HC Deb 28 May 1952 vol 501 cc1374-99

The Income Tax Act, 1952, shall have effect as if the following section were inserted after section 333: — 333A. Notwithstanding anything contained in subsection (7) of section two hundred and sixty-five or subsection (5) of section two hundred and seventy-nine of this Act, if a person on or after the sixth day of April, nineteen hundred and fifty-two, incurs capital expenditure which, but for the provisions of those two subsections, would qualify for an initial allowance under Chapter I or Chapter II or both those Chapters of Part X of this Act, there shall be made to such person an initial allowance in respect of such expenditure under section two hundred and sixty-five or section two hundred and seventy-nine of this Act, or both such sections as the case may be, provided nevertheless that such initial allowance or the aggregate of such initial allowances (if more than one) shall not exceed. in respect of any one year of assessment, the sum of one thousand six hundred pounds, and if a person has incurred expenditure which (but for the subsections aforesaid) would, in respect of any one year of assessment, have qualified for an initial allowance or initial allowances in excess of one thousand six hundred pounds, such person shall be entitled to elect how such one thousand six hundred pounds shall be apportioned as between the various types of expenditure incurred by him which (but for the subsections aforesaid) would so qualify: Provided that the giving of such initial allowance or initial allowances as aforesaid shall not increase the amount of any tax for which such person or any other person would or might become liable by way of balancing charges or otherwise above the amount for which such person or other person would have been liable if no such initial allowance or initial allowances had been given.—[Mr. Albu.]

Brought up, and read the First time.

Mr. Austen Albu (Edmonton)

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

It may be for the convenience of the Committee if I say at once that I have received information that the Derby has been won by Tulyar—though I am not interested myself.

The purpose of this Clause is to restore the initial allowances for certain capital expenditure of a limited amount, and so to be of particular benefit to small manufacturing companies. Let me remind the Committee of what the situation was before the Finance Act of last year. Prior to that time there had been initial allowances granted to new capital expenditure, chiefly for new buildings and new plant and machinery. It was originally instituted in the Act of 1945 and at the time of the Finance Bill of last year it largely was to finance plant and machinery, and to finance new buildings.

4.15 p.m.

These are not remissions of taxation or allowances against taxation, but really in the nature of interest-free loans, because, of course, the initial allowance only reduces subsequent depreciation allowance during the life of the plant or equipment. The conditions under which they were granted were, in fact, all incorporated in a large number of pages comprising Part X of the consolidated Income Tax Act of 1952, but the whole of that Part X is wiped out by subsection (7) of Section 265 and subsection (5) of Section 279, which wiped out initial allowances for building and plant and machinery respectively, thus bringing in the alterations made in the 1951 Act.

The proposal of this new Clause puts a limit of £1,600 on the allowance which would be granted for either new plant and machinery or new building. Of course, the intention of the limit is to ensure that the benefit of the Clause—of the change: of the restoration of the allowance—shall go to small companies. I readily admit that it would have been better—more satisfactory—for our purpose if we could have restricted it in that way, but I believe that it is administratively very difficult, and that in limiting the total amount we probably achieve the same effect, because the amounts that we have fixed as the limit would be less beneficial for a company of substantial size.

In most cases the use of the allowance for spending on new buildings and machinery out of ploughed back profits would nearly always be spent on machine tools and things of that sort. Nearly always the 40 per cent. Allowance would be so employed, and it would be equivalent to £4,000 spent on new machinery.

There are one or two matters to which hon. Members have drawn my attention, and they all agree that if one of these could be dealt with, it would improve the Clause, and that is the question of motor cars. There is a general feeling that in many cases initial allowances in small businesses were used for the purchase of motor cars. I do not think my hon. Friends and I would object to any Amendment to restrict initial allowances so as not to include motor cars. However, that does not affect the general purpose of the Clause.

My hon. Friends and I put down a number of Amendments to various Clauses of the Bill, all designed to assist the small companies, particularly the small manufacturing companies. It is very difficult to give a direct assistance and ensure that it will have the effect we actually want—of improving the efficiency and helping the expansion of those small companies. My views on the use of profits and ploughed back profits are, I think, quite well known to the Committee, but I have never hidden from the Committee my view that a small company does need assistance because it is in the most difficult position.

By a small company I mean one that may be employing about 50 people. It often has great difficulty in taking the initial steps towards substantial expansion, towards the optimum productive level. Particularly would it be difficult at the present time, not only because of the increased burden of taxation, particularly of the Excess Profits Levy as it falls on expanding companies, but also because of the very much tighter credit conditions which have been imposed by the Chancellor, and which, of course. Fall first on the small company without much security—whose business reputation is still something of doubt.

These companies find great difficulty in getting additional capital. They mainly get it from the banks, and the present conditions make that more difficult. It is more difficult to get credit there in present conditions. The financial houses, of course, are not interested. It is not worth their while to be interested in the small company. It is not worth the expense of negotiating the finance in the case of small companies because of the smallness of the amount. It is not worth the while of the financial houses to be interested in them—not even of those set up to deal with the relatively small companies.

I hope that we shall receive on this occasion some sympathy from the other Side of the Committee, because last year we spent 11 hours in the middle of the night—right through to the morning—debating the abolition of the initial allowances which was brought in by my right hon. Friend the Member for Leeds, South (Mr. Gaitskell). A great deal of the debate, of course, was directed towards the exclusion of particular interests, but substantial arguments were also advanced against the abolition of the initial allowances at all.

I would be the last to say that today—that now—would be the time to restore initial allowances completely. That would be absolute nonsense. The conditions in which my right hon. Friend abolished it as a whole still exist—in fact, have been much reinforced by the Chancellor in his Budget speech, and in other speeches he has made on economic affairs. when he has referred to the necessity for increasing our engineering exports and our exports of capital goods and the consequent necessity to reduce investment in those goods at home. I must say that we welcome repentant sinners from the other side of the Committee who now realise the reason why my right hon. Friend abolished the initial allowances over the whole of industry last year.

