far more than we can obtain by the relief of taxation. That is a problem that we shall have to tackle in another way. The patents Clauses will be helpful, but it seems a little hard that the cost of the relief should be put on to the inventor who has sold a capital asset, because that type of individual needs every bit of encouragement in the national interest, and the provision may possibly work hardly on him. If he dies after a short period his executors will have a very heavy tax liability. Why we should tax the foreign seller of patents I do not know, because the only result will be to put up the cost against us. The provisions dealing with scientific research will be helpful, but it would be a consideration if the research associations did not have to wait for the Appointed Day. Those who have had to try to raise funds for these research associations know how difficult it is. If we could only persuade subscribers to come forward on the basis that they will get the allowance now, and not have to wait for the Appointed Day, I am certain it would help them very materially. Industry does recognise very gratefully the length to which the Bill goes in giving effect to what has been asked for. The Bill will help us materially in the difficult days ahead, though I am quite certain, as I said at the beginning, that it will not solve the problem.

8.0 p.m.

Lieut.-Colonel Marlowe (Brighton)

The hon. Member who has just sat down referred to the limited extent to which this Bill will operate, but in the short time which is left to me to-night I want to deal with one point only and that relates to the buildings which I think ought to be covered in this Bill. Hotels are omitted from the benefit of its provisions and I want the Chancellor of the Exchequer to reconsider that point and to allow hotels to be included. It is a perfectly good case and there is really no good reason for their exclusion at all. As I understand it the Chancellor bases his claim to exclude them on two grounds. The first is that they are not productive. I do not quite know in what sense he uses the word "productive," because while it is perfectly true if you stand outside the doors of a hotel you do not see anything coming off the production line they are certainly productive of wealth. They produce a large amount of employment and they provide people with the health which is necessary for them to carry on their work. They are productive in many senses, and I do not think that it is sufficiently realised that the hotel business is an industry which is as important as many others in this country.

The only other ground on which the Chancellor excludes them is that they have not been included in the de-rating proposals. I am not quite able to follow the logic of this. They are excluded merely because on another occasion and under entirely different conditions they were treated differently. The conditions were such that they did not require at the time of the de-rating Bill the benefits of its provisions, but very many of them have been seriously damaged by the war, and the re-establishment of the hotel business is going to be a long and difficult task, and in that task they will need all the assistance that can be offered to them. One of the methods of assistance is that they should be included in the benefits of this Bill and I hope the Chancellor will reconsider that point and allow them to be included.

8.2 p.m.

Mr. MaeLaren (Burslem)

There are no hotels in my constituency about which I wish to speak, and therefore it is my intention to talk about what is in this Bill. Every time I hear discussions in this House on the Bills and the amount of money involved in each Bill and discussions on taxation, I really begin to wonder if the House is not losing all sense of proportion. We have seen pass through this Chamber Bill after Bill—for education, for National Health Services, rehabilitation Bills for broken men—one Bill after another, all involving the State and the local authorities in millions of pounds of expenditure. I can remember one of the predecessors of the right hon. Gentleman opposite saying that he would like to ask a Member whether he realised, in all these proposals for our post-war life, what we had to pay in interest on the war debt. Between the interest on the war debt and the costs of the various Bills which have passed through this House I begin to wonder if, in fact, the House and the country have any appreciation at all of what the dead weight of taxation is going to be. In contrast with that, we hear speeches delivered in this House as to how we are going to revive the export trade after the war. Now there is nothing more quickly destructive of export trade than taxation. Taxes and rates are passed on into prices, and when we meet the impact of other countries not carrying the same magnitude of taxes and rates we are going to be undercut. We have the Beveridge scheme one day and other schemes another day, millions and millions involved, and all this is passed on to production, which can only mean in the end that, as the cost will be carried on into the price, the export trade will become nothing, because America will not carry the same magnitude of taxation and rates on industry as we are likely to face, and with regard to Russia, well, of course, they do not matter to them at all.

