Clause 14.—(RESTORATION AND AMOUNT OF INITIAL ALLOWANCES.)

HC Deb 16 June 1953 vol 516 cc752-917

The Chairman

It might now be convenient if I said a word about the selection of Amendments upon which I have decided after consultation. The first Amendment to be called is that in page 9, line 23 in the name of the hon. Member for Langstone (Mr. Stevens). The second Amendment is that in line 28 in the name of the right hon. Member for Leeds, South (Mr. Gaitskell). The third Amendment is the next one in the name of the right hon. Member for Leeds, South, in line 28, and with it goes the one in line 37 in the name of the hon. Member for Bodmin (Mr. D. Marshall). Also with it goes the Amendment in line 37 in the name of the hon. Member for Altrincham and Sale (Mr. Erroll). The next one is that of the right hon. Member for Leeds, South, also in line 37—which reads "Subsection (2) of this section …" and so on. All those Amendments should be discussed together when the Amendment in page 9, line 28 is called.

Mr. F. J. Erroll (Altrincham and Sale)

To which one of the three Amendments carrying that reference are you referring, Sir Charles.

The Chairman

The Amendments to which I am referring are the Amendment of the right hon. Member for Leeds, South—in page 9, line 28; the Amendment of the hon. Member for Bodmin— in line 37; the Amendment of the hon. Member for Altrincham and Sale—in line 37—and the Amendment in the name of the right hon. Member for Leeds, South—also in line 37.

Mr. Erroll

You are not referring to the Amendment of the right hon. Member for Leeds, South (Mr. Gaitskell)—in page 9, line 28, after "shall," to insert: save as in the following subsection appears"?

The Chairman

No. I shall refer to that now. The next Amendment to be called is the paving Amendment of the right hon. Member for Leeds, South to which the hon. Member for Altrincham and Sale has just referred. That deals with fuel economy. I had arranged to call immediately after that the paving Amendment in the name of the hon Member for Sheffield, Park (Mr. Mulley) —also in page 9, line 28—which is exactly the same as the previous one. We had better discuss the brick-making Amendment on its own.

Mr. Gaitskell

There are some other Amendments to which you have not referred, Sir Charles. I am not clear whether you are calling those. For instance, there is the Amendment which we call the "small business" Amendment, and the two paving Amendments preceding it, one relating to a later Amendment in regard to mechanical handling and another to a later Amendment regarding self-service equipment.

The Chairman

I had not selected the Amendment in page 9, line 32. As the Amendment dealing with mechanical handling has not been selected, the paving Amendment is not required.

Mr. Gaitskell

I do not want to detain the Committee, but it is important to be clear what is to be discussed and what is not. If I went over this again, perhaps you would be good enough to tell me if I go wrong. I understand that you are calling the first and second Amendments standing in my name—the one to increase the initial allowances to 40 per cent. and the following one. They relate to my Amendment in page 9, line 37 to which you have referred. Those Amendments embody the proposals for differential initial allowances which were put forward by the Millard Tucker Committee. I was not clear whether you were going to call the Amendment in the name of the hon. and gallant Member for Renfrew, East (Sir G. Lloyd)—in page 9, line 43.

The Chairman

I had that marked and I missed it. That should also go with the right hon. Gentleman's Amendment.

Mr. Gaitskell

As I understand it, you are calling the Amendment on fuel economy and the one on bricks—but you have not referred to one other Amendment which also stands in my name and which refers to overseas development.

4.15 p.m.

The Chairman

I did not think I needed to refer to that, as it stands on its own.

Mr. Gaitskell

I understand you will be calling that one.

The Chairman

Yes.

Mr. Gaitskell

You will not be calling the Amendment dealing with self-service; the one dealing with mechanical handling; the one dealing with small businesses; the one standing in the name of the hon. Member for Altrincham and Sale—in page 9, line 37—and one or two others. I take it that it would be perfectly in order to refer to those various matters either in a debate on the increased initial allowance to 40 per cent. or on the main proposals of the Millard Tucker Committee.

The Chairman

Yes, whichever is the more convenient. My idea was to take the Amendments in the names of the hon. Member for Altrincham and Sale and the hon. Member for Bodmin with the second of the right hon. Gentleman's Amendments.

Mr. Gaitskell

In effect, the other Amendments which you are not calling are being taken with that Amendment, in addition to the Amendment standing in the name of the hon. Member for Altrincham and Sale.

The Chairman

Yes. I was calling only the right hon. Gentleman's Amendment to a Division.

Mr. Gerald Nabarro (Kidderminster)

On behalf of several of my hon. Friends, I should like your guidance, Sir Charles, in connection with the two important shipping Amendments. You have referred to the first—that in the name of my hon. Friend the Member for Bodmin (Mr. D. Marshall)—in page 9, line 37, and I am wondering whether there has been a misapprehension in this regard. The purpose of that Amendment is to substitute a 40 per cent. rate of initial allowance for a 20 per cent. rate, as at present contained in the Bill. It might be for the convenience of the Committee if that were considered with the first Amendment standing in the name of the right hon. Member for Leeds, South (Mr. Gait-skell)—in page 9, line 26—the purpose of which is to raise the allowance on all plant and machinery from 20 per cent. to 40 per cent., as it seems so clear that the two march together. When you gave your explanation, you said that that shipping Amendment would be taken with the right hon. Gentleman's second Amendment—in page 9, line 28—which is the third Amendment to Clause 14.

The Chairman

I have no strong feelings about this, but I thought that my suggestion was the most appropriate one.

Mr. Austen Albu (Edmonton)

That seems to be the most appropriate place for it. The second Amendment gives the Treasury power to make discrimination between industries so as to raise the rate for certain industries from 20 per cent. to 40 per cent., and that should include the shipping industry, with other industries in respect of which we have put down Amendments which are not being called. They are all special cases and I think it is more appropriate that they should be discussed with the second Amendment of my right hon. Friend the Member for Leeds, South (Mr. Gaitskell).

Mr. Nabarro

I want to get this clear. I am also very much concerned with the Amendment about fuel efficiency. It will be extremely difficult to debate the general question whether or not there should be discrimination in the incidence of the initial allowances unless, as part of the debate, we may also discuss the particular classes of plant and equipment which ought to be made the subject of such discrimination—ships and fuel efficiency—which you have said may be embodied in our debates today. I submit, therefore, that the question of ships ought to be taken as part of the discussion on the right hon. Gentleman's first Amendment, not his second Amendment.

The Chairman

I think that I will stick to my original idea that this matter should be taken with the right hon. Gentleman's second Amendment. The arguments are the same wherever they are taken, and I do not think it will make any difference.

Mr. Nabarro

There is an Amendment in Clause 14, page 10, line 34, again connected with shipping, to which you did not allude. To avoid any repetition of the arguments which may arise in connection with shipping, can you say whether that Amendment is to be called separately?

The Chairman

Yes. I did not mention that because it stands by itself, and I intend to call it.

Mr. Mitchison

On a point of procedure. There are two Schedules referred to in two Amendments which you intend to select, and it is almost impossible to argue the Amendments properly without reference to the Schedules. I take it that reference to the Schedules in the case of those two Amendments would be in order. In fact, there are three Amendments—two in Clause 14, page 9, line 37, which seek to insert a subsection (3), and one in page 9, line 39.

The Chairman

The two new Schedules are covered by this discussion because otherwise there would be no chance of discussing them if the Amendment fell.

Mr. Mitchison

There is a third— about fuel economy.

The Chairman

I beg the hon. and learned Gentleman's pardon.

Mr. Stevens

I beg to move, in page 9, line 23, after "incurred," to insert "on or."

This is a drafting Amendment. The Clause refers to Part X of the Income Tax Act, 1952, in connection with the giving of initial allowances. I think there must be reference to Section 265 of that Act, in subsection (4) of which we find, expenditure incurred by a person on or after the sixth day of April. I am sure this must be an error.

The Economic Secretary to the Treasury (Mr. R. Maudling)

It is our intention that the subsection should cover the day itself and it is our opinion that the Clause already has that effect without inserting this Amendment. It appears, however, that there is some doubt, and for the sake of greater clarity my right hon. Friend is prepared to accept the Amendment.

Amendment agreed to.

Mr. Anthony Crosland (Gloucestershire, South)

I beg to move, in page 9. line 26, to leave out subsection (2).

The fact that I rise to move the Amendment, and not one of the five right hon. Gentlemen whose names appear upon it, is not to be taken as confirmation of what a superficial observer might think, that they are all physically incapacitated after last night.

I think this is the most important Amendment to this Clause. It seeks to raise to 40 per cent. the rate of initial allowances on plant and equipment, which the Bill proposes to restore to 20 per cent. It refers only to plant and equipment—only to what is covered by Chapter II of Part X of the Act—and it does not apply to industrial buildings or new mining works.

The history of these allowances on plant and equipment, as hon. Members will recall, is that they were established at 20 per cent. by Sir John Anderson, now Lord Waverley, in 1945, raised to 40 per cent. by the late Sir Stafford Cripps in 1949, suspended in 1951 and restored at the present rate of 20 per cent., or so it is proposed, in this year's Finance Bill.

The background to the Amendment and the reason we move it, and why we on this side of the Committee attach very great importance to it, is the situation of our capital investment programme. There is no dispute on any side of the Committee that the overriding economic need which faces this country at the moment is to get an increase in the rate of capital investment. Until very recently—a year or a few months ago— it would not have been possible to raise capital investment in Britain by any purely fiscal or financial concession. This point has been argued a good deal between the two sides of the Committee, but it seems to me fairly plain that for the whole of the post-war period it could not be argued that the rate of investment was determined by the financial position in industry.

One can naturally find individual firms whose level of investment was determined solely by their command of financial resources, but, speaking of industry as a whole, it seems clear that what determined the level of investment from 1945 until about a year ago was not primarily a financial limitation but a physical limitation. It was the size of the industry producing plant and equipment which was the effective limit on the rate at which our industries could re-equip.

Until recently, therefore, we on this side of the Committee were unsympathetic towards the barrage of propaganda coming from hon. Members opposite and from the business world generally in favour of a reduction in the taxation on business profits or in favour of additional financial relief to industry, because we held the view that the rate of investment was determined by the physical limitation of the size of the industry producing plant and equipment.

Our view on this was supported by figures quoted in successive National Income White Papers and also in this year's Economic Survey, which shows again that, taking industry as a whole—naturally those figures cannot possibly cover every individual case—the aggregate net profits were sufficient more than to cover the outpayments on dividends and interest, tax payments, and also for investment in fixed and working capital. With the exception of 1951, therefore, in every post-war year industry was a net lender. That seemed to suggest very strongly that no additional financial aid to industry would have made a great deal of difference to the rate of capital expenditure.

In the last year, for the first time since the end of the war, there have been some signs that this situation has been altering, because for the first time since 1945 there have been some signs of slack in the industries producing capital goods —some signs that the output of the industries producing capital equipment could, as far as physical resources are concerned, be higher than it is.

It is therefore our view that this is the first moment since the end of the war when the effective limit on the level of investment in this country may not be in the physical resources available for the industries producing capital equipment but may be in the financial position of industry. That is why we move the Amendment to increase the initial allowances to 40 per cent., and we move it as one possible means of giving a greater financial relief to industry 'than is proposed in the Bill.

It was presumably this sort of consideration—that there was now no physical barrier to a certain increase in investment—which also prompted the Chancellor to make the concessions in his Budget to industry, with the announcement of the withdrawal of the Excess Profits Levy, sixpence off the Standard rate of Income Tax—which is largely defended by the Chancellor because of the relief it will give to industry —and the general emphasis of his Budget.

4.30 p.m.

We take the view that those concessions that have been made to encourage a higher rate of capital investment may very well not be sufficient as they now stand. In particular, we find it very hard to understand why the Chancellor, when restoring initial allowances, should have restored them at the rate of 20 per cent. and not at the rate of 40 per cent. to which they were raised by the late Sir Stafford Cripps in 1949, because if in 1949 there was a case for a 40 per cent. initial allowance on plant and equipment, surely that case must be very much stronger today, for the simple reason that in 1949 the industries producing plant and equipment were under very much greater strain than they are at the moment.

No hon. or right hon. Member on the other side of the Committee criticised the decision to raise the rate to 40 per cent. in 1949. Indeed, Lord Waverley welcomed the doubling of the allowance from 20 per cent. to 40 per cent. in 1949 and said it was fully justified, and he added that a logical case could have been made for going very much farther. If a logical case could have been made for going farther than 40 per cent. in 1949 when the engineering industries were under very great strain, surely the case must be much stronger today when those industries are under much less strain.

So far as hon. and right hon. Members opposite are concerned, it has to be remembered that they actually opposed the suspension of the 40 per cent. initial allowance in 1951 when it was quite clear that the position in the engineering industries was such that a higher rate of capital investment was quite impossible while we had to endure the peak period of the rearmament programme. Despite that position in industry, the Conservative Party, then in Opposition, voted against the decision to suspend the 40 per cent. allowance in 1951, and the Chancellor, whose acumen in these matters seems to have been rather greater than it is now, made a very powerful speech extremely early in the morning criticising the decision on suspension. If it was the view of the Chancellor that the 40 per cent. allowance was justified in 1951 in the peak period of re-armament, it must surely be more so now.

I know that some hon. Members on the other side of the Committee and certain people in the business and financial world do not like initial allowances and do not regard them as the most effective means possible of giving financial assistance to industry. [Interruption.] Two hon. Members, at least, evidently share that view today. I should like to discuss in a little detail the question of what kind of help initial allowances give. They are very often dismissed in almost a semi-contemptuous fashion as only an interest-free loan. The Millard Tucker Report uses the phrase "interest-free loan," and the allowances are constantly referred to in these terms. I suggest to the Committee that the analogy is an extremely misleading one. One cannot give a clear picture of initial allowances if one goes on talking about them merely in terms of an interest-free loan. The analogy, I suggest to the Committee, is not correct for three reasons.

First of all, an initial allowance is a loan which, in certain circumstances, there is no obligation to repay. After all, if a business is not making any taxable profits during the years in which otherwise it would be repaying the loan, naturally in the form of a higher level of annual tax payments than otherwise, it Is under no obligation to repay the loan at all. In fact, the loan is just a purely oneway transaction.

The second reason I think that the analogy is not an exact one is that it is a loan granted in circumstances in which the company concerned may find it extremely difficult to get a loan from any other source. This follows naturally from the fact that the loan is granted solely on the consideration that the equipment is actually ordered, and that it is granted without any particular relation to or concern about the financial standing of the company, so that it is quite possible that a company would find it impossible to borrow from another source or find it possible to borrow only at prohibitive cost. But it has the right to this loan provided it undertakes expenditure on new equipment.

The third reason, and much the most important reason, why the initial allowance is not merely a loan lies in the fact that, in two sets of circumstances that I shall mention in a moment, taking industry as a whole the loan is not in fact repaid. What I mean is that, assuming that initial allowances are not at some future date withdrawn or reduced to a lower figure, and assuming also, as I think is true of most of industry, that capital expenditure which attracts initial allowances is not a once-for-all expenditure on the part of the company but is a more or less continuous stream of expenditure, then the loan is never fully repaid, taking industry as a whole, but is automatically continuously renewed.

I do not know whether the Financial Secretary can give us a calculation, but if initial allowances are now kept at 40 per cent. for the next 10 years there will be a net loss of revenue to the Treasury. The figures which the Chancellor gives are always of the loss to the Treasury just in the first two or three years. Naturally they do not represent the rate of loss over a 10-year period, because there is a certain process of repayment during the latter years; but it must be the case, if the[...] mains at 40 per cent. for [...] there is a net loss to the Trea[...] not know whether any calculations [...] be made of the kind of net loss to the Treasury over a 10-year period, but it would be very interesting if they could.

So, assuming that the initial allowances are not withdrawn, they represent a genuine and permanent remission of business taxation. To the extent of the net cost to the Treasury, say over 10 or 20 years, there is a permanent accretion to industry's financial resources, and for that reason I suggest that it is quite misleading to talk about them merely as a loan from the Treasury to industry, the whole of which will be repaid. That will not occur.

The first objection, then, that the allowance is only a loan and therefore does not represent any very permanent relief to industry, is not correct. The second objection so far as the business world is concerned is that instead of granting initial allowances we should reduce the general level of taxation on the undistributed profits of companies: or, if not, at any rate to move over to a replacement cost basis for depreciation allowances. I think that, as against those other two methods of relieving the financial burden upon industry, either direct reduction of Profits Tax or revalorisation, the method of initial allowances has extremely important advantages.

So far as the reduction of Profits Tax is concerned, it is certainly inevitable that, though some part of the financial aid to industry which is granted by the tax reduction will no doubt be spent on capital investment, yet not all of it will be—some may be spent on dividends; thus less than 100 per cent. of that remission of taxation would be spent on capital equipment; so that if the object of the whole exercise is to increase investment, this method of aiding industry wastes, as it were, a certain proportion of the sum which is granted in tax concessions.

As to moving over to replacement instead of a historical cost basis for depreciation allowances, that is an old dispute in the Committee between hon. Members on different sides. My hon. Friend the Member for Edmonton (Mr. Albu) has [...]this a great deal. Person [...]>convinced, as I was the first [...] read it, by the very detailed argument in the Millard Tucker Committee's Report. Hon. Members will recall that the main argument there was that, as a method of aiding industry, it was one which would give much more help to existing stationary firms than to a new business or a business in process of expansion; secondly, that it would give less assistance—again, quite naturally, it follows automatically from the form of the concession—to the businesses which had very largely re-equipped since the war relative to businesses which had not, I do not say necessarily through any fault of theirs, largely re-equipped since the war, and that this distribution of aid between these two types of businesses, giving the most relief to those which had been slowest to re-equip, is hardly conducive to efficiency.

For these reasons, we on this side of the Committee take the view that initial allowances are a much more satisfactory method of relieving the financial burden than either a straight cut in the taxation of profits or revalorisation. Initial allowances are granted only if the capital expenditure is actually incurred, so that no part of the remission is, as it were, wasted; the whole is directly related to the actual or physical capital expenditure. Above all, it gives the maximum advantage to the companies which spend the most on plant and equipment and the minimum to those which spend the least. The distribution and the concession goes exactly where one would like it to go. So we do not share this objection to initial allowances, that they are an unsatisfactory alternative to a direct cut in taxation or a change-over to replacement costs.

The third, and I think the least important, objection which can be made to initial allowances, or to a doubling of initial allowances, which is what we propose, is that it would cost the Treasury a great deal of money. I have already argued what I think is very frequently ignored, that it is quite true that it would cost the Treasury money on balance, assuming that the initial allowances continue at any given rate. As I have suggested, it is not true, although commonly supposed, that the whole of the money comes back to the Treasury in later years when the loan comes to be repaid.

Nevertheless, the net cost to the Treasury, or the long-term cost to the Treasury, is nothing like so great as the cost must be in the early years. In this respect it would also be very interesting to know if any kind of estimates have been made; no doubt we shall be told. If we did take the longer period, the cost to the Treasury would not be enormous; it would very largely be a transfer of revenue between certain years and certain other years. When assessing what the cost might be in the first few years, it is important to remember that to a certain extent the cost is a transfer as between different years.

The real argument so far as the cost to the Treasury is concerned is, I suggest, that it is really, as it were, only an accounting cost to the Treasury; it is not a cost which is important from an economic point of view. If these allowances are doubled and that costs £100 million, or whatever it may be, it is quite true that the Budget surplus, if there is one, will be reduced to that extent, but business saving will be increased to an exactly equivalent extent; it will be a transfer of savings as between the Budget and industry as a whole. It is not a cost in the sense that it would lead to a great increase of inflationary pressure in the same way as a reduction of Income Tax or a reduction of indirect taxation would.

I suggest that even if it is, the situation so far as the investment programme is concerned is rapidly getting so serious that, whether this would be a costly concession or not, it is one which should be made. Hon. Members will have read— they were published only a week ago— the latest figures in the Ministry of Labour Gazette about the movement of labour; they are really extremely alarming; it is not possible to exaggerate how alarming they are to anyone who cares about the economic health of the country. They show in almost every case a large movement of labour into consumer goods industries and out of the industries described rather broadly as the metal and engineering group. In almost every case industries in that group are still losing labour and the consumer goods industries are gaining more.

4.45 p.m.

The Chancellor has decided in his Budget, and it was not much disputed in the Committee that he was justified in doing so, to increase the public spending power by a number of tax concessions. I do not think he made those concessions solely with the object of making people happier and richer. It must have been in his mind also that if he encouraged spending power he would create a general atmosphere of greater confidence and greater security about the future and that this might indirectly lead to an increase in capital investment.

This may be true; it is extremely hard to judge whether this infusion of spending power will or will not lead to increased investment. It really is of the first importance that it should. Britain is not in a situation in which we can afford to see labour moving out of the engineering industries today—I say this with great respect to hon. Members who represent Lancashire—back into textiles in very large numbers. That is not the sort of movement of labour which we can possibly afford in this country.

The question mark which hangs over the Budget is whether the various concessions which the Chancellor has made will or will not be effective in raising capital investment, and if they are not the Budget will be judged in a year's time to be a fearful failure from an economic point of view. I do not want it to be a failure like that, but the Budget must be judged by whether it will suffice to bring about increased capital investment. We feel that although certain things in the Budget can increase capital investment, it is our main job to make doubly sure that we get the increase in investment which is required. Since we take the view that increased initial allowances are, compared with the other methods to which I have referred, a particularly efficient method of giving relief to industry, and because we hold that view very strongly, we are moving this Amendment this afternoon.

Mr. Spencer Summers (Aylesbury)

I had not intended to intervene at this particular part of the debate, and I do so only for a few minutes, but some of the remarks which the hon. Member for Gloucestershire, South (Mr. Crosland) has just made seem to me so highly dangerous that I feel it desirable to make a few comments about them. There is, I understand, welcome agreement from the other side of the Committee that there is a grave risk of insufficient capital investment, but as a result of that view the effectiveness of the system of initial allowances has, to my way of thinking, been built up into something of far too great an importance than its intrinsic merits warrant.

I should be very disturbed if the idea got about that here was some substitute for the accumulation of capital which is so vital to industry at the present time, that merely by manipulating the system of depreciation by means of initial allowances we can, over a period, in that sphere, make good the deficiency of genuine capital which we know to exist at present. An attempt was made, in seeking to build up the great value and importance of this system of initial allowances, to dispose of the argument that it is an interest-free loan. Before I come to examine that I should like to make the comment that inasmuch as my name is associated with another Amendment with which we shall shortly be dealing I realise that there are special cases in which some of the general arguments to which I am alluding may have particular relevance.

It is argued that one of the reasons why it is not correct to regard this system as an interest-free loan is that there will be some instances in which the loan will not be repaid. The only circumstances I know of in which that can happen-—it may be postponed from the year in which its repayment is anticipated, but it will go on being postponed—is if the business comes to an end. It is odd to describe this system as attractive in that the loan will not have to be repaid when the only circumstances in which that applies is when the business comes to an end.

Mr. Crosland

With reference to my argument, would not the hon. Gentleman agree that I suggested there is another circumstance in which the loan does not come to be repaid, and that is where the company was spending more or less continuously from year to year on capital equipment and consequently drawing the initial allowance year after year, and, therefore, the loan is postponed, possibly indefinitely?

Mr. Summers

It is not realistic to obscure the issue by referring to loans running on continuously year after year when it is known precisely that the rate of repayment in the future will be related to the spending of certain moneys for certain purposes in one particular year. Twenty per cent. or 40 per cent., or whatever the figure may be, comes off the sum ultimately to be paid in respect of that particular piece of capital investment.

Another way in which the hon. Member obscured the issue was his reference to the effect on the Treasury. He was arguing the case that over 10 years the Treasury might make a loss and that presumably it automatically followed that industry got relief as a consequence. Individual firms are not interested in the broad picture of what the Treasury gets. To them the loan has to be repaid irrespective of what happens to other people. I suggest that it is misleading to look at this matter purely from the Treasury end. Industry is looking at this from the point of view of the firms themselves.

I do not know what attitude the Chancellor will take to this Amendment, but I cannot think that he will be induced to ignore the total cost of so doing in the early years merely because there is some prospect of recouping himself in the years that lie ahead. We all know that Chancellors cannot take a long period such as 10 years, taking the rough with the smooth over the whole of that period, in the hope that things will average themselves out and will be satisfactory in the long run. I think that they would be bound to have regard in the early years to so drastic a change as is recommended.

It is because I believe that there are certain parts of British industry, to which reference will be made later, which have a particularly strong case, that I do not want to see the claims of these sections of industry prejudiced by the very much larger concession which this Amendment calls for. I hope that there will not be a risk of the value of this initial allowance technique being exaggerated. It has benefits, no doubt, in particular cases, but I hope it will not be exaggerated or regarded as a magic formula in substitution for the accumulation of capital for use in the future.

The hon. Member for Gloucestershire, South alluded to what he described as the changed circumstances justifying a fresh look at this situation because the physical aspects of investment were no longer so important as the financial ones. What seemed to me so fallacious was that he seemed to think we could constantly recognise a change, which must have been obviously forseeable for years, and say, "Now this thing has happened we shall change our policy." One cannot accumulate enough money in one year to provide investment money in that particular year. Money has to be saved over a number of years to get sufficient funds and reserves together to discharge an investment in a very much shorter time.

We have been saying for some time that there was a grave risk of insufficient capital being available and it would be dangerous to leave it to the last minute to do something about it. We welcome the change of viewpoint expressed, but I hope that no one will imagine that this thing can be dealt with merely on an annual basis. It is necessary to plan ahead and that is particularly necessary in this case. I hope that the true value of the initial allowance technique will not be exaggerated, and that it will be seen in its right proportion.

Mr. Alba

I am not sure whether the hon. Member for Aylesbury (Mr. Summers) is in favour of giving relief to industry or not. I am not sure whether he wants industry to be relieved of its-taxation burden, but I am interested to know that we are to have his support for our second Amendment. I look forward to his speaking again, and, I hope, voting with us on that occasion if we divide the Committee.

I find his argument rather peculiar. He agrees with my hon. Friend who moved the Amendment in recognising that the situation over the last few years has changed. He went into that in some detail. The reason why my hon. Friend feels that it is possible to make this concession at present is for the very reason that there are signs in the engineering industry that it is not being fully employed and that it is likely to be less fully employed in the future, and that, therefore, there are available physical resources. which, for a number of years previously, were not available. It is no good having money saved up if the physical resources are not available.

I cannot understand why the hon. Member does not think that the remission of a certain amount of tax out of profits is not, in fact, a provision of capital. As a matter of fact, the Millard Tucker Report, which, it is true, was published a couple of years ago, dealt with the argument about the increased costs of replacing machinery at that time. Assuming that the increased cost was something like 100 per cent. or double the original cost, it pointed out that the 40 per cent. initial allowance made up the total of the difference and, therefore, completely covered the rise in machinery and plant prices.

I know, of course, that prices have gone up considerably since then, but nevertheless this is a means of making a considerable contribution towards a particular problem about which industry is always complaining. None of us on this side of the Committee believes as the hon. Gentleman seems to think, that this is by itself a sufficient means of getting the capital invested which we require. It is well known that we on this side of the Committee feel that much more direct Government action will be needed in the future if we are to get the expansion of the particular industries to which the hon. Gentleman was referring.

I referred to this point during the Budget debate. I do not believe that this is not in many ways a useful concession, but I do not believe that it goes nearly far enough towards getting the expansion of the industries on which we are to rely in the future. Nevertheless, it is a provision of capital, and, as my hon. Friend pointed out, a continual provision of capital for continuing companies. It is not as if the companies come to an end. If they go on replacing machinery out of profits and putting in new plant and machinery, they get this initial allowance for so long as it lasts.

Our Amendment seeks to restore the 40 per cent. allowance this year. The Chancellor has given 20 per cent., but we do not think that is enough. The main argument for action now is that we are likely to be in a very serious deflationary position next year. To restore the initial allowance now will mean that it will start to have effect next year, by which time I think it is clear that industrial activity will be falling, profits will be falling and companies may not be in as good a liquid position as they have been in recent months. Therefore, the allowance will be all the more valuable.

I think there are very serious danger signals ahead. There is almost universal anxiety over the possible reduction of economic activity in the United States, which is bound to find reflection in this country, and on which the Government will certainly have to take action. As the steps proposed here take a long time to come into effective operation it is as well that they should begin now.

5.0 p.m.

Hon. Members may have seen on the tape the report of a speech by Mr. Holt, the Australian Minister of Labour, made at Geneva, in which he pointed out how terrible and tragic it would be if peace were to come in Korea and it should be a liability to the world, because the world would experience a serious economic recession. He said: I have failed to find very much realism, or, indeed, very much energy applied at the international level to this problem. We have seen the increasingly restrictionist tendencies in the United States: the instructions, for instance, of the United States Administration to the Export-Import Bank to scrutinise more closely requests for loans, which, obviously, means a curtailment of United States lending abroad, and, consequently, a curtailment in the supply of dollars abroad. We have also seen the recent passing for another year of the United States Reciprocal Trade Act, but with the addition of an extra tariff commissioner who is known to be a Protectionist, and who has, therefore, provided a Protectionist majority.

I think all these things point to a situation next year in which it will undoubtedly be necessary for the Government to indulge in some form of pump priming if economic activity in this country is to be maintained. As my hon. Friend said, the Chancellor has already primed the consumption pump, and if, next year, there is this sort of recession, which I think is almost inevitable, I do not believe that we shall be able to afford an increase in consumption at home. There is no doubt that we shall have to try greatly to increase our investment in those industries which can make us more self-supporting.

There is general agreement on all sides of the Committee that we must raise the rate of investment, and I should have thought that this was one way, if only a small contribution, by which it could be done. I sincerely hope that the Chancellor, who, obviously, knows much better than any of us the way the economic winds are blowing at the present time, and who, I am sure, must be extremely anxious about the situation, will accept this Amendment because it may well be that in a few months' time he will have to take much more drastic action even if this Amendment is accepted.

Mr. Peter Remnant(Workingham)

I feel that both the mover and the seconder of this Amendment have re-earned the reproof administered to them last week by their hon. Friend the Member for Manchester, Cheetham (Mr. H. Lever) and that the mover, particularly, would not have fallen into some of the errors into which he fell if he had a more practical experience of business and particularly of the application of initial allowances.

Mr. Crosland

Does the hon. Gentleman take the view that only people who come from industry should speak on our economic affairs?

Mr. Remnant

Not at all, but I think that if they speak on them, though I may be out of order in saying this, they should listen carefully and absorb something of the views of industry, particularly concerning an allowance designed to give assistance to industry.

There is considerable misunderstanding concerning the effect of initial allowances and what they do. One should state quite clearly and categorically that initial allowances do not over the period of depreciation of plant or machinery give an additional reimbursement in respect of the original expenditure involved. What they do is to give in the first year a bigger share of that depreciation. Indeed, what we are doing by initial allowances is mortgaging the future in favour of the present. Whichever way we look at the matter, initial allowances do absolutely nothing to help build up the liquid cash resources of companies except in so far as they reimburse companies for the cash they have expended in the purchase of an actual piece of plant or machinery.

It is quite true, as the hon. Member for Gloucestershire, South (Mr. Crosland) said, that if there is continual capital expenditure throughout the years and prices remain equal, initial allowances or no initial allowances, the reimbursement will go on at a level rate. But, as we know, costs do not remain level; they either rise or fall. I think that both the mover and the seconder of this Amendment, if I may say so in the most kindly and, I hope, helpful spirit, fail to appreciate that the drain on the liquid cash resources of companies is not only in respect of expenditure on plant or re-equipment. Very briefly, I will give an example of what I mean.

A company with which I am concerned, and which has a capital of £1 million is engaged in bringing tea to this country for sale in London as opposed to selling it in Calcutta. That operation has involved a demand on the liquid cash resources of that company of slightly more than one-third of its nominal and issued capital.

Mr. Albu

The hon. Gentleman is giving us a very elementary lesson. If he would do me the honour of reading the speech I made on the Budget he would see that I made exactly this point about the change in prices of materials. I shall be obliged if he will tell me whether when this tea was imported it was a new importation and a new business, or whether it was due to the change in the price of tea?

Mr. Remnant

The hon. Gentleman, who is so well aware of what is going on, may have heard that tea was derationed during the lifetime of this Government and that in recent years London tea auctions have been re-opened. In my view, London is the better place for keeping tea and it is the better market, but I think we are a little wide of initial allowances on that.

The point I am making is the necessity for companies to build up liquid cash resources, and that while initial allowances are helpful to the extent that they reimburse industry quicker than under the normal procedure, they do not add to the working capital. I am very grateful for the small help which these allowances will give to industry, but I would much have preferred to see the Profits Tax on undistributed profits removed so that the liquid working capital could have been built up, as my hon. Friend the Member for Aylesbury (Mr. Summers) said, in advance of future planning, instead of being dependent on something coming back after the actual expenditure has been made.

Mr. Mitchison

May I ask the hon. Gentleman a question? I have been trying to follow his argument about liquids, particularly liquid cash. I should have thought that one might compare liquid cash with, say, beer in a barrel. If one is drawing continually on the liquid beer or liquid cash, it is surely of some assistance to insert another liquid, preferably beer, but perhaps water, in the top of the barrel to replace the gap caused at the bottom.

Mr. Remnant

I am not sure of the point of that interruption, though I have yet to learn that the Exchequer is willing to accept a liquid in payment of tax or any other duty, On that aspect of the matter, I believe that our system of cash and cheques, which is a somewhat old-established one, is easier to operate than the system of liquid in a barrel whether with or without water.

Mr. Frederick Mulley (Sheffield, Park)

I do not wish to be involved in the various liquids that appear to be flowing around the Chamber, but I was rather surprised that the hon. Member for Wokingham (Mr. Remnant) called in aid what he termed the common sense which my hon. Friend the Member for Manchester, Cheetham (Mr. H. Lever) was alleged to have introduced into our discussions.

It seems to me that the point we are now discussing is a very common sense one. The whole argument is whether or not initial allowances are interest-free loans. They are certainly interest-free loans. As a matter of common sense, interest-free loans are admirable things and that is what the Chancellor himself has said. Hon. Members opposite should realise that when they adduce arguments against my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) they are directly turning against their own Front Bench, because if interest-free loans are of no value why has the Chancellor, in this Budget, put back the initial allowances?

All we are asking in this Amendment is that the interest-free loans should be twice the amount suggested by the Chancellor and twice as good as he has proposed. It is a commonsense view that if one wants to borrow money it is better to borrow it free of interest, and it is better to borrow £200 free of interest than £100. That is the common sense economics of the Amendment before the Committee.

Mr. Summers

The criticism was not so much against interest-free loans. They may have some advantage in these circumstances, but the criticism was that it was described as something else.

Mr. Mulley

I do not think my hon. Friend was wanting to go further than to say that these were interest-free loans, but the hon. Member for Wokingham (Mr. Remnant) was rather against interest-free loans in principle. I am quite sure that hon. Members on both sides of the Committee would sometimes be glad to avail themselves of interest-free loans if they were available. Hon. Members opposite who take a chary view of a gift horse might be prepared to pass on a tip to others about any interest-free loans they find and of which they themselves do not want to take advantage.

The other point made was that to take these loans was to mortgage the future. Apart from the Treasury, who have extraordinary ideas about book-keeping, I know no other institution which does not distinguish between capital and revenue expenditure. I do not know how the hon. Member for Wokingham conducts his tea and beer concerns, but I am quite sure that any capital expenditure must be treated as a mortgage on the future. Nobody would expect it to be covered from the working capital in a given year. I agree that probably it is equally important to have regard to the sense of expectations—the right financial atmosphere to encourage industrialists to make the kind of investment that I am sure both sides of the Committee want to see made in the interest of exports and the extension of our engineering and other industries.

If there is any trouble about expectations it lies with the present Chancellor of the Exchequer. He has pursued a deliberate deflationary policy, and one of the values of accepting our Amendment is that it will be an indication that he wants to see a much higher investment programme. If the Chancellor, in reply, says, "I want to see more investment but I do not want to see such a large volume as the 40 per cent. proposed by the Amendment would permit," I hope he will at least realise that there is a great deal of merit in making 40 per cent. the rate available for industries where there is a special national need for rapid investment.

In many of the sectors of our industrial life, these are precisely the industries which are finding it difficult to get money, industries which are much more out of date compared with the general average of industry than others. One example, about which I hope we shall have a discussion later, is the brick industry, which is much below the general average of industry from the point of view of modern equipment and modernisation.

Since the Chancellor accepts the principle of initial allowances, and thinks that they are a good thing and beneficial to industry, I would ask him to take a necessary further step and establish them at a rate which will have the psychological advantage of inducing industry to make investments. I think 40 per cent. may be a balancing factor in the decision whereas 20 per cent. is too small. If the right hon. Gentleman cannot make the overall decision 40 per cent. I hope he will meet us on some of the other Amendments which are likely to be moved.

5.15 p.m.

Mr. Ian Horobin (Oldham, East)

I do not intend to take up much time of the Committee, but as this is the first time in which these allowances have been introduced by a Conservative Government it warrants a few observations, especially in view of the arguments advanced by the hon. Member for Gloucestershire, South (Mr. Crosland) in moving the Amendment to increase the proposed allowances themselves.

I feel that on this side of the Committee my hon. Friends must have been struck by the hon. Member's early observations that a reduction of any kind in business taxation in recent years was not really necessary, and that something peculiar had happened quite recently that, in his opinion, justified any reduction in business taxation. That was based on the extraordinary proposition that it was improper for business to put aside money in advance of actually spending it. A more disastrous proposition I cannot imagine.

The hon. Member, very fairly, drew attention to the fact that even at that time there were some industries who were financially unable to indulge in capital investment which they physically would have been able to do, but the chickens have now come home to roost, the chicken of inflation, that useful synonym for Socialists. There are a great many large firms now who wish they had some of the money for capital investment which had been filched from them in past years, so that they could spend the money without embarrassment and without raising new capital or loans. So much for that point.

The hon. Gentleman then said it was unreasonable for the Conservative Party to have any doubt on this matter, because in previous years, when the Socialists were in power, they had objected to the removal of the initial allowances. But under a Socialist Government one was grateful for anything one could get hold of, and, after all, that was the only form of relief for industry that they could get, and it was very natural that they should cling on to what they could get. But that is no argument against saying that it was a bad and inefficient way of undoing some of the damage which the general high taxation on industry was doing then, and is doing now, the cost of which we are now discovering.

Advancing the case for initial allowances, the hon. Member went against all informed opinion on this subject, including the Millard Tucker Committee, and tried to rebut the view that they ranked merely as interest-free loans. He advanced the argument that the British taxpayer would provide money which would never be repaid as it would be lost in unprofitable business. That in many cases is what has happened. Extravagant expenditure has been incurred in some cases, not in all, by a firm going on the general principle, "Oh, well, Sir Stafford Cripps will pay for it." He elaborated that remarkable argument by adding that we who make loans with the taxpayers' money free of interest may find it possible to lend to people who could not possibly get it from anyone else because they are not credit-worthy. That is a remarkable statement of policy for any future Socialiist Chancellor of the Exchequer, and possibly the hon. Member is putting himself forward as a candidate.