However, I believe that there is this special case for the small company. I should like to quote—the only quotation I am going to make from the many speeches made during those hours of the night last year—from the speech made then by the present Chancellor of the Exchequer. He said: I do not claim, and I am not going to make any claim, that the system of initial allowances is ideal. It is one to which a good deal of careful consideration can be given by the Committee and there is no doubt that these allowances are a form of loan to industry, and that they are not so valuable to large businesses with capital as they are to small firms. He went on: In general they have formed a valuable aid, particularly to small businesses, and their removal by the Bill, unless we can wring a further concession from the Chancellor, will come as a shock to a variety of industry."—[OFFICIAL REPORT, 8th June, 1951; Vol. 488, c. 1542.] I give the Chancellor of the Exchequer credit for that, at any rate; whatever he may have said in public, he knew what the situation of the country was last year, and when he made those remarks he must have been fully aware of the position in which my right hon. Friend was introducing his Budget. We are fully aware of the circumstances at the present time.

But, of course, there has been a substantial change since that time, and that has been a recurrent theme in the debates we have had in this Committee, and that is, that while there is a general inflationary movement in some parts of the economy, particularly the capital goods industries, there have been very considerable reductions of industrial activity in other parts of the economy, particularly in Lancashire and the textile areas, and there is a general view that there has got to be some recruitment of new industries in those areas. Nor is it necessarily the case that such recruitment cannot make its contribution towards re-armament and the export drive.

It is generally held that a re-armament programme involves a good deal of subcontracting and the bringing in of small firms, and, of course, we know that, for various reasons, it is extremely difficult to increase the output in some parts of the country because of the shortages of labour and the maldistribution of housing. If it is necessary to bring new industries to take their part in the re-armament programme and in the export drive, particularly in engineering products, into Lancashire, it will be necessary to ensure that the businesses that go there are enabled to expand to reasonable size.

I think that that is the strongest argument we can put forward for this Clause, apart from the general argument about the necessity for helping small companies. The initial allowance is a particularly suitable type of assistance because it ensures that relief is given only in respect of profits that are ploughed back and actually used; and, of course, they would be used for plant and machinery—machine tools—to assist modernisation and the expansion of output. I hope that in view of what I have said, and in view of the obvious sympathy of hon. Gentlemen opposite that they expressed when they were on this side of the Committee last year, we shall receive a favourable reply to this proposal.

Mr. Gerald Nabarro (Kidderminster)

I was one of the Members sitting on the other side of the Committee last year who had a great deal to say during our protracted debate about the merits or otherwise of Income Tax initial allowances in industry, and I must confess that I supported from the Opposition benches the plea made by the present Chancellor of the Exchequer and my hon. Friends for the retention of initial allowances in certain circumstances; but I did so with a good deal of diffidence.

In my view, the system of initial allowances is a bad one. Sir John Anderson, who is now Lord Waverley, introduced it in 1945 as a palliative. The late Sir Stafford Cripps, in 1949, doubled the rate of initial allowances in so far as plant and machinery were concerned, but I still tended to regard initial allowances—and I was supported by a substantial body of opinion in the chartered accountancy profession—as only a palliative.

What a great deal of informed opinion was hoping was that these palliatives would lead to what is urgently needed in our fiscal system, an arrangement for the revaluation of industrial fixed assets which would allow a proper rate of depreciation and a full allowance for obsolescence in respect of plant and machinery bought in pre-war years and still in use.

Mr. Albu

The hon. Gentleman referred to the opposition of the accountants, chartered and otherwise, to initial allowances. He will probably be aware that they are very divided about the revaluation of assets. I think the majority are against it.

Mr. Nabarro

That is not a view that I take. The majority of chartered accountants concerned with industrial accounts, at all events, recognise the wisdom of introducing some arrangement for the re-valuation of fixed assets.

It is instructive for the Committee to observe what took place in Belgium and many other Western European countries after the war. There, they embarked upon a planned system for the revaluation of fixed assets especially to overcome the particularly difficult point of plant and machinery bought in prewar years and depreciated on a basis that had been arranged in pre-war years. When the plant and machinery came to be replaced in the post-war years it was found that the company seeking replace- ment had to pay three or four times the price for the new machinery.

The initial allowance system had many disadvantages. The hon. Member referred to the fact that my right hon. Friend called it a type of loan. I have always believed that it should have been recognised simply for what it was, an interest-free loan and nothing more. Many companies in receipt of that 40 per cent, initial allowance would, when they made up their accounts at the end of the year, deliberately take advantage of the initial allowance by placing it to a special reserve account in order to offset over the remaining life of the plant and machinery, the reduced annual rate of depreciation, which is a consequence of the initial allowance at the rate of 40 per cent. In the case of many small companies—the hon. Gentleman may not like this very much, but it is true—the initial allowance was an encouragement to extravagance and the purchase of plant and machinery that was not necessarily immediately required. That is one reason why the new Clause should be rejected.

There is a further point that I should like to make in reply to the hon. Member for Edmonton (Mr. Albu). He referred to the difficulty of small companies in financing expansion. Over the years he and his hon. Friends have been staunch supporters of such houses as the Industrial and Commercial Finance Corporation and the Finance Corporation for Industry, which were set up at the end of the war primarily to deal with the problem of financing the expansion of the medium and small companies.

The Finance Corporation for Industry dealt with the larger applicants and the Industrial and Commercial Finance Corporation with the smaller ones. The two together dealt with applicants for money for expansion purposes, who were not in a fit financial condition to go to the money market or Stock Exchange and promote a loan or a new issue. Today, the genuinely small company which seeks to expand, can find its money from a number of reliable sources, through houses of that sort or by recourse to the established practice—there is nothing wrong with it—of buying plant and machinery on a hire-purchase basis, which is done by very many small companies who are seeking expansion.

I object to initial allowances, in principle. I recognise that they served a useful purpose between 1945 and 1952, but I should most certainly object strongly to any move to reintroduce them on a qualitative basis, restricted only to a certain class of company. If we reintroduced them at all we should have to do so universally; we must not approach the problem in that way. I believe that the revaluation of fixed assets and the overhaul of the machinery of depreciation allowances and obsolescence is a preferable course to going back to a limited system of initial allowances.

4.30 p.m.

Mr. Frederick Mulley (Sheffield, Park)

The hon. Member for Kidderminster (Mr. Nabarro) scoffs at the conception of an initial allowance because he says that it is an interest-free loan. We do not dispute that, but—

Mr. Nabarro

I called it a palliative and said that it served its purpose; I did not scoff at it.