Mr. Spearman

Might I point out, to the hon. Gentleman that the object of this Bill is to increase production?

Mr. MaeLaren

That only goes to show that I am not getting my ideas ever to hon. Members at all. One gets a feeling, listening on these benches night after night, that when we are contemplating all this legislation involving all this taxation and rates, there will be no export trade or houses or buildings in this country if the industry in the country is destroyed by taxation.

I was wondering what would happen some day if the industrialists of this country suddenly woke up to this amazing menace, and now I find in this Bill that they are going to ask for remittances in proportion to the amount of expenditure they undertake for export trade. I suppose that is the main objective of this Bill. It is interesting to note, and it is a pleasure to myself who, almost alone in this House, have for years tried to drive home this lesson, that taxation upon industry kills it. But the Chancellor of to-day gets up and says that this Bill is commendable because it will stimulate production, for that is what it is, an attempt to remit taxes from production. It is something that we can at least get up and say this after all these years. It perfectly clear that in order to stimulate production we must stop taxation or move the burden of taxes from it. I notice the habit that is growing up in this House and in fact in Government Departments, of using terms without defining them. There is all this talk about profits. What does it mean? The Chancellor has spoken once or twice about taxable profits being real profits without defining what he meant by profits. What are profits? I have never been able to find out. But people in this House glibly speak about them and apparently they must have some conception of them in their own mind or they would not talk about them. Apparently the aim in this Bill is that the real profit element shall be subject to taxation, but any expenditure on capital undertakings shall to some extent be relieved. I welcome that tendency, but it is not enough. It is a good indication, indeed, a very good example, of how economic interests will make Governments do that which reasonable thought years before should have compelled them to do.

We shall be faced with the impact of the great nations in world trade after the war. Any sane man looking at the situation now knows perfectly well that we must mitigate or remove this burden of taxes from industry if this country is to have its place in world trade after the war. That is the meaning of this Bill. I cannot resist the temptation of twitting the Government for adopting the line which I advocated here more than 20 years ago. As I heard one of the speeches on the Labour Benches to-day, I really wondered where I was. There is a lot of nonsense talked about private enterprise. I wish that Members of Parliament would, when they come here, be decent to their own intelligence, let alone to other people's, and define what they mean by the terms that they use. What do they mean by "private enterprise"? If I paint a picture, however bad, is that private enterprise, and who is going to object to my doing it? If I do a cartoon of the Government and sell it to-morrow, is that private enterprise, and am I to be told that I am inhibited under a Socialist State from doing it?

I am saying this because confused thinking is bound to arise from confused concepts or confused phrases, and all this talk of private enterprise which is bandied about. Then there is State enterprise. I have no objection to private enterprise, and I have a suspicion that any State that descends into the inane condition in which there is no private enterprise will not be worth living in. I have no objection to private enterprise being encouraged if it conforms to the laws of the State and, in its final functioning in industry, raises the general economic and moral tendencies of the State. There are certain enterprises, if I may use the hackneyed phrase, which we cannot allow to be private enterprises. Perhaps I may be allowed to submit this to the House as guidance in future Debates so as to avoid the flippant nonsense which passes for wisdom. Any form of production or service which, by its nature, excludes competition must, of necessity, come under the control of the State or the local authorities. I hope that will be a guide in Debate in future in this House, and that it will put an end to mixed and confused thought as to what should be privately controlled and what State owned.

This Bill is an indication that the Government see the danger ahead of loading taxation on industry, at the same time that they are hoping that industry will revive, or survive, in post-war reconstruction. I commend the Government on their conversion to that idea. But, as has been said in the Debate—and let me emphasise it—we cannot, while continuing under the present canons of taxation, relieve one element in this way, without compelling other taxpayers to make good the relief. I do not think there can be any dubiety about that. I am a frank and determined opponent of Income Tax. It is one of the most vicious and immoral taxes ever invented, although men seem to think that God invented it in Heaven, and imposed it on the community. Whenever you attempt, by these devices, to give relief from the operation of Income Tax, you inevitably get into the most weird complications. We had the hon. Member for Walsall (Sir G. Schuster) pleading for what he called a simplified form of Income Tax. There is not an official in the Treasury who will not agree when I say that a simplified form of Income Tax is totally impossible.