The third argument was that, of course, the loan was not a loan because even if it were repaid, a firm frequently borrowed some more. If a local authority, for instance, raised some money and had a sinking fund and continually borrowed more money, that, of course, was not a loan! I leave it to the Committee to decide whether this latest gyration from the benches opposite indicates that they have learned very much about our financial concerns.

Mr. Crosland

I am sorry to interrupt, but this is a serious point. Does the hon. Gentleman agree, or does he not, that if these allowances continue at any given rate there will be a net annual cost to the Treasury which, in effect, is a continuous remission of taxation for industry?

Mr. Horobin

We cannot have it all over again. There will be a continuous series of new interest-free loans, some of the old ones having been repaid. Frequently they are interest-free loans to the wrong people for the wrong purposes. Many of us doubt whether these interest-free loans are a good way of helping industry. They do not help it much though they do help it a little. Hon. Members opposite always love loans, especially when, apparently, they are not likely to be repaid, and so they like these allowances.

The Government have put up the Bank rate, have made borrowing more expensive, and now they have decided to let some people have some money for nothing. That, on the face of it, seems a little odd—[HON. MEMBERS: "Hear, hear."] In case the "Hear, hears" should be too continuous, I hasten to point out that this is not an argument against the general financial policy of the Government, for dear money has many other objects, such as its effects on stocks and confidence. But I submit that it is a doubtful financial policy for Her Majesty's Government, on the one hand, to carry too far a policy of trying to make people more conscious of the real cost of borrowing money, because that is what we have been doing and, on the other hand, of trying to help industry by lending it some of its own money back interest-free.

While there may be a case at the present time for using this device for giving assistance to industry, I am one of those who think that the money could have been spent to help industry in other ways. At least it is a return to a doubtful policy which has been defended here again this afternoon on grounds which cannot commend themselves to hon. Members on this side of the Committee. I think it extremely doubtful whether it would be wise to continue or to extend the principle of assisting industry in this way. It encourages the belief that there is an ingenious alternative to leaving industry its own money: namely, by first taking it away and then lending some of it back: even for nothing.

Mr. Mitchison

I agree with one sentence from the speech of the hon. Member for Oldham, East (Mr. Horobin): he thinks that the money could better have been spent in other ways. This is not a case of spending money but of remitting taxation and I should get sadly out of order if I suggested some obvious ways in which taxation might have been remitted in this Budget which would have a good effect on those who possibly need a remission more than the persons who will benefit by these initial allowances.

So far, I agree with the hon. Gentleman, but the rest of his speech only added to the confusion which I was feeling after listening to the speeches of hon. Gentlemen opposite. The hon. Gentleman explained first that it was difficult for companies nowadays to find money for capital expenditure. That is as it may be but, if he holds that view, I should have thought that he would have welcomed this concession. Having said that, he proceeded to explain that he did not like it and that, so far from wanting it increased, he would rather not have had it.

The hon. Gentleman will be able to deal with that when we come to the Question, "That the Clause stand part of the Bill" and will be able to give that suitable expression to his views which I am sure we shall all admire and respect when he does it. For the moment, I shall not chase him round what seemed to me to be a number of rather startling inconsistencies in his speech. We are entitled to take our views only from those who have experience in industry. I dare say the hon. Gentleman has experience in industry and, if so, the Committee will form its own opinion upon how far that experience enables him to make a lucid exposition of the matter which we are now considering.

I have one objection to this Clause, which would be remedied by the Amendment, and which has not so far been stated. I recognise that initial allowances are not a cure, as has been said already. They represent, of course, only a limited concession and I shall not go into arguments, which seemed to me to vary between the absurd and the metaphysical, as to whether they are a tax-free loan or whether they are something substantial, and whether the nature of a constantly flowing stream of money can be looked at statically, which is what it seemed we were getting to at times, or whether it cannot. I leave the metaphysical effect of the constant emptying and replenishing of the Chancellor's barrel, or the companies' barrel in this case, to be considered by those particularly interested in speculation.

At any rate, the Chancellor is restoring the initial allowances and, by so doing, he will undoubtedly enable companies who desire to make certain capital expenditure to do so. We need go no further than that. These initial allowances apply to three types of expenditure. The first type is buildings which is unaltered, and the last type is mining and oil wells which is unaltered.

Mr. Nabarro

The hon. Gentleman must make the case correctly. On the contrary, the allowances on mining exploration are greatly increased, being put up from 10 per cent. to 40 per cent.

Mr. Mitchison

I thank the hon. Gentleman for the correction and he will appreciate that it makes my point even stronger.

Discrimination has been made against expenditure on plant and machinery. One of the others has been left as it is, a second has been increased and this one has been cut. I fail to understand why, if the initial allowances are to be restored at all, there has been a cut in this type at this time. [HON. MEMBERS: "Cut?"] I say cut because the effect of the first subsection of this Clause is to restore the allowance at the original rate in the 1952 Act. The effect of the subsection which we now seek to leave out is to cut by half what would otherwise be the allowance. I thought hon. Gentlemen opposite knew all about cuts, and if that is not a cut, I do not know what is.

It is unfair, when restoring initial allowances in all these cases, to halve the initial allowances in the case of one, and that one plant and machinery. If we are to have peace in Korea and peace in the near East, which I am sure we all want; if what is going on now leads to any slowing down of armament expenditure —and, again, we all want that so far as we can safely have it; if that is to happen, then the one place where its effect will be felt particularly is in the industries that supply plant and machinery.

I suggest that it is dangerous to select those industries for a reduction in the initial allowances which are being otherwise restored and, as the hon. Member for Kidderminster (Mr. Nabarro) pointed out, in one case actually increased. I do not understand how the Chancellor has felt able to take the risk, when restoring initial allowances at all, to select that one industry for a reduction in the initial allowances.

5.30 p.m.

It is true that the initial allowances give to the company which makes the purchase of plant and machinery—we all know that quite well; but the effect of it, obviously, will be felt in the trades which supply the plant and machinery, and I should have thought it was a most undesirable moment to make it in that respect. There is another reason. I should have thought there were signs that some parts, at any rate, of the industries that supply plant and machinery could, at the moment, be developed considerably. In some parts of the industry their exports have been rising. I should have thought it was a moment when they ought to be given all possible encouragement. Therefore, I regret the risk that is being taken in making this discrimination against it.

We can all think of instances, but I am not sure that it takes us much further to go chasing for instances, some of which will be stronger than others and others not so strong. The main point is why, when restoring initial allowances and thereby conferring some advantage, at any rate, on industry, they should be halved in the particular case of supplies of plant and machinery with the effect that that is bound to have on the trades or sections of industry that are primarily concerned with supplying plant and machinery.

I was a little surprised, in that connection, to hear the hon. Member for Aylesbury (Mr. Summers), who, after all, has some connection with iron and steel, objecting particularly to the Amendment. I should have thought that he would have welcomed it. Perhaps it was a tribute to his quite disinterested views on the matter that he took the other line. I hope that the Chancellor will be able to reconsider this matter and, in view of the situation in the world at the moment and the real risks of unemployment in this country, to extend the full concessions to plant and machinery.

I add only one word. We were told what had changed. Why was it that this moment was suitable for the restoration of initial allowances? I put it very simply. What is changed is that as a result of the policy of right hon. and hon. Members opposite money is much tighter than it was, because we have proceeded from a fair level between inflation and deflation to what I now regard, frankly, as a deflationary position. It is just because money is tight that this concession, among others, has had to be made by the Chancellor in this Budget; and it ought to be made fully and fairly in this respect.

The Financial Secretary to the Treasury (Mr. John Boyd-Carpenter)

I assure the hon. Member for Gloucestershire, South (Mr. Crosland) that I shall not seek to put upon the fact that he moved the Amendment the sinister interpretation which he indicated might be put upon it. I assume that he was selected for this task for the very good reason that he was expected to do as he did; that is to say, to put the case with moderation, clarity and force.

If he will forgive me, I shall not follow what the hon. Member for Sheffield, Park (Mr. Mulley) said, for the reason that there' will be an opportunity on later Amendments to deal with the question of discriminating rates of allowances. That issue is not raised by the Amendment, which poses quite clearly, without discrimination, a proposal that the rate of initial allowance on plant and machinery should be at the rate of 40 per cent. and not at the rate of 20 per cent., as is proposed in the Clause.

I do not think it would be necessary or desirable that I should waste very much of the time of the Committee in arguing broadly and in general the question aye or no as to whether the general financial and economic position was such as to justify, in principle, the restoration of initial allowances. Suffice it to say that by reintroducing them in this Clause, my right hon. Friend has indicated that so far as he is concerned he regards the situation as being now appropriate for their restoration.

All that we are concerned with on the Amendment is the, in a sense narrow, though I appreciate important, issue as to whether so far as plant and machinery is concerned the allowances should be restored at the rate of 20 per cent., which was the rate current between 1945 and 1949, or at the rate of 40 per cent., which, as the Committee will recall, was the rate in force between 1949 and their withdrawal in 1951. That is the issue which is posed by the Amendment, and thought upon it is not really clarified by accepting the ingenious doctrine of the hon. and learned Member for Kettering (Mr. Mitchison) that by restoring them from nothing to 20 per cent., my right hon. Friend is imposing a cut.

One of the major objections to the proposals raised by the Amendment is the cost. The right hon. Member for Leeds, South (Mr. Gaitskell) had occasion the other day to indicate what he regarded as the error of my ways in the question of cost in this sphere, although he did not feel himself bound to adopt that view on a much smaller matter where, also, a delay in the payment of tax was involved.

We can proceed without unduly troubling ourselves with what one hon. Member described as the metaphysical aspects of this question by looking at it in this way. First, whatever may be the very long-term consequence, the consequence over the next few years of acceptance of the Amendment would be a very substantial reduction in the revenue— that is undoubtedly so. There is also the element, on which I put less weight, but to which the right hon. Gentleman referred on a previous occasion, that if, by the operation of the initial allowances, we delay collection of revenue, certain elements of cost arise as a result of the consequential necessity to borrow. That, however, is a much smaller factor, and I mention it only for the sake of completeness.

What is undoubtedly the fact is that the effect of the Amendment on the Budgets of 1954–55 and 1955–56 would be a loss of revenue in 1954–55 of about £44 million and in 1955–56 of about £76 million—that is to say, perhaps rather obviously, doubling the cost generally of the proposals as they stand. Those are substantial figures.

The hon. Member for Gloucestershire, South asked for a figure for the net loss over a period of 10 years at 40 per cent. I have been endeavouring to get him that figure, which can only be arrived at by somewhat abstruse and complex calculations. I have not yet been able to get the figure, but if it turns out to be possible for it to be made available—I give no undertaking—it will, no doubt, be possible for either myself or one of my right hon. or hon. Friends to give it on a subsequent Amendment or at a subsequent stage. I merely mention that now to assure the hon. Member that we are doing our best to find the figure, but at the moment, I regret to say, I am not in a position to give it to him. The figures I have given of the effect upon the financial proposals of my right hon. Friend next year and the year after show that we are concerned here with very substantial figures.

I do not dispute for a moment that there is some force in the argument of the hon. Member for Gloucestershire, South that if we were looking on the matter solely from the inflationary-deflationary point of view one must admit to some modification of the significance of those figures. The argument of hon. Members opposite, however, rests on certain assumptions, not all of which are material, in the construction of a Budget and a series of financial proposals. The hon. Member will realise that we cannot be sure of the situation so far in advance. Here, we are concerned with proposals whose cost in the current year would be negligible, but the large additional reductions in revenue two years ahead would amount to a matter of considerable substance.

It is perfectly true, as the right hon. Member for Battersea, North (Mr. Jay) said on a previous occasion in this context, that if other adjustments of taxation were not made it might be possible, with greater substance, to expect reductions of this kind. That is a generality with which I think none of us need quarrel. It is, indeed, an obvious aspect of Budget making. I do not want for that reason to be led into any argument on matters which this Committee have already decided—for example, the matter which the Committee decided on Clause 12. I would only refer indirectly to that consideration by posing this argument.

listening to one or two of the arguments addressed from the other side of the Committee—arguments on the importance of encouraging investment which, taken by themselves, I am desirous not to controvert—one would think it was being suggested that initial allowances were, to all intents and purposes, the only substantial factor in the encouragement of investment. I think that was the general tenor of the arguments. It seems to me a writing down and an under valuing of the other factors which, it seems, affect decisions whether to invest or not, which, of course, are themselves affected by the other changes in taxation to which I have referred.

It is true that if somebody decides or desires to expand his business his doing so is facilitated by the restoration of initial allowances. That is one of the reasons for my right hon. Friend restoring them by this Clause. But I think it right to say, as my hon. Friends the Members for Aylesbury (Mr. Summers) and Oldham, East (Mr. Horobin) said, that there was a tendency to exaggerate the importance of the initial allowances in this context. There are, surely, other factors equally material in the minds of many people who make the decision affecting an industry. They have to consider the general conditions, whether of confidence or the reverse, and also whether or not there is a reasonable probability, if their operations are successful, that they will make profits and be able to retain some proportion of them.

Those are considerations which weigh with those concerned alongside the existence or non-existence of initial allowances at any particular rate. Once the decision has been made, and one would like to expand, the initial allowances play their part in facilitating the expansion. I think it will not be suggested that anyone acts irresponsibly as making a decision solely on the grounds of the temporary advantage that the existence of initial allowances gives. If that were so, it would be clear that decisions were made in an irresponsible way and it would be very wrong to encourage that impression.

The Budget of my right hon. Friend provides a balance in these matters. Here we are discussing the restoration of these allowances to the level at which they operated when introduced by Lord Waverley, and at which they operated from 1945 to 1949. They play their part in the encouragement of industry, but so, I suggest to the Committee, do other lightenings of the burden of taxation which my right hon. Friend has embodied in the Budget and which, as the right hon. Member for Battersea, North said in the passage to which I have referred, to some extent compete with the moneys available for those allowances.

Without seeking to undervalue these allowances—I would not do that for a moment and there is no need so to do because we are, in fact, proposing to restore them—I suggest that it is really not an operation in a properly balanced series of financial proposals to concentrate, as hon. Members opposite appear to have done, so undue an emphasis on them to the express exclusion of the other matters and the other changes in taxation which, it seems to me, are also material both in the sphere of investment itself as, indeed, over the whole broad sphere of our national economic well-being.

5.45 p.m.

I hope that the hon. Member for Gloucestershire, South and his hon. Friends will not think that what I have been trying to say is in any sense unsympathetic to a great deal of what they and my hon. Friends have in mind. The issue between us narrows down perhaps —as so many of these questions do—to a matter of judgment. My right hon. Friend has concluded that the time is ripe for the restoration of these allowances. He has to weigh the cost of them over the next two or three years against the other factors to which I have referred and has to come to a decision as to what is reasonable in all the circumstances. His reasoning is founded upon this idea of a balanced progress in this and in other connections which, I suggest, is the sensible approach.

I suggest, with great respect to hon. Members opposite, that what appears to me to be their excessive emphasis on this one particular instance underrates the importance and value of the other weapons in the armoury of my right hon. Friend. I suggest to the Committee that this large and, in a financial sense, costly step—but, I think, a wise and sensible one—is right in the circumstances of today and that it would be unwise to take it further as this Amendment suggests.

Mr. John Strachey (Dundee, West)

I think that, in listening to this discussion, hon. Members on this side of the Committee must have been considerably struck by the fact that hon. Members opposite have been engaged in looking very hard into the mouth of the gift horse. It is not quite as big a gift horse as we think it ought to be, but, as the Financial Secretary to the Treasury has just shown, it is a very substantial gift horse to industry. I could not help reflecting why they showed such reluctance to receive it. Why is it that they regard this particular form of reduction of taxation on industry—for which they are always pressing, very naturally—so very narrowly and with so very little enthusiasm?

The explanation is perhaps an interesting sociological point. They depreciated this in every possible way. They have called it merely an interest-free loan and almost suggested that an interest-free loan is something quite valueless. As has been pointed out by the mover of the Amendment and by other hon. Members, it is not only an interest-free loan, but in many cases an interest-free loan for an indefinite period, and an interest-free loan for an indefinite period comes very near to being a gift.

The hon. Member for Oldham, East (Mr. Horobin), in one of his forthright speeches, suggested that it really did nothing to solve the problem because it would not help industry to accumulate capital funds but merely encourage their investment in plant and machinery. He went so far as to say that industry ought for a series of years to accumulate funds without spending them and then to invest a sort of nest egg which had accumulated over a series of years. He said that those of us who did not take that view were ignorant indeed.

I should have thought that, if he read contemporary economics, he would find that the contemporary economic view is that to accumulate a surplus over a series of years without investing it at all is as good a recipe for creating a slump as we could possibly have. This concession which the Government are giving, rightly I think, although insufficiently as we believe, is directed precisely to encouraging investment, and I think it is because it is linked so closely and so rigidly to investment that it receives such a terribly cold welcome from hon. Members opposite.

The hon. Member for Wokingham (Mr. Remnant), who is not now in his place, spoke about the tea trade. He showed— and, of course, it is perfectly true—that investment is not always for the purposes of plant and machinery; it may be for providing working capital. The instance he gave naturally interested me as a former Minister of Food because, as he pointed out, the working capital for transporting tea from India and Ceylon to this country used to be provided, directly or indirectly, by the Ministry of Food, and when that ended his firm found it had to supply a great deal of new working capital for the process. That is, of course, a new form of investment, just as much as providing plant and machinery.

Surely the gravamen of his argument is that the Chancellor ought to find a method of supplying initial allowances for that purpose also. I do not know whether it is a practicable thing to do, but that is the logic of his argument—and it is not a bad one—that initial allowances, if valuable for acts of investment in plant and machinery, are equally valuable for acts of investment in increased working capital; but in either case initial allowances link the concession, loan, gift, whatever you like to call it, to industry closely with the new act of investment.

That, I think, is why we on this side welcome initial allowances so strongly. They are so different from a general remission of taxation, with which the Financial Secretary was comparing them. That general remission of taxation, for instance, on the standard rate of Income tax is a very remote link indeed with new investment. It may be simply, to put it quite frankly, an encouragement to high expenditure. Here we have a method of remission closely linked to increasing the volume of investment. It is an accumulation which has been earned socially under these initial allowances, and it can still be spent socially; it will never pass to the hands of individuals at all. The firm, in order to earn it, has to provide a new act of investment of one kind or another, and that is a very great advantage.

I therefore warmly support this Amendment because, as my hon. Friends the Members for Gloucestershire, South (Mr. Crosland) and Edmonton (Mr. Albu) have said, we may be entering a period—and I hope we are, because it will be associated with a lower level of defence expenditure and better world conditions—when new acts of investment of all kinds in this country will be desperately important if we are to maintain our level of employment and prevent our going down into another period of stagnation. I therefore think the Chancellor would be well advised, in his own interests and in the interests of his Government also, to think very carefully whether he has gone far enough in this direction.

Mr. Roy Jenkins (Birmingham, Stechford)

I thought that in his reply the Financial Secretary was attempting to ride two rather ill-matched horses, because he was attempting to put before the Committee two propositions, the first of which was that this Amendment, if accepted, would cost the Treasury a very substantial amount of revenue which could not be afforded, and the second of which was that it was very easy to exaggerate the importance of the concession and the effect it would have in getting other investment.

The Financial Secretary cannot have it both ways. After all, to the extent that this concession is not fully effective in stimulating investment it will not cost the Treasury a penny. That is the beauty of initial allowances from the point of view of stimulating investment; those who do not invest do not get the money, and in that respect it is distinct from any other form of taxation concession. If this Amendment would cost the Treasury a great deal of money, it would also stimulate a great deal of new investment which would not otherwise take place.

Leading on from that point, the Financial Secretary said that it was undesirable to place too much concentration upon this one weapon for stimulating investment, and that other factors were also of very great importance, such as general business tone and general business confidence, and that we should look at the other measures in the Budget which have been designed to improve these methods.

Now these other methods of increasing investment are much more indirect, for, if they are to be effective, as far as I can see they are bound to operate much more in increasing the level of consumption, and by that means making people who might be deciding whether or not to invest think that the prospects for investment are rather better. But if one is in danger perhaps of reflating one's economy to full activity, doing it to a very large extent by increases in consumption rather than by increases in investment—and I think we all agree, as I know the Chancellor has certainly felt for some considerable time, that the great need at the present time is to increase investment rather than consumption—looking back over the two months' effect the Budget has had so far it would be very difficult to say with absolute confidence that it was reflating the economy by increasing investment rather than by increasing consumption. Certainly the figures of the labour movement which we have had do not indicate any very healthy tendencies in this direction.

I want, if I may, to say a few words on the, as always, extremely entertaining speech of the hon. Member for Oldham, East. He certainly advanced some extraordinary propositions, some of which have already been dealt with by my right hon. Friend the Member for Dundee, West (Mr. Strachey). I was particularly entertained to hear the hon. Gentleman saying that it was surely illogical to be advocating substantial initial allowances at the same time as having a high Bank rate, and it was surely illogical to make payments with one hand and give them away with interest-free loans, or whatever they might be, with the other.

I was particularly amused, because I recall a debate on the 1951 Finance Bill when the present Minister of Works was challenged by us for putting forward precisely that proposition. He wanted stable credit terms, and he was resisting the withdrawal of initial allowances. He asked whether this position was not illogical, and said it appealed only to academic economists, but that to hard-headed businessmen like himself and the hon. Member for Oldham, East it was obvious how this should be carried on.

Another extraordinary proposition which came from the hon. Member for Oldham, East was that it was absolutely scandalous to talk about giving interest-free loans to companies which were not credit-worthy in the normal commercial sense; that that was a grave misuse of public money. I thought that was an extraordinary proposition. We have admittedly moved on two decades from the day when the "Macmillan gap" was first thought about, but he would be a very rash person who would say that there do not exist at the present time any examples of small businesses which are thoroughly sound and credit-worthy, but which none the less cannot get commercial loans just because they are too small to make it worth while for finance houses to investigate them, with all the trouble and cost that involves.

6.0 p.m.

Mr. Horobin

The hon. Member challenges me on this point. I could not see the substance of his previous point when he referred to someone else; but on this point, does he really suggest that it is a sound and prudent way of spending a good sum of money, because he thinks there may be small firms who cannot borrow, to give I.C.I., or Shell, an initial allowance?

Mr. Jenkins

That was not all the point which the hon. Member for Oldham, East was making. My hon. Friend the Member for Gloucestershire, South said that one of the advantages of initial allowances was that it would make money available—if the Committee wish, in the form of loans—to companies which might not be able to get the money through the ordinary commercial financial channels. The hon. Member for Oldham, East says, "What an argument, to give away public money to companies which could not borrow elsewhere."

I say it is a perfectly reasonable thing to do, because there are many small companies which are thoroughly creditworthy but which may not be able to get money on the market. After all, it was a Conservative Minister, Lord Waverley as he now is, who initiated—at least he was Chancellor of the Exchequer at the time—the Industrial and Commercial Finance Corporation. It would be nonsense to suggest that the I.C.F.C. have done a job so complete as to close the "Macmillan gap" and created a condition which accepts all these small companies which may have difficulties of this kind.

Mr. Harold Lever (Manchester, Cheetham)

Would my hon. Friend be good enough to tell the Committee—I am merely searching for information— what is the "Macmillan gap"? I have been waiting patiently for an explanation of it.

Mr. Jenkins

I thought, from his earlier interventions, that my hon. Friend the Member for Cheetham (Mr. H. Lever) was most well-informed on these financial matters.

Mr. Lever

I specifically denied expert knowledge.

Mr. Jenkins

I do not wish to enter into anything which will bring another lecture from the hon. Member, but if I may say it in one sentence, the expression "Macmillan gap" refers to the gap which there was where companies of a credit-worthy nature could not get fianace in the way I have been talking about. It was brought forward by a committee which I think sat in——

Mr. Ellis Smith (Stoke-on-Trent, South)

Now explain the Macmillan Report.

Mr. Jenkins

If my hon. Friend will allow me, I would propose to give that part of my lecture later.

I have been surprised in this debate to find that there is a cleavage of belief between hon. Members on the back benches opposite and my hon. Friends on this side of the Committee. In view of the Budget and the Finance Bill he was defending, the Financial Secretary could not throw initial allowances out of the window, as some of his hon. Friends have been doing. Some of his hon. Friends have been taking a very hostile attitude indeed towards the whole principle of initial allowances. To some extent this attitude is a test of the sincerity of the party opposite on one point. After all, if they are continually saying that they want taxation concessions to industry in order to increase investment, and if they really mean that, they should vote for this Amendment. If they are using that as a smokescreen for the purpose of getting taxation concessions for industry for other purposes, they will not like this Amendment—but that is not a very creditable point of view.

Mr. Gartskell

I agree with my hon. Friend the Member for Stechford (Mr. Roy Jenkins) that one of the surprising things about this debate has been the attitude of hon. Members on the back benches opposite toward initial allowances. I shared the belief that there would have been a much larger measure of agreement between the two sides of the Committee; and it certainly is something which must make all of us wonder how serious hon. Members opposite are in their protestations that they would like to see a higher level of investment in industry.

The Financial Secretary, on the other hand, was careful not to attack in any way the principle of initial allowances and, so far as I could make out, in general he accepted the interesting analysis given by my hon. Friend the Member for Gloucestershire, South (Mr. Crosland). He defended the Government's refusal—I understand it was a refusal—to accept this Amendment on the ground, first, that it would cost too much, and, secondly, on the ground, which I did not think a very impressive argument, that we attached too much importance to initial allowances.

On the second point, I agree that we believe that this device helps the country considerably; but the Financial Secretary is mistaken if he supposes that my right hon. and hon. Friends believe this is the only measure necessary in order to jerk the level of investment in this country on to a much higher plane. We all realise there are limits to what it can do, and indeed it will be part of my argument to show that it has a limited effect, but is nevertheless worth while.

I do not think there is much disagreement about the need for a higher level of investment, and I suppose the Financial Secretary is also in agreement that there is a greater need to stimulate investment now than there has been for some years. When we had to suspend the initial allowances two years ago, when the defence programme was beginning, we did so with much regret, realising quite clearly and definitely that it would involve a cut in investment—indeed doing it precisely for that reason. We felt this was necessary in order, so to speak, to clear the way for the defence programme, because nothing would secure a sufficiently speedy development of that programme except an actual reduction in civilian investment.

Today the position is different. In the first place, the engineering industries which, broadly, we are concerned with in this Amendment, are certainly not nearly so overloaded with orders as they were at that time. Indeed, as my hon. Friend the Member for Gloucestershire, South pointed out, there are certain signs of slack appearing in this sector of our economy. Manpower is falling and the number of orders on the order books is dropping. This situation calls for a change of policy, for reverting to the policy as it existed before 1951.

I do not propose on this Amendment to discuss the precise reasons the engineering industry is in this different situation today. I would mention, in passing, only my personal belief that the Government's monetary policy, credit policy, has something to do with it. It is extremely difficult to operate the Bank rate policy so as to discourage businessmen from accumulating stocks—and indeed encourage them to dis-stock so far as it is possible—without at the same time creating a general discouraging atmosphere for investment. That may have something to do with the rather sharp psychological effect of the rise in the Bank rate.

If we concede—and I do not by any means entirely concede it—that the Bank rate policy of the Government is an effective way of causing a fall in stocks, or of stopping the accumulation of stocks, there would still be the difficulty to be faced of how to do that and at the same time stimulate long-term investment. I believe that one of the valuable instruments for dealing with that dilemma is a system of initial allowances, because, as several of my hon. Friends have said, it is so directly related to capital expenditure on plant and machinery.

The second argument which should be brought out at this stage is that more long-term investment, a higher rate of investment, is clearly essential if we are to achieve the increase in productivity which we are all agreed that we must achieve. That was in Sir Stafford Cripps's mind when he originally increased the allowance to 40 per cent.

In those circumstances it is natural to ask ourselves whether the Budget was well adapted to producing this increase in investment. As my hon. Friend the Member for Gloucestershire, South said, no doubt the Chancellor in making his concessions on taxation and in encouraging additional spending hoped that one way or another, directly or indirectly— and it would be mostly indirectly—there would be encouragement given to business men to invest more. I doubted during our Budget debates whether in fact his belief was well founded, but I always conceded, as he will agree, that this measure—the increase of the initial allowance—was a wise one. We have never opposed it. Our criticism is that it is not enough.

We are now discussing the general issue whether or not the initial allowance should be raised to 40 per cent. again. We are not concerned with the separate issue whether the recommendation of the Millard Tucker Report should be followed and the Treasury given powers to allow different allowances in different industries. We shall come to that later. It is a difficult question—if one had to answer it—as to which of the two measures, a general increase of 40 per cent. or a general power to the Treasury to raise the rate, would be appropriate. In present circumstances I am inclined to prefer the first. I believe that the raising of the rate all round to 40 per cent. is justified.

But if we do not succeed in persuading the Government that that is right, we shall certainly press very strongly indeed for the discriminating system of allowances. We have had a lot of discussion about the nature of the initial allowance. I do not propose to delay the Committee very long over that. I do not think that there ought to be much disagreement about it. What happens is that the businessman who gets the benefit of a higher initial allowance is able, in respect of the year in which he spends the money on the additional equipment, to save a certain amount in taxation. It is roughly half what the expenditure was.

On the other hand, if we take that piece of machinery alone, obviously he is able to write off less of it in later years. Therefore, his profits for those years are higher and his taxation is higher as well. It is worth noticing, in passing, that one of the main arguments put forward when the system was originally introduced by Sir John Anderson, as he then was, was the increased cost of replacement. There was a great deal of discussion about the difficulty which industry had in raising money. It was, so to speak, a direct physical shortage of cash that was said to be involved. The Millard Tucker Report treats the whole subject of initial allowances exclusively on that basis.

The case for initial allowances, however, is a good deal wider than that. It is not merely a matter of providing additional cash. It is a question of stimulating, of giving an incentive—and I will mention in a moment what the main incentive is—to businessmen to invest.

My hon. Friend the Member for Gloucestershire, South made three telling points about initial allowances. These were denounced or opposed by some hon. Members opposite. But one other hon. Member, although in rather strident terms, in effect supported his explanations of what the initial allowance did. The hon. Member for Oldham, East (Mr. Horobin) denounced the system of initial allowances precisely because it had in his opinion all the qualities my hon. Friend described, so there is some contradiction there. The hon. Member for Aylesbury (Mr. Summers) and his hon. Friend the Member for Oldham, East had better get together and clear their minds on the subject.

6.15 p.m.

The three points my hon. Friend made were, first, that this device is directly relating taxation to expenditure on capital equipment. That is not in dispute. It may be—indeed it is so—that certain types of expenditure out of borrowed money are linked; others are not so closely linked. But my hon. Friend's point was not just then to contrast the initial allowance with the borrowing of money by local authorities or anything of that kind. He was contrasting it with conceding reductions in taxation on undistributed profits. There can be no dispute that he was right in the point he made.

Hon. Members opposite may believe, I am sure with all sincerity, that a reduction of taxation on undistributed profits would lead to increased capital expenditure; but they cannot prove that it will so lead. There is no necessary link between the two. The money that would otherwise have been paid over in taxation may simply be retained or invested in securities of one kind or another or, of course, part of it can be paid out in dividends. The initial allowance, therefore, is different in that respect because it is related to expenditure.

Secondly, my hon. Friend contended that it was not simply an interest-free loan because in certain conditions it did not have to be repaid. I think that what he said was not properly understood. He qualified it very carefully. He said in effect that if the rate of initial allowance does remain unchanged indefinitely, then there always will be so much outstanding with industry. An appropriate way to describe it, I think my hon. Friend would agree, would be as a kind of revolving credit. As I understand it, that is all the point that he was making there. It is really an issue of terminology whether one says that that is or is not an interest-free loan. As my right hon. Friend the Member for Dundee, West (Mr. Strachey) said, the revolving credit which does not have to be repaid is certainly of considerable value to industry. There can be no doubt about that.

The third argument of my hon. Friend was that, of course, initial allowances differed from loans in that if a loss were made in the later years of the life of the company no repayment had to be made. The hon. Member for Oldham, East used that as his reason for denouncing the whole idea. I say to him and to the Committee that, on the contrary, I believe that to be the most valuable feature of the initial allowance. It may sound strange to say that, but the difficulty is to get business men to undertake risky investments. We are always hearing that from hon. Gentlemen opposite. They are always telling us that taxation is so high that nobody dare take a chance. The initial allowance is a great help in that respect.

The businessman spends his money on the plant. He is able to write off 40 per cent. plus another 10 per cent. in the first year—50 per cent. in one year. If he subsequently runs into a loss, he does not have to repay because he is not earning profits and he has not, therefore, to pay tax on them. That is the remarkable difference between the initial allowance and the ordinary loan.

Mr. Nabarro

The right hon. Gentleman, in making a statement like that, takes no account of the fact that every prudent businessman having derived a temporary benefit from an initial allowance puts it into an equalisation fund to be used over the remainder of the life of the plant. He derives no benefit whatever from it. It is only of benefit to the small business.

Mr. Gaitskell

If it is of benefit to the small business, that is a good thing. There are a very large number of small businesses. I do not say that the ordinary prudent businessman does not put money into a taxation reserve fund, or something like that. That is not my point. My point is that he undertakes the investment because he does not have to repay the loan if it turns out to be an unprofitable one—I mean an unprofitable one in the sense that the whole business makes a loss. I do not think anybody would controvert the view that that is of very substantial importance, and it is something which I believe to be very necessary in present circumstances.

The Government will no doubt concede much of the argument, but will say, on the other hand, that they do not think that the rate should be above 20 per cent. I find it very hard to understand why they raised it to only 20 per cent. and not to what it was before—40 per cent. I admit that one can conduct an argument on what the rate should be, and that one could say that it should be 50 or even 60 per cent., but 40 per cent. was, in fact, the previous rate, and I had fully expected that the Chancellor would make that adjustment this year.

In fact, the only answer to the argument given by the Financial Secretary is that it would cost too much. I ask the Chancellor to reconsider the matter. When I had to suspend the initial allowances, I remember pointing out to the Committee at the time that I was taking no credit for the saving which it would involve to the Exchequer, and I said that because it would be offset by corresponding changes in the level of undistributed profits. I agree that one cannot prove that that is so. While it is conceivable that a business man who gets the initial allowances would not behave in the way in which the hon. Member for Kidderminster (Mr. Nabarro) says he does, and would, in fact, pay out the saving which he makes in decreased taxation by way of additional dividends, it is a fair assumption that, in the vast majority of cases, he would behave as the hon. Member suggested, and that the money would go into undistributed profits. Therefore, any loss of revenue by the Exchequer is balanced by an increase in company savings, and there can be no consequential inflationary influence on that account.

The Financial Secretary described this particular point as a matter which, if we liked, we could look at as one of inflation, deflation and all that, but we have to look at the Budget from that point of view. The decisions which the Chancellor reached both this year and last year as to the size of the Budget surplus were precisely dependent upon what he thought about inflation, deflation and all that. That is real budgeting, and I do-not think there is any dispute between the Chancellor and myself, because we have to look at the Budget in that way.

What is perfectly true is that, if the device is successful, as I believe it will be, we shall get an increase in investment that might have certain inflationary influences, but this year the Chancellor wants a little inflationary influence, and he is distributing money in order to bring that about. What we say is that we need not merely a general stimulus but a stimulus to certain parts of the economy, and, above all, to our investment industries.

Therefore, I say to the Financial Secretary that the argument about the cost is not a convincing one. I did not use the device in any way as something which was to save us money, although the Budget position was far from easy in that year. I do not think it is something which ought to be taken into account in that way. One might describe it as investment by the Government or by the Treasury, which, in my view, would be overwhelmingly worth while if it did produce an increase in the equipment of our industries.

What other arguments have been put forward? Hon. Gentlemen opposite have rested their case—if it is a case—on the ground that they would much prefer to have a reduction of taxation on undistributed profits. Of course, even if we agreed about that, that would still be no argument against the initial allowances, and hon. Gentlemen opposite must know perfectly well that it has not always been easy to extort reductions in taxation from the Chancellor of the Exchequer. It is unwise, as my right hon. Friend the Member for Dundee, West said, to look a gift horse in the mouth. Moreover, I have already explained why, in our view, concessions on undistributed profits are much less calculated to produce the results which we believe should be produced.

My last point is this. There has been a most extraordinary change from the attitude adopted by hon. and right hon. Gentlemen opposite in 1951. I know that it is common for hon. Members, when sitting on one side of the House, to talk in slightly different terms from those which they used when they were on the other side. This is not a straightforward party issue, but a technical matter. I should have thought that the case for reducing and suspending the initial allowances, although hotly disputed by the right hon. Gentleman himself, was very much more powerful in 1951 than it is today.

The situation has changed, and we are all glad that we are over the hump of the defence programme. We may not be agreed on why a general deflationary atmosphere exists, but that it does exist, as compared with that time, cannot be denied. The Chancellor spoke in that debate, when he begged us to think again. I cannot understand how, having in 1951 demonstrated the case in favour of 40 per cent., he can now refuse, in these far more suitable circumstances, to put it back again, and on this occasion I therefore ask the Chancellor to think again.

It really is a matter of the highest importance to industry. We have put these arguments, as I am sure the Chancellor will agree, in a constructive and moderate manner. We believe that this is one of the most important things that could be done to help British industry, and I therefore urge the Chancellor to reconsider it. If he will not do that, we shall certainly divide the Committee on the Amendment.

The Chancellor of the Exchequer (Mr. R. A. Butler)

I quite agree with the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) that we have had a useful debate, and I think that we might bring this particular issue of whether the allowance should be 40 per cent. or 20 per cent. to a decision now, or, at least, very soon. I can assure hon. and right hon. Gentlemen who wish to take part in the further debate on the initial allowances that there will be ample opportunity for them to do so, stretching away far into the night, on the many Amendments which have yet to be called. Therefore, there need be no disappointment if we should decide this particular issue very soon. There are other issues involved in Amendments to follow, and there will be plenty of opportunity for oratorical and dialectical brilliance.

The right hon. Gentleman reminded me, as did the hon. Member for Gloucestershire, South (Mr. Crosland), of my speech in 1951. What we were doing then was showing some quite legitimate and righteous indignation that the right hon. Gentleman should have departed from the advice to which today he attaches so much importance, and we were beseeching him not to do so. I did not have reason then, and I have no reason now, to question the reasons why he did not do it. That is a matter for the past, and I do not wish to muddy the complexion of this debate by referring to it. There was a risk last year, and I think there is a risk now, that, under the pressure of events, over-investment might cause our balance of payments position to deteriorate, and I was expecting last year to have to take this step.