Mr. Mulley

The hon. Member can only make his speech; it is for the rest of the Committee to interpret the tone in which he made it, and that was what I was doing in using the term "scoff." It is precisely because it is an interest-free loan that the Opposition realise that the initial allowance has made a substantial contribution to industry. All the suggestions which came from the hon. Member about hire-purchases, finance corporations and so on involve a very great interest cost to small firms. Surely, from the point of view of a business man an interest-free loan is a better proposition than any other scheme, particularly at a time when the Chancellor has made the cost of borrowing very much higher than it was before?

The most significant part of the hon. Member's speech was the reference to revaluation of assets. He quoted the accountancy profession in support of the argument. I am not in a position to say whether it would have the full support of the accountancy profession, but, even if it did, that is not a very strong argument. The Committee must view the situation of the economy as a whole. I should strongly oppose the suggestion that fixed assets should be revalued, for that would give preferential treatment to one class of taxpayer as opposed to other classes.

When a company comes to replace machinery bought pre-war—we realise it is a difficulty—the cost is probably three or four times the pre-war depreciation arrangement. At the same time, the school teacher who saved for retirement on a pre-war salary is having to meet three or four times greater expenses today. The whole question of changes in the value of money affects not only industry but all classes of taxpayer, and it would be very wrong to give industry preferential treatment of this sort.

The hon. Member said that the initial allowance led certain companies to extravagance. I agree wholeheartedly that there is some substance in the criticism. The kind of extravagance that we should particularly oppose is the purchase of cars for directors to run about in out of the 40 per cent. initial allowance. We should be against it as we are against all sorts of extravagance of that kind. But can the hon. Member really look at British industry today and say that any firms can be accused of extravagance in the provision of up-to-date machinery and equipment? The small companies who would be the main recipients of the advantage are, by and large, very much out of date compared with the methods used by the best firms in the same industries.

I ask the Government to give favourable consideration to the Clause. It may need to be redrafted. Perhaps it may be possible administratively to limit the extension to small companies only. I can think of a great number of companies in important industries who would benefit from an initial allowance, companies which badly need new capital equipment not only on grounds of productivity but also for improving the conditions of their workers.

I have in mind the cutlery industry in Sheffield, a typical little masters' industry, where capital is needed to make the working conditions tolerable for the workers. That industry is feeling the main brunt of the reduction in exports to Australia and other fields, and it would find it very difficult to raise money in the open market or from the banks for the new equipment to modernise the firms and improve the working conditions in order to attract labour in a city where labour is in great demand for re-armament purposes. One could multiply the examples where in the national interest increased productivity for export is a very vital matter and yet the firms, except at an exorbitant cost, cannot get the interest-free loans which we would wish to provide by this means to a maximum of £4,000 in one year.

Another industry which should appeal to the Government Front Bench is the building industry. Many builders could improve their house production capacity by means of this proposal. I have specially in mind the brickyards. Brick production has risen steadily over the last year. An examination of the figures will show that this is almost entirely due to increased Fletton production by the large people in the industry who have no shortage of capital.

However, if we are to get enough bricks for housing and other projects we must get more bricks from the small brickyards, and they are, in almost every case, held up for capital. They would welcome the Clause not only as a means of enabling them to re-equip and modernise their plant but also as a means of enabling them to make a contribution to the building programme. There are many other fields in which this would be an advantage to the small company.

The Opposition believe that the small company has a right to be considered as well as the large company. It is fancy thinking to imagine that the future of the country has to depend entirely on the large firm, especially in the case of many craft industries: As I know from my experience in Sheffield, small firms have played, and will continue to play, an important part in our export trade.

Mr. Hugh Gaitskell (Leeds, South)

As my hon. Friend the Member for Edmonton (Mr. Albu) pointed out, the general issue of the initial allowances was discussed at great length during the Committee stage of last year's Finance Act. For hour after hour Conservative hon. Members moved Amendments, and throughout virtually the whole of that night my hon. Friend the Member for Brighouse and Spenborough (Mr. J. Edwards) answered Amendments very faithfully and thoroughly. We ended the debate with a discussion on the general principle, when the Chancellor was the chief spokesman for the Opposition Front Bench at that time.

At that time, the attitude of the Conservative Party was wholly opposed to our proposal to suspend initial allowances. Yet when they came into power the first thing they did was to say, "It is part of our policy that initial allowances should be suspended." I do not object to that. We treat with the contempt that it deserves any pretence that hon. and right hon. Gentlemen opposite have not changed their minds. If they try that kind of thing on they must expect to get a sharp reaction, as the Solicitor-General had yesterday from my right hon. and learned Friend the Member for Neepsend (Sir F. Soskice).

But if they come forward and say, "On further consideration, we think it is the right thing to do and our predecessors were right," that is a perfectly sensible and natural attitude to adopt, and I shall not complain about it at all. Indeed, I always feel a certain glow of pleasure when I see in Government statements and speeches a sort of pride in the fact that the initial allowances are now to be suspended and that that is making it so much easier for them to control investment.

We are now discussing the special case of the smaller companies. If it is felt, as it may well be felt, by some hon. Members opposite that we did not pay enough attention to this last year, I am ready to concede that that may be so, but I would say—I shall explain why in a moment—that there has been a change in credit policy which has made the problem much more acute than it was then.

We should all agree that we want to see the smaller companies growing. That is of fundamental importance to British industry, because if they are handicapped by difficulties in raising capital, then undoubtedly we are going to have a more monopolistic structure and we are going to lose new blood, all of which is going to be bad for productivity. One of our complaints against the Excess Profits Levy is that it penalises a number of growing companies, and here in this Clause is an attempt to try to get over the difficulty.

I referred just now to the change in the situation resulting from the new monetary policy. It would be going a little too far if I were to discuss that in any detail, but it has a bearing on this subject. It is a type of credit control, right or wrong, which is bound to hit particularly hard the smaller companies, and especially the company with small reserves. The larger concerns who have been building up reserves over a longer period of years will find it assists them in their financial development, and equally when it comes to borrowing from the banks the larger borrowers will have a substantial advantage there.