Once you venture upon Income Tax in any shape or form, as time goes on and the deadly effect of the tax begins to be felt in the community, then, as we are seeing in this Bill, one section of the community after another attempts to avoid the economic consequences of the tax, and the Government have to make compromises which make the Income Tax law involved and difficult and which open the door to the most weird and arbitrary decisions. We see it in this Bill, which raises such questions as what is an industrial building and what is not? These complications are inevitable, and I would say to serious Members of the House, like the hon. Member for Walsall, that they should pay attention to the question of where this is driving us. It is inevitable, once you start on wrong premises and run along the wrong line, you are bound, in the nature of things, to find the situation more complicated. Over the last five or six years, the devices invented to cope with people who want to avoid Income Tax —

Mr. Deputy-Speaker (Mr. Charles Williams)

The hon. Member has gone rather far from the Bill on several occasions, and I do not think we can have an argument about the evasion of Income Tax.

Mr. MaeLaren

I was only pointing out the complications that would arise under this Bill. It is not a Bill for trying to "temper the wind to the shorn lamb," and when once you start Income Tax as a form of taxation, then, with the growth of industry and the complex forms of production, you are bound, if you start making concessions, to become involved. All the concessions made to Income Tax payers, and the devices recently adopted to cope with those who are evading Income Tax, must make a hefty volume in the offices of the Treasury. I am taking this opportunity of trying to point out that truth and beauty are characterised by simplicity. The government of man is also, strangely enough, characterised by simplicity. When men depart from the fundamental laws of justice and truth they are, inevitably, landed into complications. To-night we are discussing a Bill which supports all the views for which I am contending. The Chancellor says that relief given in respect of industrial undertakings will stimulate industry. I wonder whether he will correlate what he said to-day with what he says on other occasions. This may seem irrelevant, but it is not. We are wanting coal all over the country, and what is Income Tax doing? It is making the miners refuse to bring coal above ground. We find people avoiding doing certain services in order to avoid Income Tax.

All I am doing in this Debate is to point the moral. I am glad that economic necessity has driven the Government to resort to this device, but there will be many more who will come in and say, "If so and so has a concession under this Bill, why cannot I get one?" The Government have opened the door now, and I do not know where it will lead to. Let us be on our guard, and I say this particularly to the Labour Party. If they give concurrence to Bills like this, the poorer sections of the community will have to make up the difference by indirect taxation. Unless there is a complete revolution in the conception of taxation, these devices will have to be made, and they will ultimately have to be paid for by those who cannot defend themselves with the same efficiency as those who have forced the Government to make these so-called reforms. The tendency I applaud, but the results I look upon with apprehension. Let me say, before I sit down, that I hope this House will be a little more serious with regard to the results of the tendencies we observe in the fields of taxation and rating and will bestir itself and reform the whole idea of taxation in this country.

8.21 p.m.

The Financial Secretary to the Treasury (Mr. Peake)

We have had an interesting Debate and, on the whole, the Bill has been well received. Complaints have been made by more speakers than one that the Bill is obscure. I deny that charge of obscurity. The Bill is undoubtedly complex; it is necessarily complex, as the hon. Member for Burslem (Mr. MacLaren) has pointed out, because wear and tear, obsolescence, depreciation and amortisation are complex subjects, and the allowances have to be applied to a great variety of forms of property. Indeed, all Income Tax Bills are necessarily complex. People do not like to pay Income Tax, and therefore in an Income Tax Bill we have to foresee the loopholes, and try to stop them up in advance. I am informed by those who move more easily than I do in these difficult fields that the Bill is a model of clarity and precision, and that all you need in order to understand it perfectly is a very clear head. I agree to this extent, that after reading the first two or three Clauses I felt that I required a rest.