This year, thanks to the wise and beneficial administration of our finances, through the monetary policy adopted by the Government and in other ways, all sorts of doors have been opened to us again, and this year we were really building up an enlightened Budget designed for the very purposes to which hon. and right hon. Gentlemen opposite have been devoting most of their remarks; namely, to increase investment in productive industry and to moderate any deflationary tendency that might millitate against the proper and full employment of our people. In so far as one can judge, so very soon after the Budget, things are certainly developing in a way which is not entirely unsatisfactory. I cannot go further than that.

One of the difficulties of a Chancellor of the Exchequer after the Budget has been introduced is that he cannot judge its effect immediately, and very often the summer is an uneasy time during which he is waiting to see the medicine working upon the patient. All I can do is to say that the curve of production, in so far as we have been able to assess it up to the end of April, is continuing to show a satisfactory trend. We are, in fact, showing signs of improving production, for the purpose of which the Budget was framed. Now we must all watch and hope and pray that in the national interest, quite apart from any of our controversies, production and productivity will improve, because that is the only hope we have of keeping our place and meeting the immense expenses we have upon us.

6.30 p.m.

When I came to frame the Budget, I was able to release a certain amount, and I was able, as my hon. Friend the Financial Secretary so ably stated, to achieve a certain balance by releasing a certain amount of the Purchase Tax which was calculated to go straight into consumer spending. A certain amount of the 6d. off Income Tax was calculated to go into consumer spending and to help industry in precisely the sphere of investment through going into the undistributed profits of industry, the figure for which was calculated in the Budget at about £45 million.

When we totted up the figures we found they amounted to about as much as we could handle this year in the way of remission, namely, £160 million, but when we totted up the future figures we saw that by the various remissions made in the Budget we were putting on to future Budgets a considerable burden. It was against that background that I had to calculate whether I could manage to restore the initial allowances at 20 per cent. or 40 per cent., and it was against that future look that I decided that it was impossible to go further than 20 per cent., because, as has been stated, if we take £6 million for industrial buildings and £2 million for mining works and add those to the £76 million for machinery and plant, the cost in a full year will be as much as £84 million, even on the basis of the 20 per cent. I have suggested.

The hon. Member for Gloucestershire, South (Mr. Crosland) asked my hon. Friend the Financial Secretary what the cost of this would be for a period of 10 years. If the hon. Gentleman will make due allowance for the rapidity with which the figures have been calculated, they work out something as follows. I have to make this calculation on the assumption that the rate of investment in plant goes on fairly level and that the pattern of investment on plant goes on fairly level, that the continuance of the same rate goes on whether the rate is 20 per cent. or 40 per cent., and that there is a continuance of the same sort of provision in the tax.

If we take all these things and look at the 20 per cent. at the end of 10 years— I am leaving aside a longer period—it will cost no less than £425 million, and that despite the fact that there is a drawback coming in because the initial allowance is in the nature of an advance. If we take the 40 per cent. suggested in the Amendment, the figure would be some £850 million at the end of 10 years.

Mr. Crosland

In view of these figures, I wonder if the right hon. Gentleman would care to agree that this represents rather more than an interest-free loan?

Mr. Butler

I am not going into the abstruse future, because after a certain period the cost evens down when we get into the rather dimmer future; these are mathematical calculations which I think I would be unwise to give to the Committee, but I will, of course, give them in answer to questions. Nevertheless, that is a considerable burden, and hon. Members will therefore see that when my hon. Friend the Parliamentary Secretary stated that the cost was considerable we were right to look ahead. As taxpayers, we have a certain anxiety that this device will be a considerable burden on future Budgets.

Mr. Gaitskell

I take it that the right hon. Gentleman meant that the £425 million would be the total amount, so to speak, outstanding, and that it was not the annual figure or anything like that? I think it should be made clear for the benefit of industry and the public.

Mr. Butler

I am only answering the special question, but I am obliged to the right hon. Gentleman for making it clear, as casual report would make it out to be more costly in a particular year than it is. I leave it at the right hon. Gentleman's intervention.

If we look at it more simply from the point of view of future Budgets, I must remind the Committee that when I was making up my mind I had to look ahead, and I warned the Committee at the time of my Budget statement that we were taking on burdens for the future. Not only are we carrying this very large defence programme, and we certainly saw how expensive it must be from our most magnificent experience of yesterday in the review of the Fleet. I am sure we are all proud to bear the burden, but the effect of this burden must be clear to anybody who either shared the hospitality or saw the magnificent display yesterday.

But we must remember that this expense is in triplicate. There are two other Services displaying the might of Britain at the present time, and as taxpayers we must bear that expense. At the same time, we have a social system second to none in the world, and, despite the observations made in a more evil mood by right hon. and hon. Gentlemen opposite, a large number of these services, such as health and education, have actually increased in cost.

When we look at this—the need to discontinue the Excess Profits Levy in the future, and the incidence of that will fall in two years hence—if we look at the tendency for costs to rise, and we know the only safeguard is a rise in the national income for which we are all going to work and help to produce, we must realise that an addition of £76 million in a full year by the Amendment proposed by hon. Members opposite is more than we can manage at the present time.

The last argument to complete the picture and answer to the right hon. Gentleman is that of whether this falls within the Budget within what may be described as the purely internal Budget problem of revenue, or whether it can fairly lightly be dismissed intellectually as being something which really helps the economic balance of the country and which, although it does not tot up in the actual Budget figures, is of such value to the economy and industry that the figures do not matter—in fact, what about a deficit Budget and let us go nap on the initial allowances?

Mr. Gaitskell

A smaller surplus.

Mr. Butler

That, in itself, is not intellectually an impossible or ridiculous idea, but I want hon. Members to realise that, even if circumstances might arise when the state of the economy demanded less surplus, we have also to reflect that the Budget has a psychological effect and that if presented in such a way that it would shake our balance of payments position or confidence in sterling, even though it might be the most abstrusely Keynesian Budget in the world and might be welcomed by the hon. Member for Gloucestershire, South and the hon. Member for Stechford (Mr. Roy Jenkins) as being a fine intellectual effort, it may be wrong. In my opinion if I had overweighted the Budget further by adding that £76 million, I should have gone too far. Therefore, I have not sought to answer or traverse the arguments put forward, because a great deal of good sense has been talked. I am simply reposing my argument on the case that I could not with confidence take any more this year, and, therefore, I regretfully ask the Committee not to accept this Amendment.

Question put, "That the words proposed to be left out, to 'shall' in line 28, stand part of the Clause."

The Committee divided: Ayes, 256; Noes, 234.

Division No. 186.]	AYES	[6.40 p.m.
Aitken, W. T.	Godber, J. B.	Mellor, Sir John
Allan, R. A. (Paddington, S.)	Gomme-Duncan, Col. A.	Molson, A. H. E.
Alport, C. J. M.	Gough, C. F. H.	Moore, Lt.-Col. Sir Thomas
Amory, Heathcoat (Tiverton)	Gower, H. R.	Morrison, John (Salisbury)
Anstruther-Gray, Major W. J.	Graham, Sir Fergus	Mott-Radclyffe, C. E.
Ashton, H. (Chelmsford)	Gridley, Sir Arnold	Nabarro, G. D. N.
Assheton, Rt. Hon. R. (Blackburn, W.)	Grimond, J.	Nicholls, Harmar
Baldock, Lt.-Cmdr. J. M.	Grimston, Hon. John (St. Albans)	Nicholson, Godfrey (Farnham)
Baldwin, A. E.	Grimston, Sir Robert (Westbury)	Nicolson, Nigel (Bournemouth, E.)
Banks, Col. C.	Harden, J. R. E.	Nield, Basil (Chester)
Barber, Anthony	Hare, Hon. J. H.	Nugent, G. R. H.
Baxter, A. B.	Harris, Frederic (Croydon, N.)	Nutting, Anthony
Beach, Maj. Hicks	Harris, Reader (Heston)	Odey, G. W.
Bell, Philip (Bolton, E.)	Harrison, Col. J. H. (Eye)	O'Neill, Phelim (Co. Antrim, N.)
Bell, Ronald (Bucks, S.)	Harvey, Ian (Harrow, E.)	Ormsby-Gore, Hon. W. D
Bennett, F. M. (Reading, N.)	Harvie-Watt, Sir George	Orr, Capt. L. P. S.
Bennett, Dr. Reginald (Gosport)	Heald, Sir Lionel	Orr-Ewing Sir Ian (Weston-super-Mare)
Bennett, William (Woodside)	Heath, Edward	Osborne, C.
Bevins, J. R. (Toxteth)	Higgs, J. M. C.	Partridge, E.
Birch, Nigel	Hill, Dr. Charles (Luton)	Perkins, W. R. D.
Bishop, F. P.	Hill, Mrs. E. (Wythenshawe)	Peto, Brig. C. H. M.
Black, C. W.	Hirst, Geoffrey	Peyton, J. W. W.
Bossom, Sir A. C.	Holland-Martin, C. J.	Pickthorn, K. W. M.
Bowen, E. R.	Hollis, M. C.	Pilkington, Capt. R. A.
Boyd-Carpenter, J. A.	Holmes, Sir Stanley (Harwich)	Pitman, I. J.
Boyle, Sir Edward	Holt, A. F.	Powell, J. Enoch
Braithwaite, Sir Albert (Harrow, W.)	Hope, Lord John	Price, Henry (Lewisham, W.)
Bromley-Davenport, Lt.Col. W. H.	Hopkinson, Rt. Hon. Henry	Prior-Palmer, Brig. O. L.
Brooke, Henry (Hampstead)	Horobin, I.. M.	Raikes, Sir Victor
Brooman-White, R. C.	Howard, Hon. Greville (St. Ives)	Redmayne, M.
Browne, Jack (Govan)	Hudson, Sir Austin (Lewisham, N.)	Remnant, Hon. P.
Buchan-Hepburn, Rt. Hon. P. G. T.	Hudson, W. R. A. (Hull, N.)	Renton, D. L. M.
Bullard, D. G.	Hurd, A. R.	Roberts, Peter (Heeley)
	Hutchinson, Sir Geoffrey (Ilford, N.)	Robertson, Sir David
Bullus, Wing Commander E. E.	Hutchison, Lt.-Com. Clark (E'b'rgh W.)	Robinson, Roland (Blackpool, S.)
Burden, F. F. A.	Hyde, Lt.-Col. H. M.	Robson-Brown, W.
Butcher, Sir Herbert	Hylton-Foster, H. B. H.	Rodgers, John (Sevenoaks)
Butler, Rt. Hon. R. A. (Saffron Walden)	Jenkins, Robert (Dulwich)	Roper, Sir Harold
Campbell, Sir David	Johnson, Eric (Blackley)	Ropner, Col. Sir Leonard
Cary, Sir Robert	Johnson, Howard (Kemptown)	Russell, R. S.
Cary, Sir Robert	Jones, A. (Hall Green)	Ryder, Capt. R. E. D.
Channon, H.	Joynson-Hicks, Hon. L. W.	Salter, Rt. Hon. Sir Arthur
Churchill, Rt. Hon. Sir Winston	Kaberry, D.	Savory, Prof. Sir Douglas
Clarke, Col. Ralph (East Grinstead)	Keeling, Sir Edward	Scott, R. Donald
Cole, Norman	Kerr, H. W.	Shepherd, William
Colegate, W. A.	Lambert, Hon. G.	Simon, J. E. S. (Middlesbrough, W.)
Conant, Maj. R. J. E.	Lancaster, Col. C. G.	Smithers, Peter (Winchester)
Cooper, Sqn. Ldr. Albert	Law, Rt. Hon. R. K.	Snadden, W. McN.
Cranborne, Viscount	Leather, E. H. C.	Soames, Capt. C.
Crookshank, Capt. Rt. Hon. H. F. C.	Legge-Bourke, Maj. E. A. H.	Spearman, A. C. M.
Crosthwaite-Eyre, Col. O. E.	Legh, Hon. Peter (Petersfield)	Speir, R. M.
Crouch, R. F.	Linstead, H. N.	Spens, Sir Patrick (Kensington, S.)
Crowder, Sir John (Finchley)	Lloyd, Maj. Sir Guy (Renfrew, E.)	Stanley, Capt. Hon. Richard
Crowder, Petre (Ruislip—Northwood)	Lloyd, Rt. Hon. Selwyn (Wirral)	Stevens, G. P.
Darling, Sir William (Edinburgh, S.)	Lockwood, Lt.-Col. J. C.	Steward, W. A. (Woolwich, W.)
Davidson, Viscountess	Longden, Gilbert	Stewart, Henderson (Fife, E.)
Deedes, W. F.	Low, A. R. W.	Stoddart-Scott, Col. M.
Digby, S. Wingfield	Lucas, Sir Jocelyn (Portsmouth, S.)	Storey, S.
Dodds-Parker, A. D.	Lucas, P. B. (Brentford)	Strauss, Henry (Norwich, S.)
Donaldson, Cmdr. C. E. McA	Lucas-Tooth, Sir Hugh	Stuart, Rt. Hon. James (Moray)
Donner, Sir P. W.
Doughty, C. J. A.	McAddan, S. J.	Summers, G. S.
Douglas-Hamilton, Lord Malcolm	McCallum, Major D.	Sutcliffe, Sir Harold
Drayson, G. B.	McCorquodale, Rt. Hon. M. S.	Taylor, Charles (Eastbourne)
Duncan, Capt. J. A. L.	Macdonald, Sir Peter	Taylor, William (Bradford, N.)
Duthie, W. S.	Mackeson, Brig. H. R.	Thomas, Rt. Hon. J. P. L. (Hereford)
Eccles, Rt. Hon. Sir D. M.	McKibbin, A. J.	Thomas, Leslie (Canterbury)
Elliot, Rt. Hon. W. E.	Mackie, J. H. (Galloway)	Thomas, P. J. M. (Conway)
Erroll, F. J.	Maclay, Rt. Hon. John	Thompson, Kenneth (Walton)
Fell, A.	Maclean, Fitzroy	Thompson, Lt.-Cdr. R. (Croydon, W.)
Finlay, Graeme	Macleod, Rt. Hon. Iain (Enfield, W.)	Thorneycroft, Rt. Hn.Peter (Monmouth)
Fisher, Nigel	MacLeod, John (Ross and Cromarty)	Thornton-Kemsley, Col. C. N.
Fleetwood-Hesketh, R. F.	Macmillan, Rt. Hon. Harold (Bromley)	Tilney, John
Fletcher-Cooke, C.	Macpherson, Niall (Dumfries)	Turner, H. F. L.
Ford, Mrs. Patricia	Maitland, Comdr. J. F. W. (Horncastle)	Turton, R. H.
Fort, R.	Maitland, Patrick (Lanark)	Tweedsmuir, Lady
Fraser, Hon. Hugh (Stone)	Manningham-Buller, Sir R. E.	Vane, W. M. F.
Fraser, Sir Ian (Morecambe & Lonsdale)	Markham, Major Sir S. F.	Vaughan-Morgan, J. K.
Fyfe, Rt. Hon. Sir David Maxwell	Marples, A. E.	Vosper, D. F.
Galbraith, Rt. Hon. T. D. (Pollok)	Marshall, Sir Sidney (Sutton)	Wade, D. W.
Galbraith, T. G. D. (Hillhead)	Maude, Angus	Wakefield, Sir Wavell (St. Marylebone)
Gammans, L. D.	Maudling, R.	Walker-Smith, D. C.
Garner-Evans, E. H.	Maydon, Lt.-Comdr. S. L. C.	Ward, Hon. George (Worcester)
George, Rt. Hon. Maj. G. Lloyd	Medlicott, Brig. F.	Ward, Miss I. (Tynemouth)

Waterhouse, Capt. Rt. Hon. C.	Williams, Sir Herbert (Croydon, E.)	Wilson, Geoffrey (Truro)
Watkinson, H. A.	Williams, Paul (Sunderland, S.)
Wellwood, W.	Williams, R. Dudley (Exeter)	TELLERS FOR THE AYES:
Williams, Rt. Hon. Charles (Torquay)	Wills, G.	Mr. Studholme and Mr. Oakshott.

NOES
Acland, Sir Richard	Hall, Rt. Hon Glenvil (Colne Valley)	Pargiter, G. A.
Adams, Richard	Hall, John T. (Gateshead, W.)	Parker, J.
Albu, A. H.	Hamilton, W. W.	Paton, J.
Allen, Scholefield (Crowe)	Hannan, W.	Pearson, A.
Anderson, Alexander (Motherwell)	Hargreaves, A.	Peart, T. F.
Anderson, Frank (Whitehaven)	Harrison, J. (Nottingham, E.)	Popplewell, E.
Attlee, Rt. Hon. C. R.	Hastings, S.	Porter, G.
Awbery, S. S.	Hayman, F. H.	Price, Joseph T. (Westhoughton)
Bacon, Miss Alice	Healey, Denis (Leeds, S. E.)	Price, Philips (Gloucestershire, W.)
Bartley, P.	Healy, Cahir (Fermanagh)	Proctor, W. T.
Bellenger, Rt. Hon. F. J.	Henderson, Rt. Hon. A. (Rowley Regis)	Pryde, D. J.
Bence, C. R.	Herbison, Miss M.	Pursey, Cmdr. H.
Benn, Hon. Wedgwood	Hobson, C. R.	Rankin, John
Beswick, F.	Holman, P.	Reeves, J.
Bevan, Rt. Hon. A. (Ebbw Vale)	Holmes, Horace (Hemsworth)	Reid, Thomas (Swindon)
Blackburn, F.	Hoy, J. H.	Reid, William (Camlachie)
Blyton, W. R.	Hubbard, T. F.	Rhodes, H.
Bottomley, Rt. Hon. A. G.	Hudson, James (Ealing, N.)	Roberts, Albert (Normanton)
Bowden, H. W.	Hughes, Cledwyn (Anglesey)	Roberts, Goronwy (Caernarvon)
Bowles, F. G.	Hughes, Emrys (S. Ayrshire)	Robinson, Kenneth (St. Pancras, N.)
Braddock, Mrs. Elizabeth	Hughes, Hector (Aberdeen, N.)	Rogers, George (Kensington, N.)
Brockway, A. F.	Hynd, H. (Accrington)	Ross, William
Brook, Dryden (Halifax)	Irvine, A. J. (Edge Hill)	Royle, C.
Brown, Rt. Hon. George (Belper)	Irving, W. J. (Wood Green)	Shackleton, E. A. A.
Brown, Thomas (Ince)	Jeger, Dr. Santo (St. Pancras, S.)	Shinwell, Rt. Hon. E.
Burke, W. A.	Jenkins, R. H. (Stechford)	Short, E. W.
Burton, Miss F. E.	Jones, David (Hartlepool)	Silverman, Julius (Erdington)
Butler, Herbert (Hackney, S.)	Jones, Jack (Rotherham)	Silverman, Sydney (Nelson)
Callaghan, L. J.	Jones, T. W. (Merioneth)	Simmons, C. J. (Brierley Hill)
Carmichael, J.	Keenan, W.	Skeffington, Arthur
Champion, A. J.	Key, Rt. Hon. C. W.	Slater, Mrs. (Stoke, N.)
Chapman, W. D.	King, Dr. H. M.	Slater, J. (Durham, Sedgefield)
Chetwynd, G. R.	Kinley, J.	Smith, Ellis (Stoke, S.)
Clunie, J.	Lee, Frederick (Newton)	Smith, Norman (Nottingham, S.)
Coldrick, W.	Lee, Miss Jennie (Cannock)	Snow, J. W.
Collick, P. H.	Lever, Harold (Cheetham)	Sorensen, R. W.
Corbet, Mrs. Freda	Lever, Leslie (Ardwick)	Soskice, Rt. Hon. Sir Frank
Craddock, George (Bradford, S.)	Lindgren, G. S.	Steele, T.
Crosland, C. A. R.	Lipton, Lt.-Col. M.	Stewart, Michael (Fulham, E.)
Crossman, R. H. S.	Logan, D. G.	Stokes, Rt. Hon. R. R.
Cullen, Mrs. A.	MacColl, J. E.	Strachey, Rt. Hon. J.
Daines, P.	McGhee, H. G.	Stross, Dr. Barnett
Dalton, Rt. Hon. H.	McGovern, J.	Summerskill, Rt. Hon. E.
Darling, George (Hillsborough)	McInnes, J.	Swingler, S. T.
Davies, Ernest (Enfield, E.)	McKay, John (Wallsend)	Sylvester, G. O.
Davies, Harold (Leek)	McLeavy, F.	Taylor, Bernard (Mansfield)
Deer, G.	MacMillan, M. K. (Western Isles)	Taylor, John (West Lothian)
Delargy, H. J.	McNeil, Rt. Hon. H.	Taylor, Rt. Hon. Robert (Morpeth)
Dodds, N. N.	MacPherson, Malcolm (Stirling)	Thomas, David (Aberdare)
Donnelly, D. L.	Mainwaring, W. H.	Thomas, Ivor Owen (Wrekin)
Driberg, T. E. N.	Mallalieu, E. L. (Brigg)	Thornton, E.
Dugdale, Rt. Hon. John (W. Bromwich)	Mallalieu, J. P. W. (Huddersfield, E.)	Timmons, J.
Ede, Rt. Hon. J. C.	Mann, Mrs. Jean	Tomney, F.
Edelman, M.	Manuel, A. C.	Turner-Samuels, M.
Edwards, John (Brighouse)	Marquand, Rt. Hon. H. A.	Ungoed-Thomas, Sir Lynn
Edwards, Rt. Hon. Ness (Caerphilly)	Mason, Roy	Viant, S. P.
Edwards, W. J. (Stepney)	Mayhew, C. P.	Webb, Rt. Hon. M. (Bradford, C.)
Evans, Albert (Islington, S.W.)	Mikardo, Ian	Weitzman, D.
Evans, Edward (Lowestoft)	Mitchison, G. R.	Wells, Percy (Faversham)
Evans, Stanley (Wednesbury)	Monslow, W.	Wells, William (Walsall)
Fernyhough, E.	Moody, A. S.	West, D. G.
Fienburgh, W.	Morgan, Dr. H. B. W.	Wheeldon, W. E.
Finch, H. J.	Morley, R.	White, Mrs. Eirene (E. Flint)
Fletcher, Eric (Islington, E.)	Morris, Percy (Swansea, W.)	White, Henry (Derbyshire, N. E.)
Follick, M.	Morrison, Rt. Hon. H. (Lewisham, S.)	Whiteley, Rt. Hon. W.
Foot, M. M.	Mort, D. L.	Williams, Rev. Llywelyn (Abertillery)
Forman, J. C.	Moyle, A.	Williams, Ronald (Wigan)
Fraser, Thomas (Hamilton)	Mulley, F. W.	Williams, Rt. Hon. Thomas (Don V'll'y)
Freeman, John (Watford)	Nally, W.	Williams, W. R. (Droylsden)
Gaitskell, Rt. Hon. H. T. N.	Neal, Harold (Bolsover)	Williams, W. T. (Hammersmith, S.)
Gibson, C. W.	Noel-Baker, Rt. Hon. P. J.	Wilson, Rt. Hon. Harold (Huyton)
Glanville, James	Oldfield, W. H.	Winterbottom, Ian (Nottingham, C.)
Gooch, E. G.	Oliver, G. H.	Winterbottom, Richard (Brightside)
Greenwood, Anthony (Rossendale)	Orbach, M.	Woodburn, Rt. Hon. A.
Grenfell, Rt. Hon. D. R.	Oswald, T.	Yates, V. F.
Grey, C. F.	Paling, Rt. Hon. W. (Dearne Valley)	Younger, Rt. Hon. K.
Griffiths, David (Rother Valley)	Paling, Will T. (Dewsbury)
Griffiths, William (Exchange)	Palmer, A. M. F.	TELLERS FOR THE NOES:
Hale, Leslie	Pannell, Charles	Mr. Arthur Allen and Mr. Wallace.

The Temporary Chairman (Mr. G. Thomas)

Before I call the next Amendment, in page 9, line 28, in the name of the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) and his hon. Friends, I would say that I think it would be for the convenience of the Committee if we discussed with that Amendment the Amendment in line 37 in the name of the hon. Gentleman the Member for Bodmin (Mr. D. Marshall), the Amendment in the same line in the name of the hon. Member for Altrincham and Sale (Mr. Erroll) and the further Amendment in the name of the right hon. Gentleman the Member for Leeds. South proposing a subsection (3).

Mr. Gaitskell

That is exactly what Sir Charles suggested to us earlier.

Mr. Albu

I beg to move, in page 9. line 28, after "applies," to insert: (not being expenditure certified by the Treasury under the next following subsection). I shall also discuss the other Amendments which you mentioned, Mr. Thomas. The purpose of this series of Amendments is to carry out the proposal made in the Millard Tucker Report to provide for a discriminatory system of initial allowances and to enable the Treasury, by statutory order, to issue certificates covering certain industries and also certain types of equipment.

In the rather interesting debate which we have just had on the general question of the level of initial allowances over all, there seemed to be a considerable opinion on the other side of the Committee that this was a wasteful way of making concessions and that the concessions would be better made if they were made in particular directions. In fact, I invited the hon. Member for Aylesbury (Mr. Summers) to join with us and to support us because he said in his speech when he attacked our last Amendment that he was in favour of a discriminatory system.

The debates which we have had on the Bill so far, and particularly that on Purchase Tax, have disclosed what everybody knows—the great difference of opinion that there is between the two sides of the Committee on whether it is possible or not to have any degree of planning of the economic activities of the country. With the exception of my hon. Friend the Member for Cheetham (Mr. H. Lever), who intervened in the discussion on Purchase Tax, most of us on this side of the Committee believe that it is possible to make an estimate of economic developments and to take some precautions against the effect of future changes.

After the Chancellor's speech, there is no doubt whatsoever that the other side of the Committee have very grave doubts as to whether anything can be done at all. The argument that one must not construct one's Budget from the point of view of the economy of the country, of how it will work and what effect it will have on different parts of the economy, but that it should have a pretty picture effect and be rather attractive to the backwoodsmen of other parts of the world, is really quite fantastic. Surely, the first thing that a Chancellor has to do, in constructing his Budget, is to see that it suits the economic circumstances of the time.

There is no doubt that a discriminatory use of allowances can be one method of making a small contribution towards the planning of our economy, not in a very short term, because that is obvious from the very nature of the concession and the time that it takes to operate, but in the rather longer term. I am rather inclined to the view that it is a better system, perhaps, than the raising of the allowances as a whole.

Now that the Government have refused our Amendment to raise them as a whole, I hope they realise that there is a lot of sense in raising them in certain cases. We have an extraordinary display of complacency on the part of the Chancellor. Perhaps it hides an anxiety which he does not wish to disclose, but it gives the impression that he believes that he has somehow, in a miraculous way, overcome the economic changes in the world, and particularly in this country, over the last 50 or 60 years.

The fact is that, quite apart from the very serious danger arising from American recession which faces us in the not distant future, we are already on the return biennial swing from low stocks and high reserves to high stocks and low reserves, the rate at which our gold and dollar reserves are rising is decreasing and I imagine that it will not be long before we are losing gold and dollars. We are getting into the situation in which we were previously.

Surely we are all agreed that this is a long-term problem for which long-term solutions are 'required. It requires very drastic changes in the construction of our economy and very considerable investments in certain sections of it. Everybody agrees that we need increased investment to increase the productivity and efficiency of industry. But it is not only necessary to increase the overall productivity. It is necessary also to distinguish between industries and to have some order of priorities in one's mind in the field of investment. I do not believe that this can be left under the present circumstances to a free market.

There is no doubt that the main investment encouragement at the present time should be to industries most capable of coping with changes which have taken place and are taking place in world trade, with the permanent change in Britain's terms of trade, the growing industrialisation of other countries, even countries within the Commonwealth and the persistent world shortage of dollars, of which there is no solution in sight.

We have therefore two main objects in a discriminatory policy. One is to encourage the expansion of those industries which are most likely to be able to maintain or expand their exports; and the nature of those industries is changing continuously. We all know that the proportion of textiles and simple consumer goods has fallen and the proportion of metal goods, engineering products, and particularly the more complicated products, is rising. I think that most of us understand that if we are to keep in world markets at all we should sell the sort of goods which other countries have not yet learned to make—industries with a high degree of skill and in which they have not yet a high degree of investment. As the years go on, other countries will make more and more of the simpler goods and we shall have to keep ahead.

The other object of a discriminatory policy must be to develop methods of saving imports, particularly dollar imparts, by improving methods of use, by import substitution and by material conservation. The present situation in our industries is depressing. On the long-term view, our main exports, the ones which qualify under headings which I have just been describing, are what generally come under the heading of engineering, metal goods and perhaps chemicals. As my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) pointed out, it is these industries, which have been losing labour in recent months at the expense of the older consumer goods industries, which cannot hope to maintain their export position in the world.

7.0 p.m.

During 1951 the number of workers in the engineering industries went up by 120,000. In 1952 the number was static and this year it has been falling. In fact, it went down by 19,000 at the end of April. It is true that some important sections of the engineering industry are growing, but they are not growing fast enough to counteract the fall in the others. The main falls have been, unlike in other industries, in the consumer goods side of the engineering industry, and in the older forms of engineering such as textile machinery and rolling stock, although there has been a slight rise in rolling stock since.

The rise in labour and, therefore, of output has been mostly, as one would expect, in the newer high conversion ratio industries; that is, in industries in which the proportion of raw material is small and the proportion of brain power and skill is high, that is to say, in aircraft, telecommunication equipment and electrical machinery. This is to be expected, and we must give every possible encouragement to increased production in this group of industries. This is the trend and we are not keeping up fast enough with the trend.

A good example of the type of industry to which such a discriminatory increased initial allowance might be given, and an industry needing a very drastic spur, is the machine tool industry. This was a bad industry before the war in this country. We were miles down and well below the Americans, Germans and Swiss. It has certainly made great improvements during the war and it is very much better now. But anybody who has read the Seventh Report of the Select Committee on Estimates on Rearmament must have observed, in paragraph 30, what an extraordinary dependence there is in this highly industrialised country on imports of machine tools in times of rapid industrial investment.

For the defence programme, where we had quickly to increase our stock of machine tools, we had to spend £104 million abroad; £70 million of that was spent either because the types were not procurable in this country or there was insufficient production at home. The balance could have been obtained only by diverting machine tools from export markets or, alternatively, from home investment. The latter quantity, which could have been obtained only by being diverted from export markets or from home investment, cost the country £34 million in foreign currency, but would only have cost £19 million if manufactured in this country. It appears, therefore, that our machine tools are certainly quite competitive but that production is quite inadequate. Some of the reasons for this were given in the recent Report of the British Productivity Team to which, I have no doubt, it would be out of order for me to refer now.

A larger initial allowance for manufacturing industry would have increased the demand for machine tools, and it is certainly desirable to increase the investment in the machine tool industry, which will have to play a very important part in any programme of industrial expansion or industrial change in reconstruction which we carry out in the next few years. But then, of course, the industry is exactly that type of industry which could provide a very valuable form of export. I am sure that the Parliamentary Secretary to the Ministry of Labour, who I am glad to see here, would not disagree.

More controversial, I suppose, is the aim of the encouragement of investment for the saving of imports. Last year and this year a number of Amendments have appeared on the Order Paper dealing with raw material production overseas and particularly in the sterling area, but in my view we also need to give encouragement to methods of reducing the overall import content of our manufactures. Many of the import substitutes, of course, are very expensive in investment, particularly the products of the chemical industry. New ideas, new processes and new materials are always being produced. Here, I think, is another field in which it would certainly be worth while to provide this sort of incentive of a discriminatory initial allowance higher than the standard rate of initial allowance.

A number of Amendments have been put on the Order Paper dealing with particular industries or types of plant, and I understand that these are not to be called, but I think it is in order to deal with some of them and I have no doubt that hon. Members on both sides of the Committee will all have their claims. One Amendment which I had hoped to move dealt with mechanical handling equipment, that is to say, cranes, conveyors, fork lift trucks, and so on, which are used in industry. There is general agreement that great savings can be made in industry in handling materials, and in British industry in particular.

Nearly every one of the productivity reports refer to this, and it is true that not all of these methods require expensive equipment. Some of them require quite simple equipment or simple reorganisation of the plant or factory. Where new equipment has to be purchased it is frequently not very expensive. The Report of the Materials Handling Team of the Anglo-American Committee on Productivity estimated that the cost of handling materials varies in different industries and even from factory to factory in a particular industry from 15 per cent. to 85 per cent. of total manufacturing cost, and a small expenditure on materials handling equipment frequently produces a very large return, far larger probably than an equal investment in other types of plant. Practically all the known types of mechanical handling equipment are available in this country.

There are also secondary effects. Mr. Dimmock, who was the Secretary of the Materials Handling Team, has said: It has been the experience of many firms that the introduction of improved handling has led to increases in machine or process utilisation and, at one and the same time, this has been achieved by a substantial reduction of investment in materials and work in progress. It is also true that mechanical handling frequently leads to an increase in safety, which is a good thing in itself, but it also leads to an increase in productivity. A friend of mine, who was a professor of history at the Massachusetts Institute of Technology, once told me that what really impressed him about the engineering students who came to him was this sense of flow which they had; that is to say. they did not think of their job as just producing the goods and leaving them there, but right from the beginning of their student days they thought of the material coming in at one end of the factory and they never stopped thinking about it until it was out the other end. Certainly, the general view of the productivity team has been that this is one of the great differences between American and British industry.

Many of the reports of the different industries have a complete section entirely on this subject. For instance, the report on steel founding says, among its recommendations: Installation of machinery can be effected in many foundries to give quick improvement in productivity. AH American foundries were seen to have good methods of handling materials. Quick acting cranes, fork lifting trucks and wheeled skids for handling moulding boxes into the casting position are three important features. The report of the heavy chemicals industry said: By a concentration on improvements in materials handling techniques we envisage a 50 per cent. to 100 per cent. increase in labour productivity in those parts of a chemical factory where materials handling is a major problem. The report on internal combustion engines said: …much more attention should be paid to the handling of components at all stages of manufacture in British industry to raise productivity. The report of the machine tools industry said—in a special section devoted to the subject: No new mechanical aids for handling were seen; all types used in U.S. are available in U.K.—but they are not so widely used. Finally, the furniture industry—in which I have a purely constituency interest—had this to say: Handling methods in the normal American factory give it an important advantage in productivity over its British counterpart. Hon. Members will have observed that the recommendations refer not only to mass production industries. People who do not know anything about production engineering—like the Civil Lord of the Admiralty—think that these methods can be applied only to mass production industries and not to the heavier industries, particularly the heavy engineering industries. It may interest hon. Members to know that my right hon. Friend the Member for Ipswich (Mr. Stokes) makes a fork-lifting truck which lifts eight tons. I imagine that that is not used in a light engineering factory, but probably in a steel works or steel constructional works.

I know how difficult it is to persuade people in industry to spend a few hundred pounds on trucks or simple equipment for moving goods around while they are spending thousands of pounds on tooling or other plant. This is a relic of the days when there was a great store of unskilled labourers and very low wages. Here is an excellent case for raising the initial allowance from 20 per cent. to 40 per cent. At a very small cost we might get a valuable increase in productivity in our industries. It has been said that good management equals good manners plus good housekeeping. Certainly, good housekeeping in industry means keeping goods off the floor, keeping down work in progress and making the work as straightforward and easy as possible.

I have dealt with this subject at length, partly because it is important and partly because it is an example of a type of equipment for which this allowance might be made. The Amendment covers both industries and types of equipment, and the Schedule has tried to define the duties of the Treasury in much the same way as did the instructions in the last letter sent by the Chancellor of the Exchequer to the Capital Issues Committee. The Schedule says: The Treasury may from time to time certify that certain expenditure is in the national interest being expenditure on projects which in the opinion of the Treasury are essentially and positively related to export, import savings or the relief of basic deficiencies, or which in the opinion of the Treasury contribute definitely to the general health of the economy by technical development or the better use of resources."— and again: Expenditure certified as aforesaid shall be either any expenditure by a designated industry or any expenditure on a designated type of machinery or plant. For the purpose of this paragraph the Treasury may from time to time define and designate an industry or a type of machinery or plant and publish lists of industries and of types of machinery or plant so defined and designated. Both methods could be used. I know it will be said—as it was before—that there are administrative difficulties. We all know that the Inland Revenue do not like having to make discriminations of this sort, but whatever the difficulties I am convinced that they could be overcome. I believe discriminations are very necessary at the present time and in this case there would be a very much smaller sacrifice in revenue than the figures given us by the Chancellor in regard to the previous Amendment.

If he would accept this Amendment he could encourage a very substantial improvement in productivity and also make a real contribution towards that long-term change in the structure of British industry which has to come sooner or later. I hope that his seeming complacency does not mean that he does not understand the problem. He will have to deal with it sooner or later and we might as well make a start now. The effect will not be felt for two or three years. It is not a short-term measure, but a measure to deal with long-term changes that we want. We should not attempt to deal with these purely biennial swings.

7.15 p.m.

Mr. Nabarro

The comments of the hon. Member for Edmonton (Mr. Albu) might have had a good deal more validity if he had attempted to relate his mechanical handling problems to the period for wear and tear purposes, over which such equipment is normally depreciated by the Inland Revenue. Our debate on the previous Amendment singularly omitted any reference to that important consideration of wear and tear. In my view the whole principle of initial allowances rests upon a variation in the standard rates, and terms of application, of existing wear and tear allowances. In effect, it concentrates into the year in which the expenditure is incurred a slightly greater amount, in terms of percentage and therefore money, of the initial cost of the asset, than would otherwise have been the case.

In the Second Reading debate on this Bill, I said that I was generally in favour of discrimination in the application of initial allowances, but I did not mean the extreme sort of discrimination inferred by the Amendment which has just been moved by the hon. Member for Edmonton. There is a case for discrimination where existing wear and tear allowances are manifestly inadequate, but there is no case for discrimination where they are manifestly adequate. In the Second Reading debate I gave what I believed was a very valid example—that of motor vehicles. They already attract a wear and tear allowance which is at the rate of 25 per cent. per annum on the reducing balance. A motor vehicle purchased by an industrial firm can thus generally be written off in a period of five years.

When Sir Stafford Cripps brought in his initial allowance at the rate of 40 per cent.—or double the previous rate —and added that 40 per cent. to the existing wear and tear allowance for a motor vehicle owned within industry, it meant that more than 60 per cent. of the initial cost of the asset could be written off in the year in which the expenditure was incurred. That was ridiculous. All that did was to encourage extravagance in the purchase of vehicles by industry, whether commercial or private.

Mr. Douglas Jay (Battersea, North)

I would point out to the hon. Member that I have an Amendment on the Order Paper which seeks to exclude motor vehicles from the operation of the initial allowance for the very reasons he has given. I confidently hope that we shall have his support for that Amendment.

Mr. Nabarro

I am not making these observations in any party political spirit. I am taking the question of motor vehicles as an extreme case because it demonstrates my point so clearly. We should not apply a larger rate of initial allowance to any particular type of industrial equipment to which an adequate wear and tear allowance is already applicable.