As the hon. Member for Kidderminster (Mr. Nabarro) said, special institutions were set up to deal with this sort of problem, and I think the I.C.F.C., which is particularly concerned with smaller firms, has done a very good job in the last few years in a limited field. But it is not large enough to protect the smaller companies in the existing circumstances.

Captain J. A. L. Duncan (South Angus)

Everybody so far has been talking about small companies, but as I read the new Clause it applies to individuals and particularly to agriculture. Does the right hon. Gentleman include the individual and the farmer?

Mr. Gaitskell

Yes, the hon. and gallant Member has read the Clause correctly. My hon. Friend the Member for Edmonton pointed out that it was not exactly as we might have preferred it, because it simply enables an initial allowance of 40 per cent. To be claimed on the first £4,000 in the case of plant, machinery and capital expenditure. That is because with the limited resources we have we could not devise a Clause which would confine this only to the small company. If that were possible I think my hon. Friend would agree that it would be an improvement on this Clause.

Let me say straight away that if that is the Government's view, and if they feel that there is a case made out for helping the smaller company or individual, and they can redraft the Clause accordingly, I am sure that we should be very happy with that solution.

4.45 p.m.

It may be said that this will involve a serious loss of revenue, particularly in its present form. If that is the argument the Government are going to put forward they should think again, because this is not a matter which should be looked at from the revenue angle. As a matter of fact, any loss that may be sustained on taxation will be offset by the rise in undistributed profits. When I was introducing the suspension last year and pointing out that in consequence of the suspension of the initial allowances there would be an increase in revenue, though not in the first year as it did not operate but in the next year or the year after that, I made it plain that that would be offset by a decline in company savings. From the economic point of view, the real factor is the effect on investment and on the demand for machinery, plant and buildings. It must be considered only from that angle.

From that angle, what are we to say? The Government may argue that even in present circumstances it is more than ever necessary to keep down investment. I do not know how far the measures they have adopted are being successful. On these benches we do not challenge the need to keep investment down in present circumstances, regrettable as it is, but what we feel is that these measures for restricting credit and investment should not be allowed to affect the smaller companies, or partnerships or farmers in such a way that they are squeezed out in the general squeeze, because I am sure that that would be thoroughly bad for British industry and for agriculture.

That is the reason why we feel that something should be done for a limited restoration of the initial allowances so as to provide for the first £4,000 on capital expenditure. As I said earlier, if we could have found a way of confining that to smaller companies, partnerships or organisations then so much the better. I think, however, it is necessary to tackle this problem.

There can be no doubt that the financial and fiscal policies which have been pursued for a number of years, and which in my view are quite inevitable—and I mean by that to some extent the degree of taxation—are liable to hamper the development of the smaller companies. That cannot be avoided if we are going to have the social services that we have, and if we are going to spend as much on defence as is necessary to protect us in these difficult times. I think we can say that for the present we are not going to get any substantial reduction in taxation.

But that is not an argument for doing nothing about this particular problem. On the contrary, it is better to face up to it, and see what are the consequences of the fiscal policy. Some hon. Members may disagree with the fiscal policy which we feel is going to stay. But in those circumstances we say to ourselves, how can we protect the small company? It is for that reason that we urge the Government to face up to this problem, and I very much hope that, if they cannot accept the new Clause, at any rate they will consider the matter and show they are in agreement with us in principle, in which event on the Report stage they may present something which will meet the problem more adequately.

The Parliamentary Secretary to the Ministry of Civil Aviation (Mr. R. Maudling)

We have had a very interesting debate on this subject, and I have no doubt that on both sides of the Committee there has been agreement with what has been said by the hon. Member for Edmonton (Mr. Albu) and by the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) as to the importance of assisting small companies. It is from small companies that large enterprises grow, and in an industrial structure as varied and complex as ours obviously the position of the small company is one of great importance. That fact is very much in the mind of the Chancellor of the Exchequer, but that does not necessarily mean that the Government can accept that this Clause is a suitable method for assisting the small company.

The debate at one time threatened to range over a very wide field indeed, especially when my hon. Friend the Member for Kidderminster (Mr. Nabarro) went into that fascinating subject of replacement costs and depreciation, and put forward proposals for basing depreciation on replacement costs, which operation would cost about £300 million a year in revenue. That brought us from the main question, which is that of initial allowances and their value to industry as well as their place in the system of economic planning or economic guidance by the Government. It has been generally accepted on both sides that initial allowances are interest-free loans, and it is perfectly true that in many cases when they are granted companies immediately set up a reserve in respect of them.

Initial allowances are of great assistance to companies, and the original object of introducing them was to stimulate investment in new plant and machinery. The initial allowances were used by the previous Government as part of their economic planning system, and they were increased in 1949 as a measure designed to encourage further investment in plant and machinery. Last year the right hon. Gentleman cancelled the initial allowances, because he argued—

Mr. Gaitskell

Not cancelled, suspended.

Mr. Maudling

I am much obliged to the right hon. Gentleman for the correction.

He suspended the allowances largely because of the need to free resources for the defence programme. That, I think, underlies one of the main reasons why the shipping industry, for example, was given special treatment in the Finance Bill last year. That reason holds good today. I am sure that the right hon. Gentleman would agree that the needs of the defence programme are just as strong and the general economic case against enacting initial allowances is even stronger than last year, because the emphasis on the export of capital goods has to be stronger now than a year ago.

We have seen with the development of competition a growing toughness in the consumer parts of the export market. Accordingly, there has to be a switch over of a larger portion of the products from our engineering industry to exports. Therefore, the need for damping down the demand for capital goods and machinery is stronger than it was last year, and the Government cannot agree that the need to damp down the demand for such goods is any less than it was last year. For that reason we could not agree to any general restoration of the initial allowances.

The question, therefore, comes down to this: is there a case for giving special treatment to the small companies? That, I understand, was the argument behind the speech of the hon. Member for Edmonton. It is arguable, and the case has even been made, that measures restricting credit and tightening credit generally fall heavily on the small rather than on the large company. I think that that argument can be carried a little too far, because many large companies are finding conditions at the moment by no means easier.