The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence), who followed the Chancellor, asked a number of questions. Two of them appeared to me very simple. He asked how far the law was changed by the Bill and how far the practice of the Board of Inland Revenue would be changed without it. To define the extent to which the law is changed by the Bill I should have to take my right hon. Friend through all the 65 Clauses, each of which alters the present law. So far as the Board of Inland Revenue are concerned, the answer is somewhat simpler. It is that the Board have to administer the law. They have done it hitherto upon the old basis and they will do it henceforward upon the new basis. My right hon. Friend also asked what would be the cost of the proposals in the Bill. It is virtually impossible to give any estimate of the cost of these reliefs because the cost depends upon a large number of imponderable factors. I can tell my right hon. Friend a fact of which he is probably already aware, and that is that before the war industry was renewing its plant and machinery at an annual rate of outlay in this country of about £200,000,000. That is only a very rough guide to what the annual outlay of industry is likely to be on the replacement of plant and machinery in the years after the war. The right hon. Gentleman will no doubt appreciate that there is a large number of imponderable factors. There is the rise in prices, and the shortage of certain raw materials. There is also the shortage of building labour. A good deal of doubt exists as to what the actual effect of these proposals will be in stimulating the replacement of industrial plant and buildings.

Mr. Woodburn (Stirling and Clackmannan, Eastern)

Would not that be about £10,000,000 on the figure which the right hon. Gentleman has mentioned?

Mr. Peake

On the supposition that the outlay in a given year was £200,000,000, then 20 per cent of that, which is the amount of the initial allowances on plant and machinery, would, of course, be £40,000,000. The Income Tax on that sum, at 10s. in the £, would be £20,000,000. But there is another way of looking at this matter, which is that these concessions may not cost the Chancellor anything, because they may so stimulate productive industry as in fact to be productive of greater revenue. Several hon. Members have asked whether the general body of taxpayers would not have to foot the bill for giving this relief to industry. I cannot accept that attitude at all. A Measure of this kind, designed to stimulate industry and to stimulate the export trade, may produce a great deal more in revenue than it will cost the Exchequer.

Sir G. Schuster

Would the right hon. Gentleman also make it clear, as I am sure he will agree, that this 20 per cent. is not a net cost to the Revenue but is simply an anticipation?

Mr. Peake

I shall deal with that point in the course of my remarks. It was one of the points which my hon. Friend mentioned in his speech. The right hon. Member for East Edinburgh made the same point to some extent. It is that these initial allowances on plant and machinery are only an ante-dating of allowances which would be granted in the ordinary way at a later stage. That is not quite accurate, and I will tell the House my reasons for saying so. It is true that if you bought one item of plant and used it for its working life and then scrapped it, the effect under the new law would be precisely the same as under the old law—at the end of the life of that piece of machinery. In point of fact, however, industry is a continuing process and old plant is replaced by new plant. The result of granting an initial allowance of 20 per cent, in the first year is that that sum is carried forward over the life of the plant and is granted again when the original piece of machinery is replaced by a new piece of machinery. The Exchequer, therefore, never recovers the original 20 per cent, granted by way of initial allowance; that is a relief to industry which, in most cases, will never be reclaimed by the Treasury. I hope I have made that point tolerably clear to my hon. Friend.

Sir G. Schuster

Clear, but I do not quite accept it.