If we followed the proposals made by the hon. Member for Edmonton and, by means of a Treasury certificate, conceded a discriminatory rate of initial allowance in favour of certain classes of equipment, we should create the type of Dutch-auction which we have had, year by year, on each successive Finance Bill in connection with Purchase Tax. We should have hon. Ladies opposite appearing in three-quarter-length coats, endeavouring to demonstrate anomalies in the application of the tax, and we should have all sorts of pleas made on behalf of all sorts of industries for special treatment on the grounds of national or local value. Surely that is a wrong principle. We do not want to be involved in controversies of that kind and of a purely sectional type. What I mean by discrimination——

Mr. Albu

Then why does the hon. Gentleman put his name to Amendments of that type?

Mr. Nabarro

If the hon. Gentleman will allow me to continue, I will tell him the type of discrimination I referred to on Second Reading and the type which is covered by the Amendment in line 37, which, had it been called separately, I would have moved. Discrimination, I repeat, in the application of initial allowances, should apply only when the existing rate of wear and tear is inadequate and where it is manifestly in the national interest to encourage production of that class of equipment. There is no clearer case of the desirability of applying those principles than in the case of ships.

Throughout the debate on Finance Bills in the last few years we have had, almost annually, discussions on shipping. In 1944, when Sir John Anderson, the then Chancellor of the Exchequer, introduced initial allowances, he said, The allowance … will cover all businesses, and will be of particular value to shipping, where it will materially assist the policy of keeping our imcomparable Mercantile Marine thoroughly up to date."— [OFFICIAL REPORT, 25th April, 1944; Vol. 399, c. 674.] What Sir John Anderson no doubt meant by the "particular value to shipping" was the fact that the wear and tear allowances for shipping were based generally on a 20 years' lease of life. That is too long a period, generally speaking, for the writing off or depreciation of the normal type of ship, although there are exceptional cases. He meant, therefore, that by the application of the initial allowances the unfair rate of wear and tear allowance would be mitigated.

When the right hon. Member for Leeds, South (Mr. Gaitskell) suspended initial allowances in 1951, the Economic Secretary to the Treasury again made a special reference to shipping. He said: I think the Committee will appreciate that the fact that the Government have tabled the Amendment"— the Amendment to provide certain relief for the building of ships— is an indication that we recognise shipping to be an exceptional case. The word 'unique' has been used, and I should be prepared to accept that as a fair description of the shipping industry."—[OFFICIAL REPORT, 8th June, 1951; Vol. 488, c. 1480.] There is little doubt that all parties in the House and hon. Members in all parts of the Committee have always subscribed to the overwhelming importance of shipping and the construction of ships to our national economy. That, coupled with the fact that the existing rate of wear and tear allowance allowed by the Inland Revenue is manifestly inadequate, makes ships a deserving subject for the application of a discriminatory rate of initial allowance, and the purpose of my Amendment—and I will not go into the technicalities unless I am challenged to do so —is to increase the initial allowance from 20 per cent. to 40 per cent.

A contributory factor in the problems which confront shipbuilders today is the very large rate of increase which has taken place in constructional costs. I hope I may say without fear of contradiction that there has been no comparable increase in the cost of production in any manufactured article in post-war years. For instance, in 1945 the cost per ton of constructing a 9,500 ton dead weight motor ship was £28. By 1949 the cost per ton had risen by 50 per cent. to £42. That was the year in which Sir Stafford Cripps, then Chancellor of the Exchequer, doubled the rate of initial allowances with an eye on shipbuilding costs.

Between 1949 and 1952 a further increase of 55 per cent. took place in the cost of shipping construction. In the case of a 9,500 ton dead weight motor ship it rose from £42 in 1949 to £65 per ton in 1952. It may therefore be argued quite fairly that if Sir Stafford Cripps, in 1949, had regard to the position of shipping, when doubling the rate of initial allowances, we should similarly have special regard to the position of shipping today in view of the further 55 per cent. increase, or more, in the cost of shipping construction since 1949.

In addition to the question of the very considerable increase in ship construction cost, there is a point of special interest to the Treasury in the earning capacity of our Mercantile Marine. Figures can be only approximate, but they nevertheless have a striking value in a debate of this kind. In 1947 the net earning capacity of the Mercantile Marine was discovered, after inquiry by the industry, to be no less than £60 million. In 1948, as a result of the rebuilding of ships which had been used for war purposes, the earning capacity had increased to £100 million. In 1950 it had further increased—I speak of the net earning capacity of the Mercantile Marine—to £150 million. According to the present Parliamentary Secretary to the Ministry of Transport, at the annual general meeting of the Mercantile Marine Service Association in Liverpool on 1st May this year, the earnings of the Mercantile Marine in the calendar year 1952 might have been expected to rise to the quite stupendous figure of £225 million—in other words, 3¾ times as much as in 1947.

Those are invisible exports, and they are exports of the most valuable kind to our national economy. They compare very much more than favourably with our principal visible exports—for instance, in 1952 vehicles at £479 million, including locomotives, ships and aircraft, and machinery at £422 million in that calendar year. That is the second reason, therefore—the very large earnings of the Mercantile Marine—for considering giving new shipping construction some form of discriminatory fiscal and financial treatment.

Finally, I want to say a word about the age of the British Mercantile Marine, and in view of the overriding importance of the competitive power of the British Mercantile Marine being maintained at the highest possible level during the next few years. In the United Kingdom we have only 21 per cent. of our Mercantile Marine less than five years old—slightly over one-fifth. Norway has 41.6 per cent. of her Mercantile Marine less than five years old, Japan has 38 per cent. and France 31.3 per cent. less than five years old.

The United Kingdom therefore lies fourth in the great shipping powers of the world in the age of her Mercantile Marine and the percentage of her Mercantile Marine vessels less than five years old. I am not suggesting that we are anywhere near as badly off as a small country like Panama which owns a disproportionately large percentge of world shipping, but in terms of relative age it is worth observing that 14.4 per cent. of the United Kingdom Mercantile Marine is more than 25 years old, whereas of the United States merchant fleet only 2.4 per cent. is more than 25 years old.

Mr. Harold Wilson (Huyton)

Those are very important figures. Would the hon. Gentleman state, for the benefit of the Committee, whether those figures include tankers or are for cargo ships only?

Mr. Nabarro

I am grateful to the right hon. Gentleman. They include tankers and exclude ships of less than 100 tons. To complete these three statistics, Norway has 10.3 per cent. of her ships over 25 years old.

7.30 p.m.

The tendency with the British Mercantile Marine is in the wrong direction, in my view. We have a disproportionately low total of ships which are less than five years old and a disproportionately high percentage of ships that are more than 25 years old. In consideration of the fact that our Mercantile Marine earned, in 1952, no less than £225 million, I believe the statistics I have given present to my right hon. Friend a case of quite supreme importance for taking some form of discriminatory action to help the shipping industry.

That need not cost a very great deal or money. Whatever it costs I would offset by deliberately excluding classes of equipment which it is not in the national interest to subject to an initial allowance. I would exclude motor vehicles in industry and private cars. I go farther than that. I would exclude industrial buildings from the 10 per cent. allowance. Why? In accordance with my principles, which I have endeavoured to enunciate tonight, I would do so because Lord Waverley gave them a 2 per cent. wear and tear allowance per annum, over an estimated life of 50 years, in his 1945 Finance Act, and 2 per cent. per annum is quite enough for industrial buildings, in my view.

That is broadly my case for pleading for discrimination. It is my basis for pleading for special relief for the shipping industry and our incomparable Mercantile Marine. I hope, therefore, that my right hon. Friend will be able to have special regard to the somewhat specialised, though nevertheless important matters, I have endeavoured to demonstrate.

Mr. F. Beswick (Uxbridge)

The hon. Member for Kidderminster (Mr. Nabarro), as he proceeded, seemed to argue himself around to the precise position that has been taken up on this side of the Committee. He appeared to be in favour of discrimination, provided it was in favour of items with which he agreed. What he seemed to say, towards the end of his speech, was that he had the same kind of items in mind that we have on this side of the Committee.

There was on the Order Paper another Amendment in my name and the names of some of my hon. Friends, in page 9, line 37, at the end, to insert: (3) The last preceding subsection shall not apply to expenditure for the provision (by replacement or otherwise) of machinery or plant being equipment required for the conversion of shops to adapt such shops for self-service distribution. It fitted into this discriminatory pattern. It sought, in a rather humble way, to help to achieve the same good objective as my hon. Friend the Member for Edmonton (Mr. Albu) set out, namely, to reduce costs, to increase productivity, to help towards a better deployment of manpower, and generally to increase national efficiency and economic independence.

During the week-end I asked a Dominions visitor for his impressions of this country. He was very kind and courteous and gave a number of favourable impressions, but he did say, finally, that one thing that struck him was the number of men, as he put it, who were hanging around in liveries of one kind and another and the number of men we seemed to have distributing goods behind our counters. I believe that statistics would probably support the general impression that our Commonwealth visitor obtained.

The Amendment which I had hoped to move suggested that there should be discrimination in favour of conversion to self-service shops, and I hope that the Chancellor will give his mind to this because I do think that the conversion of shops to self-service, partly or wholly, can do a good deal towards achieving higher efficiency and productivity.

There are some, I know, who still maintain that the case for self-service is not yet fully proven, but I do not think we can afford to ignore the experience in the United States of America or the limited experience already obtained in this country. No one who has studied the distribution of food, especially in the United States, can fail to be impressed by their self-service system, whether in the so-called superstores or in the smaller shops.

According to the Federal Trade Commission gross retail profit margins in the United States have been brought down from about 23 per cent. to 25 per cent. in 1929 to 14 per cent. to 16 per cent. In 1949. and I read in the magazine "Fortune" that the supermarkets have increased dollar sales per employee by 50 per cent. in the last decade. That means to say one worker is now handling 50 per cent. more goods now than he was doing a decade ago.

Certainly, the introduction of self-service shops does seem to have brought great advantage to those firms who have taken the initiative in this matter. In 1950, self-service and semi-self-service shops, which comprised just over 53 per cent. of the total in the United States, were doing 85 per cent. of the entire grocery and retail trade. According to some propaganda material it had been possible for this type of shop to reduce prices in some cases by 5 per cent. to 10 per cent.

Experience in this country has been to a large extent gathered by the Cooperative movement. They have pioneered in this matter as in others. About 1,000 self-service shops are now operated by Co-operative societies in this country. While prices have been rising so seriously the self-service system has shown significantly good results. I do not want to weary the Committee with figures, but one or two will be of interest. Let us take the case of one branch shop in the London area with sales of £48,000 a year before conversion. In the first year after conversion to the self-service system the sales were £62,000 in the same space and with slightly fewer employees. Wage costs in the same branch were reduced from 1s. 6½d. a £ sale to 1s, 3¾d. in the first year, and there was a further drop to 1s. 2¾d. in the second year.

Portsmouth, which is very much in the minds of a number of us today, has a very progressive record in this as in other matters. They have done a good deal of conversion to this self-service idea. In 1947, the weekly sales at a certain shop were £541 but have since risen to £1,490 per week, with wage costs falling from 1s. 8¾d. in the £ to 1s. 0¾d. in the £ and with a definite fall in other expenses at the same time. Here, obviously, we have a chance of reducing the wage costs, which is, of course, the only sane way of making possible an increase of wage rates.

I have not so far referred to the report on retailing of the team which went to the United States. I gather the impression that the more these twentieth century teams are quoted the less their effect is, but it may be pointed out that the team did say, in their report, that while in the United States they have three times our population and each member of the population was dealing with a larger volume of food, nevertheless, there are in that country only just over twice as many retail food workers. So here we have economy and a greater efficiency in the retail food trade.

My hon. Friend the Member for Edmonton made some very wise remarks about the necessity for the more efficient handling of articles. It may be worth pointing out a figure reached by a Swedish expert in these matters. He said that a housewife buying for a family of four handled, in the course of a year, on the average, 4,300 1b. That is to say, in the course of one year, nearly two tons of foodstuffs and general groceries have to be shifted for a family of four, so clearly, if we can devise a better and more efficient method of handling in this trade we are doing something to increase the productivity of our nation.

The productivity team to which I have referred recommended in terms that there should be conversion to self-service when national economic considerations become more favourable. As the touchstone for the improvement of economic conditions in these matters seems to be whether we can reduce the tax on mink coats, according to the new economic expert that we have in the hon. Member for Manchester, Cheetham (Mr. H. Lever), applying that test national economic considerations are now favourable, and I should have thought that the Chancellor would do well to heed the report of this productivity team, who say: As conversion results in an economy of manpower, advantages to customers and better conditions to staffs, we feel bound to recommend that every encouragement be given to those bold enough to experiment with self-service or semi-self-service.… They go on to ask for an adequate depreciation allowance.

I shall not argue now whether an initial allowance of even, say, 40 per cent. will make all the difference between conversion or not, but it might just tip the balance of consideration in favour; and I go as far as saying that it would mean, in other cases, that people would give more earnest consideration to the possibility of conversion. I do not claim that Britain can win through only if we have a self-service system in the food retailing business, but I do think that in the years that lie ahead we cannot afford to neglect any possibility of increasing the efficiency of our national economy, and I believe that this is one method by which we can do something towards increasing that efficiency. I therefore hope that the Chancellor will pay attention to the claims of this type of investment when considering initial allowances.

Mr. Summers

Unfortunately, I had to leave the Chamber soon after the hon. Member for Edmonton (Mr. Albu) started to move his Amendment, but I was able to return before he finished. As I understand his reference to my earlier remarks, he regarded me as an ally in the principle of discrimination, having regard to what I said on an earlier Amendment. I can only think that he must have misunderstood what I had in mind. What I said was that I was nervous of a proposal to increase initial allowances to 40 per cent. all round, because to do so appeared likely to prejudice those sectors of industry where it seemed to be the case of the strongest surviving. That was the extent to which I was willing to consider discrimination more readily than I particularly liked.

In this discussion we have had another instance of what we had on an earlier Amendment, namely, a tendency grossly to exaggerate the effects likely to follow from any particular figure established for initial allowances. We have heard expressions read from different productivity reports, of how labour-saving devices have helped, and so on, the implication being that if only sufficiently greater percentages were given in these industries drastic results would follow from the treatment accorded to them. Indeed, the hon. Member for Edmonton talked about it being high time the Chancellor set about changing the structure of industry; that he must take a long-term view.

Again, I think hon. Members opposite are dangerously exaggerating the influences that may follow from changes of this kind, because there are many other factors very relevant to the consideration of whether money should be spent in a particular direction.

7.45 p.m.

Mr. Albu

The hon. Gentleman will agree that we must keep within the rules of order.

Mr. Summers

I do not know what the hon. Gentleman means by that. I propose to take the rules of order from the Chair.

Mr. Albu

The hon. Gentleman misunderstands me. I only meant that I could deal only with the subject-matter of the Bill and the Amendment we were discussing. There are many other measures which might also be suggested.

Mr. Summers

I quite understand what the hon. Gentleman had in mind, but there are so many other factors which influence those who make decisions about spending money which are far more important than the percentage depreciation allowance.

I think hon. Gentlemen opposite have somewhat exaggerated that aspect. In turning down an earlier Amendment the Chancellor said that in early years the cost of initial allowances was a factor to which he must pay considerable attention, and he gave the reasons, of which this was one, which forced him to pay great attention to them. I can only hope that he will remember that there are one or two sectors of industry where, if he cannot go all the way with all industry, he might find it possible to go beyond the 20 per cent. established in the Bill. I have in mind the point made by my hon. Friend the Member for Kidderminster, who alluded in such cogent terms to shipping and shipbuilding.

There are one or two considerations on that subject which seem to distinguish shipping from other sectors of industry, thereby making it possible, I would hope, for the Chancellor to make a concession, limited in character and so limited in cost, in favour of that industry. Reference has been made in this discussion to plant and machinery which in the ordinary course of events is, as it were, the sort of framework within which the operations of an industry take place. In the shipping industry ships are not part of the machinery, but the whole works. A company wishing to acquire a new ship cannot build piecemeal in the terms of other industries; it has to acquire entirely new plant, capital plant which in this instance is the very essence of the money-making venture. It follows from that, unlike other aspects of British industry, that the plant cannot be replaced piecemeal.

There are types of industry in which certain plant can be renewed this year, other plant next year, and further plant the year after under a four- or five-year programme, during which period it may be possible to collect sufficient capital to do justice to the improvements the firm has in mind. But that is not possible or practicable with ships. There comes a time when they must be either replaced completely or carry on as they are, and I should have thought that that in itself was a very cogent reason for distinguishing between shipping and other sectors of industry. I do not propose to go into the figures again; reference has already been made to the very much greater increases in the price of shipping tonnage than in the price of other things since the war, and since special consideration was given to shipping in an earlier Budget on the grounds of increases in price I should have thought the case was amply made out now for those same reasons.

The only other point I wish to allude to in this connection is that it is fairly common knowledge that most shipyards are, at any rate theoretically, full up for a number of years ahead, and it would seem to be a plausible argument to advance: What is the good of making concessions in favour of shipping if the order books in the yards are already so full that very little advantage can be taken of the concessions when granted? For a moment I want to deal with that, because, although in theory the order books are full for some time to come, there might still arise the circumstances which make it necessary for those who place the orders to modify their plans. Moreover, in every industry—it applies just as much in shipbuilding, I am quite sure—it is always possible to fit something in after the theoretical deployment of the future work has been established on paper.

This particularly applies in the case of smaller ships, where help in this particular form may be of greater benefit than for the larger shipping companies. I hope that, however the Chancellor may look at this matter, particularly, in reference to shipping, he will not regard the tolerably full order book for some time ahead as a reason for withholding a concession which will be of great value in the shipping world in particular, and which, in my judgment, could reasonably be treated differently in this regard from the whole field of industry.

Finally, I want to dissociate myself from the general propositions which lie behind the Amendment with which we are now dealing. I think that it would be disastrous if there grew up what has been described as a Dutch auction between various small sectors of capital investment for special treatment. Also, it might be extremely difficult, if not impossible, even though it was thought wise, to find words which would enable the policy now advocated to be put into practice. I should have thought that the very fact that there was only a limited effect to be derived from this system would of itself preclude such an elaborate device as foreshadowed—a kind of economic weapon which is available to the Chancellor year by year.

It is because the influence of this system is exaggerated that I feel that it has come to be regarded by hon. Members opposite as a sort of economic weapon at the disposal of the Chancellor. I think that is not practicable and not desirable. I believe that where capital investment has special features, there are grounds for saying that some greater help than might otherwise be given to industry generally should be given, and I hope that if the Chancellor has any help to give he will give it to shipping.

Mr. Douglas Marshall (Bodmin)

I want to add a few words to what my hon. Friends have been saying about shipping. I would ask the Economic Secretary to look at it in this general light which I want to put to him. In his Budget he has, quite rightly, made an allowance for the so-called extractive industries in the national interest, and no one approves of that more than I do. When he is dealing with his Budget as a whole, he must look at it, presumably, in two ways. There are certain sums which he has to expend on defence and the rest, and, at the same time, he has to consider how to collect the necessary revenue and how we as a country can add to our profitability from earnings abroad.

If he looks at it in that way, I cannot but feel that he will find it hard to disagree with the argument that one of the chief earnings of this country is the invisible exports derived from shipping. If he looks at it from the point of view of defence—and I feel that he must go all the way with me in this matter—the whole security of our country is not only dependent during war upon what the Merchant Navy can carry, but the whole cost of defending that line has a direct relationship to the age of the ships which are in service at sea.

Therefore, anything which gives the incentive to produce vessels which are up to date, which are new, and which can, at the same time, retain the capacity of the skill of our building yards is, in fact, accomplishing what the Treasury and the Chancellor want to accomplish, which is to find greater earnability in this country and also lessen the cost of defence.

If we are to find, in the future, that we have to protect slow, old vessels in order to bring the necessary food and materials to this country, then the cost of making provision to protect them is that degree higher, and I trust that the Economic Secretary will consult his right hon. Friend again on this matter because these are matters of reason, they are matters of common sense and they are matters of commerce.

I sincerely trust that he will not take the attitude, "Well, we have provided for this amount already and, therefore, we should not allow anything else to come in." I sincerely trust that he will pay attention to the arguments put forth with regard to the whole of our shipping in recognising the effect on the vessels afloat, recognising the question of our shipbuilding capacity, recognising the free force of foreign competition which can definitely effect our invisible earnings and recognising that in the question of our ships and the carrying of goods in our ships we cannot only reckon the total amount of profitability to this country in the direct profits of the ship but have to consider the question of insurance and those other matters which immediately surround the question of our shipping.

Therefore, as I said when I made a speech during the Budget debate this year, I consider that this matter should be reconsidered, and although I do not support the Amendment in its full global touch without any form of particularisation I believe that where the shipping question comes in it would not only be an additional profit to our country but an additional safeguard to the defence of the Realm.

Colonel Sir Leonard Ropner (Barkston Ash)

I want to relate my remarks to the Amendment in line 37 which, under the ruling of the Chair, is being discussed with the Amendment which has been moved. Standing alone, this Amendment, from the point of view of the shipping industry, is a very modest proposal. I certainly do not want to get myself involved in the question of what is the right description of initial allowances from the financial point of view. I think that, at the worst, from the point of view of the Chancellor, an initial allowance should be regarded as an interest-free loan, and, at the best, I suggest to the Economic Secretary that the granting of a 40 per cent. initial allowance for shipping would be one method of giving some help and a little encouragement to an industry which is of great value to the nation, which is undoubtedly faced with growing difficulties and which is placed in an unfair economic position vis-à-vis its foreign competitors.

No hon. Member will dispute the value of an adequate Mercantile Marine in time of war. I am sure that lesson has been learned in two world wars, and I certainly hope that it has not been forgotten. But it is almost as of great importance in time of peace that this nation should ensure that we have a large and efficient Merchant Navy. As my hon. Friend the Member for Bodmin (Mr. D. Marshall) has already reminded the Committee, the shipping industry is the largest single earner of foreign exchange of any industry in this country, and the Chancellor of the Exchequer, regarding this great industry from that point of view, would not wish to see the proportion of British ships dwindle further and would agree that it would be folly to allow the number of British ships to become less.

8.0 p.m.

In matters of taxation, many industries are convinced, and a number assert, that they have special problems to face which merit exceptional concessions. It is for the Chancellor of the Exchequer and his advisers to be arbiters in such matters, but it is equally the job of those who know the facts to present the case, and words of wisdom about the shipping industry have already fallen from a number of hon. Members this evening.

I freely admit that one difficulty in presenting the case for any form of taxation relief for British shipping is the fact that since 1945 shipping has been reasonably prosperous. Indeed, there have been times when the industry has enjoyed very considerable prosperity since the termination of the war. But the higher the level of rates of freight and, therefore, the higher the profits, the greater is the disadvantage under which the British Mercantile Marine operates. That may seem a paradoxical statement and I wish to make one or two observations to explain it. It is a statement which is true because of two facts. One fact is that the shipping industry is, competitively, completely international, and the other is that the profits of the British Mercantile Marine are more heavily taxed than are those of the fleet of any other nation of the world.

With regard to the completely international nature of the competition in shipping, I would remind the Committee that there is no home market for shipping. Speaking generally, a shipper does not care in the least what is the country of registration of the ship which he hires to carry goods between two ports. He wants a ship which is tight, staunch and strong. He wants it of a certain size and perhaps of a certain minimum speed. He wants a ship which is available for loading on a certain date. He also wishes to obtain it at as low a rate of freight as he can get, and ships of all nations compete freely in the freight market.

Very much the same thing is true of passengers. Normally, the passenger wants the best possible service at the cheapest possible rate, and very few passengers care what is the colour of the flag that flies from the stern of the vessel in which they sail. Perhaps I might say, in parenthesis, without transgressing the rules of order, that the Committee should know that there are growing difficulties for British shipping in what I have described as a free market. I refer to flag discrimination and trade reservations, two tendencies which are being followed to an increasing extent by foreign Governments.

To return to my original point, the Committee should realise that no other industry requiring such a large capital outlay is open in anything like the same way to free international competition. The second fact is that ships flying foreign flags pay lower taxes and, in that respect, have an advantage over the British Mercantile Marine. I hope that the Committee will now understand and appreciate what I meant when I said that the higher the gross profits of world shipping the greater is the ultimate disadvantage to British shipping compared with its foreign competitors. If no profit is made on a voyage, ships of all nations are, more or less, in an equal position. If £1,000 profit can be made on a voyage and a British ship pays £750 in taxation out of the £1,000 whereas a foreign ship pays only £250, the foreign ship is £500 better off. If the profit on a voyage is 10 times that amount, the foreign ship is £5,000 better off than the British ship.

These two facts are links in a vicious circle, for when a foreign competitor retains his profits and the British ship does not the foreign competitor is able to build new and efficient tonnage, and that in itself leads to higher profits by the foreigner. The British Mercantile Marine has already fallen from one-quarter of the world's tonnage to one-fifth, and, moreover, as has already been emphasised, is ageing. It is losing its competitive efficiency, and that process is accelerating.

I warn the Government that if hard times come in the freight market it looks very much as if it will be the inefficient ships of the British Mercantile Marine which will be laid up and not the efficient ships of the foreign competitors. Owing, in the first place, to the high cost of new tonnage, in the second place to the uncertainty of the freight market, and in the third place to the high rate of taxation, British owners are becoming increasingly reluctant to place orders.

I am glad that the right hon. Gentleman the Member for Dundee, West (Mr. Strachey) has just resumed his seat. I am glad that he reads books on political economy, but I often wish he would spend a few days, weeks or months in a shipping office or the head office of a large industrial concern. I can assure him that shipowners—I can speak only for a very limited number of industries—are becoming increasingly reluctant to place orders on a "Heads you win, tails I lose" basis. If the future is to be that on the one hand, when there are high profits they are so highly taxed that there is nothing left, and, on the other hand, that when there are no profits, when new ships bear a high rate of depreciation, there are consequential net losses, then the average owner will feel that it is better not to order a ship at all. I fear that that is a very reasonable assessment of the present position about the burden of taxation.

A high rate of initial allowance rests, to some extent, on the assumption that the rates of freight will remain at a reasonable level for a year or two. The acceptance of this Amendment, or an assurance from the Government that its principle will be accepted, will permit the initial allowance to be concentrated into the early part of the life of the ship when there is the greatest likelihood of the allowance being effectively set off against profits. The higher rate of initial allowance makes no difference at all in the total allowance over the whole life of the ship.

The acceptance of the Amendment would, I must admit, do hardly anything to meet the difficulties created by the high level of taxation, but it would do something. Shipping lays at the feet of the Chancellor of the Exchequer the biggest gold and dollar egg of all industries. But the goose is getting old, and unless there is a process of rejuvenation in the comparatively near future I can only repeat that, in my view, the goose will stop laying altogether.

Mr. Arthur Holt (Bolton, West)

I have listened to what has been said with great attention, and I should like to say a few words on this Amendment. I am not in agreement with discriminatory initial allowances for what I consider are the illusionary purposes of planning, but where a case can be made for one industry to have a larger allowance than another because of wear and tear or because of another point which I will come to in a minute, I think the case needs the closest examination.

When the hon. Member for Kidderminster (Mr. Nabarro) started on this matter of shipping, he pointed out how the cost of shipping had increased and I jotted down some figures which I hope are correct. He said it rose from £28 a ton to £42 a ton, and in 1952 it was £65 a ton. From there he went on to explain how the earnings of the Mercantile Marine had reached the stupendous figure of three and a quarter times those of 1947. It seems a little odd that on that basis the Government should be asked to discriminate in favour of shipping, because any discrimination for shipping is discrimination against other industry and against the taxpayers.

I should have thought that if the costs of shipbuilding are going up, then this is not the time for the Government to jump in and assist the shippers to pay those increased costs. Rather should there be an urge for everybody to try and push those costs down. On top of that, if shipping earnings are so high, then why further increase the allowance? When the hon. Member for Aylesbury (Mr. Summers) spoke, he put what I considered to be quite a point, that a ship was not replaced bit by bit each year, but suddenly an owner was faced with complete replacement and had a considerable burden to undertake. That seems to me to be a much more pertinent point for a large initial allowance because it is in that year that the expense has to be met.

8.15 p.m.

The hon. and gallant Member for Barkston Ash (Sir L. Ropner) tried, I thought, to meet the point why, as the shipping industry was very busy and making large profits, should we ask for this special allowance. He said that it had to compete in world markets, and that the shipping industries of other countries were in a more favourable position in regard to taxation. I think that that is the same kind of point as was brought up when there was consideration of an increase in the payment for judges. We are really sidetracking the point.

What we have to do is to concentrate on getting taxation down, and, if a special allowance is given to the shipbuilding industry, then the cotton industry, the engineering industry and other industries will ask for exactly the same thing. They are competing in world markets, too, to a greater or lesser extent than the shipbuilding industry, and the burden of the whole thing is that all these industries should be required to retain more of their money. We are not getting rid of the problem when we offer one industry a larger initial allowance. I am not completely convinced on the matter, but I certainly think there is a point here. Before the Committee agree to any special allowance, it has to examine the whole position very closely.

The hon. Member for Edmonton (Mr. Albu) referred to mechanical handling and also increased allowances for things like self-service in shops. There is no one more than I who would like to see more use of mechanical handling aids, but I think there is a great danger, when Parliament gives a special allowance for a mechanical aid of that type, of detracting from the real problem of British industry which, as the hon. Member for Edmonton quite rightly said, is the technique of flow.

When the initial allowances were first brought in, I was still in industry, and I know there was an impetus given to buying mechanical handling machinery of one type or another, but in many cases the people did not make proper use of it because they had not studied the whole technique of flow, which I consider is very much behind in this country and probably could give a greater impetus to industry and greater efficiency than all the other points of individual productivity, about which people talk such a great deal.

I end on this note, that there are cases sometimes—shipping may be one of them —which should be examined extremely closely before we give a discriminatory allowance. We should realise that when we are giving a discriminatory allowance to one industry we are, in fact, giving that allowance from money which has been obtained from other industries which might themselves decide that they had just as great a claim.

Mr. Maudling

In the course of the discussion on this Amendment there has been a good deal said about the shipping industry, and quite rightly; and I shall try in the course of my remarks to deal with the points that were raised.

The Amendment which is before the Committee, and on which we shall be dividing if the Opposition wish to carry this matter to a Division, is a very broad Amendment introducing an entirely new taxation principle—discrimination within the categories of the initial allowances. Of course, there have always been discriminations within the initial allowances in the sense that there are discriminations between different types of business, between industrial building and appliances and between industrial and commercial building, and in those broad categories there have been varying rates; but there has not been discrimination within those categories, between specific types of plant and machinery, or between firms, and the Government consider that it is most important to maintain the principle in our legislation that the discrimination is based on definitions that can be clearly included in statutes and that any assets falling within those definitions are in a position to attract the initial allowance.

If we went beyond that and discriminated between individual firms or industries within those categories, we should be introducing a range of difficulties, both of practice and principle, which could not be justified in present taxation circumstances.

Mr. Mitchison

Is there not already some discrimination between certain kinds of mines?

Mr. Maudling

I was coming to the point of mining. There has been an impression that new discrimination has been introduced in this Finance Bill by the 40 per cent. allowance for mining works. That is not new. What is new, however, is the figure. There has always been a separate category for mining works, but the figure was 10 per cent. when that for plaint and machinery was 20 per cent. So there has been no breach of the principle which I have enunciated and to which the Government wish to adhere.

The case for increasing the allowance for the category of mining works to 40 per cent. rests on a number of propositions. One is the obvious importance of the mining and extractive industries to our economy. That, of course, applies to many other industries as well. Then there is the competition they have to face from the mining industries of other countries which have high rates of tax allowance. Then there is the fact that in the mining industry capital is invested in a highly speculative business and very often the investor sees no return on it for a number of years.

These are reasons for giving special attention to mining but there is another reason, that mining works are obviously clearly distinguishable in the case of either plant and machinery or industrial buildings, and have therefore always been in a special category. For example, the pit shafts, the underground works, and so on are completely useless for any other purpose. If the deposit becomes worked out, the pit shaft is useless. If, as often happens in speculative forms of mining, which are of such great importance, the deposit does not turn out to be what was expected, all the money sunk in putting that shaft down into the ground is lost.

On the other hand, if a ship is built for a particular trade and it cannot be used when the time comes, it can be used for other purposes——

Mr. C. R. Hobson (Keighley)

A tanker?

Mr. Maudling

Obviously I do not mean that a tanker can be used for dry cargo, but if a ship is built with one run in mind and trade cannot be got on that run, obviously the ship can be used for other purposes.

Mr. Hobson

Come, come.

Mr. Maudling

I do not know of many ships that have been paid up simply because they could not be used for the precise runs for which they were intended.

Mr. Hobson

What a brief.

Mr. Maudling

I have been giving the reasons why the mines category has been increased to 40 per cent. The Amendment wishes to go further and suggests that there should be discrimination within the categories and particularly within the category of plant and machinery. The first thing we observe is that a large number of strong cases can be put for special treatment once we admit the principle of special treatment. We have had most interesting arguments about mechanical handling equipment, fork lift trucks, and machine tools. The hon. Member for Uxbridge (Mr. Beswick) mentioned self-service shops and we also heard a great deal about the claims of shipping. A range of industry from shipping at the one end to self-service shops at the other obviously includes every form of industrial equipment.

The Committee will see, therefore, that once the principle of discrimination is admitted, the range of claims that can be put forward is enormous. As my hon. Friend the Member for Kidderminster (Mr. Nabarro) said, a Dutch-auction might arise in the case of initial allowances as it has from time to time in the case of the Purchase Tax.

There is no doubt that if we were to accept the principle of discriminatory allowances the case of the shipping industry for such treatment would be very strong. This Committee will always listen with the greatest attention to anything put forward on behalf of the shipping industry, and we should listen with particular attention to anything said today on behalf of the Mercantile Marine after our experiences yesterday. My right hon. Friend the Chancellor has considered with the greatest care the weighty case put before him on behalf of the shipping industry, and if it were possible to discriminate there would obviously be a strong case for it.

There are certain arguments the other way. It is true that up to now the limiting factor on shipping construction by our shipping lines has been the capacity of the industry and the supply of steel. It is equally true, as my hon. Friend the Member for Aylesbury (Mr. Summers) said, that the argument must not be pushed too far. We are watching with great concern the trend of shipbuilding in our yards for British owners, just as we are watching with great concern the development of discriminatory flag practices by other countries and restrictions on our shipping abroad which, as my hon. and gallant Friend the Member for Barkston Ash said, undoubtedly give rise to concern.

I have noticed recently in statements made by eminent leaders of the shipping industry a warning that orders may have to be cancelled or reduced because shipping costs are so high that it is impossible over the life of the vessel to earn an adequate net return on the money invested. That seems to me to be the main problem facing the shipping industry for which the initial allowance does not provide an adequate solution. It is only by reducing the direct rate of taxation, particularly the Income Tax, as we have done in this Budget, that we can hope to tackle the problems to which special reference has been made. The reductions in direct taxation contained in the Budget should be of great help to the shipping industry.

It is suggested that shipping might be treated on a special basis for several reasons, and my hon. Friend the Member for Kidderminster referred to wear and tear allowances which, he said, were inadequate. I am not arguing the point that they are inadequate. I am saying that if they are inadequate there could be an argument put forward for changing those allowances. But I do not think it is a good argument to say that because they are wrong there should be a special discriminatory initial allowance.

Mr. Nabarro

I am sure my hon. Friend would not dissent from the general principle of my argument that an initial allowance is only a forward weighting of the wear and tear allowances.

Mr. Maudling

My point was that if it is right that the wear and tear allowances are inadequate, the best thing to do is to devise means of putting those allowances right rather than introducing a discriminatory initial allowance, because of the difficult consequences that would follow from it.

Reference was also made to the need to replace ships so to speak as very large units and the tremendous earning power of the Mercantile Marine, and all this the Government thoroughly understand and appreciate, but there are other industries which could put forward similar arguments. A modern air liner costs millions of pounds, and it needs to be replaced much more rapidly than does a ship. If we accept the arguments about ships on that basis, it would be impossible to resist it in the case of aircraft. The whole difficulty in accepting any discrimination is that one finds it very difficult indeed to reach any point where one can stop.

8.30 p.m.

The reasons the Government cannot accept the main Amendment are fourfold. There are, first, reasons of administration. There would undoubtedly be additional administrative complications, and it would also make it much more difficult year by year to calculate the probable yield of taxation and what sum might be involved by the variation of the initial allowances.

Then there is the question of discrimination between taxpayer and taxpayer, and the feeling of injustice which might, and almost certainly would, be produced. We should always be most careful to preserve the taxpayer's sense of fairness in our tax system. We owe a great deal in this country to the way in which the taxation system works, and a great deal depends upon the feeling of the individual taxpayer that he is not discriminated against unfairly but is treated fairly in comparison with other taxpayers, and if we are to give special initial allowances to single industries, which is what is suggested in this Amendment, we should be in great difficulty.

Let us take the case of the aircraft industry. There are firms manufacturing aircraft which also make paints, and if we were to give special treatment to all firms in the aircraft industry and not give similar treatment to those firms which make paints in competition with them, that would be the sort of practical problem which would arise and which would, undoubtedly, also give rise to the feeling that the taxation principle was not being applied fairly.

Then there is the constitutional problem, because these proposals, as I understand them, would take out of the proper purview of Parliament what might be a very large amount of taxation.

Finally, there is the economic point, and here, I am sure, there is a major difference of opinion between the two sides of the Committee. Hon. Gentlemen opposite sincerely believe that it is right, and a sensible and efficient method of conducting the Government's economic policy, to try to influence individual businesses in detail—that the Government should decide which industry should expand and which should contract. Hon. Gentlemen opposite believe in detailed planning of that kind as the right kind of thing for the Government to do, and if one believes that, it follows that discriminatory initial allowances are a good way of carrying out that policy.

The hon. Gentleman who moved the Amendment said that this matter could not be left alone in modern conditions, but had to be done by the Government deciding which industry should expand and which had the least claim to expand. We on this side do not believe that that is the proper function of Government economic policy. We believe that it is for the Government to settle the broad lines of economic policy, to create the conditions in which industries—and, at the present moment, particularly the export industries—can flourish, but we do not believe it is the right thing for a modern industrial society to try to influence in detail the developments of individual industries by the method of selective initial allowances and by other discriminatory methods.

Mr. Mitchison

Would that include directions or requests to the banks as to the ways in which their advances should be made, and the lines upon which they would be made for certain purposes?

Mr. Maudling

I think the hon. and learned Gentleman will find that the general guidance given by the Capital Issues Committee to the banks is within the limits which I have outlined.

To sum up, the reasons the Government cannot accept the Amendment are reasons of administration, discrimination between taxpayer and taxpayer, the doubtful constitutional principle of removing so much control over taxation from this Committee, and, finally, our rejection of the economic theory which seems to underly the Amendment.

Mr. Jay

I think the reply of the Economic Secretary to the Treasury was most disappointing and totally unconvincing. I got the impression that he was doing his best with a brief from the Inland Revenue, but that his heart was very much less in the argument than it usually is.