Whether that argument is true or not, what I would say is that if it were the intention to give special assistance to the small company over and above the special assistance in matters of taxation which small companies already receive, then this would not be a good way of going about it. In the first place, this particular concession to the small company would undoubtedly encourage further expenditure on capital equipment at a time when we do not want, by general consent, to encourage that further expenditure.

Secondly, it is impossible to distinguish between small companies and large companies and between certain industries and other industries. The hon. Member for Sheffield, Park (Mr. Mulley) quoted certain industries for which he said there was a special case for the giving of further tax assistance for expansion. I would suggest to him that it is a fundamental principle of taxation that there can be no distinction between industry and industry in matters like this, and there must be rules which have a general application.

Mr. Mulley

I only mentioned those industries as an example of many that would benefit by the proposed new Clause to which I had added my name. I certainly did not ask for special treatment for certain industries. That is a distortion of my argument.

Mr. Maudling

We are at one on this. My point is that we cannot have special measures for special industry. By helping some people we would help the whole range of industry to spend more on capital goods, which would be undesirable and would not, I think, be of assistance to the smaller companies which hon. Gentlemen opposite have in mind. It is suggested that assistance be given to spend up to £4,000 in a given year upon new capital equipment, but very small companies in many cases would not be able to do that. Some smaller companies are more concerned about carrying stocks than the cost of new equipment. Therefore, it would not necessarily assist the small companies.

On the other hand, this proposal would undoubtedly help companies which are medium and large, and that leads me to the next point which I wish to make, which is that the cost of this particular proposal—I must say when I first saw it it was a surprise to me and I had the figure checked again—would be of the order of £50 million a year which is a very large amount. The right hon. Gentleman rather forestalled this argument by saying it is not a question of revenue, and that if taxation were reduced here increased savings would counter-balance it.

But that is not a very valid argument. The purpose of this concession is not to increase the savings of the small companies, but to increase their ability to spend money on capital equipment. Either this proposal increases the demand on capital equipment or it does not. If it is not designed to increase the demand for small companies' capital equipment it seems to have very little purpose. If it is designed to increase that demand, it runs counter to the principle which has already been mentioned, that this is not the time to stimulate every demand for capital equipment.

Mr. Gaitskell

What I was saying was not that this proposal would not involve any increased demand for capital equipment but that, from the narrow budgetary angle, the two sides cancel out. leaving us with a net increase in investment. I admit that would be the result, unless we took steps to reduce investment in other ways.

Mr. Maudling

The right hon. Gentleman mentions the Government's concerning themselves with the narrow budgetary aspect, and I agree, but I was addressing myself to the broad economic aspect. The proposed Clause is a proposal to increase expenditure on capital equipment, which is precisely what we do not want to do at this juncture. We have made a number of proposals in the Finance Bill for concessions designed to assist small companies, such as the proposals in relation to the Profits Tax and the Excess Profits Levy.

In this case, the Chancellor feels that in those ways we can best assist small-developing companies, which are the companies which we have in mind on both sides of the Committee in this matter. He does not think that the proposal now before us would achieve the object which hon. Gentlemen opposite have in mind, in view of the very high cost, which is a genuine economic cost and not a narrow budgetary cost, of something like £50 million. I must therefore ask the Committee to reject the Motion.

Mr. Anthony Crosland (Gloucester, South)

The Parliamentary Secretary's reply is not good enough. In the first half of it he made the disgraceful admission that the whole of the hours which his party spent last year debating this matter on the Finance Bill were a display either of ignorance or of complete hypocrisy, and that the views that they put forward last year meant absolutely nothing to them. They have had an opportunity this year to put those views into the Finance Bill and they have not taken it. This is the most extreme instance we have had.

The Parliamentary Secretary has today admitted that the case for suspension of initial allowances was extremely strong last year, but why did he not realise it last year, and why did his hon. and right hon. Friends not have the intelligence to see it last year? He has no difficulty in seeing it today. It is intolerable to think that the Front Bench opposite should be put so often in the humiliating position of having to say that every word they spoke last year was absolutely wrong. Personally, I am getting rather sick of it.

When the Parliamentary Secretary came to the general argument he spent the greater part of his time in saying that there was no general case at the moment for restoring initial allowances. Of course there is not. He did not need to spend five minutes saying that. We have admitted it on this side of the Committee.

Mr. Maudling

The proposed Clause does generally restore initial allowances.

Mr. Crosland

It does not generally restore initial allowances. The figure of cost which the hon. Gentleman gave, compared to the cost of fully restoring initial allowances, will show that. The ratio must be about six to one.

This proposal is only for a very partial restoration of initial allowances. Nobody has argued on this side for a complete and general restoration of initial allowances. We accept, as hon. Gentlemen opposite accept this year but did not have the sense to see last year, that during the period of re-armament and with the export position as it is, there can be no case for putting back the whole system of initial allowances.

5.0 p.m.

Our case was that, even though we cannot restore the general allowances back to the position at which they stood last year, there is a special case for assistance to small companies. The hon. Member for Kidderminster (Mr. Nabarro) half admitted this. He was sympathetic, but he did not like this method of doing it. The Parliamentary Secretary to the Ministry of Civil Aviation also admitted it, but said that this was not the way to do it. Having said that, he gave no suggestion of the right way to do it.

He said that the Budget gave a lot of assistance to small companies. I must say that nobody has noticed that yet. It has not been in evidence and there have been no expressions of gratitude from people on the back benches opposite to the Front Benches below them, or at any rate I have not heard them. The truth is that this Budget has done nothing but harm to small businesses, and the only proposals to help them have come from this side of the Committee.

If the Government want to give this kind of assistance from the Budget they can do so as the result of my proposed new Clause. If the Parliamentary Secretary is interested in the position of small companies let him wait until about 2 o'clock or 3 o'clock tomorrow morning and accept the new Clause which some of my hon. and right hon. Friends have tabled about the exemption limits for Profits Tax.

The Parliamentary Secretary went on to say that we could not distinguish in legislation between industry and industry. Really, I am taken aback by his having the audacity to raise that argument. Think of the hours that were spent on the Conservative benches last year pleading for special treatment for shipbuilding, particularly.

Mr. Gaitskell

And for fuel efficiency.