Mr. Peake

In regard to the relief given for industrial buildings, my hon. Friend said that we drew an illogical—indeed he said an unworkable—distinction between industrial and non-industrial buildings. The distinction, for which my right hon. Friend the Chancellor of the Exchequer stated the grounds pretty fully in the course of his speech, is very similar to the distinction which was drawn in the derating proposal of 1928, to which several hon. Members have called attention. There is no practical difficulty therefore in making a similar distinction in this Bill. So far as the merits of the distinction are concerned, I would say this in reply to several hon. Members who have asked, Why not include hotels? It is perfectly clear that if hotels are included as industrial buildings and given the initial allowance of 10 per cent., plus 2 per cent. per annum in order to write them off over 45 years, boarding houses have also to be included. If boarding houses are included, I think shops also have to be included, and when they are included you are probably then driven to including dwelling houses as well. [An HON MEMBER: "Why not?"] Dwelling houses are already, under the existing law, in the position of getting an allowance of one-sixth of the annual value under Schedule A for repairs, and if it can be shown in respect of dwelling houses or any other forms of building that the average cost of repair exceeds one-sixth, the additional amount is allowed. So far as hotels are concerned the case has been put quite strongly, but I would draw the attention of my hon. Friends to this fact: hotels will get the full benefit under Part II of the Bill, dealing with plant and machinery. That is to say, if they instal new machines in their kitchens or their laundries, new lifts, new appliances of all kinds, they will get the full benefit under Part II of the Bill. [An HON. MEMBER: "Does that include furniture and things of that kind?"] Furniture is dealt with on what is called a replacement basis, but I would not like to be drawn into that complication.

As I say, hotels will get the full benefit under Part II of the Bill. It would lead us into extreme difficulties if we extended Part I of the Bill, which deals with industrial buildings, to hotels. It would lead to boarding houses, shops and dwelling-houses having to be included. There is no Domesday Book recording when all these different buildings were erected, and neither is there any record of the cost of their erection. In order to apply Part I of the Bill, there has to be an accurate record, not only of when the building was erected, but of what it cost. I therefore ask the House to agree that on purely administrative grounds it is impossible to extend more widely the provisions of Part I of the Bill with regard to industrial buildings.

It is perfectly true that hotels do attract a valuable tourist traffic from abroad, but my observation has been that the people who spend the most money when they come here as tourists usually come from the United States, and the last place in which they want to stay is a brand-new modern hotel.

Mr. John Dugdale (West Bromwich)

Does the right hon. Gentleman mean that they come in spite of the hotels?

Mr. Peake

They prefer an old-fashioned hotel with modern appliances inside, and it is those which will attract the benefits of this Bill under Part II. I will pass from that to deal with points raised by another hon. Member with regard to patents. This is a point of very considerable perplexity. As the Chancellor of the Exchequer explained in his Budget speech, he proposes to give the industrial purchaser of a patent the right to spread the cost of buying a patent over a period of 17 years, which is the life of a patent and get an Income Tax allowance in respect of it. Of course, the natural corollary of that is that the person selling the patent should be liable to Income Tax. In the ordinary way most patentees pay Income Tax, because they receive their income in the form of royalty, and even where the user of a patent is transferred for a lump sum, that lump sum is subjected to tax. It is only in the case of an out and out sale of a patent for a lump sum that there has hitherto been no Income Tax liability. But I put this point to the House, that it is much more reasonable, on grounds of pure equity, to treat all moneys accruing from patents as subject to tax, in whatever form they are received; and in the second place that if, on the one hand, a right to a deduction by the purchaser is given, and there is coupled with it a liability to tax on the part of the vendor, it is quite clear that the lump sums payable will be greater than hitherto. The purchaser will be able to afford to pay more, and the vendor will necessarily require to sell higher, because there will be a tax liability on the one hand and an allowance against tax upon the other.

Mr. Woodburn

Does it follow that in this case the Chancellor will levy tax on the lump sum immediately the patent is sold, and will only give a remission over 17 years?

Mr. Peake

No, I should like to make that quite clear. While the remission of tax to the purchaser is spread over 17 years, the liability to tax on the vendor is spread over six years, which we consider to be a reasonable spread.

Mr. Douģlas

How does that encourage industry?

Mr. Peake

In this way, that they will get an allowance off Income Tax on all patent rights which they either acquire or obtain on licence. That is to say, there will be a deduction allowed from their gross tax in respect of outgoings in respect of patent rights.