I had some sympathy myself with the Inland Revenue argument that it is very difficult and burdensome to administer a discriminatory system of initial allowances, and it is certainly the job of the Inland Revenue to put these difficulties before any Minister, but I think it is also our job in this Committee to say whether the case is not so strong that the difficulties have to be met.

Let us look at the case in the way in which the Economic Secretary divided it. He said that first and most important was the economic case for encouraging certain kinds of investment by this method. It seems to us that the case for selective encouragement of this kind is important for the very same reasons that a general increase in investment in what the Chancellor himself called productive industry in this country is so vital at the present time. Surely if it is important to have additional investment, with all the resources that involves, it is extremely important to see that that investment takes place in the right places.

There has really been quite a remarkable amount of agreement on both sides of the Committee that some sort of selection and discrimination will be necessary. Almost all the arguments of hon. Members opposite this afternoon for shipping and other types of industry have implied that we have got to have that discrimination. Indeed, the hon. Member for Aylesbury (Mr. Summers) said that in some parts of industry the case is particularly strong, and the hon. Member for Kidderminster (Mr. Nabarro), if I understood him aright—though I was a little puzzled once or twice to know what conclusion he was going to reach—was in favour of certain forms of discrimination, if not by the House through a Dutch-auction, at any rate by the exercise of the discretion of the Chancellor. That is how I understood his argument.

Surely we should all agree that it is vital at this time that investment should be increased in certain directions. It is quite true that the Government of 1951 had doubts about selective initial allowances because at that time the defence programme was being increased and investments of all kinds had to make way for it; but now, of course, the circumstances are precisely the reverse. The defence programme is over the hump, and we all agree that there is what the Chancellor calls slack or flexibility in the economy. Therefore, we are in quite a different situation.

Without entering into an argument about detailed planning—and I do not think that we on this side are really anxious to go into the degree of detail which the Economic Secretary attempts to suggest when he submits arguments against any planning at all—there is surely a case for encouraging more productive investment in such things as fuel saving, dollar earning, import saving, food production, and, indeed, Commonwealth development.

After all, the Tucker Committee itself, which the Government often quotes when it is convenient to them to do so, accepted that principle as a main part of its conclusions, and I think the Committee ought to realise that this evening. Paragraph 123 of the Tucker Committee's Report says: A company which carries on a shipping undertaking and is a large earner of dollars may very well be thought to be entitled to more consideration than a company which runs a fair ground. I should not have thought that was too modernistic a doctrine for this Committee to accept at this time.

The Economic Secretary really advanced no reply to the Tucker Committee on that point. He went on to say that if we committed this dreadful breach of taxation principles there would be feelings of injustice throughout industry; but surely the very argument that he himself advanced about the mines, the oil wells and the ships shows that that is a very greatly exaggerated point of view. It may be that the discrimination which the Chancellor has introduced this year in favour of mines and oil wells is a different sort of discrimination. Nevertheless, it is discrimination, and I have not noticed in the columns of the financial Press or elsewhere that it has produced a great shout of resentment from other parts of industry. Similarly there was an instance with which the right hon. Member for Renfrew, West (Mr. Maclay) was involved in 1951, in favour of ships.

Mr. John Maclay (Renfrew, West)

It would be a pity if that version went out from the Committee. A very welcome concession was made, on that occasion, but it was not discriminatory in the sense which the right hon. Gentleman implies. Some owners had placed contracts for ships or had ships building on the assumption that these contracts would qualify for initial allowances. But for the concession, they would have lost them.

Mr. Jay

It was a different form of special treatment, if the right hon. Gentleman prefers that expression, but it did not lead to any great outcry, or feeling of injustice.

There is a further argument in principle in favour of this type of discrimination which I think nobody has yet advanced in this debate and which the Economic Secretary himself did not mention. This is one upon which the Tucker Committee laid quite a lot of emphasis. They said that there was already discrimination in the rates of wear and tear, and they very reasonably asked why, in principle, if we admit one sort of discrimination we should reject the other.

Mr. Maudling

That was not discrimination in the principles on which the wear and tear allowance was calculated.

Mr. Jay

The Economic Secretary makes a rather artificial distinction. Whether you call it a principle or not, this is what the Committee said: We see no more reason for applying the same rate of initial allowance to all classes of plant and machinery than for applying the same rates of wear and tear. Just as the rates of annual wear and tear allowances have always varied according to an estimated life of the class of plant or machinery in question, so the rate of initial allowance could be varied in accordance with its current price level. So the Tucker Committee thought the case for these two things was parallel. No answer has been advanced against that at all.

Finally, naturally and very understandably, the hon. Gentleman advanced the argument that there was great administrative difficulty and impracticability in this suggestion. Indeed, that is one of the points which we felt bound to mention in 1951 when the circumstances were different, but when we are increas- ing and not reducing initial allowances we are bound to look at that point again.

In the United States in recent years and during the defence programme, there has been a system in effect of discrimination by the Treasury. I think they call it the grant of a "certificate of necessity" by which individual schemes of investment are given special rates of amortisation. That is one piece of evidence, which I do not over-estimate, that this sort of thing can be done.

Of course, we can carry much too far the argument that once we start to discriminate in this way we shall have Dutch-auctions and all sorts of forms of special pressure, and no satisfactory solution will be reached. I believe there are some problems of this kind which are administratively insoluble, and that it is a mistake to say that anything could be done if we tried hard enough. I could think of several other problems in the financial sphere where I agree with the Economic Secretary, but I do not believe that this is one of them.

I will, in conclusion quote one parallel where these same arguments were used and where the difficulties have been satisfactorily overcome. I remember very well when the original Distribution of Industry Bill, 1945, was being drafted that the question arose whether it would be possible for the Board of Trade to schedule certain areas of the country as Development Areas and then to grant special assistance to those areas. It was said at the time that there would be pressure on the politicians, Dutch-auctions, and all the rest of it, if we did that, but in fact the arrangement then was very similar to the one which we propose in the Amendment.

8.45 p.m.

The Bill laid down that where in the opinion of the Board of Trade it was necessary for the better distribution of industry, they might with the approval of Parliament schedule certain selected areas as Development Areas. That has worked very smoothly and effectively. Changes have been made from time to time, but there has been no terrible controversy and, as far as I know, no undesirable Dutch-auction. That proves that, given the effort in this not exactly similar but comparable case, some arrangement of this kind could be made. If the Economic Secretary says that it may be that that could be done in a case such as that of the Distribution of Industry Act, where it is a question of Government expenditure, but that where there is a question of taxation the principle is more difficult, it could be argued that this principle has been admitted already by the D Scheme in the case of Purchase Tax, which the present Government introduced. I mention that by way of illustration to point out that the D Scheme gives exemption from Purchase Tax to certain kinds of goods and excludes others. That proves that the problem is not insoluble.

I think that we on this side would not accept that part of the Tucker Committee's recommendations which leaves the Government only in a position to make this kind of discrimination if a trade association came forward and proposed it. I do not see

why we should write it into the statute that a Government is powerless to act unless some trading association takes the initiative. We propose that it should be in the discretion of the Treasury and that it should be open to a trading body or an individual firm or anybody to come forward and make a suggestion.

We feel that primarily in the interest of encouraging investment in productive industry at a time when, as I fear, the Chancellor's Budget is tending to encourage consumption rather than investment, we ought to take some steps of this kind. If we can have no more positive a response than the very sterile speech of the Economic Secretary, if I may so describe it, I must advise my hon. Friends to press this matter further.

Question put, "That those words be there inserted."

The Committee divided: Ayes, 236; Noes, 251.

Division No. 187.]	AYES	[8.47 p.m
Acland, Sir Richard	Driberg, T. E. N.	Hughes, Hector (Aberdeen, N.)
Albu, A. H.	Dugdale, Rt. Hon. John (W. Bromwich)	Hynd, H. (Accrington)
Allen, Scholefield (Crewe)	Ede, Rt. Hon. J. C.	Irvine, A. J. (Edge Hill)
Anderson, Alexander (Motherwell)	Edelman, M.	Irving, W. J. (Wood Green)
Anderson, Frank (Whitehaven)	Edwards, John (Brighouse)	Jay, Rt. Hon. D. P. T.
Attlee, Rt. Hon. C. R.	Edwards, Rt. Hon. Ness (Caerphilly)	Jeger, George (Goole)
Awbery, S. S.	Edwards, W. J. (Stepney)	Jeger, Dr. Santo (St. Pancras, S.)
Bacon, Miss Alice	Evans, Albert (Islington, S. W.)	Jenkins, R. H. (Stechford)
Bartley, P.	Evans, Edward (Lowestoft)	Johnson, James (Rugby)
Bellenger, Rt. Hon. F. J.	Evans, Stanley (Wednesbury)	Jones, David (Hartlepool)
Bence, C. R.	Fernyhough, E.	Jones, Jack (Rotherham)
Benn, Hon. Wedgwood	Fienburgh, W.	Jones, T. W. (Merioneth)
Beswick, F.	Finch, H. J.	Keenan, W.
Bevan, Rt. Hon. A. (Ebbw Vale)	Fletcher, Eric (Islington, E.)	Kenyon, C.
Blackburn, F.	Follick, M.	Key, Rt. Hon. C. W
Bryton, W. R.	Foot, M. M.	King, Dr. H. M.
Boardman, H.	Forman, J. C.	Kinley, J.
Bottomley, Rt. Hon. A. G.	Fraser, Thomas (Hamilton)	Lee, Frederick (Newton)
Bowden, H. W.	Gaitskell, Rt. Hon. H. T. N.	Lee, Miss Jennie (Cannock)
Bowles, F. G.	Gibson, C. W.	Lever, Leslie (Ardwick)
Braddock, Mrs. Elizabeth	Glanville, James	Lindgren, G. S.
Brockway, A. F.	Gooch, E. G.	Lipton, Lt.-Col. M.
Brown, Thomas (Ince)	Gordon-Walker, Rt. Hon. P. C.	Logan, D. G.
Burke, W. A.	Greenwood, Anthony (Rossendale)	MacColl, J. E.
Burton, Miss F. E.	Grenfell, Rt. Hon. D. R.	McGhee, H. G.
Butler, Herbert (Hackney, S.)	Grey, C. F.	McGovern, J.
Callaghan, L. J.	Griffiths, David (Rother Valley)	McInnes, J.
Carmichael, J.	Griffiths, William (Exchange)	McKay, John (Wallsend)
Champion, A. J.	Hale, Leslie	McLeavy, F.
Chapman, W. D.	Hall, John T. (Gateshead, W.)	MacMillan, M. K. (Western Isles)
Chetwynd, G. R.	Hamilton, W. W.	McNeil, Rt. Hon. H.
Clunie, J.	Hannan, W.	MacPherson, Malcolm (Stirling)
Coldrick, W.	Hargreaves, A.	Mainwaring, W. H.
Collick, P. H.	Harrison, J. (Nottingham, E.)	Mallalieu, E. L. (Brigg)
Corbet, Mrs. Freda	Hastings, S.	Mann, Mrs. Jean
Cove, W. G.	Hayman, F. H.	Manuel, A. C.
Craddock, George (Bradford, S.)	Healey, Denis (Leeds, S. E.)	Marquand, Rt. Hon. H. A.
Crosland, C. A. R.	Healy, Cahir (Fermanagh)	Mason, Roy
Crossman, R. H. S.	Henderson, Rt. Hon. A. (Rowley Regis)	Mayhew, C. P.
Cullen, Mrs. A.	Herbison, Miss M.	Mellish, R. J.
Daines, P.	Hobson, C. R.	Mikardo, Ian
Dalton, Rt. Hon. H.	Holman, P.	Mitchison, G. R.
Davies, Ernest (Enfield, E.)	Holmes, Horace (Hemsworth)	Monslow, W.
Davies, Harold (Leek)	Hoy, J. H.	Moody, A. S.
Davies, Stephen (Merthyr)	Hubbard, T. F.	Morgan, Dr. H. B. W.
Deer, G.	Hudson, James (Ealing, N.)	Morley, R.
Dodds, N. N.	Hughes, Cledwyn (Anglesey)	Morris, Percy (Swansea, W.)
Donnelly, D. L.	Hughes, Emrys (S. Ayrshire)	Morrison, Rt. Hon. H. (Lewisham, S.)
Mort, D. L.	Robinson, Kenneth (St. Pancras, N.)	Thornton, E.
Moyle, A.	Rogers, George (Kensington, N.)	Timmons, J.
Mulley, F. W.	Ross, William	Tomney, F.
Meal, Harold (Bolsover)	Royle, C.	Turner-Samuels, M.
Noel-Baker, Rt. Hon. P. J.	Shacklelon, E. A. A.	Ungoed-Thomas, Sir Lynn
Ordfield, W. H.	Shawcross, Rt. Hon. Sir Hartley	Wallace, H. W.
Oliver, G. H.	Shinwell, Rt. Hon. E.	Webb, Rt. Hon. M. (Bradford, C.)
Orbach, M.	Short, E. W.	Weitzman, D.
Oswald, T.	Silverman, Julius (Erdington)	Wells, Percy (Faversham)
Paget, R. T.	Silverman, Sydney (Nelson)	Wells, William (Walsall)
Paling, Rt. Hon. W. (Dearne Valley)	Simmons, C. J. (Brierley Hill)	West, D. G.
Paling, Will T. (Dewsbury)	Skeffington, Arthur	Wheeldon, W. E.
Palmer, A. M. F.	Slater, Mrs. (Stoke, N.)	White, Mrs. Eirene (E. Flint)
Pannell, Charles	Slater, J. (Durham, Sedgefield)	White, Henry (Derbyshire, N.E.)
Pargiter, G. A.	Smith, Ellis (Stoke, S.)	Whileley, Rt. Hon. W.
Parker, J.	Smith, Norman (Nottingham, S.)	Wigg, George
Paton, J.	Snow, J, W.	Williams. David (Neath)
Peart, T. F.	Sorensen, R. W.	Williams, Rev. Llywelyn (Aberlillery)
Popplewell, E.	Soskice, Rt. Hon. Sir Frank	Williams, Ronald (Wigan)
Porter, G.	Steele, T.	Williams, Rt. Hon. Thomas (Don V'll'y)
Price, Joseph T. (Westhoughton)	Stewart, Michael (Fulham, E.)	Williams, W. R. (Droylsden)
Price, Philips (Gloucestershire, W.)	Stokes, Rt. Hon. R. R.	Williams, W. T. (Hammersmith, S.)
Proctor, W. T.	Strachey, Rt. Hon. J.	Wilson, Rt. Hon. Harold (Huyton)
Pryde, D. J.	Stross, Dr. Barnett	Winterbottom, Ian (Nottingham, C.)
Pursey, Cmdr. H.	Summerskill, Rt. Hon. E.	Winterbottom, Richard (Brighside)
Rankin, John	Swingler, S. T.	Woodburn, Rt. Hon. A.
Reeves, J.	Sylvester, G. O.	Wyatt, W. L.
Reid, Thomas (Swindon)	Taylor, Bernard (Mansfield)	Yates, V. F.
Reid, William (Camlachie)	Taylor, John (West Lothian)
Rhodes, H.	Taylor, Rt. Hon. Robert (Morpelh)	TELLERS FOR THE AYES:
Roberts, Albert (Normanton)	Thomas, David (Aberdare)	Mr. Pearson and Mr Arthur Allen.
Roberts, Goronwy (Caernarvon)	Thomas, Ivor Owen (Wrekin)
NOES
Aitken, W. T.	Crowder, Petre (Ruislip—Northwood)	Hill, Mrs. E. (Wythenshawe)
Allan, R. A. (Paddington, S.)	Darling, Sir William (Edinburgh, S.)	Hirst, Geoffrey
Alport, C. J. M.	Davidson, Viscountess	Holland-Martin, C. J.
Amery, Julian (Preston, N.)	Deedes, W. F.	Holmes, Sir Stanley (Harwich)
Amory, Heathcoat (Tiverton)	Digby, S. Wingfield	Holt, A. F.
Anstruiher-Gray, Major W. J.	Dodds-Parker, A. D.	Hope, Lord John
Ashton, H. (Chelmsford)	Donaldson, Cmdr. C. E. McA.	Hopkinson, Rt. Hon. Henry
Assheton, Rt. Hon. R. (Blackburn, W.)	Donner, Sir P. W.	Horobin, I. M.
Astor, Hon. J. J.	Doughty, C. J. A.	Howard, Hon. Greville (St. Ives)
Baldock, Lt.-Cmdr. J. M.	Douglas-Hamilton, Lord Malcolm	Hudson, Sir Austin (Lewisham, N.)
Baldwin, A. E.	Drayson, G. B.	Hudson, W. R. A. (Hull, N.)
Banks, Col. C.	Duncan, Capt. J. A. L.	Hulbert, Wing Cdr. N. J.
Barber, Anthony	Duthie, W. S.	Hurd, A. R.
Barlow, Sir John	Elliot, Rt. Hon. W. E.	Hutchinson, Sir Geoffrey (llford, N.)
Baxter, A. B.	Erroll, F. J.	Hutchison, Lt.-Com. Clark (E'b'rgh W.)
Beach, Maj. Hicks	Fell, A.	Hyde, Lt.-Col. H. M.
Bell, Philip (Bolton, E.)	Finlay, Graeme	Hylton-Foster, H. B. H.
Bell, Ronald (Bucks, S.)	Fisher, Nigel	Jenkins, Robert (Dulwich)
Bennett, F. M. (Reading, N.)	Fleetwood-Hesketh, R. F.	Johnson, Eric (Blackley)
Bennett, Dr. Reginald (Gosport)	Fletcher Cooke, C.	Johnson, Howard (Kemptown)
Bennett, William (Woodside)	Ford, Mrs. Patricia	Jones, A. (Hall Green)
Bevins, J. R. (Toxteth).	Fort, R.	Joynson-Hicks, Hon. L. W.
Birch, Nigel	Foster, John	Kaberry, D.
Bishop, F. P.	Fraser, Hon. Hugh (Stone)	Kerr, H. W,
Black, C. W.	Fraser, Sir Ian (Morecambo & Lonsdale)	Lambert, Hon. G.
Bossom, Sir A. C.	Galbraith, Rt. Hon. T. D. (Pollok)	Lancaster, Col. C. G.
Boyd-Carpenter, J. A.	Galbraith, T. G. D. (Hillhead)	Law, Rt. Hon. R. K.
Boyle, Sir Edward	Gammans, L. D.	Leather, E. H. C.
Braithwaite, Sir Albert (Harrow, W.)	Garner-Evans, E. H.	Legge-Bourke, Maj. E. A. H.
Bromley-Davenport, Lt.-Col. W. H.	George, Rt. Hon. Maj. G. Lloyd	Legh, Hon. Peter (Petersfield)
Brooke, Henry (Hampstead)	Godber, J. B.	Linstead, H. N.
Brooman-White, R. C.	Gomme-Duncan, Col. A.	Lloyd, Maj. Sir Guy (Renfrew, E.)
Browne, Jack (Govan)	Gough, C. F. H.	Lloyd, Rt. Hon. Selwyn (Wirral)
Buchan-Hepburn, Rt. Hon. P. G. T	Gowar, H. R.	Lockwood, Lt.-Col. J. C.
Bullard, D. G.	Graham, Sir Fergus	Longden, Gilbert
Bullus, Wing Commander E. E.	Gridley, Sir Arnold	Low, A. R. W.
Burden, F. F. A.	Grimond, J.	Lucas, Sir Jocelyn (Portsmouth, S.)
Butcher, Sir Herbert	Grimston, Hon. John (St. Albans)	Lucas, P. B. (Brentford)
Campbell, Sir David	Grimston, Sir Robert (Westbury)	Lucas-Tooth, Sir Hugh
Carr, Robert	Harden, J. R. E.	McAdden, S. J.
Cary, Sir Robert	Hare, Hon. J. H.	McCallum, Major D.
Channon, H.	Harris, Frederic (Croydon, N.)	Macdonald, Sir Peter
Clarke, Col. Ralph (East Grinstead)	Harris, Reader (Heston)	Mackeson, Brig. H. R.
Cole, Norman	Harrison, Col. J. H. (Eye)	McKibbin, A. J.
Craddock, Beresford (Spelthorne)	Harvey, Ian (Harrow, E.)	Mackie, J. H. (Galloway)
Cranborne, Viscount	Harvie-Watt, Sir George	Maclay, Rt. Hon. John
Crookshank, Capt. Rt. Hon. H. F. C.	Heald, Sir Lionel	Maclean, Fitzroy
Crosthwaite-Eyre, Col. 0. E.	Heath, Edward	Macleod, Rt. Hon. lain (Enfield, W.)
Crouch, R. F.	Higgs, J. M. C.	MacLeod, John (Ross and Cromarty)
Crowder, Sir John (Finchley)	Hill, Dr. Charles (Luton)	Macmillan, Rt. Hon. Harold (Bromley)

Macpherson, Niall (Dumfries)	Price, Henry (Lewisham, W.)	Studholme, H. G.
Maitland, Comdr. J. F. W. (Horncastle)	Prior-Palmer, Brig. O. L.	Summers, G. S.
Maitland, Patrick (Lanark)	Raikes, Sir Victor	Sutcliffe, Sir Harold
Manningham-Buller, Sir R. E.	Redmayne, M.	Taylor, Charles (Eastbourne)
Markham, Major Sir S. F.	Rees-Davies, W. R.	Taylor, William, (Bradford, N.)
Marples, A. E.	Remnant, Hon. P.	Thomas, Rt. Hon. J. P. L. (Hereford)
Marshall, Douglas (Bodmin)	Renton, D. L. M.	Thomas, Leslie (Canterbury)
Marshall, Sir Sidney (Sutton)	Roberts, Peter (Heeley)	Thomas, P. J. M. (Conway)
Maude, Angus	Robertson, Sir David	Thompson, Kenneth (Walton)
Maudling, R.	Robinson, Roland (Blackpool, S.)	Thompson, Lt.-Cdr. R. (Crcydon, W.)
Maydon, Lt.-Comdr. S. L. C.	Robson-Brown, W.	Thorneycroft, Rt. Hn. Peter (Monmouth)
Medlicott, Brig. F.	Rodgers, John (Sevenoaks)	Thornton-Kemsley, Col. C. N.
Mellor, Sir John	Roper, Sir Harold	Turner, H. F. L.
Moore, Lt.-Col. Sir Thomas	Ropner, Col. Sir Leonard	Turton, R. H.
Morrison, John (Salisbury)	Russell, R. S.	Tweedsmuir, Lady
Nabarro, G. D. N.	Ryder, Capt. R. E. D.	Vane, W. M. F.
Nicholls, Harmar	Salter, Rt. Hon. Sir Arthur	Vaughan-Morgan, J. K.
Nicolson, Nigel (Bournemouth, E.)	Savory, Prof. Sir Douglas	Vosper, D. F.
Nield, Basil (Chester)	Scott, R. Donald	Wade, D. W.
Nugent, G. R. H.	Shepherd, William	Wakefield, Sir Wavell (St. Marylebone)
Nutting, Anthony	Simon, J. E. S. (Middlesbrough, W.)	Walker-Smith, D. C.
Oakshott, H. D.	Smithers, Peter (Winchester)	Ward, Hon. George (Worcester)
Odey, G. W.	Snadden, M. McN.	Ward, Miss I. (Tynemouth)
O'Neill, Phelim (Co. Antrim, N.)	Soames, Capt. C.	Waterhouse, Capt. Rt. Hon. C.
Ormsby-Gore, Hon. W. D.	Spearman, A. C. M.	Watkinson, H. A.
Orr, Capt. L. P. S.	Speir, R. M.	Wellwood, W.
Orr-Ewing, Sir Ian (Weston-super-Mare)	Spens, Sir Patrick (Kensington, S.)	Williams, Rt. Hon. Charles (Torquay)
Osborne, C.	Stanley, Capt. Hon. Richard	Williams, Sir Herbert (Croydon, E.)
Partridge, E.	Stevens, G. P.	Williams, Paul (Sunderland, S.)
Perkins, W. R. D.	Steward, W. A. (Woolwich, W.)	Williams, R. Dudley (Exeter)
Peto, Brig. C. H. M.	Stewart, Henderson (Fife, E.)	Wilson, Geoffrey (Truro)
Peyton, J. W. W.	Stoddart-Scott, Col. M.
Pickthorn, K. W. M.	Storey, S.	TELLERS FOR THE NOES:
Pilkington, Capt. R. A.	Strauss, Henry (Norwich, S.)	Major Conant and Mr. Wills.
Powell, J. Enoch	Stuart, Rt. Hon. James (Moray)

Mr. Crosland

I beg to move, in page 9, line 28, after "applies," to insert: (not being expenditure certified by the Treasury under subsection (2) of this section). This is merely a paving Amendment. The substance of the matter is contained in the second Amendment of my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) in page 9, line 37. I should like to draw the attention of hon. Members to the fact that there is a new Schedule which goes with this Amendment, and which is headed "Fuel Economy Installations."

Briefly, this Amendment seeks to grant not a 40 per cent. but a 100 per cent. initial allowance in respect of certain types of fuel-saving equipment. It is, therefore, in rather a different category from any of the subjects we have been discussing, in which many pleas were made for special treatment for certain industries. Those pleas were for a 40 per cent. allowance as opposed to a 20 per cent. allowance.

The Deputy-Chairman (Mr. Hopkin Morris)

Is the hon. Member moving the Amendment in page 9, line 28, after "shall," to insert: save as in the following subsection appears. That is the one which should be moved. The other is not selected.

Mr. Crosland

As the wording is almost identical it will not make a great deal of difference to which one I attach my remarks. I beg to move, in page 9, line 28, after "shall" to insert: save as in the following subsection appears.

Mr. Nabarro

May we be perfectly clear about this? The Amendment which you have just stated should have been moved, Mr. Hopkin Morris, purports to include what is commonly called the fuel economy installations Amendment, which is the second Amendment in page 9, line 37, in the name of the right hon. Member for Leeds, South (Mr. Gaitskell).

9.0 p.m.

The Deputy-Chairman

I think it would be for the convenience of the Committee if the two Amendments were discussed together.

Mr. Gaitskell

That was the proposal made by Sir Charles.

Mr. Crosland

We seem more or less clear and agreed as to what we are discussing, and, fortunately, it is what I began discussing some two or three minutes ago—the so-called fuel saving equipment Amendment. The background to the Amendment and the discussion is the present and future outlook of out coal supplies. The short-term outlook for the coming winter cannot possibly be described as reassuring. Through no fault of those working in the industry, the output of coal this year is barely the same as it was at this time last year, and we shall lose about 3,500,000 tons later in the year because of the very well-deserved second week's holiday which has been granted to the mining industry as from this year. There is, therefore, a distinct possibility that we may this year have less coal than we had last year or, at any rate, we cannot possibly get very much more than we had last year.

Clearly, we shall need a good deal more coal than we needed last year. First, our coal exports are running a good deal higher than they were last year, and it is essential to our balance of payments position that they should go on doing so. Even more significant and important, if we get what the Chancellor is banking on and what hon. Members on all sides hope we shall get—a distinct spurt in industrial production later in the year—that will considerably increase the demand for coal over the level at which it was running last year. The situation of a very much higher demand than last year might not cause any anxiety if the stocks were much higher than they were at this time last year, but, in fact, they are about one million tons less.

The situation which confronts us this coming winter should, therefore, be taken very seriously. We are bound to be even more concerned this evening with the long-term question of coal supply and coal demand, because no action taken in the Budget, as a result of the Amendment, or any other action now, can possibly have a great effect on the coal situation in a few months' time. When considering the case for the Amendment, it is more important to look ahead and decide what the coal situation in this country will be over the next five or 10 years.

I firmly believe that this country is faced, as far ahead as one can see, with a very serious shortage of coal. A great number of estimates have been made of how much coal we shall need in the future. The Ridley Committee put the inland demand for coal at a little over 230 million tons, but most people who have considered this question have criticised the Ridley Committee for setting the demand a great deal too low, and the Federation of British Industries, in their evidence to the Committee, put the inland demand for coal about 30 million tons higher than that—something well over 260 million tons.

The Coal Board have worked on the thesis that we shall be able to export, on the average of years, between 25 million and 35 million tons, a great deal more than we are exporting at the moment. If we add that export demand to the home demand, even the Ridley Committee's total estimate is brought to about 270 million or 280 million tons, and if we take the estimate of future home demand by the Federation of British Industries, we get a total requirement of coal, for home and export combined, of very little under 300 million tons a year. Even estimates like that can quite easily be criticised for being too low, because the Coal Board's mean figure of what the export demand is likely to be—25 million to 35 million tons—is quite likely to turn out to be on the low side.

Hon. Members may have seen the chapter in last year's annual report of the Economic Commission for Europe which dealt with the long-term coal situation in Western Europe as a whole. E.C.E. came to the conclusion that towards the end of this decade there might very well be a gap between supply and demand in coal in Western Europe of anything up to 50 million tons. In most years recently Europe has been importing American coal. If one adds the imports of American coal to this increase in the likely prospective gap one concludes that we might very easily be able to export a good deal more coal, if the coal were there, than the National Coal Board now envisage. In any case, whichever one of these figures one takes, it is quite clear that the demand for coal is very much higher than our present export output. It may very easily be in the region of 300 million tons of coal a year.

There is no possibility whatever of producing 300 million tons of coal a year during this decade or probably during the next, and, therefore, the question arises whether one can do something on the demand side to ensure that coal is used more efficiently than now, because if these bodies of experts, the Ridley Committee, the Federation of British Industries, the E.C.E. and the like, are right as to the likely increase in the de- mand for coal, particularly from industry, it is clear that we may be faced with an extremely difficult supply situation.

This Amendment is concerned, naturally, with the consumption of coal in industry. On this subject I speak completely as a layman. I can pretend to no expert knowledge of fuel efficiency such as the hon. Member for Kidderminster (Mr. Nabarro) has. It appears to be the view of everybody who does have expert knowledge of this subject that there is an enormous potential saving of coal to be achieved in industry. Industry is, of course, much the largest single consumer of coal in Britain.

Quite a number of people who have written or spoken on this subject have suggested that it may very easily be possible by a higher average efficiency in fuel utilisation to save 10 million tons or 15 million tons—some people have even mentioned 20 million tons—of coal a year. The question is: what can be done to encourage that saving? The experts say that a great deal of this coal could be saved without the installation of any new equipment, merely by managers in industry generally paying more attention to the subject of fuel efficiency.

Colonel O. E. Crosthwaite-Eyre (New Forest)

When the hon. Gentleman makes that remark has he any evidence for it?

Mr. Crosland

I have the evidence of the Ridley Committee. I have the evidence of, I should think, about 25 hon. Members opposite who claim very close acquaintance with industry, and given in quite a number of debates in this Chamber on this subject. I think there have been in the last few years three debates here on fuel efficiency in which hon. Members opposite have taken part and put forward that evidence. My hon. Friend the Member for Gloucestershire, West (Mr. Philips Price) initiated one of the debates about a year ago. Hon. Members opposite have said that a saving has to be made, and it is an entirely new point of view to say there is no saving to be made.

A great part of it does require the installation of new equipment, and the question we are debating tonight is whether anything can be done by the Government in this Bill to encourage the installation of such equipment. Hon. Members will remember that about a year ago the Minister of Fuel and Power started a scheme whereby about £1 million was to be set aside for loans to industrialists to encourage them to install fuel-saving equipment. I have not seen a very recent figure of how much of this £1 million has been taken up by industry, but the Minister was kind enough to tell me today, speaking without the book, that it was something well under 10 per cent. of the total sum, and I think it is fair to say—the Parliamentary Secretary to the Ministry of Fuel and Power is here, and I do not think it is disputed by the Ministry—that this scheme of loans at commercial rates of interest has clearly not been the success it was hoped it would be. It has been in operation a year, and I should think it is safe to say that it will not be a spectacular success and that it will not have any appreciable effect on the position.

That is why, in this Amendment, we have come out with a, as we hope, rather more effective proposal, that instead of loans at commercial rates of interest we should have 100 per cent. initial allowances. In this, as hon. Members will recall, we are following the recommendation of the Ridley Committee, who say, in paragraph 179 on page 44 of their Report—and I do not think it is in any dispute, except apparently by the hon. and gallant Member for the New Forest (Colonel Crosthwaite-Eyre)—after speaking a great deal about the possibility of more efficient fuel utilisation in industry: there is evidence that many industrialists are not sufficiently attracted by the net returns on investment in fuel efficiency measures to make such investment on the scale that seems to us justifiable and necessary. They go on to say, in paragraph 181: We consider, in these conditions, that there is a sound case for the Government's providing some special financial incentive for firms to install fuel-saving equipment, on the grounds that the value of coal economy is greater to the nation than to the individual firm. Their specific proposal is that the Government should allow firms to charge the whole of any capital expenditure on fuel efficiency to revenue for tax purposes in the year when the investment was made instead of charging the normal Inland Revenue depreciation allowance annually. That is equivalent to 100 per cent. initial, allowance on equipment.

Mr. Nabarro

Without in any way dissenting from that, I would point out that the hon. Gentleman has not referred to the recommendation in paragraph 182 on pages 44 and 45.

Mr. Crosland

I was coming to that; I was going on to read that, and to say that although the Ridley Committee say We would support this proposal, apparently, after having discussed it with the Inland Revenue, they go on to say they have been told by the Inland Revenue that the proposal has great administrative difficulties and, therefore, do not publish it in their list of recommendations. They do use the phrase, we would support this proposal, but we understand that [there are] administrative difficulties and expenses. That is the proposal this Amendment makes.

The main objection raised to any proposal of this kind is, naturally, the objection that the Inland Revenue will be landed in great difficulties if it has to decide that certain types of equipment are to have 100 per cent. initial allowances and other types are to have only 20 per cent. initial allowances, but I suggest that this difficulty cannot be considered insuperable. Our Amendment says that the Ministry of Fuel and Power is to be. as it were, the appropriate Ministry for deciding what equipment is to carry and what equipment is not to carry 100 per cent. initial allowance. We say that this allowance should be given only in cases where the Ministry is satisfied that the equipment fulfils certain conditions, and since the onus of the technical decision, as it were, is placed not on the Inland Revenue but on the Ministry of Fuel and Power it is hard to believe that the administrative argument can be decisive.

The Committee will see that we have put on the Order Paper a Schedule which actually mentions a number of types of equipment and capital expenditure. We have drawn up this Schedule, containing six items, not because we believe that this is necessarily an exclusive list of all the items which ought to attract the allowance—most of us who drew up the schedule would not have the technical competence to draw up a completely inclusive list of such equipment—but for the purposes of illustration, and to show that it is not impossible to describe the sort of equipment the installation of which one wishes to encourage. As hon. Members interested will have perceived at once, the list of equipment in the schedule is taken from a Ministry of Fuel and Power document which is available in the Library. It is taken from the document which announces and explains the £1 million loans scheme to which I referred earlier.

It seems to me fairly clear that if the Ministry can define equipment for the purposes of granting loans when it is installed, they can equally define equipment when it is a question of deciding what rate of initial allowance the equipment is to bear. There must be people in the Ministry who are able to say, "Yes" to that type of equipment for the loan scheme, and "No" to the other, and they will be able to give similar answers where the question is, not whether loans should be offered but whether 100 per cent. initial allowances should be granted. It is difficult to believe that the administrative difficulty is a really insuperable one.

9.15 p.m.

It may well be that the Amendment could be far better worded than we have worded it. Most of us are not highly technical experts on this subject, and the difficulties of framing an Amendment when in Oppostion are well known. Hon. Members on this side, if the Chancellor were in the mood to accept the general points we are making, would be only too delighted if he would redraft the Clause in a way which he considered more satisfactory.

I should like to deal with what seems to me to be much the most serious objection to this proposal and similar proposals of this kind. That is this. Hon. Members may say, "There are administrative difficulties which, of course, we admit. We do not think that they are insuperable but, naturally, they are administrative difficulties." They may say, "Is the kind of fuel economy which you will make really worth these additional difficulties?" They may say, "Our industrialists were not all that attracted by loans. Will they be all that more attracted by the offer of 100 per cent. initial allowance?" Will this be an incentive which, in fact, saves a great deal of coal?

That is an argument which, at any rate, in the case of coal I suggest that one cannot possibly accept. It may be true that the saving which will be achieved by this measure or any other in the sphere of fuel economy is very small. It may be a marginal saving of, say, one million tons of coal in two years. I do not know, but supposing that it is, coal is a case in which small savings are of vital importance because in our coal budget, looking ahead for, say, 10 years, we shall be working on a very narrow margin and to save one million tons of coal is something worth doing. It may be a small amount of coal relative to the 220 million tons which we produce annually, but the last million tons of coal is of enormous importance to this country.

It can be sold for export without difficulty at higher prices than purchased in the home market and so it would improve our balance of payments to that extent. All of us in this Committee assume an enormous increase in industrial production in this country, but is cannot possibly occur on the basis of the supplies of coal which, at the moment, are in prospect. A larger supply of coal for the home market is a condition of getting an increase in industrial output. If there is not sufficient coal for industry, an increase in output will not take place, and this one million tons of coal may therefore be even more important from that point of view than the suggestion that it might all go for export. It may make the difference between our having a coal crisis and our not having a coal crisis.

Supposing that our failure to get one million tons more coal means that production is 5 per cent. lower than it otherwise would be, the economic value of this one million tons of coal is not reflected in the slightest degree by the price of the coal but by the loss of production which our not having this one million tons of coal may cause. I would seriously suggest that it is not sufficient to say, in the case of coal, that the saving may be relatively small and the incentive not very great. I think that the thing to do in a case like that is to do a number of individual things which, in themselves, may not result in an enormous saving but, collectively, will give a saving of enormous importance from the national point of view.

In conclusion, I should like to say a word about the relation of this Amendment to the other Amendments which we have been discussing or which are on the Order Paper and have not been selected, asking for additional initial allowance concessions to particular industries. We are in the case of bricks, shipping, self-service and, I think, two or three other Amendments asking for an initial allowance of 40 per cent. instead of 20 per cent. I should like to stress that, in my view, this fuel-saving equipment Amendment does not come within the same category as the others. I would appeal to whoever is to reply for the Government not to reply to this Amendment in the same terms—that is to say, the argument about discrimination— which, very naturally, from their point of view, they replied to on other Amendments asking for concessions.

I believe it is a perfectly logical attitude to take to say, as the Government said on a previous Amendment, although I did not agree with them about it, "we will not accept the principle of discrimination in the case of a great number of individual industries, but, nevertheless, we will accept the 100 per cent. initial allowance proposal in the case of fuel-saving equipment." This industry is an exception for a number of vital reasons, first of all in this case, as in no other, because we had a Government committee of great authority, the Ridley Committee, which would have recommended this and was only deterred from doing so by talk of the administrative difficulty. That alone puts the Amendment on a rather different level.