Mr. Crosland

Yes, and the hon. Member for Kidderminster—

Mr. Nabarro

Hon. Gentlemen opposite would probably concede that a good case was made out and was supported from all parts of the Committee last year for a special dispensation for fuel efficiency equipment in industry, because it would yield a greater revenue to the Treasury over a span of years and would contribute directly to an increase in the exports of coal.

Mr. Crosland

I agree with that and, from the layman's point of view, I was extremely sympathetic to everything that the hon. Gentleman was trying to do on fuel efficiency; but it is not a question of revenue. It is a question of the Parliamentary Secretary's argument that we cannot distinguish between industry and industry in legislation. He obviously has not read the Millard Tucker Report. Think of the cinema industry, the shipping industry, the steel industry—

Mr. Gaitskell

And agriculture.

Mr. Crosland

There is, of course, no difficulty about distinguishing between industry and industry from the point of view of legislation. That argument was not up to the Parliamentary Secretary's normal standard.

Apart from the Parliamentary Secretary, it is generally admitted that the concession in the proposed new Clause would be of assistance to small companies, that it would be of more assistance to them than to large companies, and that small companies will suffer more than large companies from the new credit policy pursued by the Government. Those three general statements, which I do not think can be challenged, I should have thought constituted a very good case indeed—one that was not rebutted by the Parliamentary Secretary—for accepting the proposed new Clause.

The Parliamentary Secretary concluded with one point which, on the face of it, was more plausible than the remainder of the points in his speech. He said that if the proposed Clause had any purpose at all it must be to increase the capital expenditure of the small companies, and that my right hon. Friend's argument about there being no increase in the inflationary pressure from loss of revenue must be wrong. We admit that. We want to increase the capital expenditure of small companies, but we quite realise that in the circumstances of the defence programme and because of the necessity for exporting a larger volume of engineering goods, the total level of investment should not be increased over the. limit which the Chancellor has set.

We recognise that, but we are very concerned lest the effect of the tighter credit policy may not be to depress the amount of investment by small firms relative to the amount of investment by large firms. We have a suspicion that this is the effect of restricting investment not by controls, but by the use of the monetary weapon. We have put forward the new Clause to redress that balance. We would rather a little more investment were done by small firms and a little less by the larger firms.

This is a serious proposal. It may be inadequately drafted and capable of improvement. The Parliamentary Secretary knows the difficulty of drafting very complicated Amendments when in Opposition and without the advantage of expert guidance. If the Parliamentary Secretary had given any sort of adequate answer, or had shown himself sympathetic in the slightest degree, I daresay we should have been satisfied. Speaking for myself, I remain totally dissatisfied with the answer we have had.

Mr. Frederic Harris (Croydon, North)

Surely the figure £50 million given by the Parliamentary Secretary is fantastic. I wonder whether the Treasury officials took the normal depreciation allowances into account. I cannot see how the figure, on ordinary reckoning, can be anything like £50 million. The Parliamentary Secretary was rather put off by the size of the figure from giving any concession whatever, even a partial concession. Can he enlarge upon that figure?

Mr. Gaitskell

Are we to have no kind of answer from the Parliamentary Secretary? He made a totally inadequate speech and there has been a most devastating reply from my hon. Friend the Member for Gloucestershire. South (Mr. Crosland). I should have thought pride alone would induce him to rise and try to make some effort to deal with it.

Mr. Maudling

The arguments adduced by the hon. Member for Gloucestershire, South (Mr. Crosland) had already been answered in the speech I made. The figure of £50 million—in answer to the question of my hon. Friend the Member for Croydon, North (Mr. F. Harris)—is a net figure, of the actual cost of the proposal. If the proposed Clause were passed, every company would be entitled to benefit to the extent of £1,600 a year. and that works out at £50 million net cost.

Mr. Albu

We have listened to the Parliamentary Secretary's reply. He spent three-quarters of his speech repeating exactly the argument which I put to the Committee. My hon. Friend the Member for Gloucestershire, South (Mr. Crosland) has pointed out that they were the arguments that my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) put to the Committee last year. When he came to the relevant point, the hon. Gentleman made no concession. If he had made the slightest approach to us by saying that he would look at the proposal

to see whether anything could be done it might be different, but in view of the fact that he made no approach at all, and of the present Government's credit policy, there is nothing we can do but to press this matter to a Division. I ask my hon. and right hon. Friends to follow me into the Lobby.

Question put, "That the Clause be read a Second time."

The Committee divided: Ayes, 198; Noes, 219.

