§ During the past year, I have received representations from many quarters as to the difficulty which industrial companies are experiencing in financing the cost of replacement of old machinery, or of the installation of new machinery, on the existing scale of allowance for wear and tear. We are constantly stressing the need for higher productivity, and both sides of industry agree that one important factor in this is more and better mechanisation. In the Income Tax Act, 1945, assistance for this purpose was introduced, by giving an initial allowance for wear and tear of 20 per cent. of the new cost. All plant and machinery, of course, receives in wear and tear allowance, 100 per cent. of its cost over the agreed life of the plant, so that the initial allowance of 20 per cent. makes no difference to the total result in the long-run. But the immediate result is important, for early relief in Income Tax and Profits Tax on the larger sum is afforded, and thus more money becomes available for re-equipment at an earlier date. Owing to the further rise in prices, it is now urged that this help is not enough, and current depreciation allowances on machinery, bought at prices much lower than those now ruling, are not sufficient to allow replacement at existing prices.
§ I have therefore decided to double the existing initial allowance in respect of plant and machinery purchased on or after 6th April, 1949, making it 40 per cent. of the new cost. Relief in this form guarantees that it will be used exclusively for the purpose intended, for it is obtained only when the new machinery and plant is actually bought. Although the cost in the coming year will be negligible, the importance to industry of this strengthening of their power to re-equip can be seen from the fact that, in 1950–51 the cost will be £40 million and in 1951–52 £75 million. The cost to the Exchequer will, of course, be less in later years, when a smaller percentage allowance will fall to be made owing to the larger percentage already granted.