Secondly, it is clear that there is no other industry in the country which can claim anything like the degree of national economic importance that the coal industry can. Far more than any other industry in Britain, the coal industry can make all the difference between the success or failure of our productive effort over the next ten years. It is not true to say that if it is conceded in the case of coal it will have to be conceded to all sorts of other industries which have an equally strong claim, for they have not an equally strong claim.

What we ought to do in the case of any financial measures which will encourage fuel economy is to put coal into a different category from other industries, as we already do in the case of agriculture. There are several respects in which agriculture is treated somewhat differently from other industries in Government financial policy, and this has always been so no matter what political party is concerned. Apart from food, coal is the one primary product of this country, and it is wholly logical that agriculture and coal should be treated differently from other industries, deliberately treated as exceptional cases compared with other industries in Britain.

I appeal to the Chancellor to recognise that it would be logical to maintain the stand against discrimination in general but, nevertheless, to accept the Amendment. I hope he will accept the Amendment. He and the Financial Secretary to the Treasury have been courteous enough to listen to the debate. Perhaps I might be forgiven for saying that the Government's fuel policy is not a great success at the moment. The Chancellor's contribution so far is to reduce the price of electric stoves, to which the hon. Member for Kidderminster took exception when we dealt with Purchase Tax under the Finance Bill.

A new policy decision for the whole question is now required. An experiment was made with the £1 million loan scheme, and it was worth making and everyone wished it well, but it is fair to say that it has now more or less failed. Therefore, a new policy decision is required. One thing we cannot afford to do in the matter of fuel utilisation is to continue to do nothing and have many no doubt admirable advisory services to which everybody pays tributes but which are not making a big difference quickly enough. We cannot continue in a general state of masterly inactivity. A new decision is required, and I appeal to the Chancellor to announce it tonight.

Mr. Nabarro

I do not dissent at all from the principles which have been enunciated by the hon. Member for Gloucestershire, South (Mr. Crosland). The majority of us would subscribe to his dissertation on the coal position. I do not in any way wish to attribute blame to the men who produce the coal, but I am perhaps a little critical of the people who use the coal, for I have no hesitation in saying that really significant economies can be made in coal consumption by British industry if a programme of re-equipment with coal-burning plant is energetically pursued.

While we have no difference in principle in this regard, there is a good deal of controversy, which has now been continuing for more than three years, as to how we can best provide some form of incentive to industry as a whole, to economise in the coal that it consumes. Hon. Members in all parts of the Committee will agree with me when I say that industries which are heavy coal consumers are, generally speaking, the most efficient in the way they use the raw material. The culprits are the medium and the smaller firms who use lesser quantities of coal, and in the absence of any form of financial incentive to save coal they are generally somewhat negligent in their use of it.

We first resorted to the practice of having a coal debate in the middle of our deliberations on the Finance Bill in 1951. I then had the responsibility of initiating the discussion for the retention of initial allowances at the rate of 40 per cent. for coal-consuming equipment in industry. The Amendment was defeated in a Division when the Conservative and Liberal Parties voted for it and the Socialist Party voted against it. I make no party political point of that fact. I merely observe that, replying to the debate, the then Economic Secretary the hon. Member for Brighouse and Spenborough (Mr. J. Edwards)—and I shall not trouble the Committee by quoting the full extract from the OFFICIAL REPORT which is in column 1382 of 7th June, 1951—said that discriminations could not be made available for one class of equipment.

Since that date we have had the Report of the Ridley Committee, an admirable debate on a Private Member's Motion initiated by the hon. Member for Gloucestershire, West (Mr. Philips Price) on 7th March, 1952, and a full debate on the Ridley Report on 28th October, 1952. There has always been general agreement on two fundamental facts, on both sides of the Committee. Firstly, there are big savings of coal to be derived from British industries; and secondly, the savings will not be achieved unless some form of fiscal or financial incentive is provided.

I do not believe that any useful purpose will be served this evening by trying to elaborate the methods of saving coal in industry, but I wish to devote just a few moments to what has been written and said about the best method of providing these incentives. The hon. Member for Gloucestershire, South (Mr. Cros-land) quoted paragraph 182 of the Ridley Committee on pages 44 and 45, Cmd. 8647, but he did not quote the whole passage in the order in which it appears in the Report, and I think it is proper that it should be quoted in the correct textual order and sequence. The Report said: It has frequently been suggested that to provide a financial incentive to coal economy, the Government should allow firms to charge the whole of any capital expenditure on fuel efficiency to revenue for tax purposes in the year when the investment was made, instead of charging the normal Inland Revenue depreciation allowance annually. This amounts to an interest-free loan to the firm from the Government. We would support this proposal, but we understand that the administrative difficulties and expenses may be so great as to rule out its adoption, and instead we recommend the direct provision of loans by the Government. I halt there. The Ridley Committee endorsed the view that it was administratively impracticable to apply what the hon. Gentleman is really proposing, that is, a charge to revenue, in the year in which the expenditure is incurred, of the whole cost of the capital cost of the fixed assets. That is tantamount to a 100 per cent. initial allowance. The difficulty is, of course, twofold. First of all, there is the violent discrimination, which I disregard personally because I think it is worth having that discrimination, and there is also the equally great problem of identification. The Ridley Report goes on in the latter part of paragraph 182 and makes this significant recommendation: We recommend that the present experimental loan scheme "— I commend these words to my right hon. Friend— for installing approved fuel-saving equipment should be expanded, that advances should be made at specially favourable interest rates, that their repayment should be spread over a period of not less than 10 years, and that the Inland Revenue should allow depreciation over the same period. 9.30 p.m.

The experimental loans scheme brought in by my right hon. Friend the Minister of Fuel and Power in his speech on 7th March, 1952, has been an abject failure. I am informed that out of £1 million no more than £40,000 has actually been lent, which is one-twenty-fifth or 4 per cent. Why has it failed? Let me try to analyse why. Firstly, because the range of equipment that might be made the subject of these loans was not by any means comprehensive and, with great respect to the hon. Member for Gloucestershire, South, that is the principal failing in his Amendment.

Mr. Crosland

If the hon. Gentleman will allow me to interrupt, the text of the Amendment in page 9, line 37, clearly refers to the inclusion of such equipment as is mentioned in the Schedule. It makes it quite clear that it is not an exclusive list.

Mr. Nabarro

That is a valuable reply, but the difficulty is that while the hon. Gentleman has correctly delineated a number of items, there are literally hundreds of items of industrial apparatus that can fall within the general description of fuel economising equipment, and to make our proposals effective the fiscal or financial relief must attempt something much more comprehensive either than the subject of the experimental loans scheme or the subject of the Amendment.

The second reason for the failure was the fact that the interest rate is much too high. I make no pretence about that fact and I hope hon. Gentlemen opposite will not try to score a party point off me. The third is that there has been undue procedural difficulty in securing these loans. Later on we shall be discussing bricks. May I mention here, Mr. Hopkin Morris that if one rebuilds a brick kiln in a brickworks one saves a lot of coal, but brick kilns are not defined as being part of industrial fuel-economising equipment. Therefore they are excluded; therefore they are not in the loans scheme, and therefore they are not in the Amendment.

Thus we have to aim first at making the range of equipment more comprehensive, secondly we have to aim at the elimination of the interest rate, and thirdly we have to simplify the procedural matters in order to dispose of the difficulties which I have described.

Now one word about what follows the Ridley Report. One of its recommendations was that there should be a much enlarged fuel advisory service. For that reason my right hon. Friend the Minister of Fuel created a Committee under Sir Harry Pilkington to advise on this greatly enlarged advisory service in industry. The hon. Gentleman was quite right in what he said about the advisory service. Sir Harry Pilkington confirmed his view, for I am informed that the Pilkington Report makes the point powerfully that however large and however comprehensive the industrial fuel efficiency and advisory service may be, it will fail in its purpose unless some form of financial incentive is provided. Why? The Pilkington Report again brings out the point that industrial firms have no special inducement to spend money on fuel efficiency because fuel costs represent only a very small proportion of total production costs. Further, industrial fuel efficiency does not ensure that any more coal is given to the efficient individual firm in time of shortage than to the inefficient.

Therefore, I do not dissent in principle from anything that the hon. Gentleman said in his speech. If my right hon. Friend considers that this proposal to provide a 100 per cent. initial allowance is impracticable, I feel confident that when he replies he can endorse the view of the Ridley Committee and of the Pilkington Committee, which I have supported this evening, that we must have some financial or fiscal inductment to get greater fuel efficiency in industry. If this is not the right formula embodied in the Amendment, what is the correct formula? Can my right hon. Friend give us any lead in that direction.

I want to conclude on this point. I do not wish to scarify what may well be the coal position next winter, but I will simply give one or two figures. In the first 20 weeks of 1953, we produced 86.1 million tons of coal; in the first 20 weeks of 1952, we produced 85.2 million tons of coal. Therefore, in that 20-week period of this year, compared with last year, coal production increased by only 900,000 tons, while coal consumption increased by 1,100,000 tons.

Therefore, we are further back than last year, but my right hon. Friend the Minister of Fuel and Power has already officially and publicly given an estimate that this year we shall lose 4½ million tons of coal on account of the very well-deserved second week's holiday for miners and on account of the equally well-deserved Coronation holiday to all coalface and surface workers in the mining industry, to which they are fully entitled. That does not detract in any way from the seriousness of the position and the fact that we are courting collapse in industry by failing to give attention to this vitally important point of industrial fuel efficiency.

Nothing that my right hon. Friend does in this respect can change the position next winter, but had the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) and a lot of his hon. Friends taken my advice in 1951 in providing the financial and fiscal incentive which we all wanted, our coal budget today might be in a much more healthy condition. Therefore, I hope my right hon. Friend will advance some formula for dealing with this matter, albeit an alternative proposal to that made in the wholly admirable speech of the hon. Member for Gloucestershire, South.

Mr. M. Philips Price (Gloucestershire, West)

The hon. Member for Kidderminster (Mr. Nabarro) has made a speech which, for him, was very objective. He eschewed the quicksands of party politics and gave us what was, from his point of view, a very fair argument of the case.

My right hon. Friend the Member for Leeds, South (Mr. Gaitskell), when he was Chancellor of the Exchequer, had a very different situation to meet in 1951 than that which the present Chancellor has to meet today. We were then on the up-grade of the rearmament programme, and economies had to be made in home investment. Therefore, he was not able to accept the Amendment which was put forward by the hon. Member for Kidderminster. The situation is different today, and I think we can fairly argue that it is such that the Government should do everything possible to encourage investment of this kind, particularly because of the immense advantages which fuel economy will have on the economy of the country as a whole, on which both sides of the Committee generally agree.

I have taken some interest in this matter, because I moved a Private Member's Motion on this subject in March of last year, which the hon. Member for Kidderminster was good enough to second, and which secured the acceptance of the whole House. That debate is a useful record of all parties agreeing on the vital importance of the matter. But, of course, the situation is very little better now than it was then. I think there have been some economies made in the industry, thanks to the educational work which has been going on and to the activities of the Ministry of Fuel and Power, but there are also certain disturbing facts. The electricity programme, as it is to be carried out, will mean an enormous increase in coal consumption, unless action is taken at an early date to economise consumption in that respect.

As I pointed out in that debate 18 months ago, although economies can be made in domestic fuel consumption, the major economies can only be made in industry, and it is just there that the Amendment is so important. We could encourage by direct tax remissions such things as the better lagging of pipes and the better insulation of roofs so that factories could be laid out with all these latest improvements.

The list of approved equipment, such as has been set out in this special Schedule, may not be perfect, but it could certainly be added to or subtracted from as found necessary. If the Ministry of Fuel and Power could draw up a list of approved equipment similar to that on which they are now advancing money for this purpose, and if that same list could be used for the purpose of allowing this initial allowance that, surely, would be the way out.

As a result of the debate 18 months ago on this subject, the Minister of Fuel and Power made an offer to industry of loans at commercial rates of interest for the purpose of installing fuel-saving equipment. The result of that offer has been very unsatisfactory. My hon. Friend the Member for Gloucestershire, South (Mr. Crosland) said that he had not got the figures, but he quoted one-tenth of the amount which was expected. I happen to have the figures because the Minister of Fuel and Power gave them not long ago in reply to a Question by the hon. Member for Kidderminster.

The applications amounted to £249,707, those rejected amounted to £89,973 and those granted to only £25,960. That means, no doubt, although it does not say so, that a considerable number of applications on which no decision has yet been reached are still outstanding. At any rate, it is quite clear that the figure is not enough. Possibly, if the interest rates were lower than the present bank rates the results would be better. In any case, I doubt whether by that method alone full results will be obtained. Something much more is needed.

I think my hon. Friend was quite right to move this Amendment at this time when, I think, the national economy is better able to bear it. This problem of saving fuel is absolutely vital to our national economy and to our balance of payments. I hope, therefore, that the Chancellor will give us something to bite on and will accept the Amendment, or, at any rate, say that at a later stage he will introduce something with possibly a different Schedule from that proposed by my hon. Friends.

9.45 p.m.

Sir Victor Raikes (Liverpool, Garston)

I think that on both sides of the Committee there is a genuine anxiety in regard to this question of fuel economy. I listened with great interest to the speech of the hon. Member for Gloucestershire, South (Mr. Crosland) in moving the Amendment and also to that of my hon. Friend the Member for Kidderminster (Mr. Nabarro). Although I do not always agree with my hon. Friend, particularly when we get on to certain matters connected with hydro-electric projects, I am in very strong agreement with what he says tonight. I can see the difficulty with 100 per cent. initial allowances even in this important matter of fuel utilisation. Whoever the Chancellor were, he would have only a certain amount of money to play with and it is difficult to put 100 per cent. on one thing without being carried on to a degree where the whole Budget will be unbalanced.

On the other hand, my hon. Friend dealt with the more technical difficulty relating to the number of items which could be covered. However widely we framed the Amendment or the Schedule, much must inevitably be left outside. My own feeling, speaking in the rather less partisan atmosphere on both sides of the Committee—we all know that fuel will be more vital than anything else to us in the future—is that we might consider the possibility of finding a way out for the Chancellor if he feels unable to give the whole 100 per cent. We do not want a battle tonight on the reasons why we are not getting as much production of fuel as we should like. My hon. Friend said that Coronation year was obviously affecting production, but we are bound to say that the rise of consumption during this year is a great anxiety. We are in danger of finding ourselves at the end of this year having to cut exports, which will affect our position very gravely.

Saving and conservation of fuel are as important as production and, whether produced or saved, coal is of greater value than gold for the future of this nation. Suppose we cannot get the whole 100 per cent., which may be a rather big thing to ask, and means asking for some form of interest-free loan. I would ask the Chancellor to consider an alternative. The Ridley Committee emphasised that, unless a firm had some additional incentive for fuel saving, it would find no great encouragement to embark on capital expenditure, fuel being such a comparatively small part of its general set-up.

What can we do? I will throw out a suggestion to the Chancellor, if he is considering something like a loan. It is that he might be prepared to consider providing an interest-free loan over a considerable period for the provision of fuel-saving equipment. Eventually the loan would have to be repaid. That would have two advantages. My right hon. Friend would not unbalance his budget—no Chancellor can be expected to do that—and he would get immediately a big increase in the installation of fuel-economy equipment.

The installation of fuel-economy equipment, even though it takes time, may save over a period of even a few years 8 million or 9 million tons of coal a year. But we must have the original incentive, and if we had a real loan on which interest in the first instance was not paid, even if it were carried over a long period and would have to be paid later on, we would have the original incentive. We all aim at that original incentive. I believe that we can provide an alternative which would be easier than a 100 per cent. additional allowance and one which would have a quicker effect upon the installation of fuel economy equipment.

Mr. Crosland

If the hon. Member will allow me to intervene—and I am trying to keep the maximum amount of agreement on this topic—I believe that I am right in saying that his proposal, as opposed to the 100 per cent. initial allowance, was a loan which eventually would be repaid and might be only for one or two years. But in fact a 100 per cent. initial allowance of the kind that we propose is very like what the hon. Member described, because in the case of an individual firm it comes to be repaid after a period of years which may not be very much longer than the period which the hon. Member has in mind.

Sir V. Raikes

I do not think that there is very much difference between the point of view of the hon. Member and myself on that, but I think that the suggestion which I cast out might make it rather easier from the point of view of the Chancellor balancing his Budget over the next year or two.

Mr. Albu

I am sorry that I was not in the Chamber to hear my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) and the hon. Member for Kidderminster (Mr. Nabarro), but I want to say a few words in support of the Amendment. Perhaps I should declare a very small interest in that the only company of which I am a director, and I have no other interest at all, makes water-softening equipment and steam accumulators.

After the discussions which we have had about discriminatory initial allowances, I find it very welcome that we should continue to receive so much support from hon. Members on the other side of the Committee, particularly the hon. Member for Kidderminster, for these extreme forms of discrimination. But I think that we all recognise that, whatever our view about discriminatory initial allowances in general, these are of a somewhat different nature. Having said what they have had to say about the use of discriminatory initial allowances and having expressed their opposition to these views, I hope that the Government and the Chancellor will feel that this is really in a different category.

As the hon. Member for Garston (Sir V. Raikes) said, the conservation of our fuel resources is absolutely vital to us. The initial allowances for which we are pressing are much of the nature of those granted, for instance, in the case of agriculture. They arise out of exactly the same economic circumstances and out of the radically changed economic conditions of this country in which we no longer find ourselves able to squander cheap food, cheap coal, cheap fuel and raw materials. Now, for the first time in our industrial lives, we find these things very much more difficult to come by. If the free forces of economic laws were to operate, the price of many of them would be very much higher indeed.

At present—and it was certainly so at the prices ruling before the war—to the very great majority of industries in this country, other than those which use coal almost as a raw material, like the iron and steel industry, the cost of fuel is negligible. Some of us who have had experience of running factories took a great deal of trouble to carry out some of the ideas which are put forward in this proposed Schedule. I do not know that from the purely economic view of our companies it was worth all that effort when we could buy the best quality steam raising coal in the London area for about 30s. a ton, and even at the prices today I do not suppose that, compared with other raw materials, it is really of great importance.

Therefore, we really need some drastic concession if we are to get anything done at all. I should have thought that if the concession were given in this extreme form with the sort of Government propaganda and general pressure exercised by the Ministry of Fuel and Power and the Fuel Efficiency Service, the job would be found to be rather easier. We are not ever going back to cheap food or cheap coal or cheap raw materials of this kind. The terms of trade have changed not only between other countries and ourselves but within the industries in the country, and the country has not awakened to that fact.

Something is really needed. I am not sure that I do not support the views of one of my hon. Friends who suggested that some sort of tax ought to be put on coal. This suggestion shocks everybody who hears it for the first time, until one is reminded that British coal is the cheapest in Europe and indeed in the world, except the United States. We must do something fairly soon, and I am hoping that the presence of a very powerful Treasury Bench tonight means that some really substantial concession is going to be made.

Mr. C. J. M. Alport (Colchester)

I think it was the late Marquess of Salisbury who, when he was Prime Minister, confessed that he always spoke of the Treasury with respect. I am sure that my right hon. Friend can have no complaint this evening about the terms of respect in which he and his Department have been addressed by hon. Members on both sides of the Committee, and I hope that I shall in no way fall short of the admirable example which they have set me and the august advice which they have followed.

I should also like to take this opportunity of supporting the plea put forward by my hon. Friend the Member for Kidderminster (Mr. Nabarro) and doing so, perhaps, in somewhat more urgent terms than he did. Over a very long period of time the importance of this aspect of our policy has been stressed by hon. Members on both sides of the Committee. It is really a source of great anxiety to find how slow the progress has been, not during the last two years but over a much longer period, in achieving anything which produces practical results in the realm of increased fuel efficiency.

The Committee have been told tonight of the comparatively small effect of the loan of £1 million announced last year, and the reason for that has been stated by my hon. Friend the Member for Kidderminster. But surely it is even more urgent at the present time that a policy should be followed which will be effective, whereas the previous policy has been shown to be ineffective. All that the Committee has to decide or is asked to consider by this Amendment is whether the proposal put forward by the hon. Member for Gloucestershire, South (Mr. Crosland) would be more effective than the existing policy. I should say that the evidence is against it.

This is not only a question of the administrative difficulties which arise owing to the breaking of the rule against discrimination followed by the Inland Revenue. The truth is that some of the most efficacious means of saving fuel will necessarily be left out if the proposed Amendment is accepted. The insulation of buildings is of vital importance. I should have thought that it was not only the most effective but the most economical way of saving fuel, but I think I am right in saying that it would not be covered by the Amendment or the Schedule.

Mr. Crosland

In fact, that is mentioned as one of the six items in the Schedule.

10.0 p.m.

Mr. Alport

I am sorry. I looked at the Schedule rather quickly and I missed it. I should think that the suggestions which have been put forward, based upon the Report of the Ridley Committee, offer a more practical way of dealing with this matter, and we have to deal with it in practical terms if we are to assist industry to make the necessary changes.

I am doubtful whether the financial incentive is the only element which should be considered by the Chancellor. It is equally important that there should be a drive on the part of his right hon. Friend the Minister of Fuel and Power to publicise and bring home to industry generally the availability of this loan, and also to show what may be done by industry itself, without a loan, to improve its methods. As far as I can interpret the position at the present time, the prospect of the next 12 months is extremely grim.

To regard this merely as a question of what is the best bait to be put before industrialists to encourage them to take advantage of a loan to improve their plant and their fuel efficiency equipment does not give the sense of urgency which is necessary. It may be that we shall get through for a year or two years, but I am quite certain that Nemesis will fall upon us in due course, and that the Exchequer will face a much greater loss as a result of the dislocation of industry owing to the lack of sufficient coal to meet our requirements than it will as a result of improving our existing industrial plant in order to save coal.

In whatever answer the Chancellor proposes to give I urge him to accept that we have put forward these views—not actually in support of this Amendment but in support of the general principle which is the real issue before us at the moment—to emphasise the need for urgent action in tackling this subject upon which, in my view, our whole economic future depends.

Mr. Gaitskell

The case for the principle involved in this Amendment has been so powerfully and ably put from different sides of the Committee that I do not need to detain them for any length of time; but I thought I should say something about my personal attitude to this Amendment in view of the fact that, as the hon. Member for Kidderminster (Mr. Nabarro) pointed out, we did resist a somewhat similar Amendment in 1951. It was not without a good deal of thought that I decided, this year, to support and to do everything I could to assist this Amendment.

I came to that conclusion because I think that the coal situation is a great deal more serious than it was in 1951. I am not seeking to make any sort of political point; I am only too anxious to keep the Committee united so that we may get the Government to agree, but I think we are all worried because, in the last two years, coal output has been increasing only to a very small extent.

The increase in 1952 was very slight and the hon. Member for Kidderminster has mentioned how small it has been in the first 20 weeks of this year. We also realise that we have been saved from a very difficult situation in the last 18 months only by the fact that, because of the relative slow-down in industrial output, consumption has not been rising. Secondly, the Ridley Committee investigated this matter, in particular, in great detail, and I need not add to the quotations already made from their Report.

Thirdly, the major argument with which we resisted this Amendment in 1951 no longer applies. My right hon. Friend, who was then Economic Secretary, defended our refusal by saying that the needs of the defence programme were such that we could not afford to take the risk of a concession of this kind, which might lead to a lot of other concessions. I say frankly to the Chancellor and the Committee—and they will not be surprised to hear it—that I do not mind very much if he finds it difficult to hold the line here. I have argued on an earlier Amendment that we ought to have a higher rate of initial allowances generally and my right hon. and hon. Friends have argued the principle of discrimination.

It would not be disastrous if, having accepted something like this Amendment this year, the Chancellor was pressed on behalf of other industries or appliances in a future year. The whole investment situation has altered. For all those reasons I think we are justified in adopting the line we adopt this year. The case is very strong, and I need say no more about it.

There is a particularly good argument for discrimination in this case because in the Ministry of Fuel and Power we have a great deal of technical experience in this field. All parties have paid tribute to the work of the Ministry's fuel efficiency services, and I do not think it has ever been suggested that they were incapable of carrying out the kind of investigation which would be necessary to decide whether the certificate or whatever document was necessary should be given. There is some 10 years' experience of intensive work on this subject, and while the Treasury might reasonably be anxious about a proposal within the Civil Service where there was no great expert knowledge, in this case there is expert knowledge, which seems to me to make their position a good deal more secure.

Colonel Ralph Clarke (East Grinstead)

Does the right hon. Gentleman agree that it might be worked on the lines of the agricultural committees, to whom application is made for a grant for drainage or reclamation of land? It is worked on the principle of the work which has been done and not on any hard and fast lines.

Mr. Gaitskell

I would be content to leave to the Minister the exact way in which he proposes to organise a proposal of this kind, but the hon. and gallant Gentleman's suggestion is an interesting one.

The Amendment is drawn in fairly wide terms. I do not think the hon. Member for Kidderminster (Mr. Nabarro) read it as carefully as he might have done, because it does not limit the appliances or the improvements to the six specific items in the Schedule. They are merely items which are included. I should have thought that the Amendment was so widely drawn as to give the Ministry a very free hand in deciding.

We might have inserted words to the effect that only if there was a definite saving in fuel as compared with the previous situation would the initial allowance on this scale be granted. We deliberately decided not to do that because we felt that it would be very unfair to firms who were relatively efficient and replacing equipment with efficient equipment. The test, we felt, could only be, is this in the circumstances the best way of economising fuel? As I have said already, I should be content to leave the Ministry to settle that particular issue.

There are just two other things. First, I believe that if this Amendment, or something on these lines, were accepted it ought to be possible to give considerable psychological assistance to the fuel economy drive. It would become known that here was an opportunity of writing off the whole of this equipment in one year. I think we could leave the Ministry and the firms producing this type of equipment to see that their customers knew all about that.

That brings me to the last point. I do not think that any of us has suggested that this is the only thing to be done. I have not contemplated that the Fuel Advisory Services, whether administered by the Ministry or by industry, would pack up. On the contrary, they clearly must go on. What, I think, we are generally agreed about is that on their own the advisory services are not as effective as they ought to be.

I want to emphasise that a great deal of good work has been done. I do not take the gloomy view that one or two hon. Members have, implying that we have not done anything at all. The loans scheme has broken down; it has not been successful; it was worth trying, but, obviously, it is not catching on at all. But, steadily, over the years, a great deal of excellent work has been done. It is a question of giving that excellent work something additional, and that something additional must be an incentive to the industrialists to introduce fuel economy equipment.

For all these reasons, therefore, I very much hope that the Chancellor, or the Minister of Fuel and Power, whoever is to reply to the debate, will be forthcoming. We all attach a great deal of importance to this. We are seriously worried about the coal situation, both immediately and in the longer term. We all know that, despite what has been done, our record in the use of fuel is not a good one as compared with that of a number of other countries, and I suggest to the right hon. Gentleman that there is an overwhelmingly strong case for this proposal and urge him to give us at least the substance of what we want.

Mr. R. A. Butler

I hope that we may, if my answer proves reasonably constructive, come to the end of this particular discussion, as we have one or two more Amendments on the same type of subject, one discussion following another, and I do not want to keep the Committee sitting late, although I am keen to get Clause 14. That, I think, after one whole day, is reasonable. It means that if we cannot come to a decision on this matter now we shall have to sit a bit longer to get Clause 14, and I do not want to cause anybody any inconvenience. We can get this Clause tonight quite easily if we get on with the business.

On this particular matter, first I should like to agree with all who have mentioned the vital importance of fuel saving. I shall not go into detail about the production of coal, but, of course, from my point of view and that of everybody else, the more coal we produce the better. Actually, we are to some extent keeping level in that we can keep pace with the inroads made by the various holidays already taken or to be taken; but there is a lot to make up and still a lot to be done, and, therefore, fuel saving is of vital importance.

I think it must be a great feeling for my hon. Friend the Member for Kidderminster (Mr. Nabarro) to have carried the torch so far, and I only hope that my faltering steps are adequate after his great run, which has now been carried on for many Sessions and many moons. At any rate, if I prove incompetent the Minister of Fuel and Power is here, and the Parliamentary Secretary, flanked on either side by Treasury Ministers who are all present, and the Parliamentary Secretary to the Ministry of Labour is also present, which indicates the importance which the Government attach to this subject.

10.15 p.m.

The hon. Member for Gloucestershire, South (Mr. Crosland), in one of his notable orations, compared this subject with agriculture, but I am not aware that any request has been made for 100 per cent. initial allowances for agriculture, either by hon. Members opposite or by hon. Members on this side of the Committee. In fact, no such proposal has been made. One of the main objections that we have to this proposal as drafted by the right hon. Gentleman and his hon. Friends is that it does not seem to us to be very well drafted, or a good Amendment to achieve the object he has in view.

I will not weary the Committee by going into details, but there is a definite mistake I think about Section 276, which should be Section 279. In regard to this Schedule, I have now grasped that the list is not meant to be comprehensive and that it can be very much wider. I cannot therefore quite see what exact purpose the Schedule would serve if there is to be a discretionary power over and above it. I think that in both these respects the Amendment is defective. Quite apart from its content, I do not think it would serve the purpose the right hon. Gentleman and his hon. Friends wish to achieve.

What I think is most difficult is raised by the question of agriculture, to which the hon. Member for Gloucestershire, South referred, and a great many other industries too. We have spent the greater part of today trying to avoid discrepancies between the obvious needs of a variety of industries, and, important as this class of plant is, I am frankly quite satisfied, having examined the type of plant that it is, that this method of the 100 per cent. allowance is not the best method of dealing with it.

So I come back to an interchange which took place, during the short period when the right hon. Member for Leeds, South (Mr. Gaitskell) happened, I think, to be out of the Chamber for a moment, between his hon. Friend the Member of Gloucestershire, South and my hon. Friend the Member for Garston (Sir V. Raikes) on the subject of alternative methods. My hon. Friend, together with my hon. Friend the Member for Kidderminster, had put the suggestion that some effort could be made to improve upon the existing loan system. Indeed, the hon. Member for Gloucestershire, South referred to the existing loan system as being so far unsatisfactory, and I agree that, despite the efforts of my right hon. Friend, very little of the £1 million has 8o far been taken up.

In view of the position that the Government have taken up on the allowances up to date, and in view of the fact that something should be done to improve a system already introduced, it seems to me that we should immediately make some modifications in the method of allotting the loans for this vital purpose, because I believe it is lack of capital readily available that is behind the difficulty these firms experience. We have decided, therefore, on certain very important modifications.

First, we propose to extend the categories of equipment which are eligible for assistance under the loans originally introduced by my right hon. Friend. I will, for the benefit of industry, give some description before I sit down of how further details can be ascertained from my right hon. Friend's Department. Secondly, we have decided to increase the period during which the loans are repayable to the life of the equipment—for taxation purposes that is—up to a maximum of 20 years. I want to see how that will work out and to examine its method of application and what success it has. Thirdly, we have decided—and this fits in with some points of view put forward already in examinations which have been made into this subject, and no doubt will be examined carefully when hon. Members have the Pilkington Report before them in due course, as introduced by my right hon. Friend—that we must deal with this question of the interest rate on loans. I will go further than my hon. Friend the Member for Garston and say that we have decided, not only to make these loans interest free for the first year but for the first two years after the equipment has been installed. This interest-free period should, I think, allow ample time for the equipment to be fully tried out and prove its worth.

That is, I think, an improvement upon the system already operating, and, from the point of view of the Government— and if I am not mistaken, from the interchange which has already taken place between the two sides of the Committee, it is a device which in some respects resembles what hon. Members opposite desire to achieve, although it is not the same proposal—it is, I think, a definite advance which I would recommend to the Committee.

For those who want to obtain details, I would say this: A leaflet giving full details will be available shortly from the Ministry of Fuel and Power headquarters and from its regional offices. That will give some idea of the categories of equipment eligible for loan. We intend to simplify the formalities under which these loans shall be available. We intend to make clear that building licences will be necessary, but will be easily obtainable, and we intend that the Industrial and Commercial Finance Corporation, Ltd., shall deal with the financial transactions involved.

I really believe that if industry in general—and we do not exclude any branch of industry which wishes to install equipment for these vital purposes— accepts this in the spirit in which it is given, it is better for the Committee to accept this device or improvement upon the existing practice on this subject, and to accept from me that if there is no satisfactory development, or if it does not work, the Government must be asked to look at this matter again. I hope that a fair run will be given to this proposal.

Mr. Gaitskell

I am very sorry to say that I find the Chancellor's reply rather disappointing. No doubt he has thought deeply about this and, of course, it is better to do something in this direction than nothing at all, but I think that there still remain some important advantages for the principle of the proposal in the Amendment as compared with what he is now putting forward.

In the first place, if I may go back to our earlier discussion, it is clear that whether or not initial allowances are an interest-free loan, they are certainly interest free, and completely interest free, so, obviously, they have an advantage from the point of view of the industrialist as compared with having to borrow and merely get an interest-free period for two years. In the second place, the initial allowance, as pointed out in an earlier Amendment, is something which is, in fact, only repayable if the firm is making a profit and, therefore, there is a far greater attraction to the industrialist to introduce fuel economy appliances with the help of an initial allowance because he knows that if the worst comes to the worst and he does very badly, then he will not have to repay.

I do not feel that what the Chancellor has suggested meets the case. I very much doubt if the changes which he is to make—better than nothing though they are—will really meet this position,

or that from what he has said he fully recognises the extreme seriousness of the position. I cannot help feeling that he is resisting this case because he is too frightened of the principle of discrimination in initial allowances, and we cannot accept that he is justified in taking such a strong line in opposition. In all the circumstances, I feel that we are bound to divide the Committee on our Amendment.

Question put, "That those words be there inserted."

The Committee divided: Ayes, 225; Noes, 236.