Sir A. Beit

Is there any particular reason why the spread should not be the same for the vendor as for the purchaser?

Mr. Peake

I think a six years' spread is reasonable, and that a 17 years' spread would in a great many cases go beyond the life of the patentee.

We had from my hon. and gallant Friend the Member for Camborne (Commander Agnew), my hon. and gallant Friend the Member for Carlisle (Sir E. Spears), and my hon. Friend the Member for South-East St. Pancras (Sir A. Beit) some questions about wasting assets. They were interested to some extent in the treatment of wasting assets overseas under Part III of the Bill. The position under Part III, which deals with things like mines and oil wells, is that whether they are overseas or not, if they are liable to British Income Tax they will be treated on precisely the same footing. We cannot make any special concession in respect of such wasting assets overseas. A good deal of the provision in respect of these wasting assets will have to be contained in regulations, and one of the Clauses of the Bill provides for that, because the case of different industries will require different treatment. Broadly speaking, the effect of the provisions of Part III is that during the course of the life of the mine or the oil well the whole of the cost of the exploring in search of the mineral deposit will be written off. There is a highly complicated formula in Clause 23 of the Bill which is designed to make sure that the whole of the capital expenditure is written off during the life of the asset in question.

Commander Aģnew

Will the cost of sinking and boring for the project in the first place be written off under Clause 22, which provides for the initial allowance, as well as the allowance being given under the subsequent Clause?

Mr. Peake

There is an initial allowance in respect of capital costs followed by an annual allowance, calculated on a formula contained in Sub-section (2) of Clause 23. It provides for writing-off an amount each year proportionate to the amount of the minerals extracted from the mine, and it is so designed that at the end of the life of the mine the whole of the original capital cost will have been written off.

I turn from that rather difficult subject to the speeches in rather lighter vein which we had from the hon. Members for Aberavon (Mr. Cove) and Nuneaton (Mr. Bowles). Those speeches gave us what was to my mind some rather old-fashioned Socialism. The hon. Members complained that the trouble in the world was over-production and that what we ought to do was not to stimulate productive industry, but to stimulate consumption. That may have been all right as a political theory some years ago, but I do not think those hon. Members will meet with much sympathy for that point of view when they address the electors at the forthcoming General Election. I am sure that the ordinary housewife, who has been trying to get goods from the shops, and finds more often than not that the shops are empty, while her savings bank account is full, will not be convinced that the trouble with the world to-day is excess of productive power and lack of consuming power. It is quite clear that in the early years after the war production will be of vital importance, and Bill is designed to stimulate it.

A large number of other points have been mentioned in the Debate, but I should only be boring hon. Members by following them up at present. Therefore I might conclude by repeating what are the objects of the Bill. They were very clearly stated by my hon. Friend the Member for Northampton (Mr. Summers). The objects of the Bill are twofold. The first is to ensure that Income Tax is levied on the true profits of industry—on no more and on no less. Industry has complained for many years that the burden has been inequitable in many respects. This Bill is designed in all cases to ensure that during the life of the industrial asset its original capital cost is completely written off. In the second place, while maintaining this principle, the object of the Bill is so to spread the burden as to give a special stimulus to early modernisation of plant, in order to fit this country to take its proper place in the industrial life of the world after the war. The Bill, I claim, fulfils, and more than fulfils, the pledges that the Chancellor gave in his Budget Speech last year. There is a little story about a domestic household of which I remember only the last sentence. It was this sad line: "and as cooks go, she went." I am quite sure that when this Debate is discussed, as it will be, in the Board room of the Inland Revenue Department to-morrow morning, the verdict will be that this Bill, as Income Tax Bills go, went well.

Question put, and agreed to.

Bill accordingly read a Second time.

Bill committed to a Committee of the Whole House.—[Mr. Pym.]

Committee upon Tuesday next.