Division No. 149.] AYES [5.7 p.m.
Acland, Sir Richard Griffiths, Rt. Hon. James (Llanelly) Morgan, Dr. H. B. W.
Adams, Richard Grimond, J. Morley, R.
Albu, A. H. Hale, Leslie (Oldham, W.) Morris, Percy (Swansea, W.)
Allen, Arthur (Bosworth) Hall, Rt. Hon. Glenvil (Colne Valley) Morrison, Rt. Hon. H. (Lewisham, S.)
Anderson, Frank (Whitehaven) Hall, John (Gateshead, W.) Mort, D. L.
Attlee, Rt. Hon. C. R. Hamilton, W. W. Moyle, A.
Awbery, S. S. Hannan, W. Mulley, F. W.
Balfour, A. Hardy, E. A. Neal, Harold (Bolsover)
Barnes, Rt. Hon. A. J Hargreaves, A. Oldfield, W. H.
Bartley, P. Harrison, J. (Nottingham, E.) Oliver, G. H.
Bence, C. R. Hastings, S. Oswald, T.
Benson, G Hayman, F. H. Paling, Rt. Hon. W. (Dearne Valley;
Bevan, Rt. Hon. A.(Ebbw Vale) Healy, Cahir (Fermanagh) Pannell, Charles
Bing, G. H. C. Henderson, Rt. Hon. A. (Rowley Regis) Paton, J.
Blackburn, F. Herbison, Miss M. Plummer, Sir Leslie
Blenkinsop, A. Hewitson, Capt. M Price, Joseph T. (Westhoughton)
Blyton, W. R. Holman, P. Pryde, D. J
Boardman, H. Holmes, Horace (Hemsworth) Reeves, J.
Bowen, E. R. Hoy, J. H. Reid, Thomas (Swindon)
Bowles, F. G. Hubbard, T. F. Reid, William (Camlachie)
Braddock, Mrs. Elizabeth Hudson, James (Ealing, N.) Rhodes, H.
Brockway, A. F. Hughes, Cledwyn (Anglesey) Richards, R.
Brook, Dryden (Halifax) Hughes, Emrys (S. Ayrshire) Roberts, Albert (Normanton)
Broughton, Dr. A. D. D. Hughes, Hector (Aberdeen, N.) Rogers, George (Kensington, N)
Brown, Thomas (Ince) Hynd, H. (Accrington) Schofield, S. (Barnsley)
Butler, Herbert (Hackney, S.) Hynd, J. B. (Attercliffe) Shinwell, Rt. Hon E.
Callaghan, L. J. Irving, W. J. (Wood Green) Short, E. W.
Carmichael, J. Isaacs, Rt. Hon. G. A. Shurmer, P. L. E
Castle, Mrs. B. A. Janner, B. Silverman, Sydney (Nelson)
Champion, A. J. Jay, Rt. Hon. D. P. T. Simmons, C. J. (Brierley Hill)
Chapman, W. D Jeger, Dr. Santo (St. Pancras, S.) Slater, J.
Clunie, J. Jenkins, R. H. (Stetchford) Sorensen, R. W.
Cocks, F. S. Johnson, James (Rugby) Soskice, Rt. Hon Sir Frank
Coldrick, W. Jones, David (Hartlepool) Sparks, J. A.
Collick, P. H. Jones, Jack (Rotherham) Stewart, Michael (Fulham, E.)
Craddock, George (Bradford, S.) Keenan, W. Stokes, Rt. Hon. R. R.
Crosland, C. A. R. Kenyon, C. Strachey, Rt Hon. J.
Cullen, Mrs. A. Key, Rt. Hon. C W. Strauss, Rt. Hon. George (Vauxhall)
Daines, P. King, Dr. H. M. Summerskill, Rt. Hon. E.
Dalton, Rt. Hon. H. Kinley, J. Sylvester, G. O
Davies, Ernest (Enfield, E.) Lee, Frederick (Newton) Taylor, Bernard (Mansfield)
Davies, Harold (Leek) Lever, Leslie (Ardwick) Taylor, John (West Lothian)
Davies, Stephen (Merthyr) Lewis, Arthur Taylor, Rt. Hon. Robert (Morpeth)
Deer, G. Lindgren, G. S Thomas, David (Aberdare)
Dodds, N. N. Lipton, Lt.-Col. M. Thomas, Ivor Owen (Wrekin)
Driberg, T. E. N. Logan, D. G Thorneycroft, Harry (Clayton)
Edwards, W. J. (Stepney) MacColl, J. E. Thurtle, Ernest
Evans, Albert (Islington, S.W.) McGhee, H. G. Timmons, J
Evans, Edward (Lowestoft) McInnes, J. Tomney, F.
Ewart, R. McKay, John (Wallsend) Turner-Samuels, M
Fernyhough, E. McLeavy, F. Ungoed-Thomas, Sir Lynn
Field, W. J. MacMillan, M. K. (Western Isles) Viant, S. P.
Fienburgh, W. MacPherson, Malcolm (Stirling) Wallace, H. W
Fletcher, Eric (Islington, E.) Mainwaring, W. H. Watkins, T E.
Forman, J. C. Mallalieu, J. P. W. (Huddersfield, E.) Webb, Rt. Hon. M. (Bradford, C.)
Fraser, Thomas (Hamilton) Mann, Mrs. Jean Wells, Percy (Faversham)
Freeman, John (Watford) Manuel, A. C. White, Mrs. Eirene (E. Flint)
Gaitskell, Rt. Hon. H. T. N. Marquand, Rt. Hon, H. A. White, Henry (Derbyshire, N.E.)
Gibson, C. W. Mayhew, C. P Whiteley, Rt. Hon. W.
Glanville, James Messer, F. Wilkins, W. A.
Greenwood, Anthony (Rossendale) Mikardo, Ian Willey, Frederick (Sunderland, N.)
Grenfell, Rt. Hon. D. R. Mitchison, G. R. Willey, Octavius (Cleveland)
Grey, C. F. Monslow, W Williams, David (Neath)
Williams, Ronald (Wigan) Winterbottom, Ian (Nottingham, C.) Younger, Rt. Hon. K.
Williams, W. R. (Droylsden) Woodburn, Rt. Hon. A.
Williams, W. T. (Hammersmith, S.) Wyatt, W.L. TELLERS FOR THE NOES:
Wilson, Rt. Hon Harold (Huyton) Yates, V.F. Mr. Pearson and
Mr. Kenneth Robinson.
Aitken, W. T. Glyn, Sir Ralph Nicholson, Godfrey (Farnham)
Allan, R. A. (Paddington, S.) Godber, J. B. Nicolson, Nigel (Bournemouth, E.)
Alport, C. J. M. Gomme-Duncan, Col. A. Nugent, G. R. H.
Amory, Heathcoat (Tiverton) Gough, C. F. H Oakshott, H. D
Arbuthnot, John Gower, H. R. Odey, G. W.
Ashton, H. (Chelmsford) Graham, Sir Fergus O'Neill, Rt. Hon Sir H. (Antrim, N.)