Division No. 188.]	AYES	[10.26 p.m.
Acland, Sir Richard	Fienburgh, W.	Mclnnes, J.
Adams, Richard	Finch, H. J.	McKay, John (Wallsend)
Albu, A H.	Fletcher, Eric (Islington, E.)	McLeavy, F.
Allen, Arthur (Bosworth)	Follick, M.	MacMillan, M. K. (Western Isles)
Allen, Scholefield (Crewe)	Foot, M. M.	MacPherson, Malcolm (Stirling)
Anderson, Alexander (Motherwell)	Forman, J. C.	Mainwaring, W. H.
Attlee, Rt. Hon. C. R.	Fraser, Thomas (Hamilton)	Mallalieu, E. L. (Brigg)
Awbery, S. S.	Freeman, John (Watford)	Mann, Mrs. Jean
Bacon, Miss Alice	Gaitskell, Rt. Hon. H. T. N.	Manuel, A. C.
Balfour, A.	Gibson, C. W.	Marquand, Rt. Hon. H. A.
Bartley, P.	Glanville, James	Mason, Roy
Bellenger, Rt. Hon. F. J.	Gooch, E. G.	Mayhew, C. P.
Bence, C. R.	Gordon-Walker, Rt. Hon. P. C.	Mellish, R. J.
Benn, Hon. Wedgwood	Greenwood, Anthony (Rossendale)	Mikardo, Ian
Beswick, F.	Grenfell, Rt. Hon. D. R.	Mitchison, G. R.
Blackburn, F.	Grey, C. F.	Monslow, W.
Blyton, W. R.	Griffiths, David (Rother Valley)	Moody, A. S.
Boardman, H.	Hall, Rt. Hon. Glenvil (Colne Valley)	Morgan, Dr. H. B. W.
Bottomley, Rt. Hon. A. G.	Hall, John T. (Gateshead, W.)	Morley, R.
Bowles, F. G.	Hamilton, W. W.	Morris, Percy (Swansea, W.)
Braddock, Mrs. Elizabeth	Hannan, W.	Mort, D. L.
Brockway, A. F.	Hargreaves, A.	Moyle, A.
Brown, Rt. Hon. George (Belper)	Harrison, J. (Nottingham, E.)	Mulley, F. W.
Brown, Thomas (Ince)	Hastings, S.	Nally, W.
Burke, W. A.	Hayman, F. H.	Noel, Harold (Bolsover)
Burton, Miss F. E.	Healey, Denis (Leeds, S.E.)	Noel-Baker, Rt. Hon. P. J
Butler, Herbert (Hackney, S.)	Henderson, Rt. Hon. A. (Rowley Regis)	Oliver, G. H.
Callaghan, L. J.	Herbison, Miss M.	Orbach, M.
Carmichael, J.	Hobson, C. R.	Oswald, T.
Champion, A. J.	Holman, P.	Paget, R. T.
Chetwynd, G R.	Hoy, J. H.	Paling, Rt. Hon. W. (Dearne Valley)
Clunie, J.	Hubbard, T. F.	Paling, Will T. (Dewsbury)
Coldrick, W.	Hudson, James (Ealing, N.)	Palmer, A. M. F.
Collick, P. H.	Hughes, Cledwyn (Anglesey)	Pannell, Charles
Corbet, Mrs. Freda	Hughes, Emrys (S. Ayrshire)	Pargiter, G. A.
Cove, W. G.	Hughes, Hector (Aberdeen, N.)	Parker, J.
Craddock, George (Bradford, S.)	Hynd, H. (Accrington)	Pearson, A.
Crosland, C. A. R.	Irvine, A. J. (Edge Hill)	Peart, T. F.
Crossman, R. H. S	Irving, W. J. (Wood Green)	Popplewell, E.
Cullen, Mrs. A.	Jay, Rt. Hon. D. P. T.	Price, Joseph T. (Westhoughton)
Daines, P.	Jeger, George (Goole)	Price, Philips (Gloucestershire, W.)
Dalton, Rt. Hon. H.	Jenkins, R. H. (Stechford)	Proctor, W. T.
Davies, Ernest (Enfield, E.)	Johnson, James (Rugby)	Pryde, D. J.
Davies, Harold (Leek)	Jones, David (Hartlepool)	Pursey, Cmdr. H.
Davies, Stephen (Merthyr)	Jones, Jack (Rotherham)	Rankin, John
Deer, G.	Jones, T. W. (Merioneth)	Reeves, J.
Dodds, N. N.	Keenan, W.	Reid, Thomas (Swindon)
Donnelly, D. L.	Kenyon, C.	Reid, William (Camlachie)
Driberg, T. E. N.	Key, Rt. Hon. C. W.	Rhodes, H.
Dugdale, Rt. Hon. John (W. Bromwich)	King, Dr. H. M.	Roberts, Albert (Normanton)
Ede, Rt Hon J. C.	Lee, Frederick (Newton)	Roberts, Goronwy (Caernarvon)
Edelman, M.	Lever, Harold (Cheetham)	Robinson, Kenneth (St. Pancras, N.)
Edwards, John (Brighouse)	Lever, Leslie (Ardwick)	Rogers, George (Kensington, N.)
Edwards, Rt. Hon. Ness (Caerphilly)	Lindgren, G. S.	Ross, William
Edwards, W. J. (Stepney)	Lipton, Lt.-Col. M.	Royle, C.
Evans, Albert (Islington, S.W.)	Logan, D. G.	Shackleton, E. A. A.
Evans, Edward (Lowestoft)	MacColl, J. E.	Shawcross, Rt. Hon. Sir Hartley
Evans, Stanley (Wednesbury)	McGhee, H. G.	Shinwell, Rt. Hon. E.
Fernyhough, E.	MoGovern, J.	Short, E. W.
Silver man, Julius (Erdington)	Sylvester, G O.	White, Henry (Derbyshire, N.E.)
Silverman, Sydney (Nelson)	Taylor, Bernard (Mansfield)	Whiteley, Rt. Hon. W.
Simmons, C. J. (Brierley Hill)	Taylor, John (West Lothian)	William, David (Neath)
Skeffington, Arthur	Taylor, Rt. Hon. Robert (Morpeth)	Williams, Rev. Llywelyn (Abertillery)
Slater, Mrs. (Stoke, N.)	Thomas, David (Aberdare)	Williams, Ronald (Wigan)
Slater, J. (Durham, Sedgefield)	Thomas, Ivor Owen (Wrekin)	Williams, W. R. (Droylesden)
Smith, Ellis (Stoke, S.)	Thornton, E.	Williams, W. T. (Hammersmith, S.)
Snow, J. W.	Timmons, J.	Wilson, Rt. Hon. Harold (Huyton)
Sorensen, R. W.	Tomney, F.	Winterbottom, Ian (Nottingham, C.)
Soskice, Rt. Hon. Sir Frank	Ungoed-Thomas, Sir Lynn	Winterbottom, Richard (Brightside)
Stole, T.	Wallace, H. W.	Woodburn, Rt. Hon. A.
Stewart, Michael (Fulham, E)	Webb, Rt. Hon. M. (Bradford, C.)	Wyatt, W. L.
Stokes, Rt. Hon. R. R.	Weitzman, D.	Yates, V. F.
Strachey, Rt. Hon. J.	Wells, William (Walsall)	Younger, Rt. Hon. K.
Stross, Dr. Barnett	West, D. G.
Summerskill, Rt. Hon. E.	Wheeldon, W. E.	TELLERS FOR THE AYES:
Swingler, S. T.	White, Mrs. Eirene (E. Flint)	Mr. Bowden and Mr. Holmes.
NOES
Aitken, W. T.	Fletcher-Cooke, C.	Macdonald, Sir Peter
Allan, R. A. (Paddington, S.)	Ford, Mrs. Patricia	Mackeson, Brig. H. R.
Alport, C. J. M.	Fort, R.	Mackie, J. H. (Galloway)
Amory, Heathcoat (Tiverton)	Fyfe, Rt. Hon. Sir David Maxwell	Maclay, Rt. Hon. John
Anstruther-Gray, Major W. J.	Galbraith, T. G. D. (Hillhead)	Maclean, Fitzroy
Ashton, H. (Chelmsford)	Gammans, L. D.	Macleod, Rt. Hon. lam (Enfield, W.)
Assheton, Rt. Hon. R. (Blackburn, W.)	Garner-Evans, E. H.	MacLeod, John (Ross and Cromarty)
Baldock, Lt.-Cmdr. J. M.	George, Rt. Hon. Maj. G. Lloyd	Macmilian, Rt. Hon. Harold (Bromley)
Baldwin, A. E.	Godber, J. B.	Macpherson, Niall (Dumfries)
Banks, Col. C.	Gomme-Duncan, Col. A.	Mailland, Comdr. J. F. W. (Horncastle)
Barber, Anthony	Gough, C. F. H.	Manningham-Buller, Sir R. E.
Barlow, Sir John	Gower, H. R.	Marples, A. E.
Baxter, A. B.	Graham, Sir Fergus	Marshall, Douglas (Bodmin)
Beach, Maj. Hicks	Gridley, Sir Arnold	Marshall, Sir Sidney (Sutton)
Bell, Philip (Bolton, E.)	Grimond, J.	Maude, Angus
Bell Ronald (Bucks, S.)	Grimston, Hon. John (St. Albans)	Maudling, R.
Bennett, F. M. (Reading, N.)	Grimston, Sir Robert (Westbury)	Maydon, Lt.-Comdr. S. L. C
Bennett, William (Westside)	Harden, J. R. E.	Medlicott, Brig, F.
Birch, Nigel	Hare, Hon. J. H.	Mellor, Sir John
Bishop, F. P.	Harris, Frederic (Croydon, N.)	Molson, A. H. E.
Black, C. W.	Harrison, Col. J. H. (Eye)	Moore, LI.-Col. Sir Thomas
Ransom Sir. A. C.	Harvey, Ian (Harrow, E.)	Morrison, John (Salisbury)
Bowen, E. R.	Heald, Sir Lionel	Mott-Radclyffe, C. E.
Boyd-Carpenter, J. A.	Heath, Edward	Nabarro, G. D. N.
Boyle, Sir Edward	Higgs, J. M. C.	Nicholls, Harmar
Braithwaite, Sir Albert (Harrow W)	Hill Charles (Luton)	Nicolson, Godfrey (Farnham)
Bromley-Davenport, Lt.-col. W. H.	Hill, Mrs. E. (Wythenshawe)	Nicolson, Nigel (Bournemouth, E.)
Brooke, Henry (Hampstead)	Hirst, Geoffery	Neild, Basil (Chester)
Brooman-White, R. C.	Holland-Martin, G. J.	Nugent, G. R. H.
Browne, Jack (Govan)	Holmes, Sir Stanley (Harwich)	Nutting, Anthony
Buchan-Hepburn, Rt. Hon. P. G. T	Holt, A. F.	Oashott, H. D.
Bullard, D. G.	Hope, Lord John	Odey, G. W.
Bullus, Wing Commander E. E.	Hopkinson, Rt. Hon. Hendy	O'Neill, Phelim (co. Antrim, N.)
Burden, F. F. A.	Horobin, I. M.	Ormsby-gore, Hon. W. D.
Butcher, Sir Herbert	Howard, Hon. Greville (St. Ives)	Orr, Capt. L. P. S.
Butler, Rt. Hon. R. A. (Saffron Walden)	Hudson, Sir Austin (Lewisham, N.)	Orr-Ewing, Sir Ian (Weston-super-Mare)
Camphell, Sir David	Hudson, W. R. A. (hull, N.)	Osbourne, C.
Carr, Robert	Hulbert, Wing Cdr. N. J.	Partridge, E.
Cary, Sir. Robert	Hurd, A. R.	Perkins, W. R. D.
Channon, H.	Hutchinson, Sir Geoffrey (llford, N.)	Peto, Brig. C. H. M.
Clarke, Col. Ralph (East Grinstead)	Hutchison, Lt.-Com. Clark (Eb'rgh W.)	Peyton, J. W. W.
Cole, Norman	Hyde, Lt.-Col. H. M.	Pickthorn, K. W. M
Colgate, W. A.	Hylton-Foster, H. B. H.	Pilkington, Capt. R. A
Conant, Maj. R. J. E.	Jenkins, Robert (Dulwich)	Powell, J. Enoch
Craddock, Beresfield (Spelthorne)	Johnson, Eric (Blackley)	Price, Henry (Lewisham, W.)
Craddock, Beresford (Spelthorne)	Joyson-Hicks, Hon. L. W.	Prior-Palmer, Brig. 0. L.
Cranborne, Viscount	Kaberry, D.	Raikes, Sir Victor
Crookshank, Capt. R. Hon H. F. C.	Keeling, Sir Edward	Rees-Davis, W. R.
Crosthwane-Eyre, Col. 0. E.	Kerr, H. W.	Remnant, Hon. P.
Crouch, R. F.	Lambert, Hon. G.	Renton, D. L. M.
Crowder, Sir John (Finchley)	Lancaster, Col. C. G.	Roberts, Peter (Heeley)
Crowder, Petre (Ruislip-Northwood)	Law, Rt. Hon. R. K.	Robertson, Sir David
Deedes, W. F.	Leather, E. H. C.	Robinson, Roland (Blackpool S.)
Digby, S. Wingfield	Legge-Bourke, Maj. E. A. H.	Rodgers, John (Sevenoaks)
Dodds-Parker, A. D.	Legh, Hon. Peter (petersfield)	Roper, Sir Harold
Donaldson, Cmdr. C. E. McA.	Linstead, H. N.	Ropner, Col. Sir Leonard
Donner, Sir P. W.	Lloyd, Rt. Hon, G. (King's Norton)	Russell, R S.
Doughty, C. J. A.	Lloyd, Maj. Sir Guy (Renfrew, E.)	Ryder, Capt. R. E. D.
Douglas-Hamilton, Lord Malcolm	Lloyd, Rt. Hon. Selwyn (Wirral)	Sailer, Rt Hon. Sir Arthur
Drayson, G. B.	Lockwood, Lt.-Col. J. C.	Savory, Prof. Sir Douglas
Duncan, Capt. J. A. L.	Longden, Gilbert	Scott, R. Donald
Erroll, F. J.	Low, A. R. W.	Shepherd, William
Fell, A.	Lucas, P. B. (Brentford)	Simon, J. E. S. (Middlesbrough, W.)
Finlay, Graeme	Lucas-Tooth, Sir Hugh	Smithers, Peter (Winchester)
Fisher, Nigel	McAdden, S. J.	Snadden, W. McN.
Fleetwood-Hesketh, R. F.	McCallum, Major D.	Soames, Capt. C

Spearman, A. C. M.	Thomas, Rt. Hon. J. P. L. (Hereford)	Walker-Smith, D. C.
Speir, R. M.	Thomas, Leslie (Canterbury)	Ward, Hon. George (Worcester)
Spent, Sir Patrick (Kensington, S.)	Thomas, P. J. M. (Conway)	Ward, Miss I. (Tynemouth)
Stanley, Capt. Hon. Richard	Thompson, Kenneth (Walton)	Waterhouse, Capt. Rt. Hon. C.
Stevens, G. P.	Thompson, Lt.-Cdr. R. (Croydon, W.)	Watkinson, H. A.
Steward, W. A. (Woolwich, W.)	Thorneyorolt, Rt. Hn. Peter (Monmouth)	Well wood, W.
Stoddart-Scott, Col. M.	Thornton-Kemsley, Col. C. N.	Williams, Sir Herbert (Croydon, E.)
Storay, S.	Tilney, John	Williams, Paul (Sunderland, S,)
Strauss, Henry (Norwich, S.)	Turner, H. F. L.	Williams, R. Dudley (Exeter)
Stuart, Rt. Hon. James (Moray)	Turton, R. H.	Wills, G.
Summers, G. S.	Vaughan-Morgan, J. K.	Wilson, Geoffrey (Truro)
Sutcliffe, Sir Harold	Vosper, D. F.
Taylor, Charles (Eastbourne)	Wade, D. W.	TELLERS FOR THE NOES:
Taylor, William (Bradford, N.)	Wakefield, Sir Wavell (St. Marylebone)	Mr. Studholme and Mr. Redmayne.

10.30 p.m.

Mr. Mulley

I beg to move, in page 9, line 28, after "shall", to insert: (save as in the next following subsection provided)", coupling with it the consequential Amendment to page 9, line 37.

The Chairman

There is a slight alteration. I think I have not told the hon. Gentleman that we have altered the procedure, so perhaps he would move the Amendment to line 37 instead of one he is moving.

Mr. Mulley

I beg to move, in page 9, line 37, at the end, to insert: (3) The last preceding subsection shall not apply to expenditure on brick-making machinery or plant. The purpose of this Amendment is to provide an initial allowance for brickmaking plant and machinery at 40 per cent. instead of the 20 per cent. proposed in the Bill. While, after our discussion of the previous Amendment, I cannot expect to have a too sympathetic response from the Chancellor, I point out that in this case there is no loan system in existence. While it may also be the case that the drafting of this Amendment is not up to the professional standard of Treasury draftsmen, I hope that that will not preclude the Chancellor from accepting it and having it re-drafted for the Report stage. I hope that we are getting towards the end of our deliberations for tonight and I suggest that the Chancellor's acceptance of the Amendment would be a very happy point at which to conclude.

I would point out to the Chancellor the importance of this Amendment to the Government's housing programme, a matter on which the party opposite laid great stress in speeches in the country last year. The nature of the problem facing the building industry can be realised from the figures of brick pro- duction. In 1938, the total brick production was 7,800 million. In 1950, it was only 6,000 million and last year it was 6,600 million bricks. Production in the first few months of this year has been at the annual rate of 6,800 million bricks. This is 15 per cent. below the target set in 1950 by my right hon. Friend the Member for Ipswich (Mr. Stokes), who was then the responsible Minister.

Hon. Members in all parts of the Committee will have read with alarm the statistics of brick production in April. The number produced was 570 million. But a more alarming feature is the present stock of bricks. The stock at the end of April was less than it has been since the war. There were only 96 million in stock, which is rather less than four days' production. The housing programme is liable to be held up in all parts of the country because there is only that number of bricks in stock. It is a most serious situation. An additional burden is added to our foreign exchange problems because of the necessity to import Belgian bricks, which cost hard foreign currency. The cost of those bricks also adds substantially to the cost of housing and other building projects.

As the Economic Secretary to the Treasury will know, brick production in this country is largely divided between the Fletton area and other areas. The undertakings in the Fletton area, round Peterborough and Bletchley, are very large undertakings. They belong mainly to the London Brick Company and have the advantage of large-scale production and of mechanical handling which would delight my hon. Friend the Member for Edmonton (Mr. Albu) with its extreme efficiency.

In contrast, the firms in the "non-Fletton" areas are very small. They have great financial difficulties and I think that it is conceded by the experts that if we want a substantial increase in brick production it must come from these small firms. The problem was considered in detail by the Labour Government and some special financial arrangements were made with the Bank of England and the Industrial and Commercial Finance Corporation. Steps were also taken to improve the labour position. Although there has been an encouraging increase in production since the war, nevertheless, it is by no means sufficient to meet our requirements.

The position is best summed up in a quotation from the "British Clay-worker" which, last year, said: We must say that we have been astonished all along at the naiveness with which the Government has handled the question of brick production for an expanding housing programme. Since they do not grow on trees, bricks have to be made. Now, can it seriously be expected that today, thirteen years after 1939, there can be much in the way of capital assets lying about idle in the industry? Of course there is not. Any plant which can make bricks at a marketable price has been put to work long ago. Further brick output can, therefore, only come from the investment of capital in new works and re-equipment. I raised this subject on the Adjournment in March of last year, and I ventured to put it to the Minister of Works, who I am sorry is not in his place, that there should be a committee or some form of investigation, into the capital needs of the brick-making industry. The Minister, in his reply was forthright, for he said: We do not need a committee to look into this question. That is rather the kind of method which our predecessors used—I will not say to shift responsibility, but to deal with these things. My opinion is that the Ministers responsible for these industries should do the thing themselves, and if they do not do it properly they will have to be got rid of. That is the proper way to run the country, and not by committees."— [OFFICIAL REPORT, 14th March, 1952, Vol. 497. c. 1892.] I am wondering whether the right hon. Gentleman sometimes reflects on those words, or reflects on the brick shortages in all parts of this country, when his right hon. Friend the Chancellor sets up another committee to deal with a particular problem. I am tempted to ask what is his view when he hears of the Royal Commission on Taxation and Profits, and of the Government deciding to take their view rather than that the Government should take a decision itself.

Steps have to be taken to expand brick production. It may well be argued that initial allowances would not be a very effective method for the purpose I have in mind, but perhaps I might quote again from the "British Clayworker ", which is the journal of the industry. Referring to the proposals in the Budget last year, it stated: If the 40 per cent. initial allowance on new equipment is terminated this spring, then we must say that we cannot see how even the giants of the industry—the Fletton firms—will be able to do much more to increase output. The end of the 40 per cent. allowance can only mean the end of extensions or modernisation, even for them. For the smaller private firms, the continuance of the 40 per cent. alone will not be enough. I agree that it is unwise to make extravagant claims for what initial allowances alone will do, but I would remind the Chancellor that there are no loans in this industry such as there are for fuel-saving equipment; and whether the initial allowances will solve the problem or not, there is no doubt at all that if they do not succeed in securing further investment the cost to the Treasury will be very little. So, the Treasury is in the happy position of having the initial allowances succeed and stimulating investment, or losing very little taxation as a consequence.

The situation is more serious today because the Excess Profits Levy hit this industry very hard; it hit the brick companies which took a long time to get going after the war, and unless something is done, the position will become very difficult indeed. The latest figures available —those at the end of April—show that we have less than four days' supply in hand. That is the lowest stock position since the war and it is a most serious situation. The Government has been warned by the industry, the trade unions and, if I may with modesty say so, by myself in the Adjournment debate to which I have referred. I realise that there are many other considerations for the Government's time, but too little attention has been given to this subject, and the time is ripe for the modest contribution of help which the Amendment suggests.

10.45 p.m.

The "British Clayworker" also said: It is not particularly relevant to the case whether we reach the 300,000 house target in 1952 or 1953 or later. The important point is that an efficient, modernised brick and tile industry is essential to the country for the simple reason that without it we can never solve the housing problem economically. If the housing problem is to be solved at all plans for expansion of output of the necessary materials must be laid well in advance. Now will be none too soon. That was a year ago.

I am sorry that the Minister of Works is not here. I did not give him notice of this, because I imagined that on this subject he would be present in any case. He should recall his words, and if he will not set up a committee and do the job himself we must act in accordance with the precept that he laid down and get rid of him. We must have some consideration for the building materials industries, not only for housing but for the factory building programme and the school-building programme. In fact, the whole of our social and economic objectives are involved in this problem.

Also, we shall save foreign currency. We shall increase productivity, because one of the biggest needs of the brick-making industry is further mechanisation to save labour. Again—and this might appeal to the Economic Secretary— many of the appliances would also save fuel. They are not covered, as I understand it, by the loan system that was announced in response to the previous Amendment. It may be that when we get details there will be some small concession in that direction. I believe that this is a modest Amendment which will cost very little. Certainly, it will cost nothing if it does not fulfil the objective we have in mind. I therefore say to the Economic Secretary that this is the right time and the right hour of night to come forward and accept this proposal.

Mr. Maudling

I agree with the hon. Gentleman about the importance of the brick-making industry. I must say that I was somewhat touched by his concern over the Government's housing programme, and we much appreciate his interest in it.

Mr. Mulley

Could I just make that point clear? What we on this side want to see is as many houses built as possible.

Mr. Maudling

Yes, of course. That was obvious. I know that perfectly well.

While the hon. Member's argument, with which I entirely agree, demonstrated that it is an important industry and that in the national interest its output should be expanded, I do not think he brought forward any convincing argument to show why the granting of a special rate of initial allowances to this industry should be the method to be adopted for expanding its output. I dare say it is true to say that whatever importance we attribute to initial allowances as a means of stimulating output and production, they are relatively slow-working methods, and I do not think they would have any relation to any short-term process or any short-term shortages in the brick industry.

As the Committee is aware, on an earlier Amendment we discussed the question of principle as to whether there should be discrimination between one industry and another in the initial allowances for plant and machinery, or building for that matter. On a Division the Committee accepted the Government's view that in principle discrimination was not the right method by which to proceed in this matter of initial allowances. I therefore listened to hear whether the hon. Gentleman brought forward any argument in support of his case which put the brick industry in a totally different position from the general range of industries, and I must say that I do not think he did.

It is perfectly true that it is an important industry; it is important to the social life of the community, to the economy, and from the point of view of saving possible foreign exchange on imported bricks. But that can be said for a very large number of industries which are of equal importance to our eonomy. The shipbuilding industry, of which we have heard a great deal this evening, is one example. I do not think the hon. Gentleman has put forward a case for giving special consideration to the brick industry, and I fear that the Government must maintain the attitude already adopted in opposing discrimination in the matter of initial allowances.

Mr. C. W. Gibson (Clapham)

I do not think that the Economic Secretary has given us good reasons for rejecting this Amendment. It is quite true that the Committee have rejected an Amendment which provided for discrimination in certain industries, but this is an industry fundamental to the social health of the country. If we do not get enough bricks we shall not only fail to build enough houses but we shall not build enough factories; indeed, we are not building them. I should have thought that this was one industry towards which the Government might have been a little more sympathetic.

It is not as if the Government have not been warned. I myself have called attention on several occasions to the shortage of bricks in the Midlands, and I know that there have been high level conferences in that part of the country to consider what can be done about the situation. Today, at Question time, there were two other places mentioned. The shortage of bricks in South Wales and in the Rugby area was raised in Questions to the Minister of Works. It is obvious to those who follow the industry carefully that in spite of the boasting of the Government speakers and of the efforts of the newspapers, there really is a serious shortage of bricks.

Mr. Harmar Nicholls (Peterborough)

I do not want to comment on the argument for increased initial allowances, but the hon. Gentleman is ignoring the fact that over the last 18 months there has been an increase of between 10 and 15 per cent. in the production of bricks. In pursuing the argument for an increased initial allowance it should not be said that there has been a falling off in the production of bricks when, in fact, there has been a considerable increase.

Mr. Gibson

I have not said that. It is true that during the past year there has been an overall increase in the total number of bricks produced, but we are still a long way from the number of bricks produced before the war, and the situation is bound to reflect itself in a hold-up in various sections of the building industry. I believe it would have shown itself in house building by this time if it had not been for the policy of concentration on house building, and particularly on smaller houses, which the Government have been following.

If we are to get these additional bricks for the building industry in all its aspects, we must do something to encourage the greater output of bricks. I do not think we can find any better way of increasing the output of bricks than by encouraging the use of machinery. The old days of brick making by hand have gone, and today if we want large output we must use the latest type of machinery for getting the clay and moulding the bricks in very large numbers.

I have no particular reason personally to support the manufacturers in the industry because they have given me a lot of trouble in my trade union activities in the past, but if some assistance can be afforded to them to enable them to produce larger quantities by means of using new machinery, I suggest it ought to be provided.

I would remind the Committee that within the last day or two the President of the National Federation of Building Employers has been talking on this subject and has said that the supply of bricks is getting to a dangerously low position, and he has pointed out that the stocks are actually less now than they have been at any time since the war.

We want to see many houses built. If the Tories can build them I say, "Good luck to them." What I criticise is their practice of building smaller houses with fewer appointments than we had been putting into them. If the provision of this slight financial assistance could produce more bricks, and, consequently, more houses, I would not grumble, because tens of thousands of people in whom I am personally interested would get houses more quickly. Therefore, I say that there is a special case for considering giving this industry special treatment in the way of financial inducement to introduce the utmost possible machinery. Expert evidence goes to prove that the introduction of modern plant will considerably increase the efficiency of the industry, which, I admit, is very efficient in parts; it will also increase output per man.

Speaking as a member of the union to which most of the men concerned belong, I would say that we would welcome anything which would increase overall efficiency and output per man. I hope that the Government will have second thoughts, and will agree to do something on the lines of the Amendment.

Mr. Gaitskell

When my hon. Friend the Member for Sheffield, Park (Mr. Mulley) moved this Amendment I had an open mind on the subject. I was prepared to hear what the Government had to say, thinking that perhaps there might be facts available to it which were not available to us which might throw some doubt on the Amendment. The Economic Secretary, who is usually so forthcoming, gave us a perfunctory reply. I know that the hour is late, but my hon. Friend put his case fully, with some detail, and the Economic Secretary has really said nothing, except that it has already been decided not to have discrimination, and, therefore, there cannot be discrimination in this case.

What we decided was that there would not be a system of discrimination, but we did not decide then, if I may say so, that in no circumstances would any particular industry be given special treatment. That

argument was not used in the case of fuel economy, and I do not consider it appropriate in the case of bricks. I consider it discourteous of the Minister of Works not to put in an appearance on this Amendment. The Parliamentary Secretary has come in, but he might have been here earlier, as the matter concerns his Ministry intimately.

Although we have no desire to detain the Committee unduly I would suggest to my hon. Friends that we should register our protest against the wholly inadequate Government reply, and that we should now divide.

Question put, "That those words be there inserted."

The Committee divided: Ayes, 197: Noes. 217.

Division No 189]	AYES	[10.59 p.m
Acland, Sir Richard	Foot, M. M.	Mallalieu, E. L. (Brigg)
Adams, Richard	Forman, J. C.	Manuel, A. C.
Albu, A. H.	Fraser, Thomas (Hamilton)	Marquand, Rt. Hon. H. A
Allen, Arthur (Bosworth)	Freeman, John (Watford)	Mason, Roy
Allen, Scholefield (Crewe)	Gaitskell, Rt. Hon. H. T. N.	Mayhew, C. P.
Anderson, Alexander (Motherwell)	Gibson, C. W.	Mellish, R. J.
Awbery, S. S.	Glanville, James	Mitchison, G. R,
Bacon, Miss Alice	Gordon-Walker, Rt. Hon. P. C.	Monslow, W.
Balfour, A.	Greenwood, Anthony (Rossendale)	Morgan, Dr. H. B. W.
Bartley, P.	Grenfell, Rt. Hon. D. R.	Morley, R.
Bellenger, Rt. Hon. F. J.	Grey, C. F.	Morris, Percy (Swansea, W.)
Bence, C. R.	Griffiths, David (Rother Valley)	Mort, D. L.
Benn, Hon. Wedgwood	Griffiths, William (Exchange)	Moyle, A.
Beswick, F.	Hall, Rt. Hon. Glenvil (Colne Valley)	Mulley, F. W.
Blackburn, F.	Hall, John T. (Gateshead, W.)	Nally, W.
Boardman, H.	Hannan, W.	Neal, Harold (Bolsover)
Bottomley, Rt. Hon, A. G.	Hargreaves, A.	Noel-Baker, Rt. Hon. P. J.
Bowles, F. G.	Hastings, S.	Oliver, G. H.
Braddock, Mrs. Elizabeth	Hayman, F. H.	Orbach, M.
Brockway, A. F.	Healey, Denis (Leeds, S.E.)	Oswald, T.
Brown, Rt. Hon. George (Belper)	Henderson, Rt. Hon. A. (Rowley Regis)	Paget, R. T.
Burke, W. A.	Herbinson, Miss M.	Parling, Rt. Hon. W. (Dearne Valley)
Burton, Miss F. E.	Hobson, C. R.	Paling, Will T. (Dewbury)
Butler, Herbert (Hackney, S.)	Holman, P.	Palmer, A. M. F.
Callaghan, L. J.	Holmes, Horace (Hemsworth)	Pargiter, G. A.
Carmichael, J.	Hoy, J. H.	Parker, J.
Champion, A. J.	Hubbard, T. F.	Pearson, A.
Chetwynd, G. R.	Hudson, James (Ealing, N.)	Peart, T. F.
Coldrick, W.	Hughes, Cledwyn (Anglesey)	Popplewell, E.
Collick, P. H.	Hughes, Emrys (S. Ayshire)	Price, Joseph T. (Westhougnton)
Corbet, Mrs. Freda	Hughes, Hector (Aberdeen, N.)	Price, Phillips (Gloucestershire, W.)
Craddock, George (Bradford, S.)	Hynd, H. (Accrington)	Proctor, W. T.
Crosland, C. A. R.	Irvine, A. J. (Edge Hill)	Pryde, D. J.
Crossman, R. H. S.	Irving, W. J. (Wood Green)	Pursey, Cmdr. H.
Cullen, Mrs. A.	Jay, Rt. Hon. D. P. T.	Reeves, J.
Dalton, Rt. Hon. H.	Jeger, George (Goole)	Reid, Thomas (Swindon)
Davies, Harold (Leek)	Johnson, James (Rugby)	Rhodes, H.
Davies, Stephen (Merthyr)	Jones, David (Hartlepool)	Roberts, Albert (Normanton)
Deer, G.	Jones, jack (Rotherham)	Roberts, Goronwy (Caernarvon)
Donnelly, D. L.	Jones T W. (Merioneth)	Rogers, George (Kensington, N.)
Driberg, T. E. N.	Keenan, W.	Ross, William
Dugdale, Rt. Hon. John (W. Bromwich)	Kenyon, C.	Royle, C.
Ede, Rt. Hon. J. C.	King, Dr. H. M.	Shackleton, E. A. A.
Edwards, John (Brighouse)	Lee, Frederick (Newton)	Shawcross, Rt. Hon. Sir Hartley
Edwards, W. J. (Stepney)	Lever, Harold (Cheetham)	Short, E. W.
Evans, Albert (Islington, S.W.)	Lever, Leslie (Ardwick)	Silverman, Julms (Erdington)
Evans, Edward (Lowestoft)	Logan, D. G.	Silverman, Sydney (Nelson)
Evans, Stanley (Wednesbury)	MacColl, J. E.	Simmons, C. J. (Brierley Hill)
Fernyhough, E.	McGhee, H. G.	Skeffington, Arthur
Fienburgh, W.	Mclnnes, J.	Slater, Mrs. (Stoke, N.)
Finch, H. J.	MacMillan, M. K. (Western Isles)	Slater, J. (Durham, Sedgefield)
Fletcher, Eric (Islington, E.)	MacPherson, Malcolm (Stirling)	Smith, Ellis (Stoke, S.)
Follick, M.	Mainwaring, W. H.	Snow, J. W.
Sorensen, R. W.	Timmons, J.	Williams, Ronald (Wigan)
Soskice, Rt. Hon. Sir Frank	Tomney, F.	Williams, W. R. (Droylsden)
Steele, T.	Ungoed-Thomas, Sir Lynn	Williams, W. T. (Hammersmith, S.)
Stewart, Michael (Fulham, E.)	Wallace, H. W.	Wilson, Rt. Hon. Harold (Huyton)
Stokes, Rt. Hon. R. R.	Webb, Rt. Hon. M. (Bradford, C.)	Winterbottom, Ian (Nottingham, C.)
Stross, Dr. Barnett	Weilzman, D.	Winterbottom, Richard (Brightside)
Summerskill, Rt. Hon. E.	Wells, William (Walsall)	Woodburn, Rt. Hon. A.
Swingler, S. T.	West, D. G.	Wyatt, W. L.
Sylvester, G. O.	Wheeldon, W. E.	Yates, V. F.
Taylor, Bernard (Mansfield)	White, Mrs. Eirene (E. Flint)	Younger, Rt. Hon. K.
Taylor, John (West Lothian)	White, Henry (Derbyshire, N.E.)
Thomas, David (Aberdare)	Whiteley, Rt. Hon. W.	TELLERS FOR THE AYES:
Thomas, Ivor Owen (Wrekin)	Williams, David (Neath)	Mr. Bowden and
Thornton, E.	Williams, Rev. Lywelyn (Abertillery)	Mr. Kenneth Robinson.
NOES
Aitken, W. T.	George, Rt. Hon. Maj. G. Lloyd	Marples, A. E.
Allan, R. A. (Paddington, S.)	Godber, J. B.	Marshall, Douglas (Bodmin)
Alport, C. J. M.	Gomme-Duncan, Col. A.	Marshall, Sir Sidney (Sutton)
Amory, Heathcoat (Tiverton)	Gough, C. F. H.	Maude, Angus
Anstruther-Gray, Major W. J.	Gower, H. R.	Maudling, R.
Ashton, H. (Chelmsford)	Graham, Sir Fergus	Maydon, Lt.-Comdr. S. L. C.
Assheton, Rt. Hon. R. (Blackburn, W.)	Gridley, Sir Arnold	Mellor, Sir John
Baldock, Lt.-Cmdr. J. M.	Grimond, J.	Molson, A. H. E.
Baldwin A. E.	Grimston, Hon. John (St. Albans)	Moore, Lt.-Col. Sir Thomas
Banks, Col. C.	Grimston, Sir Robert (Westbury)	Morrison, John (Salisbury)
Barber, Anthony	Harden, J. R. E.	Nabarro, G. D. N.
Barlow, Sir John	Hare, Hon. J. H.	Nicholls, Harmar
Baxter, A. B.	Harris, Frederic (Croydon, N.)	Nicholson, Godfrey (Farnham)
Beach, Maj. Hicks	Harris, Reader (Heston)	Nicolson, Nigel (Bournemouth, E.)
Bell, Philip (Bolton, E.)	Harrison, Col. J. H. (Eye)	Nield, Basil (Chester)
Bennett, F. M. (Reading, N.)	Heald, Sir Lionel	Nugent, G. R. H.
Bennett, William (Woodside)	Heath, Edward	Nutting, Anthony
Birch, Nigel	Higgs, J. M. C.	Oakshott, H. D.
Bishop, F. P.	Hill, Dr. Charles (Luton)	Odey, G. W.
Black, C. W.	Hill, Mrs. E. (Wythenshawe)	O'Neill, Phelim (Co. Antrim, N.)
Bossom, Sir A. C.	Hirst, Geoffrey	Ormsby-Gore, Hon. W. D.
Bowen, E. R.	Holland-Martin, C. J.	Orr, Capt. L. P. S.
Boyd-Carpenter, J. A.	Holmes, Sir Stanley (Harwich)	Orr-Ewing, Sir Ian (Weston-super-Mare)
Boyle, Sir Edward	Hope, Lord John	Osborne, C.
Braithwaite, Sir Albert (Harrow, W.)	Hopkinson, Rt. Hon. Henry	Partridge, E.
Bromley-Davenport, Lt.-Col. W. H.	Horobin, I. M.	Perkins, W. R. D.
Brooke, Henry (Hampstead)	Howard, Hon. Greville (St. Ives)	Peto, Brig. C. H. M.
Brooman-White, R. C.	Hudson, Sir Austin (Lewisham, N.)	Peyton, J. W. W.
Buchan-Hepburn, Rt. Hon. P. G. T.	Hudson, W. R. A. (Hull, N.)	Pickthorn, K. W. M
Bullard, D. G.	Hulbert, Wing Cdr. N. J.	Powell, J. Enoch
Burden, F. F. A.	Hurd, A. R.	Price, Hendy (Lewisham, W.)
Butcher, Sir Herbert	Hutchinson, Sir Geoffrey (llford, N.)	Prior-Palmer, Brig. 0. L.
Butler, Rt. Hon. R. A. (Saffron Walden)	Hutchison, Lt.-Com. Clark (E'h'rgh W.)	Raikes, Sir Victor
Campbell, Sir David	Hyllon-Foster, H. B. H.	Redmayne, M.
Carr, Robert	Jenkins, Robert (Dulwich)	Rees-Davis, W. R.
Cary, Sir Robert	Johnson, Eric (Blackley)	Remnant, Hon. P.
Channon, H.	Joynson-Hicks, Hon. L. W.	Renton, D. L. M.
Churchill, Rt. Hon. Sir Winston	Kaberry, D.	Roberts, Peter (Heeley)
Clarke, Col. Ralph (East Grinstead)	Keeling, Sir Edward	Robinson, Roland (Blackpool, S.)
Cole, Norman	Kerr, H. W.	Rodgers, John (Sevenoaks)
Colegate, W. A.	Lambert, Hon G.	Roper, Sir Harold
Conant, Maj. R. J. E.	Lancaster, Col C. G.	Ropner, Col. Sir Leonard
Craddock, Beresford (Spelthome)	Law, Rt. Hon. R. K.	Russell, R. S.
Cranborne, Viscount	Leather, E. H. C.	Ryder, Capt. R. E. D.
Crookshank, Capt. Rt. Hon. H. F. C.	Legge-Bourke Maj. E. A. H.	Salter, Rt. Hon. Sir Arthur
Crosthwaite-Eyre, Col. 0. E.	Legh, Hon. Peter (Petersfield)	Scott, R. Donald
Crowder, Sir John (Finchley)	Linstead, Sir H. N.	Shepherd, William
Crowder, Petre (Ruislip-Northwood)	Lloyd, Maj. Sir Guy (Renfrew, E.)	Simon, J. E. S. (Middlesbrough, W.)
Deedes, W. F.	Lioyd, Rt. Hon. Selwyn (Wirral)	Smithers Peter (Winchester)
Digby, S. Wingfield	Lockwood, Lt.-Col. J. C.	Snadden, W. McN.
Dodds-Parker, A. D.	Longden, Gilbert	Soames, Capt. C.
Donaldson, Cmdr. C. E. McA.	Low, A. R. W.	Spearman, A. C. M.
Donner, Sir P. W.	Lucas, P. B. (Brentford)	Stanley, Capt. Hon. Richard
Doughty, C. J. A.	Lucas-Tooth, Sir Hugh	Stevens, G. P.
Douglas-Hamilton, Lord Malcolm	McCallum, Major D.	Steward, W. A. (Woolwich, W.)
Drayson, G. B.	Macdonald, Sir Peter	Stoddart-Scott, Col. M.
Duncan, Capt. J. A. L.	Mackeson, Brig. H. R.	Storey, S.
Erroll, F. J.	Mackie, J. H. (Galloway)	Strauss, Henry (Norwich, S.)
Finlay, Graeme	Maclay, Rt. Hon. John	Stuart, rt. Hon. James (Morray)
Fisher, Nigel	Maclean, Fitzroy	Summers, G. S.
Fleetwood-Hesketh, R. F.	Macleod, Rt. Hon. lain (Enfield, W.)	Taylor, Charles (Eastbourne)
Fletcher-Cooke, C.	MacLeod, John (Ross and Cromarty)	Taylor, William (Bradford, N.)
Ford, Mrs. Patricia	Macmillan, Rt. Hon. Harold (Bromley)	Thomas, Rt. Hon. J. P. L. (Hereford)
Fort, R.	Macpherson, Niall (Dumfries)	Thomas, P. J. M. (Conway)
Galbraith, Rt. Hon. T. D. (Pollok)	Maitland, Comdr. J. F. W. (Horncastle)	Thompson, Kenneth (Walton)
Galbraith, T. G. D. (Hillhead)	Maitland, Patrick (Lanark)	Thorneycroft, Rt. Hn. Peter (Monmouth)
Gamer-Evans, E. H.	Manningham-Buller, Sir R. E.	Thornton-Kemsley, Col. C. N.

Tilney, John	Ward, Hon. George (Worcester)	Williams, R. Dudley (Exeter)
Turner, H. F. L.	Ward, Mils I. (Tynemouth)	Wills, G.
Turton, R. H.	Waterhouse, Capt. Rt. Hon. C.	Wilson, Geoffrey (Truro)
Vaughan-Mergan, J. K.	Watkinson, H. A.
Vosper, D. F.	Wellwood, W.	TELLERS FOR THE NOES:
Wakefield, Sir Wavell (St. Marylebone)	Williams, Sir Herbert (Croydon, E.)	Mr. Studholme and
Walker-Smith, D. C.	Williams, Paul (Sunderland, S.)	Lieut.-Commander Richard Thompson

Mr. Harold Wilson (Huyton)

I beg to move, in page 9, line 37, at the end. to insert: (3) The last preceding subsection shall not apply to expenditure certified by the Treasury as expenditure on approved overseas development under the provisions of the Schedule (Initial allowances in respect of development in the Scheduled Territories) to this Act and accordingly an initial allowance under the said Chapter II in respect of expenditure so certified shall be equal to two-fifths of that expenditure. I do not think I need take the time of the Committee for long on this Amendment, despite its vast importance. Some of the arguments which could be deployed in support of it have already been deployed this evening on the Amendment moved by my hon. Friend the Member for Edmonton (Mr. Albu), particularly in the speech of my right hon. Friend the Member for Battersea, North (Mr. Jay). That Amendment was defeated, but, despite that, and although we hope that one of these days the House will come round to the idea of discrimination in taxation for purposes of forwarding and encouraging projects of vital national importance, we still feel it essential to press this Amendment, which deals specifically with overseas investment.

The purpose of the Amendment is to fix a rate of 40 per cent. for the initial allowances on equipment used on overseas investment, or at least on certain types of overseas investment. I am sure that the whole Committee is in agreement on the need to provide the maximum possible stimulation to development within the Commonwealth. I was encouraged by the speech of the Chancellor of the Exchequer in the Budget debate. I had asked him what hopes he saw of avoiding serious economic difficulties if there were a recession in the United States, which must come sooner or later.

In his reply, on 20th April, the right hon. Gentleman said that the one hope he foresaw of avoiding a slump, should that develop, would be a greatly expanded rate of overseas development on the lines of the speech, which he quoted of President Eisenhower. I think there will be agreement in the Committee, despite the political views of some hon. Members opposite, that the main task of overseas development has to be done by public investment rather than by private investment.

We all realise that there will not be much done in the sphere of Commonwealth development unless a vast amount of money is spent by public authorities. or international authorities, on the development of railways, irrigation schemes, drainage schemes, ports, harbours, roads, bridges, etc. We all recognise that this cannot be done by private enterprise and that there has to be public spending to achieve this side of the overseas development. Nevertheless, we do recognise that an important part of the work still falls to private enterprise. In the communique of the Commonwealth Prime Ministers' Conference, which we debated on 3rd February, I recall that the Commonwealth Prime Ministers placed a very heavy emphasis on private enterprise development within the Commonwealth. Most of us, on this side of the Committee, thought they were pinning far too much faith on that kind of overseas development.

When we debated the matter that evening, the Chancellor referred to the proposals being examined in the City under the committee then set up and, now, of course, under the new organisation established in the City for the purpose of stimulating private investment in the Commonwealth. Some of us expressed some doubts about it, and felt too much was being expected of private finance in a field where public finance will have to bear the major loans. We readily concede, even if the Government are pinning too much faith on it in this matter, that there will be an important task for private enterprise development in Commonwealth territories. All of us will agree that that development is very difficult and, indeed, very risky. Furthermore, there are some special risks attaching to capital investments in these areas, but I do not need to outline them tonight.

Reading the Report of the Colonial Development Corporation, which relates to public investment and not to private investment, one notices the difficulties with which they are faced in overseas development, difficulties which also have to be faced by private enterprise developers. One recalls the Report of the Corporation last year, with its strictures on the Chancellor for the effect of the high interest rate on colonial development and pointing out that a rate of profit of 6¾ per cent. is required to cover even the most elementary borrowing charges, this providing nothing for overheads or repayment of capital.

If it is true of the Colonial Development Corporation, which is in a specially favoured position for borrowing the capital it uses, it becomes obvious that private enterprises, in the task of overseas development, have to achieve a very high rate of profit indeed to make it worth while and to tempt them to divert resources from certain less essential activities in this country to the all-important task of Commonwealth development. Therefore, there is a strong prima facie case for making this simple 40 per cent. concession applicable to overseas development in the same way as the Chancellor has already proposed in respect of mineral development overseas.

11.15 p.m.

It would, of course, have been very simple for us to have put down a much more elementary Amendment to cover the point. It would have been possible simply to follow the lines of the Chancellor's concession, and to have said that it should be given for all development within the scheduled territories. In fact, it was tempting to put down such an Amendment, but we felt that it would be wrong because we have to face the fact that not all possible capital expenditure in the Commonwealth is equally important or productive.

The Chancellor may recall that in the debate on 3rd February some of us pointed out that we were not happy about leaving the job of selecting projects for investment to a committee in the City. We felt the Government should be deciding what to encourage, stimulate, and help. Therefore, it would have been inconsistent, and not in the highest interests of Commonwealth development, if we had tabled an Amendment granting this concession to all overseas development.

There is a fair amount of development going on from this country in less essential projects. One reads a lot about the diversion of capital to Australia for the purposes of building milk bars and icecream bars. We would not suggest a concession for those items. We know it will still be as easy, if not easier, under the new development the Chancellor has encouraged in the City, to build breweries in South Africa as it is railways and irrigation schemes in Africa and Asia.

That is one of those spheres where very much tighter control is required. Certainly we would not be proposing tonight that the special discriminatory concessions should be extended so that more breweries can be built in South Africa. Therefore, we admit that there must be discrimination within the field of overseas development. That is why we have made the Amendment more complicated, and have provided not merely that the expenditure must be on overseas development within the sterling area, but also that it must be on expenditure certified by the Treasury as expenditure on approved overseas development within the sterling area.

I hope that the Economic Secretary will get out of the rut he has been in during the last few Amendments, and will give us a different speech. I hope he will say that the Government and the Conservative Party recognise the need for overseas development within the Commonwealth, and intend to do something about it. This Amendment is really a challenge to the Government's sincerity in their oft-proclaimed desire for Commonwealth development. It is a test of their enthusiasm.

The plain fact is that the Government have done shockingly little since they came to power. They have had a number of conferences, issued a number of communiqués, made many speeches, and done little or nothing, except issue a White Paper on a scheme already started in the Gold Coast. They have done little in the field of public expenditure, and almost nothing about the Colombo Plan. We are distressed at the way the plan has been lagging since its inception.

The Government have hampered the working of the Colonial Development Corporation by their action on interest rates, and they are leaving private enterprise to do the job in this field. We believe that they are putting too much reliance on private enterprise and are asking it to take a strain beyond that of which it is capable. At least there is, in this Amendment, a chance to help private enterprise to do that job. We believe that private enterprise has a job to do in the Colonial Territories. It may be a limited job, dependent upon public investment, but we believe that the Government will give a lead tonight by accepting the Amendment, enabling private enterprise to get on with the job.

Mr. Maudling

The right hon. Member for Huyton (Mr. H. Wilson) has moved the Amendment with great care and weight, and I appreciate that it was drafted with great care to cover the point that he made about being consistent in the matter of discrimination between the creditworthiness of various forms of investment, which attitude he would like to adopt in investments abroad as in investments at home. He asked me to say that we recognised the need for development overseas in the Commonwealth; of course we do, as is the constant theme of my right hon. Friends.

When the right hon. Gentleman was talking about failure to do anything about overseas investment he did not mention the £60 million that we are arranging should be made available through the world bank, which is a rather large contribution. The main function of this country is to provide capital for projects. We are anxious that the overseas territories of the Commonwealth should come forward with projects. Quite a number are being formulated, I believe very substantial ones, now.

I should be going beyond the bounds of order and beyond the confines of the Treasury if I embarked upon a debate on colonial and Commonwealth development. We are discussing the particular point of the initial allowances. We have already discussed the total amount that the Chancellor can provide for initial allowances, and my right hon. Friend has explained about the 40 per cent. allowance for all plant and machinery, and claims of that kind. We have discussed discrimination between different industries and different firms, and I explained on an earlier Amendment the reasons—administration, economy, and so on—why the Government object to the principle of discrimination. Having rejected that principle in the sphere of U.K. investment, we should also reject the principle which is contained in this Amendment.

Mr. H. Wilson

Is not the Chancellor today discriminating in respect of overseas development? Have not we recently had a case where the New Zealand Government asked for special Treasury encouragement to help to provide capital for a scheme to which they attached importance, and did not the Chancellor reply that he could not provide capital because he felt that the scheme was not essential at that time? If he can apply discrimination in that way and in the way he discriminates in the Capital Issues Committee, why cannot he discriminate in respect of certificates for initial allowances?

Mr. Maudling

The question of the guidance given to the Capital Issues Committee and to the banks was raised by the hon. and learned Member for Kettering (Mr. Mitchison). I have endeavoured to explain the quite different principles applying in the case of taxation and credit policy. The main point is that the Government should confine their activities to broad questions of economic policy and not concentrate on discrimination between individual claimants. In the New Zealand case the attitude taken up by my right hon. Friend was that projects must be considered in the light of the principles laid down in the communiqué issued after the Commonwealth Conference.

I listened with very great care to see on what grounds the right hon. Gentleman based his claim for overseas investments being considered differently from home investments. We considered very seriously the possibility of giving special help in this way to overseas projects, because there is obviously a very strong argument in that direction, but we came to the conclusion, and we still hold that view, that the arguments in the other direction are conclusive. The main reason that the right hon. Gentleman gave for discriminating in favour of overseas investment was the importance of overseas development, particularly in the Commonwealth, and the special risks inherent in that kind of development.

That is true, of course. No one here would write down the importance of the development of the Commonwealth, but surely it is important to develop the resources of this country as well. The position under the Amendment would be that we would give a special allowance to a company developing a mineral in Australia and would not give the same allowance to a similar company in this country.

It is true that there are many special risks in overseas development, even in the most settled parts of the Commonwealth, but there are also great risks in trying to break into the dollar market with a new line of export. We could not feel that we could give a special discrimination to specialist activities of a risk character overseas when we do not give the same discrimination to economic activities of equal risk and equal value to this country which take place elsewhere. If we did, we would be forced by the logic of the argument to do the same thing not only for those who produce overseas, but for those who sell overseas in competition with others. That would mean that we would have to give a special tax relief to exports, and that would be contrary to our efforts to try to get away from that. We deplore the practice in other countries and it would be wrong if we took those steps ourselves.

We feel that it would not be possible in practice to justify discrimination in this way in favour of overseas development in the Commonwealth. That is not to detract from the importance of that development but to point out that there are other things of equal importance and that it is not right to discriminate between them in taxation policy. The special mining allowance will be of particular assistance to overseas companies because so many of them are extractive industries. We hope to do something in that way to meet the problem which was raised in the interim report of the Royal Commission.

While we have seriously considered these matters in the past, we do not feel that it would be right or justifiable, attractive though it is, to accept this Amendment and the discrimination that it involves.

Sir Richard Acland (Gravesend)

I am disappointed with the Economic Secretary's speech and I am particularly unimpressed by what he said about the £60 million which we are arranging to make available through the International Bank for development, because arranging to make it available, if it should happen to be required, is very different from actually spending the money. When we discussed the Bill to increase the limits by which the Treasury might arrange to guarantee loans to the Commonwealth from the International Bank it was apparent that only £10 million had been loaned through that bank to all the overseas territories covered by this Amendment, and there was a maximum of only £15 million of such development even on the map. I do not suppose that all the money that we would be lending even if there were——

The Deputy-Chairman (Mr. Hopkin Morris)

The hon. Member is right in referring to this matter, but he should not go too far. It is remote from the Amendment.

Sir R. Acland

It was offered as a reason for resisting the Amendment.

How much we are doing already for overseas development is one thing; how much we are doing, or might be doing to lend money overseas to help development is a good deal less than what parts of our Commonwealth—and particularly those parts where the poorest people live —are doing to help us by the sterling balances which we hold on their account.

11.30 p.m.

I should have thought that the alarming growth of these sterling balances might be used to help development, whereby those other countries would benefit, and the balances run down to more manageable and less alarming proportions. It seems to me that this Amendment is, moreover, a modest contribution to our national independence; or, rather, to the independence of our nation taken in conjunction with overseas countries within the sterling area.

Whenever one reads, or listens to, any authority speaking on the long-term future of this country vis-a-vis the dollar countries, one finds that the writer or speaker always gets round to the point that it is of first-rate importance for us to develop the raw material resources of our overseas territories. It is that particular point which, I would submit, gives this Amendment urgency and importance and which, I had hoped, would have lifted it out from among that long list of Amendments which the Chancellor has rejected.

When the Economic Secretary said that he could see nothing in this Amendment which made it any different from those others, I thought he must have forgotten the urgent need for this country to develop alternative sources of materials and food; especially from non-dollar areas. I should have thought that very point would have given encouragement to him. The kind of enterprise which might be developed would not be of that peculiarly risky nature to which the Economic Secretary referred in the closing passages of his remarks.

Looking at the political aspects and at the economic implications in the widest terms, this country, in the decades ahead, will depend more and more on supplies from our territories overseas, and the major economic conclusion to which we are all forced is that these materials are bound to become more and more expensive. For the individual manufacturer looking at a particular project associated with one particular material, he may well see that the project would pay a fair price if the particular raw material "held up" for some five or six years. He might decide that there was a fair guarantee that it would not "nose-dive," as materials can, and have in the past, leaving him to face losses in the fifth, sixth, or seventh year of his operation; years when there would be particular assistance to an entrepreneur in the increase of the initial allowances which is here proposed.

For these reasons, I hope that the Government will have second thoughts on this Amendment, and change their mind.

Mr. H. Wilson

I share the disappointment of my hon. Friend the Member for Gravesend (Sir R. Acland) at the Economic Secretary's reply. He replied, of course, as he usually does, with great courtesy and charm, but he showed no signs of getting out of the rut in which he has found himself for most of this evening, and when he attempted to justify his position by a number of bogus, parallels between initial allowances and dollar exports I thought he got into very deep waters indeed. He mentioned, for instance, that it would be wrong to discriminate between a development which was being carried out at home and a similar development that was being carried out within the Commonwealth. He also mentioned minerals, but minerals are separately dealt with under a proposal of the Chancellor's, and I think it was quite inadmissible to use that argument there.

The hon. Gentleman then said that if it was important to encourage overseas investments it was also important to encourage dollar exports, and he said there was a special risk in dollar exports, in breaking into that market. Well, that is an argument with which all of us have been familiar in this Committee for four or five years, but I am bound to remind him—although I know he is aware of it—that those who undertake some of the special risks of entering the dollar market are helped and underwritten by the Export Credit Guarantees Department, whereas those who enter on the very risky task of Commonwealth development have no such help, and tonight the hon. Gentleman has a very great opportunity of providing them with at least a small amount of help. I am not suggesting helping exporters as such, as the hon. Gentleman suggested. My hon. Friends and I propose that there should be a special initial allowance to those who are investing equipment abroad within the Commonwealth.

If what the hon. Gentleman said is the Government's last word—I hope it is not —it casts reflection on the statements of a great many hon. Gentlemen opposite about their claim to be the party interested in Commonwealth development. I should not think there was one hon. Gentleman opposite who, in his last Election address, did not mention his claim to stand up for Empire and for private enterprise. A few of them a little more up to date probably referred to the Commonwealth instead of the Empire in this connection, but every one of them has stood before his constituents as the man who will, represent the interest of the Commonwealth and private enterprise.

Tonight we have a chance of seeing whether they can make those claims good, and I must recommend my hon. Friends—all of whom are genuinely keen on Commonwealth development, not just as something to make speeches about at

Election time but as something they are prepared to back up with their votes in the Division Lobby—to divide against the Government.

Question put, "That those words be there inserted."

The Committee divided: Ayes, 174; Noes, 202.

Division No. 190.]	AYES	[11.39 p.m.
Acland, Sir Richard	Hayman, F. H	Price, Joseph T. (Westhoughton)
Adams, Richard	Healey, Denis (Leeds, S.E.)	Proctor, W. T.
Albu, A. H.	Henderson, Rt. Hon. A. (Rowley Regis)	Pryde, D. J.
Allen, Arthur (Bosworth)	Herbison, Miss M.	Pursey, Cmdr. H.
Allen, Scholefield (Crewe)	Hobson, C. R.	Reeves, J.
Anderson, Alexander (Motherwell)	Hohnan, P.	Reid, Thomas (Swindon)
Awbery, S. S.	Holmes, Horace (Hemsworth)	Rhodes, H.
Bartley, P.	Hoy, J. H.	Roberts, Albert (Normanton)
Bellenger, Rt. Hon. F. J	Hudson, James (Ealing, N.)	Roberts, Goronwy (Caernarvon)
Bonce, C. R.	Hughes, Cledwyn (Anglesey)	Rogers, George (Kensington, N.)
Benn, Hon. Wedgwood	Hughes, Emrys (S. Ayrshire)	Ross, William
Beswick, F.	Hughes, Hector (Aberdeen, N.)	Royle, C.
Blackburn, F.	Hynd, H. (Accrington)	Shackleton, E. A. A.
Bottomley, Rt. Hon. A. G.	Irvine, A. J. (Edge Hill)	Shawcross, Rt. Hon. Sir Hartley
Bowles, F. G.	Jay, Rt. Hon. D. P. T.	Short, E. W.
Braddock, Mrs. Elizabeth	Jeger, George (Goole)	Sirverman, Julius (Erdington)
Brockway, A. F.	Johnson, James (Rugby)	Silverman, Sydney (Nelson)
Brown, Rt. Hon. George (Belper)	Jones, David (Hartlepool)	Simmons, C. J. (Brierley Hill)
Burton, Miss F. E.	Jones, Jack (Rotherham)	Skeffington, Arthur
Callaghan, L. J.	Jones, T. W. (Merioneth)	Slater, Mrs. (Stoke, N.)
Carmichael, J.	Keenan, W.	Slater, J. (Durham, Sedgefield)
Champion, A. J.	Kenyon, C.	Smith, Ellis (Stoke, S.)
Coldrick, W.	King, Dr. H. M.	Sorensen, R. W.
Collick, P. H.	Lever, Harold (Cheetham)	Soskice, Rt. Hon. Sir Frank
Corbet, Mrs. Freda	Lever, Leslie (Ardwick)	Steele, T.
Craddock, George (Bradford, S.)	Logan, D. G.	Stewart, Michael (Fulham, E.)
Crosland, C. A. R.	MacColl, J. E.	Stokes, Rt. Hon. R. R.
Crossman, R. H. S.	MoGhee, H. G.	Stross, Dr. Barnett
Cullen, Mrs. A.	Mclnnes, J.	Summerskill, Rt. Hon. E.
Dalton, Rt. Hon. H.	MacMillan, M. K. (Western Isles)	Swingler, S. T.
Davies, Harold (Leek)	MacPherson, Malcolm (Stirling)	Sylvester, G. O.
Davies, Stephen (Merthyr)	Mainwaring, W. H.	Taylor, Bernard (Mansfield)
Deer, G.	Mallalieu, E. L. (Brigg)	Thomas, David (Aberdare)
Donnelly, D. L.	Manuel, A. C.	Thomas, Ivor Owen (Wrekin)
Driberg, T. E. N.	Marquand, Rt. Hon. H. A.	Thornton, E.
Dugdale, Rt. Hon. John (W. Bromwich)	Mason, Roy	Timmons, J.
Edwards, Rt. Hon. John (Brighouse)	Mayhew, C. P.	Ungoed-Thomas, Sir Lynn
Evans, Albert (Islington, S.W.)	Mellish, R. J.	Wallace, H. W.
Evans, Stanley (Wednesbury)	Mikardo, Ian	Webb, Rt. Hon. M. (Bradford, C.)
Ferny hough, E.	Mitchison, G. R.	Weitzman, D.
Finch, H. J.	Monslow, W.	Wells, William (Walsall)
Fletcher, Eric (Islington, E.)	Morgan, Dr. H. B. W.	West, D. G.
Foot, M. M.	Morley, R.	Wheeldon, W. E.
Forman, J. C.	Morris, Percy (Swansea, W.)	White, Mrs. Eirene (E. Flint)
Fraser, Thomas (Hamilton)	Mort, D. L.	White, Henry (Derbyshire, N.E.)
Freeman, John (Watford)	Mulley, F. W.	Whiteley, Rt. Hon. W.
Gaitskell, Rt. Hon. H. T. N.	Nally, W.	Williams, Rev. Llyweryn (Abertillery)
Gibson, C. W.	Noel-Baker, Rt. Hon. P. J.	Williams, Ronald (Wigan)
Glanville, James	Oliver, G. H.	Williams, W. T. (Hammersmith, S.)
Gordon-Walker, Rt. Hon. P. C.	Orbach, M.	Wilson, Rt. Hon. Harold (Huyton)
Greenwood, Anthony (Rossendale)	Oswald, T.	Winterbottom, Ian (Nottingham, C.)
Grey, C. F.	Paling, Rt. Hon. W. (Dearne Valley)	Winterbottom, Richard (Brightside)
Griffiths, David (Rother Valley)	Paling, Will T. (Dewsbury)	Woodburn, Rt. Hon. A.
Griffiths, William (Exchange)	Palmer, A. M. F.	Wyatt, W. L.
Hall, Rt. Hon. Glenvil (Colne Valley)	Pargiter, G. A	Yates, V. F.
Hall, John T. (Gateshead, W.)	Parker, J.	Younger, Rt. Hon. K.
Hannan, W.	Pearson, A.
Hargreaves, A.	Peart, T. F.	TELLERS FOR THE AYES:
Hastings, S.	Popplewell, E.	Mr. Bowden and
		Mr. Kenneth Robinson.
>NOES
Aitken, W. T.	Ashton, H. (Chelmsford)	Barlow, Sir John
Allan, R. A. (Paddington, S.)	Assheton, Rt. Hon. R. (Blackburn, W.)	Baxter, A. B.
Alport, C. J. M.	Baldock, Lt.-Cmdr. J. M.	Beach, Maj. Hicks
Amery, Julian (Preston, N.)	Baldwin, A. E.	Bell, Philip (Bolton, E.)
Amory, Heathcoat (Tiverton)	Banks, Col. C.	Bennett, F. M. (Reading, N.)
Anstruther-Gray, Major W. J.	Barber, Anthony	Bennett, William (Woodside)
Birch, Nigel	Hill, Mrs. E. (Wythenshawe)	Ormsby-Gore, Hon. W. D.
Bishop, F. P.	Hirst, Geoffrey	Orr-Ewing, Sir Ian (Weston-super-Mare)
Black, C. W.	Holland-Martin, C. J.	Partridge, E.
Bossom, Sir A. C	Holmes, Sir Stanley (Harwich)	Peto, Brig, C. H. M.
Bowen, E. R.	Hope, Lord John	Peyton, J. W. W.
Boyd-Carpenter, J. A.	Hopkinson, Rt. Hon. Henry	Pickthorn, K. W. M.
Boyle, Sir Edward	Horobin, I. M.	Powell, J. Enoch
Braithwaite, Sir Albert (Harrow, W.)	Howard, Hon. Greville (St. Ives)	Price, Henry (Lewisham, W.)
Brooke, Henry (Hampstead)	Hudson, Sir Austin (Lewisham, N.)	Prior-Palmer, Brig, O. L.
Brooman-White, R. C.	Hudson, W. R. A. (Hull, N.)	Raikes, Sir Victor
Buchan-Hepburn, Rt. Hon. P. G. T	Hulbert, Wing Cdr. N. J	Rees-Davies, W. R.
Bullard, D. G.	Hurd, A. R.	Remnant, Hon. P.
Butcher, Sir Herbert	Hutchinson, Sir Geoffrey (Word, N.)	Renton, D. L. M.
Butler, Rt. Hon. R. A. (Saffron Walden)	Hutchison, Lt.-Com. Clark (E'b'rgh W.)	Roberts, Peter (Heeley)
Campbell, Sir David	Hylton-Foster, H. B. H.	Robinson, Roland (Blackpool, S.)
Carr, Robert	Jenkins, Robert (Dulwich)	Rodgers, John (Sevenoaks)
Cary, Sir Robert	Johnson, Eric (Blackley)	Roper, Sir Harold
Channon, H.	Kaberry, D.	Ropner, Col. Sir Leonard
Churchill, Rt. Hon. Sir Winston	Keeling, Sir Edward	Russell, R. S.
Clarke, Col. Ralph (East Grinstead)	Kerr, H. W.	Ryder, Capt. R. E. D.
Cole, Norman	Lancaster, Col. C. G.	Salter, Rt. Hon. Sir Arthur
Colegate, W. A.	Law, Rt. Hon. R. K.	Scott, R. Donald
Conant, Maj. R. J. E.	Leather E. H. C.	Shepherd, William
Craddock, Beresford (Spelthorne)	Legge-Bourke, Maj. E. A. H.	Simon, J. E. S. (Middlesbrough, W.)
Cranborne, Viscount	Legh, Hon. Peter (Petersfiled)	Smithers, Peter (Winchester)
Crookshank, Capt. Rt. Hon. H. F. C.	Linstead, Sir H. N.	Soames, Capt. C.
Crosthwaite-Eyre, Col. O. E.	Lloyd, Maj. Sir Guy (Renfrew, E.)	Spearman, A. C. M.
Crowder, Sir John (Finchley)	Lloyd, Rt. Hon. Selwyn (Wirral)	Stanley, Capt. Hon. Richard
Darling, Sir William (Edinburgh, S.)	Lockwood, Lt.-Col. J. C.	Stevens, G. P.
Deedes, W. F.	Longden, Gilbert	Steward, W. A. (Woolwich, W.)
Digby, S. Wingfield	LOW, A. R. W.	Stoddart-Scott, Col. M.
Dodds-Parker, A. D.	Lucas, P. B. (Brermtford)	Storey, S.
Donaldson, Cmdr. C. E. McA.	Lucas-Tooth, Sir Hugh	Strauss, Henry (Norwich, S.)
Donner, Sir P. W.	McCallum, Major D.	Stuart, R. Hon. James (Moray)
Doughty, C. J. A.	Macdonald, Sir Peter	Summers, G. S.
Drayson, G. B.	Mackie, J. H. (Galloway)	Taylor, Charles (Eastbourne)
Duncan, Capt. J. A. L.	Maclean, Fitzroy	Thomas, Rt. Hon. J. P. L. (Hereford)
Elliot, Rt. Hon. W. E.
Finaly, Graeme	Macleod, Rt. Hon. Iain (Enfield, W.)	Thomas, P. J. M. (Conway)
Fisher, Nigel	Macleod, John (Ross and Cromarty)	Thompson, Kenneth (Walton)
Fleetwood-Hesketh, R. F.	Macmillian, Rt. Hon. Harold (Bromley)	Thompson, Lt.-Cdr. R. (Croydon, W.)
Fletcher-Cooke, C.	Macpherson, Niall (Dumfries)	Thorneycroft, Rt. Hn. Peter (Monmouth)
Fort, R.	Maitland, Patrick (Lanark)	Thornton Kemsley, Col. C. N.
Foster, John	Manningham-Buller, Sir R. E.	Tilney, John
Fyfe, Rt. Hon. Sir David Maxwell	Marples, A. E.	Turner, H. F. L.
Galbraith, Rt. Hon. T. D. (Pollok)	Marshall, Douglas (Bodmin)	Turton, R. H.
Galbraith, T. G. D. (Hillhead)	Marshall, Sir Sidney (Sutton)	Tweedsmuir, Lady
Garner-Evans, E. H.	Maude, Angus	Vaughan-Morgan, J. K.
George, Rt. Hon. Maj. G. Lloyd	Maudling, R.	Vosper, D. F.
Gomme-Duncan, Col. A.	Maydon, Lt.-Comdr. S. L. C	Wakefield, Sir Wavell (St. Marylebone)
Graham, Sir Fergus	Mellor, Sir John	Walker-Smith, D. C.
Gridley, Sir Arnold	Molson, A. H. E.	Ward, Hon. George (Worcester)
Grimston, Hon. John (St. Albans)	Moore, Lt.-Col. Sir Thomas	Ward, Miss I. (Tynemough)
Grimston, Sir Robert (Westbury)	Morrison, John (Salisbury)	Waterhouse, Capt. Rt. Hon. C.
Harden, J. R. E.	Nabarro, G. D. N.	Wellwood, W.
Hare, Hon. J. H.	Nicholls, Harmar	Williams, Sir Herbert (Croydon, E.)
Harris, Frederic (Croydon, N.)	Nicolson, Nigel (Bournemouth, E.)	Williams, Paul (sunderland, S.)
Harris, Reader (Heston)	Nield, Basil (Chester)	Williams, R. Dudley (Exeter)
Harrison, Col. J. H. (Eye)	Nugent, G. R. H.	Wills, G.
Heald, Sir Lionel	Nutting, Anthony	Wilson, Geoffrey (Truro)
Heath, Edward	Oakshott, H. D.
Higgs, J. M. C.	Odey, G. W.	TELLERS FOR THE NOES:
Hill, Dr. Charles (Luton)	O' Neill, Phelim (Co. Antrim, N.)	Mr. Studholme and Mr. Redmayne.

Question put, and agreed to.

11.45 p.m.

Mr. Stevens

I beg to move, in page 10, line 34, at the end, to insert: but after the fifth day of April nineteen hundred and fifty-two. The initial allowances were abolished by the Finance Act of 1951, and the appropriate provisions were incorporated in Section 279 (5) of the Income Tax Act, 1952; but there was special provision made in that Section with regard to ships by reason, presumably, of the long time which it takes to construct a ship. The proviso of Section 279 (5) covered ships which, on 10th April, 1951, were under construction, or contracts entered into not later than that date. That meant that although the initial allowances were abolished, so far as ships were concerned the time during which initial allowances were, so to speak, alive, continued beyond that of initial allowances on ordinary plant and machinery.

By reason of the wording of Clause 14 —I think there may have been an error in drafting—it would appear that the special provision covering the cost of ships between 10th April, 1951, and 5th April, 1952, will be abolished, along with initial allowances for plant and machinery The words which I am suggesting should be added to line 34 will makes good the allowances in respect of ships already provided for by the Income Tax Act, 1952. I do so on the ground that the Bill seeks to take away something provided by the Finance Act, 1951, and confirmed by the Income Tax Act, 1952.

Mr. Boyd-Carpenter

Our intentions in this matter are exactly the same, and I made the intentions of the Government clear on Second Reading, but it seems that there is a possibility of doubt whether those intention have been completely carried out by the Bill and that the matter is far from clear. I think the best method of making it clear beyond any doubt is to recommend to the Committee that the Amendment be accepted.

Amendment agreed to.

Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."

Mr. Jay

Although it is late we ought not to part with the Clause without looking for a moment at the question of initial allowances for business motor cars. I had an Amendment on the point on the Order Paper, but it was not called. All I want to ask the Government to do now, particularly as the Financial Secretary has melted into such an accommodating mood, is to undertake that they will seriously look at the point before the Report stage, when we will put an Amendment down. I hope they will agree that this is not a party point but is an important issue if the initial allowances are to work satisfactorily.

When we discussed the allowance and argued it as a necessary concession to industry, I think we all had in mind plant, equipment, machinery, tools, automatic looms, mechanised foundries—the sort of things we read about in productivity reports. It comes, I suspect, as a surprise to some people when they realise that these allowances have been paid on all business motor cars bought by firms for allegedly, and sometimes genuinely, business purposes, but, as we know, partly for private purposes as well. I do not think that that was ever the inten- tion of Parliament, but that is how it has worked.

It has been estimated that quite a large proportion of the new cars sold on the home market have been bought, or nominally and legally bought, by firms rather than private persons. When I was at the Treasury an accountant I know in the City told me that he was frequently telephoned by people in the business world asking, "Is it really true that we can get a new motor car and write 65 per cent. off the Income Tax in the first year?" The allowance was then 40 per cent., and with the additional allowance for the first year, as the hon. Member for Kidderminster (Mr. Nabarro) said, it came to something like 60 or 65 per cent.

If we had reintroduced the initial allowances it would have been my wish to exempt motor cars. It cannot be administratively impossible; a motor car can be defined and has been defined in many statutes. I hope that the Government will at least agree to look at the matter in that spirit between now and the Report stage.

Mr. Stevens

I wish to raise a matter which is small but of considerable importance, and that is the references to the date, 15th April, in lines 2 and 27, on page 10. One very often wishes that the fiscal year did not end, as it does for some historical reason which is concealed from me, on 5th April. That rather curious date sometimes gives rise to serious and complicated calculations which often entail a substantial waste of time. But at least let us be consistent. Let us stick to 31st December as the end of the calendar year and to 5th April as the end of the fiscal year and not introduce another date, 15th April.

It happened that in 1953 the Budget was introduced by my right hon. Friend on 14th April, but if our Income Tax. legislation, so far as effective dates are concerned, is to be governed by the date on which the Budget is introduced, we shall be overwhelmed by a complicated plethora of entirely fortuitous dates. If my right hon. Friend can make the date 6th April instead of 15th April, it will, I am sure, make only a trifling difference to his revenue calculations for ensuing years. For the sake of simplification and precedent I ask him to look at the date again and make it 6th April.

Mr. Crosland

This is an extremely important Clause, and despite the physical discomfort which continuing the debate means to those of us who attended the Review last night, there are one or two matters that I want to raise.

It has been an extremely interesting and important debate marred only by the fewness of the concessions made by the Chancellor. It should be said again from this side of the Committee how much we regret that he was not able to accept our Amendment on fuel-saving equipment. I hope that what he stated will be effective. If it is, no one will be more pleased than my hon. Friends and I, but I am certain that some measure on the lines that we proposed will eventually become necessary, and even if we get the concession next year I shall be sorry that a year will have been wasted.

The most interesting thing about the debate has been that it has been a revelation to a great number of hon. Members —we are bound to be discussing initial allowances for years to come—what quantitatively important facts in finance they are. They have always been rather dismissed as interest-free loans. I believe that, before this debate and before the figures which the Chancellor was courteous enough to give, a great number of people under-estimated how important they were because of the constant use of the phrase "an interest-free loan."

I wish to quote something from a speech by the hon. Member for Kidderminster (Mr. Nabarro)—who, we hoped, would have had more success tonight with his admirable two or three-year campaign on fuel efficiency—not because it was in any sense an unusual statement but precisely because it represents what most people have hitherto thought about initial allowances. It just happens that I read his speech today. Two years ago he said that an initial allowance was only an interest-free loan from the Treasury and that over a decade it would not cost the Treasury one iota because all it meant was that the Treasury granted 40 per cent. in the first year and less in later years.

Today, this turns out not to be a correct statement of the position. We now find —it came as a surprise to a number of hon. Members—that a 20 per cent. allowance over a period of 10 years would cost the Treasury the large sum of over £400 million and a 40 per cent. initial allowance would cost over £800 million. As long as the initial allowance continues—that is, as long as it is not abolished or reduced—there is a continuing net cost to the Treasury, and that cost represents a definite lightening in the burden of tax falling on industry. To the extent of that net cost to the Treasury, industry is paying less in taxation than it would otherwise be paying.

We now see more clearly than we did before we were given this interesting calculation that initial allowances must be taken very seriously as an alternative method of lightening the alleged burden on industry whenever that burden is becoming an important factor.

12 midnight.

I should like to support what my right hon. Friend said about the initial allowance on motor cars. One of the most tiresome features of the system, as it existed before, was the granting of these allowances on professional and business men's motor cars, which could not possibly be considered an important contribution to the country's capital re-equipment.

Two years ago, on this very point, we actually had the support of the present Minister of Works. He never attends our financial debates now. I hope that his absence means he is having no influence on Government financial policy. That will be some compensation. From some of his answers this afternoon, it seems that he is so busy preventing historic houses from falling down that he has no time for national finance. But two years ago, the present Minister of Housing and Local Government said, very strongly, that there was no strong argument for granting this allowance in the case of business motor cars, and I hope that the Financial Secretary will indicate that the Government is prepared to consider this.

We must regret, from this side of the Committee, that the Chancellor, although very courteously, did not accept our suggestion that all plant and equipment allowances should be made 40 per cent. The whole capital investment situation in Britain, looming ahead, is a very serious one. The whole trend of labour is clearly in the wrong direction. It is moving out of the industries one wants it to move into, and moving into the industries one wants it to move out of. I should have thought there was an overwhelming case for restoring this allowance to 40 per cent. I hope that the Government, between this year and next year's Finance Bill, will consider seriously whether they can do it next year.

Mr. Boyd-Carpenter

I think that the hon Member for Gloucestershire, South (Mr. Crosland) will agree that his observations largely dealt with matters which had been discussed before and were designed, perhaps, more to regret that the decisions had not been such that he could thoroughly approve of them. In these circumstances, where we have failed to convince him at an earlier stage, a last minute conversion will, I suspect, not be possible. I shall probably be meeting his own intentions if I treated his observations as having been more in the nature of a final protest than as a desire to carry on the debate on the Clause we have been discussing during the whole of the Parliamentary day.

The right hon. Member for Battersea, North (Mr. Jay), raised the question of motor cars, on which he had put down an Amendment. I do not want to introduce 'again at this stage the old argument about discrimination. Yet it is a question of discrimination, although discrimination the other way round, which the right hon. Gentleman is proposing now. The arguments throughout the latter part of this debate have been directed to the proposition that discrimination should be exercised in favour of certain articles. He has suggested discrimination against motor cars. To some extent, the general arguments which the Economic Secretary deployed with his habitual skill on more than one occasion, regarding discrimination, apply to this.

The motor car is undoubtedly an essential part of the equipment of certain people whose means of carrying on their trade or earning their livelihood depends upon their mobility. It was for that reason that in the days when motor cars were very scarce systems of priorities were devised, to make sure these people obtained them. It is a piece of discrimination in reverse to suggest that motor cars should be excluded altogether from the operation of the initial allowance system.

It would certainly be a matter of very great difficulty to seek to discriminate inside the motor car class between those motor cars which were absolutely essential to particular people, and those less essential. Therefore, it is a little difficult to go very far with the right hon. Gentleman, but if he has any particular and specific point which he would like to draw to our attention as to the operation of the allowance in this connection my right hon. Friend would be happy to consider it.

The hon. Member for Langstone (Mr. Stevens) also raised a question which he had intended to raise on an Amendment. It related to the operating date, and he stressed the inconvenience, particularly to members of the profession of which he is such an ornament, of 15 th April as opposed to 6th April. I have the pro-foundest respect for the skill of the accountancy profession, and I doubt whether this day will constitute a very serious difficulty for them.

On the other hand, to concede the point he raised would not be without a certain element of cost. We are dealing with an allowance which in its full operation amounts to only £80 million a year, and an advancement of the date is not inconsiderable in its financial consequences. It would, moreover, be inconsistent with the whole principle, and its design of encouraging investment, to apply it to investment taking place before the announcement of the Budget speech. The hon. Gentleman referred to the fact that on a previous occasion 6th April had been the material day. I think that was in 1949, when the late Sir Stafford Cripps doubled the allowance, but that happened to be Budget day, and that was the explanation of the choice of date.

Mr. Stevens

Is the Financial Secretary suggesting that 6th April was first used in connection with fiscal matters in 1949? My impression is that it goes back to Richard I.

Mr. Boyd-Carpenter

Oh, no, it goes much beyond that. I do not think he has put his argument as high as he might. But I was referring to the time the initial allowances were last made, which happened to be Budget day. It would be contrary to the principle of encouraging investment, since it is difficult to encourage investment retrospectively. Although my right hon. Friend appreciates the point that it might be more difficult from the accountancy point of view I have sufficient faith in the ability of the hon. Gentleman's profession to surmount this difficulty which is put in their way.

We have had a full discussion of the important matters embodied in the Clause, and I hope that hon. Gentlemen may feel that it has been adequately and properly discussed and that we may, in the words of the right hon. Gentleman the Member for Battersea, North (Mr. Jay), now "part with the Clause."

Clause, as amended, ordered to stand part of the Bill.

To report Progress, and ask leave to sit again.—[Mr. R. A. Butler.]

Committee report Progress; to sit again this day.