Assheton, Rt. Hon. R. (Blackburn, W.) Gridley, Sir Arnold Ormsby-Gore, Hon. W. D.
Astor, Hon. W. W. (Bucks, Wycombe) Grimston, Hon. John (St. Albans) Orr, Capt. L. P. S.
Baker, P. A. D. Grimston, Sir Robert (Westbury) Orr-Ewing, Charles Ian (Hendon, N)
Baldock, Lt-Cmdr. J M Harden, J. R. E. Osborne, C.
Baldwin, A. E. Hare, Hon. J. H. Partridge, E.
Banks, Col. C. Harris, Frederic (Croydon, N.) Peake, Rt. Hon. O
Barber, A. P. L. Harris, Reader (Heston) Perkins, W. R. D.
Barlow, Sir John Harrison, Col. J. H. (Eye) Peto, Brig. C. H. M
Baxter, A. B. Harvey, Ian (Harrow, E.) Pickthorn, K. W M
Beach, Maj. Hicks Harvie-Watt, Sir George Powell, J. Enoch
Bennett, F. M. (Reading, N.) Heald, Sir Lionel Price, Henry (Lewisham, W.)
Bevins, J. R. (Toxteth) Heath, Edward Profumo, J. D
Birch, Nigel Higgs, J. M. C. Raikes, H. V.
Bishop, F. P. Hill, Dr. Charles (Luton) Redmayne, E.
Black, C. W. Hinchingbrooke, Viscount Remnant, Hon. P
Bossom, A. C. Hirst, Geoffrey Renton, D. L. M.
Boyd-Carpenter, J. A. Holland-Martin, C. J Roberts, Peter (Heeley)
Boyle, Sir Edward Holmes, Sir Stanley (Harwich) Robertson, Sir David
Brains, B. R. Hornsby-Smith, Miss M. P Robinson, Roland (Blackpool, S.)
Braithwaite, Lt.-Cdr. G. (Bristol, N.W.) Horobin, I. M. Robson-Brown, W
Bromley-Davenport, Lt.-Col. W. H Howard, Greville (St. Ives) Rodgers, John (Sevenoaks)
Brooman-White, R. C. Hulbert, Wing Cmdr. N. J. Roper, Sir Harold
Buchan-Hepburn, Rt. Hon. P. G. T. Hurd, A. R. Ropner, Col. Sir Leonard
Bullard, D. G. Hutchison, Lt: Corn. Clark (E'b'rgh W.) Russell, R. S.
Bullock, Capt. M. Jenkins, R. C. D. (Dulwich) Ryder, Capt. R. E. D.
Bullus, Wing Commander E. E. Jennings, R. Salter, Rt. Hon. Sir Arthur
Burden, F. F. A. Johnson, Eric (Blacktey) Savory, Prof. Sir Douglas
Butcher, H. W. Johnson, Howard (Kemptown) Schofield, Lt.-Col. W. (Rochdale)
Butler, Rt. Hon. R. A. (Saffron Walden) Jones, A. (Hall Green) Scott, R. Donald
Carr, Robert (Mitcham) Joynson-Hicks, Hon. L. W Simon, J. E. S. (Middlesbrough, W)
Carson, Hon. E. Kaberry, D. Smithers, Peter (Winchester)
Cary, Sir Robert Keeling, Sir Edward Snadden, W. McN.
Channon, H. Lambert, Hon. G. Soames, Capt. C.
Clarke, Col. Ralph (East Grinstead) Lancaster, Col. C. G. Speir, R. M.
Clarke, Brig. Terence (Portsmouth, W.) Langford-Holt, J. A. Spence, H. R. (Aberdeenshire, W.)
Cole, Norman Law, Rt. Hon. R. K. Spens, Sir Patrick (Kensington, S.)
Colegate, W. A Legge-Bourke, Maj. E. A. H Stevens, G. P.
Craddock, Beresford (Spellhorne) Legh, P. R. (Petersfield) Stoddart-Scott, Col. M
Cranborne, Viscount Lindsay, Martin Storey, S.
Crookshank, Capt. Rt. Hon. H. F. C. Linstead, H. N. Strauss, Henry (Norwich, S.)
Crosthwaite-Eyre, Col. O. E. Lloyd, Maj. Guy (Renfrew, E.) Stuart, Rt. Hon. James (Moray)
Crouch, R. F. Lockwood, LL-Col. J. C. Studholme, H. G
Crowder, John E. (Finchley) Longden, Gilbert (Herts, S.W.) Sutcliffe, H.
Crowder, Petre (Ruislip—Northwood) Lucas, Sir Jocelyn (Portsmouth, S.) Taylor, William (Bradford)
Darling, Sir William (Edinburgh, S.) Lucas, P. B. (Brentford) Thompson, Kenneth (Walton)
Deedes, W. F. Lucas-Tooth, Sir Hugh Thompson, Lt.-Cdr. R. (Croydon, W.)
Digby, S. Wingfield McAdden, S. J. Thorneycroft Rt. Hn. Peter (Monmouth)
Dodds-Parker, A. D. Macdonald, Sir Peter (I. of Wight) Thornton-Kemsley, Col. C. N.
Donaldson, Cmdr. C E McA Mackeson, Brig. H. R Tilney, John
Donner, P. W. McKibbin, A. J. Turner, H. F. L
Doughty, C. J. A McKie, J. H. (Galloway) Turton, R. H.
Drayson, G. B. MacLeod, Rt. Hon. lain (Enfield, W.) Ward, Miss I. (Tynemouth)
Drewe, G. Macmillan, Rt. Hon. Harold (Bromley) Waterhouse, Cam Rt. Hon. C.
Duncan, Capt. J. A. L Macpherson, Maj. Niall (Dumfries) Watkinson, H. A.
Duthie, W. S. Maitland, Comdr. J. F. W. (Horncastle) Webbe, Sir H. (London & Westminster)
Elliot, Rt. Hon. W. E Maitland, Patrick (Lanark) Wellwood, W.
Fell, A; Manningham-Buller, Sir R. E. White, Baker (Canterbury)
Finlay, Graeme Markham, Major S. F. Williams, Rt. Hon. Charles (Torquay)
Fisher, Nigel Marshall, Sidney (Sutton) Williams, Gerald (Tonbridge)
Fleetwood-Hesketh, R. F Maude, Angus Williams, Sir Herbert (Croydon, E.)
Fletcher-Cooke, C. Maudling, R. Williams, R. Dudley (Exeter)
Fort, R. Maydon, Lt.-Comdr. S. L. C Wills, G.
Foster, John Modlicott, Brig. F. Wilson, Geoffrey (Truro)
Fraser, Hon. Hugh (Stone) Mellor, Sir John Wood, Hon. R
Fraser, Sir Ian (Morecambe & Lansdale) Molson, A. H. E. York, C.
Gage, C. H. Monckton, Rt. Hon. Sir Walter
Galbraith, Cmdr. T. D. (Pollok) Nabarro, G. D. N. TELLERS FOR THE NOES:
Garner-Evans, E. H. Nicholls, Harmer Mr. T. G. D. Galbraith and
Mr. Vosper.